Alaris Equity Partners Income 6 25 Senior Unsecured Debentures ADLRF

Scotia

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Diversified Financials

Alaris Equity Partners Income Trust

• AD.UN-T: C$18.28
• Target: C$21.00
• Rating: Sector Perform

Q1/22 Initial Take - Results Slightly Ahead of Expectations with Portfolio Remaining in Good Shape

OUR TAKE: Slight Positive. Overall, a relatively solid quarter with results coming in a touch ahead of expectations and the investment portfolio remaining in very good shape. The slight beat was driven by higher-than-expected royalties and distributions due to follow-on investments made and with PFGP returning to full distributions.

The health of AD's portfolio remains in good shape. The company's weighted average Earnings Coverage Ratio (ECR) remains in excess of 1.75x. Of the 18 partners, one has an ECR in the 1.0x to 1.2x range, three are in the 1.2x to 1.5x range, four are in the 1.5x to 2.0x range, and ten have an ECR greater than 2.0x.

This quarter, 16 investments had no change in their ECR, Brown & Settle was the only investment to experience an increase in its ECR, while Stride was the only company to experience deterioration.

We will provide a full update following the May 6 conference call at 11:00 a.m. ET (dial-in: 1-866-475-5449).

KEY POINTS

Estimated Normalized EBITDA/sh of $0.78 came in slightly above the Street at $0.75 and our expectations of $0.76. This was up 9.4% sequentially and 10% year-over-year. Net Cash from Operating Activities per share of $0.61 came in ahead of our expectations of $0.52 and was up just under 1% q/q but down ~6% year-over-year.

Post-quarter-end, Alaris redeemed out of Kimco with gross proceeds of U$68.2M which made up of 1) U$44.7M in preferred equity; 2) U$13.7M in deferred distributions; and 3) U$9.8M in promissory notes with the proceeds used to pay off the senior debt. Alaris reported a $10M unrealized gain (not included in Normalized EBITDA) related to the fair value of the Trust’s investment in Kimco to bring its fair value to the redemption price.

As previously announced in Q1/22, Alaris made a follow-on investment of U$65M in Body Contour Centers, bringing the total acquisition cost to U$156M.

• Quarterly Financials
• Yearly Financials

Historical price multiple calculations use FYE prices. All values in C$ unless otherwise indicated.
Source: FactSet; company reports; Scotiabank GBM estimates.

Qtly CFPS from Ops  (FD)	Q1	Q2	Q3	Q4	Year	Price/Cash Flow Ops
2020A	$0.72	$0.38	$0.28	$0.59	$1.98	7.6x
2021A	$0.66	$0.45	$0.66	$0.61	$2.37	7.9x
2022E	$0.52	$0.54	$0.56	$0.57	$2.20	8.3x
2023E	$0.58	$0.60	$0.60	$0.61	$2.38	7.7x

Exhibit 1 - Alaris Royalty Corp. Quarterly Summary

Source: Company reports; Scotiabank GBM.

Company Overview

Company Description

Alaris Equity Partners Income Trust is a Calgary-based investment management company that uses innovative financing structures to invest primarily in the preferred equity of well-managed private companies. Alaris looks for companies that have a history of growth, low cyclicality, sustainable free cash flow, and future growth opportunities. As at December 31, 2021, Alaris had investments in 19 companies with a cumulative fair value of almost $1.2 billion.

 

Key Risks

Financial and operational health of existing partners, risks associated with investing in new partners, dependence on stock price to make attractive acquisition, FX, competition with other investment entities, key personnel, private company-specific risk.