Post by
CanSiamCyp on Nov 15, 2022 11:28am
BMO analyst update
APR.UN-TSX
Rating Market Perform
Price: Nov-14 $11.53
Target ↓ $12.50
Total Rtn 15%
Cadillac Grills
Bottom Line:
We are trimming our target price to $12.50 (from $13.50) following our review of APR.UN's Q3/22 results. The modest (~5%) downward revision to our 2023 FFOPU reflects (1) the flow-through of the short-fall vs our estimate and (2) revisions to our acquisition/financing assumptions. A more active acquisition program at cap rates at the upper end of management's targeted cap rate range (6.25-7.25%) could drive upside to our revised outlook.
Key Points
Q3/22 results. FFOPU ($0.237; +1.4% y/y) was a touch light of our estimate ($0.25), but in-line with the consensus mean ($0.24). The negative variance vs our forecast fell within the interest expense line. SP-cash NOI increased +2.2% y/y, driven by contractual rent growth.
Opportunistic disposition in Kingston. Alongside Q3/22 results, APR.UN disclosed that it had entered into an agreement to sell a property in Kingston for ~$18M (6.1% cap rate). The property consists of two adjacent dealership buildings (Kingston Toyota and Lexus of Kingston) located at 1911 and 1917 Bath Road. The sale price compares favorably to the Q2/22 IFRS carrying value of $16.3M (6.7% cap rate) and the average cap rate used to derive the fair value of the entire portfolio at Q3/22 (see below).
Modest cap rate expansion. During Q3/22, APR.UN booked a net fair value loss of $5.8M within investment properties; the overall portfolio cap rate increased +7bps q/q to 6.37%.
Well positioned to execute on potential strategic acquisition opportunities. APR.UN ended Q3/22 with leverage (D/GBV) at 41% and immediately available liquidity of ~$70M. The latter will be temporarily boosted upon receipt of the proceeds received from the Kingston property sale (closing anticipated in November). Things have been pretty quiet on the acquisition front of late (APR.UN's last acquisition was completed in February of this year); however, call commentary suggests that the recent/rapid increase in interest rates has brought pricing back to a level that is starting to make sense for both APR.UN and potential sellers.
Total debt of $453M was virtually unchanged q/q. ~90% of APR.UN's liability profile is fixed, mostly via swap arrangements. Our revised forecast incorporates the negative impact of recent increases at the short-end of the curve.