TSX:PRV.DB - Post by User
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incomedreamer11on Mar 25, 2022 10:33am
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CIBC comments on results
CIBC comments on resultsPRO REIT Industrial Strength Shining Through; Price Target +10%
Our Conclusion PRO REIT’s results highlight that the strength in industrial extends beyond the primary markets to Halifax, Winnipeg and southwestern Ontario.
We view the ~26% mark-to-market on industrial as driving significant organic growth
As the REIT continues to add to its industrial footprint, we expect valuation to improve from the discount associated with diversified REITs to a valuation in line with NAV, per pure-play industrial peers.
We raise our NAV to $8.25 as we lower our cap rate to 5.9%, in line with IFRS, and similarly our price target is raised to $8.25 (from $7.50). We maintain our Outperformer rating.
Key Points Q4/21 Results: FFO per unit was $0.11, below our estimate and consensus of $0.13, with the variance to our estimate largely driven by higher long-term incentive compensation. AFFO per unit was in line with our estimate. The industrial segment comprised over 63% of base rent. SP-Performance: SP-NOI growth excluding non-recurring items and other COVID-19-related expenses was +5.0%, driven by +7.3% in the REIT’s industrial segment on higher occupancy and rents, followed by +2.9% in retail and +2.5% in office. Portfolio same-property occupancy was up ~40 bps, with gains in industrial and retail more than offsetting a decline in office. Full-year SP-NOI growth ex. items was +3.1%. Operations: Portfolio occupancy was sequentially stable at 98.4%. Approximately 97% of leases maturing last year were renewed at an average rental rent spread of +10.2% and nearly half of lease maturities for 2022 have been renewed at an average rent spread of +10.1% compared to prior in-place rents.
2022 Outlook And Beyond: SP-NOI growth is expected in the range of 2% to 5%, reflecting industrial strength and certain transient vacancies. The REIT is aiming to reach $2B in portfolio asset value in the medium term (vs. current portfolio of just under $1B) and anticipates the upcoming year to be active for acquisitions.
Balance Sheet: Debt to GBV was 53.1% at Q4 and sequentially down from 58.2%, following the ~$69MM public equity offering (and concurrent ~$14MM private placement) and reflecting fair value gains. PRV will aim to continue improving leverage metrics and its debt to GBV target in the near term is 50%. The REIT had ~$51MM of liquidity, comprising cash and undrawn facilities. PRV recorded ~$59MM of fair value gains in the quarter, driven by industrial (segment IFRS cap rate sequentially lower by ~40 bps to ~5.6%).
Investment Thesis PRO REIT is well positioned to grow in secondary markets, which offer wide spreads on acquisitions. The industrial concentration is reflected in the relative NAV premium, and we see room for valuation to improve with further growth in industrial.
Price Target (Base Case): C$8.25 Our base case of $8.25 reflects our current NAV and equates to 15.3x 2022E FFO.
Upside Scenario: C$9.50 Our upside case of $9.50 reflects our NAV with NOI growth that exceeds our forecast by +2.5% and a 25 bps cap rate decrease on the property portfolio.
Downside Scenario: C$6.00 Our downside case of $6.00 reflects a 15% discount to NAV with total NOI that misses our forecast by -2.5% and a 25 bps cap rate increase on the property portfolio.