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On today’s TSX Breakouts report, there are 66 stocks on the positive breakouts list (stocks with positive price momentum), and just six stocks are on the negative breakouts list (stocks with negative price momentum).

In the TSX Breakouts reports, I try to highlight a variety of stocks that may appeal to a wide range of investors. Featured today is a security that may resurface on the positive breakouts list and is best suited for consideration by investors seeking price stability and steady income. This REIT has a current yield of 8 per cent and the unit price has been quite stable over the past two years. The monthly distribution appears sustainable with a conservative payout ratio of 81.5 per cent. The security I am referred to is Nexus Real Estate Investment Trust (NXR.UN-X).

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

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The REIT

Oakville, Ont.-based Nexus owns a portfolio of 70 industrial, office and retail properties located across the country. In terms of asset class mix by base rent, industrial properties represent the largest composition at 43 per cent. As at March 31, in terms of base rent, the three largest geographical regions were as follows: 50 per cent from Quebec, 25 per cent from Alberta and 10 per cent from B.C. Other regions that the REIT has exposure to are the Northwest Territories, Saskatchewan, New Brunswick, PEI, and Ontario with each region representing less than 5 per cent of base rent. The weighted-average lease term for tenants is 5.6 years.

After the market closed on May 29, the REIT reported its first-quarter financial results. Normalized FFO (funds from operations) per unit was 5.5 cents, just above the consensus estimate of 5 cents. Normalized AFFO (adjusted funds from operations) per unit was 5 cents, up 5.6 per cent year-over-year. The debt-to-gross book value stood at 51.8 per cent.

Chief Executive Officer Kelly Hanczyk remarked in the earnings release, “The first quarter of 2019 was again, a consistently strong quarter for the REIT. Our five-year history of completing acquisitions which are accretive to AFFO per unit has put us in a strong financial position with a payout ratio in the low 80 per cent range. Our most recent acquisition of a highly accretive western Canada industrial portfolio combined with new leasing in the portfolio should further reduce our payout ratio over the next several quarters. Our conservative balance sheet and financial strength has and will allow us to provide unitholders with superior risk-adjusted returns.”

In terms of operational updates, the Phase 1 development of its Richmond, B.C. sports mall property is expected to be completed by the end of this year, at which time it will be reappraised and is expected to increase the REIT’s net asset value. At its downtown Montréal property, 2045 Rue Stanley, management is in advanced discussions with a prospective tenant. If an agreement is reached, occupancy at the office property would increase to approximately 91 per cent, likely in January of 2020.

Management continues to explore acquisition opportunities with a focus on industrial properties.

On the earnings call, Mr. Hanczyk said: “Cap rates are pretty compressed and there’s lots of competition out there for us … There’s a lot that’s for sale in Quebec, and it’s finding things that I guess fit our model. We did have one in the Montreal area that we actually dropped. It may come back in the future but we actually dropped it in our due diligence and then I had another one, west, that last minute they decided to take another course of action with the assets so that was unfortunate. It was an industrial asset as well. So there’s a couple more that we’re looking at, and they’re industrial and it’s the same, it takes a little longer because we are structuring them as unit deals for REIT units. So again, a lot of the stuff I do see is Quebec-based. We don’t spend a lot of time looking in the GTA (Greater Toronto Area) just because of the cost and the low cap rate. So we’re looking at ones out west and if they’re tenanted, well tenanted with a solid covenant, we’ll start to look at them and continue to look at them.”

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Distribution policy

The REIT pays its unitholders a monthly distribution of 1.333 cents per unit, or 16 cents per unit on a yearly basis. This equates to a current annualized distribution yield of 8 per cent.

Last quarter, the normalized AFFO payout ratio was 81.5 per cent. In 2018, the normalized AFFO payout ratio was 83.3 per cent.

Management is targeting a payout ratio of below 80 per cent.

Analysts’ recommendations

This REIT with a market capitalization of $203-million is covered by four analysts, of which three analysts have ‘buy’ recommendations and one analyst has a ‘strong buy’ recommendation.

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The firms providing research coverage on the REIT are as follows in alphabetical order: Desjardins Securities, Echelon Wealth Partners, GMP Securities, and Industrial Alliance Securities.

Revised recommendations

Year-to-date, analysts have maintained their recommendations and target prices.

Financial forecasts

The consensus FFO per unit estimates are 23 cents for 2019 and 23 cents for 2020. The consensus AFFO per unit forecasts are 20 cents for 2019 and 21 cents for the following year.

Financial forecasts have been relatively steady over the past several months. For instance, three months ago, the consensus FFO per unit estimates were 22 cents for 2019 and 23 cents for 2020. The AFFO per unit forecasts are unchanged.

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Valuation

The REIT is trading at a price-to-FFO multiple of 8.6 times the 2020 consensus estimate. According to Bloomberg, this is below the three-year historical average multiple of 9 times. Over the past three years, the REIT has traded at a forward price-to-FFO multiple principally between 8 times and 11 times.

The average 12-month target price is $2.38, implying the unit price has 19 per cent upside potential over the next year. Individual target prices are as follows in numerical order: two at $2.30 (suggesting the unit price may increase 15 per cent), $2.40 and $2.50 (indicating the unit price may rise 25 per cent).

Insider transaction activity

Year-to-date, there has not been any buying or selling activity reported by insiders.

Chart watch

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Since mid-2017, the unit price has been very stable for the most part, trading at or near $2.

Looking at key resistance and support levels, the unit price has overhead resistance around $2.05. There is downside support around $1.95.

This small-cap REIT can be thinly traded.

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.

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A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.

Positive BreakoutsJune 18 close
ARE-TAecon Group Inc $19.46
AEM-TAgnico Eagle Mines Ltd $63.97
ATD-B-TAlimentation Couche-Tard Inc $88.11
AIF-TAltus Group Ltd $32.35
ADW-A-TAndrew Peller Ltd $14.00
ATA-TATS Automation Tooling Systems Inc $21.69
ABX-TBarrick Gold Corp $19.26
BEP-UN-TBrookfield Renewable Energy Partners LP $45.45
DOO-TBRP Inc $46.99
CAS-TCascades Inc $10.64
CCL-B-TCCL Industries Inc $65.40
CIA-TChampion Iron Ltd. $3.05
CSH-UN-TChartwell Retirement Residences $15.56
CHR-TChorus Aviation Inc $7.91
CIX-TCI Financial Corp $21.43
CVG-TClairvest Group Inc. $51.25
CIGI-TColliers International Group Inc $93.84
CUF-UN-TCominar Real Estate Investment Trust $12.55
CSU-TConstellation Software Inc $1,239.00
CNL-TContinental Gold Inc $3.12
CRT-UN-TCT Real Estate Investment Trust $14.70
DGC-TDetour Gold Corp $14.46
DPM-TDundee Precious Metals Inc $4.60
ENW-TEnWave Corp. $2.66
EIF-TExchange Income Corp $38.64
EXE-TExtendicare Inc $8.44
FCR-TFirst Capital Realty Inc $22.27
FTS-TFortis Inc $52.21
FNV-TFranco-Nevada Corp $106.96
GIL-TGildan Activewear Inc $52.61
GMP-TGMP Capital Inc $2.35
GSY-Tgoeasy Ltd $52.62
HRX-THeroux-Devtek Inc $18.32
IGM-TIGM Financial Inc $38.17
IFC-TIntact Financial Corp $122.80
IVN-TIvanhoe Mines Ltd $3.76
JWEL-TJamieson Wellness Inc. $20.02
KMP-UN-TKillam Apartment REIT $19.89
K-TKinross Gold Corp $4.83
KL-TKirkland Lake Gold Inc $52.59
LIF-TLabrador Iron Ore Royalty Corp $34.26
LB-TLaurentian Bank of Canada $45.42
LUG-TLundin Gold Inc $6.20
MUX-TMcEwen Mining Inc. $2.15
MRU-TMetro Inc $51.29
MRG-UN-TMorguard North American Residential REIT $18.62
NEO-TNeo Performance Materials Inc. $13.09
NFI-TNew Flyer Industries Inc $38.90
NWC-TNorth West Co Inc $31.53
NG-TNovagold Resources Inc $6.38
PVG-TPretium Resources Inc $12.90
REAL-TReal Matters $7.04
REI-UN-TRioCan Real Estate Investment Trust $26.93
SMF-TSEMAFO Inc $4.93
SIA-TSienna Senior Living Inc $19.62
SIL-TSilverCrest Metals Inc. $5.10
ZZZ-TSleep Country Canada $20.10
SII-TSprott Inc $3.15
SSRM-TSSR Mining Inc. $17.11
SJ-TStella-Jones Inc $46.04
SMU-UN-TSummit Industrial Income REIT $13.15
TD-TToronto-Dominion Bank $76.90
TMQ-TTrilogy Metals Inc. $3.90
TSU-TTrisura Group Ltd. $30.50
WDO-TWesdome Gold Mines Ltd. $5.43
WTE-TWestshore Terminals Investment Corp $23.19
Negative Breakouts
TRST-TCannTrust Holdings Inc. $6.65
EXF-TEXFO Inc $4.83
HLS-THLS Therapeutics Inc. $15.49
IPCO-TInternational Petroleum Corp. of Sweden $5.47
ORL-TOrocobre Ltd. $2.83
TA-TTransAlta Corp $8.48

Source: Bloomberg

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