TSX:MRT.DB.A - Post by User
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incomedreamer11on Aug 08, 2022 10:56am
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Scotia comments on result
Scotia comments on result
Focus Remains On Balance Sheet; Fundamentals Continue To Stabilize
OUR TAKE: Neutral. We updated our model post Q2/22 results. Our target stays unchanged at $6.00; based on a ~15% discount to our NAVPU estimate of $7.00 (unchanged). Our NAVPU is based on our normalized NOI assumptions. As highlighted in the last quarter, while fundamentals have been challenging during the pandemic for MRT’s core markets, they are starting to stabilize. SP NOI growth (overall) was in positive territory (now five quarters in a row) and portfolio occupancy was down slightly q/q.
The balance sheet continues to be an area of focus with upcoming debt maturities (Exhibit 6). While our 2022 and 2023 AFFOPU estimates both increased by ~6%, there is further downside risk on debt refinancings as we note the cost of debt financing has moved up 150-250bp in the last six months.
In the light of the current macro backdrop, the CDN REIT sector is down ~15% since late March 2022; the sector is now trading at a 17% discount to NAV. With MRT’s asset mix (enclosed retail + office), we are not surprised that MRT continues to trade at a persistent discount to NAV. At the current price, MRT is trading at a 28% discount to NAV. MRT is 60.8% owned by Morguard Corp. (a large asset manager with total AUM of $19.4B).
KEY POINTS
Enclosed Retail Rents and Office Occupancy have trended lower over time. We need to see improvement here: See Exhibits 3 and 4. Rental spreads on enclosed retail leasing have been roughly -20% (negative 20%) in 2021 and 2020. In Q2/22, spreads were -22% and we are hoping to see some stabilization here. Office occupancy has declined ~500bp since the start of the pandemic. 6% of the portfolio is coming up for renewal in 2022 and 11% in 2023 (Exhibit 7). 50% of the leases due in 2022 and 2023 are in the retail segment; we may continue to see downside pressure here.
Liquidity Remains in Focus: While MRT’s convertible debenture “renewal” in December took care of last year’s debt maturities, we note that MRT still has $195M of debt coming due this year (15% of total debt outstanding). 2022 and 2023 are big years on the debt renewal side with almost half of MRT’s debt coming due (mostly mortgages). We expect to become more comfortable with the name once these renewals are taken care of. Liquidity was $165.3M vs $174.7M last quarter.