TSX:GRT.UN - Post by User
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retiredcfon Aug 12, 2022 9:16am
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Post# 34890942
TD 2
TD 2Maintain their $100 target. GLTA
Granite REIT
(GRT.UN-T, GRP.U-N) C$81.37 | US$65.13
Long-Term NAV Growth Remains Highly Visible
Event
Post-Q2/22 update (initial views: link).
Impact: SLIGHTLY POSITIVE
Conference Call Highlights: Management raised its guidance for FY2022 SPNOI growth to near the top-end of the original 3.5%-4.5% range, calling for sequential improvements in both Q3 and Q4. Additionally, 2022 guidance was reiterated for both FFO/unit (singularly $4.35; range $4.31-$4.43) and AFFO/unit ($3.98; range $3.96- $4.08), reflecting updated currency and NOI expectations.
Granite is the first REIT in our coverage universe to mark down IFRS fair values on industrial property during Q2 earnings season, despite many peers also raising cap rates and discount rates. We believe this simply reflects differing approaches to the process, as opposed to any major actual difference in values (which are arguably very hard to accurately pin down today).
Management remains highly disciplined on allocating capital, showing strong preference for the development pipeline and having no new acquisitions in the pipeline.
Forecast/NAV (Exhibits 6 and 7): Our updated forecast through to 2024 calls for a three-year AFFO/unit CAGR of 8%. Our 2022 forecast revisions include full-year SPNOI growth at the top-end of management's 3.5%-4.5% guidance range (3.8% previously) offset by increased interest expense. Our 2023 AFFO/unit estimate fell 4% due to higher interest costs on the credit facility and our economic weakness assumption (modestly lower occupancy but SPNOI growth still strong in the mid-3s). Our inaugural 2024 estimates reflect an economic recovery and call for 9% y/y AFFO/ unit growth and 7% SPNOI growth. Our NAV/unit estimate is unchanged at $95.00 as a 3bps cap rate increase (+17bps since Q1/22) was offset by higher NOI.
We reiterate our view that the industrial property market and specifically Granite's portfolio are on a very solid footing in the face of a potential economic recession, given that demand has exceeded supply for so many years, pushing market vacancy rates to ultra-low levels. Our outlook for continued strong NAV growth is unchanged, barring any further sudden jumps in interest rates.
TD Investment Conclusion
At a forward P/AFFO close to pre-pandemic levels (before market rents skyrocketed) and 14% below NAV, we believe the risk/reward profile has rarely been more compelling.