TSX:AAR.UN - Post by User
Post by
bopaon Dec 20, 2017 10:10am
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Post# 27195009
scotia take #2
scotia take #2Capping Off an Active Year with $150M of Net Acquisitions
OUR TAKE: SO rating, $7.00 target intact post high-quality additions. AAR announced $173M ($86/sf) of acquisitions in the U.S. and CDA and $23M of CDN dispositions. The stabilized cap rate on the purchases is ~5.7% (or ~4.1% unlevered going-in yield on our math as one newly built U.S. property is vacant). Our estimates are intact for now, as the volume of purchases is in line with our Q4/17E ($50M @ 5.7% cap rate) and 2018E ($325M @ 6%), albeit at a lower initial yield. Net-net, the properties are high-quality additions in major markets that should deliver modest stabilized leverage neutral AFFOPU accretion and stronger long-term NAV upside. AAR is trading at 17.3x 2018E AFFO/5.4% implied cap/8% above NAV. Despite an above-average premium to the sector, we believe valuation is well supported by its superior growth outlook (7.1% 2017E-19E AFFOPU CAGR) and strong balance sheet (~41% D/GBV; 7x 2018E D/EBITDA). As well, we see levers to support multiple expansion as portfolio quality advances through capital recycling and development.