National Bank National Bank Financial analyst Giuliano Thornhill sees retailer-owned triple-net-lease (NNN) real estate investment trusts as “low-risk investments, fit for investors looking to hedge against wider systemic risks.”
“Low vacancy risks, stable rental growth/long-dated lease profile, in addition to substantial in-place counterparties, lead to fewer upside/downside variances,” he added. “These investments are best suited to an investor looking for a stable source of yield owing to these de-risking attributes. The primary differentiator between the three is the end markets each focuses on: dealerships (APR.UN), discretionary/auto repair (CRT.UN) and grocery retail/supply chain (CHP.UN), leading to varying risk profiles.”
In a research report released Friday, Mr. Thornhill initiated coverage of the “steady” three REITs, emphasizing they offer investors an enticing combination of stability and yield.
“As economic activity has waned in response to the BoC’s efforts to tame inflation, industrial space has been steadily added owing to its quick build time,” he said. “Meanwhile, multi-family is contending with its first period of uncertainty in years on the immigration front and softening per capita fundamentals. To contrast, neglect by retailers seeking expansion in favour of supply chain ops has left the current backdrop of retail in one of its best positions in years, albeit after years of low expectations induced by COVID. When accounting for the additional uncertainty, retail’s long-dated lease/distribution profile may come in favour relative to other investments if fundamentals remain strong as rates/alternative yield instruments ratchet lower.”
His ratings and targets are:
* Choice Properties REIT with a “sector perform” rating and $15.50 target. The average is $15.75.
Analyst: “One of the highest quality REITs on offer, possessing an inexpensive cost of capital amid a declining leverage profile. Grocery-anchored retail continues to be a sought-after asset class owing to its resiliency, and we do not view this any differently. Valuation, in our view, is reflective of this fact. We have set our price target near our NAV, and in line with its five-year average.”