Slate Grocery REIT T.SGR.UN

Scotia comments on results

[incomedreamer11]

In-Line Quarter; Strong Leasing Spreads in Q3

OUR TAKE:
Q2/21 Adj. FFOPU came in at $0.23 vs. $0.27 last year (-16% y/y) and slightly below our estimate of $0.24. We note the slight miss was driven by the $390M U.S. grocery anchored portfolio acquisition closing at the end of September vs. our estimate of the end of August. The impact of SGR's previously announced US$390M portfolio acquired from Analy Capital Management (NLY-N) will be seen in Q4/21 results. The portfolio closed on September 22nd and was done at a 7.8% cap rate and implied value of $127/ ft.

 Portfolio occupancy was up slightly to 93.5% (+30 bps q/q) and 70 bps higher than pre-pandemic levels. Grocery-anchored occupancy improved to 100%, while smallshop occupancy fell 10 bps q/q to 87.8%, and down 90 bps from pre-pandemic levels.
Rent collections remain strong. We note that SGR has performed well on rent collection metrics throughout the pandemic (96-97% range) compared to U.S. peers. We attribute SGR's strong rent collections to its high grocery exposure and open-air centers, allowing its tenants to remain operational throughout the pandemic.

Reported IFRS NAVPU fell to $11.95 vs. $12.55 in Q2/21 and $12.47 in Q1/21. We note that Q2/21 and Q1/21 reported IFRS NAVs do not include subscription units from SGR's March 2021 equity offering. IFRS NAV is up 12% y/y over last year (Q3/20). IFRS cap rates were up slightly to 7.09% vs. 7.00% in Q2/21 and 7.41% in Q4/20.
The yearover-year reduction in cap rates is due to strong buyer demand for grocery-anchored strip centers in private markets. Strong leasing momentum continued in Q3/21 with healthy leasing spreads. SGR completed 426k sf of renewals and new leases at a +10% weighted average leasing spread (renewals +3% vs. +21% for new leases).
We note that 1.2% of SGR's leases come due in Q4/21, but no grocery-anchor leases are due. SGR's leasing performance has been strong despite the pandemic. Leverage remains slightly elevated but lower y/y.
Debt/GBV (based on IFRS) came in at 54.1% in Q3/21 vs. 53.0% last quarter and 59.7% last year. Post-closing of the $390M portfolio acquisition, we expect leverage to be ~60% based on our published NAV. We expect management will remained focused on acquisitions and that leverage will remain flat over the next couple of years.