TSX:IIP.UN - Post by User
Post by
retiredcfon Aug 11, 2024 11:53am
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Post# 36173446
TD 2
TD 2 ROBUST OPERATING FUNDAMENTALS CONTINUE. EXPECT ACQUISITION ACTIVITY TO PICK UP
THE TD COWEN INSIGHT
Q2 FFO/unit growth of 17% reflects strong operating fundamentals that should result in continued strong earnings growth. IIP is also well positioned to restart its value add acq'n program, which we view as a medium term earnings/NAV growth driver. While attractive on an absolute basis, our HOLD rating reflects IIP's 10%+ premium valuation multiple despite 2025/26 growth that is in line with peers.
Impact: NEUTRAL Initial views: here.
InterRent continues to deliver on strong operating metrics, highlighted by Q2's +9.7% SPNOI growth that remains within management's high-single-to-low-double-digit target range. AMR growth was solid at +6.8%, with all regions reporting above 6% growth. Looking ahead, management expects the pace of growth may moderate, but sees favorable supply/ demand fundamentals driving 5%-7% AMR growth over the medium-term. SP occupancy improved +70bps y/y to 96.2% in Q2 (despite a slight decline in Vancouver where more non- repositioned suites turned), and should see further momentum heading into the seasonally stronger summer leasing period. We are forecasting SPNOI growth of 9.8%/8.6%/8.0% in 2024/25/26.
Well-positioned on acquisitions. With a solid balance sheet and ~$360mm in acquisition capacity, InterRent remains well positioned to capitalize on external growth opportunities. Management would be comfortable increasing D/GBV to the “low-40%” range (Q2/24: 37.8%) with strong NOI growth organically reducing it back below-40% over time. Future acquisitions will likely be done through JV partnerships (juicing both acquisition firepower and returns) and be focused on expansion in the REIT's existing core portfolio. While the transaction market remains slow (bid-ask spreads remain wide), we expect this to pick up later this year with an improving interest rate outlook. Our forecast calls for $40mm/ $80mm/$80mm in net acquisitions in 2024/25/26.
Dispositions. In addition to the $143.5mm in closed dispositions YTD, management is targeting an additional $50mm in asset sales over the next 18 months. Proceeds will likely go towards a combination of acquisitions, share buybacks, and reducing leverage.
Forecasts. Our 2024 AFFO/unit estimates are largely unchanged while our 2025 estimate is down 1% (higher int exp). Our new 2026 forecast calls for 10% y/y growth. Our NAV/unit estimate is +1% to $15.60.