RE:AnalystsHere's CIBC's - they really like PMZ with a target rate of $19.
Our Conclusion
Primaris highlighted the quarter with re-accelerating 9.8% SP-NOI growth (excluding bad debt recoveries, SP-NOI increased by a still impressive 8.2%) and a much improved (albeit from an already robust and arguably best-inclass) liquidity profile. We note that Primaris received an issuer upgrade to BBB (high) and eliminated exposure to floating-rate debt. The REIT also reaffirmed 2023 guidance: it expects to achieve SP-NOI growth of 3% to 5% (now expecting to achieve the higher end of this range), 1% rent-steps, and an occupancy increase of 0.8% to 1% (all generally consistent with our modelled expectations). We note that, as the REIT laps strong periods of performance in the coming quarters, we anticipate SP-NOI growth to come in line with the REIT’s guidance range, a range we see as more commensurate with the long-term stable growth potential for PMZ. Our NAV remains unchanged at $21.50 (a figure generally in line with the reported IFRS NAV) as we fine-tune our estimates. Accordingly, we leave our price target unchanged at $19.00.
Key Points
Q1/23 Results: FFO/unit was $0.37, slightly below our estimate and consensus of $0.38, reflecting strong 9.8% SP-NOI growth driven by increased revenues from base rent, specialty leasing revenue, and net recoveries. We note that excluding bad debt recoveries SP-NOI increased by 8.2%.
Active NCIB: In Q1/23 Primaris repurchased ~1.2MM units at an average price of ~$14.78/unit, with a further ~120K units purchased subsequent to Q1/23 at an average price of $13.46/unit on a leverage-neutral basis. As of Q1/23, the cumulative ~5.1MM units that have been repurchased have positively impacted IFRS NAV by $1.09/unit. We continue to highlight Primaris’ model of very low leverage along with a low payout ratio, which leaves it less exposed to interest rate sensitivity (along with no near-term debt maturities) and with higher optionality for further distribution increases and continued NCIB activity. We also note that Primaris entered into an automatic share purchase plan with respect to its NCIB. Management stated that NCIB volume has stepped down as it pursues a balanced approach to ensure its balance sheet remains best in class.
Debt And Liquidity: PMZ issued ~$250MM of senior unsecured debentures at ~5.9%, along with an interest-only mortgage of ~$85MM at ~5.5%. Subsequently, the REIT allocated the proceeds towards repaying its existing credit facility, thereby increasing its liquidity position to ~$468MM (from ~$176MM last quarter).
Cap Rate Tracking: Primaris left its discount rate unchanged at 8.22%, from 7.63% at Q1/22, reflecting current market sentiment. The going-in cap rate on year-one NOI was 6.87%, modestly down from 6.91% sequentially.