Post by
incomedreamer11 on Feb 25, 2023 11:07am
CIBC comment on result
PLAZA RETAIL REIT Something To Build On
Our Conclusion
Plaza reported stable (as we have come to expect) operating numbers, backed by its heavily weighted essential needs, convenience and value-based market tenant roster.Plaza has taken the prudent measures of securing financing and recycling properties to aid in the repayment of near-term maturing debt. It has locked in a $37MM bridge loan and the sale of three non-core properties located in St. Laurent, QC, and Brampton and Scarborough, ON, generating net proceeds of $11.8MM (all subsequent to Q4/22). The funds are to be allocated toward the repayment of the ~$47MM Series E convertible debenture (we have seen several convert deals at considerably higher re-fi rates and lower conversion prices recently). With a continued focus on contributing capital toward its development pipeline, the REIT has also secured credit facilities to ensure financial flexibility through the development stage of numerous projects. We also note PLZ’s commitment to focus on growth opportunities for pharmacies and major grocers, as opposed to development plans for non-essential retailers, with demand staying strong for essential needs-based retailers. With a conservative IFRS valuation (i.e., higher cap rates have lower convexity), we view Plaza as relatively sheltered from potential cap rate expansion.
We raise our NAV to $5.25 (from $5.00) and, accordingly, increase our price target to $5.00 (from $4.75).
Key Points Q4/22 Results: PLZ reported Q4/22 FFO/unit of $0.10, in line with our estimate and consensus. SP-NOI grew by 1.8%, driven primarily by lease-up and rent escalations during the quarter. The majority of the contribution came from PEI and Quebec, which grew by 3.1% and 3.0%, respectively, partially offset by Newfoundland and Labrador (decrease of 1.1%).
Leasing: The REIT achieved a 2022 rent spread of 3.8% and completed a total of ~206K sq. ft. of new leasing for the year. For 2023, the REIT has ~641K sq. ft. of lease maturities, or ~9.6% of the total portfolio.
Value-add Pipeline: Plaza’s development pipeline stands at ~1.3MM sq. ft. and the REIT expects to spend ~$16MM-$18MM on its remaining projects in construction, to be funded largely with existing development facilities or construction loans. The total cost for developments and redevelopments is estimated at between $159MM and $163MM, of which ~$82MM has already been spent. The pipeline for new developments is driven by grocery and other essential needs retailers, and management noted healthy demand from new store openings.
Cap Rate Tracking: Weighted average IFRS cap rate was 6.73% (vs. our 7.25% estimate), ~5 bps lower than last quarter and down from 6.90% at Q4/21.
Company Profile
Plaza Retail REIT has ownership interests in retail properties (predominately open-air centres) totaling ~8.8MM sq. ft. The REIT is controlled by co-founders, Trustee Earl Brewer and President and CEO Michael Zakuta (~20% equity interest).
Investment Thesis
Plaza enjoys a strong position in Atlantic Canada where management has a long operating track record and local market knowledge. Growth strategy involves acquiring opportunistic assets and generating returns through redevelopments, and a ~1.3MM sq. ft. development pipeline that adds to NOI growth. We like Plaza’s approach to value creation, and view valuation as fair vs. peers.
Price Target
(Base Case): C$5.00 Our 12- to 18-month price target is $5.00, which is slightly below our NAV estimate, and equates to 11.9x 2023E FFO.
Upside Scenario: C$6.25 In our upside scenario, we increase our NOI assumption by 2.5%, reduce our cap rate by 25 bps and apply a ~5% premium to NAV.
Downside Scenario: C$3.25 In our downside scenario, we decrease our NOI assumption by 2.5%, increase our cap rate by 25 bps and apply a 30% discount to NAV.