Post by
incomedreamer11 on Aug 04, 2021 10:43am
comments from Scotia
Sale of The Bow and Bell Campus Kicks Off Strategic Initiatives
OUR TAKE: Slight Positive.
Lots of moving parts, but H&R announced the effective sale of an 85% interest in The Bow and 100% interest in its 1.1Msf Bell Office Campus in Mississauga, ON, for combined gross/net proceeds of $1.47B/~$0.8B.
H&R noted combined value exceeds Q1/21 IFRS value by $206M (~$0.70/un); we est. $63M of the $206M relates to est. NPV of future mgmt fees on both assets (i.e., $0.21). The implied ~$1.17B for The Bow (at 100%) is a bit below the $1.2B in our $18 NAVPU (at ~8% implied cap). We don't value the Bell Campus separately but we include "Other CAD Office" at combined 5.5% NAV cap (vs. implied ~7% on the sale). Net-net, our initial read is: sales price is fairly consistent with our in-place NAVPU, with some upside on new mgmt fees (not in our NAVPU).
Equally important, H&R noted net proceeds are expected to pay down debt (no mention of SIB at this stage or discussion of potential spin-out of Primaris ). We est. solely repaying debt = ~ $0.10-$0.15 of annual FFOPU dilution not in our model (incl. est. ~$0.02 of new fee).
Our Target Price is +6% (+$1.00) to $18.00 on a 2.5x increase in target multiple to 15.0x due to lower leverage, lower exposure to Alberta and lower key tenant concentration risk. Our Current NAVPU is +$0.50 to $18.50; $0.25 due to a 50bp decline in Industrial cap rate to 4.5%, with the other $0.25 on $75M of value attributable to a new $5M/year fee stream coming from property management fees (HR est. 100% margin); we use 15.0x.
We assume the deals close by year-end, resulting in a $0.19 and $0.15 decline in our 2022E FFOPU and AFFOPU (-11% vs. 2020A).
We think HR can revisit Q1/21A FFOPU by 2H/22. Net-net, we still see some upside in H&R as it still trades at a discount but a 125% recovery from COVID-trough has yielded a more reasonable valuation (vs. 90% for sector), in our view, particularly if $0.8B of net proceeds remain confined to debt repayment (our base case = no SIB pending corporate restructuring later this year).
Comment by
Shirtlessnomore on Aug 04, 2021 10:59am
For once I agree with a banks comments. I'd too call it a slight positive although the market disagrees apparently. Lol. Cheers!
Comment by
Tommy123 on Aug 04, 2021 11:02am
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Comment by
Shirtlessnomore on Aug 04, 2021 11:04am
Having said that I dont see alot of positive catalysts right now just about everywhere a recovery play is concerned unfortunately. But I assumed late summer would not be pretty.