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3 Real Estate Stocks on Sale After a Downturn

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A perfect storm of rising interest rates, inflation, remote working and an oversupply of commercial properties is rattling the U.S. real estate market like never before.

A sobering reflection of the excess office space in the U.S. is the fact that about 18% of U.S. office space remained unoccupied, as of October. This percentage is predicted to increase as more leases come to an end and a growing number of companies reduce their real estate footprint.

The trend could have significant implications for companies that offer a wide range of real estate services to owners, occupiers, and investors globally. A potential decline in their stock prices could present an appealing opportunity for those seeking to increase their exposure to the real estate sector.

Jones Lang LaSalle JLL provides a plethora of real estate-related services. Its rich array of offerings includes property management, project development, advisory, maintainability, digital real estate management solutions, and consulting.

“Jones Lang LaSalle has benefited from the secular trends in the real estate services industry and has experienced explosive growth over the past decade as it recovered from the global financial crisis in 2007,” says a Morningstar equity report.

The company has evolved into a more robust generator of cash flow throughout the business cycle by expanding its range of services and capturing a larger portion of real estate spending.

JLL’s continued healthy growth is predicated on the company continuing to take share from its smaller rivals and from rising capital flows into real estate and growth in urbanization.

Further, the firm has been investing in modern technologies that give the company a unique insight into potentially disruptive solutions and emerging trends.

“We are confident that JLL will be able to outearn its cost of capital over the next 10 years particularly because its product mix has become more contractual and less cyclical as compared with the previous downturn,” says Morningstar equity analyst, Suryansh Sharma.

Given its significant business growth lately, “JLL is poised to better withstand future downturns,” says Sharma, who recently lowered the stock’s fair value to US$203 from US$205, prompted by the fact that “rapidly increasing interest rates and a slowing economy have weighed on the company’s recent results.”

Kilroy KRC is a premier owner and landlord that develops, acquires, and manages office, life science, and mixed-use real estate properties in Los Angeles, San Diego, San Francisco Bay Area, Seattle, and Austin. The company operates as a real estate investment trust.

“The company’s strategy is to achieve long-term maintainable growth by developing and owning the highest quality real estate in technology and life science market clusters,” says a Morningstar equity report.

The company has faced some choppy waters in some of its key markets in recent times due to economic uncertainty resulting from pandemic recovery and the remote work dynamic.

Employees are still hesitant at returning to the office as office utilization remains around 50% of the pre-pandemic level, the report states. The current vacancy rates in both LA (22.4% in Q4 2022) and San Fransisco (24.1%) are substantially higher than the vacancy rates during the height of the global financial crisis.

However, “we are seeing an increasing number of companies requiring their employees to return to the office,” observes Sharma, noting that while remote work and hybrid remote work solutions will gain increasing acceptance over time, “offices will continue to be the centerpiece of workplace strategy and will play an essential role in facilitating collaboration, harnessing innovation, and maintaining the company culture.”

Kilroy lacks an economic moat, though, due to “the uncertainty in demand associated with the remote work dynamic, and the ease with which competitors can lure tenants away with concessions,” says Sharma, who pegs the stock’s fair value at US$63.

Realty Income O owns roughly 13,100 freestanding, single-tenant, triple-net-leased retail properties across 49 states and Puerto Rico. Recent acquisitions have added industrial, gaming, office, manufacturing, and distribution properties (roughly 17% of revenue).

Realty Income describes itself as ‘The Monthly Dividend Company,’ and its line of business and operating metrics make “its dividend one of the most stable sources of income for investors,” says a Morningstar equity report.

The steady, stable stream of revenue has allowed Realty Income the rare distinction of being one of only two REITs to feature in the S&P High-Yield Dividend Aristocrats Index.

Its lease agreements are often long term (frequently 15 years), which affords the company a steady stream of rental income. “This makes Realty Income one of the most dependable investments for income-oriented investors,” says Morningstar equity analyst, Kevin Brown.

That being said, stability often comes at the cost of economic profit. Since the lease terms include very low annual rent increases (around 1%), it severely limits internal growth for the company. Therefore, to grow, Realty Income must rely on acquisitions.

“The company has executed nearly US$35 billion in acquisitions over the past decade at average cap rates around 6%,” points out Brown, who puts the stock’s fair value at US$76, but cautions that “the recent rise in interest rates has started to squeeze the company’s spread and its ability to create value.”

 

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Greater Toronto home sales jump in October after Bank of Canada rate cuts: board

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TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.

The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.

The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.

“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.

“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”

The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.

New listings last month totalled 15,328, up 4.3 per cent from a year earlier.

In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.

The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.

“I thought they’d be up for sure, but not necessarily that much,” said Forbes.

“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”

He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.

“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.

“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”

All property types saw more sales in October compared with a year ago throughout the GTA.

Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.

“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.

“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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Homelessness: Tiny home village to open next week in Halifax suburb

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HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.

Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.

Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.

The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.

Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.

They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.

The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.

This report by The Canadian Press was first published Oct. 24, 2024.

The Canadian Press. All rights reserved.

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Here are some facts about British Columbia’s housing market

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Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.

Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.

Average residential home price in B.C.: $938,500

Average price in greater Vancouver (2024 year to date): $1,304,438

Average price in greater Victoria (2024 year to date): $979,103

Average price in the Okanagan (2024 year to date): $748,015

Average two-bedroom purpose-built rental in Vancouver: $2,181

Average two-bedroom purpose-built rental in Victoria: $1,839

Average two-bedroom purpose-built rental in Canada: $1,359

Rental vacancy rate in Vancouver: 0.9 per cent

How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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