On today’s TSX Breakouts report, not a single stock is on the positive breakouts list (stocks with positive price momentum), and 91 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is an oversold security that is on the negative breakouts list - Boardwalk Real Estate Investment Trust (BEI-UN-T).
The REIT’s unit price has collapsed, falling 20 per cent over the past two trading sessions, following the steep decline in the price of oil. The price of oil is down again on Wednesday with the price war between Russia and Saudi Arabia unresolved.
With Boardwalk’s large position in Alberta, its unit price will likely remain under pressure in the near-term. The REIT faces several headwinds: the steep sell-off in the price of oil will put pressure on Alberta’s economy, an economic slowdown and potential recession caused by COVID-19, higher property taxes, negative investor sentiment, a lack of buyers, and senior management in transition with the president and CFO retiring this year. However, as the unit price of this REIT continues to drift lower, this may represent a future buying opportunity for value investors, especially if the oil price war is resolved and the price of oil snaps back.
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The REIT
Calgary-based Boardwalk Real Estate Investment Trust has a portfolio of over 200 apartment rental properties (33,263 units as at Dec. 31).
In terms of geographical breakdown, the REIT has a large exposure to Alberta.
As at Dec. 31, 63.7 per cent of NOI (net operating income) stemmed from Alberta (36.9 per cent from Edmonton, 21.5 per cent from Calgary, 2.4 per cent from Red Deer, 1.8 per cent from Grande Prairie, 1.1 per cent from Fort McMurray). Quebec is the REIT’s second largest provincial exposure accounting for 18.7 per cent of NOI, followed by Saskatchewan and Ontario representing 10.5 per cent and 7.1 per cent, respectively.
After the market closed on Feb. 27, Boardwalk REIT reported solid fourth-quarter financial results. FFO (funds from operations) per unit came in at 63 cents, two cents above the consensus estimate. Same-property revenue growth was 4.3 per cent year-over-year. Same-property NOI growth was 11.6 per cent year-over-year. The occupancy rate was 96.2 per cent in the fourth-quarter.
Management provided guidance for 2020, anticipating FFO per unit to be between $2.65 and $2.80, and AFFO per unit to come in at between $2.25 and $2.40. Same-property NOI growth was forecast to be between 4 per cent and 7 per cent.
Later this year, two senior management executives will be retiring. President Rob Geremia will be retiring on April 30, and the chief financial officer William Wong will be retiring on June 30. Lisa Smandych, the chief accounting officer, will be appointed to CFO.
On the earnings call, James Ha, vice-president of finance and investor relations, remarked on higher property taxes in 2020: “One of the headwinds that we have coming into 2020 is uncontrollable expenses and one of those is property taxes especially here in Alberta. So when we look at Calgary and Edmonton, the dynamic that we’re seeing is increased assessed values for purpose-built rental, combined with flat to slightly down assessments for single-family homes. The net result of that is purpose-built rental is taking a bigger portion of the residential property tax pool, and that dynamic is happening for both Edmonton and Calgary. When we look into Calgary, there’s a second dynamic … we’re seeing a property tax shift from City Council, potentially moving more of the tax burden from commercial towards residential. The net effect of that we’re looking at mid- to high single-digit increases in Edmonton and potentially double-digit increases in Calgary… We actively negotiate and work with City Council and work with the assessment departments to negotiate our assessments. But structurally in Calgary, sadly, there’s potentially some significant changes that are going to have a negative impact on our property tax expense this year.”
Distribution policy
The REIT pays its unitholders a monthly distribution of 8.34 cents per unit, or $1 per unit yearly, equating to a current annualized yield of 2.7 per cent. The monthly distribution has been maintained at this level since early 2018.
In 2019, the AFFO payout ratio was 47.6 per cent.
Analysts’ recommendations
There are 12 analysts covering this REIT, of which six analysts have buy recommendations, five analysts have neutral recommendations, and one analyst has a “sell” recommendation (Howard Leung of Veritas Investment Research).
Keep in mind, these recommendations were made in late-February/early March, after the REIT reported its fourth-quarter financial results when the unit price was in the mid $40s. The unit price closed at $34.36 on March 10 and is down 23 per cent month-to-date.
The firms providing research coverage on this REIT are as follows in alphabetical order: BMO Nesbitt Burnsd, Canaccord Genuity, CIBC World Markets, Desjardins Securities, Echelon Wealth Partners, Laurentian Bank Securities, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, TD Securities, and Veritas Investment Research.
Revised expectations
After the company reported its year-end financial results on Feb. 27, five analysts revised their expectations – all higher.
- BMO’s Troy MacLean raised his target price by $1 to $53.25.
- Scotiabank’s Mario Saric tweaked his target price higher by 50 cents to $53.50.
- Laurentian Bank Securities’ analyst Yashwant Sankpal lifted histarget to a Street-high $60 from $56.
- Desjardins Securities’ analyst Michael Markidis bumped his target to $54 from $53.
- Canaccord’s Brendan Abrams hiked his target to $51 from $49.
Financial forecasts
The Street is anticipating the REIT to report FFO per unit of $2.73 in 2020, rising to $2.92 in 2021. The consensus AFFO per unit estimates are $2.12 in 2020 and $2.33 in 2021.
Earnings expectations have increased slightly in recent months. For instance, four months ago, the consensus FFO per unit estimate was $2.69 for 2020 and the consensus AFFO per unit estimate was $2.07 for 2020.
Valuation
The REIT is trading at a discount compared to its sector peers given its significant position in Alberta.
According to Bloomberg, Boardwalk is trading at a price-to-AFFO multiple of times 16.1 the 2021 consensus estimate. The REIT is trading at a price-to-FFO multiple of 12.8 times the 2021 consensus estimate, its lowest level in the past three years and well below its three-year historical average of 17.2 times.
Insider transaction history
Year-to-date, only one insider has reported trading activity in the public market.
Between March 2 and March 9, Scott Morrison, who sits on the board of trustees, purchased a total of 2,500 units at an average price per unit of approximately $43, increasing this account’s position to 10,500 units. The cost of these investments, not including trading fees, totaled over $107,000.
Chart watch
This REIT is highly exposed to Alberta’s economy. On Monday, when the price of WTI crude plunged, the unit price of this REIT followed suit, tumbling 18 per cent in a single day! On Tuesday, the unit price continued its slide, declining 2.3 per cent.
The RSI (relatively strength index) is at 22, suggesting the security is in oversold territory. Generally, an RSI at or below 30 reflects an oversold condition.
For the past three years, the unit price has been range-bound, trading largely between $40 and $50.
In terms of key technical resistance and support levels, the unit price has initial overhead resistance around $40, and after that around $45, near its 200-day moving average (at $44.74). Looking at the downside, the unit price has technical support around $35, near a previous major technical support level. When the market collapsed in the fourth-quarter of 2018, the unit price closed at $35.54 on Dec. 24, 2018.
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.
Jennifer Dowty