Canadian REITs and REOCs

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    RBC Dominion Securities Inc.Neil Downey, CFA, CA(Analyst)(416) 842-7835neil.downey@rbccm.comKevin Cheng, CFA (Associate)(416)

    Matias Ronis, CA (Associate)(416) 842-7894matias.ronis@rbccm.comBen Halm, CA, CPA(Associate)(416)

    November 19, 2013

    Canadian REITs And REOCsQ3/13 Recap - Trend Line Growth Of 4% Keeps 2013 Target On TrackEventIn this note we provide a quick synopsis of the Q3/13 earnings season.

    Highlights Q3/13 "Trend-Line" Earnings Posts 4% Growth, As Expected Q3 reporting season wrapped up

    last week, and aggregate data shows that Q3/13 "trend-line" earnings growth registered 4%. Thiswas in line with our 4% expectation and a slight deceleration from Q2/13's 5%. Entities posting out-sized growth in Q3 included: Morguard Corp (+25%), Extendicare (+36%) and Granite REIT (+25%). Incontrast, notable YoY declines were posted by Huntingdon Capital Corp. (-51%), Partners REIT (-22%),and Retrocom REIT (-17%). Q3/13 same-property NOI averaged 1%, flat versus Q2/13's 1% and downfrom 3% in Q3/12.

    Majority "Meets"; Handful of "Misses" Approximately 65% (20 of 31) of reporting entities postedQ3/13 earnings (i.e. FFO/unit or FFO/share) that were in line with our forecast. Approximately 23%(7 of 31) fell short of expectations (down from 9 in Q2), while 13% (4 of 31) exceeded expectations.Exhibit 1 summarizes the quarterly results.

    2015 Forecasts Introduced With Q3 results in the books, our 2013-2014 "trend-line" earningsgrowth forecast remain at 5% and 4%, respectively. We've also rolled out our 2015 company-specificforecasts. From this, the aggregate data suggests the group should sustain its long-term averageearnings growth of ~4%, driven primarily by core organic growth (i.e. same-property NOI).

    "Trend Line" Growth in Earnings/Unit, Quarterly - Q1/97 to Q3/13A and Q4/13E

    Source: RBC Capital Markets







    Q1/97 Q1/99 Q1/01 Q1/03 Q1/05 Q1/07 Q1/09 Q1/11 Q1/13

    "Trend-Line" Earnings Growth 4 Quarter Moving Average

    Recommended REITs & REOCs "Outperforms" include: Allied Properties REIT, Brookfield AssetManagement, Brookfield Office Properties, Calloway REIT, CAP REIT, CREIT, Dundee REIT, FirstCapital Realty, H&R REIT, InnVest REIT, Killam Properties Inc., Morguard Corp., Morguard REIT andRiocan REIT.

    Exhibits 2 & 3 "REIT Valuation Table" and "NAV Summary".

    Priced as of prior trading day's market close, EST (unless otherwise noted).All values in CAD unless otherwise noted.

    For Required Non-U.S. Analyst and Conflicts Disclosures, see page 12.

  • Exhibit 1: Q3/13 FFO/Unit Estimates And Actuals (All amounts are diluted)

    REIT/REOC Symbol Q3/12A Q3/13A Chg %


    Q3/13E Var $ Var %

    Exceeds / Meets /

    Misses Notes

    Q3/13 "Exceeds"

    Artis REIT AX.UN 0.33 0.38 14% 0.36 0.02 7% h Q3/13 FFO/unit (diluted) of $0.38 which was +14% from Q3/12's $0.33 and was $0.02 above our $0.36

    estimate. It was a low "quality" beat as results included ~$4MM ($0.03/unit) in lease termination fees

    from Zellers. Operations were as expected, with slower acquisition activity ahead.

    Killam Properties Inc. KMP 0.21 0.21 3% 0.20 0.01 6% h Q3/13 FFO/share of $0.214 increased 3% from Q3/12s $0.207 and was a penny above our $0.202

    estimate. Top line trends improved while energy inputs normalized.

    Leisureworld Senior Care Corp. LW 0.24 0.22 -10% 0.19 0.03 17% h Q3/13 FFO/share of $0.22 was $0.03 ahead of our $0.19 estimate as an anomalous (i.e., low) stock-

    based compensation expense contributed to the "beat". More notably, core operating performance

    improved across the board with good LTC results and important signs of improving occupancy and NOI

    in the RH segment. The Specialty Care Deal is-track for a December close.

    Morguard Corporation MRC 2.93 3.66 25% 2.50 1.16 46% h Q3/13 Proportionately consolidated FFO/share of $3.66 was up 25% from Q3/12s $2.93 and was

    above our $2.50 estimate by a material 46% ($1.16/share). The largest variance related to the $2

    million recovery in cash taxes, which was $11 million ($0.87/share) favourable versus our $9 million

    forecast. The recovery related to the final settlement of the land rent dispute at The Colonnade,


    Q3/13 "Meets"

    Allied Properties REIT AP.UN 0.46 0.50 10% 0.50 0.00 1% 1 Q3/13 FFO/unit of $0.50 was in line to our $0.50 estimate. AP continues to generate strong FFO growth

    due to organic and acquisition growth. Near-term acquisitions may prove elusive, yet organic growth

    should remain strong. 2015+, developments should contribute to FFO growth. Board approved 4%

    distribution increase effective with the Jan-15 payment.

    Boardwalk REIT BEI.UN 0.75 0.86 14% 0.83 0.03 4% 1 Q3/13 FFO/unit of $0.86 was $0.03 above our $0.83 estimate. Organic NOI growth continued its strong

    trend (6.7%) and was at its highest rate since Q3/12. BEI introduced initial 2014 FFO/share guidance

    ($3.25-3.45) which "hit the mark" in our view (RBCCM 2014E is $3.39). Non-core asset sales in BC are

    currently under negotiation and appear imminent. Net proceeds could be applied to activate the NCIB.

    Brookfield Office Properties BPO 0.29 0.29 -1% 0.30 (0.01) -3% 1 Q3/13 FFO/share of $0.29 was flat with Q3/12s $0.29 and a nick below our $0.30E. Q3/13 results.

    Results included a $6MM ($0.01/share) charge, at BPO's share for debt pre-payment costs at BOX.

    Operationally, results were as expected. Regarding the BPY tender, we see dual optionality in the form

    of the potential for: 1) modest offer improvement; and, 2) an improved future BPY valuation.

    Calloway REIT CWT.UN 0.44 0.47 5% 0.46 0.01 2% 1 Q3/13 FFO/unit of $0.47 was +10.8% from $0.44 in Q3/12 and slightly exceeded our $0.46 estimate.

    Organic NOI growth was a consistent 1.1%. Strong FFO growth was therefore in large part driven by

    recent acquisition activity, which was completed by leveraging the balance sheet.

    CAP REIT CAR.UN 0.43 0.43 2% 0.43 0.00 0% 1 Q3/13 diluted FFO/unit of $0.435 was in line with our $0.434 estimate. There were no material

    variances versus our forecast. Same-property NOI growth was a solid 3.7% demonstrating the efficiency

    of its capital improvement programs. CAR's liquidity is poised to finish the year strong on the back of a

    $150MM equity issuance.

    CREIT REF.UN 0.67 0.72 8% 0.71 0.01 1% 1 Q3/13 FFO/unit of $0.72 was up 7.5% from Q3/12s $0.67 and in-line (+$0.01/unit) with our $0.71

    estimate. FFO/unit growth continues to validate that its fully-internalized, low-leverage, low payout,

    increasingly value-add, diversified business model is working very well.

    Continued on next page.

    h - Exceeds RBCCM estimate 1 - Meets RBCCM estimate $ - Misses RBCCM estimate

    Canadian REITs And REOCs

    November 19, 2013 2

  • Exhibit 1: Q3/13 FFO/Unit Estimates And Actuals (All amounts are diluted)

    REIT/REOC Symbol Q3/12A Q3/13A Chg %


    Q3/13E Var $ Var %

    Exceeds / Meets /

    Misses Notes

    Q3/13 "Meets" (Cont'd)

    Chartwell Seniors Housing CSH.UN 0.20 0.21 0% 0.21 (0.00) 0% 1 Reported Q3/13 FFO/unit of $0.205 was +0.3% above Q3/12s $0.204 and in-line with our $0.205

    estimate. Regional disparities (organic growth ranging from +5.4% in US RH to -10.3% in QC RH) proved

    the benefits of diversification. Overall, it was a fairly routine quarter as CSH continues to execute its

    strategic priorities.

    Cominar REIT CUF.UN 0.43 0.45 4% 0.45 0.00 1% 1 Q3/13 FFO/unit of $0.45 was up 4.7% from Q3/12s $0.43 and in line with our $0.45 estimate.

    Integration of 2012's ~$2.6 billion of acquisitions (CANMARC / GE) seems on-track. We believe 2014

    will be a year of wringing out additional efficiencies, in order to demonstrate its normalized earnings

    power. CUF believes it can complete $200 million in acquisitions in 2014 within the QC / Eastern

    Canada regions.

    Dundee REIT D.UN 0.72 0.73 1% 0.72 0.01 1% 1 Q3/13 FFO/unit of $0.73 was effectively in line with our $0.72 estimate. Near-term organic growth stabilized, while occupancy trends remained soft. D's units have lagged in 2013 as it bears the brunt of negative office

    sentiment. We expect several hundred basis points of occupancy erosion over the next few years to be at least

    partially mitigated by leasing spreads. With the units down heavily in 2013, we're not sure it is the right time to

    sell short the capabilities of Dundee's Management.

    First Capital Realty FCR 0.25 0.26 1% 0.27 (0.01) -3% 1 Q3/13 FFO/share of $0.26 increased 1.7% from Q3/12s $0.25 and was slightly below our $0.27 estimate. FCR continues to very much focus on long-tem growth and quality potential, at the expense of short-term FFO growth.

    We believe that serious value creation is not a quarterly business and firmly believe in FCR's strategy to create a

    best-in-class urban retail property portfolio.

    Granite REIT GRT.UN 0.62 0.78 25% 0.77 0.00 1% 1 Q3/13 FFO/unit of $0.78 was +26% from Q3/12s $0.62 and slightly ahead of our $0.77 estimate. The

    year-over-year growth in FFO/unit is exaggerated due to the incurrence of corporate re-org costs and

    higher cash taxes in its pre-REIT era.

    H&R REIT HR.UN 0.40 0.45 12% 0.44 0.01 2% 1 Q3/13 FFO of $0.45/unit (diluted) was in line (+2%) of our $0.44/unit estimate and up 12% from

    Q3/12/s $0.40/unit. The July 1 internalization of the property management agreement was accretive to

    Q3/13 NOI and FFO by just over $4 million. Having issued 9.5 million units