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On today’s TSX Breakouts report, there are 26 stocks on the positive breakouts list (stocks with positive price momentum), and 24 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a real estate investment trust (REIT) whose unit price has declined over 7 per cent during the past six weeks. As a result, the REIT is just 1 per cent away from appearing on the negative breakouts list. The unit price is currently hovering just above its 200-day moving average, which has proven to be a significant level of support that has rarely been breached over the past two years. The security may provide investors with downside protection during the current market volatility.

The REIT I am referring to is Canadian Apartment Properties REIT (CAR.UN-T).

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

The REIT

Canadian Apartment Properties REIT, commonly referred to as CAPREIT, is a residential landlord owning over 53,000 units located primarily in and close to major cities across Canada as well as in the Netherlands.

On April 23, CAPREIT completed an equity financing, raising over $345-million through the issuance of over 7-million units at a price per unit of $49 with proceeds used to fund its previously announced acquisitions as well as future acquisitions.

After the market closed on Feb. 26, CAPREIT reported strong fourth-quarter financial results that were relatively in-line with the Street’s expectations. Normalized funds from operations (NFFO) per unit came in at 49 cents, up from 45 cents reported during the same period last year and a penny ahead of the consensus estimate. Same property net operating income increased 8.6 per cent year-over-year. Occupancy was solid at 98.9 per cent at the end of the quarter. Debt to gross book value stood at 39.37 per cent at the end of the quarter. The following trading day, the unit price was little changed, closing at $48.53, down 29 cents.

On the earnings call, president and chief executive officer Mark Kenney remarked on one of management’s core objectives, “Another key objective is to modernize our property portfolio and diversify its average age. We are recently finding newer properties that are a good addition to our portfolio. Most of our Canadian acquisitions in 2018 were recently constructed, are modern and very attractive. We are selling older, noncore properties, recycling this capital into more accretive growth opportunities. Our development and intensification programs will further drive modernization as we accretively build new suites on our own properties. Over the long term, we believe we can add in excess of 10,000 new rental suites, primarily in the very strong markets of Toronto and Vancouver, where demand remains strong and average monthly rents support the profitable investment of buildings. We currently have applications in for two development sites in Toronto and an approved building in Montreal, which combined will add 317 suites to the portfolio when completed.”

The REIT will be reporting its first-quarter financial results after the market closes on May 14 and hosting an earnings call the following day at 10 a.m. ET.

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The consensus NFFO estimate is 48 cents per unit.

Distribution policy

Management is firmly committed to its distribution, increasing its distribution each calendar year since 2012. Most recently, in Feb., management announced a 3.8 per cent increase to its monthly distribution, raising it to 11.5 cents per unit (or $1.38 per unit yearly) from 11.083 cents per unit (or $1.33 per unit annually).

The REIT’s monthly distribution of 11.5 cents per unit equates to an annualized yield of 2.8 per cent.

In 2018, the normalized funds from operations payout ratio was 65.7 per cent. Management targets a long-term annual payout ratio of between 65 per cent and 75 per cent.

Analysts’ recommendations

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There are 12 analysts actively covering this REIT, of which five analysts have buy calls, four analysts have hold recommendations, two analysts are currently restricted on issuing a recommendation (due to the recent financing) and one analyst (Howard Leung at Veritas Investment Research) has a ‘sell’ recommendation.

The average one-year target price is $51.25, implying the unit price has 7 per cent upside over the next 12 months, and including the yield, this translates to a potential total return of nearly 10 per cent. Target prices range from a low of $43 (from the analyst at Veritas Investment Research) to a high of $57 (from Jonathan Kelcher, the analyst at TD Securities).

Individual target prices provided by 10 analysts are as follows in numerical order: $43, $50, $50.50, three at $51, three at $53, and $57.

Revised recommendations

On April, Jonathan Kelcher, the analyst at TD Securities, raised his target price to $57 (the high on the Street) from $54. Matt Kornack, the analyst at National Bank Financial, lifted his target price by $1 to $51.

In March, Frederic Blondeau, the analyst at Echelon Wealth Partners, increased his target price by $1 to $53. Mario Saric from Scotiabank raised his target price to $53 to $51.

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Financial forecasts

The Street is currently forecasting funds from operations (FFO) per unit of $2.11 in 2019, rising to $2.24 in 2020. The consensus adjusted funds from operations (AFFO) per unit estimate are $1.77 in 2019 and $1.89 in 2020.

Earnings forecasts have been stable. For instance, three months ago, the consensus FFO per unit estimates were $2.11 for 2019 and $2.23 for 2020. The AFFO per unit estimates were $1.78 for 2019 and $1.88 for the following year.

Valuation

According to Bloomberg, the REIT is trading at a price-to-FFO multiple of 21.4 times the 2020 consensus estimate, below its peak of nearly 24 times, but above its 3-year average of 19 times. On a price-to-adjusted FFO basis, the REIT is trading at 25.3 times the 2020 consensus estimate.

Insider transaction activities

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Year-to-date, three insiders have reported transactions in the public market.

On March 19, Trish MacPherson, executive vice-president – operations, sold 3,175 units at an average price per unit of approximately $50.06, leaving 32,616 units in her account. Gross proceeds totaled nearly $159,000.

On March 14, chief financial officer Scott Cryer exercised his rights and sold the corresponding number of units received (9,614) at an average price per unit of approximately $50.28.

On Jan. 2, David Ehrlich, the REIT’s former chief executive officer who currently sits on the board of trustees, exercised his rights, receiving 32,294 units. On March 1, he sold 32,294 units at a price per unit of $50.11 with 6,040 units remaining in this account.

Chart watch

On March 25, the unit price closed at a record high of $51.81. However, since then, the unit price has declined over 7 per cent. The unit price is currently priced below its recent equity financing offering.

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During the past six weeks, the S&P/TSX real estate sector has been under pressure while cyclical sectors such as the technology and consumer discretionary sectors hare rallied.

The unit price is approaching a major technical support level, its 200-day moving average (at $47.07). Looking back over the past two years, the unit price has rarely, and only very briefly, retreated below its 200-day moving average. Failing this, the next technical support levels are around $46, then $44. However, should the unit price hold above its 200-day moving average and recover, the unit price faces major overhead resistance around $50, close to its 50-day moving average (at $49.77).

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.

Positive BreakoutsMay 3 close
AW-UN-TA&W Revenue Royalties Income Fund $43.21
ALC-TAlgoma Central Corp $13.67
ALA-TAltaGas Ltd $18.68
AIF-TAltus Group Ltd $28.00
BYD-UN-TBoyd Group Income Fund $151.79
CTC-A-TCanadian Tire Corp Ltd $154.57
CJR-B-TCorus Entertainment Inc $7.85
DSG-TDescartes Systems Group Inc $54.85
ENW-TEnWave Corp. $2.39
GSY-Tgoeasy Ltd $51.50
HLS-THLS Therapeutics Inc. $17.08
IVN-TIvanhoe Mines Ltd $3.55
MFC-TManulife Financial Corp $24.95
MFI-TMaple Leaf Foods Inc $34.41
MSI-TMorneau Shepell Inc $28.07
NA-TNational Bank of Canada $63.95
OTEX-TOpen Text Corp $54.09
PBH-TPremium Brands Holdings Corp $81.30
REAL-TReal Matters $5.97
RVX-TResverlogix Corp $4.38
RPI-UN-TRichards Packaging Income Fund $39.40
SHOP-TShopify Inc. $354.86
TOY-TSpin Master Corp. $45.70
TRZ-TTransat AT Inc $8.99
WCN-TWaste Connections Inc. $124.74
ZYME-TZymeworks Inc. $25.81
Negative Breakouts
VNP-T5N Plus Inc $2.95
APHA-TAphria Inc. $9.32
AR-TArgonaut Gold Inc $1.48
BTO-TB2Gold Corp $3.53
GBT-TBMTC Group Inc $13.16
BNP-TBonavista Energy Corp $0.89
CFW-TCalfrac Well Services Ltd $2.80
CF-TCanaccord Genuity Group Inc $5.53
CEU-TCanadian Energy Services & Technology Co $2.37
CFX-TCanfor Pulp Products Inc $13.79
CHW-TChesswood Group Ltd $10.19
ELD-TEldorado Gold Corp $4.57
XTC-TExco Technologies Ltd $9.06
LGT/B-TLogistec Corp $42.45
MDI-TMajor Drilling Group International Inc $4.09
NGD-TNew Gold Inc $1.07
NDM-TNorthern Dynasty Minerals Ltd. $0.65
OGC-TOceanaGold Corp $3.64
ZZZ-TSleep Country Canada $17.59
SSRM-TSSR Mining Inc. $14.95
TOU-TTourmaline Oil Corp $19.21
TCL-A-TTranscontinental Inc $15.82
U-TUranium Participation Corp. $4.22
WJA-TWestJet Airlines Ltd $18.48

Source: Bloomberg

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