TSX:IIP.UN - Post by User
Post by
incomedreamer11on Nov 05, 2024 9:11am
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Post# 36296762
Scotia comments on result
Scotia comments on result
Q3 Glance: Growth Decelerates; Question = How Much of It Is Reflected Already?
OUR TAKE: Slight Negative. Reported & recurring FFOPU of $0.16 (+8.3% y/y vs. +17% y/y in Q2) was 8% below our $0.173 and 3% below $0.164 consensus (range = $0.162-$0.173). Reported AFFOPU was +9% y/y (Q2 = +19% y/y; 2023A = +3.4%). Occupancy was +20bp q/q to 96.4% (Q2 = -60 bp q/q),below our 96.9% forecast and the typical 60-70bp seasonal q/q bump due to a ~100bp decline in Montreal occupancy.
On capital allocation, IIP bought a 50% stake (for $53.5M; 248 suites = $431.5k/suite) in a new Montreal downtown building post-q, consistent with Q2 citing external growth ambitions (no NCIB activity noted).
Setting aside recent unit price pressure (down ~8% since Oct 24th; now trading at 18x in-place 2025E), we think the unit price would respond negatively to the decelerating new lease spread (11.4% vs. 16.1% q/q), more subdued occupancy gains and Montreal acquisition (pending going-in cap rate details). That said, absolute growth was decent, SSREV growth accelerated a bit vs. Q2, and we feel the unit price was reflecting limited sequential occupancy gains (& decelerated growth) on investor foreign student fears in Ottawa and Montreal, which may mitigate tomorrow's response.
Full update post c/c tomorrow at 10:00am ET (1-800-717-1738).
Distribution jumps 5% to $0.397/year and = 3.5% yield vs. 3.2% avg. for peers and consistent with last year’s 5% boost (to $0.378/year; 10% CAGR since 2011 - 13 years of 5%+). The bump matches our 5.5% expectation and = a 64% payout ratio based on our in-place 2025E AFFOPU.
SPNOI growth decelerated to +8.7% y/y (Q2 = +9.7%; 2023A = 11.8%), on 5.6% avg. rent growth (Q2 = 6.8%; 2023A = 9.0%), a 120bp y/y occupancy increase (Q2 = +70bp to 96.2%) and 40bp higher margin (Q2 = +130bp to 67.5%). SSREV/SSEXP was +7.9%/+6.3% y/y (Q2 = +7.6%/+3.3% y/y), with accelered expense growth noted as partly timing related (quantum = n/a). Avg. rent bump on new leases (1,279 or 11% of portfolio suites) = 11.4% vs. 16.1% q/q and 15.0% LTM avg but disclosed MTM was largely intact (~27% vs. below-30% before); LTM turnover = 24%. Vacancy and rebates as a % of revenue was +30bp q/q to 5.1% and down 90bp y/y (Q2 = +40bp q/q and flat y/y).
Rent growth still quite solid, albeit decelerating a bit. Disclosed SP avg. rent growth was +5.6% y/y (Q2 = +6.8%; 2023A = 7.5%). SP portfolio rent was +1.7% q/q (Q2/24A = 1.4%), ranging from 0.9% in Toronto to 3.2% in Montreal (interesting b/c of Montreal q/q vacancy uptick). SP occupancy was +20bp q/q and 120bp y/y to 96.4% (Q2 = -60bp q/q and +70bp y/y), with Ottawa the highest at +80bp q/q to 97.2%, and Montreal falling 100bp q/q to 96.3%. IIP noted that ~85% of the portfolio has been re-positioned (flat q/q, Q2 = -1% q/q).
The Q3/24A $94M FV loss = $0.63/un (~6% of unit price) vs. $35M FV loss = $0.23/un (~2% of unit price) in Q2, with cap rate +9bp q/q to 4.34% (Q2= +8bp q/q), still below our 4.60% and the flat cap rate we estimated in the Q3/24 CBRE cap rate survey (see Exhibit 3 in our note).
Liquidity declines while D/GBV increases q/q. Q3 liquidity of $295M (incl. $24M of cash) fell $25M q/q (Q2 = +$23M q/q). Debt/GBV was +70bp q/q to 38.5% (Q2 = +3bp q/q) on the FV loss, while TTM Net Debt/EBITDA was flat q/q at 11.3x (Q2 = -0.5x). IIP has ~$316M of debt maturing through 2025 = ~19% of total debt at an avg. cost of ~4.2%. Mortgage debt backed by CMHC was flat q/q at 90%(Q2 = flat q/q). Overall, IIP floating rate debt exposure was flat q/q at 1% (Q2 = flat q/q). W.A. mortgage interest rate intact at 3.37% (Q2 = flat q/q). W.A. term to maturity fell 0.2 years to 4.6 years. IIP spent $18.5M in capex, incl. $13.5M on repositioned suites. 2024E mortgage upfinancing = $48M (2025E = $81M).