Citing “recent unit price declines broadly experienced across the Canadian REIT sector as a result of increased Government of Canada (GoC) bond yields,” Raymond James analyst Brad Sturges made a series of target price adjustments to equities in his coverage universe, believing “the planned increase in the capital gains inclusion rate introduced in the 2024 Canadian Federal Budget may have implications for the Canadian REIT sector and the broader Canadian commercial and residential real estate market.”
“Canadian Federal Budget was very focused on the Canadian Federal Government’s Housing Plan, the Canadian Federal Government also introduced planned changes to the capital gains tax treatment, increasing the inclusion rate of annual capital gains above the $250k aggregate threshold to be taxed at the marginal tax rate to 67 per cent (from 50 per cent currently) after June 25th,” he said. “Annual realized capital gains totaling less than $250k will still be subject to a capital gains inclusion rate of 50 per cent. We believe the planned capital gains inclusion rate changes could have an impact for those Canadian REITs selling properties post June 25th with respect to the tax treatment of monthly distribution payments. Further, we expect that Canadian REITs with active capital recycling programs could need to pay greater amounts of special distributions in order to deal with increased capital gains taxes realized if larger non-core asset disposition volumes are completed above the respective historical cost bases. While we expect near-term private market commercial and residential transaction activity to increase ahead of the June 25th deadline, we believe higher potential capital gains taxes have a future negative impact on private market transaction volumes, which could impact future acquisition opportunities for Canadian REIT/REOCs.”
- Automotive Properties REIT (APR.UN-T, “outperform”) to $12 from $12.50. The average on the Street is $12.17.
- Canadian Apartment Properties REIT ( “outperform”) to $56.60 from $60. Average: $57.22.
- Dream Industrial REIT (outperform) to $16 from $16.50. Average: $16.07.
- Dream Residential REIT (DRR.U-T, “outperform”) to US$8 from US$8.50. Average: US$9.31.
- InterRent REIT ( “strong buy”) to $15.75 from $16.25. Average: $15.18.
- Killam Apartment REIT (“outperform”) to $21.75 from $22.75. Average: $22.40.
- Minto Apartment REIT (“outperform”) to $20.25 from $21.25. Average: $20.50.
- Nexus Industrial REIT ( “outperform”) to $9 from $9.75. Average: $8.94.
- Parkit Enterprise Inc. ( “outperform”) to 75 cents from 85 cents. Average: 85 cents.
- Slate Grocery REIT (SGR.U-T, “market perform”) to US$9 from US$10. Average: US$10.15.
- True North Commercial REIT ( “market perform”) to $10.50 from $10. Average: $9.18.
“We highlight Primaris [”outperform and unchanged $17.25 target] as a potential stock that may be positioned to deliver a positive earnings surprise, in our view, due to potential improving accretion from Primaris’ recent Canadian enclosed mall acquisitions,” he said. “However, we are relatively more cautious on StorageVault’s [”market perform” and unchanged $6.25 target] near-term outlook in meeting our and consensus SP-NOI and AFFO/share growth expectations in light of higher interest rates and subdued Canadian housing activity in 2024 YTD