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Tuesday’s TSX breakouts: A REIT with growth, a 7.3% yield and a 72% payout ratio

Today, important Canadian economic reports to take note of include December housing starts and November building permits data. In the U.S., watch for the November JOLTS job openings report.

Briefly recapping Monday's performance, it was generally a down day for North American equity markets, with the exception of the U.S. Nasdaq composite index.

In the U.S., the Dow Jones Industrial Average, the S&P 500 Index, and the Nasdaq composite closed the day lower by 0.38 per cent, down 0.35 per cent, and higher by 0.19 per cent, respectively.

Turning to Canada, the S&P/TSX composite index lost 107 points, or 0.59 per cent, pulled down by energy stocks with the price of oil falling 3.8 per cent and the price of natural gas plunging 5.5 per cent. There were 79 securities in the TSX Index that advanced, 170 securities declined in value, and one stock closed the day unchanged.

Month-to-date, the TSX Index is up 0.66 per cent.

On today's TSX Breakouts report, there are 19 stocks on the positive breakouts list (stocks with positive price momentum) and 12 securities on the negative breakouts list (stocks with negative price momentum).

Discussed today is a real estate investment trust (REIT) that offers investors an attractive yield of over 7 per cent. In addition, given its focus on U.S. commercial real estate, the rising value of the greenback is positive the REIT. The unit price is just below the level required to appear on the positive breakouts list but it may soon make an appearance. The security highlighted is Agellan Commercial Real Estate Investment Trust (ACR.UN-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The REIT

The REIT holds a portfolio of 34 industrial, office, and retail properties located across North America but concentrated in the United States. Agellan has 17 properties located in Texas, nine properties in Georgia, two properties in Ohio, two properties in Ontario, one property in Florida, one in Illinois, one in Indiana, and one in North Carolina.

Management is focused on expanding its U.S. presence by acquiring commercial real estate. In August, Agellan completed a bought deal financing, offering 4.485-million units at a price of $10.25 per unit, raising $46-million. Proceeds from the financing were subsequently used to purchase several properties, two in Georgia and one in Florida.

On Oct. 31, Agellan reported third-quarter financial results that were relatively in-line with expectations. Funds from operations (FFO) per unit came in at 30 cents, a penny shy of expectations. Adjusted funds from operations (AFFO) per unit was 26 cents, three cents above expectations. As of October 1, the overall occupancy rate was 91.5 per cent.

The rising value of the U.S. dollar relative to the Canadian dollar is a tailwind for the company. As indicated in the recent Management's Discussion and Analysis report, "During the nine month period ended September 30, 2016, the REIT benefited from increased Canadian dollar income generated from its U.S. assets due to a 4.9-per-cent increase in the average valuation of the United States Dollar relative to the CAD (Canadian dollar) compared to the nine month period ended Sept. 30, 2015. The REIT generated approximately 73 per cent of its NOI (net operating income) from assets located in the United States for the nine month period ended September 30, 2016, and this appreciation increased the net operating income the REIT generated from its U.S. assets during the period."

Distribution policy

The REIT pays its unitholders a monthly distribution of 6.458 cents per unit, or 77.496 cents on a yearly basis. This equates to an annualized yield of 7.3 per cent. Management has maintained the distribution at this level since early 2013.

The AFFO payout ratio as of the first nine months of 2016 was 72 per cent.

Valuation

According to Bloomberg, units of Agellan are trading at a price-to-FFO multiple of 8.1 times the 2017 consensus estimate, close to its peak multiple of approximately 8.3 times over the past three years.

Financial forecasts

The Street is forecasting Agellan to report FFO per unit of $1.26 in 2016, expanding to $1.31 in 2017, and $1.35 in 2018. The consensus AFFO estimates are $1.00 in 2016, $1.05 in 2017, and $1.10 in 2018.

FFO and AFFO estimates have been relatively stable over the past year. For instance, at the beginning of the second half of 2016, on July 1, the Street was forecasting FFO per unit of $1.31 for 2016 and $1.33 for 2017, and AFFO per unit of $1.00 for 2016 and $1.03 for 2017. One year ago, on January 10, 2016, the consensus FFO per unit estimates were $1.29 for 2016 and $1.36 for 2017, and the consensus AFFO per unit forecasts were 98 cents for 2016 and $1.03 for 2017.

Analysts' recommendations

According to Bloomberg, this small-cap security, with a market capitalization of $297-million, is covered by seven analysts, of which four analysts have 'buy' recommendations and three have 'neutral' recommendations.

The seven firms providing research coverage are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC World Markets, GMP, Laurentian Bank Securities, RBC Capital Markets, and Scotia Capital.

The average one-year target price is $11.43, implying the unit price may appreciate over 7 per cent over the next 12 months. Target prices range from a low of $10.75 to a high of $12. Individual target prices are as follows in numerical order: $10.75, three at $11, $11.75, $11.80, and $12.

Target prices hiked

Last week, Jenny Ma, the analyst at Canaccord Genuity, maintained her 'buy' recommendation but increased her target price to $12 from $11. In addition, at the beginning of November, Michael Smith, the analyst at BMO Capital Markets, maintained his 'sector perform' recommendation but lifted his target price to $11 from $9.50.

Chart watch

The security has a limited trading history as the REIT just was just listed on the Toronto Stock Exchange in 2013. The initial public offering price was $10 per unit.

From mid-2013 to mid-2016, the unit price traded largely between $8.50 and $9.75. However, in mid-2016, the unit price broke above $10, and rallied over 20 per cent in 2016.

In terms of key resistance and support levels, the unit price faces initial overhead resistance around $11, near its October 28, 2016 closing high of $10.91. There is initial downside support around $10, close to its 200-day moving average (at $10.15). Failing that, there is technical support around $9.50.

Liquidity can be low for this security. The two-month historical daily average trading volume is approximately 42,000 units.

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

TSX breakouts

Positive BreakoutsJan. 9 close
SJR.B-TShaw Communications Inc $27.77
AW.UN-TA&W Revenue Royalties Income Fund $38.41
AIM-TAimia Inc $9.08
ACQ-TAutoCanada Inc $25.15
CAR.UN-TCanadian Apartment Properties REIT $32.06
CHW-TChesswood Group Ltd $12.30
FSZ-TFiera Capital Corp $13.79
FN-TFirst National Financial Corp $28.97
GDI-TGDI Integrated Facility Services Inc. $16.96
GPR-TGreat Panther Silver Ltd $2.40
LAC-TLithium Americas Corp $0.86
MRD-TMelcor Developments Ltd $15.23
MST.UN-TMilestone Apartments REIT $19.46
NXE-TNexGen Energy Ltd. $2.84
QBR.B-TQuebecor Inc $38.12
RME-TRocky Mountain Dealerships Inc $9.90
X-TTMX Group Ltd $75.60
TCW-TTrican Well Service Ltd $5.12
VCM-TVecima Networks Inc $10.29
Negative Breakouts
ARX-TARC Resources Ltd $22.08
AAV-TAdvantage Oil & Gas Ltd $8.41
BDT-TBird Construction Inc $8.52
CAE-TCAE Inc $18.39
CLR-TClearwater Seafoods Inc $10.43
HBC-THudson's Bay Co $11.66
PEY-TPeyto Exploration & Development Corp $30.13
RBA-TRitchie Bros Auctioneers Inc $44.12
VII-TSeven Generations Energy Ltd $27.06
STB-TStudent Transportation Inc $7.20
SXP-TSupremex Inc $4.96
TOU-TTourmaline Oil Corp $32.37

Source: Bloomberg

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