Post by
incomedreamer11 on Aug 15, 2023 8:48am
TD down target price again
PROREIT (PRV.UN-T) C$5.45 Q2/23 Results: Muted AFFO Outlook Warrants Downgrade to HOLD
Impact: SLIGHTLY NEGATIVE
Fundamentals for PROREIT remain strong, with the property portfolio achieving record-high 99% committed occupancy in Q2/23 (up from 98.6% in Q1/23), reflecting the successful back-filling of a 102,000sf vacancy at 3200-3260 Gunette Street in Montreal. The two new 10-year leases are expected to commence by October 1 (spaces are currently in fit-out), which will increase the property's annual NOI by over 60% to $1.5mm.
Capital recycling: PROREIT disposed of a small non-core office property for $2.1mm. PROREIT also agreed to sell two non-core office properties at 9 & 31 Auriga Drive in Ottawa for $9.1mm (the cap rate was elevated at ~8% due to a pending vacancy). Management also expects to dispose a 19,000sf retail property near Quebec City (one of the two assets in redevelopment as part of the 84,000sf vacancy in Q1/23), but the $36mm of conditional sales discussed last quarter are now taking longer to achieve due to lengthened due diligence periods and more challenging debt markets.
Forecasts: Following revisions to our forecasts, our 2023/2024 AFFO/unit estimates are -4% on average (and are -6% YTD). Our forecast now calls for a two-year AFFO/ unit CAGR of -2% (flat previously). Key changes include higher assumed yields on dispositions, and increased market interest rates for commercial property debt.
TD Investment Conclusion With our aforementioned forecast reduction and $0.40 reduction in our NAV/unit estimate (now $6.60), we are lowering our target price by $0.50 to $5.50. Our target valuation implies 14x 2024E P/AFFO and 83% P/NAV, compared with PROREIT's historical averages of 12.5x and 90%, respectively. With the new target return insufficient for a Buy rating, we are lowering our recommendation to HOLD. We continue to see favourable leasing fundamentals in PROREIT's core industrial property markets that bode well for the stability and long-term growth in NAV and AFFO. However, PROREIT's balance-sheet deleveraging goal results in a more muted near-term AFFO growth outlook, and we now see less valuation upside to pure-play industrial REIT valuations as PROREIT continues to raise its industrial property concentration. Therefore, we believe catalysts for meaningful upside are now more than 12 months away.