On today’s TSX Breakouts report, there are 47 stocks on the positive breakouts list (stocks with positive price momentum), and 18 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a REIT that appeared on the breakouts list on Monday when the unit price closed at a record high. Analysts are anticipating this REIT will deliver a potential price return of 10-per-cent over the next year. With eight buy recommendations, the security highlighted today is Minto Apartment Real Estate Investment Trust (MI.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The REIT
Ottawa-based Minto Apartment REIT owns a portfolio of 24 rental properties with a total of 4,548 apartment units. The majority of the properties are located in Ottawa. Other cities where Minto has a presence include Toronto, Edmonton and Calgary.
On March 19, the REIT reported solid fourth-quarter financial results. FFO (funds from operations) came in at 22 cents per unit, above the IPO (initial public offering) forecast of 19 cents per unit. Occupancy for unfurnished suites was 98.8 per cent at quarter-end. The REIT has a healthy balance sheet with a debt-to-GBV (gross book value) ratio of approximately 45 per cent.
The REIT has been active on the acquisition front with two recent purchases in Calgary. In January, it completed the $63.8-million purchase of The Quarters, two multi-residential rental buildings with 199 suites. In Dec., the REIT bought Kaleidoscope, a 70-suite property for $20.3-million.
On the earnings call, chief executive officer Michael Waters provided a positive outlook for the REIT’s continued growth, “Most of the REIT's portfolio is located in cities with tight rental markets and rising rents and we'll continue to generate higher revenues as suites turn over. We'll also continue to drive organic growth from our repositioning program. We have more than 500 suites to renovate under our current plan, including all of the suites at the Carlisle and Castle Hill, providing ample opportunity to deploy capital at favorable returns. Externally, we're aggressively pursuing acquisition opportunities with a focus on properties in urban areas near transit and community amenities. We are pleased to have completed three strategic transactions thus far as a public company, and we see many more potential opportunities in a highly fragmented marketplace for multi-residential properties.”
On a macro level, industry conditions remain favourable. Demand for apartments is strong, particularly in major cities, as home ownership is out of reach for many Canadians given expensive home prices. In addition, rising population growth in cities is increasing demand for apartments. On the earnings call, the CEO said that rents in Toronto and Ottawa have continued to trend higher in January and February.
In Dec., the REIT filed a base shelf short form prospectus, allowing it to issue up to $750-million of units, debt securities and subscription receipts within the next 25 months.
Distribution policy
The REIT pays its unitholders a monthly distribution of 3.4167 cents per unit, or 41 cents per unit on a yearly basis. This equates to an annualized yield of 2 per cent. Its peers offer relatively comparable yields. Canadian Apartment Properties REIT (CAR.UN-T), or CAP REIT, has a current yield of 2.7 per cent and InterRent REIT (IIP.UN-T) has a current yield of 2 per cent.
The payout ratio is approximately 58 per cent of forecasted AFFO, suggesting there is room for the distribution to increase in the future.
Analysts’ recommendations
This small-cap security with a market capitalization of $731-million is covered by nine analysts on the Street, of which eight analysts have buy recommendations and one analyst (Matt Kornack at National Bank Financial) has a ‘sector perform’ recommendation.
The firms providing research coverage on the REIT are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Desjardins Securities, Industrial Alliance Securities, National Bank Financial, Raymond James, RBC Capital Markets, and TD Securities.
Revised recommendations
This month, eight analysts made minor revisions to their expectations – all higher.
Matt Logan, the analyst at RBC Capital Markets, lifted his target price to $21.50 from $20. Troy MacLean, the analyst at BMO Capital Markets, raised his target price to $22.75 from $20.50. Analyst Johann Rodrigues at Raymond James bumped his target price by $2 to $22. Dean Wilkinson at CIBC Capital Markets increased his target price to $21 from $19.50. Matt Kornack, the analyst at National Bank Financial, lifted his target price to $21 from $20. Michael Markidis, the analyst at Desjardins Securities, raised his target price to $21.50 from $21. Brendon Abrams from Canaccord Genuity raised his target price to $22.50 from $20. Jonathan Kelcher from TD Securities took his target price up by $1 to $23.
Financial forecasts
The Street is forecasting FFO per unit of 86 cents in 2019, rising to 91 cents in 2020.
Financial forecasts have been climbing higher. For instance, three months ago, the consensus FFO per unit estimates were 83 cents for 2019 and 88 cents for 2020.
Valuation
According to Bloomberg, the REIT is trading at a price-to-FFO multiple of 21.8 times the 2020 consensus estimate. The REIT is trading at a price-to-AFFO (adjusted funds from operations) multiple of 25.6 times the 2020 consensus estimate.
Its industry peer, CAP REIT (CAR-UN-T) is trading at a price-to-FFO multiple of 23.2 times the 2020 consensus estimate.
The average 12-month target price is $21.91, suggesting the unit price has 10 per cent upside potential over the next year. Individual target prices are quite concentrated and are as follows in numerical order: three at $21, two at $21.50, $22, $22.50, $22.75 and $23 (the high on the Street is from Jonathan Kelcher, the analyst at TD Securities).
Insider transaction activity
There has not been any buying or selling activity in the public market reported by insiders looking back to the initial public offering in mid-2018.
Chart watch
The REIT began trading on the Toronto Stock Exchange in July 2018. Given the REIT’s brief trading history, technical analysis is limited.
On Friday, the REIT closed at a record high. The unit price has rallied 37 per cent from its initial public offering price of $14.50.
Should the unit price rollover, there is downside support around $19, close to its 50-day moving average (at $19.07).
This small-cap security has low liquidity. The three-month historical daily average trading volume is approximately 70,000 units.
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 indices 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.
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, financial forecasts, 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.
Jennifer Dowty