From Globe and Mail Sept 15Seeing its valuation as “more attractive” following a “dramatic” decline in unit price,” Canaccord Genuity analyst Christopher Koutsikaloudis upgraded
Inovalis Real Estate Investment Trust (
INO-UN-T +1.69%
increase) to “buy” from “hold.”
“Since announcing a 50-per-cent reduction to its distribution on August 15, Inovalis REIT’s unit price has declined 37 per cent,” he said. “Given the REIT’s retail-dominant investor base, we believe much of the recent selling has been from yield-focused investors following the distribution cut.”
Mr. Koutsikaloudis acknowledged the “significant” near-term challenges facing the REIT, however he thinks “these risks are more than reflected in the current unit price, and value could potentially be surfaced through a going-private transaction.”
“Inovalis SA, the REIT’s asset manager, is a large and sophisticated real estate asset manager with approximately €7 billion of assets under management and relationships with large institutional investors,” he said. “Inovalis SA currently owns a 10-per-cent interest in the REIT. In our view, privatizing the REIT at a large premium to the current unit price but at a discount to IFRS NAV would be a positive outcome for both unitholders and the acquirer. We are, therefore, upgrading our rating.”
He cut his target for Inovalis units to $5 from $7. The current average is $5.81.
“In our view, Inovalis’ recent distribution cut was long overdue and should both preserve the REIT’s balance sheet and provide it with more financial flexibility in the future,” he added.