BMO Capital Markets analyst Jenny Ma commenced coverage of Canadian office REITs, naming Allied Properties REIT a top pick and forecasting an average total return of 10.0% across the board.
Ma rated Allied Properties at "outperform" and Dream Office REIT at "market perform." She also rated Slate Office REIT, coverage of which she assumed from analyst Troy MacLean, at market perform.
The firm had ceased coverage of Allied Properties, among other Canadian REIT names, earlier in 2018 upon the departure of analyst Heather Kirk.
Each of the three Canadian office REITs represents a "very different, yet focused" opportunity in the market for downtown office space, which she said will be a primary beneficiary of the increasing size and dominance of the tech industry.
"With strong technology talent and a highly educated workforce, as well as low labour costs compared to the quality of talent, a number of markets in Canada have become thriving technology hubs," she said. "Additionally, with less stringent immigration policies, Canada has better access to diverse, skilled workers from around the world."
Ma cited Allied Properties' "strong" internal growth outlook and superior financial position in her rationale for its premium valuation.
"We view Allied as being a truly unique investment opportunity within not only the office subsector, but also the entire Canadian REIT sector, owing to its sizeable urban Class I portfolio, which we believe is irreplaceable and virtually impossible to duplicate," Ma said.