Post by
incomedreamer11 on Aug 06, 2022 9:33am
CIBC comments
Our Conclusion
Completion of a significant volume of asset sales in the near-term (over 15% of the portfolio) would mark further progress in the REIT’s transformation plan and fuel up the REIT’s capital allocation strategy (which to-date has centered around unit buybacks and investments in public securities).
We expect Artis to continue capitalizing on public market dislocations to advance its value-investing strategy. Fundamentally, we note decent lease-up progress this quarter, particularly in office, as occupancy improved sequentially, and management commentary points to a broader improvement in leasing activity.
We increase our FFO estimates following Q2 results. We lower our NAV to $14.50 on an NOI adjustment, and accordingly lower our price target to $13.00, applying a 10% NAV discount.
Key Points Q2/22 Results: FFO per unit was $0.38, above our $0.33 estimate, mainly due to higher-than-expected distributions from equity securities and preferred investments, plus buybacks. SPNOI grew 0.7% (-1.5% excluding foreign exchange), with +4.5% in industrial and -1.4% in office, and a 0.6% decline in retail.
By region, Canadian SPNOI was down 1.8% (mainly reflecting Alberta) and U.S. SPNOI declined 1.2% (driven by Minnesota and Arizona).
Significant Pending Dispositions: The REIT sold one industrial and one office property for ~$68.7MM in Q2. The REIT has ~$670MM assets held for sale, comprising 28 U.S. industrial properties, four office properties, developments and land parcels. The proposed dispositions exceed management’s previously stated target of $500MM and are expected to close by year-end at pricing in line with IFRS.
Public Securities Investments: Artis invested $158MM in equity securities in the quarter, which included Dream Office units wherein the REIT has a ~14% interest (including Sandpiper Group’s share).
Balance Sheet: Consolidated Debt to GBV was 46% vs. 43% last quarter. IFRS NAV grew from $19.09/unit last quarter to $19.37/unit. The REIT continued to be active on its NCIB, having repurchased ~3.5MM common units in Q2/22, and has purchased the maximum allowable units per its NCIB.
Cap Rate Tracking: Weighted average IFRS cap rate was 6.12% (vs. our 6.75% estimate), unchanged from last quarter, and down 10bps over the past six months. Artis recorded a modest $19MM fair value loss, mostly reflecting office, and partly offset by U.S. industrial rent expectations and Canada retail cap rate compression.
Investment Thesis Artis is in the midst of a transformation plan, heading towards building an asset management and investment platform by divesting hard assets and value investing in real estate. While reasonable progress has been made to-date, uncertainty remains as to the ultimate execution of the strategy.
Price Target
(Base Case): C$13.00 Our price target of $13.00 reflects a ~10% discount to our NAV estimate.
Upside Scenario: C$14.50 In our upside scenario, we assume that units trade at NAV parity
Downside Scenario: C$8.25 In our downside scenario, we decrease our NOI assumption by 2.5%, increase our cap rate by 25 bps and apply a 40% discount to NAV.
Comment by
SNAKEYBOY on Aug 06, 2022 12:08pm
Yeah man those asset sales for AX AND HR in second half around FMV will give them serious AMMO to take advantage of this historic NAV GAP. ANYONE NOT LOADING UP AT THIS LEVEL IS INSANE
Comment by
JMOttawa on Aug 06, 2022 1:09pm
Increasing a position at this level is a no brainer. Remarkably low risk with strong reward for patience. Love the investment thesis of Samir and his team. Great work!!
Comment by
SNAKEYBOY on Aug 07, 2022 12:00pm
It should be trading where HR reit is at $13+. They traded same SP most of the year, no reason for this $2 gap