On today’s TSX Breakouts report, there are 29 stocks on the positive breakouts list (stocks with positive price momentum), and just two securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a security that is on the positive breakouts list with its unit price closing at a record high on Friday. This Canadian-listed REIT is uniquely positioned, providing investors with exposure to the U.S. industrial market. Amongst its top tenants are well-known companies including General Mills, Unilever, Amazon, and Zulily. The REIT pays its unitholders a stable monthly dividend denominated in U.S. dollars, which it has maintained at the current rate of 6.33 US cents per unit since 2015. Looking forward, he REIT has acquisition growth opportunities through its private capital venture with the CPPIB (Canada Pension Plan Investment Board) and AIMCo (Alberta Investment Management Corporation). The security I am referring to is WPT Industrial Real Estate Investment Trust (WIR-U-T).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Headquartered in Toronto, WPT Industrial REIT has a portfolio of 71 properties located across 17 U.S. States, 70 industrial properties and one office property. Management expects to sell its only office property in the near future. As at June 30, over half of the REIT’s NOI (net operating income) was derived from its properties located in five states: Minnesota (15.4 per cent), Illinois (12.7 per cent), Georgia (12.1 per cent), Kentucky (9.3 per cent) and Tennessee (8.2 per cent). As at June 30, its top 10 tenants accounted for 32 per cent of total annualized base rent, and included well-known companies such as General Mills, Unilever, Amazon, Zulily and Honeywell International.
After the market closed on Aug. 7, the REIT reported second-quarter financial results that were in-line with expectations. FFO [funds from operations] came in at 21 US cents per unit, matching the consensus estimate but down from 22 US cents per unit reported during the same period last year. FFO was up 18.5 per cent year-over-year; however, the FFO per unit figure was down year-over-year due to the increase in the weighted average number of units outstanding caused by the US$135-million equity financing in February. AFFO [adjusted funds from operations] per unit was 16 US cents. Same-property NOI increased 4.1 per cent year-over-year. At the end of the quarter, occupancy was high at 99.4 per cent. At quarter-end, the debt-to-gross book value ratio was 45 per cent. The unit price increased 2 per cent the following trading session.
Looking forward, earnings growth is anticipated to accelerate over the years boosted by acquisitions. During the second quarter, the REIT acquired 13 industrial properties and three land parcels for US$226-million. In addition, management announced its plans to acquire four 100 per cent occupied industrial properties for US$109-million from the REIT’s private capital pipeline. This acquisition is expected to be completed in the third-quarter. In the earnings release, the chief executive officer Scott Frederiksen remarked, “We are also pleased to be adding approximately 1.5 million square feet of modern, highly-functional properties from our private capital pipeline. We expect these new acquisitions to be immediately accretive to the REIT’s AFFO. Moreover, the opportunity to acquire high quality properties on an off-market basis at attractive pricing demonstrates the competitive advantage and long-term value proposition of the REIT’s value-add and development platform and private capital partnerships.” In July 2018, management announced the creation of a private capital venture with Canada Pension Plan Investment Board (CPPIB) and Alberta Investment Management Corporation (AIMCo), and targets purchasing up to US$1-billion in U.S. industrial properties.
At the end of the second-quarter, AIMCo held an 18 per cent ownership position (on a fully diluted basis). Employees and trustees ownership was just under 5 per cent.
The REIT trades on the Toronto Stock Exchange under the ticker WIR-U with its unit price is expressed in U.S. dollars.
The REIT pays its unitholders a monthly distribution denominated in 6.33 US cents per unit, or roughly 76 US cents per unit yearly, equating to an annualized dividend yield of 5.4 per cent. The REIT has maintained its monthly distribution at 6.33 US cents per unit since mid-2015.
In the second quarter, the ACFO [adjusted cash flows from operations] payout ratio stood at 98.9 per cent. In the first quarter, the payout ratio stood at 112.7 per cent.
There are tax implications for Canadian investors to consider. As indicated on the company’s website, “Distributions paid by the REIT to a Canadian unitholder that are made out of the REIT's "current or accumulated earnings and profits" (as determined for U.S. federal income tax purposes) generally will be subject to U.S. withholding tax at a rate of 15% (generally reduced to 0% for RRSPs). To the extent a Canadian unitholder is subject to U.S. withholding tax in respect of distributions paid by the REIT 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 in Canada. Distributions in excess of the REIT's current and accumulated earnings and profits generally will not be subject to U.S. withholding tax, provided that the recipient has not owned (or been deemed to own) more than 5% of the outstanding Units. Unitholders should consult their own tax advisors with respect to the income tax consequences of an investment in Units in their particular circumstances.”
This small-cap REIT with a market capitalization of US$891-million is covered by eight analysts, and all eight analysts have buy recommendations.
The firms providing research coverage on the REIT are as follows in alphabetical order: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Desjardins Securities, Industrial Alliance Securities, National Bank Securities, RBC Dominion Securities, and Scotiabank.
Earlier this month, Mark Rothschild, an analyst at Canaccord Genuity, tweaked his target price higher to US$14.80 from US$14.50.
Last month, RBC’s analyst Neil Downey raised his target price to US$15 from US$14.50. Mike Markidis, an analyst at Desjardins Securities, lifted his target price to US$15 from US$14.75. National Bank’s Matt Kornack bumped his target price to US$15.50 (the high on the Street) from US$15. Scotiabank’s Mario Saric lowered his target price by 25 US cents to US$14.75. CIBC’s Chris Couprie hiked his target price by 25 US cents to US$14.75.
The Street is forecasting FFO per unit to be stable, anticipating 86 US cents in 2019 as well as in 2020, down from 89 US cents reported in 2018. The consensus AFFO per unit estimates are 67 US cents in 2019, down from 76 US cents reported in 2018, and 76 cents in 2020.
Earnings forecasts have been relatively stable for this year but next year’s consensus estimates have been revised. For instance, three months ago, the 2019 consensus FFO and AFFO per unit estimates were 85 US cents and 68 US cents, respectively. For 2020, the FFO and AFFO per unit estimates were 91 US cents and 74 US cents, respectively.
On a price-to-FFO basis, the REIT is trading at a multiple of 16.3 times the 2020 consensus estimate. On a price-to-AFFO basis, the REIT is trading at a multiple of 18.4 times the 2020 consensus estimate.
The consensus one-year target price is US$14.98, suggesting there is 7 per cent upside potential in the unit price over the next 12 months. Individual target prices are quite concentrated and as follows in numerical order: three at US$14.75, US$14.80, two at US$15, US$15.25, and US$15.50 (the high on the Street is from Matt Kornack, ananalyst at National Bank Financial).
Insider transaction activities
Year-to-date, there has not been any trading activity in the public market reported by insiders.
The unit price is in an uptrend, making higher highs and higher lows. Year-to-date, the unit price is up a modest 9 per cent.
On Friday, the unit price rallied to a record closing high of US$14 on large volume. Over the past two weeks, there has been heavy trading volume in the REIT with over 200,000 units traded during five of the past 10 trading days, which is above the three-month historical daily average trading volume of approximately 127,000 units.
In terms of key technical resistance and support levels, there is initial overhead resistance around its current level of US$14. Should the unit price break, and hold, above this level, the next ceiling of resistance is around US$15. On a pullback, there is strong technical support around US$13, close to its 200-day moving average (at $13.26).
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.