TSX:REI.UN - Post Discussion
Post by
incomedreamer11 on Feb 10, 2022 8:54am
Scotia comments on results
Q4 Glance: Something for Everyone... Divvy Bump, Unit Buy-Backs, Leasing at The Well, Good Guidance
OUR TAKE: Positive. Reported FFOPU was $0.46. Ex $0.08 of resi gains, recurring FFOPU was $0.39 vs. $0.40 q/q and $0.36 y/y (i.e., +8% y/y), in line with our $0.40 and $0.39 consensus (range = $0.37-$0.41; Exhibit 1); see Exhibit 2 for key stats. Q4/21 posted a stronger FV gain of $72M vs. $20M Q/Q and $42M FV loss in Q4/20, with IFRS book value +$0.54 q/q (+2.2%) to $25.54/un (Q3 = +$0.22 q/q); avg. cap rate fell 13bp q/q to 5.29% (Q3 = flat).
Distribution increased 6.25% to $1.02/year. Compares to 2020A of $1.44/un (i.e. pre-33% cut) and a pro-forma yield of 4.5% and 2022E payout ratio of 62% (ex. gains). REI noted a LT target 55%-65% FFO payout ratio, implying annual increases going forward (our preference = slightly lower increases and more retained cash).
Solid 2022 guidance. REI 2022E 5%-7% FFOPU growth (incl. $20M-$25M of resi gains) = $1.68-$1.71 vs. our $1.70 and $1.64 consensus (level of resi gains in consensus is n/a); we think it is driven by 3%-4% SPNOI growth. We think 2023 could be better.
REI repurchased ~8M units in Q4 @ $22.32/un (2.5% of units o/s) and we’re pleased to see The Well Retail leasing jump to 50% (from 33%) and closer to 62% incl. advanced discussions.
C/C is tomorrow at 10 a.m. ET (1-877-486-4304).
We like the higher occupancy. SP NOI was +4.9% y/y (Q3 = +6.6%, 2021A = +3.4%) or +1.0% ex. bad-debt provisions and incremental development NOI (vs. -0.8% in Q3; 2021A = -0.6%). In-Place occupancy was +50bp q/q to 96.1% (Q3 = +50bp) and Committed occupancy was +40bp q/q to 96.8% (Q3 = +30bp) with major and secondary market occupancy +50bp and +20bp q/q, respectively (Q3 = +40bp and +110bp). Blended lease spread fell to +4.6% (Q3 = +7.5%; 2021A = 6.3%), with a new and renewal spread of 3.8% (7.2%) and 5.0% (7.6%), respectively. Excluding one grocery lease, the blended spread would have been 6.3%, in line with 2021A. Tenant retention fell to 82% mainly due to two large vacancies (Q3 = 89%; 2021A = 84%). Avg. net rent/sf of $20.16 was +$0.06 q/q or +0.3% (Q3 = +$0.05 q/q).
Tenant base “potentially vulnerable” (Which is now split into “Compelling Traffic Drivers” and “Transitional” tenant categories) fell 30bp q/q to 14.7% (Q3 = -590bp q/q), with collection rate for the group +130bp q/q to 95.5% (Q3 = +1170bp) – See Exhibit 4. We continue to commend REI for this disclosure. The cash rent collection on tenants classified as "Strong and Stable" was +40bp q/q to 99.2% (Q3 = +70bp). Q4/21 cash rent = 98.6% (vs. Q3 of 98.1%); see Exhibit 3.
Total disclosed potential development pipeline increased by 2.6Msf to 43.1Msf (Q3 intact). Avg. occupancy in its recently completed residential rentals (+3 properties in Q4) of 80% (or 88% on Same Property basis) fell 1% q/q on declines in Calgary and Ottawa, offset by a 25% increase at Litho to 62% (Q3 = +24%) and a 13% jump at Pivot (to 85%; Q3 = +27%). REI is targeting ~$500M of development spend in 2022, but ~$700M of completions (we like that!). In a first, REI also acquired 90% of a stabilized new apartment development in Montreal for $47M at a 4.1% cap and committed to two additional phases at a 4.2% cap.
Liquidity and leverage improved a bit q/q. Liquidity increased by $0.2B q/q to $1.3B (cash + undrawn facilities; Q3 = -$0.1B to $1.1B). Debt/GBV fell 50bp q/q to 43.9% (Q3 = -30bp), while debt/EBITDA was -0.4x to 9.6x (Q3= +0.2x) on trailing 12-month EBITDA.
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