Cominar Real Estate Investment Trust Unit T.CUF.UN

Primary Symbol: CMLEF

Real Estate REIT - Diversified

Cominar Real Estate Investment Trust is a Canadian REIT involved in the ownership and management of properties throughout the Canadian provinces. Cominar's real estate portfolio comprises a mix of office, retail, and industrial and mixed-use properties. While industrial and mixed-use assets are the most numerous and command the most square footage in the company's portfolio, office and retail locations combined represent the vast majority of the portfolio's total value. Most of Cominar's properties are located in the Greater Quebec City and Montreal areas. The company derives nearly all of its revenue from rental income from its investment properties. The source of this revenue is largely split between Cominar's office and retail locations.

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Cominar Real Estate Investment Trust Unit

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Post by Bobbymeon Aug 14, 2017 1:33pm

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Post# 26579050

Full page that just got out on august 8

(CUF.UN-T) C$13.02

Q2 Slight Miss; 22% Distribution Cut; DBRS Downgrade Event

Cominar reported Q2/17 recurring FFO/unit (f.d.) of $0.35, a 16% decline versus Q2/16, and below our estimate and consensus of $0.37. AFFO/unit (our calculation) of $0.28 was also $0.02 below our estimate.

Along with its Q2 results, Cominar announced a 22% reduction in its annual distribution to $1.14/unit, beginning with the August distribution. Cominar also suspended its DRIP.

Impact: NEGATIVE

Results missed our estimates due to a combination of a miss on NOI ($0.01/ unit) and higher G&A ($0.01/unit). Management lowered its SPNOI guidance to -1%-0% (from +1%-2%) following weaker than expected Q2 SPNOIG (-3.2%) and the Sears closures. Management expects positive SPNOI growth in H2/17.
22% Distribution Cut. As we noted in our July 5 upgrade note, we believe that a distribution cut was priced into the units. Based on our revised estimates the 2017/18/19 AFFO payout ratios are now 99%/86%/83%.
DBRS Credit Rating Downgrade. This morning, DBRS announced that it was downgrading Cominar to BB (high), stable trend, from BBB (low), negative trend. While we believe that the downgrade has weighed on the unit price this morning, we do not expect it to have a material impact on either earnings or operations.
Estimates. We have lowered our 2017/18 AFFO/unit estimates by ~5%. We are also introducing our 2019 estimates. We are now calling for a 16.3% AFFO/unit decline in 2017, before accelerating to 15.1%/4.8% growth in 2018/19.

TD Investment Conclusion

While Cominar's Q2 results were below our forecast, we view the distribution cut and DRIP suspension positively. The ~$60 million/year of cash that we estimate the REIT will retain as a result of the cut, can be redirected towards more prudent uses such as debt reduction, capex projects, and developments. At current prices, we also believe the REIT may institute an NCIB. We maintain that Cominar has built a portfolio that should generate mid-single digit AFFO growth over the medium to long term and we expect a return to positive SPNOI growth in H2/17. We believe the current valuation represents an attractive entry point based on the REIT's risk/reward profile. We are maintaining our BUY rating and $14.50 price target.