FCR.UN is the only one of these that I own. GLTA
Acknowledging the outlook for the economy “remains uncertain,” Desjardins Securities analyst Lorne Kalmar said he’s “confident” retail real estate investment trusts are “well-positioned to withstand the impact of a recession.”
“Contrary to conventional wisdom, retail REIT performance has been very resilient in past economic downturns,” he said. “Meanwhile, the year-to-date underperformance of the retail REITs has resulted in trading valuations observed during only the global financial crisis and the early innings of the pandemic. With Canadian retail fundamentals the strongest they have been in nearly a decade, and REIT portfolios comprising some of the highest-quality retail assets with the most desirable retailers in the country, we are increasingly confident that investor concerns around the impact of a recession are overblown and the current valuations overly discount the downside risk.”
In a research report released Wednesday, Mr. Kalmar said retail REITs continue to benefit from a growing demand for space, pointing to “a reinvigorated appetite for in-person shopping, a strong and healthy retail tenant base, a rapidly expanding population and under-expansion by retailers in the years leading up to the pandemic.”
“Virtually all retail REIT management teams agree that the tenant watch list is thin and largely comprises smaller, independent retailers with weaker covenants and a focus on discretionary offerings,” he said. “On the supply side, new space remains very limited, and rents are well below the levels required for development economics to penci out, which should insulate the sector from new supply for the foreseeable future. This demand/supply imbalance has led to elevated occupancies, accelerating rent growth and, ultimately, the strongest retail fundamentals in nearly a decade.”
For large-cap REITs, his pecking order is now:
- Primaris REIT with a “buy” rating and $17 target. The average target is $17.03.
- First Capital REIT with a “buy” rating and $18.50 target. Average: $17.92.
- Crombie REIT with a “buy” rating and $17.50 target. Average: $16.82.
- RioCan REIT with a “buy” rating and $24.50 target. Average: $23.94.
- Choice Properties REIT with a “buy” rating and $16 target. Average: $15.56.
- SmartCentres REIT with a “hold” rating and $28.50 target. Average: $28.69.
- CT REIT with a “hold” rating and $17 target. Average: $16.92.
“The retail sector is heading into a potential recession on its strongest footing in some time,” concluded Mr. Kalmar. “While an economic slowdown could cause some tenant closures, demand for quality retail space remains robust, which should result in a minimal impact on REIT earnings. We believe investor concerns about the impact of a recession on the retail sector are overblown, particularly when considering the performance of the retail REITs during past economic slowdowns, the improvement in quality and tenant mix that has occurred over the past several years, and the current state of retail fundamentals.”