TSX:SOT.DB - Post by User
Post by
hawk35on Apr 05, 2023 8:39am
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Post# 35380544
Additional Comments from TD Bank
Additional Comments from TD Bank
Outlook
Management expects occupancy to improve in 2023 and on its recent Q4/22 conference call, it highlighted that approximately half of its expected vacancies have already been replaced by leases that have not yet commenced. Management has also seen positive office utilization rates among tenants (particularly across the Ireland and Atlantic Canada markets) and has seen more tenants return to office thus far in Q1/23. Suburban markets have also continued to outperform downtown markets, which bodes well for Slate. That said, we note that overall Canadian office fundamentals have continued to soften in 2023, with national office vacancy having trended upwards over the past couple of quarters and reaching 17.7% as at Q1/23 (link). Looking ahead, we remain cautious on the office front as companies navigate the uncertainty on long-term office needs.
Justification of Target Price
Our $3.75 target price (previously $4.50) is based on a 8.0x-8.5x multiple to our 2024E AFFO/unit (previously 9.75x-10.25x). The multiple is largely in line with where the stock is trading on our 2023 AFFO estimate. Slate’s target multiple is at the low end of the 8.0x[1]16.50x multiple range we use to value the office peers in our coverage universe. The lower multiple reflects Slate’s higher-than-average leverage, smaller public float and trading liquidity, as well as its external management structure.
Key Risks to Target Price
Key risks to our target price include local real-estate markets; competitive supply; demand swings; general economic conditions; operating cost pressure; environmental matters; interest rate fluctuations; foreign exchange rate fluctuations; inability to maintain occupancy levels; and the loss of key management personnel. In addition, there could be potential conflicts of interest with the external manager, Slate Asset Management