Wednesday's TSX breakouts: A newly listed security yielding 5.3% with distributions paid in US dollars – The Globe and Mail

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On today’s TSX Breakouts report, there are 51 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).

As always, I like to profile a variety of securities in order to appeal to a wide range of investors. Discussed yesterday was an exploration company with earnings not expected to be realized for several years. Today, we turn to a defensive security with an attractive yield that may appear on the positive breakouts list in the future. Analysts are forecasting an 18-per-cent price return with a total return (including the 5 per cent yield) of 23 per cent . The security highlighted today is BSR Real Estate Investment Trust (HOM-U-T).

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

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The REIT

Headquartered in Toronto, BSR Real Estate Investment Trust holds a portfolio of 48 multi-family apartments located in the U.S., with a focus on the Sun Belt region. The REIT has properties in five Sun Belt states: 17 properties in Texas, 15 properties in Arkansas, 9 properties in Oklahoma, 6 properties in Louisiana, and one property in the state of Mississippi. These regions are economically attractive given that population and employment growth are both expected to exceed the national average. Currently, the Sun Belt region represents 37 per cent of the national population, and S&P Global, a provider of market insights, anticipates this figure will increase to 53 per cent by 2023.

The portfolio is comprised mainly of low-rise apartments, two or three stories on average, which are located principally in the suburbs. Half of the portfolio is comprised of two-bedroom apartments, 45 per cent of the units are one-bedroom suites, and 5 per cent of the portfolio represent three-bedroom units. As at Dec. 31, occupancy stood at 92.7 per cent.

Management believes they can unlock value by completing strategic acquisitions, and also through renovations and improvements to the existing portfolio that would result in higher rental revenue. The REIT’s debt-to-gross book value ratio stands at 45.6 per cent, providing management with the financial flexibility to fund its growth objectives.

Insider ownership, which includes management and board members, totals approximately 53 per cent of the units outstanding, so their interests are aligned with unitholders.

The REIT trades on the Toronto Stock Exchange with the unit price expressed in U.S. dollars. The REIT currently trades below its initial public offering price of US$10 per unit.

Distribution policy

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The REIT pays its unitholders a monthly distribution of 4.17 cents per unit that is denominated in U.S. dollars. The annual distribution is targeted at 50 cents US per unit, currently translating to an annualized yield of 5.3 per cent.

The payout ratio is conservative with room for the monthly distribution to increase. Management targets an AFFO (adjusted funds from operations) payout ratio of approximately 78 per cent.

In addition, Canadian investors should be aware of withholding taxes, the prospectus notes, “Because the REIT will be treated as a real estate investment trust for U.S. federal income tax purposes, distributions paid by the REIT to Canadian investors that are made out of the REIT’s current or accumulated earnings and profits (as determined under U.S. federal income tax principles) generally will be subject to U.S. withholding tax at a rate of 30 per cent, which may be reduced to 15 per cent for investors that qualify for benefits under the Treaty. To the extent a Canadian investor is subject to U.S. withholding tax in respect of distributions paid by the REIT on the units out of the REIT’s current or accumulated earnings and profits, the amount of such tax generally will be eligible for foreign tax credit or deduction treatment, subject to the detailed rules and limitations under the Tax Act.”

Analysts’ recommendations

This small-cap REIT, with a market capitalization of US$157-million, is covered by three analysts, and all three analysts have ‘outperform’ recommendations.

The firms providing analyst coverage on the REIT are as follows in alphabetical order: BMO Capital Markets, CIBC Capital Markets, and Raymond James.

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Financial forecasts

All financial figures are expressed in U.S. dollars.

According to Thomson Reuters, the Street is expecting the REIT to report FFO (funds from operations) per unit of 68 cents in 2018, 80 cents in 2019 and 86 cents in 2020. The consensus AFFO per unit estimates are 48 cents in 2018, 70 cents in 2019, and 74 cents in 2020.

Valuation

The REIT is trading at a price-to-FFO multiple of 11.9 times the 2019 consensus estimate and at a price-to-AFFO multiple of 13.6 times the 2019 consensus estimate.

The average one-year target price is US$11.17, implying the unit price has 18 per cent upside potential over the next 12 months. Individual target prices are as follows in numerical order: US$11 and two at US$11.25.

Insider Transaction Activity

On June 27 and June 28, the Chairman and Chief Executive Officer John Bailey purchased a total of 258,284 units for an account in which he has control or direction over (Unity Timberlands, LLC), initiating a portfolio position.

Chart watch

The REIT has only being trading on the Toronto Stock Exchange since May 18, limiting the application of technical analysis.

The unit price is consolidating, or trading sideways, in the low to high $9 range. Since units of the REIT began trading, closing prices have ranged from a low of $9.25 to a high of $9.70.

This REIT can be thinly traded. Since the REIT began trading, the historical daily average trading volume is approximately 59,000 shares.

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.

Wednesday’s TSX Breakouts

Price
Positive Breakouts 10-Jul
ACR.UN-T Agellan Commercial REIT $13.66
ATD.B-T Alimentation Couche-Tard Inc $60.80
ATZ-T Aritzia Inc. $16.22
ASO-T Avesoro Resources Inc. $5.38
BIR-T Birchcliff Energy Ltd $4.94
BDI-T Black Diamond Group Ltd $3.88
BBD.B-T Bombardier Inc $5.41
BNE-T Bonterra Energy Corp $18.24
CF-T Canaccord Genuity Group Inc $7.42
CAR.UN-T Canadian Apartment Properties REIT $43.67
CNR-T Canadian National Railway Co $111.48
CNQ-T Canadian Natural Resources Ltd $48.97
CVE-T Cenovus Energy Inc $14.64
GIB.A-T CGI Group Inc $85.06
CHP.UN-T Choice Properties REIT $12.38
CVG-T Clairvest Group Inc. $48.50
CLR-T Clearwater Seafoods Inc $5.62
CIGI-T Colliers International Group Inc $104.79
CSU-T Constellation Software Inc $1,077.49
ENF-T Enbridge Income Fund Holdings Inc $32.57
ECI-T EnerCare Inc $18.61
ERF-T Enerplus Corp $17.57
ENGH-T Enghouse Systems Ltd $80.46
FSV-T FirstService Corp $102.92
GXE-T Gear Energy Ltd $1.42
MIC-T Genworth MI Canada Inc $43.81
GTE-T Gran Tierra Energy Inc $4.71
GRT.UN-T Granite Real Estate Investment Trust $55.53
HSE-T Husky Energy Inc $21.17
IMO-T Imperial Oil Ltd $44.14
IPL-T Inter Pipeline Ltd $25.31
GUD-T Knight Therapeutics Inc $8.46
MMX-T Maverix Metals Inc. $1.91
MEG-T MEG Energy Corp $11.30
OTEX-T Open Text Corp $48.77
PKI-T Parkland Fuel Corp $33.24
PPL-T Pembina Pipeline Corp $46.63
PTS-T Points International Ltd $23.79
QSR-T Restaurant Brands International Inc $81.11
RVX-T Resverlogix Corp $2.66
RCI.B-T Rogers Communications Inc $64.26
SIL-T SilverCrest Metals Inc. $3.31
SU-T Suncor Energy Inc $54.68
TVE-T Tamarack Valley Energy Ltd. $4.68
TCS-T TECSYS Inc. $16.54
T-T TELUS Corp $47.46
TFII-T TFI International Inc. $42.38
TRI-T Thomson Reuters Corp $54.11
TGL-T TransGlobe Energy Corp $4.45
VET-T Vermilion Energy Inc $48.71
Y-T Yellow Pages Ltd $10.25
Negative Breakouts
ADW.A-T Andrew Peller Ltd $16.50
BTO-T B2Gold Corp $3.24
CG-T Centerra Gold Inc $6.26
KBLT-T Cobalt 27 Capital Corp. $8.56
CRT.UN-T CT Real Estate Investment Trust $12.49
DPM-T Dundee Precious Metals Inc $3.06
EMH-T Emerald Health Therapeutics Inc. $3.37
FRX-T Fennec Pharmaceuticals Inc. $12.90
KPT-T KP Tissue Inc $10.07
MAG-T MAG Silver Corp $13.87
HIP-T Newstrike Resources Ltd. $0.50
PBL-T Pollard Banknote Ltd. $20.40
PSK-T PrairieSky Royalty Ltd $25.13
PBH-T Premium Brands Holdings Corp $111.53
QTRH-T Quarterhill Inc. $1.42
SEC-T Senvest Capital Inc. $212.00
STLC-T Stelco Holdings Inc. $23.37
VLN-T Velan Inc $13.85

Source: Bloomberg