TSX:SGR.UN - Post Discussion
Post by
incomedreamer11 on May 11, 2022 12:19pm
Scotia comments on result
High Distribution Yield of 7.7% Provides Margin of Safety
Keep in mind , all numbers in USD
OUR TAKE: Neutral. Our target is largely unchanged at $11.75 (-$0.25). Our NAVPU estimate is slightly reduced to $11.55 (-$0.35). Our NAV is based on 7.1% cap rate (unchanged) and is still conservative relative to IFRS NAVPU of $13.02 (vs $12.29 last quarter) which is based on 6.98% (-12bp q/q) cap rate. While we have not yet seen evidence of cap rate expansion (despite rising bond yields), the current unit price implies a ~15bp expansion in cap rates.
Distribution yield of 7.7% provides a good margin of safety: Distribution was kept unchanged even during the COVID-19-crisis. Overall, SGR has done a good job during the pandemic with cash collections higher than the U.S. peer group, completed opportunistic acquisitions and strong leasing activity (which continues to be the case – details below). SGR has the highest distribution yield within our coverage universe vs. REIT sector average distribution yield of 4.6% – Exhibit 1 for details. Overall, a good REIT for income/yield investors as distribution is well-supported by grocery tenants and asset class could prove to be more defensive in this current economic environment.
KEY POINTS
Q1/22 results and AFFO forecasts: See page 2 for details. Q1/22 FFOPU came in at $0.27 vs. $0.26 last quarter (+13% y/y) and slightly below Scotia and consensus estimate of $0.28. We note the miss was driven by slightly lower NOI. Overall, FFOPU grew +13.8% y/y mainly driven by the $390M portfolio acquisition completed in September 2021. Our full-year 2022 FFOPU estimate implies 18.6% y/y growth. The growth is predominantly driven by the portfolio acquisition. For 2023, we expect normalized FFOPU growth of approximately 4.5%. SP NOI increased 0.1% y/y in Q1/22 and 0.7% in full year. We expect 1.5% SP NOI growth in 2022 and 2% SP NOI growth in 2023 owing to continued good leasing spreads.
Operating metrics – continued strong rental leasing spreads: Portfolio occupancy was down slightly to 93.2% (-40 bps q/q) but still 40 bps higher than pre-pandemic levels. Grocery-anchored occupancy held steady at 100% while small-shop occupancy was slightly down to 87.1% (-70 bps q/q) – Exhibit 4. SGR capped off the quarter signing 410k sf of leases this quarter, new leases being done at a 38% leasing spread and renewals at 9% – Exhibit 5. Rental spreads have been strong in the last few quarters – as part of re-opening trade and also in response to higher inflation and cost of construction picking-up. SGR has ~5% of leases coming due this year with the majority being non-anchor tenants – Exhibit 6.
Balance sheet and leverage: Debt/GBV (on IFRS came in at 52.8% vs. 54.0% last quarter and 53.5% last year. ~15% of total debt is coming up for renewal in 2022 and 2023. We model $50M of acquisitions in 2022 and $100M in 2023. SGR completed ~$450M of acquisitions in 2021. Management could be opportunistic in this environment.
Q1/22 Earnings Summary
Q1/22 FFOPU came in at $0.27 vs. $0.24 last year (+13% y/y) and below our estimate of $0.28. We note the miss was driven by higher G&A expense associated with the US$390M portfolio acquisition and seasonality from year-end expenses. SP NOI growth was flat in Q1/22 at +0.1% and up +0.7% over 12-month period from stronger leasing activity on new leases and renewals.
Portfolio occupancy was down slightly to 93.2% (-40 bps q/q) and 40 bps higher than pre-pandemic levels. Grocery-anchored occupancy held steady at 100% while small-shop occupancy was slightly down to 87.1% (160 bps below pre-pandemic levels).
Strong rent collections from grocery-anchored portfolio. SGR’s rent collections have been strong through the pandemic (in the 96%-97% range) vs. U.S. peers. SGR’s high levels of rent collection is a function of its grocery exposure and open-air shopping centers, which have allowed tenants to remain open and operating throughout the pandemic.
Reported IFRS NAVPU rose to $13.02 from $12.29 in Q4/21 due to $47.1M of FV gains recognized this quarter. We note that IFRS NAV is up 4.4% y/y over last year (Q1/21). IFRS cap rates slightly went down this quarter at 6.98% vs. 7.10% in Q4/21; driven primarily by increased buyer demand for grocery-anchored strip centres and value-add asset management activities.
Healthy leasing spreads continued in Q1/22. SGR capped off the quarter signing 410k sf of leases this quarter, new leases being done at a 38% leasing spread and renewals at 9%. SGR has ~5% of leases coming due this year with the majority being non-anchor tenants. Leasing performance continues to be strong despite the pandemic.
Leverage slightly elevated. Debt/GBV (on IFRS came in at 52.8% vs. 54.0% last quarter and 53.5% last year. Following the closing of the $390M portfolio acquisition in September, leverage now sits at ~60% based on our published NAV. We expect management to remain focused on sourcing acquisitions and that leverage will remain at current levels over the next couple of years.
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