Post by
incomedreamer11 on Feb 28, 2022 9:06am
CIBC comments on results
PLAZA RETAIL REIT Many Reasons For Optimism
Our Conclusion With the attrition of weaker retailers largely over, Plaza is well positioned with its essentials-focused open-air centres, with occupancy exceeding prepandemic levels, and value-add developments and redevelopments. The development pipeline is growing from increased opportunities as large landlords hone in on urban markets, and others look to trim their retail exposure. We expect cap rates could also drift lower on strengthening fundamentals. We increase our NAV from $4.75 to $5.00, and our price target increases to $5.00 accordingly.
Key Points Q4/21 Results: FFO per unit of $0.10 was in line with our estimate and consensus. SPNOI declined -1.6% due to pandemic-related subsidies and bad debt recoveries received in the prior year. Growth of +2.7% in Ontario and +4.9% in PEI were offset by declines across the REIT’s other regions.
Pandemic Update: Rent collections in Q4 remained in line sequentially above 99%, and PLZ collected 98.9% of deferred rent that was to be repaid in 2021. Excluding pandemic-related items, lease buyouts, and insurance proceeds, overall SPNOI would have increased +4% from last year. Management also noted lower participation in government support programs for tenants and an overall improvement in operational health for retailers.
Value-add Pipeline: PLZ expanded its development pipeline by ~174k sq. ft. to ~1.1MM sq. ft. and expects to spend ~$19MM to $20MM on its remaining projects in construction, to be largely funded with existing development facilities or construction loans. The cost for developments and redevelopments is estimated to total between $110MM and $120MM. For the upcoming quarter, the REIT is targeting the completion of three open-air projects totaling ~26k sq. ft. in Smith Falls, ON and Bedford, NS. Despite higher inflationary cost pressures in general, the REIT noted positive trends for top-line rents and believes unlevered yields will ultimately remain stable.
Balance Sheet: Debt to total assets was 51.2% (56.1% including converts) and down sequentially from 52.5% (57.5% including converts). At Q4, the REIT had total liquidity of ~$65.3MM comprised of cash and undrawn facilities. The REIT continued to repurchase units under its NCIB for a total of ~28k units in 2021 and an additional ~2k units post Q4. Plaza recorded a ~$30MM fair value gain in Q4, and has effectively reversed the write-downs taken duringLeasing: The REIT completed ~253k sq. ft. of renewals in Q4, at a rent spread of +1% over prior in-place rents and secured a tenant retention ratio of ~92%. PLZ also completed ~37k sq. ft. of new leasing. For the full year, the REIT completed ~880k sq. ft. of renewals at a +1.1% rent spread, largely driven by open-air centres (+1.5%) that offset a decline of -1.6% in quick-serve restaurant renewals. Open-air committed occupancy improved ~30 bps sequentially to 97.2%, while the other segments remained steady. For the rest of 2022, the REIT has ~456k sq. ft. of lease maturities or ~7% of the total portfolio, largely comprised of open-air centres.
Transactions: In Q4, PLZ acquired a 37.5% interest in a property in L’Axe, Chicoutimi, QC for ~$2MM and a 50% interest in a property in Les Immeubles SBT in Drummondville, QC for ~$5.9MM. The REIT also sold property interests for ~$0.1MM. The REIT is also continuing to expand its landbank, and at year-end, had six land assemblies under purchase agreement that are subject to due diligence. These land parcels could support an additional ~263k sq. ft. of density upon completion. Post Q4, the REIT sold a property in Ottawa, ON for proceeds of $2.2MM.
Distribution Sustainability: The REIT is currently paying an annualized distribution of $0.28 per unit, which represents a payout of ~78% on our 2022E AFFO, and is in line with the Canadian retail REIT average payout ratio of ~77%.
Historical Valuation And FFO Progression: PLZ presently trades at a ~2% discount to consensus NAV and compares with the long-term average discount to consensus NAV of ~3%. PLZ’s 2021 FFO is in line with pre-pandemic levels after excluding non-recurring revenues received during the year. Our 2022 FFO estimate is ~2% above 2019 FFO levels. The REIT’s portfolio is backed by a strong roster of high credit quality tenants with the largest exposures being Shoppers Drug Mart and Dollarama that together comprise ~31% of total base rent. the pandemic. IFRS cap rate declined to 6.9%, which is the lowest in several years.