Cominar Real Estate Investment Trust

Cominar Real Estate Investment Trust (TSX: CUF.UN) is a Canadian REIT, which operates in ownership and management of properties across the Canadian provinces. 

Key Highlights:

• An income Play: The company reported consistent dividend payments in the recent past, backed by stable cash flows. Notably, the stock was offering a dividend yield of ~3.2%, which looks decent considering the current interest rates scenario.          

Ten years dividend distribution, Source: REFINITIV, Analysis by Kalkine Group

• Reviving macro scenario to support upcoming performance: The company operations witnessed improved traction from the industrial segment, primarily driven higher eCommerce demand due to higher online buying, re-shoring of manufacturing activities, increases in inventory levels, growth in last-mile logistics, surge in food storage etc. Moreover, due to the shortage of land to develop industrial properties, property rates are touching new heights, which is a key positive and would result in growth in the rental segment.

• Increase in Rent: The average rents continue to increase in the three asset classes: +9.5% for the office portfolio, +0.1% for the retail portfolio and +18.3% for the industrial and flex portfolio, representing a total increase of 8.4%.

Q1FY21 Financial Highlights:

• The group posted its quarterly result, wherein the company posted operating revenues of CAD 169.721 million, down from CAD 173.885 million in Q1FY20. The decline was primarily attributable to lower income from Office properties and Retail properties, partially offset by a slight improvement in industrial and flex properties.
• Net Operating Income improved to CAD 86.471 million, from CAD 85.725 million in the previous corresponding period (pcp). The increase was aided by improved performance from the industrial sector, which grew 6.8% on y-o-y basis.
• The company reported a net income of CAD 50.264 million, climbed from CAD 44.974 million in Q1FY20. The growth was primarily driven by higher net operating income coupled with significantly lower finance charges (CAD 31.820 million v/s CAD 39.252 million in pcp), while higher trust administrative expenses (CAD 5.543 million v/s CAD 4.144 million in pcp) remained a drag.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Fluctuation in occupancy rate or delay in rent collection would affect the operating performance of the company. Moreover, a delay in execution of construction projects would further impact the company’s overall performance.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

At the end of Q1FY21, the company reported its debt to equity at 54.5%, improved from 55.3% in Q4FY20. The company also reported its debt to EBITDA at 11.1x in Q1FY21, improved from 11.3x in Q4FY21. Within the industrial and flex leasable area, the company caters more or less all the industries, while distribution, transportation & logistics and Government and paragovernmental institutions include the majority partition which provides a balanced risk-profile. On the other hand, the group derives only 21.8% of its industrial and flex operating revenues from the top 10 clients, which reduces the concentration risk. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a lower-double-digit upside (in percentage terms). For the said purposes, we have considered peers like InterRent Real Estate Investment Trust, Killam Apartment REIT etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 11.13 on July 28, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 28, 2021). Source: REFINITIV, Analysis by Kalkine Group

DREAM Unlimited Corp.

DREAM Unlimited Corp. (TSX: DRM) is a real estate company which operates across segments like Asset management; Stabilized income-generating assets; Urban development - Toronto and Ottawa, and Western Canada community development. 

Key Highlights:

• Higher dividend distribution amidst turbulent times: Despite the sluggish economic conditions, the company has increased its dividend payment to CAD 3.073 million in Q1FY21, higher than CAD 2.845 million in Q1FY20. The above is impressive as most of the companies are lowering their dividend payments in order to retain their liquidity.

• Positive cash from Operations: In Q1FY21, the group reported positive cash from operations of CAD 6.5 million versus cash used ~CAD 112.01 million in pcp.
  

• Encouraging pipeline: The company has an impressive pipeline of construction activities:

1. The group is developing a property named Zibi, which has over 4 million sq.ft of density consisting of over 1,800 residential units and more than two million sq.ft of commercial space and, eight acres of riverfront parks and plazas.
2. Within Riverside Square project, the group is conducting a mixed-use development project located in Toronto’s downtown east on the south side of Queen Street East and immediately east of the Don Valley Parkway. The first phase of activity includes 688 residential condominium units, while its second phase consist of 6,000 multi-tenant commercial space with proposed grocery-anchored components.
3. DRM has a 50/50 partnership with Kilmer Van Nostrand Co. Ltd. and is located in downtown Toronto’s east end, which consists of a 401-unit condominium building. Moreover, another segment of the building would constitute 770 rental units, of which 30% are affordable, and its first occupancy expected in 2023.

Q1FY21 Financial Highlights:

• DRM announced its quarterly results, wherein the company posted revenue of CAD 50.074 million, down from CAD 176.455 million in the previous corresponding period (pcp).
• Gross margin stood lower at CAD 18.309 million, as compared to CAD 68.322 million in Q1FY20, primarily attributable to lower revenue, partially offset by reduced operating cost (CAD 31.765 million v/s CAD 108.133 million in pcp).
• The group posted a loss before income taxes CAD 4.852 million, as compared to an income of CAD 232.779 million in pcp. The decline was due to an expense from adjustments related to Dream Impact Trust units amounting to CAD 17.678 million, as compared to an income of CAD 174.207 million in pcp. Lower general and administrative expenses and a decline in interest expense partially supported group’s performance.
• The corporation reported a net loss for the period at CAD 3.761 million, as compared to net earnings of CAD 185.830 million in pcp.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: If the COVID-19 pandemic continue to spread, the group might face a delay in the project development, which would affect the business prospects.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation:

In the first quarter of FY21, the company reported encouraging results at Arapahoe Basin, coupled with a significant presale activity across the Western Canada, which is a key positive. We expect the group’s performance to improve as the economy is coming back on track. We have valued the stock using EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like H&R Real Estate Investment Trust, Artis Real Estate Investment Trust etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of DRM at the last closing price of CAD 26.38 on July 28, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on July 28, 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.