Barlow’s Research Roundup: Scotiabank analyst sees upside ahead for Apartment REITs

Apartment REIT asking rents fell 1.1% m/m in March, slightly better than February’s -1.3% but below the 3-month average of -0.8%; national 1- and 2-bedroom rents declined 1.6% and 1.0%, respectively. Scotiabank sees a rebound in apartment demand vs. supply in 2H27+, but expects a true rent recovery may not arrive until Fall 2026 or Spring 2027, leaving KMP as the only sector outperform. Separately, BMO argued capital markets activity could support Canadian bank earnings, modeling Big 5 capital markets earnings of $13.7B in FY26 (+6% y/y) and $13.3B in FY27 (-3% y/y).

Analysis

The cleanest read-through is that this is not a housing trade yet; it is a timing trade. Apartment REITs are still being priced off near-term rent pressure, but the more important second-order effect is that weak private-market rent prints keep bid/ask expectations soft, which delays cap-rate compression and suppresses takeout optionality. That means the sector can stay range-bound longer than fundamentals would justify, and the market will likely continue rewarding the lowest-duration balance sheets and markets with the least supply overhang.

Within financials, the bank setup is better than the headline “higher for longer” narrative suggests. A stronger capital-markets tape is not just a fee-income tailwind; it also improves sentiment around capital deployment, secondary issuance, and M&A, which can lift valuation multiples even if credit growth is mediocre. The names with the most leverage to this are the banks with the cleanest trading franchises and least reliance on spread expansion, because that mix gives you upside without needing a macro rebound.

The broader risk is that bullish positioning is becoming increasingly self-referential: if yields fall because growth rolls over, the market can quickly flip from “liquidity good” to “earnings bad,” especially for cyclicals and rate-sensitive financials. That makes the next few months more about macro confirmation than fundamental inflection. The contrarian point is that some of the sentiment on banks may already be justified, while apartment REITs may still be too early for a sustainable rerating because the catalyst is not supply-side improvement, but actual rent re-acceleration.

Key Decisions for Investors

• Stay underweight broad apartment REITs for the next 3-6 months; only own the highest-quality names with pricing power and tighter supply exposure. Prefer a barbell into late 2026 rather than chasing current yields.
• Relative-value long TD / short a basket of rate-sensitive Canadian REITs over the next 1-2 quarters: if capital-markets momentum persists, TD benefits from multiple support while REITs remain capped by weak rent prints.
• Add RY and BMO on pullbacks as a 3-6 month quality-financials pair: both should participate if fee income stays strong, but the trade is best sized modestly because upside is more multiple-driven than earnings-driven.
• Use call spreads on BMO or RY for a 3-6 month window rather than outright equity; the convexity is better if markets revenue surprises, and downside is defined if the tape rolls over.
• Avoid shorting CRM purely on the price break unless you have a catalyst; the name looks technically weak, but absent an earnings reset or guidance cut, a reflexive squeeze is possible. Better to wait for confirmation before initiating size.