Barlow’s Research Roundup: Top picks among smaller cap, up and coming REITs

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow

REITS

Scotiabank analyst Himanshu Gupta surveyed the REIT sector for smaller, up and coming companies,

“We constructed a Small Cap REIT basket (market cap $500-million–$750-million) comprising APR, GO, HOM, MHC, NXR, PRV, SGR, and VITL. Although VITL sits modestly above the market cap range, it is relevant for comparative purposes. From this universe, we applied a series of screening parameters to selectively identify the most compelling names. Our screening framework is organized into three key dimensions i.e. (1) Qualitative - moat, management, Board independence, total addressable market, portfolio quality etc., (2) Comparative - implied cap vs major transactions in private markets, P/AFFO multiple spread over larger public peers, and distribution yield spread over GICs (very relevant for small cap names as investors see them as income play), and (3) Performance - track record, growth prospects and balance sheet. MHC (Flagship), VITL (Vital Infrastructure) and PRV (PRO REIT) ranked consistently higher in our multi-parameter screening framework. GO ranked higher in qualitative and comparative parameters, but did not make the top 3 due to higher leverage and lack of financial track record (new kid on the block)”

Trade

BofA Securities economist Carlos Capistran is not optimistic about a new USMCS deal as a July 1 deadline approaches,

“In our most recent travels through Canada, concerns around USMCA are unsurprisingly top of mind in every meeting ... If the three parties do not confirm an extension on July 1, USMCA does not terminate immediately. Instead, it stays in force but moves onto the annual review track and would otherwise expire in 2036 unless the three countries later agree in writing to extend it. In practice, this would shift the process from an ‘extend now’ path to a ‘keep the agreement in place, negotiate through annual (or more frequent) reviews, and extend later if agreement is reached’ path … We have formally changed our baseline to this ‘no extension’ scenario … The U.S. posture continues to look demanding. USTR said the first round with Mexico will focus on economic security and rules of origin. Jamieson Greer, U.S. trade representative, has said the U.S. intends to keep tariffs in place, push for more U.S. content in regional production, and encourage higher tariffs on non-USMCA imports. This suggests the review is being used not simply to preserve existing market access, but to tighten regional content rules and advance a broader North American economic-security agenda”

Foreigners

BMO Canadian rates and macro strategist Benjamin Reitzes highlighted strong foreign interest in Canadian assets,

“Foreign investors were big net buyers of Canadian securities in April to the tune of $46.9-billion. That’s among the larger inflows over the past few years. Buying was focused in federal and provincial government debt, as well as corporate bonds. Equities saw a decent inflow too, while money markets had an outflow. The net inflow to federal government bonds was a record $27.7-billion in the month, while provies were just short of a record at $10.6-billion. Notably, April’s net inflow to C$-denominated bonds was a record $36.2-billion! And that’s before the recent huge issues from Google and Amazon”

Bluesky post of the day

Diversion

“Scientists Find Intriguing Link Between Ozempic and Violent Behavior” - Gizmodo