TSX:SGR.UN - Post by User
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incomedreamer11on Feb 21, 2024 11:53am
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Post# 35891046
Scotia comments after conference
Scotia comments after conference
Good Progress On Leasing; Payout Ratio Remains Elevated
OUR TAKE: Neutral. Post largely in line Q4 results, our target is unchanged at $9.50, while our NAV is reduced to $9.50 (-$0.25) as we use a higher cap rate of 7.75% (+10bp). SGR continues to perform well on the operational front due to a strong leasing environment for grocery-anchored open air centers. We continue to believe that grocery is a good place to hide in a recession, but a solid balance sheet has become even more important.
High distribution yield comes with a high payout ratio: SGR’s distribution yield is high at 9.7%, albeit with a higher 2024E payout ratio of 107%. We think management is committed to maintaining the distribution in the near-term; as such, we don’t expect a cut anytime soon. ~55% of total debt is due in 2024 & 2025, and leverage remains elevated at 56% (vs 55% last q). 94.6% of total debt is fixed as of Q4/23. We note that $300M revolver due March 2024 was extended to Sept. 2024; however, there is more work to be done on the balance sheet.
Valuation update: SGR is trading at an 8.2% implied cap and 11.0x 2024E AFFO multiple (Exhibit 2) vs US peer Brixmor at 7.9% and ~15.7x multiple. In the context of higher leverage and external management structure, SGR’s valuation looks reasonable. Maintain SP rating.
KEY POINTS
Q4/23 was largely in line: FFOPU came in at $0.265, largely in line with Scotia’s estimate of $0.270 and slightly below consensus estimate of $0.275. FFOPU was down 3% y/y in Q4 (-6.2% in Q3). SP NOI growth was -1.2% y/y in Q4. Including the impact of completed redevelopments, SP NOI growth was flat y/y. No acq/disp. activity this quarter after completing $425M of acquisitions in 2022 and $56M of dispositions (mostly in Q4/22). IFRS cap rate increased by 20bp at 7.20% this quarter vs Scotia cap rate of 7.75% (+10bp in Q4 & +25bp in Q3). IFRS NAV remains well-above current trading price at $13.97 (down 2% q/q).
Leasing environment continues to improve for grocery-anchored centers. Portfolio occupancy up 60bp at 94.7%; anchor occupancy largely flat at 99.2%. Small-shop occupancy increased 100bp q/q to 90.5% – Exhibit 5. Another quarter with healthy leasing volume – new leasing spread of 21.9% and renewals at 6.5% above expiring rent for leases greater than 10k sf (Exhibit 4). Rental spreads have remained positive (and in some cases accelerated) since COVID re-opening. E-commerce sales have pulled back in the last one year and open air centers have done well. Focus shifts to 2024 lease expiries – SGR has ~12% of leases coming due in 2024, including 5.3% small-shop leases (Exhibit 6).
Slower FFO per unit growth due to higher interest expenses: After -2.5% y/y FFOPU growth in 2023, we expect +2.4% in 2024E and +1.7% in 2025E. Debt/GBV (per SGR portfolio value) of 56% vs. 58% in 2021. Leverage is even higher at 64% as per Scotia NAV.