On Thursday, major North American stock markets all closed with gains.
In the U.S., the Dow Jones Industrial Average increased 0.07 per cent, the S&P 500 index advanced 0.19 per cent, and the Nasdaq composite index rallied 0.25 per cent.
Turning to Canada, the S&P/TSX composite index added 54 points, or 0.35 per cent. There were 161 securities in the TSX Index that advanced, 86 securities declined in value, and four stocks closed the day unchanged.
The TSX Index is up 2.68 per cent year-to-date.
On today's TSX Breakouts report, there are 48 stocks on the positive breakouts list (stocks with positive price momentum), and 11 stocks are on the negative breakouts list (stocks with negative price momentum).
As always, I try to appeal to a wide range of investors by profiling a large spectrum of securities. Featured today is a REIT with a 9.7 yield with an average 14 per cent price return forecast. The REIT has not appeared on the breakouts list as its market cap falls short of the screening criteria. The security I am referred to is PRO Real Estate Investment (PRV.UN-X).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The REIT
The REIT is focused on building a portfolio of properties located in suburban areas, primarily small cities in eastern Canada. In terms of geographical exposure, as at December 31, 2016, 68 per cent of the REIT's base rent stemmed from the Maritime provinces, 21 per cent was from Quebec, 7 per cent was from Ontario, and the balance came from Alberta.
According to an investor presentation released earlier this month, the REIT holds a portfolio of 39 properties, of which, 22 are retail properties, nine are industrial properties, four are office properties, and four are identified as commercial mixed use properteis. Overall occupancy stood at 94.7 per cent with a remaining lease term of 6.4 years.
In addition, in February, PROREIT acquired a 50 per cent interest in an industrial property located in Drummondville, Que.. The property has a single-tenant with a lease term extending to 2028, and includes annual rent escalators.
The REIT's tenants are perceived by management as low-risk, high-quality tenants. The top ten tenants accounted for 50 per cent of base rent and includes recognized tenants such as Sobeys, Shoppers Drug Mart, Xerox, CIBC, Best Buy, and Hydro Quebec.
Looking at the REIT's financials, net operating income has been increasing over the years, to $14.1-million in 2016, up from $11.2-million reported in the prior year, and $5.8-million realized in 2014. Adjusted funds from operations rose to $7.7-million in 2016, up from $6.3-million reported in 2015, and $2.9-million reported in 2014.
In the fourth quarter, the REIT raised $29-million through the issuance of 12.88-million trust units at a price of $2.25 per unit. In October, PROREIT announced the financing was completed with proceeds raised to help fund the proposed acquisition of 11 properties costing approximately $58-million (excluding closing costs).
Distribution policy
The REIT pays unitholders a monthly distribution of 1.75 cents per unit, or 21 cents on a yearly basis. This equates to an annualized yield of 9.7 per cent.
Management has maintained the distribution at this level since 2014. However, the high payout ratio is something to note. In 2016, the AFFO payout ratio was 101 per cent, up from 97 per cent in 2015.
Analysts' recommendations
There are two firms providing research coverage on this microcap REIT, with a market capitalization of $96-million, Canaccord Genuity and Haywood Securities. Both analysts covering the REIT have buy recommendations. Analysts' recommendations have remained stable with no changes in recommendations nor target prices over the past five months.
Financial forecasts
The Street is forecasting solid growth for the REIT. The consensus funds from operations (FFO) per unit estimates are 21 cents for 2017, rising to 23 cents in 2018. The Street is expecting adjusted funds from operations (AFFO) per unit of 20 cents in 2017 and 23 cents the following year.
Revisions have been modest. For instance, four months ago, the consensus FFO per unit estimates were 24 cents for 2017 and 22 cents for 2018. The consensus AFFO per unit forecasts were 23 cents for 2017 and 21 cents for 2018.
Valuation
The REIT is trading at a price-to-FFO multiple of 10.3 times the 2017 consensus estimate. According to Bloomberg, since August, the REIT has traded at a forward P/FFO multiple ranging from a low of 8.5 times to a high of over 12 times, averaging 10.2 times. Looking at the downside risk, should the multiple contract to 9 times, this would equate to a unit price of approximately $1.90.
The average one-year target price is $2.47, implying 14 per cent upside potential in the unit price over the next 12 months. Individual target prices are $2.40 and $2.55.
Insider transaction activities
Over recent days, Gordon Lawlor, the chief financial officer (CFO) has been actively accumulating units. On April 5, Mr. Lawlor purchased 3,200 units. On April 4, he acquired 4,500 units. The prior day, he bought 2,000 units, and on the final trading day of March, he purchased 2,000 units.
As of March 29, executive officers and trustees collectively owned 10.18 per cent of the outstanding units.
As at December 31, 2016, the number of units outstanding was 43,931,990.
Chart watch
Year-to-date, the unit price is up 2.9 per cent. However, the unit price is down 4 per cent from its most recent equity offering price of $2.25 per unit (from October 2016).
The REIT has reasonable liquidity. The three-month historical daily average trading volume is approximately 140,000 units.
The unit price has initial overhead resistance between $2.20 and $2.25, After that, there is resistance between $2.40 and $2.45.
In terms of downside support, there is initial support around $2.10, close to its 50-day moving average (at $2.09) and its 200-day moving average (at $2.12). Failing that, there is support around $2.05, and then around $2.
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.