Dream Office REIT (TSX: D.UN) is a Canada-based open-ended real estate investment trust, which focuses on owning, leasing and managing office properties in urban centers across Canada, focusing on downtown Toronto. The trust holds a portfolio of approximately 30 properties with a total gross leasable area (GLA) of 5.5 million square feet.

• An Income Play: The REIT continues with a healthy record of dividend payment. Recently, it announced a monthly dividend of CAD 0.0833 per unit payable on November 15, 2021. At the last traded price of CAD 24.05, the stock offers a dividend yield of 4.141%, which is decent considering the current interest rate dynamics.

Source: Refinitiv

• Robust cash rent collection: Despite the headwind, the REIT’sresilient office portfolio resulted in strong rent collection figures. On a quarterly basis, the group consistently kept this ratio above 97%, which is admirable. Even in the month of October 2021, the REIT collected 97.6% of its rent.

• Favorable macro-environmental trends:Strong forecasted employment and population growth are expected to continue to contribute to healthy office demand. The trust holds a high concentration of well-connected assets in Downtown Toronto, leaping the forecasted Canada numbers along with a committed occupancy rate of 88.6% in Toronto Downtown, which is a key positive.

Source: Company

• Completion of “1900 Sherwood Place” project: The Trust's development project at 1900 Sherwood Place in Regina was recently completed and is now 93.4% leased, with a weighted average lease period of 12.8 years at an average in place rent of CAD 20.24 per square foot, which is above the industry Average Rent per Square Ft rate of CAD 19.26 is admirable.
  

Financial overview of Q3 2021 (in thousands of Canadian dollars)

Source: Company

• In Q3 2021, the trust reported slight dented net rental income of CAD 27.3 million, compared to CAD 27.8 million in the previous corresponding period, primarily due to lower weighted average occupancy and lower transient parking revenues due to parking lot closures from city lockdown restrictions across its portfolio.
• Income from continuing operations stood at CAD 91.7 million compared to CAD 39.3 million in Q3 2021; the rise in income was primarily due to fair value adjustments investment properties for CAD 58.0 million.
• Net income reported by the trust in the reported period stood at CAD 91.7 million, compared to CAD 39.2 million. The increase was mainly due to the above-discussed factor of fair value adjustments.

Risks associated with investment

The Trust's revenue and operating results depend significantly on the occupancy levels and rent collection; hence, the group is subject to general business risks. These risks include government regulation, fluctuations in occupancy levels and business volumes, competition from other players, and general economic conditions.

Valuation Methodology (Illustrative): EV to Sales based valuation

Stock recommendation

Despite the challenges brought by the pandemic on the real estate industry, the company's operating and financial results demonstrated the resilience of its portfolio, driven by the strong performance and robust rent cash collection. The strong forecasted employment and population growth are expected to continue to contribute to healthy office demand. The group also expects an improvement in parking revenues as it sees an increased building traffic and parking lot utilization indicating tenants are returning to the office. Furthermore, the stock offers a dividend yield of 4.15%, which is decent considering the current interest rate dynamics. Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 24.15 as on November 15, 2021. We have considered Allied Properties REIT, SmartCentres REIT, RioCan REIT. as the peer group for the comparison.

One-Year Technical Price Chart (as on November 15, 2021). Source: REFINITIV, Analysis by Kalkine Group

Rogers Sugar Inc

Rogers Sugar Inc (TSX: RSI) holds all the common shares of Lantic Inc (Lantic). Lantic is engaged in sugar business and operates as a refiner, processor, distributor, and marketer of sugar products in Canada.

Key Highlights

An Income Play: Rogers Sugar shares are yielding significantly higher on TSX, with dividend yield of ~6.316%. Moreover, the company has track record of consistent dividend payment over past two decades. Recently On August 4, 2021, the Board of Directors declared a quarterly dividend of CAD 0.09 per share, payable on October 12, 2021.

20-Years Dividend History. Source: REFINITIV, Analysis by Kalkine Group

Increased Sugar Sales Volume: In the third quarter of 2021, the sales volume in the Sugar segment increased by 10.8% to 190,563 metric tonnes, as stronger industrial, liquid and export volumes were partly offset by a reduction in consumer retail volume. Export volume also increased in the quarter due to higher beet sugar sales to the United States and Mexico.

Anti-dumping measure to minimize prices war: In Q3Y21, Lantic participated in the fifth review of the orders of the Canadian International Trade Tribunal concerning the anti-dumping and countervailing measures protecting the Canadian sugar industry against unfair imports of sugar from the United States and the European Union. A decision from the CITT is expected in the fourth quarter of 2021.

Expected recovery in retail demand in Q4Y21:  In Q3Y21 conference call, management stated that they expect the reduction in retail consumer demand to be temporary and anticipate demand for the retail market to return to pre-COVID-19 level over the next quarters (Q4FY21).

Risk Associated

Volatility in sugar prices in the international market, over supply of sugar in the Canadian market, continued reduction in the demand for maple syrup and other macroeconomic risks. 

Financial Highlights: Q3 FY21

Source: Company Filing

• Revenue up slightly by 2.3% to CAD 210.9 million in Q3FY21 against CAD 206.15 million reported in the same quarter of the previous financial year.
• Gross margin slightly lowered from 14.3% in Q3FY21 from 14.5% reported in Q3FY20.
• Consolidated adjusted EBITDA Q3FY21 was CAD 17.2 million, up 20.6% from the same quarter last year, driven by higher adjusted EBITDA in the Sugar segment offset by lower adjusted EBITDA in the Maple segment.
• EPS surged by 40% in Q3FY21 to CAD 0.07 from CAD 0.05 reported in Q3FY20 on account of improved operating income.

Valuation Methodology (Illustrative): P/E-based valuation  

Stock Recommendation

Rogers’ full year fiscal 2021 sales volume guidance remains unchanged at ~776,000 metric tonnes, an increase of 15,000 metric tonnes over FY2020, despite an extra week of operations in 2020. Moreover, a higher export volume driven by new export quotas including the CUSMA special quotas that took effect on July 1, 2020, and other opportunistic export sales to the United States and Mexico, are expected to yield an extra 20,000 metric tonnes of sales, which is expected to mitigate the unfavorable variances. Therefore, based on the above rationale and valuation done, we recommend a “Hold” rating on “RSI” stock at the closing price of CAD 5.70 (November 15, 2021).

1-Year Price Chart (as on November 15, 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.