Skip to main content
analysis

On today’s TSX Breakouts report, there are 73 stocks on the positive breakouts list (stocks with positive price momentum), and one stock is on the negative breakouts list (stocks with negative price momentum).

Year-to-date, the S&P/TSX Composite Index is down 5.2 per cent. The real estate sector is the third worst performing sector in the Index, declining over 20 per cent. Only a handful of members in this sector have year-to-date gains. Featured today is one of these outperforming securities - Granite Real Estate Investment Trust (GRT.UN-T), which resurfaced on the positive breakouts list on Monday. Year-to-date, the unit price is up 11 per cent. The REIT offers investors a yield of 4 per cent and has a conservative payout ratio. Granite has a healthy balance sheet, providing downside protection during the coronavirus pandemic as well as offering growth potential as its capital is redeployed. For patient investors, this may be a REIT to watch and wait for a pullback given that the REIT is currently trading at an elevated valuation.

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

The REIT

As at May 13, Toronto-based Granite owned 93 industrial, warehouse, logistics and development/land properties across North America and Europe. The REIT’s properties are located in nine countries: 34 in the United States, 26 in Canada, 11 in Germany, 11 in Austria, 6 in the Netherlands, 2 in Poland, 1 in England, 1 in Spain and 1 in the Czech Republic.

Granite’s portfolio recently expanded with the purchase of eight distribution buildings completed on July 8, all of which are located in the United States. Magna International Inc. is the REIT’s largest tenant, representing 41 per cent of annualized revenue and 35 per cent of gross leasable area as at March 31.

At the AGM (annual general meeting) held on June 4, president and chief executive officer Kevan Gorrie emphasized management’s continued commitment to increase the REIT’s exposure to e-commerce and logistics real estate while reducing its exposure to Magna. Amongst management’s 2020 objectives is continued prudent reduction of its Magna concentration to below 40 per cent of annualized revenue. Granite’s top 10 tenants as at Dec. 31 by annualized revenue were as follows: Magna (at 42 per cent), Amazon (at 8 per cent), ADESA (at 3 per cent), Restoration Hardware (at 3 per cent), Ingram Micro (2 per cent), Hanon Systems (2 per cent), Mars Petcare (2 per cent), Wayfair (2 per cent), Ricoh (2 per cent) and Samsung (2 per cent).

The REIT has a strong balance sheet, fortified by recent financings. On June 4, Granite completed a $500-million green bond offering, and on June 2, the REIT completed a $289-million equity offering, issuing units at a price of $68.

In late-May, management provided an operational update discussing the impact of COVID-19 on rent collections. As at May 26, the REIT received 99 per cent of rents due in April and 98 per cent of rents due in May. Rent deferrals have been requested by 11 tenants and rent abatements have been requested by seven tenants (representing roughly 2.6 per cent of annualized total revenue). However, no rent deferrals or abatements have been granted to its tenants.

On May 13, Granite reported solid first-quarter financial results with the unit price advancing 1 per cent the next day and rising an additional 5 per cent over the following two trading sessions. FFO (funds from operations) per unit came in at 98 cents (excluding a foreign exchange gain and tax impact), above the consensus estimate of 94 cents, and up 10 per cent year-over-year. Same-property NOI (net operating income) increased 3.4 per cent (excluding expansions). The occupancy rate stood as a percentage of gross leasable area stood at 99 per cent the end of the first-quarter. As at March 31, Granite had cash and cash equivalents of $242-million and the net leverage ratio stood at 22 per cent. Management reduced its same-property NOI growth guidance for 2020 to between 1.5 per cent and 2.5 per cent from between 3 per cent and 4 per cent.

Given the REIT’s international exposure, foreign exchange can materially impact its financial results with a weakening loonie benefiting the company’s FFO and AFFO. Management noted on the first-quarter earnings call at a 1 cent change in the U.S. dollar or Euro relative to the Canadian dollar results in roughly a 1 cent change in FFO.

Granite will be reporting its second-quarter financial results after the market closes on August 11. The consensus FFO and AFFO estimates are 97 cents per unit and 87 cents per unit, respectively. Management will be hosting an earnings call the following day at 11 a.m. (ET). To listen to the call, investors can dial the toll-free number 1-877-217-8775. A replay of the call is available until Aug. 24, by dialing 1-800-558-5253 and entering the reservation number 21965065.

The REIT trades on the Toronto Stock Exchange under the ticker GRT.un and also on the New York Stock Exchange under the ticker GRP.U.

Returning capital to unitholders

Granite pays its unitholders a monthly distribution of 24.2 cents per unit, or $2.90 per unit on a yearly basis. This translates to a current annualized yield of 3.95 per cent.

Management is committed to returning capital to its unitholders. Last December, a 3.9 per cent increase to its monthly distribution was announced.

Granite has a conservative payout ratio. In 2019, the AFFO (adjusted funds from operations) payout ratio stood at 81 per cent. The AFFO payout ratio was 70 per cent in the first-quarter of 2020.

Prior to suspending its share buyback program in order to preserve its capital during the coronavirus pandemic, Granite repurchased 490,952 units at an average price per unit of $50.95 in March.

Analysts’ recommendations

The REIT is covered by 10 analysts, of which nine analysts have buy recommendations and one analyst (Michael Markidis, the analyst at Desjardins Securities) has a ‘hold’ recommendation.

The firms providing research coverage on the REIT are as follows in alphabetical order: BMO Capital Markets, Canaccord Genuity, CIBC Capital Markets, Desjardins Securities, Echelon Wealth Partners, Industrial Alliance Securities, RBC Capital Markets, Scotiabank, TD Securities, and Veritas Investment Research.

Revised recommendations

Earlier this month, Sam Damiani, the analyst at TD Securities, raised his target price to $79 from $77.

Financial forecasts

The Street is forecasting FFO per unit of $3.98 in 2020, up from $3.62 reported in 2019, and forecast to rise to $4.21 in 2021. The consensus AFFO per unit estimates are $3.64 for 2020, and anticipated to climb to $3.84 in 2021.

Forecasts have inched higher in recent months. For instance, three months ago, the consensus FFO per unit estimates were $3.88 for 2020 and $4.14 for 2021. The Street was forecasting AFFO per unit of $3.53 in 2020 and $3.77 in 2021.

Valuation

The REIT is trading at an elevated valuation relative to historical levels. According to Bloomberg, units of Granite are trading at a price-to-FFO multiple of 17.5 times the 2021 consensus estimate, which is above its three-year historical average of 15.2 times. A return to its peak multiple (over the past three years) of just over 19 times would translate into a unit price of approximately $80.

The average 12-month target price is $75.97, implying the unit price is nearly fully valued with 3 per cent upside potential (over 7 per cent including the 4 per cent yield). Individual target prices are as follows in numerical order: $72 (the low on the Street is from Troy MacLean, the analyst at BMO Capital Markets), $73.75, four at $75, $76, two at $79, and $80 (the high on the Street is from Brad Sturges, the analyst at Industrial Alliance Securities).

Insider transactions

Looking back to the beginning of the second-quarter, there have not been any trades in the public market reported by insiders.

Chart watch

The REIT has nearly recovered to its pre-COVID levels, trading less than 2 per cent below its record closing high of $74.86 reached on Feb. 20. Year-to-date, the unit price is up 11 per cent.

In terms of key resistance and support levels, the next major ceiling of resistance is around $75, near its record closing high of $74.86. After that, there is resistance around $80. Looking at the downside, there is initial support between $68 and $70, near its 50-day moving average (at $68.43). Excluding the price decline during the height of the coronavirus outbreak, the unit price has (for the most part) remained above the 200-day moving average since the first half of 2018. The 200-day moving average has proven to be a strong support level and currently sits at $66.37.

The REIT can be thinly traded. The three-month historical daily average trading volume is over 310,000 units.

Positive BreakoutsJuly 20 close
ABT-TAbsolute Software Corp $15.43
AGI-TAlamos Gold Inc $14.56
ALS-TAltius Minerals Corp $10.61
USA-TAmericas Silver Corp $4.16
APHA-TAphria Inc. $6.99
BTO-TB2Gold Corp $8.63
BCM-TBear Creek Mining Corp. $3.07
BDT-TBird Construction Inc $6.74
GBT-TBMTC Group Inc $9.35
BRE-TBridgemarq Real Estate Services $12.43
BEP-UN-TBrookfield Renewable Energy Partners LP $75.71
CCO-TCameco Corp $16.21
CNR-TCanadian National Railway Co $129.80
CS-TCapstone Mining Corp $1.03
CLR-TClearwater Seafoods Inc $5.90
KOR-TCorvus Gold Inc. $4.13
DII-B-TDorel Industries Inc $6.67
ELD-TEldorado Gold Corp $15.83
EDR-TEndeavour Silver Corp $4.48
EXF-TEXFO Inc $5.38
FSZ-TFiera Capital Corp $10.30
FR-TFirst Majestic Silver Corp $15.74
FSV-TFirstService Corp $142.75
FVI-TFortuna Silver Mines Inc $7.90
GGD-TGoGold Resources Inc $1.36
GSC-TGolden Star Resources Ltd. $4.61
FOOD-TGoodfood Market Corp. $7.35
GRT-UN-TGranite Real Estate Investment Trust $73.45
GPR-TGreat Panther Silver Ltd $0.99
HBM-THudBay Minerals Inc $4.64
H-THydro One Ltd. $27.88
III-TImperial Metals Corp $2.50
IMV-TIMV Inc. $7.94
IFP-TInterfor Corp $14.76
KNT-TK92 Mining Inc. $5.40
K-TKinross Gold Corp $11.10
KPT-TKP Tissue Inc $11.49
LGD-TLiberty Gold Corp. $2.25
LAC-TLithium Americas Corp $7.80
LUN-TLundin Mining Corp $8.51
MAG-TMAG Silver Corp $21.67
MUX-TMcEwen Mining Inc. $1.61
MAX-TMidas Gold Corp $1.25
MTL-TMullen Group Ltd $8.01
NGD-TNew Gold Inc $2.00
NXE-TNexGen Energy Ltd. $2.19
NDM-TNorthern Dynasty Minerals Ltd. $2.64
NPI-TNorthland Power Inc $36.56
NVO-TNovo Resources Corp. $4.08
OGC-TOceanaGold Corp $3.57
OTEX-TOpen Text Corp $60.02
OLA-TOrla Mining Ltd. $4.16
ORL-TOrocobre Ltd. $2.74
OR-TOsisko Gold Royalties Ltd $15.04
PAAS-TPan American Silver Corp $48.26
PG-TPremier Gold Mines Ltd $2.55
RCH-TRichelieu Hardware Ltd $34.01
SSL-TSandstorm Gold Ltd $13.50
SEA-TSeabridge Gold Inc $25.83
SVM-TSilvercorp Metals Inc $9.57
SIL-TSilverCrest Metals Inc. $13.65
ZZZ-TSleep Country Canada $18.32
SONA-TSona Nanotech Inc. $9.10
STN-TStantec Inc $43.71
SJ-TStella-Jones Inc $37.91
TGZ-TTeranga Gold Corp $14.15
TFII-TTFI International Inc. $54.50
X-TTMX Group Ltd. $141.21
TCN-TTricon Capital Group Inc $9.53
TSU-TTrisura Group Ltd. $70.37
WDO-TWesdome Gold Mines Ltd. $14.38
WPM-TWheaton Precious Metals Corp. $66.94
YRI-TYamana Gold Inc $7.86
NEGATIVE BREAKOUTS
FEC-TFrontera Energy Corp. $3.15

Source: Bloomberg

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, 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 indices 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