TD commentsSmartCentres REIT (SRU.UN-T) C$30.47 Q2/21 First Look: FFO Slight Beat; Occupancy Edges Higher Sam Damiani, CFA Nick With-Seidelin, (Associate)
Impact: SLIGHTLY POSITIVE
Results vs Estimate: SmartCentres' Q2/21 results were slightly ahead of our forecast, with diluted FFO/unit of $0.583 (+29% y/y) compared with our $0.555 estimate. Excluding contribution from the Transit City 3 condo closings (70% of which occurred in Q2/21 vs. our 50% estimate) of $0.075, remaining FFO/unit of $0.508 was $0.02 ahead of our estimate. We attribute that remaining beat to slightly higher occupancy (97.1% vs. our 96.7% estimate) and nearly 150,000sf of redevelopment and development space that came online (93%-leased; discussed below). Bad debt expense (BDE) of $2.3mm (unchanged q/q, -$13mm y/y) largely met our forecast.
Operations: In-place occupancy was +10bps q/q (and -50bps y/y) to 97.1%.
Renewal uplift continued its nominal trend from last quarter at +0.6% (-2.4% excluding anchors) vs. the +3% pre-pandemic average.
SPNOI growth was +9.6% y/y, rebounding from -4.8% in Q1/21 due to peak BDE occurring in the year-ago quarter. SPNOI growth, excluding BDE, remained negative at -2.0%, but improved sequentially from -3.7% in Q1/21
. Q2 rent collections averaged 94.8% (vs. 94.1% Q1/21 initially reported and subsequently increased to 95.4%).
Development/Intensification Projects Update: At the VMC, 70% of Transit City 3 condos (631 units) closed with all remaining units having closed post-Q2.
Redevelopment and development space coming online totaled 147,000sf, of which 93% was leased. The three largest tenants (Memon Supermarket, Krazy Bins, and Buropro Citation) are replacements within spaces formerly occupied by Sobeys, Home Outfitters, and Best Buy.
The Phase 1 residential rental project in Laval, QC (171 suites) remains 90%- leased (unchanged q/q) following first occupancies in Q2/20.
Balance Sheet: IFRS fair value changes were minimal (+$13mm). The average portfolio terminal cap rate (5.94%) and discount rate (6.46%) were both unchanged q/q.
Debt/Assets was 44.6% (-10bps), while Debt/EBITDA declined to 8.2x (-0.4x q/q). Total available liquidity decreased to $0.8bln from $1.1bln q/q due to debt repayment. Unencumbered assets were steady at $5.9bln