Desjardins Capital Markets has issued an investment upgrade for Smart Real Estate Investment Trust, saying that fears of the stock being more bond-like than other REITs in Canada were too simplistic, according to a Financial Post
Assigning a 12-month target price of $36 for the stock, Desjardin deemed it oversold and considered it a good entry point for investors, citing the potential of its low site coverage and its existing portfolio’s capital efficiency.
One reason to believe in SmartREIT’s future is its largest tenant, Walmart, which accounts for 27% of its gross revenue. The average remaining term for the retail giant is eight years, and Desjardins sees multiple tenant-friendly options that could entice Walmart to extend the terms up to 80 years – a plus to SMartREIT’s capital efficiency grading.
SmartREIT’s business model could deliver annual same-property growth of 0.5 to 1%, although its occupancy rate fell to 98.3% from 99% at the end of Q3 2016 due to Target’s exit from Canada.
Desjardins also noted substantial long-term upside potential from SmartREIT’s existing land base with five key urban development properties, as well as an expected cash flow boost from future condominium developments in its residential portfolio.
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