Post by
savyinvestor333 on Aug 06, 2021 8:10am
Scotia Report and Upgrade to $19.50
Food for Thought; We See a Roadmap to $20.00+
OUR TAKE: Positive.
Our target price and NAVPU estimates are +8%-9% (Exhibit 1) on a 20bp lower NAV cap rate and 1.5x higher target multiple on rising private grocery-anchored retail values; otherwise, our NAVPU estimates would have been +2%-2.5%. Ex. unit-based comp amort. (reflects higher unit price), Q2 results met our expectations (Exhibit 13). The big news was a $176M FV gain ($1.09/un), almost all of which was on IPP (not PUDs). We see another $1.00+ of value creation and ~5% AFFOPU growth from 3 residential development completions (Exhibit 2), which, combined with our expected recovery in Parking NOI and modernizations, drives attractive ~9.5% NTM NAVPU growth, which is available today at a 1% discount to in-place NAVPU vs. 3% sector premium (Exhibit 3). CRR offers an attractive yield and growth combo (Exhibit 4; 5.0% yield and 9.4% NTM NAVPU growth) and a roadmap to a $20.00+ NAVPU and unit price in 2022 upon stabilization of residential developments and possible further grocery cap rate compression; discount to sector exceeds historical average (Exhibits 10-12). We recommend CRR for growth, income, and small-mid-cap investors.
Key estimate change rationale. Our NAV cap rate falls 20bp to 5.85% (IFRS had a similar decline to 5.68%; Exhibit 5) as grocery-anchored Retail remains in high demand along with Industrial and Multi-Family (Exhibit 6); CRR noted private market deals ($100M+; we think in Ontario) at cap rates ~100bp below pre-pandemic levels. Our target multiple is +1.5x to 18.0x, with ~0.75x (i.e., 50%) of the jump due to 3 anticipated residential development completions (i.e., ~5% of total portfolio at 25x-30x). Our revised target price = 1% discount to our revised $19.75 Forward NAVPU, in line with sector average. Net-net, we believe our estimates are well-supported and conservative should grocery retail cap rates continue to fall.
What has changed since we last wrote? Frankly, not much. CRR has started construction of CFC Calgary (we think similar to CFC Montreal; ~$100M investment). CRR's first residential development (Zephyr in Vancouver) is progressing very nicely, currently 90% leased (was 62% in April) at a mid-$4/sf rent (it reduced Q2 FFO by $0.5M on lease-up timing; should be positive heading into 2022). CRR reintroduced its 3% DRIP discount (we wonder if that led to CRRs ~1% underperformance today; signaling fair value or more focus on debt reduction?). Avalon Mall redevelopment opened in late July (sounds like it is going well; an Apartment REIT peer also noted St. John's is recovering nicely). Lastly, not much new on future developments, which we think are key to sustaining positive investor sentiment (i.e., achieving a recurring targeted $150M-$250M annual spend); Broadway and Commercial (Vancouver; 640,000sf) and Westhill on Duke (Halifax) are possible candidates for starts in 2022