Andrew Moffs, Senior Vice President & Portfolio Manager, Vision Capital
Focus: Real Estate Stocks
Top picks: Dream Industrial REIT, Sienna Senior Living, GO Residential REIT
MARKET OUTLOOK:
Opposing economic readings within their dual mandate have forced the U.S. Federal Reserve into a cautionary stance, as above-trend inflation contends against a weakening labour market.
Notwithstanding, the Federal Open Market Committee (FOMC) delivered its first quarter-point rate cut of 2025, and projects a further half-point reduction by year-end, as downside risks to employment prompt a shift toward a more accommodative policy rate.
A commensurate reduction in the U.S. 10-year Treasury Bond Yield may not materialize, as the term premium oscillates between the risks of a growing U.S. fiscal debt load and weaker economic growth projections.
Though critical to underwriting publicly traded real estate securities (as the 10-year bond is viewed as a proxy for mortgage financing), materially lower financing costs are not necessary to underpin the ongoing recovery in commercial real estate.
A research report from BMO Capital Markets Investment Strategy Group highlights stability in bond yields ( 50 bps to +50 bps on a rolling one year basis), while trading within a range of four to five per cent, has produced the strongest relative outperformance for the U.S.
Real Estate Investment Trusts (REITs) relative to broad equities. Constructive real estate fundamentals continue to support the backdrop for listed REITs today, including:
Falling New Supply: Higher base rates and inflation resulting in decelerating new construction growth across nearly all property types, increasing both replacement costs and the value of stabilized assets. As a result, the NCREIF ODCE index (aggregation of U.S. core property funds) has generated positive performance in four straight quarters from its trough in Q2 2024.
Access To Capital: Loosening lending standards from banks, combined with listed REITs’ low leverage profile and access to cost-advantaged unsecured debt is improving refinancing activity.
Resilient Cash Flows: Nearly 36 per cent of listed U.S. REITs and 20 per cent of listed Canadian REITs have increased their dividends/distributions year-to-date.
Mergers and acquisitions (M&A): The majority of listed REITs continue to trade at a discount to their net asset values today. The private real estate market dwarfs the listed REIT market, and has a proven track record of acquiring listed REITs to close the gap to NAV, surfacing value for its unitholders.
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TOP PICKS:
Dream Industrial REIT (DIR.UN TSX)
A pure-play industrial REIT focused on small-to-mid-bay urban distribution and logistics assets, with a portfolio spanning Canada (63 per cent of investment property value) and Europe (37 per cent). By focusing on small-to-mid-bay assets, the REIT is well-positioned in a segment facing limited new supply, as only 15 per cent of Canada’s under-construction industrial pipeline consists of warehouses between 20,000 and 100,000 square feet, according to CBRE.
While market rent growth has slowed and, in some regions, turned negative, Dream Industrial reports significant mark-to-market spreads, with 17.2 per cent potential rent upside across its portfolio (22.9 per cent in Canada and 4.6 per cent in Europe, respectively).
Additionally, the REIT complements its wholly owned stabilized portfolio with a development and redevelopment pipeline, as well as joint ventures that generate additional fee income. Through the Dream Summit JV, DIR has completed approximately $460 million in acquisitions during the first half of 2025.
Since launching its development program in 2021, Dream Industrial has delivered over one million square feet of fully leased, high-quality industrial space, generating a 7.1 per cent yield on cost.
As of Q2 2025, the REIT has well-advanced its development pipeline totaling 1.1 million square feet, 62 per cent of which is pre-leased, with targeted yields on cost ranging from six per cent to 7 per cent.
Looking ahead, the REIT maintains a medium-term feasibility pipeline of 80 solar projects, representing a potential investment of $100 million and targeting an eight per cent yield on cost. Vision considers Dream Industrial an attractive investment due to its visible, lower-risk earnings growth, and a well-diversified portfolio, while trading at significant discount to Vision’s NAV estimate.
Sienna Senior Living (SIA TSX)
A leading owner of over 7,000 long-term care homes (LTC) and nearly 5,000 retirement homes, located primarily in Ontario, with properties in Saskatchewan, British Columbia, and Alberta.
According to Cushman & Wakefield, supply and demand fundamentals in Canadian seniors housing continue to be strong. Population growth in the 80+ age cohort is expected to average over 4 per cent annually for the next 10 years and new supply as a percent of inventory is currently less than 1 per cent.
Sienna is seeing these strong fundamentals drive performance in its retirement homes with occupancy of 92.1 per cent in Q2 2025. Management’s expectation is that occupancy will reach 95 per cent by the first quarter of 2026. Same-property NOI grew 8.2 per cent year-over year in Q2 driven by this strong occupancy growth combined with over 250bps of margin expansion year-over-year.
The long-term care segment of Sienna’s business is also strong with two LTC developments currently under construction and expected to open before year-end. These developments will grow earnings by five to six per cent and reduce the average age of the portfolio reducing ongoing maintenance capex costs.
The Ontario government also raised the maximum funding subsidy this year for GTA-based long-term care redevelopments from $370,000 per bed to $640,000 per bed which should provide Sienna with the ability to profitably redevelop multiple GTA-based long-term care homes.
Earlier in 2025, Sienna acquired Cawthra Gardens, a well-located Class A LTC property in Mississauga, at a 6.75 per cent year-one cap rate. This highly sought-after property is located near two other Sienna assets, creating potential for management cost synergies and incremental earnings accretion. Sienna remains well-positioned for long-term earnings growth supported by strong demographic trends and limited new supply in the sector. The Company has efficient access to capital through its ATM equity issuance program and is actively pursuing accretive acquisition and development opportunities. Stable cash flows, combined with visible earnings growth potential, support the long-term upside in Sienna’s shares.
GO Residential REIT (GO.U TSX)
An owner, operator, and acquirer of luxury high-rise multi-family properties, with a unique focus in New York City. Launched through its IPO in July 2025, the REIT’s initial portfolio consists of over 2,000 suites in the Manhattan submarkets of Lenox Hill and Murray Hill, where demand has been strong and supply has been limited.
According to CoStar, Q2 2025 Class A vacancy rates in these submarkets stood at 0.7 per cent and 1.7 per cent, respectively, well below 4.9 per cent in New York City and 10.4 per cent for the U.S. overall.
Due to these factors, Vision believes GO has significant net operating income (“NOI”) growth potential. In the near term, the REIT will benefit from its mark-to-market opportunity, with average in-place monthly rents estimated to be 10 per cent below market rents.
As such, GO will be able to meaningfully increase revenue by increasing rents to market rates on lease renewals or unit turnovers. Additionally, over the medium term, management anticipates driving additional revenue growth through value-add capital investment through suite repositioning and reconfiguration initiatives, which Vision anticipates could generate returns of more than 20 per cent on investment.
Despite the prospect for strong NOI growth, the REIT’s units trade at a significant discount to NAV, with an implied cap rate of 6.2 per cent, approximately 100 basis points above recent private market transactions. Given the signification valuation disconnect relative to its intrinsic value and growth potential, Vision views GO’s units as an attractive investment.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| DIR.UN TSX | N | N | Y |
| SIA TSX | N | N | Y |
| GO.U TSX | N | N | Y |
PAST PICKS: OCTOBER 31, 2024First Capital Realty (FCR.UN TSX)
Then: $17.78
Now: $19.52
Return: 10%
Total Return: 14%
Chartwell Retirement Residences (CSH.UN TSX)
Then: $15.65
Now: $20.40
Return: 30%
Total Return: 34%
Empire State Realty Trust (ESRT NYSE)
Then: US$10.60
Now: US$7.63
Return: -28%
Total Return: -27%
Total Return Average: 7%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| FCR.UN TSX | N | N | Y |
| CSH.UN TSX | N | N | Y |
| ESRT NYSE | N | N | N |
