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More than $1.5-billion in property value has vanished from Alberta’s office tower market as REITs writedown their properties.The Globe and Mail

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

Dream Office Real Estate Investment Trust's (D.UN-T) latest series of moves, which included cutting its distribution, "should lead to the conclusion of its strategic repositioning," says analyst Mark Rothschild.

The closing of announced asset sales is likely to continue through the end of 2017 and the REIT will enter 2018 with a significantly smaller and more focused portfolio. They key components of the announcement were:

• The sale of the REIT's 50 per cent  interest in Scotia Plaza along with a number of other properties for a total gross sale price of $1.7-billion;

• A substantial issuer bid for up to $440-million; and,

• The REIT's monthly distribution will be reduced to an annual rate of $1.00 per unit from $1.50.

"Since the commencement of the strategic plan, the pace of asset sales has been extremely rapid. While management initially targeted selling $1.2 billion of assets over a three-year time period, the REIT now anticipates divesting $3.2 billion of assets in just 18 months," Mr. Rothschild said.

"While cash flow had declined dramatically following the large volume of asset sales as well as lower cash flow, we were not expecting the distribution to be reduced before 2018, at the earliest. However, with the dramatic volume of asset sales being completed in the near term, management has taken the opportunity to right-size the distribution. The revised distribution of $1.00 per unit equates to a current yield of 5.2% and we believe will allow for a conservative payout ratio of less than 75 per cent of AFFO [adjusted funds from operations] in 2019."

"Following the completion of these asset sales, Dream Office will own a smaller and more stable office portfolio which should present an attractive way to play the Canadian office market. In the near term, however, there is some execution risk and it is difficult to confidently forecast cash flow once all these transactions are completed. We are raising our target price to $21.50 from $20,50, which is essentially in line with our updated NAV [net asset value] estimate of $21.60. The higher target price represents our belief that the substantial issuer bid, along with the more focused portfolio, should be viewed more positively by investors."

The analyst also kept his "hold" rating on the stock. The consensus target price is $19.67, according to Thomson Reuters.

*****

After flooding at Mandalay Resources Corp.'s (MDN-T) Cerro Bayo mine in Chile, Raymond James analyst Chris Thompson is downgrading the stock to "market perform" from "outperform" and cut its price target to 55 cents from 70 cents.

"We are cutting our target to 55 cents (from 70 cents) and downgrading MND to MP3 [market perform 3](from OP2 [outperform 2]) prompted by adjustments to our model to account for an assumed permanent shutdown of operations at Cerro Bayo, following the flooding of the Delia NW mine. We have also adjusted our 2H17 Au & Ag price assumptions (slightly lower, LT $1300/oz Au, $19/oz Ag maintained). Whilst Cerro Bayo represented a small component of our modelled NAV [net asset value] for MND (about 8 per cent previously, now nil), the operation represented about 27 per cent of MND's 2017 production guidance (which we expect will be revised lower). We now estimate 2017E production of 117 koz AuEq (down from 141 koz previously, a 17 per cent drop), with no production from Cerro Bayo beyond 2Q17. Our MP3 rating reflects uncertain ramifications over Cerro Bayo's future, despite anticipated strong operational performance from Bjorkdal and Costerfield," the analyst said.

"While the precise nature of the failure which caused the flooding is as-yet unknown, the formation of a new bay of significant size (~100 m sq.) suggests a cylindrical slope failure. If geotechnical conditions along the Delia vein and under Laguna Verde are found to offer similar risks, the odds of the Delia and Coyita mines resuming operations are low, given difficulties and costs associated with mitigating these risks (we modelled a ~4 year high-cost mine life at reduced mill throughput). As such, we assign no value to the Cerro Bayo project and assume reclamation activities would be financed by operating the mine in a limited capacity, as well as from the salvage value of the equipment on site."

The consensus is 87 cents.

*****

GreenSpace Brands Inc. (JTR-X) recently reported its fourth quarter results, and its adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] of $300,000 was below consensus of $500,000 and Raymond James's $400,000 estimate due to weaker than expected revenues and gross margin performance.

As a result, Raymond James analyst Kenric Tyghe reduced the 2018 EBITDA estimate to $2.5-million from $3-million, and the 2019 estimate to $3.5-million from $4.1-million.

"While the gross revenue increase of 131.5 per cent to $12.9-million was modestly below our estimates, on lower than expected growth of legacy brands, sales growth of other key brands surprised to the upside. Love Child showed particularly strong momentum (in part due to the Loblaw's PC Organics Baby Food Pouch recall in the quarter), while Central Roast and Rolling Meadow also experienced robust growth. Adjusted gross margin of 22.5 per cent was also below our expectation, primarily due to (i) increased shrink associated with the launch of new Rolling Meadow dairy product lines, (ii) margin compression experienced within the Love Child brand as suppliers raised prices, and (iii) higher rebates and discounts due to increased sales to larger retailers. We expect normalizing order patterns for Rolling Meadow's new products and price increases on Love Child's products (implemented in mid-1Q18E) to alleviate some margin pressures going forward. Our constructive thesis on GreenSpace is predicated on its strong organic growth (driven by robust consumer demand and new distribution wins), potential acquisitions to complement top-line growth, and expected EBITDA margin expansion as the company gains economies of scale."

The analyst kept a "strong buy" rating on the stock and the $2 target price. The consensus is $2.14.

In other analyst actions:

Caterpillar Inc. (CAT-N) was downgraded by Deutsche Bank to "hold" from "buy". The firm also cut its price target on the heavy equipment maker's stock to $106 from $121. Deutsche Bank said its forecast for Caterpillar's earnings are ahead of the Street consensus, but the firm feels its stock price already reflects positive sentiment regarding the rebound of some of Caterpillar's top markets.

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