Scotia Analysis - (Dont Like Redemptions)Rating Sector Perform
1-Yr. Target C$18.50
AD.UN-T C$16.20
1-Yr. Return 21.9%
Div. (NTM) $1.24 Div.(Curr.) $1.24
Yield (Curr.) 7.7%
Will post Another report tomorrow Post Conf Call
Q4/20 Initial Take - Earnings Beat and Portfolio Healthy, but Early Redemption Higher Than Expected OUR TAKE: Mixed. Fourth-quarter results were ahead of expectations with portfolio metrics improving and looking healthy amid positive adjustments to fair value estimates and an upward revision to estimates. That said, while management had indicated the likelihood of an early redemption in 2021, the combined value and distribution of the two investments that are actively evaluating a full or partial redemption was notably higher than our forecast. Management noted that nothing was imminent, and we believe that a healthy deal environment is likely to help mitigate re-investment risk. AD's portfolio remained in good health. Of its 20 investments, 75% of AD's partners have an ECR of over 1.5x (including six over 2.0x) compared to 56% just a year ago. Compared to Q3/20, 11 partners experienced no change in their ECR, three showed improvement, and two deteriorated. We will provide a full update following the March 10 conference call at 11:00 a.m. ET (dial-in: 1-888-390-0546). KEY POINTS Normalized EBITDA/sh of $0.74 came in ahead of our estimate of $0.70 and the Street at $0.69. This was up ~4% y/y and rebounded 31% sequentially. The beat was largely driven by a slightly higher than expected top-line, and modestly lower operating expenses. Total generated revenue of $32M rebounded over 35% sequentially and was up mid-single-digits y/y. NCOA/sh of $0.59 also came in ahead of our forecast and increased by 23% y/y. Positive developments included: 1) upward revisions to guidance; 2) $23.2M increase in FV of investments; and 3) estimated weighted-average increase in annual distributions of ~1% in 2021, despite the on-going pandemic. Management noted that Federal Resources (FED; 10.5% of run-rate revenue guidance) and Kimco (4.2% of run-rate revenue guidance) are actively evaluating full or partial redemptions. Although not imminent, FED's redemption value is estimated at ~US$86M, while Kimco's is between US$53M-US$75M. Management had previously noted that an early redemption was likely, however, the size of the combined redemptions and distribution contribution was well above our forecast