PRO Real Estate Investment Trust

PRO Real Estate Investment Trust (TSX: PRV.UN) is a Canada-based open-ended real estate investment trust (REIT), with four classifications of investment properties: Retail, Office, Commercial Mixed Use and Industrial. The Company's portfolio consists of approximately 93 properties providing a portfolio of over 4.5 million square feet of commercial gross leasable area.

Key highlights

• An Income Play: The group continues with a healthy track record of dividend payment. On 21^st January 2021, the company announced a monthly dividend of CAD 0.0375 per common share payable on 16^th February 2021, with a record date of 29 January 2021. At the last traded price, the stock was offering dividend yield of 7.45%, which is lucrative considering the current interest rate environment.

• Robust Rent collection: The group reported a rising rent collection trend from Oct 2020 to December 2020, indicating high-quality tenants coupled with solid operational fundamentals. In November 2020 and December 2020, the company reported 99.8% rent collection, each, which is impressive amidst the ongoing economic cycle.

Source: Company

• Well-diversified and Strong Tenant Base: In Q3 2020, the occupancy rate remained stable at 98.1%, in line with the previous corresponding period. The company generates 86% of their total portfolio base rent from national and government tenants, while the top ten largest tenants accounted for approximately 36.7% of the base rent.

Source: Company

Financial overview of Q3 2020 (In Thousands of CAD)

Source: Company

• In Q3 2020, the company reported the Property revenue of CAD17.3 million, an increase of CAD 4.1 million, or 30.7%, compared to CAD 13.2 million over the previous corresponding period, primarily due to incremental revenues from property acquisitions.
• Net operating income reported by the company in Q3 2020, stood at CAD 10.399 million, an increase of CAD 1.87 million as against CAD 8.52 million in the previous corresponding period, due to the favourable impact of property acquisition making higher revenues.

Source: Company

• The company reported a net loss of CAD 0.7 million in Q3 2020, against a net profit of CAD 6.9 million in Q3 2019, due to high-interest cost and loss on fair value adjustment under investment properties.

Risks associated with investment

The Company's revenue and operating results depend significantly on the occupancy levels and rent collection; hence, fluctuations in occupancy levels and business volumes would affect the group’s business.

Valuation Methodology (Illustrative): EV to EBITDA

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

The Company has reported impressive rent collection, showing improvement on a month-on-month basis. For December 2020, the company reported a rate of 99.8%, which is stunning. Along with this, they also retain a well-diversified and Strong Tenant Base. In Q3 2020, the occupancy rate remained stable at 98.1% helped the company in generating 86% of their total portfolio base rent from national and government tenants. Moreover, at the last closing price, the stock was offering a dividend yield of 7.45%, which is lucrative for the long-term investors considering the current environment. Therefore, based on the above rationale and valuation, we have given a "Speculative Buy" rating at the closing price of CAD 6.04 as on January 25, 2021. We have considered Inovalis Real Estate Investment Trust, Plaza Retail REIT, True North Commercial REIT, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Crown Capital Partners Inc.

Crown Capital Partners Inc. (TSX: CRWN) provides investment management services and is a specialty finance company which offers capital to middle-market companies. The firm offers long-term financing and special situation financing. 

Key Updates:

• Improved demand within Distributed Power market: The group is focusing on building-base through Crown Power Fund as the management foresees a pipeline of potential transactions in the Distributed Power market, which is a key positive. Moreover, the group’s Crown Power Fund segment has nine other projects under development at various stages of completion, while three projects are likely to be operational from the fourth quarter of FY20 onwards. The corporation believes that the market opportunity continues to remain elevated within the onsite power generation segment across the geographies like Ontario, Alberta, and Eastern Canada.
• Acquisition of Galaxy: During Q3FY20, the group reported the acquisition of Galaxy, an Ontario-based network services company which offers connectivity to remote and underserviced enterprise customers across Canada. With the above acquisition, the group expects to achieve improved business prospects through revenue growth, enhancing its scale and capabilities within the network services segment. We believe, the group would be benefited from the growing need for broadband connectivity from remote locations.

Q3FY20 Financial Highlights:

• CRWN declared its quarterly results, wherein the group reported total revenue of CAD 12.592 million, significantly higher than CAD 7.968 million in the previous corresponding period (pcp). The increase in revenue was supported by a net realized loss from investments amounting CAD 10.796 million in Q3FY19, partially offset by a lower interest revenue (CAD 6.878 million versus CAD 7.545 million in pcp).
• In Q3FY20, total expenses stood significantly higher at CAD 18.744 million, as compared to CAD 4.849 million in Q3FY19. The increase was due to higher provision for credit losses (CAD 11.153 million versus an income CAD 0.021 million in pcp), increase in finance costs (CAD 1.561 million versus CAD 1.074 million in Q3FY19), increase in general and administration costs, higher performance bonus etc.
• The company reported a loss before adjustments and income taxes at CAD 6.152 million, as compared to an income of CAD 3.119 million in Q3FY19.
• The company reported a net loss of CAD 8.078 million, as compared to a net income of CAD 0.460 million in pcp.
• Cash and cash equivalents stood at CAD 17.935 million, while total assets stood at CAD 325.527 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The group’s operations might be impacted due to adverse economic conditions, interest rates volatility, etc. These might lead to a higher provision for credit losses and might dampen the profitability.

Stock Recommendation:

The group investments across Network Services businesses involves the creation of a capital pool through investments in high-quality assets, recurring network services revenue of WireIE and Galaxy and, potentially, of other network services companies. The group would seek to raise additional capital commitments from third-party investors to fund future asset growth. On the flip side, four of the company’s completed power projects has been deferred until 2021 due to a temporary policy announced in late June by the Ministry of Energy, Northern Development and Mines, which might affect the company’s short term cash flows. The stock of CRWN appreciated ~14% and ~55% in the last three months and six months, respectively. Currently, the stock of CRWN is available at a significantly lower valuation of price to book value of 0.5x on its next twelve months (NTM) basis, as compared to the industry (Financials) median of 1x. Hence, considering the company’s product pipeline, valuation, and recent price movements, we recommend a ‘Speculative Buy’ recommendation on the stock at the closing price of CAD 5.00 on January 25, 2021.

CRWN 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.