Post by
incomedreamer11 on Feb 16, 2024 1:31pm
TD down target price
Impact: SLIGHTLY NEGATIVE
Q4/23 FFO/unit (f.d.) of $0.21 was -16% y/y (higher y/y interest expense), $0.03 below our estimate but only a penny below consensus, with the variance versus our estimate largely related to higher interest and lower NOI.
Q4/23 SPNOI growth declined 1.2% (2023: +0.6%). The puts and takes in Q4 included solid growth in Community Strip Centres (+5.2%) and Industrial (+16.7% but only 1.6% of NOI). Single/Dual tenant office (37.5% of NOI) and Enclosed Retail (36.7%) were -0.2% and -2.7% respectively, while multi-tenant office buildings were -14.9%.
Notable Q4 Commentary. Overall, management pointed to an improvement over the last year in the leasing environment for Retail and Office and noted tenants appear to have a better grasp on what to expect. For Enclosed malls, management noted that sales/sf metrics continued to improve in Q4, with most malls seeing double-digit percentage increases versus 2019 levels. Office commentary was similar q/q with the REIT's Western assets holding in better than the Ontario Office portfolio. 2023 lease renewals totaled just over 1mmsf (~202,000sf renewed in Q4/23) and were completed at +4% uplifts, up slightly from +3% as of Q3/23. Morguard also completed ~333,000sf of new leases in 2023 (~51,000sf in Q4), mostly at its Retail properties (72% of new leases).
Looking forward, Morguard has ~390,000sf/231,000sf of retail/office lease expiries in 2024, with management noting that it expects to renew every retail tenant above 5,000sf and all but one office tenant over 5,000sf. In February 2025, the 525,000sf Obsidian lease at Penn West Plaza expires. Management estimates the building is 90-95% occupied with mostly sub leased tenants. While management anticipates entering into direct leases with the majority of these tenants (~50% already complete), there will be a NOI roll-down of ~$10-$15mm (annualized). Forecasts.
Our 2024 FFO/unit estimate declines 2% (higher interest costs) while our 2025 estimate is down 14% (higher interest and impact of Penn West lease). Our NAV/unit estimate is +4% to $7.70.
TD Investment Conclusion Our target price declines to $5.50, and we are maintaining our HOLD rating.