Post by
incomedreamer11 on Nov 07, 2023 5:54pm
CIBC comments
Our Conclusion
Q3 was marked by strong leasing spreads, while SP-growth was constrained by temporary vacancies. Supply/demand dynamics remain favorable for grocery-anchored centers, and will, in our view, continue to underscore attractive rent growth. SGR units, however, have underperformed peers YTD, which we believe reflects greater focus on its relatively higher leverage and payout ratio, over otherwise stable fundamentals. Given the higher rate environment, we reduce our net asset value (NAV) to $11.00 (from $12.00) as we increase our cap rate 25 bps to 7.5%.
We lower our price target to $9.75 (from $11.00), and remain Neutral rated.
Key Points Q3/23 Results:
FFO/unit was $0.27, broadly in line with our estimate and consensus. SP-NOI was +0.1%, reflecting an increase in rental rates and new leasing, but partially offset by temporary vacancies. Including redevelopments, SP-NOI also grew by 0.1%.
Leasing Progress:
The REIT completed ~588K sq. ft. of lease renewals at a ~9% spread, and ~103K sq. ft. of new leasing at an 18.4% spread. Grocery store fundamentals remain strong given the expectation that consumers will continue to prioritize spending on groceries while limiting spending on discretionary purchases. For 2023, remaining expiries represent 1.0% of occupied gross leasable area (GLA), with the majority attributed to non-anchor tenants. Overall occupancy was 94.1%. Slate has not observed a softening in non-anchor tenant demand or in their ability to absorb rent increases, as the higher rents still represent a discount vs. other alternatives (e.g., malls). Larger, well-capitalized grocers comprise a meaningful portion of Slate’s tenant mix (Kroger at ~6% of rent, Walmart at 5%), and have a greater ability to absorb rent increases.
Debt Details:
The REIT has ~97% of its debt fixed with an average interest rate of 4.2%. The REIT has hedged a notional ~$625MM of its variable rate swapped to fixed for a weighted average of ~3.6 years at 2.66%. Value-add Platform: Approximately $5.1MM worth of redevelopment projects were completed in the quarter, and are expected to produce an annual ~$1.4MM of incremental net operating income (NOI). These projects were completed at an anticipated yield on cost of 27.5%. Cap Rate Tracking: IFRS cap rate was 7.00% (vs. our 7
Price Target (Base Case): US$9.75 Our 12- to 18-month price target is $9.75/unit, which is a ~10% discount to our NAV estimate to account for the externalized management structure and equates to 8.9x 2024E FFO.
Upside Scenario: US$12.00 Our upside case reflects our NAV estimate with higher NOI growth of +2.5%, a lower discount to NAV, and a 25 bps decrease in the cap rate.
Downside Scenario: US$6.50 Our downside case reflects a 20% discount to NAV with a decline in NOI of 2.5% and a 50 bps increase in the cap rate