Pure Multi-Family REIT LP PMULF

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Pure Industrial REIT (AAR.UN-T; C$6.50; SO) Still Hitting the Right Notes with High-Grading in Focus
 
 
 OUR TAKE: SO, $6.75 target intact. Post an in-line Q2, we remain constructive on AAR. Operational traction continues to advance from particularly strong conditions in ON, with U.S. momentum expected to build as a large NC vacancy is nearly addressed. As well, although our increase in assumed non-core sales creates a modest drag on growth, it’s hard to criticize a strategy that we view as a longer-term positive for AFFO and NAV upside. Our target price held firm as our slightly lower 2018E AFFO was offset by a higher target multiple (+0.5x to 16.75x) to reflect the significant advances made in portfolio quality and leverage. At 17x NTM AFFO/5.7% implied cap/3% above NAV (Exhibits 1-4), we believe AAR’s premium is well supported with room for upside as cash flow quality continues to rise. Coupled with an above average growth profile and below average leverage, we see a decent entry to a name well-equipped for a potentially steeper yield curve ahead.