Killam Apartment Real Estate Investment Trust

Killam Apartment Real Estate Investment Trust (TSX: KMP.Un) is an open-ended mutual fund trust. The group specialized in the acquisition, management, and development of multi-residential apartment buildings and manufactured home communities (MHC). 

Key Updates:

• Stock hovering in the overbought zone: On a weekly chart, the RSI of the stock is quoting higher at 72.0140, which indicates that the stock has entered a heavily overbought zone and suggests a possible correction from the current level. Moreover, the stock price is quoting near the upper band of its 20-days Bollinger band, which also indicates a possibility of a sidewise movement in the coming days.          

Weekly Price Chart (October 25, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Poor Liquidity: In Q2FY21, the company reported its current ratio of 0.08x, significantly lower than the industry median of 0.71x, which suggests that the company is struggling to meet its short-term liabilities. The above shows poor working capital management, which remains a key concern.

• Poor debt-protection metrics: In Q2FY21, the group reported its net debt to EBITDA of 45.44x, which is higher than the industry median of 23.95x. An increase in net debt to EBITDA suggests a weak debt protection ability of the firm.
  

• Increase in D/E ratio: At the end of Q2FY21, the company reported its D/E ratio of 0.95x, higher than Industry median of 0.93x.. A higher D/E ratio remains a key concern for the company as it hinders the overall financial flexibility of the firm.
  

Valuation Methodology (Illustrative): EV to EBITDA-based Valuation Metrics

Stock Recommendation:

In Q2FY21, the company reported its cash from operations of CAD 25.837 million, which is lower than the CAD 27.044 million in pcp. The above suggests a weak liquidity profile. Moreover, the company reported its gross margin and operating margin of 63.4% and 40.7%, respectively, which is lower than the industry median of 68.8% and 29.0%, respectively. We have valued the stock using the EV to EBITDA based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like European Residential REIT, Cominar REIT etc. Considering the aforesaid facts, we recommend a ‘SELL’ rating on the stock of PRV.Un at the last traded price of CAD 22.90 on October 25, 2021.

One-Year Technical Price Chart (as on October 25, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

PRO Real Estate Investment Trust

PRO Real Estate Investment Trust (TSX: PRV.UN) is an open-ended real estate investment trust that has a diversified portfolio in terms of property type and has presence across locations like Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Ontario, and Alberta.

Key Highlights:

• Bearish technical: The stock of PRV.UN was range bound and was trading sidewise for the past one month and unable to cross its crucial resistance of CAD 6.84. Moreover, the stock has closed at CAD 6.79, which is lower than the 30-days and 50-days simple moving averages, which indicates a potential correction from the current level.       

Technical Chart (October 25, 2021). Source: REFINITIV, Analysis by Kalkine Group

• Decline in Basic FFO per unit: The company reported a decline in its Basic Funds from Operations (FFO) per unit at CAD 0.1015 and CAD 0.1987 in Q2FY21 and H1FY21, respectively, as compared to CAD 0.1208 and CAD 0.2649, respectively in Q2FY20 and H1FY20, respectively. A decline in FFO suggests a weak operating performance.

• Rise in total borrowings: At the end of Q2FY21, the company reported an increase in its total debt at CAD 447.4 million, which is higher than CAD 363.8 million in Q1FY21. An increase in debt level remains a key concern for the company. Additionally, D/E stood at 1.53x in Q2FY21, higher than the industry median of 0.93x. Also, long term debt to total capital stood at 53.8%, which is higher than the industry median of 43.7%.

Valuation Methodology (Illustrative): EV to Sales-based

Stock Recommendation:

The company’s current ratio came at 0.22x, which is lower than the industry median of 0.71x, which indicates that the company is facing trouble in funding its short-term liabilities. Moreover, the group’s reported its gross margin and operating margin of 60.4% and 47.8%, respectively, which is lower than the industry median of 68.8% and 59.4%, respectively, indicating a weak margin profile. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like Melcor Real Estate Investment Trust, Nexus Real Estate Investment Trust etc. Considering the aforesaid facts, we recommend a ‘SELL’ rating on the stock of PRV.Un at the last traded price of CAD 6.79 on October 25, 2021.

One-Year Technical Price Chart (as on October 25, 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.