Q2/24: PORTFOLIO PERFORMING WELL DESPITE MACRO UNCERTAINTY; NEW 2026 ESTIMATES
THE TD COWEN INSIGHT
CHP's Q2/24 results once again delivered consistent, reliable, and steady growth. Our new 2026 forecasts show a 4.5% AFFO/unit CAGR over the next three years, which should drive a continuation of peer-leading unitholder returns — particularly on a risk-adjusted basis. We are retaining our $15.00 target price, but see it as a base level with higher visibility of future increases vs. most peers.
Impact: SLIGHTLY POSITIVE
Initial views:
Management reiterated all components of its FY2024 outlook, while slightly lowering its expected year-end debt metrics. We are introducing our 2026 per-unit FFO and AFFO estimates of $1.12 and $1.02 (5%-plus y/y growth), which include the estimated $16mm full-year NOI contribution of Choice Caledon Business Park - Building H. Our forecasts (Figure 1) now call for a three-year AFFO CAGR of 4.5% through 2026, including more than 5% growth forecast in 2026. Our NAV/unit estimate is +1% to $16.00.
YTD SPNOI growth of +3.2% now sits slightly above the top end of management's 2.0-3.0% FY2024 guidance range. H2/24 performance will be impacted by about 200,000sf of temporary vacancy due to known Industrial tenant move-outs (0.3% of total GLA, 1.0% of Industrial GLA). Rental rate spreads on renewal leasing were quite robust in Q2/24 (Retail +13%; Industrial +106%), and overall market rents should remain firm, in our view. CHP's average in-place Industrial rent of $9.32/sf continues to offer very significant upside as leases expire.
Capital recycling continued to enhance CHP's portfolio quality in Q2/24, with activity for the year including development targeted to represent 4% of total assets. CHP crystallized the value created on its Choice Eastway Loblaw land lease development by arranging a new 25-year, $90mm mortgage, repatriating nearly all the capital invested.
We see a steady pace of development, with a consistent flow of Retail projects, and potential new project starts in the Industrial and Rental Residential segments over the next year.
Leasing Updates: CHP continues to experience high tenant retention and quick back-
fills (and at higher rents) on any spaces vacated. Necessity-focused retailers continue to dominate the long list of growing tenants. The potential store closure watchlist remains short, but includes some discretionary-goods retailers and smaller QSRs. Overall Industrial space demand remains strong, with achieved rents in line with budget, with no concessions or rent discounts being offered. Consistent with the overall market, leases are taking longer to get across the finish line.
Details
Forecasts. For H2/24, CHP expects $6mm more LTFs related to Loblaw store downsizings ($4mm in Q3/24 and $2mm in Q4/24). Per the arrangement, rent will continue until commencement of rent by each new tenant (e.g. Dollarama, GoodLife Fitness, with rents being higher than what Loblaw was paying). More expected restructuring charges related to the outsourcing arrangement will offset this LTF income in H2/24.
Management reiterated all components of its FY2024 outlook (Figure 1), while slightly lowering its expected year-end debt metrics. Our FFO and AFFO estimates are largely unchanged for 2024, while we have tweaked 1% lower for 2025. We are introducing our 2026 per-unit FFO/AFFO estimates of $1.12/$1.02, which include the estimated $16mm full-year NOI contribution of CHP’s Caledon Business Park – Building H (Figure 6). Our forecasts now call for a three-year AFFO CAGR of 4.5% through 2026, including the slightly above 5% growth forecast in 2026. Our NAV/unit estimate is +1% to $16.00.