On today’s Breakouts report, there are 56 stocks on the positive breakouts list (stocks with positive price momentum) and 25 securities are on the negative breakouts list (stocks with negative price momentum).
The security highlighted today is a Trust with an attractive yield of over 7 per cent, which appeared on the positive breakouts list at the beginning of the month. However, the unit price has since pulled back 4.5 per cent after management announced an equity financing. Year-to-date, the unit price is up 11 per cent. The Trust has a unanimous buy recommendation from three analysts.
Discussed below is Firm Capital Property Trust (FCD-UN-X).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
Toronto-based FCPT has a portfolio that includes 72 commercial properties, interests in four multi-residential buildings (464 apartment suites), and one manufactured housing community (181 mobile homes).
Its net operating income (NOI) comes from the following: 73 per cent from retail properties (60 per cent grocery anchored and 13 per cent non-grocery anchored), 21 per cent from industrial properties, 4 per cent from multi-residential, 2 per cent from manufactured housing, and less than 1 per cent is from professional and healthcare offices.
Geographically, 57 per cent of its NOI comes from Ontario, 26 per cent from Quebec, 10 per cent from Alberta, 6 per cent from Nova Scotia, and 1 per cent from other regions.
FCPT has a high-quality tenant base, providing relatively stable income to the Trust. The top ten tenants as a percentage of net rent are: Sobeys (11.7 per cent), Loblaws (2.8 per cent), Shoppers Drug Mart (2.6 per cent), Metro (2.4 per cent), Canadian Tire (2.2 per cent), PPG (2.1 per cent), IGA (2.1 per cent), NCR (1.8 per cent), LCBO (1.7 per cent), and Walmart (1.3 per cent).
- Strong leadership.
- Attractive yield with distribution increases announced annually. The Trust has increased its distributions over the past eight consecutive years with a compound annual growth rate of 4 per cent.
- Healthy balance sheet. The debt-to-gross book value stood at 51 per cent as of March 31, below management’s target ratio of between 55 per cent and 65 per cent. On June 8, FCPT completed a $28.8-million bought deal financing, issuing units at a price per unit of $7.
- High-quality and diversified tenant base.
- Disciplined acquisition growth. Management has identified disciplined growth and capital preservation as two key objectives.
- Insider ownership. Insiders own approximately 8 per cent of the units, aligning their interests with those of its unitholders.
Quarterly financial results
On May 20, the Trust reported its first-quarter financial results. Funds from operations (FFO) per unit came in at 11.8 cents, below the consensus estimate of 13.5 cents but up from 8 cents reported during the same period last year. Adjusted funds from operations (AFFO) per unit was 11.7 cents, just shy of the Street’s forecast of 13 cents. Commercial occupancy was 95.7 per cent and residential occupancy came in at 96.3 per cent. During the quarter, FCPT collected roughly 98 per cent of gross rents.
In the first-quarter earnings presentation, management summarized its disciplined capital recycling (acquisition and disposition) strategy, “Management is always looking to assess and evolve its portfolio of assets. The Trust will focus its near-term acquisition efforts on the industrial and multi-residential sectors across Canada as well as reducing its exposure to its non-core retail assets to create a more balanced property portfolio. On March 16, 2021, the Trust closed the acquisition of a 50 per cent interest in a 181 site Manufactured Housing Community located in Calgary, Alberta for $16.9 million [purchase price for the Trust’s interest was $8.5 million]. As of March 22, 2021 the Trust completed sales of four retail properties from the Centre Ice Retail Portfolio during the quarter the proceeds of approximately $7.7 million. In addition, the Trust completed the sale of four additional Centre Ice Retail Portfolio assets after the quarter for approximately $6.2 million. In total, the Trust has identified and has remaining $15.8 million in Assets Held for Sale as at March 31, 2021. In May 2021, the Trust closed on two additional independent acquisitions (Trust’s interest will be 70 per cent) comprised of 132 units in three multi-residential buildings located in Lower Sackville, Nova Scotia and 128 units in two multi-residential buildings located in Edmonton, Alberta for a combined total of $43.2 million (excluding transaction costs). The Trust expects to grow predominately through acquisitions during 2021 with residential intensification efforts beginning to generate income in 2022. As always, we will continue to assess each acquisition to ensure they meet our disciplined investment objectives but will not grow the portfolio only for the sake of growth.”
FCPT pays its unitholders a monthly distribution of 4.25 cents per unit, or 51 cents per unit yearly. This equates to a current annualized yield of 7.25 per cent.
Looking back to 2013, the Trust has announced a distribution increase in the second half of every single year.
This small-cap trust with a market capitalization of $236-million is covered by three analysts and has a unanimous buy recommendation.
The firms providing research coverage on the Trust are: Canaccord Genuity, iA Capital Markets and Laurentian Bank Securities.
Earlier this month, iA Capital Markets’ Frederic Blondeau upgraded his recommendation to a “buy” from a “hold” but maintained his target price at $7.50.
According to Bloomberg, the consensus FFO per unit estimates are 55 cents in 2021 and 54.5 cents in 2022. The consensus AFFO per unit estimates are 50 cents in 2021 and 50.5 cents in 2022.
Financial forecasts have been relatively stable over recent months. To illustrate, three months ago, the consensus FFO per unit estimates were 54.7 cents for 2021 and 55 cents for 2022. The consensus AFFO per unit estimates were 50 cents in 2021 as well as in 2022.
According to Bloomberg, the REIT is trading at a price-to-AFFO multiple of 13.9 times the consensus 2022 estimate and at a price-to-FFO multiple of 12.9 times the consensus 2022 estimate, which is above the roughly three-year historical average P/FFO multiple of 11.5 times.
All three analysts who cover this Trust have target prices of $7.50, implying the unit price has 7 per cent upside potential over the next 12 months (a potential total return of 14 per cent including the 7.25 per cent yield).
Insider transaction activity
Year-to-date, three insiders have reported trading activity in the public market – all relatively small purchases.
Most recently, Manfred Walt, who sits on the board of trustees, acquired 5,000 units at a price per unit of $6.93 on June 7 for an account in which he has indirect ownership (Walt & Co.). The cost of this purchase exceeded $34,000. This specific account holds 299,511 units. Interestingly, Mr. Walt is a consultant to the Reichmann family.
Since mid-2016, the unit price has trading largely between $6 and $7, excluding the downdraft in 2020 caused by uncertainties arising from COVID. Right now, the unit price is at the upper end of this trading band.
Year-to-date, the unit price has rallied 11 per cent, a respectable return but lagging the S&P/TSX real estate index, which is up 21 per cent, and underperforming the S&P/TSX composite index, which is up nearly 16 per cent.
In terms of key resistance and support levels, the next major ceiling of resistance is between $7.40 and $7.50. Looking at the downside, the unit price has initial technical support around $6.50. Failing that, there is major support around the $6 level.
This small-cap security is thinly trading, increasing price volatility at times, especially after the Trust releases its earnings results. In 2020, the unit price moved by roughly 4 per cent, higher as well as lower, on three separate occasions after the Trust reported its quarterly financial results. The three-month historical daily average trading volume is approximately 48,000 units.
Please note that this report 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.
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