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On today’s TSX Breakouts report, there are 29 stocks on the positive breakouts list (stocks with positive price momentum), and 39 securities are on the negative breakouts list (stocks with negative price momentum).

Discussed today is a security is on the positive breakouts list - RioCan Real Estate Investment Trust (REI.UN-T). Analysts are forecasting the Trust to report steadily improving operational results as it continues to execute on its disposition program. The Trust has been active in its buyback program and increased its distribution earlier this year (paid in February) with future distribution increases anticipated. The Trust currently yields an attractive 5.8 per cent and the consensus target price implies a potential one-year total return (including the yield) of over 14 per cent.

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

The REIT

Toronto-based RioCan owns and operates a portfolio of 284 retail and mixed use properties across the country, including 17 properties that are under development.

In terms of geographical revenue breakdown, Ontario is the REIT’s largest exposure, accounting for 65.7 per cent of annualized rental revenue, followed by Alberta at 15.7 per cent, Québec at 8.9 per cent, B.C. at 7.2 per cent, eastern Canada at 1.8 per cent, and Manitoba at 0.7 per cent. In terms of its tenant base, Loblaws/Shoppers Drug Mart is its largest tenant, representing 4.9 per cent of its annualized rental revenue as at the end of the first quarter, followed by Walmart at 4.1 per cent, Canadian Tire at 4.1 per cent, and Cineplex/Galaxy Cinemas at 4 per cent. Other major tenants include TJX banners (Winners, Marshalls, and HomeSense), Metro, Lowe’s, Dollarama and Sobeys/Safeway. Its top 10 tenants accounted for 31.3 per cent of total annualized rental revenue as at March 31.

Before the market opened on May 9, RioCan reported solid first-quarter financial results. Funds from operations (FFO) per unit came in at 46 cents, up 6.1 per cent from 44 cents reported last year and ahead of the consensus estimate of 44 cents. Same-property net operating income (NOI) continues to steadily expand, rising to 2.6 per cent driven by higher occupancy, higher renewal rate growth, and rent increases. In-place occupancy climbed to 95.7 per cent, up 1.3 per cent from same period last year. During the quarter, the Trust was active in its buyback program, 5.9-million units were repurchased at a weighted average price of $23.97 per unit. During the trading session, the unit price was relatively unchanged, closing higher by 2 cents.

The retail space has been a challenging industry with the closure of major department chains such as Sears and Target’s exit from Canada. In response these challenges, management’s key objective is to focus on its six primary markets, large cities that have higher occupancy and rental growth potential. At the end of the first quarter, approximately 80 per cent of its annualized rental revenue was from these six major markets (43.7 per cent from the Greater Toronto Area) and management anticipates this figure will increase to over 90 per cent in 2019.

On the earnings call, the REIT’s chief financial officer provided an operational update on its disposition plan stating, “As of yesterday, May 8, 2018, the trust has either completed or entered into firmer agreements to sell $583-million of properties in secondary markets at a weighted average cap rate of 6.14 per cent based on in-place NOI. There are additional $225-million of assets that are under conditional contracts, which if completed as currently contemplated, will bring total sales to 40 properties with gross sales proceeds of $808-million or 40 per cent of our overall disposition target at a weighted average cap rate of 6.4 per cent, based on in-place NOI.”

Last October, management announced its plan to unlock value by divesting approximately 100 properties located in secondary markets over the next two to three years. Proceeds of the asset sales are expected to be reinvested in the market with RioCan focusing on major markets with about half of the net proceeds to be used to repurchase units. Management’s goal is to build a portfolio of high-quality assets in major markets and in doing so, management expects to achieve even higher same-property net operating income leading to future distribution increases.

RioCan is scheduled to report its second-quarter financial results before the market opens on August 8. The Street is anticipating FFO per unit of 45 cents.


Distribution policy

RioCan pays its unitholders a monthly distribution at 12 cents per unit, or $1.44 per unit on a yearly basis. This equates to an annualized yield of 5.8 per cent. In December, RioCan announced 2 per cent increase to its distribution, the REIT’s first distribution hike since 2013.

In a news release issued on December 1, the Chief Executive Officer Edward Sonshine stated, “This increase not only reflects the growth that we have been able to achieve but also the confidence that we have in our ability to continue to grow our funds from operations even while executing our $2-billion disposition program. We are making great progress delivering our strategic vision for RioCan, and we remain committed to managing our payout ratio with the goal to provide continued growth in our distributions with the future growth in our cash flow.”

In the first quarter of 2018, the FFO payout ratio stood at 78 per cent.

Analysts’ recommendations

The REIT is covered by 11 analysts, of which nine analysts have buy recommendations and two analysts have ‘sector perform’ recommendations.

These 11 firms providing research coverage on the REIT are as follows in alphabetical order: Accountability Research, BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Edward Jones, EVA Dimensions, National Bank Financial, Raymond James, RBC Capital Markets, Scotia Capital, and TD Securities.

Revised recommendations

Target prices and recommendations have been stable. The most recent revision occurred in May when Sam Damiani, the analyst from TD Securities, trimmed his target price by $2 to $27.

Financial forecasts

The Street is forecasting FFO per unit of $1.78 in 2018 and $1.81 in 2019. The consensus adjusted funds from operations (AFFO) per unit estimates for 2018 and 2019 are $1.58 and $1.60, respectfully.

Financial forecasts have been relatively unchanged. To illustrate, three months ago, the FFO per unit estimates were exactly the same. The AFFO per unit estimates were $1.57 for 2018 and $1.60 for 2019.

Valuation

According to Bloomberg, the REIT is trading at a price-to-FFO multiple of 13.7 times the consensus 2019 estimate. Looking back three years, the current valuation is near its lowest multiple (around 13 times). Its three-year historical average multiple is approximately 14.6 times. If the unit price was to expand to a 14.6 times multiple, this would equate to a unit price of approximately $26.50 based on the current 2019 consensus estimate.

The average one-year target price is $27.00, implying the unit price may appreciate 8 per cent over the next 12 months, providing investors with a total return (including the yield) of over 14 per cent. Target prices range from a low of $26 (from the analyst at Accountability Research) to a high of $28.75 (from the analyst at National Bank Financial). Individual target prices provided by nine firms are as follows in numerical order: $26, two at $26.50, four at $27, $27.25, and $28.75.

Insider Transaction Activity

There has not been any buying or selling activity in the public market reported by insiders during the second quarter and so far in this quarter, the third-quarter.

Chart watch

Year-to-date, the unit price has formed a V-shaped recovery. The unit price declined 5 per cent during during their first four months of the year (as at April 25), and then rebounded 8 per cent with the unit price now up 2 per cent year-to-date.

Looking at key resistance and support levels, the next major ceiling of resistance is around $25.50, and after that, there is overhead resistance around $27. Looking at the downside, there is initial technical support around $24, close to its 50-day moving average (at $24.25) and its 200-day moving average (at $24.21). Failing that, there is strong technical support around $23.

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 Breakouts July 27 close
AW-UN-T A&W Revenue Royalties Income Fund $35.51
ADN-T Acadian Timber Corp $20.17
AGT-T AGT Food & Ingredients Inc $18.08
AIM-T Aimia Inc $3.50
ASR-T Alacer Gold Corp $2.93
BIR-T Birchcliff Energy Ltd $5.29
CFX-T Canfor Pulp Products Inc $27.30
CCL.B-T CCL Industries Inc $67.00
CM-T CIBC $118.14
CVG-T Clairvest Group Inc. $49.50
CNL-T Continental Gold Inc $3.95
CRT-UN-T CT Real Estate Investment Trust $13.54
ECI-T EnerCare Inc $18.87
EXF-T EXFO Inc $5.06
FC-T Firm Capital Mortgage Investment Corp $13.49
GSV-T Gold Standard Ventures Corp. $2.21
HSE-T Husky Energy Inc $21.21
DR-T Medical Facilities Corp $14.77
NSU-T Nevsun Resources Ltd $4.85
OGC-T OceanaGold Corp $4.02
PL-T Pinnacle Renewable Holdings Inc. $15.15
REI-UN-T RioCan Real Estate Investment Trust $24.91
RSI-T Rogers Sugar Inc $5.52
SIL-T SilverCrest Metals Inc. $3.55
TVE-T Tamarack Valley Energy Ltd. $4.70
TFII-T TFI International Inc. $43.26
TF-T Timbercreek Financial Corp. $9.35
TA-T TransAlta Corp $7.18
U-T Uranium Participation Corp. $4.49
Negative Breakouts
VNP-T 5N Plus Inc $3.20
AEM-T Agnico Eagle Mines Ltd $54.54
AX-UN-T Artis Real Estate Investment Trust $12.64
AKG-T Asanko Gold Inc $1.33
BTE-T Baytex Energy Corp $4.16
BLX-T Boralex Inc $19.54
CIX-T CI Financial Corp $23.02
CFF-T Conifex Timber Inc $4.94
CSU-T Constellation Software Inc $959.93
CPG-T Crescent Point Energy Corp $8.95
DOL-T Dollarama Inc $46.54
DRM-T DREAM Unlimited Corp $9.00
FRX-T Fennec Pharmaceuticals Inc. $11.70
FCR-T First Capital Realty Inc $19.79
GIL-T Gildan Activewear Inc $33.77
G-T Goldcorp Inc $16.34
HDI-T Hardwoods Distribution Inc $16.47
H-T Hydro One Ltd. $18.84
IFP-T Interfor Corp $21.08
IVN-T Ivanhoe Mines Ltd $2.43
LAC-T Lithium Americas Corp $5.24
MRD-T Melcor Developments Ltd $14.33
NMX-T Nemaska Lithium Inc. $0.75
NCU-T Nevada Copper Corp $0.56
NGD-T New Gold Inc $1.64
OSB-T Norbord Inc $46.72
ORL-T Orocobre Ltd. $4.72
PAAS-T Pan American Silver Corp $21.37
PSH-T Petroshale Inc. $1.85
PG-T Premier Gold Mines Ltd $2.56
RCH-T Richelieu Hardware Ltd $26.98
ROOT-T Roots Corp. $9.80
SEC-T Senvest Capital Inc. $205.00
SJ-T Stella-Jones Inc $45.09
TKO-T Taseko Mines Ltd $1.18
TCW-T Trican Well Service Ltd $2.68
WPM-T Wheaton Precious Metals Corp. $27.36
YGR-T Yangarra Resources Ltd. $5.00
ZYME-T Zymeworks Inc. $16.14

Source: Bloomberg


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