Chartwell Retirement Residences

Chartwell Retirement Residences (TSX: CSH.UN) is an open-ended real estate trust which indirectly owns and offers a wide range of seniors housing communities, from independent supportive living through assisted living to long term care.

Q2FY20 Financial Highlights: Chartwell Retirement Residences declared its quarterly results, wherein the company posted improved revenue of CAD 230.653 million, up 1.2% on y-o-y basis. The marginal improvement was due to higher income from the resident segment. Losses before income taxes stood at CAD 3.888 million, as compared to a profit of CAD 0.056 million in Q2FY19. Direct property operating expenses were up by 5.7% from Q2FY19, due to higher expenses related to COVID-19, acquisitions and developments, and pre-leasing and higher operating costs, combined with higher costs related to the property portfolio, which was partially offset by lower repairs and maintenance and marketing expenses. Net loss and comprehensive loss widened to CAD 1.931 million, from CAD 1.583 million in Q2FY19, due to an increase in the direct property operating and finance costs, partially offset by a deferred income tax benefit. The company withdrew the FY20 Outlook on account of prevailing uncertainty across the economy. The company reported same property retirement occupancy level at 82.4% for the month ended August 2020.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The business might face hindrance in the occupancy rate due to a slowdown in the economy, along with a decline in the fair value of the properties.

Valuation Methodology: EV to EBITDA Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The Stock of CSH.UN corrected ~28% so far this year amid volatility in the equity market. The company highlighted that move-in activity had shown a sign of recovery while move-out activity is operating below previous-year levels and in August, and stood at ~75% of previous-year volumes, majorly due to reduced departures to long term care. Recently, the Ontario government issued capital funding subsidy program policy for long term care, which includes a CAD 1.75 billion investment to redevelop 12,000 beds and add an additional 8,000 beds over the next five years, which is a key positive for the industry. The company has 577 Class B and C beds that are eligible for this redevelopment program. The company has ample liquidity of ~CAD 392.5 million, which seems to be sufficient enough to withstand the current challenging time. On a Y-T-D basis, the company reported improved top-line due to acquisitions and developments and revenue growth in the company’s existing property portfolio, which is commendable looking at the current operating environment. The group’s tenant credit quality remains strong, given the typical investment profile of Canadian seniors in the group’s target customer demographic. Despite the challenging operating environment, the group continued with the dividend distribution. At the last traded price, the stock was offering a dividend yield of 6.11%, which is lucrative considering the current interest rate environment. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a lower double-digit upside (in percentage terms). For the said purposes, we have considered First Capital Real Estate Investment Trust, U.S. Physical Therapy Inc, and Dream Office Real Estate Investment Trust as a peer group. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 10.02 on September 25, 2020.

CSH.UN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Westshore Terminals Investment Corporation

Westshore Terminals Investment Corporation (TSX: WTE) operates a coal storage and loading terminal at Roberts Bank, British Columbia. The company derives its revenue from rates charged for loading coal onto seagoing vessels.

Key updates:

• The company declared a quarterly dividend of CAD 0.16 per share, payable on or before October 15, 2020.
• The company signed a contract with Teck Coal Limited for the shipment of coal, after the expiry of the current contract on March 31, 2021. The new contract will provide shipment of between 5 and 7 million tonnes of coal annually at fixed loading charges.

Q2FY20 Financial Highlights: Westshore announced its second quarter results, wherein the company posted revenue of CAD 96.816 million, as compared to CAD 98.714 million in Q2FY19. The marginal decline in revenue was due to a lower performance from the loading segment, partially offset by significantly higher income from the other segment. Revenue from the Coal loading segment stood at CAD 92 million against CAD 97 million a year ago. The group reported total shipment of 7.7 million tonnes, as compared to 7.6 million tonnes in the previous corresponding period (pcp). Total expenses, during the period, stood marginally higher at CAD 48.007 million, against CAD 47.566 million in Q2FY19, due to an elevated administrative expense, partially offset by slightly lower operating expense. Profit for the period stood at CAD 34.653 million, marginally lower from CAD 34.96 million in Q2FY19. The company ended the quarter with cash and cash equivalent of CAD 161.708 million, while total assets were posted at CAD 1,230.783 million.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The business might witness headwinds such as fall in global demand and competition in the supply of seaborne coal. Further, a decline in the average loading rate might dampen the top-line of the company.

Valuation Methodology: Price to CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The WTE stock declined ~24% so far this year amid volatility in the equity market. The Company reported normal operations in the recent past, and the business is likely to remain stable in the coming years, which is a key positive. Renewal of existing contracts augurs well for the stability of the top-line while annual fixed loading charges would support the realization during price volatility. The Company expects its FY20 throughput volumes at 29.5 million tonnes, reflecting a stable volume looking at the current scenario. The Company is well-positioned to handle a range of bulk commodities in addition to coal. The Company is focusing on attracting the interest of producers of other products and will evaluate the feasibility of the opportunities. Further, at the last traded price, the stock was offering a dividend yield of 4.18%, which is lucrative considering the current interest rate environment. We have valued the stock using the Price to CF based relative valuation approach and arrived at a target price, which suggests a double upside potential (in % terms). For the said purpose, we have considered peers like TFI International Inc, Canadian National Railway Co etc.  Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 15.30 on September 25, 2020.

WTE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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.