-- CIBC Capital Markets reiterated its outperformer rating on the shares of Primaris Real Estate Investment Trust (PMZ-UN.TO) while raising its price target to C$22.00 from C$20.00 on Thursday, following PMZ's first quarter results on Wednesday.
PMZ reported Q1 FFO/unit of $0.425 (-3.2% Y/Y), broadly in line with consensus, noted CIBC.
"Our 2027 FFO/unit estimate rises by near 2%, as we better reflect the improved leasing cadence on the ground," said CIBC, adding it $22 price target is based on an 11 times 2027 estimated FFO/unit multiple (10.2 times previously), translating to a 5% discount to the bank's revised one-year-out NAV (9% previously), "reflective of its risk, growth prospects, and leverage versus peers."
CIBC also reiterated its belief that PMZ unitholders will benefit from occupancy improvements and rent growth over the long term. Tenant relationships for mall operators matter given the reach of their typically national tenant base, CIBC said. Controlling increasingly more productive assets through acquisition and organic growth will increase PMZ's importance to these national tenants, the bank added.
"PMZ's ability to fund its capex and distribution from its own rents and low balance sheet leverage drive a lower financial risk profile that offsets the risk of owning a higher-risk asset class in enclosed malls," added CIBC. Trading at an implied cap rate of near 8.7% on achievable forecasts, CIBC believes investors are being well compensated for the operating risks involved with owning PMZ units (e.g., anchor tenant transitions) versus the balance of the large-cap Canadian retail REIT universe (trading at estimated implied cap rates of 5.8%-7.1%)."
CIBC noted on the call that Primaris will provide a detailed update on its HBC progress in the next 60 days, once it has a significant number of fully executed leases in place, and also that CRU leasing momentum "accelerated meaningfully" in Q1, with management highlighting record new deal volumes and pricing.
Price: $19.01, Change: $+0.14, Percent Change: +0.74%