On today’s TSX Breakouts report, there are 16 stocks on the positive breakouts list (stocks with positive price momentum), and only five securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a real estate investment trust (REIT) that appeared on the negative breakouts list at the end of December. The unit price has declined nearly 9 per cent over the past four weeks. This recent price weakness may represent an investment opportunity. The unit price is currently hovering just above its 200-day moving average, which has proven to be a significant level of support that has not been breached over the past two years. Earlier this month, two analysts upgraded the REIT to ‘buy’ recommendations.
The REIT I am referring to is Canadian Apartment Properties REIT (CAR.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
Canadian Apartment Properties REIT, commonly referred to as CAPREIT, is a residential landlord owning over 51,500 units located primarily in and close to major cities across Canada as well as in the Netherlands.
After the market closed on Nov. 6, CAPREIT reported its third quarter financial results that were relatively in-line with the Street’s expectations. Normalized funds from operations (NFFO) per unit came in at 54 cents, up from 49 cents reported during the same period last year and a penny ahead of the consensus estimate. Same property net operating income increased 8.4 per cent year-over-year. Management indicated on the earnings call that this one of the highest organic growth rates realized during the REIT’s 20-year history. Occupancy was solid at 98.8 per cent at the end of the quarter. Debt to gross book value declined to 40.5 per cent at the end of the third quarter from 43.6 per cent reported the previous quarter. The following trading day, the unit price closed at $47.10, down 16 cents.
On Jan. 4, CAPREIT completed an equity financing, raising over $250-million by issuing 5.5-million units at $45.50 per unit, with proceeds used to fund its previously announced acquisitions.
Management is firmly committed to its distribution, increasing its distribution each calendar year since 2012. Most recently, in May 2018, management announced a 3.9 per cent increase to its monthly distribution, raising it to 11.08 cents per unit (or $1.33 per unit yearly) from 10.67 cents per unit (or $1.28 per unit annually).
The REIT’s monthly distribution of 11.08 cents per unit equates to an annualized yield of 3 per cent.
In the third quarter, the normalized funds from operations payout ratio was 62 per cent. Management targets a long-term annual payout ratio of between 65 per cent and 75 per cent.
There are 12 analysts covering this REIT, of which five analysts have buy calls, six analysts have hold recommendations, and one analyst is currently restricted on issuing a recommendation (due to the recent financing).
The average one-year target price is $50.38, implying the unit price has 15 per cent upside over the next 12 months. Target prices range from a low of $47 (from the analyst at National Bank Financial) to a high of $52.50 (from the analyst at Industrial Alliance Securities).
On Monday, Jonathan Kelcher, an analyst from TD Securities, upgraded the REIT to a “buy” recommendation from a “hold” recommendation and raised his target price to $52 from $51.
Last week, Canccord Genuity’s Mark Rothchild upgraded the REIT to a “buy” recommendation from a “hold” and he lifted his target price to $51 from $49.
The Street is currently forecasting funds from operations (FFO) per unit of $2.02 in 2018, rising to $2.11 in 2019 and $2.23 in 2020. The consensus adjusted funds from operations (AFFO) per unit estimate are $1.67 in 2018, $1.76 in 2019 and $1.87 in 2020.
Earnings forecasts have steadily increased. For instance, three months ago, the consensus FFO per unit estimates were $1.99 for 2018 and $2.07 for 2019. The AFFO per unit estimates were $1.64 for 2018 and $1.72 for the following year.
According to Bloomberg, the REIT is trading at a price-to-FFO multiple of 20.7 times the 2019 consensus estimate, down from its peak of over 24 times, but above its 3-year average of 18.1 times. On a price-to-adjusted FFO basis, the REIT is trading at 24.9 times the 2019 consensus estimate.
Insider transaction activities
The most recent transactions in the public market reported by an insider occurred in November. On Nov. 19, Paul Harris, who sits on the board of trustees, sold 1,400 units at a price per unit of $46.5582. On Nov. 15, Mr. Harris divested 600 units at a price per unit of $47. After these two transactions, his portfolio held 53,000 units.
The unit price has pulled back to a major support level, its 200-day moving average (at $43.54). Looking back over the past two years, when the unit price has retreated to its 200-day moving average, this has proved to be a significant level of support that has not been breached. Should the unit price bounce off of this key support level, once again, the unit price faces major overhead resistance between $48 and $49. However, should the unit price fail to hold above this key support level, the next major level of support is around $40.
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.