A coupla questions, please deduct accordingly:
1. I've just received the following cautionary analysis regarding DIR.UN, and wonder if you would provide your comments on the points raised. I'm interested in acquiring DIR.UN but am concerned about the stated risks.
Currently, the following risks have been identified for the company (DIR.UN):
Major Risk
• Debt is not well covered by operating cash flow (8.6% operating cash flow to total debt).
Minor Risks
• Dividend is not well covered by earnings (dividend per share is over 12x earnings per share).
• Profit margins are more than 30% lower than last year (63% net profit margin).
• Shareholders have been diluted in the past year (3.1% increase in shares outstanding).
2. Could you also provide your analysis on BTB.UN based on the same criteria as applied to DIR.UN. I owned it years ago and enjoyed the yield, but became convinced it was too risky for my income portfolio. Now, years later, I see that while its unit price hasn't increased much, none of the fears materialized and had I held on it would have supplied decent income during that time. I'm considering re-entering.
Thanks 5i - much appreciated.
Peter
There are more shares outstanding since 2021, BUT....there is also more than $1.2B in assets since that time. The number of shares alone does not tell the picture. DIR made a big acquisition earlier this year. We get 10% cash flow to debt coverage. Yes, this is high, but is very common for the sector. Real estate is a big ticket item, and as long as occupancy is high debt is less of a concern. With REITs, because of depreciation and other non-cash charges, cash flow is a better metric than earnings. In the last 12 months, dividends were 66% of cash flow. This payout ratio is actually better than most peers. Operating margin has gone from 64% to 68% in the past three years. This is contrary to the statment in the question. But regardless, it is not a great metric for a real estate company with fixed assets.
BTB unit count has gone from 62M to 85M since 2019. But assets have grown from $939M to $1.1B in that time. Cash flow to debt is 5.7%; payout ratio is even lower at 52% (12 months). Operating margins have ranged from 49% to 54% over the past four years.