Disclosure: Yorkton Equity Group Inc. has paid FRC a fee for research coverage and distribution of reports. See last page for other important disclosures, rating, and risk definitions.
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Price and Volume (1-year)
Over the next three to five years, management is focused on growing the portfolio to over $500M.
30+ year track record in real estate. The CEO owns 73% of YEG’s equity. Building a portfolio capable of potentially generating steady cash flows, and capital gains
YEG owns 100% equity in its projects
Portfolio Summary
At the end of Q3, YEG owned $130M in real estate investments, up 32% YoY, primarily driven by acquisitions . While tenant turnover led to a slight QoQ dip in average rent and occupancy in Q3, management pointed out that rents were higher at the end of the quarter
As a result, property valuations increased 1% QoQ, or $1.5M, in Q3 (1% in Q2 as well). We continue to anticipate property valuations increasing by 5.5% across 2024 and 2025, driven by lower cap rates
Q3 net revenue was flat QoQ, and up 26% YoY. In Q3-2024, residential rental revenue accounted for 92% of revenue (88% in Q3-2023)
The following sections summarize YEG’s projects (no major changes QoQ).
10 residential projects totaling $5.8M in NOI, valued at $118M, or $227k/unit. Three residential projects in Edmonton, totaling 375 units valued at $83M, or $221k/unit
The average cap rate is 5%
Four residential projects in Fort St. John, B.C., totaling 83 units valued at $13M, or $153k/unit. The average cap rate is 6.25%
Three residential projects in the rest of B.C., totaling 60 units valued at $22M, or $369k/unit. The average cap rate is 3.7%. One commercial/retail project in Edmonton, with RBC (TSX: RY) as the anchor tenant
Net revenue was flat QoQ, but up 26% YoY, primarily driven by property acquisitions, missing our estimate by just 1%. EBITDA was flat QoQ, and up 34% YoY. EPS was up 13% QoQ, missing our estimate by 3%
Annualized net revenue was relatively flat at 4.5% of investments. Net loss (excluding property valuation gains and unusual items) declined slightly QoQ, from -(0.04%) to -(0.03%) of investments
While gross margins align with the sector average, EBITDA margins are notably higher, primarily attributed to relatively low G&A expenses
Debt to capital was 79% at the end of Q3 vs the sector average of 53%. As equity builds through potential gains in property valuations, and equity financings, YEG's debt to capital should trend lower
None of the outstanding options/warrants are in-the-money
As Q3 aligned closely with our expectations, we are not making any material adjustments to our full-year projections
Sector multiples are down 5% since our previous report in August 2024. YEG’s forward EV/EBITDA is 18.0x (previously 17.7x) vs the sector average of 20.3x (previously 22.4x)
Applying sector averages to our revenue and EBITDA estimates, we are arriving at a fair value estimate of $0.32/share (previously $0.34/share)
We are reiterating our BUY rating, and adjusting our fair value estimate from $0.34 to $0.32/share. Given the expected downward trend in interest rates, we project lower cap rates and significant property valuation gains in the coming 12 months.
We believe the company is exposed to the following key risks:
We are maintaining our risk rating of 3 (Average)
