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For investors seeking shelter from potential volatility and looking for income, CT Real Estate Investment Trust is a solid defensive investment.MARK BLINCH/Reuters

Inside the Market's roundup of some of today's key analyst actions

CT Real Estate Investment Trust (CRT.UN-T) offers investors a "predictable" organic growth profile, which is unlikely to be affected by challenges to the Canadian retail property market in the near term, said Desjardins Securities analyst Michael Markidis.

"However, a limited public float and relatively low trading liquidity limit broader institutional participation, in our view," he said.

On Feb. 16, CT reported fourth-quarter funds from operations per unit of 26.4 cents, in line with Mr. Markidis's projection of 26.3 cents and an increase of 3 per cent year over year. Organic growth was 3.4 per cent, which the analyst noted brings the full-year figure to 2.6 per cent.

The Toronto-based REIT also announced the acquisition of a 1.4-million square foot distribution centre from Canadian Tire Corp. (CTC.A-T) in Bolton, Ont. CTC agreed to lease the facility for 20 years with a going in cap rate of 5.23 per cent and 1.25-per-cent annual rent escalations.

Mr. Markidis said the $325-million purchase price is almost 8 per cent of CT's existing portfolio value.

"Ahead of the acquisition closing, the REIT intends to issue $200-million of equity in the form of Class B units to CTC in order to redeem $200-million of Class C units coming due May 31, 2016," he said. "This should allow the REIT to issue $300- to 400-million of new debt to fund the acquisition (options include Class C units, unsecured debentures, conventional mortgage) while maintaining leverage at current levels. We expect the transaction to be modestly dilutive at the outset, given the issuance of Class B units and the lag between the closing date and lease commencement. Depending on the term and type of debt raised, the acquisition may be marginally dilutive to adjusted funds from operations (AFFO) in 2017, before rent escalations kick in."

Maintaining his "hold" rating, Mr. Markidis raised his target price to $14.50 from $13.50. The analyst consensus price target is $14.09, according to Thomson Reuters.

"CT trades at a 5.8-per-cent implied cap rate and 15-per-cent net asset value (NAV) premium," the analyst said. "Our $14.50 target … is based on a 15-per-cent NAV premium (was approximately 10 per cent) and equates to 16 times our 2017 AFFO. The modest expansion of our target multiple reflects CT's highly visible earnings growth profile, which has become increasingly attractive given recent moves in the yield curve."

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After delivering a "strong" fourth quarter of 2015, BMO Nesbitt Burns analyst Heather Kirk upgraded her rating for Killam Apartment REIT (KMP.UN-T).

Ms. Kirk moved the Halifax-based REIT to "outperform" from "market perform," citing "improving fundamentals in Atlantic Canada, reduced volatility associated with operating costs, interest rate savings from refinancings, and value-creating development projects."

Last Thursday, Killam reported funds from operations (FFO) per unit of 20 cents, in line with both Ms. Kirk's projection and the consensus expectation. The result was an increase of 8 per cent year over year. In analyzing the result, she cited "strong same-property net operating income (SPNOI) growth, interest savings on debt refinancing and contribution from acquisitions and developments." SPNOI was up 4 per cent year over year on "occupancy gains, rent growth, lower utilities and operating efficiencies."

"Fundamentals in the Halifax market, which represents 36 per cent of 2015 NOI, are improving," said Ms. Kirk. "Halifax delivered a 2.1-per-cent increase in same-store revenues, a 70 basis point increase in occupancy, and a 3 per cent increase in same-store NOI for 2015. With workers now heading back east, we expect continued strength in performance from Atlantic Canada."

Ms. Kirk raised her target price to $12.50 from $11.75. The analyst consensus is $12.

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A four-point strategic plan from Dream Office Real Estate Investment Trust (D.UN-T) to improve liquidity and investor confidence is "prudent and well-conceived," said CIBC World Markets analyst Alex Avery.

He upgraded his rating for the REIT to "sector performer" from "sector underperformer."

Last week, Dream reported fourth-quarter funds from operations (FFO) per diluted unit of 70 cents, two cents below the consensus projection and a penny lower than the result in the same period in 2014. Same-property net operating income fell 0.7 per cent, due to weakness in both its Calgary and suburban Toronto portfolios.

In reaction to the results, Dream announced four strategic initiatives: a 33-per-cent drop in its distribution (to 12.5 cents per unit from 18.67 cents) and cancellation of its dividend reinvestment plan (DRIP); a credit facility bump (to $800-million from $355-million); a targeted  sale of non-core assets to generate $700-million and the use of those proceeds to reduce debt as well as buy back units if they stay depressed in price.

Mr. Avery said the plan "allows management the financial flexibility to continue to aggressively fund leasing costs to ensure the best occupancy levels possible, while also reducing leverage."

He added: "We continue to see very challenging leasing conditions in a number of the REIT's markets (i.e. Calgary and Edmonton), which we expect will continue to weigh on the stock, but with the new strategic plan, the REIT is much better positioned to manage these challenges."

The analyst raised his target price to $20 from $18. The analyst average, according to Bloomberg, is $22.57.

Elsewhere, RBC Dominion Securities analyst Neil Downey upgraded the REIT to "outperform" from "sector perform" and raised his target to $24 from $23.

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Following the release of its fourth-quarter 2015 financial results, CIBC World Markets analyst Cosmos Chiu upgraded Pan American Silver Corp. (PAAS-Q, PAA-T) to "sector performer" from "sector underperformer."

"As one of the largest publicly-traded primary silver producers in the world (greater than 60 per cent of its revenue derived from silver), and with a strong balance sheet, CIBC expects PAAS to continue to be one of the go-to names for investors to gain exposure to silver," said Mr. Chiu. "Year to date in 2016, PAAS' share price has increased by 33 per cent, versus the peer group average share price increase of 22 per cent, and the silver bullion performance of 11 per cent."

Though Mr. Chiu said the quarterly results were "largely in line" with expectations, he noted all-in sustaining costs (AISC) improved 17 per cent year over year to $14.92 (U.S.) per ounce in 2015. He said he expects further AISC improvement in 2016 of 7 per cent, projecting $13.86/oz, as well as a 5-per-cent improvement in 2017.

He also touted the Vancouver-based company's internally funded growth opportunities (through expansion projects at its Dolores and La Colorada facilities) and a "strong" balance sheet.

The analyst raised his price target for the stock to $9 from $7.50. Consensus is $8.39.

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Morguard Real Estate Investment Trust (MRT.UN-T) is currently trading at a "deep" discount but headwinds remain, said BMO Nesbitt Burns analyst Troy MacLean.

The Mississauga-based closed-end REIT reported fourth-quarter funds from operations per unit of 45 cents, an increase of 3 per cent year over year and 4 cents better than the consensus projection.

"The 4-cent unit FFO beat was driven by higher-than-expected  net operating income (NOI), lower G&A (General and administrative) costs, and the decision to reclassify the vacant Target (approximately $800,000 NOI impact) and Everest College ($200,000 NOI impact) space to PUDs (Planned Unit Developments)," said Mr. MacLean. "We estimate this reclassification increased reported FFO by 15 cents per unit. Same property NOI was up 2.9 per cent in Q4 excluding 412,000 square feet of vacant Target and Everest College space. Lease renewals completed in Q4/15 were at lower rental rates versus expiring rents in all three property segments, which was a reversal of prior trends."

Maintaining his "market perform" rating, the analyst lowered his target price for the stock to $16.25 from $17.50. Consensus is $16.04.

"Morguard is trading at an [approximately] 34-per-cent discount to our NAV estimate, which is a much steeper discount than the REIT typically trades at (long-term average of 14 per cent), and well below the current Canadian REIT sector average (10 per cent weighted average discount)," he said. "While MRT is trading at a sizable discount to its intrinsic value, we expect continued headwinds in the REIT's enclosed mall portfolio (40 per cent of NOI) due to weakness in fashion retailers, and its Alberta office properties (23 per cent of 2015 NOI) will continue to weigh on sentiment in the near term."

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Valeant Pharmaceuticals International Inc. slumped as much as 15 per cent Monday, the biggest drop since November, as a sell-off extended to a second day after a Wells Fargo analyst added to his negative report about the company.

The embattled specialty pharmaceuticals company fell 12 per cent to $75.22 at 2:51 p.m. in New York, after dropping 9.7 per cent Friday following the report by Wells Fargo analyst David Maris, who initiated coverage with an underperform rating. In a new note Monday, Maris gave two additional valuation models that gave the stock a value as low as $62, or 27 percent less than Friday's closing price. He kept his price target range at $65 to $68.

"Valeant shares currently carry too much risk for us to be comfortable recommending them," Maris wrote.

The shares have plummeted since their $262.52 August peak on concerns about the drugmaker's now-severed ties to the mail- order pharmacy Philidor Rx Services, high levels of debt used to make acquisitions, and most recently the status of Chief Executive Officer Mike Pearson, who is on medical leave. Earlier this month his interim replacement, Howard Schiller, faced pressure at a Congressional hearing about soaring drug prices.

Adding to concerns is uncertainty about when Valeant will report its fourth-quarter earnings. The company hasn't set a date yet for the release.

"Valeant was expected to report today and there is no word from IR or management on when they will," Elizabeth Krutoholow, an analyst with Bloomberg Intelligence, wrote in an e-mail, referring to investor relations. That is creating some concern, she said.

Valeant is dropping amid a generally upbeat market, with the Nasdaq Biotechnology Index up 0.5 percent.

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In other analyst actions:

Calgon Carbon Corp (CCC-N) was downgraded to "hold" from "buy" at BB&T Capital by equity analyst Kevin Maczka.

Chorus Aviation Inc (CHR.B-T) was raised to "outperform" from "sector perform" at RBC Capital by equity analyst Walter Spracklin. The 12-month target price is $7 (Canadian) per share.

Cree Inc (CREE-Q) was raised to "overweight" from "neutral" at Piper Jaffray by equity analyst Mike Ritzenthaler. The 12-month target price is $37 (U.S.) per share.

Constellation Software Inc (CSU-T) was raised to "outperform" from "sector perform" at RBC Capital by equity analyst Paul Treiber. The 12-month target price is $675 (Canadian) per share.

Expedia Inc (EXPE-Q) was downgraded to "sell" from "hold" at Stifel by equity analyst Scott Devitt. The 12-month target price is $95 (U.S.) per share.

First Republic Bank (FRC-N) was raised to "buy" from "hold" at Jefferies by equity analyst Casey Haire. The 12-month target price is $70 (U.S.) per share.

IMAX Corp (IMAX-N) was raised to "outperform" from "neutral" at Wedbush by equity analyst Michael Pachter. The 12-month target price is $38 (U.S.) per share.

JC Penney Co Inc (JCP-N) was rated new "market perform" at Cowen by equity analyst Oliver Chen. The 12-month target price is $8 (U.S.) per share.

Newell Rubbermaid Inc (NWL-N) was raised to "outperform" from "market perform" at Raymond James by equity analyst Joseph Altobello. The 12-month target price is $43 (U.S.) per share.

TripAdvisor Inc (TRIP-Q) was downgraded to "sell" from "hold" at Stifel by equity analyst Scott Devitt. The 12-month target price is $53 (U.S.) per share.

With files from Bloomberg News

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