Post by
retiredcf on Nov 11, 2022 12:39pm
CIBC
EQUITY RESEARCH
November 10, 2022 Earnings Update
GRANITE REIT
An Industrious Use Of Capital
Our Conclusion
Granite contributed significant amounts of capital towards its NCIB
(purchasing ~1.8MM units for ~$126MM) while also announcing a 3.2%
distribution bump (now $3.22 annualized). With significant liquidity and a fully undrawn credit facility, Granite continues to be in an exceptionally strong financial position to navigate through the current macroeconomic headwinds. Given the pronounced move in bond yields, we find it prudent (and perhaps overtly conservative) to raise our cap rate to 5.00% from 4.75%, bringing our cap rate more in line with historical levels when compared to bond yields. We do note the company's robust growth prospects that continue to drive strong NOI run-rate growth. Nonetheless, we subsequently lower our NAV estimate to $87.00, from $93.00, with a stronger NOI run-rate partially offsetting the higher cap rates. Our price target declines accordingly to $90.00, from $98.00 previously.
Key Points
Q3/22 Results: FFO per unit was $1.08, close to our estimate of $1.10 and consensus of $1.09/unit. Management reiterated 2022 FFO/unit guidance.
Operations: GRT recorded SPNOI growth of 3.2% (excluding the impact of foreign exchange). SPNOI improved on higher rents from CPI indexation, fixed rent increases, and Canadian leasing performance. Excluding foreign exchange impacts, growth was led by 16.3% in Germany, 5.5% in the Netherlands, 3.8% in Canada and 1.9% in the U.S., while Austria grew by 0.7%. GRT has renewed ~2.6MM sq. ft. at an average lift of ~34% and has renewed or reached terms on roughly 66% of the 2023 expiring leases.
Transactions: During the quarter, Granite closed on its acquisition of a
~0.5MM sq. ft. modern distribution facility in Tilburg, Netherlands for
~$102MM (~€76MM). The property has been leased for a 10-year term with an in-going yield of 3.2%. Granite also acquired a ~10 acre land parcel in Brant County, Ontario for ~$6MM, that has the capability of housing a ~0.2MM sq. ft. modern logistics facility. One Canadian incoming-producing property with a fair value of ~$18MM was held for sale at quarter end.
Cap Rate Tracking: IFRS cap rate was 4.7% (vs. our 5.00% estimate), up
~20 bps from last quarter, and up ~40bps over the past six months.
Canadian cap rates increased to 3.39% (from 3.36%), U.S. to 4.67% (from 4.38%), Austria to 8.09% (from 8.14%), Germany to 5.40% (from 4.96%), and the Netherlands to 4.14% (from 3.97%).