CIBC commentsPRIMARIS REAL ESTATE INVESTMENT TRUST
Q2/22 First Look:
Another Beat, Another Guidance Raise Primaris reported a strong quarter, showcasing continued recovery in mall fundamentals. SPNOI growth excluding non-recurring items came in strong and close to Q1 levels. The NOI forecast for 2022 was increased again, reflecting better leasing, mall traffic and tenant sales. The higher guidance also reflected less pessimism around estimates for occupancy and revenue from percent rent in lieu leases.
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Highlights: Q2 Results: FFO/unit was $0.40, well above consensus of $0.34/unit. NOI came in ~$0.05/unit ahead of our estimate and included ~$0.02/unit of property tax recoveries. Cash SPNOI (exc. HOOPP properties) was up 15.4%, which comprised 7.2% growth from higher rents and tenant sales, and 8.2% from lower bad debt expense, and prior year tax recoveries. Part of the revenue growth is also attributed to the completion of certain lease abatement arrangements.
Occupancy Update: The Primaris assets had in-place occupancy of 87.9% (committed 92%), up from 87.2% (89.4% committed) last quarter, while the HOOPP assets were 83.7% occupied (83.5% in Q1) for total in-place occupancy of 86.5%. Excluding Northland Village centre, which is slated for redevelopment, in-place portfolio occupancy was 88.1%.
Forecast Raised: 2022 NOI was raised by 2.8%, following last quarter’s 3% increase, and reflecting a strong Q2, and improving prospects for the balance of the year.
Leasing Update: Primaris leased 0.6MM sq. ft., achieving 0.2% renewal rent lifts. CRU renewals were at 0.8% higher rents, reflecting certain leases with lower rents, in part due to lower tenant sales vs. pre-pandemic levels. Anchor spreads were flat. YTD leasing achieved a 5.1% renewal spread.
NCIB Activity: Primaris repurchased 1.4MM units at Q2 (1.9MM YTD), for a total of $20MM, which is expected to benefit NAV/unit by $0.31 and FFO by $0.02/unit. Other Metrics At Q2/22: - IFRS NAV: $22.16/unit and a 6.52% going-in cap rate; - Debt/Total Assets: 28.8%; - Average D/EBITDA: 4.9x.
Price Target Calculation Our price target of $18.50 reflects a ~12% discount to our NAV estimate, to account for some of the uncertainty associated with the higher discretionary retail footprint, smaller scale, and yet-to-be-established track record, offset by a superior balance sheet, and equates to 12.5x 2022E FFO