Post by
incomedreamer11 on Jul 30, 2021 9:21am
comments from Scotia
After an 18% bounce-back in MRT's unit price since April 29, 2021 (versus REIT index up 9% during this time and traditional retail up 4%), MRT is now trading at a 9% discount to our NAV versus a 26% discount to NAV in late April 2021.
MRT is no longer screening "deep value" as it was in April, and therefore we believe investor's focus will now shift back to enclosed mall and AB office fundamentals – both of which are showing some recovery off last year but remain challenging.
While a recovery in fundamentals will take time, we think the near-term catalyst should be the large debt refinancing this year. $303M of debt (23% of total) is coming due in 2021, including $175M of convertible debentures which expire in December 2021. A successful debt refinancing should alleviate some of the near-term concerns and MRT could trade at parity to our NAVPU of $7.00.
MRT is 60.9% owned by Morguard Corp. (a large asset manager with total AUM of $19.2B). Despite the recent recovery, MRT remains one of the worst-performing REITs: its unit price is down 44% since Feb. 2020, while the REIT sector has recovered (flat since Feb. 2020). A 75% distribution cut during COVID and portfolio concentration in regional enclosed malls (32% of total portfolio) and Alberta office (21% of total portfolio) contributed to the price performance.
Our SP rating is unchanged as we don't expect a big rebound in fundamentals although valuation looks more reasonable today.
Our target price is slightly increased to $6.50 (from $6.00) and now based on ~5% discount to our NAV vs. a ~20% discount previously.
We note REIT sector is now trading at ~5% premium to NAV (vs. a small discount three months back). Operating performance improved in Q2/21 mainly from lower bad debt expense. SP NOI for the entire portfolio grew 6.5% y/y in Q2/21 vs. -10.8% in Q1/21 and -14.2% in Q4/20. FV negative adjustments for the entire portfolio was $20.9M, or $0.29/unit, in Q2/21 vs. $14.5M, or $0.20/unit, in Q1/21. Large lease maturities: MRT is monitoring enclosed mall asset class performance over the next 6 to 12 months. MRT anticipates more capital will be required to backfill vacancy, which may further arise from failed tenants.
Post–Q2/21 results, our NAVPU estimate is slightly decreased to $7.00 from $7.25 per unit (based on normalized NOI assumptions adjusted for bad debt expenses). Our AFFOPU estimates are largely unchanged.