RBC’s REIT analyst provides top picks ahead of earnings season

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

RBC Capital Markets analyst Pammi Bir previews earnings in the REITR sector and provides top picks,

“Q1 reporting kicks off this week, with CHP out first on Apr-23 after close. Our forecasts reflect decent earnings growth of approximately 3 per cent year-over-year, with seniors housing leading the group. However, with U.S. trade war concerns still weighing heavily on investor minds, we expect an acute focus on the outlook for organic growth. Frankly, a clearer picture on earnings trajectories may not necessarily surface in the coming weeks. Still, we believe earnings revision risks skew to the downside, with the potential for more pronounced impacts in industrial vs. other more insulated subsectors (i.e., seniors housing, multi-family, and defensive retail). All said, we believe the sector is well-equipped to navigate reduced visibility, supported by healthy fundamentals in most property types, ample liquidity, and valuations that look increasingly appealing, particularly among our top picks”

The top picks are Boardwalk REIT, BSR REIT, Dream Residential REIT, Flagship Communities REIT, Interrent REIT, Killam Apartment REIT, Minto Apartment REIT, Morguard Residential REIT, Chartwell Retirement Services, Dream Industrial REIT, Granite REIT, First Capital REIT, Primaris REIT, RioCan REIT, Smartcentres REIT, H&R REIT and Storagevault Canada Inc.

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BMO chief investment strategist Brian Belski recommends high quality and dividend growth strategies,

“Dividend and Quality are two of the most consistent strategies in the TSX, often outpacing the broader market for extended periods of time. Indeed, their long-term return profiles are remarkably similar, with both strategies posting some of their best relative returns when markets are soft, and/or volatility is elevated. Additionally, these strategies can even keep pace with the market during periods of prolonged strength, making these ideal tools for diffusing profound market swings. While these strategies have similar return profiles, we believe they can be complementary to each other, particularly during the current period of heightened angst, to say the least. For instance, ‘Quality’ can reduce portfolio volatility and add greater downside protection, while Dividend Growth can add a more cyclical and growth-oriented component. Overall, we believe investors looking to continue to diffuse market uncertainty can benefit from adding higher quality and dividend growth names to their portfolios”

Prominent stocks that made it through his dividend growth strategy screen include Alimentation Couxhe Tard, ARC Resources Ltd., Badger Infrastructure Solutions Ltd, Barrick Gold Corporation, Baytex Energy Corp., Boardwalk REIT, Cameco Corporation, Canadian Pacific Kansas City Limited, CES Energy Solutions Corp, CGI Inc, Constellation Software Inc., Dollarama Inc, Fairfax Financial Holdings Ltd, FirstService Corp, Gildan Activewear Inc., Hudbay Minerals Inc, Imperial Oil Ltd, Kinross Gold Corporation, Loblaw Companies, Lundin Gold Inc., MEG Energy Corp., Methanex Corporation, Metro Inc., National Bank, Onex Corporation, Pet Valu Holdings Ltd., Secure Waste Infrastructure Corp., Stantec Inc , Toromont Industries Ltd., Winpak Ltd. and WSP Global Inc.

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Desjardins analyst Lorne Kalmar asks whether a potential for a Toys “R” Us bankruptcy means REITs are the next shoe to drop and answers in the negative,

“With the long-expected HBC bankruptcy materializing earlier this year, we were wondering about the obvious: who could be next? While most retail REITs have reiterated that their watchlists remain thin, there is one retailer of significance for which the lights are flashing amber: Toys “R” Us. What the future holds for Toys “R” Us remains to be seen; however, based on the growth plans of Canada’s largest retailers and the typical size of the Toys “R” Us boxes, we believe the REITs under coverage are well-positioned to backfill any potential vacancies. While closures would lead to some short-term NOI erosion, we expect them to be a net win for the REITs in the long run as they backfill spaces with higher-quality tenants at higher rents”

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Bluesky post of the day:

Diversion: “NASA’s Curiosity Rover Solves Ancient Mystery on Mars” – Gizmodo