More update from Scotia after conferenceCominar REIT We See an Interesting Short-Term Trade
OUR TAKE: Neutral.
We maintain our SP rating, increasing our TP and Current NAVPU by $0.50 and $0.25 (+0.25x Target Multiple) despite a sluggish Q1 print (Exhibits 1-2 = key estimate changes).
CUF gave up most of its recent gains yesterday (-3.5% vs. -0.7% for sector; now relatively flat vs. Sector in the past week) as CUF didn't beat consensus FFOPU nor did the Strategic Review conclude; it had been helped by the "risk-on" trade. That said, it sounds like "the end is near" on the Review, which we still view as a positive catalyst on the margin (with some benefit of the doubt).
We view a Positive outcome including the sale of Enclosed Malls with newly zoned residential upside (i.e., low-cap rate sales = FFOPU growth AND less debt) or an SIB. Doesn't fit our Growth preference, but worth a short-term look below $10.00. CUF ranks 4th quartile with 3.8% NTM NAVPU growth (vs. 6.2% sector avg.), but so does its 19% discount to our NAV (-36% vs. $15.12 IFRS NAVPU).
We are shorterterm buyers as we believe there is more upside than downside coming out of the Strategic Review, below $10.00/un.
KEY POINTS Capital recycling quiet pending strategic review. CUF Q1/21 assets HFS = $0 although it is marketing 110 O'Conner in Ottawa (vacant 0.2Msf Office building). A strategic buyer is still interested in a ~$200M Montreal Office building, but still needs government financing. That said, CUF Q1 liquidity of $381M is well above a min. threshold of $200M , incl. an est. $120M spend in 2021 on development ($30M, incl. at Centropolis), capex, leasing, etc. While leverage is high , post-pandemic EBITDA stabilization should help. Net-net, we attach a low risk of forced asset sales at poor pricing or dilutive equity issuance at this stage. CUF is still one of the cheapest REITs on a (NAV) mean-reversion basis, while AFFO spread to sector also looks good.
CUF is trading 17% worse than historical avg. vs. the Sector on NAV , with Allied, FCR and REI (last two based on consensus) in the same ball-park. CUF 7x discount to Sector on NTM AFFO is 5.6x higher than avg. or 2.6 STDEVs . Lots of moving parts, but occupancy and SPNOI should improve in 2021.
We commend CUF's disclosure of "one-time" items in the Q1 press release; there were lots ). CUF sees lower bad debt expense and ~100bp higher Retail and Industrial occupancy by Q4 (flat Office).
The growth + 5%-10% recent positive lease renewal spreads (led by Industrial at ~20%), drives our NAVPU growt