BMO analyst Jenny Ma turned far more cautious on the domestic REIT sector.
“With dramatic changes having taken shape in the market year-to-date, we are pivoting our previously constructive Canadian REIT outlook for 2022 to a much more conservative view, reflecting our expectation of upward pressure on cap rates and downward pressure on cash flows from higher interest expense and a tempered expectation for internal and external growth. Consequently, we have lowered our NAV/unit estimates, resulting in lower target prices and the re-calibration of several ratings. In this report, we are upgrading BEI.UN and NWH.UN to Outperform (from Market Perform), and downgrading AX.UN, APR.UN, and SGR.U to Market Perform (from Outperform). These rating changes more reflect shifts in expected returns, rather than material changes in our investment theses…
Taking into account myriad new risks that have emerged, in our view investors should take a bottom-up approach to investing in Canadian REITs in the second half of 2022. Pecking order for asset classes: Within our Canadian REIT coverage universe, we prefer (in order) diversified commercial, multifamily, and retail. Our top picks for individual REITs are: HR.UN, BEI.UN, IIP.UN, MI.UN, CRR.UN, and REI.UN”