TSX:PRV.DB - Post by User
Post by
incomedreamer11on Nov 16, 2022 11:38am
405 Views
Post# 35103467
Scotia comment on result
Scotia comment on result
Becoming More of an Industrial.... And Less of a Diversified Play
OUR TAKE: Neutral. Our target of $7.50 is unchanged and our NAVPU of $7.60 is also unchanged. Our FFOPU estimates are reduced by 5.5% for 2023 due to higher interest expenses. This has been the theme for the sector in the last few months. For this story to work, two things have to happen: (1) Non-major CAD industrial markets must continue to perform well – this is already happening. (2) The market has to treat PRV more like an industrial REIT and less like a diversified one. This is not an easy transition but feels like we are getting there; 76% of its total portfolio (by asset value) is industrial, 16% retail, and 8% office. PRV is trading at 11.8x 2023E AFFO multiple and at a 6.6% implied cap rate.
At this point in time, we think investors should own PRV for its higher distribution yield of 7.2% (2023 AFFO payout ratio of 85%). Once industrial share reaches 90% or so, then we could see a valuation re-rating. But this could take time. Maintain SP rating.
KEY POINTS
Q3/22 – impressive growth in core industrial segment. PRV achieved SP NOI growth of 3.6% in Q3/22. SP NOI in industrial grew 7.2% y/y in Q3/22 and retail by 3.3%, while office SP NOI was down by 12.2%. The decrease in office SP NOI was mainly due to increased vacancy in two of the eight properties. That said, PRV leased 12.2k sf office space on a six-year term, commencing on November 6. PRV continued to print impressive net rent spreads in Q3/22: 85.5% of leases maturing in 2022 were renewed at 14.9%, while 21% of leases maturing in 2023 were renewed at an average spread of 50.3% – this was heavily weighted to two large industrial transactions done in Moncton, NB (at 40% leasing spread) and Woodstock, ON (at 90% leasing spread). Management noted that 90% of the GLA expiring in 2023 is industrial, so we believe leasing spreads will remain robust.
Active capital recycling: PRV closed the transaction with Crestpoint this quarter (part of CCL Group, $80B+ of AUM), PRV owns a 50% stake in a 41-property portfolio in Halifax (and one in Moncton), comprising 3.1M sf of GLA with a total asset value of $455M. In June, we published a detailed note on this transaction and characterized the transaction as a good validation of PRV’s platform. Capital recycling continued as PRV announced the sale of a portfolio of nine non-core retail properties (94k GLA) in Western Canada for $18.75M, using the proceeds to repay $14M in mortgage. Subsequent to this quarter, PRV sold another retail property in Alberta (11k GLA) for $5.4M. Update on leverage: Leverage came down this quarter as PRV continued to use sale proceeds to pay down debt. D/GBV = 49.8% in Q3 vs. 58.2% last year.