Skip to main content
analysis

On today’s Breakouts report, there are 12 stocks on the positive breakouts list (stocks with positive price momentum), and 22 securities are on the negative breakouts list (stocks with negative price momentum). Once again, gold and silver stocks dominate the negative breakouts list.

Discussed today is a REIT that appeared on the negative breakouts list in mid-July after its unit price closed at a record low - Minto Apartment Real Estate Investment Trust (MI-UN-T). REITs have been under pressure and this is one of the worst performing REITs in the S&P/TSX SmallCap Index with its unit price down over 30 per cent this year. Rising interest rates and fears of a recession have put pressure on the unit price of Minto Apartment REIT.

On the positive side, the unit price may have or be close to putting in a bottom. In May and June, several insiders were buying units. However, it may take several months or a few quarters before meaningful buying activity pushes the unit price materially higher.

A brief outline on the REIT is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.

The REIT

Ottawa-based Minto Apartment REIT owns a portfolio of 30 rental properties as at March 31. The majority of the properties are located in Ottawa and Toronto. Other cities where Minto has a presence include Montreal, Calgary and Edmonton.

This small-cap security has a market capitalization that is just below $1-billion, currently at $946-million.

Investment thesis

  • Diversified portfolio with properties located in attractive markets.
  • Steady monthly income.
  • Trading near strong technical support.
  • Potential key risks to consider: 1) recession; 2) inflation; and 3) rising rates.

Quarterly earnings

After the market closed on May 3, the REIT reported its first-quarter financial results. Funds from operations (FFO) came in at 19 cents per unit, up 3 per cent year-over-year but below the Street’s forecast of 21 cents per unit. Adjusted FFO was 16.5 cents per unit, up 4 per cent year-over-year. Same-property occupancy was 94 per cent. Same-property net operating income (NOI) was $18.4-million, up 2.6 per cent year-over-year.

During the quarter, 401 new leases were signed at higher rental rates, and the average monthly rent for the same-property portfolio increased 2.9 per cent year-over-year to $1,677 from $1,630. The debt-to-gross book value ratio stood at 37 per cent as of March 31. In the first quarter, operating costs increased 12 per cent year-over-year driven by utilities, labour rates, insurance costs as well as higher repairs and maintenance costs. Natural gas prices were 34 per cent higher year-over-year.

The following trading session, the unit price declined 1 per cent.

On the earnings call, chief executive officer Michael Waters provided a positive outlook, “We believe the outlook for Minto Apartment REIT is highly positive. The Canadian urban multi-residential rental market is steadily improving. The strong fundamentals that have driven long-term growth in this market remain in place. That includes Canada’s expansive immigration policy and elastic housing supply and the increasing gap between the cost of renting and owning a home. These factors were driving the market prior to the pandemic and we believe that they’ll continue to do so for the foreseeable future.” Mr. Waters added that he anticipates occupancy will improve in the quarters ahead, “I expect we’ll see strong improvement in Q2 [second quarter] with the spring leasing season, sort of getting into that 97 per cent plus range in Q3 [third quarter] and possibly see it climb further in Q4 [fourth quarter].”

The REIT will be releasing its second-quarter financial results after the market closes on Aug. 9. Management will be hosting an earnings call the following day at 9 a.m.

Distribution policy

The REIT pays its unitholders a monthly distribution of 3.958 cents per unit, or 47.5 cents per unit on a yearly basis. This equates to a current annualized yield of 3.2 per cent. This yield is relatively comparable to its peers. For instance, Canadian Apartment Properties REIT (CAR.UN-T), or CAPREIT, has a current yield of 3.1 per cent and InterRent REIT (IIP.UN-T) has a current yield of 2.7 per cent.

On Nov. 9, the REIT announced a 4.4 per cent distribution hike, increasing its monthly distribution to 3.958 cents per unit from 3.792 cents per unit.

In the second quarter, the AFFO payout ratio stood at 72 per cent.

Analysts’ recommendations

According to Bloomberg, the REIT is covered by 12 analysts, of which 11 analysts have buy recommendations and one analyst has a “sector perform” recommendation (Scotia Capital’s Mario Saric).

The firms providing research coverage on the REIT are as follows in alphabetical order: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Cormark Securities, Desjardins Securities, iA Capital Markets, Laurentian Bank, National Bank Financial, Raymond James, RBC Dominion Securities, Scotia Capital and TD Securities.

Revised recommendations

Month-to-date, three analysts have lowered their expectations:

  • BMO’s Jenny Ma to $21 from $24.
  • CIBC’s Dean Wilkinson $1 to $23.
  • National Bank’s Matt Kornack to $16.25 (the low on the Street) from $24.50.

Financial forecasts

The Street is forecasting FFO per unit of 86 cents in 2022, up from 81 cents reported in 2021, rising to 94 cents in 2023. The consensus AFFO per unit estimates are 76 cents in 2022 and 84 cents in 2023.

Financial forecasts have declined in recent months. Four months ago, the consensus FFO per unit estimates were 93 cents for 2022 and $1.01 for 2023. The AFFO per unit estimates were 82 cents for 2022 and 89 cents for the following year.

Valuation

The REIT is trading at a price-to-AFFO multiple of 18 times the 2023 consensus estimate. Looking at its industry peers, CAP REIT is trading at a price-to-AFFO multiple of 18.7 times the 2023 consensus estimate, and Killam Apartment REIT (KMP.UN-T) is trading at a price-to-AFFO multiple of 15.1 times the 2023 consensus estimate.

The average one-year target price is $23.45, implying a potential price return of 56 per cent and a potential total return, which includes the 3 per cent yield, of over 59 per cent. Individual target prices are: $16.25 (from National Bank’s Matt Kornack), $21, $22, two at $23, $23.70, $24, $24.50, $25.50, two at $26 and $26.50 (from Desjardins’ Kyle Stanley).

Insider transaction activity

Insiders have been accumulating units on the price weakness. Listed below are the most recent trades in the public market reported by insiders – all purchases.

On June 24, vice-president of finance Edward Fu purchased 1,400 units at a price per unit of $14.61, increasing this particular account’s position to 2,400 units. The cost of this investment exceeded $20,000.

Between May 11-13, chairman of the board of trustees Roger Greenberg invested roughly $2.5-million in units of this REIT. He acquired a total of 139,036 shares at an average price per unit of approximately $17.97, after which this particular account held 182,486 units.

On May 9, president and chief operating officer Jonathan Li bought 39,300 units at a cost per unit of $17.769 raising this specific account’s holdings to 39,300 units. The cost of this purchase totaled over $698,000.

On May 9, lead trustee Allan Kimberley acquired a total of 25,000 units at an average price per unit of roughly $17.70 for several accounts.

Chart watch

The REIT began trading on the Toronto Stock Exchange in July 2018. Given the REIT’s brief trading history, technical analysis is limited.

Year-to-date, all 22 securities in the S&P/TSX SmallCap real estate sector have reported losses. However, this REIT has one of the lowest returns. The unit price is down 31 per cent in 2022, underperforming the S&P/TSX SmallCap real estate sector, which is down 14 per cent.

On July 14, the unit price closed at a record low of $14.16. The unit price is currently up just 4 per cent from its initial public offering price of $14.50.

Looking at key support and resistance levels, the unit price has strong technical support around $14, close to its record low. There is an initial ceiling of resistance around $16, near its 50-day moving average at $16.07. After that, there is overhead resistance around $20, close to its 200-day moving average at $20.25.

This small-cap security can be thinly traded. The three-month historical daily average trading volume is approximately 237,000 units.

ESG Risk Rating

According to risk provider Sustainalytics, the REIT has an ESG risk score of 21.2 as of Sept. 29, 2021. A risk score between 20 and 30 reflects a “medium risk” rating.

POSITIVE BREAKOUTSJuly 22 close
CSU-TConstellation Software Inc2058.76
DHT-UN-TDRI Healthcare Trust9.04
EXE-TExtendicare Inc7.3
FRX-TFennec Pharmaceuticals Inc. 8.88
HLF-THigh Liner Foods Inc12.56
INE-TInnergex Renewable Energy Inc18.64
MTL-TMullen Group Ltd13.94
NPI-TNorthland Power Inc40.48
RBA-TRitchie Bros Auctioneers Inc89.4
TOY-TSpin Master Corp. 49.64
STN-TStantec Inc60.42
VMD-TViemed Healthcare Inc. 10.16
NEGATIVE BREAKOUTS
AEM-TAgnico Eagle Mines Ltd52
USA-TAmericas Gold and Silver Corp0.62
ABX-TBarrick Gold Corp19.75
CG-TCenterra Gold Inc7.6
CGG-TChina Gold International Resources Corp.3.36
ECO-TEcoSynthetix Inc3.97
FR-TFirst Majestic Silver Corp8.62
FVI-TFortuna Silver Mines Inc3.3
MUX-TMcEwen Mining Inc. 0.43
MDF-TMDF Commerce Inc. 1.63
NGT-TNewmont Corp. 66.48
OGC-TOceanaGold Corp2.3
OR-TOsisko Gold Royalties Ltd12.27
PPTA-TPerpetua Resources Corp.3.45
PYR-TPyroGenesis Canada Inc.1.75
RECO-XReconnaissance Energy Africa Ltd. 4.42
SSRM-TSSR Mining Inc. 20.54
TECK-B-TTeck Resources Ltd33.59
X-TTMX Group Ltd125.7
TWC-TTWC Enterprises Ltd. 16
FORA-TVerticalScope Holdings Inc. 9.15
WRN-TWestern Copper and Gold Corp. 1.65

Source: Bloomberg and The Globe and Mail

This is not an investment recommendation.

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.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Report an error

Editorial code of conduct

Tickers mentioned in this story