Acquisitions Help Power Earnings
AltaGas (TSX: ALA, OTC: ATGFF) bought GWF Energy Holdings, which owns three gas-fired electric plants in California for C$642 million. The three plants generate a combined 523 megawatts of power, enough electricity for 500,000 homes.
The purchase will help AltaGas expand its business in North America. In 2013, the company acquired Blythe Energy, owner of a natural gas–fired plant in Blythe, Calif.
AltaGas will fund the deal through a combination of equity and debt. The company issued about C$300 million ($226 million) in new common shares last month.
The newly acquired assets are expected to add approximately C$95 million in incremental contracted annual earnings before interest, taxes, depreciation and amortization (EBITDA) and add to earnings per share in 2016, the first full year under AltaGas ownership.
Management boosted its monthly dividend 3% to C$0.165 per share, C$1.98 annualized.
In September, Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) completed two previously announced acquisitions of property portfolios worth $490 million and $170 million in the greater Montreal and Vancouver areas, respectively.
The Montreal portfolio contains 16 properties with 3,661 suites, while the Vancouver portfolio consists of 19 properties with 919 suites. The combined acquisitions increase CAPREIT’s total portfolio 10.9% to 46,617 suites. Both acquisitions were funded through the REIT’s credit facility.
RioCan REIT (TSX: REI-U, OTC: RIOCF) will pay $715 million for Kimco’s stake in their joint-venture of 22 shopping center and plaza properties in Alberta, British Columbia, Ontario and Quebec. As part of the deal, RioCan will also assume Kimco’s share of their existing debt.
The transfer of the properties should be completed by the first quarter of 2016 and will immediately add to earnings. RioCan expects the deal to generate about C$45 million in additional net operating income with no additional cost.
Student Transportation (TSX: STB, NSDQ: STB) posted strong fiscal 2015 earnings driven by lower fuel prices and new investments in technology such as GPS devices.
Full-year revenues improved 13.4% to C$554.7 million, compared with C$489.5 million in 2014. Earnings came in at C$3.7 million, more than double the C$1.4 million in 2014. On a per share basis, the company posted earnings of C$0.04 per share, double the C$0.02 last year.
STB also shaved about C$70 million from long-term debt, bringing it to CAD203 million. The company’s payout ratio also improved to 71%, compared with 74% in fiscal 2014.
Parkland Fuel Corp. (TSX: PKI, OTC: PKIUF) announced its adjusted EBITDA guidance for fiscal 2016 in the range of C$235 million to C$265 million, following up its previously announced adjusted EBITDA guidance for fiscal 2015 of C$200 million to C$230 million.
The strong growth outlook is because of assets from its C$377 million Pioneer Energy acquisition completed in June. Pioneer is expected to contribute about C$55 million to adjusted EBITDA. Management noted the guidance range accounts for the potential adverse market conditions in western Canada and the United States as well as potential upsides from organic growth.
Stock Talk
CW
I haven’t seen anything on Parkland Fuel Corp F for a long time. What are your thoughts on it?
Ari Charney
Hi CW,
As the largest independent fuel distributor in Canada, Parkland will likely continue to pursue a growth-via-acquisition strategy to consolidate what still is a highly fragmented industry.
To this end, the firm has undertaken six deals since the beginning of 2016. While many of these deals were bolt-on acquisitions, the one that’s still pending is the most significant for the C$3 billion company: the C$965 million acquisition of fuel marketer CST Brands’ business and assets.
The all-cash deal is expect to boost distributable cash flow by 20%, though it will also add to leverage and increase shares outstanding. At year-end 2016, Parkland’s net debt to EBITDA stood at around 3.6 times.
Credit raters are keen on the firm deleveraging, and management is eager to do so. But with speculative-grade ratings of “BB” to “BB-“, the company does not have an investment-grade rating to defend.
Looking ahead, analysts forecast EBITDA (our best proxy for distributable cash flow) to grow 35% this year, to C$341.8 million, and a further 18% in 2018, to C$403.3 million. However, dividend growth is expected to essentially be flat until coverage of the payout improves.
Parkland enjoys mostly bullish sentiment on Bay Street, with six “buys” and two “holds.” The consensus 12-month target price is C$32.19, which suggests potential appreciation of 13.1% above the recent share price.
Best regards,
Ari
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