comments from TD Details
Retail (49% of NOI) Q1 SPNOI -24.8% Enclosed Regional Centres (57% of retail NOI) SPNOI declined 42% y/y (excluding lease termination income). The majority of the decline was due to its two Ontario malls (Cambridge and St. Laurent) which have been closed through almost all of 2021.
Occupancy of 91.3% was -180bps q/q, as Christmas activities (e.g. pop-ups, etc.) concluded in Q4/20. Renewals on expiring leases were completed at rates ~28% below expiring. Community Strip Centres (43% of retail NOI) reported a 2.0% SPNOI decrease. There are 474,568sf of remaining lease expiries in 2021 (~11% of retail GLA). Management noted ~50% of the space (251,902sf) is anchor tenants which are expected to renew at rates in line with expiring ($5.01/sf). Office (49% of NOI) Q1 SPNOI -2.2% The REIT's single/dual tenant office portfolio (81% of office NOI) SPNOI was +1.9% y/y.
The REIT retained 99% of its tenants and recorded renewal spreads of ~31%. Multitenant portfolio SPNOI decreased 19.5%. There are 155,817sf of 2021 lease expiries (excluding Petroleum Plaza) in the office portfolio (5% of office GLA). At Petroleum Plaza, the 152,146sf lease with the provincial government expired on January 1, 2021 (rate: $27.00/sf). The REIT expects to complete the renewal in H2/21 (previously Q2/21) below the expiring rate.
Balance Sheet & Liquidity:
Q1/21 leverage (D/GBV) was 52.6%, -40bps q/q (Exhibit 6). As at Q1, the REIT had $133.8 million of liquidity (Q4/20: $141.9 million) and $326.6 million of unencumbered assets (which includes some retail strip centers). Morguard's $175 million convertible debenture matures December 31, 2021. Morguard Corp. owns $60mm of the convert. We believe the REIT can repay the remaining $115mm through existing liquidity, some financing of unencumbered assets and potentially some asset sales.
Developments/Intensifications (Exhibit 7) During Q1, the REIT completed its full-scale renovation of Pine Centre Mall (total cost of $19.7 million). Since completion management noted an uptick in leasing inquiries. The demolition of the former Lowes space at Pine Centre is set to commence shortly. The space will be converted to a 38,850sf grocery store for Save-On-Foods (20-year lease). The expected cost is $15.0 million, with completion slated for Q3/22.
The REIT received $2.3 million in lease termination income from Lowes in Q1/21 as part of the transaction. Outlook COVID-19 Update We expect the third wave of the pandemic to weigh on 2021 results, particularly the enclosed mall portfolio, with Ontario in lockdown for at least two thirds of the quarter. On the office front, management noted that while it has had a few tenants provide nonrenewal notices, it is still too early to ascertain the ultimate impact on the portfolio. Forecast Our 2021/22 FFO/unit forecasts decrease 3%/6%, largely on lower NOI assumptions. Our 2021 AFFO/unit forecast is up on lower maintenance capex estimates.
Valuation Morguard REIT is currently trading at 6.7x our 2021 AFFO/unit estimate, 3.4 multiple points below its peer group average. On a P/NAV basis, the REIT is trading at 69% of our revised $7.80 NAV estimate (previously $8.00), below the long-term average of 81% (Exh