Briefly recapping Wednesday's performance, the S&P/TSX composite index retreated 23 points, or 0.16 per cent.
There were 93 securities in the TSX Index that advanced, 145 securities declined in value, and nine stocks closed the day unchanged. In terms of sectors, the day was mixed with five of the 11 sectors closing in positive territory led by strength in the consumer staples and consumer discretionary sectors.
The S&P/TSX composite index is down 0.37 per cent month-to-date, up 0.05 per cent quarter-to-date, and up 13.25 per cent year-to-date.
On today's TSX Breakouts report, there are 20 stocks on the positive breakouts list (stocks with positive price momentum), and 25 securities on the negative breakouts list (stocks with negative price momentum).
I enjoy featuring a variety of securities to appeal to a wide range of investors and try not to repeat a stock within a five month period. Today, I am featuring a stock that may appeal to income investors. While real estate investment trusts have come under considerable pressure of late, this REIT has managed to hold relatively steady, declining just mildly. Also attractive is its 7.8 per cent yield. The security highlighted is Automotive Properties REIT (APR.UN-T).
A brief outline is provided below that may serve as a springboard for further fundamental research.
The company
Automotive Properties REIT began trading on the Toronto Stock Exchange in July 2015. The initial public offering price was $10 per unit.
The REIT holds a portfolio of 30 auto dealerships in major cities across the country, specifically the Greater Vancouver Area, Calgary, Edmonton, Regina, the Greater Toronto Area, and Montreal. In terms of geographical exposure, as of March 31, 45 per cent of its cash net operating income is from the Greater Toronto Area and Barrie, 19 per cent from the Greater Vancouver Area, 14 per cent from Calgary, 14 per cent from Regina, 6 per cent from Edmonton, and 2 per cent from Montreal.
The REIT hold properties with diversified brands including Chrysler, Ford, General Motors, Kia, Nissan, Honda, Hyundai, Madza, Mitsubishi, Toyota, Volkswagen, Acura, Audi, BMW, Infiniti, Aston Martin, Bentley, Lamborghini, Land Rover, Lincoln, Porsche, Maserati, McLaren and Mercedes-Benz.
Management is focused on growth and sees opportunities to purchase properties from third parties, given the highly fragmented industry, or from the Dilawri Group, which is Canada's largest auto dealership group. The Dilawri Group is the largest tenant representing approximately 90 per cent of the rental income for the REIT. The Dilawri Group holds a 45 per cent interest in the REIT.
Fixed annual rent escalators of 1.5 per cent are included in most of the property leases over the next 11 to 19 years, allowing for steady adjusted funds from operations (AFFO) growth. Management estimates that an annual 1.5-per-cent rent escalator equates to an increase of approximately 2.4 per cent in AFFO per year. There are no leases expiring until the year 2026.
In September, the REIT completed a bought deal financing, raising approximately $40-million through the issuance of 3,841,000 units at a price of $10.50 per unit. Roughly $17-million was earmarked to fund the recent acquisition of the Pfaff Audi dealership property in Ontario.
After the market closed on Nov. 7, Automotive Properties REIT reported its third-quarter financial results that were relatively in-line with expectations. The REIT reported funds from operations (FFO) per unit of 27 cents, a penny ahead of the Street's forecast. AFFO per unit was 24 cents, matching the consensus estimate. The REIT's debt-to-gross book value ratio was 48 per cent at quarter end. The unit price increased marginally, 7 cents to $10.40, the following trading session.
Distribution policy
The REIT pays unitholders a monthly distribution of 6.7 cents per unit, or 80.4 cents on a yearly basis. This equates to an annualized yield of 7.75 per cent. Management has maintained the distribution at this level since mid-2015.
The AFFO payout ratio was 85 per cent in the third quarter.
Valuation
According to Bloomberg, the REIT is trading at a price-to-AFFO multiple of 10.7 times the 2017 consensus estimate and at a price-to-FFO multiple of 9.6 times the 2017 consensus estimate, near its peak multiple since the REIT began trading.
Analysts' recommendations
This small-cap REIT, with a market capitalization of $187-million, is covered by three analysts from the following firms: Canaccord Genuity, Desjardins Securities, and TD Securities. All three analysts have 'buy' recommendations.
The average one-year target price is $11.67, implying the unit price has 12 per cent upside potential over the next 12 months. Individual target prices in numerical order are $11.25, $11.75, and $12.
The Street is forecasting FFO per unit of $1.05 in 2016, rising to $1.08 in 2017. The consensus AFFO per unit estimate is 91 cents in 2016, and anticipated to reach 97 cents in 2017.
Forecasts have been relatively stable. On January 17, exactly 11-months ago, the consensus FFO per unit estimates were $1.08 for 2016 and $1.10 for 2017. The consensus AFFO per unit estimates were 95 cents for 2016 and 98 cents for 2017.
Chart Watch
There is limited trading data since the REIT just began trading on the Toronto Stock Exchange in mid-2015.
There is initial overhead resistance around $10.50, close to its 50-day moving average (at $10.43), and strong resistance at $11.
There is initial support around $10, which is near its 200-day moving average (at $9.99). Failing that, there is support at $9.50, and strong support at $9.
The small cap REIT has low daily trading volume. The two-month historical daily average trading volume is roughly 39,000 units.
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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.