BTB Real Estate Investment Trust

BTB Real Estate Investment Trust (TSX: BTB.UN) is a Canada-based unincorporated, open-ended real estate trust, which owns approximately 64 retail, office, and industrial properties in primary and secondary markets. It operates through four segments: office, commercial, industrial, and general-purpose, with properties in Quebec and eastern Ontario.

Key Highlights 

• Acquired Two Office Buildings in Montréal: The company just acquired two Class A office buildings in the heart of the Montréal Technoparc for CAD 74 million, with a total leasable area of 129,254 sq. ft. and 108,724 sq. ft., respectively. The properties are entirely leased to leaders in the life-science and technology fields, including Bristol-Myers Squibb, Hewlett Packard Enterprise, ICU Medical, and many more big names.

• Robust Rent Collection: The trust's portfolio continues to show stability through all asset classes and geographies. It collected 99.1% of its invoiced rents (99.2% on a cumulative basis) for 2021, demonstrating the resilience of the properties and tenants. These figures showcase robust performance in the suburban office, food anchored retail, and the industrial operating segments.

• Healthy Leasing Activity Along with Higher Average Renewal Rate: Lease renewal activity for BTB.UN was strong throughout Q3FY21, with a 73.2% renewal rate, up from 63.4% in the previous period. The leasing activity was also robust and resulted in a reasonably steady occupancy rate of 92.0%. Of the 50,582 ft. of leases renewed during the quarter, 46,600 sq. ft. were renewed before the end of their term, and 3,982 sq. ft. were renewed in anticipation of the end of the term in 2022 and beyond. In addition, new tenants were able to lease 17,181 sq. ft. from BTB.UN.

• An Income Play: The trust has reported a stable dividend payment, aided by consistent cash flows over the years. Recently, it announced a monthly cash distribution of CAD 0.025 per unit for November 2021, representing CAD 0.30 per unit on an annualized basis. Moreover, at the last closing price, the stock offers a dividend yield of 7.33%, which is lucrative considering the current interest rate scenario.

Financial Overview of Q3FY21 (in CAD thousands)

Source: Company 

• In Q3FY21, the trust posted rental revenue of CAD 24.0 million against CAD 23.6 million in the previous corresponding period.
• On the back of marginally increased total operating expenses at CAD 10.4 million v/s CAD 10.3 million in Q3FY20, the trust reported a slightly higher operating income of CAD 13.6 million, against CAD 13.3 million in the previous corresponding period.
• On the back of lower net financial expenses, the net income elevated to CAD 8.7 million, against CAD 5.8 million in pcp.
  

Risks Associated with Investment

BTB. UN's revenue and operating results depend significantly on the occupancy levels and rent collection. Hence, it is subject to general business risks. These risks include government regulation changes, fluctuations in occupancy levels and business volumes, competition from other players, etc.

Valuation Methodology (Illustrative): EV to EBITDA

Stock Recommendation

Due to the portfolio diversity, reasonable rent collection rates, and aggressive lease renewal and leasing activities, the trust has reported solid results for the third quarter in a row, supporting its development and expansion goals. The occupancy rate was 92.0%, with 99.2% of rent received YTD, a significant plus. Furthermore, over the last year, its ability to adapt and embrace change has been a critical factor in its long-term viability. We believe it is now ready to embrace the changes and opportunities that have been made available to it. It is confidently approaching the fourth quarter of the fiscal. Furthermore, the stock offers a dividend yield of 7.33%, which is lucrative for long-term investors considering the current environment. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 4.11 as on November 23, 2021.

One-Year Technical Price Chart (as on November 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Taiga Building Products Ltd

Taiga Building Products Ltd (TSX: TBL) is a Canadian company engaged in the production and wholesale distribution of building products. Its product range includes composite decking, engineered wood, flooring, insulation, lumber, modulings, panels, preserved wood, roofing, etc. It also offers distribution logistics and treating plants services.

Key Highlights 

• Healthy Operating Matrix on Nine Months ended September 30, 2021: The company reported decent performance in its operating matrix on a nine-month basis, which is a key positive. The revenue surged by 53.4% to CAD 1,807.21 million, against CAD 1,177.84 million in 9MFY20. Its EBITDA elevated to CAD 127.76 million, up 46% YoY against CAD 87.49 million, and net earnings rose by 54.9% to CAD 82.4 million compared to CAD 53.19 million in the previous corresponding period.

Source: Company 

• Decline in Total Debt: The company reported a decrease in its long-term debt to CAD 6.97 million in Q3FY21, reflecting a fall of ~12.5% from CAD 7.97 million in Q3FY20. This indicates prudent capital management and is likely to improve the overall financial flexibility of the company. In addition to this, the company also recorded a lower interest expense in the current period.

• Expecting Higher Number of Housing Starts: According to the Canada Mortgage and Housing Corporation, housing starts in Canada are expected to range from 221,100 to 230,000 units in 2021, compared to 217,802 starts in 2020 (CMHC). While in the United States, the National Association of Home Builders predicted in September 2021 that home starts in 2021 will be 1,615,000 units, up from 1,380,000 in 2020. We believe this would have a positive impact on TBL’s business and financial performance down the time.

Financial Overview of Q3FY21

Source: Company 

• The net sales for the quarter ended September 30, 2021, was CAD 484.6 million compared to CAD 500.7 million over the same period last year. The decrease in sales by 3% was primarily due to decreased selling prices for commodity products.
• Gross profit in the reported period fell drastically to CAD 7.6 million against CAD 91.5 million in pcp, on account of the higher cost of sales, which increased due to commodity prices falling dramatically during the quarter.
• The company was able to control its operating expenses, having curtailed selling and administrative expenses by a considerable margin.
• As a result of the lower expenses, the group managed to control its net loss, which stood at CAD 5.2 million against a profit of CAD 33.4 million in pcp.

Risks Associated With Investment

Any decline in building products prices due to lower construction activities would hamper the company’s performance. Furthermore, the company reported significantly higher selling and administrative expenses during the reported quarter, which is a reason for concern and continuation of the above trend could dampen its profitability.

Stock Recommendation

The company reported decent performance in its operating matrix on a nine-month basis, where it reported healthy growth across sales, EBITDA, and net profit, which is a key positive. However, in Q3FY21, it witnessed pale performance on the back of dramatically falling commodity prices. Furthermore, we believe the lumber prices are stabilizing, and the expected higher housing starts in Canada and the US would positively impact TBL’s business and financial performance in the future. The company is also minimizing its long-term debt, which is a significant plus.

On the valuation front, the stock is available at a TTM EV/Sales multiple of 0.1x compared to the industry (Basic Materials) median of 2.3x. Hence considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of TBL at the closing price of CAD 2.27 on November 23, 2021.

One-Year Technical Price Chart (as on November 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.