text from August 30 2021. It is balanced and reasonable RBC analyst Matt Logan believes this is an opportune time for investors to buy units in H&R REIT (HR-UN-T).
H&R is a diversified REIT, and according to Mr. Logan’s calculations, has about 33% exposure to the retail sector, 28% to apartments, 28% to offices, and 10% to the industrial sector.
Overall, Mr. Logan thinks about 20–25% of H&R’s portfolio is facing acute headwinds because of the impact COVID-19 has had on the real estate sector, and he most concerned about the negative impact on the REIT’s lower-quality enclosed malls and Class B office.
But, “with 50–66% of H&R’s retail comprised of higher quality malls, grocery/necessity-oriented retail, and newly constructed retail space, we are generally comfortable with most of the portfolio. While we acknowledge that WFH trends will (eventually) impact all of H&R’s office space, we think long-term leases and redevelopment opportunities provides some protection for 64% of the portfolio,” he said in a note to clients.
He raised his price target by $1 to $19 and maintained a “sector perform” rating.
“Following a deep dive into H&R REIT’s highly diversified portfolio, we come away with: 1) increased conviction in a potential upside scenario; and, 2) more comfort that H&R can weather on-going headwinds in its retail and office portfolios. With H&R’s units trading at what we see as an unduly punitive 27% discount to NAV, we see limited downside, reasonable return prospects, and a potentially meaningful $21–22 upside scenario if H&R can execute on a potential Lantower Residential spin-out,” he said.
The average price target among analysts is $18.71.