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On today’s TSX Breakouts report, there are 15 stocks on the positive breakouts list (stocks with positive price momentum), and 19 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a security that is just pennies away from appearing on the positive breakouts list. The security has been a strong long-term performer, quintupling in value since 2011 while providing investors with steady monthly income. Year-to-date, the unit price is up 11 per cent, and currently provides investors with a 2.7 per cent yield.

The security highlighted today is InterRent Real Estate Investment Trust (IIP.UN-T).

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

The REIT

InterRent holds a portfolio of mid-sized, multi-family residential properties located primarily in Ontario. At the start of the year, the REIT had 8,660 suites and its top four regions were: the Ottawa region (National Capital Region) represented 33 per cent of its suites, the Hamilton/Niagara region at 18 per cent, Montréal at 16 per cent, and the Greater Toronto Area at 15 per cent. The balance of the portfolio represented western, northern and eastern Ontario districts.

Last week, InterRent completed a $98-million bought deal financing, issuing units at a price of $9.78, with proceeds earmarked to reduce its debt, reducing its debt-to-gross book value (GBV) ratio to approximately 45 per cent, as well as to fund the REIT’s growth.

Before the market opened on Feb. 22, InterRent reported solid fourth-quarter financial results. Funds from operations (FFO) came in at 11 cents, in-line with the Street’s expectations. Adjusted funds from operations (AFFO) was 10 cents, also in-line with the consensus estimate. Stabilized net operating income (NOI) increased 11 per cent year-over-year (stabilized suites are those owned by the REIT for more than 24 months. As at Dec. 31, roughly 27 per cent of the portfolio was non-stabilized). Average monthly rent per suite from stabilized units increased 4.9 per cent year-over-year. Overall occupancy increased 3.1 per cent to 97.9 per cent. The unit price closed a penny higher that day.

Distribution policy

InterRent pays its unitholders a monthly distribution of 2.225 cents per unit or 27 cents per unit on a yearly basis, translating to an annualized yield of 2.7 per cent. In 2017, the AFFO payout ratio was 65.8 per cent, suggesting the distribution is sustainable with room to expand. In Nov. 2017, management announced an 11 per cent increase to its monthly distribution, lifting it to its current level from 2.025 cents per unit.

Analysts’ recommendations

This small-cap REIT, with a market capitalization of $942-million, is well covered by the Street with 12 analysts following InterRent, of which nine analysts have buy recommendations, two analysts have hold recommendations, and one analyst is currently restricted on the security.

The firms providing research coverage are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC World Markets, Desjardins Securities, Echelon Wealth Partners, GMP, Industrial Alliance Securities, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, and TD Securities.

Revised recommendations

Changes to target prices have been minor but positive.

In March, Matt Kornack, the analyst from National Bank Financial, raised his target price to $10.25 from $9.75.

In February, Troy MacLean, the analyst from BMO Nesbitt Burns, increased his target price to $10.50 from $10. Mario Saric from Scotia Capital took his target price up by $1 to $11. Michael Markidis from Desjardins Securities tweaked his target price higher by 25 cents to $11. Jonathan Kelcher from TD Securities lifted his target price to $11 from $10.50. Frederic Blondeau from Echelon Wealth Partners bumped his target price higher by 25 cents to $10.75. Michael Smith from RBC Capital Markets increased his target price to $10.50 from $10. Dean Wilkinson from CIBC World Markets raised his target price to $10 from $9.

Financial forecasts

The Street is forecasting steady growth for the REIT. The consensus FFO per unit estimate is 48 cents in 2018, up from 42 cents in 2017, and forecast to rise to 51 cents in 2019. The consensus AFFO per unit estimates are 41 cents in 2018 and 44 cents in 2019.

Forecasts have been relatively stable since the beginning of the year.

Valuation

The REIT is not cheap. According to Bloomberg, the REIT is trading at a price-to-FFO multiple of 21 times the 2018 consensus estimate. This valuation is at the high end of its historical levels. Looking over the past three years, its average forward multiple is 18 times with its peak multiple at 22 times.

The average 12-month target price is $10.77, implying the unit price has 6 per cent upside potential over the next year. Target prices are concentrated in a tight range of between $10 and $11. Individual target prices provided by 11 firms are as follows in numerical order: $10 (low on the Street is from the analyst at CIBC Capital Markets), $10.25, two at $10.50, two at $10.75, five at $11.

Insider transaction activity

Year-to-date, there has not been any buying or selling activity in the public market reported by insiders.

Chart watch

Year-to-date, the unit price has climbed 11 per cent. If this small-cap REIT was included in the S&P/TSX Composite Real Estate Sector Index, it would be one of the top performing securities in the sector. The unit price is just 5 cents away from closing at a new record high.

From a long-term perspective, the chart is attractive with a unit price that has quintupled in value, rising from the $2 level in 2011 to its present unit price at over $10.

Looking at key support and resistance levels, the stock price has initial downside support between $9.50 and $9.75, near its 50-day moving average (at $9.58). Failing that, there is support at $9. There is overhead resistance around $11.

While this is a small-cap security, the REIT has reasonable liquidity. The three-month historical daily average trading volume is approximately 320,000 units.

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.

Monday's TSX breakouts

Positive BreakoutsMarch 29 close
AKG-TAsanko Gold Inc $1.32
AGB-TAtlantic Gold Corp. $1.97
CAE-TCAE Inc $23.98
CAR.UN-TCanadian Apartment Properties REIT $37.15
CARA-TCara Operations Ltd $29.21
CIGI-TColliers International Group Inc $89.44
DRM-TDREAM Unlimited Corp $9.24
ENGH-TEnghouse Systems Ltd $68.15
FSV-TFirstService Corp $94.41
JWEL-TJamieson Wellness Inc. $23.00
KDX-TKlondex Mines Ltd $3.05
MSI-TMorneau Shepell Inc $25.85
PBH-TPremium Brands Holdings Corp $118.50
SMU.UN-TSummit Industrial Income REIT $8.20
TGZ-TTeranga Gold Corp $4.49
Negative Breakouts
AD-TAlaris Royalty Corp $16.39
APH-TAphria Inc. $11.49
CUF.UN-TCominar Real Estate Investment Trust $12.89
CSW.A-TCorby Spirit and Wine Ltd $19.44
DC.A-TDundee Corp $1.86
FN-TFirst National Financial Corp $25.80
KBL-TK-Bro Linen Inc. $36.23
KPT-TKP Tissue Inc $11.67
LB-TLaurentian Bank of Canada $47.36
MPVD-TMountain Province Diamonds Inc $3.20
NXE-TNexGen Energy Ltd. $2.22
ORL-TOrocobre Ltd. $5.39
POM-TPolyMet Mining Corp. $1.10
PLI-TProMetic Life Sciences Inc $0.88
QTRH-TQuarterhill Inc. $1.87
STLC-TStelco Holdings Inc. $21.80
TCS-TTECSYS Inc. $15.75
UR-TUrtheCast Corp $0.31
VNR-TValener Inc $20.22

Source: Bloomberg

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