PRO Real Estate Investment 8 Convertible Unsecured Subod Debentures T.PRV.DB

TD comments

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Impact: NEUTRAL

PROREIT had an overall strong quarter operationally with SPNOI growth rebounding to +3.6%, which we believe partly reflects an increasing portion of the sameproperty asset pool represented by industrial property where fundamentals continue to strengthen.

The strong operating results (and slight beat on NOI vs. our forecast) were offset by one-time costs that resulted in an FFO and AFFO miss for Q3/22.Looking forward, SPNOI growth stands to benefit from the strong +15% leasing spreads that management is seeing so far in 2022. The outlook for 2023 is for further improvement, with the 20% of 2023 expiring GLA addressed to date at an average 50% rental uplift (including a 40% uplift in Moncton, NB, and a 90% uplift in Woodstock, ON). That said, management believes the average rental uplift for all of 2023 renewal/replacement leasing activity will ultimately end up at a still-strong +25%.

We believe PROREIT has improved its ability to withstand economic headwinds that are widely expected to be around the corner. The creation of the Crestpoint JV (completed in August) enhanced both asset diversification and fee revenues without the need for new equity, and more recently the REIT has achieved some asset sales that have helped push D/GBV below 50% for the first time. Portfolio growth has been a key priority for PROREIT since inception (assets have tripled over the past four years), and management aspires to double assets further to the $2bln mark. That said, the trajectory is clearly on hold as markets navigate today's higher interest rates, inflation, and economic uncertainty. In the meantime, we expect stable cash flows and potential for further NAV growth as strong growth in rents and NOI combine to offset increased interest expense as maturing debt is refinanced/replaced.

TD Investment Conclusion PROREIT offers investors exposure to the healthy industrial property sector, with a strong weighting in Halifax and Atlantic Canada, where population growth has accelerated in recent months.
We are maintaining our BUY rating and $7.00 target price.

PRV.UN-T: Price Company Profile PROREIT is an internally managed REIT that owns a portfolio of 132 commercial properties aggregating 6.5 million square feet of owned GLA. The REIT's industrial portfolio represents 68% of base rents, followed by Retail at 22% and Office at 10%. The REIT derives ~50% of base rents from Atlantic Canada.