The All Season REIT Our Conclusion
Choice reported strong financial and operational results to begin 2024, with
FFO per unit increasing ~6% YoY, occupancy increasing ~20bps YoY, and
SPNOI increasing by 2.4%. Even as the broader transaction market stays
tempered, Choice again demonstrated its ability to transact, adding a high-
performing Loblaw store in the quarter. Financial stability remains a key
pillar, with unencumbered assets of $12.9B, D/GBV of 40.3%, and debt to
EBITDAFV of 6.9x. The development pipeline is significant, with near-term
focus on industrial and retail development.
Our NAV and price target remain unchanged at $15.00. We continue to
highlight Choice as one of the more defensive names in the sector, and
attribute the relative premium to resilient operations and prudent financial
management.
Key Points
Q1/24 Results: FFO per unit of $0.26 was in line with our estimate and
consensus. SPNOI growth was 2.4% Y/Y (close to FY guidance of 2.5%-
3%), driven by higher rental rates on renewals, contractual rent steps, new
leasing, and higher recoveries within the industrial and retail segments. The
industrial segment led SP-NOI growth with 2.8%, followed by retail at 2.5%,
while mixed use and residential declined 1.3%.
Leasing Update: CHP completed ~130K sq. ft. of new leases and ~493K sq.
ft. of renewals at an average 23% spread. Retention in the retail segment
was 84%, and 53.6% in industrial. Lack of retail supply continues to bolster
tenant demand and retail spreads were 10% in Q1. On industrial, retention
was tempered slightly by known vacancies in ON and AB. Industrial renewal
spreads were ~67% during the quarter. While there has been a leveling off,
the impact is non-uniform and mainly affecting large bay assets. Small and
mid-bay rents have continued to increase, and subleasing activity in the
portfolio is insignificant.
Transactions: CHP acquired a retail property (~74K sq. ft.) from Loblaw for
~$38.4MM. The lease runs for 15 years, with 2.25% escalators and has
future intensification potential. During the quarter, the REIT also disposed of
one industrial (114K sq. ft.) and one retail (13.5K sq. ft.) property for
~$23.3MM. CHP also sold 36 condominium units of the Mount Pleasant
Village development in Brampton, ON.
Fair Value Update: CHP recorded a ~$3.6MM loss on investment
properties, primarily as a function of changes in leasing assumptions and
contractual rents, along with minor expansion of cap rates on the industrial
segment.