Analyst update While calling its second-quarter results “noisy,” Mr. Woolley thinks SmartCentres Real Estate Investment Trust (SRU.UN-T) continues to display stability in its core portfolio and leasing is “showing progress.”
On Aug. 11, the Toronto-based REIT reported funds from operations per unit of 49 cents, down 15 per cent year-over-year and narrowly below the analyst’s 52-cent forecast as well as the consensus projection on the Street of 51 cents. After “stripping away a lot of items,” Mr. Woolley estimates FFO per unit was down approximately 1 per cent.
“There were a lot of harder to forecast variances this quarter, including big swings in rent provisions (an expense last year vs a recovery this year), big changes in the income from SRU’s total return swap (modest income last year, bigger loss this year), and condo gains ($13-million last year vs $1-million this year),” he said. “Putting that noise aside, we estimate FFO/u [funds from operations per unit] was down around negative 1 per cent, as improved performance at retail was offset by the equity issuance for the SmartVMC West development land acquisition. Reported SPNOI was up 5 per cent, and excluding changes in rent provisions, it was up 2 per cent (which should be considered a good number for SRU, which typically guides in the negative 1-per-cent to positive 1-per-cent range). Occupancy was 97.2 per cent, up 10 basis points year-over-year, up 20 basis points quarter-over-quarter. Renewal spreads averaged 2.6 per cent for H1.”
Mr. Woolley called the REIT’s progress on its SmartVMC project, a 100-acre city centre in Vaughan, Ont., “impressive” and pre-sale activity at newly launched condo projects remains “robust.”
Keeping a “sector perform” rating for SmartCentres, he bumped his target for the REIT to $30 from $29. The average is $31.18.
“We raised FFO/u forecasts 1-2 per cent (AFFO/u up 0-2 per cent) and our NAV estimate by 3 per cent,” he said.
“2023 will show more FFO progress thanks to condo closings (costing $181-million, whose earnings will hit FFO in 2023) and $211-million of apartment completions (whose earnings will build over a couple of years at an expected initial yield of 5 per cent).”