TSX:GRT.UN - Post Discussion
Post by
retiredcf on Nov 11, 2022 8:37am
TD 2
Bump their target by a buck to $95.00. GLTA
Granite REIT
(GRT.UN-T, GRP.U-N) C$76.72 | US$57.49
Outlook Remains Favourable; NOI Growth Accelerating
Event
Post-Q3/22 forecast update (initial views here).
Impact: SLIGHTLY POSITIVE
Capital allocation outlook: The main portfolio-related capital commitment is cost- to-complete on PUD and forward-purchase commitments, which total ~$250mm over the next four quarters. Management suggested NCIB activity would slow/stop. With Granite's mid-70's AFFO payout ratio resulting in $60-70mm of FCF after distributions annually, balance sheet leverage is set to tick up slightly over the next year. We note that dispositions could offset this (although none are currently planned/ expected in the near-term). We are forecasting ND/Assets to increase ~250bps by year-end 2023 from 29% in Q3/22.
SPNOI growth is accelerating from 2.5% in 2021 and ~4.5% in 2022, to up to 7% now expected in 2023. Granite provided a favourable guidance update, with results for 2022 expected to come in at the higher-end of ranges previously provided (singular FFO/unit target +$0.02 to $4.37 and SPNOI growth at the higher end of the 3.5%–4.5% range). Inaugural 2023 SPNOI guidance calls for growth increasing to 6%–7%, consistent with our recommendation upgrade earlier this year and representing a meaningful acceleration from 2.5% in 2021.
Leasing: Of the last three 2022 lease expiries, two renewals are expected at a 60% rental uplift and the other is an asset held for sale. On 2023 expiries, 66% of space is committed or has terms agreed with an average ~20% uplift. Near-term large expiries include Magna in Graz (5mmsf, 31-Jan-2023 notice expiry for a 31-Jan-2024 lease expiry) and Light Mobility Solutions in Germany (0.8mmsf, 30-Nov-2023 lease expiry).
Forecast update: Our forecast (reflecting an 8%, 3-year AFFO CAGR) is largely unchanged, with faster SPNOI growth and favourable F/X mostly offset by increased interest expense to reflect the recent USD term loan and higher market rates going forward. Our NAV/unit estimate increased $1.00 to $96.00 as NOI growth and favourable currencies offset another +10bps to our cap rate.
TD Investment Conclusion
At a forward P/AFFO 20% below peak and lower than pre-pandemic levels (before market rents skyrocketed) — and also at a 20% NAV discount — we believe the risk/ reward profile has rarely been more compelling.
Be the first to comment on this post