SmartCentres Real Estate Investment Trust CWYUF

CIBC : outperform rating with price target $34

[martin020]

Good Development Hunting By A Wicked Smart Team Our Conclusion SRU continues to unlock the substantial embedded value in its development pipeline and we anticipate the upcoming year will continue to feature more of the same – further deliveries of high-quality product and more re-zoning approvals, which should continue to drive NAV/BV growth. Initial presale activity at ArtWalk is strong and is shaping up to become another development success, while construction continues to progress at the flagship SmartVMC development. As the retail operating environment enters a post-pandemic era, leasing should continue to improve and support an already highly occupied portfolio (currently 97%+ occupied). Moreover, if opportunities present themselves in other sectors, such as self-storage and retirement housing, the REIT has proved its development expertise is widespanning, encompassing a wide swath of real estate subsectors. The REIT boasts a class-leading development team and with insider ownership of over 20%, also features very high unitholder alignment. We continue to like the REIT’s growth prospects and its proven development platform. We maintain our Outperformer rating and $34.00 price target. Key Points Q4/21 Results: SRU reported FFO/unit of $0.56, ahead of our estimate of $0.50 and consensus of $0.53 (normalizing for returns on the total return swap, results were generally in line with expectations). SPNOI growth was +3.5%, largely driven by lower expected credit loss provisions compared to last year (-2.0% excluding ECLs). Rent collections have returned to prepandemic levels and were over 98% at the end of 2021. VMC Update: The REIT continues to progress on mixed-use development at SmartVMC and completed its previously announced acquisition of a twothirds interest in 53.0 acres at SmartVMC for ~$513MM (note here). Operations: Committed portfolio occupancy was 97.6%, and sequentially stable. For full-year 2021, the REIT completed ~3.6MM sq. ft. of renewals (~85% tenant retention ratio) with healthy leasing demand from essential service tenants. Both anchor and non-anchor renewals were completed at an average +1% spread over prior in-place rents. Balance Sheet: In Q4, DBRS confirmed SRU’s investment grade BBB (high) rating and changed the trend from stable to negative. Debt to assets was 42.9% and improved from 44.5% last quarter. Post Q4, the REIT secured a $300MM unsecured credit facility. SRU could invest up to ~$1.5B before reaching the midpoint of its target leverage in the range of 55% to 60%. In Q4, the REIT recorded a substantial fair value gain of ~$418MM, representing ~5% of carrying value, and indicative (we believe) of potential future gains as key developments reach milestones for a valuation re-rating.