Thursday, March 12, 2015

Allied Properties Real Estate Investment Trust 2

Sound bite for Twitter and StockTwits is: Stock price expensive? I heard a commentator recently that said that Canadian REITs were within 3% of their all-time highs. It is only on the AFFO and FFO measures that this stock price is reasonable. Use other measures, like Dividend Yield, Revenue or Cash Flow and stock is looking expensive. See my spreadsheet at ap.htm.

I do not own this stock of Allied Properties Real Estate Investment Trust (TSX-AP.UN, OTC-APYRF). Since several stocks that I followed last year were deleted from the stock exchange, I was looking for other stocks to follow. I am sure that I got this from a Canadian Dividend site called Think Dividends, but I cannot find it at present.

Over the past year in insider trading there was 1.4M of insider buying and $20.5M of insider selling with net insider selling at 19.01M and 0.67% of market cap. This is relatively a small amount of insider selling.

There is some insider ownership with the CEO owning units worth around $36.4M, a director owning units worth around $17.8M and a Chairman owning units worth around $1.5M. However, all this barely reaches 2% of outstanding units.

In 2014 outstanding units were increased by some 787,000 units for stock options. Since this is some 1.05% of the outstanding units it is relatively high, but other REITs have had similar relative amounts of stock options. For the previous two years, stock options were lower at 0.07% and 0.36% of outstanding units.

The 5 year median Price/Adjusted Funds from Operations Ratio is 19.55. The current P/AFFO Ratio is 19.16 based on 2015 AFFO estimate of $1.98 and a stock price of $37.93. The current P/AFFO Ratio is 2% of the 5 year median value and this indicates that the current stock price is relatively reasonable.

You get the same sort of story using Price/Funds from Operations Ratio where the 5 year median P/FFO Ratio at16.73 and a current P/FFO Ratio at 16.78 are less than 1% different. The current P/FFO Ratio is based on 2015 FFO estimate of $2.26 and a stock price of $37.93.

However, for both of these tests you get a different story using 10 year P/FFO and P/AFFO Ratios. Here the difference is much higher. The 10 year P/AFFO Ratio is 16.68 a value some 15% lower than the current P/AFFO Ratio of 19.16. For P/FFO, the 10 year median P/FFO Ratio is 13.71 and is some 22% lower than the current P/FFO Ratio of 16.78. With this testing the stock price is beginning to look expensive.

I think that looking at historical low dividend yields is best to begin with when looking at yields. The historical low is 4.12% and the current dividend yield is lower by 6.6% at 3.85%. This would suggest that the stock price is expensive. Even looking at the 5 year median dividend yield, which is some 4.71%, the current dividend yield is some 18% lower.

Looking at P/S Ratios and P/CF Ratios really tell the same story. The 10 year P/S Ratio is 5.64 and the current one at 8.00 is some 42% higher. The 10 year P/CF Ratio is 16.66 and the current P/CF Ratio at 19.18 is some 15% higher. This testing suggests that the stock is looking expensive.

The analysts' recommendations are Buy and Hold. Since most of the recommendations are a Buy, the consensus recommendations would be a Buy. The 12 month stock price consensus is $42.70. This implies a total return of 16.425 with 3.85% from distributions and 12.58% from capital gains.

This Market Wired article talks about a recent acquisition by Allied REIT. This is another Market Wired article about a 2014 acquisition by Allied REIT. This company reported on 2014 year end via Market Watch.

REITs did very well over the period of declining interest rates. At some point interest rate will go up. The problem is no one knows when this will happen.

This is the second of two parts. The first part was posted on Wednesday, March 11, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

Allied Properties REIT owns a portfolio of predominantly Class I office properties in Toronto, Montreal, Winnipeg, Quebec City, Ottawa, Victoria, Calgary, Edmonton, Vancouver, and Kitchener-Waterloo. Its web site is here Allied REIT.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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