NexLiving Communities Inc. (NXLV:TSX.V) acquired two properties in Saint John, New Brunswick, Canada, for US$34.3 million (US$34.3M), reported Echelon Capital Markets analyst David Chrystal in a Dec. 16 research note.
"The acquisition is immediately accretive," Chrystal wrote, in that it uses the company's excess cash, the related mortgage has a below-market interest rate, and the increased scale lowers NexLiving's general and administrative expense:net operating income ratio.
Expanding Its Asset Portfolio
Chrystal described the new properties comprising 142 suites. One, at 50 Calabria St., encompasses a newly built, 82-suite luxury building with lots of amenities, including pickleball and basketball courts and fitness and community centers, and the adjacent land is approved for 85 suites. The second property, at 5 Woodhollow Park, features 67 suites built about 12 years ago. The blended cap rate, including the land, is 4.75%.
"The purchase was financed in part with US$25.7M of mortgage debt at an average interest rate of 3.06%, with a weighted average remaining term of 3.5 years," Chrystal relayed.
The company used most of its US$9.8M in cash and cash equivalents to cover the $8.6M cash portion of the total consideration for the two New Brunswick properties, NexLiving. It will generate incremental cash from nearly US$25M of mortgage debt maturing in early January and April 2023, but "any significant further acquisition will require incremental equity," wrote Chrystal.
Looking forward, he added, "We believe NexLiving's existing portfolio will continue to deliver solid operational results. Though excess cash is a drag on our near-term financial forecast, once liquidity is deployed, we see significant per-share cash flow growth."
Continued Scaling Up
The analyst pointed out that the scale realized from the most recent purchase, taking year-to-date acquisitions to about US$69M, is benefitting the multifamily property owner. Now, general and administrative (G&A) expense represents about 20–25% of run-rate net operating income, noted the analyst. The Mountain Road acquisition would further expand the Canadian company's asset portfolio to about 1,200 units valued at more than US$240M and decrease G&A to about 15–20%.
"Should NexLiving continue to execute on its considerable pipeline of acquisition opportunities, we expect that the G&A ratio will dip further," noted Chrystal.
Echelon has a Buy rating and a CA$0.22 per share target price on NexLiving Communities, currently trading at about CA$0.14 per share.
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Important Disclaimers for Echelon Wealth Partners Inc., NexLiving Communities Inc., December 16, 2022
Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value and you may lose money. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. Echelon Wealth Partners Inc. employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients.
Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.
U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not be subject to U.S. rules.
ANALYST CERTIFICATION
I, David Chrystal, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
During the last 12 months, Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer.
During the last 12 months, Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer.
