OTCPK:SMMCF - Post Discussion
Post by
retiredcf on Aug 11, 2022 8:34am
TD 2
As anticipated, they bump their target by 13%. GLTA
Summit Industrial Income REIT
(SMU.UN-T) C$19.55
Growth Trajectory Remains on Solid Footing
Event
Post-Q2/22 update (initial views: link).
Impact: NEUTRAL
We agree with how management addressed the potential impacts of an economic recession on the Canadian industrial property market and Summit's portfolio specifically. We believe that the industry today is on a much stronger footing vs. past downturns, given that demand has exceeded supply for so many years, pushing market vacancy rates to ultra-low levels. Summit's portfolio growth over the years has focused on the largest markets and mid-larger size tenant spaces (avoiding the smallest businesses and secondary markets, which, in management's experience, have disproportionately been impacted by past recessions).
Summit management remains focused on growing its pace of development activities and future pipeline (PUD today is only 3% of assets). The pipeline now totals 2.3mmsf (333ksf to be completed H2/22) and a targeted land acquisition could soon expand the pipeline to nearly 3mmsf. Land acquisitions already total $62mm this year – nearly double the amount in all of 2021. Summit is currently targeting unlevered development yields in the mid-5's to high 6's (slightly lower after reflecting Summit's typical partner-buyout options).
Our favourable outlook is unchanged and includes SPNOI growth exceeding 5% later this year and potentially exceeding 6% in 2023. Barring any further sudden jumps in interest rates, we see continued NAV growth supported by rising market rents and availability rates expected to remain extremely tight for the foreseeable future.
Forecast/NAV (Exhibits 4 and 5): Our 2022 estimates rise slightly (tweaked interest expense) while our 2023 estimates decline slightly to reflect our economic weakness assumption (occupancy -1%). Our inaugural 2024 forecast (based on an economic recovery and an accelerated pace of development completions) reflects +14% y/y AFFO/unit growth and a 10% two-year CAGR. Our NAV/unit estimate increased +5% to $19.00 as higher NOI more than offset a 3bps cap rate increase.
TD Investment Conclusion
We are raising our target price to $22.00 and reiterating our BUY rating.
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