IA Capital IA Capital Markets’s Gaurav Mathur named Nexus Industrial REIT and Primaris REIT as his “Top Picks” for the third quarter.
The analyst sees Nexus “well-positioned to be the next pure-play Canadian industrial REIT as it focuses on divesting its exposure to office and retail while increasing and high-grading its industrial portfolio.”
“We reiterate NXR.UN as our Top Pick as we scan the Canadian REIT sector for opportunities to generate alpha amid ‘the higher for longer’ rate narrative, the pullback in the Canadian REIT sector, downturn prospects, liquidity crunch, and volatility in the CRE sector. Given the current level of the stock, we believe an opportunity to generate alpha exists, as the underlying fundamental drivers move from strength to strength.”
“The REIT has a long growth runway with rental rate increases of 50-100 per cent across the portfolio, much higher than its publicly listed peer set in the Canadian industrial REIT sector. Management reiterated its 4-per-cent SPNOI [same-property net operating income] guidance on its latest quarterly call. We note the focus on capital allocation discipline through redevelopment projects, recycling capital, and being opportunistic on the acquisitions front. From a supply/demand perspective, the availability rate for industrial space remains low across the REIT’s markets. Furthermore, rising construction costs ensure that developers focus on large-bay product as constructing small-to-mid bay product remains prohibitive. On a recent property tour, the REIT highlighted its strength in the London, ON, market along with its beneficial partnership with the McLaughlin family, which allows for 3 million square feet of industrial square footage to be vended into the REIT at below replacement cost. "
He has a “strong buy” rating and $14 target for Nexus units. The average is $11.93.