Post by
retiredcf on May 13, 2022 10:11am
CIBC 2
EQUITY RESEARCH
May 12, 2022 Earnings Update
GRANITE REIT
No Slowdown On The Horizon
Our Conclusion
Rent growth projections accelerating each quarter continue to strengthen the
case for strong organic growth as a diverse tenant base drives the demand
for space. In addition, we see upside to our 2023 forecast from
developments, which we expect to contribute significantly to 2023 FFO/unit
as we have not factored these into our estimates.
Acknowledging the higher interest rate environment, we have increased our
cap rate by 25bps to 4.75%. After rolling our NOI forward, our NAV is
unchanged at $96.00/unit. Applying a ~10% premium, our price target is
revised to $106, from $110. We maintain our Outperformer rating and
continue to view Granite as a core holding, offering above-average per unit
growth.
Key Points
Results: FFO per unit was $1.05, in line with our $1.05/unit estimate and
consensus of $1.04/unit. FFO was impacted by $0.02/unit due to the
strengthening of the CAD relative to the USD and euro vs. Q1/21.
Operations: GRT recorded SPNOI growth of 4.6% (excluding the impact of
foreign exchange). SPNOI improved on higher rents from CPI indexation,
fixed rent increases, and U.S. leasing performance. Excluding foreign
exchange impacts, the Netherlands led the way with 9.6% growth, followed
by the U.S. at 6.1%, and Canada at 3.1%, while Austria grew by 2.5%. GRT
has renewed 4.5MM sq. ft. at an average lift of 11.5% and expects to get a
20% lift on the remaining maturities.
Transactions: During the quarter, Granite acquired three income-generating
distribution facilities (~seven-year remaining lease term at a 3.6% in-going
yield), totalling 0.8MM sq. ft. for $140MM. Subsequent to quarter-end,
Granite acquired two newly constructed distribution facilities totalling ~1.4MM
sq. ft. located in Indiana, U.S. for ~$179MM, which are 100% leased to two
investment-grade tenants with a WALT of 10 years and an in-going yield of
4.2%. The REIT also acquired a built-to-suit modern distribution centre under
development on 13.6 acres in Illinois, U.S. for $14.5MM. This project is
scheduled to be completed in Q1/23 at a total cost of ~$50MM and has been
pre-leased for ~12 years at a development yield of ~4%. Granite disposed of
both an income-producing property and land in Poland for total proceeds of
$34.5MM.
Balance Sheet: Net debt to GBV rose sequentially to 25%, but continues to
remain below GRT’s long-term target ratio of 30% to 35%. Increasing
leverage up to this range would imply additional debt capital of ~$480MM to
~$1.2B.