Legacy Portfolio

AltaGas (TSX: ALA, OTC: ATGFF) announced a strong third quarter as normalized EBITDA increased 41% year-over-year to C$176 million. Normalized funds from operations for the quarter improved 34% to C$137 million, or C$0.84 per share, compared to C$102 million, or C$0.75 per share in the same period last year.

The strong growth was due to an EBITDA contribution of C$25 million from the company’s San Joaquin assets, which were acquired in late 2015. AltaGas also brought its Townsend Facility online during the quarter and plans new expansion efforts and an investment decision early next year.

For the first nine months of the year, normalized EBITDA totaled C$507 million, compared to C$409 million in 2015. Normalized funds from operations for the first three quarters were C$383 million, or C$2.48 per share, up from C$311 million, or C$2.30 per share last year.

Based on current project lineup, AltaGas expects 2016 capital expenditures in the range of C$550 to C$600 million. AltaGas expects normalized EBITDA growth of 20% and funds from operations is expected to grow 15% compared to the prior year.

Magna International (TSX: MG, NYSE: MGA) reported that third-quarter revenues increased 15.5% to C$8.85 billion, compared to C$7.66 billion in 2015. Net income from operations for the quarter rose to C$514 million, or C$1.29 per share, up from C$469 million, or C$1.13 per share last year.

The company was able to generate strong revenue growth despite a light vehicle production increase of only 1% in the U.S. and a 2% decline in production in Europe.

Management expects full-year revenues in the range of C$35.8 billion to C$37 billion.

Shaw Communications (TSX: SJR/B, NYSE: SJR) announced consolidated earnings for fiscal 2016 revenues of C$4.9 billion, up 8.9% compared to last year. Operating income before restructuring costs improved 4.6% to C$2.1 billion. The growth was driven by its Wireless division, which delivered strong fourth quarter performance; revenue increased 12% to C$148 million. Shaw’s Consumer, Business Network Services and Business Infrastructure Services divisions were up a combined 2.2%.

Shaw released its fiscal 2017 guidance, which expects consolidated operation income in the range of C$2.125 billion to C$2.175 billion. The company expects investments in 2017 of about C$1.3 billion and free cash flow to surpass C$400 million.

TransForce (TSX: TFI, OTC: TFIFF) posted a third-quarter revenue drop of 3% to $975.5 million. Adjusted net income from continuation operations came in at $56.4 million, or $0.60 per diluted share, compared to $48.6 million or $0.48 per diluted share in 2016. The company’s Board of Directors approved a 12% increased to its quarterly cash dividend to $0.19 per share, or $0.76 annualized.

Management expects market conditions to remain fragile into 2017 as North American manufacturing activity remains weak and Canada’s economy remains sluggish due to low resource prices.

The company also announced it acquired XPO Logistics, a top-20 North American truckload operation consisting of 29 locations and approximately 3,000 tractors and 7,500 trailers. The acquired business is expected to generate annual revenues of $530 million and EBITDA of $115 million in 2016.

Stock Talk

Bob Cecchini

Bob Cecchini

Could you please provide an update on Artis REIT? Specifically, do you believe that the 50% decline in share price over the last few years is tied to Artis’ significant presence in Alberta and the drop in oil prices? And if so, do you expect the share price to recover with the recovery in oil prices and/or the potential reduction in exposure to Alberta?

Thank you.

Ari Charney

Ari Charney

Hi Bob,

When I compare the unit-price performance of Artis to its Canadian REIT peers, then there’s no question that its concentration in Alberta has weighed on its unit price. In the most recent quarter, Artis earned 30.2% of its net operating income (NOI) there.

However, Artis has sold a number of industrial and retail properties from its Alberta portfolio, so its exposure to the province will continue to decline over time.

On Nov. 1, the C$1.8 billion REIT completed the sale of eight industrial properties for C$171.1 million and entered into an agreement to sell one retail property for C$40.2 million. Earlier this year, Artis unloaded two other Alberta retail properties for a total of C$35.2 million.

Meanwhile, in August the REIT acquired US$260 million of office property in Madison, Wisc. So the sources of its NOI are becoming more diversified geographically.

Right now, analysts forecast funds from operations per unit to essentially tread water for the next couple of years. I don’t see any upward revisions to estimates since the OPEC deal was announced, but a rebound in the energy sector would likely help improve fundamentals as well as sentiment.

In the meantime, Bay Street’s consensus 12-month target price for Artis is C$13.05, which is nearly 10% higher than the current unit price.

It’s also important to note that a substantial portion of the decline in Artis’ unit price since hitting a trailing five-year high in July 2012 is due to the depreciation of the Canadian dollar, which tacks on about 16.4 percentage points more to the REIT’s decline when expressed in U.S. dollar terms.

The Canadian dollar continues to trade near a long-term low, but a turn in the commodities cycle would presumably give the loonie a boost, providing a nice tailwind for our Canadian holdings.

Best regards,

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