BMO analyst’s top REIT picks as earnings season kicks off

Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Scotiabank strategist Hugo Ste-Marie is extremely bearish on the loonie,
“We have been bearish on the Canadian dollar for some time, and although the loonie has remained more resilient than-expected, we find it hard to have a constructive view. At best, it remains stuck in its 2-year range, but we continue to see more downside risk than upside risk going forward. Consider the following points: Fed vs BoC: Heading in the same direction, but at very different speed. Is the interest rate differential already priced-in the loonie? Maybe partially, but probably not fully. Technicals: If the 2-year range breaks, don’t rule out a re-test of its two decades low. Economic consensus keeps being revised down. A weaker currency wouldn’t necessarily be helpful for Canada in the long run. Sure, a weaker loonie would benefit exporters, and provide a small boost to TSX earnings (all else equal), but an even weaker currency would not help Canadian businesses to invest more in machinery/equipment/IT, which are all imported and badly needed to solve weak Canadian productivity issues.”
***
BMO real estate analyst Michael Markidis detailed his top overall ideas in the sector as earnings season begins today with First Capital REIT,
“Our Q3 earnings season kicks off this week (with FCR expected to report after market on October 28) and runs through November 15. In advance, we’ve revisited the cap rate assumptions underpinning our NAV work and re-calibrated target prices. Broadly speaking, target prices are up for our retail and industrial names; we’ve trimmed targets for most of multifamily REITs under coverage. Our best ideas heading into Q3 reporting are KMP, DIR, and FCR … KMP (BEI previously) is our pick in the multifamily space, based on its attractive relative valuation (5.5% implied cap rate; 16.3x 2024E FFO) and healthy earnings growth potential (+8% y/y on our 2025E). Within industrial, we highlight DIR (GRT previously), owing to the significant MTM embedded within its Canadian portfolio (~40%) and the recent decline in rates, which should reduce the anticipated drag from the significant amount ($1.3B) of low-rate (sub-1%) debt maturing in late-25/early-26. For retail, we favor FCR due to its solid SP-NOI growth outlook (~3% from 2024-2026), earnings-accretive capital recycling program, and focus on debt reduction (targeting low-8x D/EBITDA by the end of 2026)”
***
Head of BofA global research Candace Browning outlined recent bullish reports on the nuclear power industry,
“After a three-day event at the Idaho National Lab, Ross Fowler thinks the development of new nuclear technologies is underappreciated. According to U.S. Department of Energy (DOE) estimates, U.S. nuclear capacity must triple to 300GW by 2050. Supportive federal legislation and investment commitments in Small Modular Nuclear Reactors (SMRs) are signs of progress. As Ross describes in his recent primer, SMRs are zero carbon, advanced nuclear reactors designed to be smaller scale, prefabricated versions of traditional reactors. Ross thinks there will be challenges in developing SMRs (e.g., supply chains, workforce skills, licensing issues, etc.) but he also believes costs will decline over time. SMRs could come online late 2020s to early 2030s. Jared Woodard highlights three top-rated nuclear energy ETFs: URNM owns physical uranium & miners; NLR owns utilities with nuclear energy exposure; and URA offers broad sector and geographic exposure. With >$6bn in assets, nuclear ETFs have surpassed clean energy funds”
***
Diversion: “No buyer yet for series documenting the revamp of Canada’s largest abandoned house” – CBC
Report: “Why REIT returns are likely to stay lacklustre” – Barlow, Inside the Market