National Bank’s 2017 Dividend All-Stars - Melhoff...

January 31, 2017 The NBF Daily Bulletin

Industry Comment

Equity Research

National Bank’s 2017 Dividend All-Stars

Industry Ratings: See Appendix 1

(NBF Economics & Strategy Group)

National Bank analysts collectively cover 300+ TSX-listed equities, of which roughly half offer investors income in the form of dividends or distributions. To help navigate this universe we assemble a portfolio that contains 27 of NBF’s favourite yield ideas, the basket spanning a variety of industries, sizes and liquidity, but sharing three investment criteria:

1. Dividend/distribution yield approximately 3.5% or greater; 2. Extremely low risk of the current payout proving unsustainable; and 3. Positive analyst bias regarding the prospects for share/unit price.

Takeaways NBF’s 2016 Dividend All-Stars portfolio introduced Jan. 28, 2016 returned income of 6.1%

and realized an average price return of 23.1% over the last 12 months, this 29.2% total return in line with the S&P/TSX Composite’s 29.1% for the same period (2.8% income and 26.3% price return for the index).

The average annual total return of NBF’s Dividend All-Stars over its five-year history is 10.6% compared with 7.4% from the S&P/TSX. 28 of the 44 names highlighted as 2016 All-Stars (~64%) outpaced the market, compared with 52% in 2015 (16/31), 38% in 2014 (16/42), 71% in 2013 (27/38) and 85% in 2012 (28/33).

15 All-Stars increased dividends in 2016 (Bank of Montreal, Boralex, Brookfield Infrastructure Partners, Capital Power, Enercare, Exchange Income, First National, Innergex, Keyera, Milestone Apartments, Pembina Pipeline, Royal Bank, Slate Retail, Sun Life Financial and Transcontinental). To date there have been 70 dividend/distribution increases versus five cuts from this portfolio.

The average yield of an All-Star is elevated at 5.8%, but payout is easily funded for each, with most equities having the capacity to grow dividends/distributions over time.

For investors seeking stable, predictable, elevated income and exposure to high quality companies, the following basket reflects NBF’s favourite ideas for 2017.

Trevor Johnson

Leon Aghazarian

Greg Colman

Dawoon Chung

Jaeme Gloyn

Patrick Kenny

Matt Kornack

Rupert Merer

Travis Wood

Adam Shine

Maxim Sytchev

Equity TickerShare/Unit

PriceDividend /

DistributionYield Analyst

Ag Growth International AFN-T $54.55 $2.40 4.4% ColmanAlgonquin Power AQN-T $11.31 US$0.47 5.4% MererAmerican Hotels HOT.un-T $10.38 US$0.65 8.1% JohnsonBird Construction BDT-T $8.86 $0.40 4.5% SytchevBrookfield Infrastructure Partners BIP.un-T $45.48 US$1.57 4.5% MererCapital Power Corporation CPX-T $24.68 $1.61 6.5% KennyCrius Energy Trust KWH.un-T $8.90 $0.76 8.5% JohnsonEnercare ECI-T $18.11 $0.92 5.1% JohnsonExchange Income Corp EIF-T $40.02 $2.10 5.2% JohnsonFirst National Corporation FN-T $28.92 $1.70 5.9% GloynH&R REIT HR.un-T $22.56 $1.38 6.1% KornackInnergex Renewable Energy INE-T $13.79 $0.64 4.6% MererKeyera Corp. KEY-T $38.20 $1.60 4.2% KennyKillam Apartment REIT KMP.un-T $12.14 $0.60 4.9% ChungKP Tissue Inc. KPT-T $15.53 $0.72 4.6% AghazarianMCAN Mortgage Corporation MKP-T $14.67 $1.20 8.2% GloynPason Systems Inc. PSI-T $19.04 $0.68 3.6% ColmanPattern Energy Group PEG-T $25.68 US$1.63 8.3% MererPure Industrial REIT AAR.un-T $5.69 $0.31 5.5% KornackPure Multi Family REIT RUF.u-V US$6.49 US$0.38 5.8% KornackRogers Communications RCIB-T $56.45 $1.92 3.4% ShineSmart REIT SRU.un-T $32.02 $1.70 5.3% JohnsonStudent Transportation STB-T $7.13 US$0.44 8.0% ColmanTimbercreek Financial Corp. TF-T $9.14 $0.68 7.5% GloynVeresen Inc. VSN-T $13.23 $1.00 7.6% KennyVermilion Energy VET-T $53.68 $2.58 4.8% WoodWPT Industrial REIT WIR.u-T US$11.82 US$0.76 6.4% JohnsonAverage 5.8%

NBF DIVIDEND ALL-STARS 2017 PORTFOLIO

Source: NBF, Bloomberg; Priced January 31st close

briv006

For Required Disclosures

2016 Recap and 2017 Outlook The primary objective of the NBF Dividend All-Star portfolio is to provide elevated income to

investors through high quality, diversified companies that our analysts view favourably. The 2017 portfolio’s average 5.8% yield is relatively high and compelling in the context of investment alternatives, but more importantly it is underpinned by stable and growing cash flows, healthy balance sheets and encouraging operating outlooks that provide confidence that the respective management teams will be increasing payout to investors over time, not decreasing. So far this is overwhelmingly the case, with 15 All-Stars increasing dividends in 2016 (Bank of Montreal, Boralex, Brookfield Infrastructure Partners, Capital Power, Enercare, Exchange Income, First National, Innergex, Keyera, Milestone Apartments, Pembina Pipeline, Royal Bank, Slate Retail, Sun Life Financial and Transcontinental), building upon the 10 that increased in 2015, eight in 2014, 12 in 2013 and 15 in 2012. There have been a total of 70 dividend/distribution increases since inception versus just five cuts, and given the collectively low forward payout ratios our analysts project, we believe the 2017 basket is well-positioned to continue increasing capital returned to investors.

In 2016, the Dividend All-Stars performed in line with the overall market while generating a significantly higher yield, posting a total return of 29.2% (6.1% income & 23.1% price) versus the S&P/TSX Composite’s 29.1% (2.8% income & 26.3% price) for the same 12-month period.

Equity Ticker% Price Change

+Period Yield

=Total

Return% Price Change

+Period Yield

=Total

Return% Price Change

+ Period Yield =Total

Return

Ag Growth International AFN-T 43.5% 4.1% 47.6% 32.0% 2.9% 34.9% 89.5% 8.2% 97.7%American Hotels HOT.un-T 2.5% 4.4% 6.9% -0.3% 4.1% 3.8% 2.2% 8.7% 10.8%Bank of Montreal BMO-T 15.0% 2.3% 17.3% 20.4% 2.1% 22.5% 38.5% 4.7% 43.2%Chorus Aviation CHR.B-T 13.6% 4.5% 18.1% 19.7% 3.9% 23.6% 35.9% 8.9% 44.9%Cominar CUF.un-T 25.1% 5.1% 30.3% -18.3% 4.1% -14.2% 2.2% 10.3% 12.5%Crombie CRR.un-T 20.9% 3.4% 24.3% -14.6% 2.8% -11.8% 3.2% 6.8% 10.0%Enbridge ENB-T 11.3% 2.3% 13.6% 5.3% 2.0% 7.3% 23.3% 4.6% 27.9%Enbridge Income Fund ENF-T 16.7% 3.4% 20.1% 7.4% 2.9% 10.3% 25.4% 7.4% 32.7%Exchange Income Corp EIF-T 44.7% 4.2% 48.9% 18.7% 3.0% 21.7% 71.7% 9.0% 80.8%First Capital FCR-T 24.9% 2.3% 27.2% -10.1% 1.9% -8.2% 12.3% 4.6% 16.9%First National FN-T 47.3% 4.0% 51.3% -4.8% 2.8% -2.0% 40.3% 8.3% 48.6%High Arctic Energy Services HWO-T 19.7% 3.2% 22.9% 67.1% 2.7% 69.8% 100.0% 6.4% 106.4%Innergex Renewable Energy INE-T 44.9% 3.0% 47.9% -11.4% 2.0% -9.4% 28.4% 5.9% 34.3%MCAN Mortgage Corp MKP-T 19.0% 4.9% 23.9% 6.0% 4.2% 10.2% 26.2% 10.1% 36.3%Milestone Apartments MST.un-T 41.8% 2.7% 44.5% 1.1% 1.7% 2.9% 43.4% 5.6% 49.0%Morneau Shepell MSI-T 26.5% 2.7% 29.2% -0.4% 2.1% 1.7% 26.0% 5.3% 31.3%Northland Power NPI-T 30.8% 2.9% 33.6% -3.0% 2.2% -0.8% 26.9% 5.8% 32.6%Pure Multi-Family RUF.u-V 25.5% 4.0% 29.5% 10.2% 3.2% 13.3% 38.3% 8.0% 46.3%Slate Retail SRT.un-T -2.2% 2.7% 0.5% 2.1% 3.7% 5.9% -0.1% 7.7% 7.5%Student Transportation STB-T 41.1% 4.5% 45.6% 6.8% 4.2% 11.0% 50.7% 12.3% 63.0%Transcontinental TCL.A-T 2.5% 2.0% 4.5% 16.6% 2.0% 18.6% 19.5% 4.0% 23.5%WPT Industrial WIR.u-T 15.1% 3.9% 19.1% 7.5% 3.4% 10.9% 23.7% 7.9% 31.6%WSP Global WSP-T -0.5% 1.9% 1.4% 19.9% 1.9% 21.8% 19.2% 3.8% 23.1%

Dropped Mid-YearBoralex BLX-T 37.8% 1.9% 39.6% 37.8% 1.9% 39.6%Interpipeline Ltd. IPL-T 26.1% 3.6% 29.7% 26.1% 3.6% 29.7%Manitoba Telecom Services MBT-T 29.1% 2.2% 31.3% 29.1% 2.2% 31.3%Pembina Pipeline PPL-T 26.4% 3.1% 29.5% 26.4% 3.1% 29.5%Savaria Corp SIS-T 72.0% 2.0% 74.0% 72.0% 2.0% 74.0%Sun Life Financial SLF-T 12.2% 2.1% 14.3% 12.2% 2.1% 14.3%Toronto Dominion TD-T 12.1% 2.2% 14.3% 12.1% 2.2% 14.3%TransAlta Renewables RNW-T 48.3% 4.6% 52.9% 48.3% 4.6% 52.9%Vermillion Energy VET-T 26.1% 3.7% 29.8% 26.1% 3.7% 29.8%Whitecap Resources WCP-T 34.0% 2.9% 36.9% 34.0% 2.9% 36.9%

Added Mid-YearAlgonquin AQN-T -7.6% 2.3% -5.3% -7.6% 2.3% -5.3%Brookfield Infras BIP.un-T 14.0% 2.5% 16.5% 14.0% 2.5% 16.5%Brookfield Renew BEP-U -3.4% 2.9% -0.5% -3.4% 2.9% -0.5%Capital Power Corp CPX-T 16.8% 3.7% 20.5% 16.8% 3.7% 20.5%Enercare ECI-T 5.5% 2.6% 8.1% 5.5% 2.6% 8.1%Keyera KEY-T 5.0% 2.1% 7.1% 5.0% 2.1% 7.1%KP Tissue KPT-T 32.5% 3.1% 35.6% 32.5% 3.1% 35.6%Manulife Financial MFC-T 41.4% 2.1% 43.5% 41.4% 2.1% 43.5%Royal Bank of Canada RY-Y 18.7% 2.1% 20.8% 18.7% 2.1% 20.8%All-Stars Average 25.9% + 3.2% = 29.1% 9.4% + 2.9% = 12.3% 23.1% + 6.1% = 29.2%S&P/TSX Composite 18.0% + 1.4% = 19.4% 6.8% + 1.4% = 8.2% 26.3% + 2.8% = 29.1%Source: NBF, company reports

* From basket introduction January 26,2016 to July 29, 2016

** From July 29, 2016 to January 27, 2017

*** From January 26, 2016 to January 27, 2017

H1/16 PERIOD RETURN* H2/16 PERIOD RETURN** 2016 PERIOD RETURN***

The average annual total return of NBF’s Dividend All-Stars over its five-year history is 10.6%, compared with 7.4% from the S&P/TSX.

Period Period Yield + Price Return = Total ReturnS&P/TSX

Total Return2012 6.0% 6.8% 12.8% 3.1%

2013 5.9% 12.5% 18.4% 9.3%

2014 5.8% -1.3% 4.5% 10.6%

2015 6.0% -17.7% -11.7% -15.0%

2016 6.1% 23.1% 29.2% 29.1%

Average 6.0% 4.7% 10.6% 7.4%

Source: NBF, Bloomberg

LEGACY NBF DIVIDEND ALL-STARS PERFORMANCE

In recent years dividend equities have generally led the broader market, and there continues to be enthusiasm amongst investors for income. Our continued positive bias and confidence in the Dividend All-Stars product stems from: 1) Canada’s interest rate environment remains favourable, with little evidence to suggest a near-term rise in rates; 2) a slow yet steady recovery in Canada’s resource sector positively affecting those companies directly/indirectly tied to commodities pricing; 3) balance sheet health for the group is collectively positive; and 4) low payout ratios support our outlook for continued dividend growth, which is one of the primary determinants of share/unit price appreciation.

Canadian equity markets have rebounded from a sharply underperforming resource segment in 2015, with both the S&P/TSX and the Dividend All-Stars generating record performance in 2016. Despite this recovery, our 2017 portfolio continues to have significantly less ties to the resource market when compared with historical baskets, broader market indices and NBF’s coverage list, as volatility continues to remain a headwind in the sector. The current year’s portfolio is segmented by industry below:

Real Estate Financials Power Energy

American Hotels First National Financial Algonquin Power Pason Systems

H&R REIT MCAN Mortgage Corp. Capital Power Pattern Energy Group

Killam Apartment REIT Timberland Financial Corp. Innergex Renewable Vermilion Energy

Pure Industrial REIT

Pure Multi-Family

Smart REIT

WPT Industrial

Diversified Transportation Pipeline/Utilities Infrastructure

Crius Energy Trust Exchange Income Keyera Bird Construction

Enercare Student Transportation Veresen Brookfield Infrastructure

KP Tissue Telecom Industrial

Rogers Communications Ag Growth

Source: NBF

2017 DIVIDEND ALL-STARS BY SECTOR

For investors seeking stable, predictable, elevated income and exposure to high quality companies, the following basket reflects NBF’s favourite ideas for 2017.

Equity TickerShare/Unit

PriceDividend /

DistributionYield Analyst

Ag Growth International AFN-T $54.55 $2.40 4.4% ColmanAlgonquin Power AQN-T $11.31 US$0.47 5.4% MererAmerican Hotels HOT.un-T $10.38 US$0.65 8.1% JohnsonBird Construction BDT-T $8.86 $0.40 4.5% SytchevBrookfield Infrastructure Partners BIP.un-T $45.48 US$1.57 4.5% MererCapital Power Corporation CPX-T $24.68 $1.61 6.5% KennyCrius Energy Trust KWH.un-T $8.90 $0.76 8.5% JohnsonEnercare ECI-T $18.11 $0.92 5.1% JohnsonExchange Income Corp EIF-T $40.02 $2.10 5.2% JohnsonFirst National Corporation FN-T $28.92 $1.70 5.9% GloynH&R REIT HR.un-T $22.56 $1.38 6.1% KornackInnergex Renewable Energy INE-T $13.79 $0.64 4.6% MererKeyera Corp. KEY-T $38.20 $1.60 4.2% KennyKillam Apartment REIT KMP.un-T $12.14 $0.60 4.9% ChungKP Tissue Inc. KPT-T $15.53 $0.72 4.6% AghazarianMCAN Mortgage Corporation MKP-T $14.67 $1.20 8.2% GloynPason Systems Inc. PSI-T $19.04 $0.68 3.6% ColmanPattern Energy Group PEG-T $25.68 US$1.63 8.3% MererPure Industrial REIT AAR.un-T $5.69 $0.31 5.5% KornackPure Multi Family REIT RUF.u-V US$6.49 US$0.38 5.8% KornackRogers Communications RCIB-T $56.45 $1.92 3.4% ShineSmart REIT SRU.un-T $32.02 $1.70 5.3% JohnsonStudent Transportation STB-T $7.13 US$0.44 8.0% ColmanTimbercreek Financial Corp. TF-T $9.14 $0.68 7.5% GloynVeresen Inc. VSN-T $13.23 $1.00 7.6% KennyVermilion Energy VET-T $53.68 $2.58 4.8% WoodWPT Industrial REIT WIR.u-T US$11.82 US$0.76 6.4% JohnsonAverage 5.8%

NBF DIVIDEND ALL-STARS 2017 PORTFOLIO

Source: NBF, Bloomberg; Priced January 31st close

TABLE OF CONTENTS

Ag Growth International Inc. AFN‐T 6

Algonquin Power and Utilities Corp. AQN‐T 7

American Hotel Income Properties HOT.UN‐T 8

Bird Construction Inc. BDT‐T 9

Brookfield Infrastructure Partners BIP.UN‐T 10

Capital Power Corporation CPX‐T 11

Crius Energy Trust KWH.UN‐T 12

Enercare Inc. ECI‐T 13

Exchange Income Corporation EIF‐T 14

First National Financial Corp. FN‐T 15

H&R REIT HR.un‐T 16

Innergex Renewable Energy Inc. INE‐T 17

Keyera Corp. KEY‐T 18

Killam Apartment REIT KMP.UN‐T 19

KP Tissue Inc. KPT‐T 20

MCAN Mortgage Corporation MKP‐T 21

Pason Systems Inc. PSI‐T 22

Pattern Energy Group Inc. PEG‐T 23

Pure Industrial RET AAR.UN‐T 24

Pure Multi‐Family REIT RUF.U‐T 25

Rogers Communications Inc. RCI.B‐T 26

SmartREIT SRU.UN‐T 27

Student Transportation Inc. STB‐T 28

Timbercreek Financial Corp. TF‐T 29

Veresen Inc. VSN‐T 30

Vermilion Energy Inc. VET‐T 31

WPT Industrial REIT WIR.U‐T 32

Title: Ag Growth International Inc. - AFN (T) $53.17 Price: $53.17 StockRating: Outperform TargetPrice: $57.00 Headline: Domestic Grain Storage & Handling Leader with Emerging

Department Theme Piece Machinery

Ag Growth International Inc. AFN (T) $55.23

NBF Dividend All-Star

Domestic Grain Storage & Handling Leader with Emerging International Platform

Stock Rating: Restricted

Target: Restricted

Risk Rating: Restricted

Est. Total Return Restricted

Shares Outstanding (mln) 14.7

Market Capitalization (mln) $841.7

Net Debt/(Cash) (mln) $324.3

Enterprise Value (mln) $1,165.9Dividend Yield 4.2%

52-w eek High-Low $57.24 - $24.77

Average Weekly Volume 311,335 Net Tangible Book Value per Share $4.51

Estimates 2015 2016E 2017E

Revenue (mln) 449.5$ R R

EBITDA (mln) 72.6$ R R

EBITDA Margin % 16.2% R R

CFPS 3.25$ R R

DPS 2.40$ R REPS (1.75)$ R R

Balance Sheet 2015 2016E 2017E

Debt/EBITDA1 4.0x R RInterest Coverage 2.9x R R

Valuation 2015 2016E 2017E

P/E -33.2x R R

EV/EBITDA 15.1x R RTarget EV/EBITDA 15.6x R R

All amounts in Cdn$ unless otherwise noted.

1: year end debt net of cash vs. TTM EBITDA

HIGHLIGHTS A full-catalogue with strong brands drive market share.

Ag Growth's Westfield brand of grain augers is tops in North America with an estimated 30+% market share. Grain augers, which comprise the largest segment of Company revenues at ~40%, have a typical lifespan of five to seven years and strong 40+% gross margins.

Prudent management team with a nose for accretive

M&A. Management completed several tuck-in acquisitions in recent years. Typical deal prices are at accretive valuations below 6.0x EBITDA.

Brazil strategy outlined; represents next leg of growth.

Management outlined their long-awaited LatAm expansion plan with the intention of “Greenfield Plus” strategy in Brazil which consists of tuck-in M&A and construction of a highly automated new plant adjacent to the acquired facility. This will both minimize taxes & tariffs while keeping AFN’s high quality control in place.

Commercial fertilizer storage a sensible adjacent space. Over the last year, AFN has built out a commercial fertilizer platform capable of turnkey projects through a series of tuck-in and mid-size acquisitions, creating a first in the industry. It has begun bidding/quoting on larger-scale projects which previously would have been too large for it to bid on when its fertilizer storage product line-up was limited to the bins that came with the Westeel acquisition.

Industry Rating: Overweight (NBF Economics & Strategy Group)

Company Profile: Ag Growth International Inc. (Ag Growth), headquartered in Winnipeg, MB, is a leading manufacturer of grain handling equipment, including grain augers, belt conveyors, aeration equipment and storage bins. Ag Growth has operations in Alberta, Manitoba, Saskatchewan, Indiana, South Dakota and Finland, and distributes equipment across approximately 1,400 dealers in North America.

Stock Performance (Source: Thomson One)

0

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1,000,000

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1,400,000

1,600,000

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

$55.00

$60.00

Jan

-16

Feb

-16

Ap

r-16

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-16

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-16

Jul-1

6

Au

g-16

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p-16

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-16

Nov

-16

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-16

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-17

Volume PriceSource: ThomsonONE, NBF

Greg Colman - (416) 869-6775 [email protected] Andrew Jacklin, CFA - (416) 869-7571 [email protected] Michael Storry-Robertson – (416) 507-8007 [email protected] Westley Macdonald-Nixon - (416) 507-9568 [email protected]

Department Theme Piece Independent Power Producers & Energy Traders

Algonquin Power and Utilities Corp. AQN.TO/AQN (T/NYSE) C$11.28/ US$8.58


10% annual dividend growth target supported by $6.5 bln development pipeline

Stock Rating: Outperform

Target: C$14.50

Risk Rating: Below Average

Est. Total Return 33%

HIGHLIGHTS Identified development pipeline of about $6.5 bln

AQN identified a development pipeline of approximately $6.5 bln, excluding the $3.2 bln acquisition of Empire District Electric (EDE). The capital deployment should occur over the next five years, primarily in the generation and distribution segment. The capital should largely be sourced from free cash flow, debt and tax equity, with limited common equity issuances. Compared with its peers which may be challenged to find accretive opportunities, AQN has visibility on growth.

Targeting annual dividend growth of 10%/yr With a low payout ratio and good growth pipeline, AQN can support dividend growth in the near term. Its target adj. EBITDA CAGR is 8-12% from 2017E to 2021E. The company currently has a dividend yield of about 5.4% and we are currently estimating a payout ratio of 52% in 2017E.

U.S. continues to be an attractive market The company can take advantage of a growing and attractive U.S. market with its expertise in tax equity financing and the extension of the PTC incentives. With the completion of the EDE acquisition, AQN increased its presence in the United States and also listed on the NYSE with the potential to access local capital. Despite a new political administration, the cost of renewables continues to decrease and the efficiency of technology is improving, which provides a strong economic case for building additional clean energy in the U.S.

Valuation and Rating Our target of $14.50/sh is based on a DCF with a 6.5% discount rate which is equivalent to a 12.1x EV/EBITDA on 2017E. The stock recently faced headwinds with conversion of the debentures approaching ($10.60/sh conversion price), but it should rebound once complete.

Industry Rating: Market Weight (NBF Economics & Strategy Group)

Company Profile: Algonquin Power and Utilities Corp (APUC) has assets in Canada and the United States. It operates under two segments: 1) Algonquin Power Co. (APCo), with renewable energy (wind and hydro) and thermal energy (natural gas cogen and peaking power) assets; and 2) Liberty Utilities Co., with regulated water, gas and electrical utility assets.

Stock Performance

Source: Reuters

Rupert M. Merer, P.Eng CFA - (416) 869-8008 [email protected] Associates: Ryan Wong, P.Eng MBA – (416) 869-6763 [email protected] Steven Hong – (416) 869-7538 [email protected]

Stock Data:

52-w eek High-Low (Canada) $12.45 - $10.30

52-w eek High-Low (US) $8.90 - $7.94

Bloomberg/Reuters: Canada AQN CN / AQN.TO

Bloomberg/Reuters: US AQN US / AQN.N

(Year-End Dec 31) 2015a 2016e 2017e

Revenue (mln) 1,027.9$ 1,072.6$ 2,160.5$

adj. EBITDA (mln) 375.4$ 469.4$ 927.8$

adj. EPS (diluted) 0.44$ 0.51$ 0.67$

CAFD/sh 0.76$ 0.79$ 1.25$

Dividends/sh 0.50$ 0.53$ 0.65$

Dividend Yield 4.5% 4.7% 5.7%

Payout Ratio (CAFD) 66% 67% 52%

P/CAFD 14.9x 14.3x 9.0x

adj. EV/EBITDA 12.9x 13.7x 10.8x

Financial Data:

Market Capitalization (mln) 3,120$

Total Debt1 (mln) 2,398$

Price/Book Ratio 1.31x

Debt/Capital 0.55x

Sh/O Basic2 (mln) 273.3

FD Outstanding1 (mln) 276.6

Source: Thomson Financial and NBF estimates1 September 30, 2016

Title: American Hotel Income Properties - HOT.UN (T) Cdn$10.05 Price: Cdn$10.05 StockRating: Outperform TargetPrice: Cdn$12.50 Headline: Attractive Yield Combined with Encouraging Growth Profile

Department Theme Piece Real Estate

American Hotel Income Properties HOT.UN (T) Cdn$10.42


Attractive Yield Combined with Encouraging Growth Profile


Target: Cdn$12.50

Risk Rating: Average

Est. Total Return 28.3%

Stock Data:

Cash Yield 8.3%

Implied Price Return 20.0%

52-w eek High-Low $11.25-$9.90

Bloomberg/Reuters: HOT-U CN / HOT.UN-T

Forecasts:

FYE Dec. 31 2015a 2016e 2017e

Occupancy 76.2% 72.1% 75.1%

ADR (US$) $79.90 $83.42 $89.21

Revenue (US$mln) $143.8 $177.8 $269.4

EBITDA (US$mln) $41.2 $53.3 $77.6

FFO/unit (US$) $0.93 $0.95 $1.03

AFFO/unit (US$) $0.81 $0.83 $0.89

Distribution/unit $0.90 US$0.65 US$0.65

FFO Payout Ratio 75% 68% 63%

AFFO Payout Ratio 89% 78% 73%

EV/EBITDA 17.1x 13.6x 9.5x

P/FFO 8.5x 8.2x 7.6x

P/AFFO 9.8x 9.4x 8.8x

Financial Data (pro forma Q1/17):

Units Outstanding (mln) 58.1


Cash (US$ mln) $39.4

Total Debt (US$ mln) $458.5

Net Debt to GBV 48%

NAV per unit $12.50

HIGHLIGHTS Railway lodging portfolio provides margin of safety

HOT’s portfolio is comprised of 96 hotels totaling 9,467 guestrooms consisting of 46 rail crew hotels (3,893 guestrooms) and 50 branded hotels (5,574 guestrooms). Within the lodging portfolio, HOT services large railway operators whose employees require accommodations for union mandated rest between shifts. As a result, the bulk of the REIT’s top line is contractually guaranteed with the rail operators, enhancing earnings transparency and sheltering it from any hotel-related headwinds. Having recently renewed six lodging contracts, HOT has minimal rail contract renewals scheduled over the next two years.

Growing branded portfolio to capture transient demand Acquisition growth was a key theme of 2016, with ~US$380.5 mln of announced/completed acquisitions, the bulk spent on adding 15 hotels to the branded portfolio. In our view, the enhanced focus on the branded portfolio should allow the REIT to further benefit from near record forecasted demand within the U.S. lodging sector in the coming year. We would expect HOT to continue opportunistically scaling both of its portfolios through 2017, leading to additional cash flow per unit upside.

Conservative financing relative to TSX REIT peers At ~48% debt to GBV, HOT’s leverage is conservative compared with REIT peers, in particular with the majority of its debt financed under long-term fixed rate terms.

Favourable yield insulated by earnings transparency AHIP’s 8.3% cash yield is well covered by a 73% 2017e AFFO payout ratio and defensive portfolio. We apply an unchanged ~10.5x P/AFFO multiple to derive our $12.50 target price, and reiterate an Outperform rating. Industry Rating: Market Weight


Company Profile: AHIP is a portfolio of 46 rail hotels with ~3,900 rooms, located in the U.S. largely under the “Oak Tree Inn” banner. The properties are strategically located at or near rail hubs, and are almost entirely occupied by four railroads (Union Pacific, BNSF, CSX & CP) at minimum guaranteed levels. AHIP also owns 50 non-rail branded hotels totaling ~5,600 rooms in Arizona, Pittsburgh, Virginia, North Carolina, Georgia, Florida, Ohio, Oklahoma and Texas.

Stock Performance (Source: Thompson)

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F M A M J J A S O N D J F M A M J J A S O N D J F

Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16

Trevor Johnson, CFA, MBA - (416) 869-8511 [email protected] Associates: Kyle Stanley - (416) 507-8108 [email protected] Alex Bauer - (416) 869-7535 [email protected]

Title: Innergex Renewable Energy Inc. - INE (T) Cdn$9.53 Price: Cdn$9.53 StockRating: Outperform TargetPrice: Cdn$11.25 Headline: Recent dip creates attractive entry point

Department Theme Piece Engineering & Construction

Bird Construction Inc. BDT (T) $9.10


Eventual revenue normalization opens the door for dividend re-rating


Target: $12.00

Risk Rating: Above Average


Stock Data:


52-w eek High-Low (U.S.) NA

Bloomberg/Reuters: Canada BDT CN / BDT - T

Bloomberg/Reuters: U.S. NA

(Year-End Dec 31) 2016E 2017E 2018E

Revenue (mln) $1,588 $1,359 $1,487

EBITDA (mln) $42 $34 $44

EPS (FD) $0.57 $0.37 $0.60

CFPS $1.56 $0.74 $0.87

Valuation


P/E 15.8x 24.4x 15.1x

P/CFPS 5.8x 12.3x 10.5x

Financial Data (as at March 31, 2016):

Shares outstanding - Basic / FD (mln) 42.5 / 42.5


Enterprise Value (mln) 187.5

Cash (mln) $202.2

Debt (mln) $13.8

Net Cash (Debt) $188.5

BVPS / Price/Book $4.02 / 3.2x

2017E ROE 9.7%

Dividend yield 4.4%

HIGHLIGHTS BDT shares are the worst performing vs. E&C peers;

scraping the bottom at these levels. BDT has declined 20% vs. +30% for the median of the North American universe (LTM). While generally we would not attribute this type of showing to an “all-star”, especially in light of a 50% dividend cut post Q3/16, it is precisely at the time of despondence that investors should be looking at the shares. While it feels like we are trying to catch a falling knife here, we want to urge investors to once again take a look at the company’s balance sheet: as of Q3/16 the company had $4.48 in net cash. With dividend to net income ratio dipping to the projected 65% in 2018E, we feel comfortable waiting out (at 4.4% dividend yield) for the profitability to normalize for this formally well executing entity. Of note, peak EBITDA amounted to $102.5 mln in 2012 while we project $43.7 mln in 2018E.

The handover from industrial to institutional work has been more jagged. Historically, BDT has generated the strongest margin profile in the Industrial vertical (i.e., predominantly commodity-related construction) that represented 57% and 51% of top line in 2014 and 2015. As the Industrial work ramped down, publicly-funded contracts (i.e., education, healthcare, transit) that are typically lower margin created an air pocket. In what we see as a rebounding public spending market due to the previously announced infrastructure stimulus programs, we should be at an inflection point (WTI recovery will also help).

Valuation & recommendation – normalized multiples on trough EBITDA generation. As revenue normalizes in 2018E-2019E, management could reverse the Q3/16 dividend cut (publicly stated by the team). In the meantime, we believe the fundamental valuation materially outweighs what the market is bestowing on BDT shares. We rate Bird Construction shares Outperform ($12.00 target).

Industry Rating: Overweight (NBF Economics & Strategy Group)

Company Profile: Bird Construction is a general contractor with a head office in Ontario. The company operates in 11 locations across Canada serving the heavy industrial market as well as the institutional, commercial and industrial verticals (34%/51%//15% revenue split but that will flip into more public-driven work given the company’s backlog composition).

Stock Performance Daily BDT.TO 2016-02-01 - 2017-02-16 (TOR)

Line, BDT.TO, Trade Price(Last), 2017-01-30, 8.84-0.26, (-2.86%) PriceCAD

Auto

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01 16 01 16 01 18 02 16 01 16 04 18 02 16 01 16 03 17 01 16 01 16 03 16 01 16Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Source: Reuters

Maxim Sytchev, MSc - (416) 869-6517 [email protected] Adam Staszewski – (416) 869-7937 [email protected]

itle: Innergex Renewable Energy Inc. - INE (T) Cdn$9.53 Price: Cdn$9.53 StockRating: Outperform TargetPrice: Cdn$11.25 Headline: Recent dip creates attractive entry point

Department Theme Piece Infrastructure

Brookfield Infrastructure Partners BIP.UN / BIP (T/N) $46.68 / US$35.58


Growing backlog and strong liquidity position to support steady growth


Target: US$38.00



Stock Data: 27-Jul-15


52-w eek High-Low (US) $36.27 - $22.12

Bloomberg/Reuters: Canada BIP.UN

Bloomberg/Reuters: US BIP

(Year-End Dec 31) 2015a 2016e 2017e

US$ unless otherwise noted

Prop Revenue (mln) 2,313$ 2,602$ 3,328$

Prop Adj. EBITDA (mln) 1,177$ 1,347$ 1,724$

Adj. EPS (diluted) 0.71$ 0.76$ 1.08$

FFO/sh 2.45$ 2.66$ 3.24$

Dividends/sh 1.41$ 1.55$ 1.64$


FFO Payout Ratio 66% 68% 60%

Prop Adj. EV/EBITDA 17.4x 16.5x 13.3x

Financial Data:



Net Debt/Capital 0.48x


Source: Thomson Financial and NBF estimates1September 30, 2016

HIGHLIGHTS Globally diversified infrastructure assets

BIP is one of the largest global infrastructure companies in the public domain. It owns and operates assets on five continents and across four distinct business categories (utilities, transport, energy and communications).

Cash flow stability supports distribution yield of 4.5% Approximately 90% of BIP’s assets are regulated or contracted, providing longer-term cash flow stability. BIP also has about 70% of its revenue indexed to inflation. These factors support an annual distribution growth rate target of 5-9% and an FFO payout ratio target of between 60-70%. Distribution growth has averaged 12%/yr from inception (’08).

Backlog should grow steadily over time BIP expects to invest about $1.5 bln to develop its capital backlog over the next 12-18 months in the utilities and transportation segment (which includes smart meter connections in the U.K. and North American natural gas transmission). We believe that BIP could source another $2 bln of additional projects over the next 12-24 months.

Strong liquidity position should support growth BIP’s has a strong liquidity position of ~$3 bln as of Q3 2016 which can be used to fund future organic growth or M&A. It also has the support of its parent company, Brookfield Asset Management, and institutional co-investors which reduces equity requirements for acquisitions, but BIP still maintains control of the assets.

Valuation and Rating Our target is based on a DCF with an 8% discount rate (13.8x EV/EBITDA on 2017E). We rate BIP an Outperform.


Company Profile: Brookfield Infrastructure Partners L.P., or BIP (TSX: BIP.UN / NYSE: BIP) was established in May 2007 by Brookfield Asset Management, or BAM (TSX: BAM). BIP is a Bermuda-based limited partnership that was formed as BAM’s primary vehicle to own and operate infrastructure assets on a global basis. Its General Partner, Brookfield Infrastructure Partners Limited, is a wholly-owned subsidiary of BAM. BIP operates US$14 bln of assets on five continents (North & South America, Australia, Europe and Asia), in four segments (Energy, Transport, Utilities and Communications Infrastructure).

Stock Performance

Source: Reuters


Price: Cdn$24.06 StockRating: Sector Perform TargetPrice: Cdn$28.00 Headline: Shepard nearly complete, but G4&5 faces potential delay

Department Theme Piece Pipelines, Utilities & Energy Infrastructure

Capital Power Corporation CPX (T) Cdn$24.53


7% annual dividend growth through 2018e


Target: Cdn$29.00



Stock Data:

52-week High-Low (Canada) $25.16 - $16.87

Bloomberg/Reuters: Canada CPX CT / CPX.TO

(Year-End Dec.31) 2016e 2017e 2018e

EBITDA (mln) $478 $526 $503

Maint. Capex (mln) $58 $85 $75

Free-EBITDA (mln) $420 $441 $428

EV/Free-EBITDA 10.4x 10.0x 10.3x

EPS (FD) $1.15 $1.39 $1.26

P/E 21.4x 17.7x 19.5x

AFFO/sh (FD) $3.25 $3.39 $3.32

P/AFFO 7.5x 7.2x 7.4x

Dividends per Share $1.51 $1.61 $1.73


Adj. Payout Ratio 46% 48% 52%

D/EBITDA 3.4x 3.3x 3.1x

Financial Data:


Market Capitalization (mln) $2,358

Net Debt (mln) $2,074

Enterprise Value (mln) $4,432

Total Debt/Enterprise Value 47%

Total Return 24.8%

HIGHLIGHTS Highlighting cash flow quality

Over half of CPX’s EBITDA is generated from Alberta coal; however, the company requires <$10/MWh to maintain 100% dividend coverage through 2019e as a result of Power Purchase Arrangements (PPAs) backed by government entities, investment-grade companies or Utilities – with ~30% of contracts in Alberta, ~15% in Ontario and B.C. and ~5% with U.S. entities. As such, the company’s payout ratio is not reliant on the spot market, confirming a sustainable dividend post 2021e as Alberta transitions to a capacity power market.

~20% bluesky upside from AB renewables growth With $734 mln of coal retirement cash compensation over the next 14 years helping to protect the balance sheet and payout ratio, coupled with ~$30 bln of new renewables and gas-fired investment required in AB by 2030, we reiterate CPX’s bluesky upside potential from AB & U.S. renewable development of ~$6/sh (~20%) upside to our $29 valuation on an investment of ~$3 bln (~1,000 MW in AB and 1,239 MW in the U.S.).

Dividend growth of 7% through 2018e On the dividend front, we forecast 7% annual dividend growth through 2018e, representing a conservative payout of ~50%.

Valuation and rating Our $29.00 target is based on a risk-adjusted dividend yield of 6.00% applied to our 2018e dividend of $1.73/sh, an 11.0x multiple of our 2018e Free-EBITDA of $438 mln, and our DCF valuation of $28.50/sh. Combined with CPX currently trading at 7.4x 2018e P/AFFO (i.e., >13% FCF yield) with a 52% payout ratio – versus the low-payout group averages of 11.3x and 48%, we currently rate CPX an Outperform with a 12-month total return opportunity of 24.8% (group: 18.4%).

Industry Rating: Market Weight (NBF Economic & Strategy Group)

Company Profile: Capital Power Corporation (CPX) has interests in 17 facilities across North America totalling over 3,200 MW of power generation capacity. The Company operates in Alberta, Ontario, British Columbia and the United States.

Stock Performance

Source: Bloomberg

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Vol. (mln)Capital Power Corp.

Patrick Kenny, CFA - (403) 290-5451 [email protected] Associate: Matthew Taylor, CPA, CA - (403) 290-5624 [email protected]

Title: Crius Energy Trust - KWH.UN (T) Cdn$XX.XX Price: Cdn$XX.XX StockRating: Outperform TargetPrice: Cdn$10.00 Headline: NBF Dividend All-Star

Department Theme Piece Utilities

Crius Energy Trust KWH.UN (T) Cdn$8.85


Elevated Yield Believed Well-Covered; Growth Outlook Remains Robust


Target: Cdn$10.50



Stock Data:

Cash Yield 8.6%


52-week High-Low $9.49-$7.76

Bloomberg/Reuters: KWH-U CN / KWH_u.TO

Forecasts (US$)FYE Mar. 31 2015a 2016e 2017e

Revenue (mln) $686 $723 $820

EBITDA (mln) $57.5 $52.0 $65.6

DCPS $1.17 $0.89 $1.09

Dividend (C$) $0.70 $0.74 $0.76

Payout 48% 66% 56%

DC Yield 13.2% 10.1% 15.4%


P/DCPS 6.1x 7.9x 6.5x

Financial Data:

Basic Shares Outstanding (mln) 40.1

Market Capitalization (C$ mln) $354.8

Net Debt (US$ mln) $3.4

Enterprise Value (US$ mln) $287.2

Net Debt to Capitalization 1%

Net Debt to 2016e EBITDA 0.1x

HIGHLIGHTS Diversified energy retailer

KWH provides retail and commercial customers solutions to their energy needs, including: 1) fixed/variable pricing for electricity consumption (878k contracts); 2) fixed/variable pricing for natural gas (64k); 3) a fully integrated solar distribution channel (source, price, finance, install & maintain); and 4) a variety of green energy product options.

Fundamentals tick a number of boxes KWH screens very well vs. TSX diversified yield peers in terms of its: 1) income opportunity (8.6% yield to 56% DCPS payout vs. group averaging ~5.4% / ~60%); 2) dividend growth potential (+2%/quarter increases since Q1/16 and guided to continue through Q4/17, tops on our coverage list); 3) relative valuation (4.4x forward EV/EBITDA and 6.5x P/CF vs. group averaging ~9.0x / ~12.0x); and 4) balance sheet health (0.1x net debt to forward EBITDA and 1% debt to cap vs. group averaging ~2.0x / ~35%).

Optimistic growth outlook Including: 1) continued evolution of the energy portfolio (quarterly net electricity/gas adds anticipated); 2) leveraging the recently bulked-up solar vertical (assets from SunEdison & Verengo acquired Q3/16) to round out this channel; 3) entry into new gas markets in the United States (GA, MI) and electricity in Australia; and 4) continued organic growth in existing electricity/gas/solar footprints and additional acquisition potential across each segment.

Positive bias maintained Our $10.50 target price implies a relatively inexpensive ~5x 2017e EV/EBITDA and ~7.5x P/CF, with the potential for additional multiple expansion to the 6x+ / 9x+ range as the company proves out its model and opportunity. We reiterate an Outperform rating.


Company Profile: Crius Energy Trust is an independent energy retailer, offering electric, gas and solar solutions to over 900k customers through an innovative family-of-brands strategy and multi-channel marketing approach.

Stock Performance (Source: Reuters)

Daily KWH_u.TO 2016-02-01 - 2017-02-16 (TOR)

Volume

0

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8.1

8.4

8.7

9

16 01 16 01 18 02 16 01 16 04 18 02 16 01 16 03 17 01 16 01 16 03 16 01Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Trevor Johnson, CFA, MBA - 416-869-8511 [email protected] Associates: Endri Leno - (416) 869-8047 [email protected] Kyle Stanley - (416) 507-8108 [email protected] Alex Bauer - (416) 869-7535 [email protected]

Title: Enercare Inc. - ECI (T) Cdn$17.35 Price: Cdn$17.35 StockRating: Outperform TargetPrice: Cdn$18.50 Headline: Compelling U.S. Opportunity + Dividend Growth Profile

Department Theme Piece Diversified

Enercare Inc. ECI (T) Cdn$18.56


Stable Domestic Vertical + Compelling U.S. Opportunity


Target: Cdn$22.50



Stock Data:

Dividend Yield 5.0%


52-week High-Low $19.76 - $15.00

Bloomberg/Reuters: ECI CN / ECI-T

Forecasts:FYE Dec. 31 2015a 2016e 2017e

Revenue (mln) $563.8 $984.1 $1,195.1

EBITDA (mln) $234.3 $277.2 $299.3

DCPS (NBF def'n) $1.19 $1.12 $1.39

EPS $0.56 $0.47 $0.42

Dividend $0.82 $0.89 $0.92

Payout Ratio 69% 79% 66%

DC Yield 4.4% 4.8% 5.0%


P/DCPS 15.6x 16.5x 13.3x

Financial Data:

Basic Shares Outstanding (mln) 104.0

Market Capitalization (mln) $1,929.5

Net Debt (mln) $916.5

Enterprise Value (mln) $2,846.0


Net Debt to 2017e EBITDA 3.1x

HIGHLIGHTS Complementary product/service offering

ECI provides water heaters, furnaces, air conditioners and other HVAC rental products, protection plans and related services to ~1.1 mln Ontario customers, in addition to being a leading sub-metering provider. Following last year’s transformational acquisition of Service Experts (SE), ECI sells HVAC services and units in 29 U.S. states and three Canadian provinces.

SE provides new platform for growth The purchase of SE, one of the largest North American providers of HVAC repairs / maintenance / products, positions ECI to leverage several opportunities, including: 1) geographic expansion, supported by a highly scalable platform; 2) the prospects of enhanced cross-selling (i.e., adopting rental model across SE); 3) cost/revenue synergies; and 4) tuck-in M&A. SE has outperformed NBF and Street expectations since closing Q2/16.

Domestic outlook solid ECI’s legacy offering continues to track well, including: 1) net rental growth from the Home Services vertical; 2) solid early sub-metering inroads; and 3) bundling ancillary services/products (protection plans, duct cleaning, energy audits, etc.) aiming to own the customer’s basement.

Balance sheet believed easily manageable ECI’s leverage is currently higher than normal due to the SE acquisition, but the ~3.1x net debt to 2017e EBITDA is manageable and expected to ratchet lower in coming periods, benefitting from ECI’s free cash flow profile.

Income opportunity + valuation relatively attractive ECI’s 5% yield is well-covered by a 66% 2017e DCPS payout ratio. Our $22.50 target price implies ~11x forward EV/EBITDA, and we reiterate an Outperform rating.


Company Profile: Enercare provides water heaters, furnaces, air conditioners and other HVAC rental products, protection plans and related services to ~1.1 mln customers in addition to being a leading sub-metering provider. Through Service Experts Enercare sells HVAC units and services in 29 U.S. states and three Canadian provinces.

Stock Performance (Source: Thomson Reuters)

Daily ECI.TO 2016-02-01 - 2017-02-16 (TOR)

Volume

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Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan FebQ1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Trevor Johnson, CFA, MBA - (416) 869-8511 [email protected] Associates: Endri Leno - (416) 869-8047 [email protected]

Kyle Stanley - (416) 507-8108 [email protected]

Alex Bauer - (416) 869-7535 [email protected]

Title: Exchange Income Corporation - EIF (T) Cdn$27.72 Price: Cdn$27.72 StockRating: Outperform TargetPrice: Cdn$32.00 Headline: NBF Dividend All-Star

Department Theme Piece Airlines

Exchange Income Corporation EIF (T) Cdn$39.98


Aviation/Aerospace Niche Continues to Pay Dividends


Target: Cdn$50.00



Stock Data:

Cash Yield 5.3%


52-week High-Low $45.28 - $22.09

Bloomberg/Reuters: EIF CN / EIF.TO

Forecasts:Dec. 31 YE 2015a 2016e 2017e

Revenue $807.4 $908.0 $1,048.1

EBITDA $179.2 $219.7 $250.5

EPS (basic) $1.56 $2.16 $2.16

DCPS (basic) $3.11 $3.69 $4.35

Dividend $1.80 $1.99 $2.10

Payout Ratio (basic) 58% 54% 48%

DC Yield 7.8% 9.2% 10.9%


P/DCPS 12.9x 10.8x 9.2x

P/E 25.7x 18.5x 18.5x

Financial Data Proforma Q1/17:


Market Capitalization (mln) $1,235.5


Enterprise Value (mln) $1,768.1


Net Debt (incl converts) to 2017e EBITDA 2.1x

HIGHLIGHTS Traditionally diversified player has narrowed its focus

Historically EIF was a diversified, acquisition-oriented company focused on specialty aviation and specialty manufacturing. Since the late 2014 divestiture of WesTower USA and subsequent redeployment of the proceeds into Provincial Aerospace (PAL), the portfolio has become more concentrated on aviation and aerospace opportunities, which now account for over 90% of the company’s cash flow.

Primary offerings remain well-positioned EIF has a host of aviation/aerospace opportunities, including: 1) leveraging its dominant First Nation relationships, services and infrastructure; 2) benefitting from global defense needs through marine surveillance and complementary technologies (Canada, the U.S., Middle East); and 3) the continuation of RegionalOne’s lucrative buy/refurbish/lease/sale business model that has proven to be highly accretive since initially acquired 2013.

Meaningful growth opportunities and dry powder EIF has >$200 mln in dry powder and leverage a manageable 2.1x net debt / forward EBITDA following last month’s equity raise, expected to be deployed into: 1) complementary tuck-in acquisitions to round out and enhance the aviation/aerospace portfolio, similar to the Ben Machine and CarteNav additions the last one to two years; and 2) more used planes to feed RegionalOne, its outlook continuing to be favourable.

Attractive yield opportunity EIF’s 5.3% cash yield is attractive when considering our 48% 2017e payout, and EIF has demonstrated a commitment to returning more income to shareholders by way of persistent dividend increases (+5% CAGR since 2004 IPO).

Valuation remains compelling We reiterate an Outperform rating and $50 target price, implying an 8.5x 2017e EV/EBITDA valuation.


Company Profile: Exchange Income Corporation is a diversified, acquisition-oriented company currently focused on specialty aviation, specialty manufacturing and specialty communication towers.

Stock Performance (Source: Reuters)

Daily EIF.TO 2016-02-01 - 2017-02-16 (TOR)

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Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan FebQ1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017

Trevor Johnson, CFA, MBA - 416-869-8511 [email protected] Associates: Endri Leno - (416) 869-8047 [email protected] Kyle Stanley - (416) 507-8108 [email protected] Alex Bauer - (416) 869-7535 [email protected]

Department Theme Piece Diversified Financials

First National Financial Corp. FN (T) Cdn$28.77


Defensive Characteristics Support Growing Dividend


Target: Cdn$28.00



Stock Data:

52-w eek Low -High $19.71 - $32.23

Shares Outstanding (millions) 60.0

Market Capitalization (millions) $1,725

Year-End 12/31 2015A 2016E 2017E 2018E

Core EPS $2.35 $2.95 $2.98 $3.14

Y/Y Growth 15.3% 25.7% 1.0% 5.4%

Price / Earnings 12.3x 9.7x 9.7x 9.2x

Revenue $427 $523 $524 $541

Expenses $278 $286 $275 $279

Net Income $105 $172 $181 $190

Less: Non-Core Income $38 $7 $0 $0

Core Net Income $143 $179 $181 $190

FCF Yield 8% 11% 10% 11%

Book Value Per Share $6.01 $7.11 $8.36 $9.68

Financial Data: (Quarter-End 09/30/2016)

Book Value per Share $6.80

Price/Book Value 4.23x

Distribution/Dividend Information:

Dividend/Share (Quarterly) $0.425

Payout Ratio 52.1%

Yield 5.9%

HIGHLIGHTS One of Canada’s largest non-bank mortgage companies

First National Financial Corporation ranks as one of Canada’s largest originators, underwriters and servicers of residential mortgages. The company originated over $17 billion of mortgages in the 12 months to September 2016, and currently services a mortgage portfolio of ~$99 billion.

Defensive characteristics support growing dividend FN boasts an 1) industry-leading origination platform, 2) diversified funding model, 3) limited credit risk exposure, and 4) defensive recurring revenue model. These factors support the sustainability of FN’s dividend growth. Our current payout ratio forecast of ~59% in 2017 and 2018 assumes annual dividend increases of 5%. Our conservative forecast falls short of management’s 65% to 70% target payout ratio.

Conservative estimates increase our confidence We forecast Securitization net interest margin of 50 bps in 2018, representing the lowest NIM on record for FN. In addition, we forecast single-family originations to decline 14% y/y in 2017 given the weak AB/SK market, growing concerns in Vancouver and headwinds for the “Rest of Canada".

Yield adequately compensates for housing market risks We use a target P/E multiple of 9.0x, a 0.5x discount to the historical average trading multiple. We believe this appropriately balances increased housing market and regulatory uncertainty with FN’s defensive characteristics (noted above) and our conservative estimates. We believe the 5.9% yield adequately compensates for housing market risks.


Company Profile: First National Financial Corporation is an originator, underwriter and servicer of mainly prime single-family and multi-unit residential mortgages, as well as commercial mortgages. First National is Canada’s largest non-bank originator and underwriter of mortgages with over $90 billion in mortgages under administration.

Stock Performance

Jaeme Gloyn, CFA - (416) 869-8042 [email protected]

Title: Artis REIT - AX.UN (T) Cdn $xx Price: Cdn $xx TargetPrice: Cdn $18.00 Headline: A Good Choice for Extra Yield


H&R REIT HR.UN (T) Cdn$22.41


Defensive Structure with Upside from Target Re-leasing and Development Pipeline


Target: Cdn$25.75



Stock Data:

52-w eek Low $18.12

52-w eek High $23.83

Bloomberg/Reuters: HR-U / HR.un

(Year-End Dec. 31) 14A 15A 16E 17E 18E

FFO $1.85 $1.89 $1.83 $1.85 $1.96AFFO $1.63 $1.67 $1.67 $1.69 $1.80% change (FFO) 2.1% -3.2% 0.8% 6.2%Current MultiplesP / FFO 12.1x 11.8x 12.2x 12.1x 11.4xP / AFFO 13.8x 13.4x 13.4x 13.2x 12.4xTarget MultiplesTarget / FFO 13.9x 13.6x 14.1x 13.9x 13.1xTarget / AFFO 15.8x 15.4x 15.4x 15.2x 14.3xDistribution $1.35 $1.35 $1.36 $1.38 $1.38AFFO Payout 83% 81% 81% 81% 77%

Financial Data:

Units Outstanding (mln) 314.3 Market Capitalization (mln) $7,044Net debt (mln) $6,192Enterprise value (mln) $13,236Debt / GBV (incl' convertible debt) 45%Debt / GBV (excl' convertible debt) 43%Net Asset Value (NAV) / Cap Rate $24.80 / 6.05%Premium to NAV -10%Current Distribution (annualized) $1.38Current Distribution yield (annualized) 6.2%Major Unitholders (mln) (as per Thomson) Shares %

H&R Management 18.9 6.0%CIBC Asset Management 11.0 3.5%

BlackRock Asset Management Canada Limited 8.7 2.8%

Sources: NBF, Thomson One

HIGHLIGHTS Attractive Yield and Payout: H&R offers an attractive yield of

6.2% with a sustainable AFFO payout ratio of 82.5%, which is ~300 bps lower than its direct diversified REIT peer group.

Defensive Structure & Diversification: The REIT’s tenancies, leases and debt are structured defensively and provide cash flow stability and predictability. The tenant base is heavily weighted to solid creditworthy entities while the REIT’s longer average lease term (~10 years) is reflective of its ownership of numerous single-tenant properties. Lease terms are also matched with longer debt maturities (5.9-year term to maturity on mortgages) further reducing H&R’s risk profile. In addition assets are heavily weighted to newer Class A - AAA properties in core markets.

Target Re-leasing: While the January 2015 bankruptcy of Target Canada had an immediate negative impact at the time, the space has since been re-purposed for greater upside. Once the leasing is complete (currently 85% is secured or in serious discussions with the majority coming online by 2018), the new tenants will contribute 230% of the total rental revenue lost through Target’s departure.

LIC Project Development Upside: The H&R / Tishman Speyer joint venture commenced construction in Long Island City, NY for the development of 1,871 rental units and ~15,000 sq. ft. of retail space and is currently progressing as expected. The project is on track to be stabilized by the end of 2018 with a year one unlevered yield of 6.1% and lease-up expected to take 12-18 months to complete.

Attractive Valuation: Currently H&R trades at a ~10% discount to NAV which, given solid growth opportunities into 2018 on the back of development activities, combined with its active asset management approach, presents an attractive entry point for investors.


Company Profile: H&R REIT’s (H&R) portfolio consists of 515 properties with a fair value of over ~$14 billion and a ~10-year average portfolio lease term. H&R focuses on high-quality properties leased to creditworthy tenants on a long-term basis. The portfolio comprises over 46 million sq. ft of industrial (102 properties), retail (126 properties), office (37 properties), residential (10 properties) and ECHO (209 properties) GLA. The REIT owns several landmark office properties including the Bow in Calgary, the Hess Tower in Houston and Corus Quay and Atrium on Bay in Toronto.

Stock Performance

Source: Bloomberg

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Matt Kornack - (416) 507-8104 [email protected] Associate: Dawoon Chung - (416) 507-8102 [email protected]

Associate: Ammar Shah - (416) 869-7476 [email protected]

Title: Innergex Renewable Energy Inc. - INE (T) Cdn$9.53 Price: Cdn$9.53 StockRating: Outperform TargetPrice: Cdn$11.25 Headline: Recent dip creates attractive entry point


Innergex Renewable Energy Inc. INE (T) Cdn$13.85


Disciplined capital allocation should support steady CAFD growth


Target: Cdn$18.00



Stock Data: 27-Jan-17


Bloomberg/Reuters: Canada INE CN / INE-T

(Year-End Dec 31) 2015a 2016e 2017e

Revenue (mln) 246.9$ 295.7$ 420.4$

adj. EBITDA (mln) 183.7$ 222.6$ 330.4$

adj. EPS (diluted) (0.37)$ 0.24$ 0.62$

CAFD/sh 0.74$ 0.87$ 1.05$

Dividends/sh 0.62$ 0.64$ 0.64$



P/ CAFD 18.8x 15.9x 13.2x


Financial Data:






Source: Thomson Financial and NBF estimates1 September 30, 2016

HIGHLIGHTS Stable business model with relatively low risk

INE’s assets consist mainly of hydro which typically has the longest asset life among renewables. It also has the longest weighted average life remaining on its PPA contracts compared with its peers, at ~18 years. As a developer of projects, INE can achieve attractive IRRs (target double-digit IRRs) and use operational expertise to reduce capital costs.

CAFD growth provides options INE’s 150 MW (75 MW net) Mesgi’g Ugju’s’n wind project reached COD on December 2016 and INE has three more projects that should reach COD within the year. We estimate CAFD should increase by 24% y/y and installed capacity by over 100 MW. The payout ratio could decrease to 61% in 2017E and 58% in 2018E which provides INE with flexibility to increase its dividend (currently has a 4.6% dividend yield and targets a payout ratio of 70-80%). INE also has the option to reinvest CAFD into growth projects or fund an NCIB.

Expansion into France is INE’s next leg of growth INE recently expanded its renewable platform into France with the acquisition of 131 MW of wind, followed by another acquisition of 24 MW. We believe INE can generate accretive returns through its development expertise and partnerships with private markets. This should be a significant area of growth for INE in the near future as the opportunities in France appear to be quite attractive.

Valuation and Rating Our target assumes a 6.5% equity discount rate and is equal to 13x EV/EBITDA on 2018E. We do not see significant headwinds from rising bond yields in 2017E and have currently assigned INE an Outperform rating.


Company Profile: Innergex is one of Canada’s largest Independent Power Producer with a pure-play focus on renewable power. The company operates 1,318 MW (net 803 MW) of renewable projects (42) mostly under long-term power purchase agreements (PPA) with an average remaining life of close to 20 years. It has wind, hydro and solar assets and operates in Quebec, Ontario, B.C., Idaho and France. Innergex also has 297 MW (net 186 MW) of new projects with PPAs with construction planned over the next two years and has a pipeline of more than 3 GW of future opportunities.

Stock Performance

Source: Reuters

Rupert M. Merer, P.Eng CFA - (416) 869-8008 [email protected] Ryan Wong, P.Eng MBA - (416) 869-6763 ryan.wong @nbc.ca Steven Hong - (416) 869-7538 [email protected]

Title: Pembina Pipeline Corp. - PPL / PBA (T/N) $38.03 / US$34.32 Price: $38.03 / StockRating: Outperform TargetPrice: Cdn$45.00 Headline: NBF Dividend All-Star


Keyera Corp. KEY (T/N) $39.35


8% annual dividend growth through 2019e


Target: Cdn$49.00



Stock Data:


Bloomberg/Reuters: Canada KEY CT / KEY.TO

(Year-End December 31) 2016e 2017e 2018e

EBITDA (mln) $623 $704 $812

Maint. Capex (mln) $71 $35 $40



AFFO/share (FD) $2.63 $3.16 $3.60

P/AFFO 15.3x 12.4x 10.9x

Dividend per Share $1.54 $1.65 $1.79



D/EBITDA 2.6x 2.4x 1.8x

Financial Data:



Net Debt (mln) 1,698


Net Debt/Enterprise Value 18%

Total Return 28.7%

HIGHLIGHTS Highlighting cash flow quality

Although ~60% of Keyera’s cash flows are fee-based (volume-exposed), excluding oil sands related NGL Infrastructure services, KEY’s gas processing plants represent ~35% of 2018e cash flows. In 2016e, KEY’s gas plants experienced just a 2% decline in throughput. However, with certain TCPL restrictions being lifted, combined with stronger NGL prices supporting liquids-rich drilling activity, we expect relatively stable G&P contributions through 2017. On the commodity front, the company’s iso-octane business at AEF is back to running at full capacity (six-week planned turnaround in late 2016) with the lucrative spread between premium gasoline prices and landlocked field butane costs remaining well intact.

Growth Profile + sector-leading 10% AFFO/sh CAGR Based on the company’s over $1.4 bln secured growth program online through 2017/2018 (Edmonton condensate tanks, Norlite pipeline, Grand Rapids pipeline and the Baseline Terminal), we forecast ~10% secured AFFO/sh growth through 2020e from 2016e (i.e., excluding the abnormally strong performance from AEF in 2015 due to record iso-octane margins), while maintaining an attractive payout ratio of ~50%.

8% annual dividend growth through mid-2019e On the dividend front, we forecast 8% annual dividend growth for mid-2017 through mid-2019.

Valuation and rating Our $49.00 target is based on a risk-adjusted dividend yield of 3.75% applied to our 2018e dividend of $1.79/sh, a 14.0x multiple of our 2018e Free-EBITDA of $772 mln, DCF per share of $48.75. Meanwhile, we would expect the stock’s valuation of 10.9x 2018e P/AFFO to catch up and potentially surpass the company’s historical average of 12.2x as the company continues to grow its Montney footprint (Wapiti region) as well as its Mont Belvieu, Texas exposure. Combined with a 12-month total return opportunity of 28.7% (group: 18.4%), we currently rate KEY an Outperform.

Industry Rating: Underweight (NBF Economic & Strategy Group)

Company Profile: Keyera Corp. operates in the Midstream sector and has three lines of business: Natural gas gathering and processing; natural gas liquids (NGL) gathering, processing and storage; and NGL marketing and crude oil midstream.

Stock Performance

Source: Bloomberg

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Patrick Kenny, CFA – 403-290-5451 [email protected] Associate: Matthew Taylor, CPA, CA - (403) 290-5624 [email protected]



Killam Apartment REIT KMP.UN (TSX) Cdn$12.08


Value Creation Through Healthy Organic Growth + Development of HQ Properties


Target: Cdn$14.00



Stock Data:

52-w eek Low $10.35

52-w eek High $13.24

Bloomberg/Reuters: KMP-U / KMP.un


FFO per Unit $0.72 $0.79 $0.87 $0.90 $0.92

AFFO per Unit $0.60 $0.67 $0.77 $0.81 $0.83

Grow th (FFO per Unit) 8.9% 10.6% 3.4% 2.3%

Current Multiples

P / FFO 16.7x 15.3x 13.8x 13.4x 13.1x

P / AFFO 20.2x 18.0x 15.5x 14.9x 14.5x

Target Multiples

P / FFO 19.4x 17.8x 16.1x 15.6x 15.2x

P / AFFO 23.4x 20.9x 18.1x 17.4x 16.9x

Distribution $0.60 $0.60 $0.60 $0.60 $0.60

AFFO Payout 100% 90% 78% 74% 73%

Units Outstanding 71.5

Market Capitalization $861

Net Debt $1,042

Enterprise Value $1,904

Debt / Total Assets (Current - Incl. Converts) 52%

Debt / Total Assets (Current - Excl. Converts) 50%

Net Asset Value ("NAV") / Cap Rate $13.40 / 5.65%

Premium to NAV -10.1%

Debt / Market Value (Using NAV, Incl. Converts) 51%

Current Distribution (Annualized) $0.60

Current Distribution Yield (Annualized) 5.0%

Major Unitholders (mln) Units %

Killam Management Team & Insiders 3.9 5.5%

Sentry Investments 2.4 3.3%

RBC Global Asset Management 1.9 2.6%

Sources: Company Prospectus & Reports, Thomson One

HIGHLIGHTS Market Leader in Atlantic Canada: Having a 14% market share of

the rental universe in Atlantic Canada’s urban centres, Killam is one of the largest multi-family landlords in the country. According to the Conference Board of Canada, in 2017 Halifax is expected to be the third fastest growing metropolitan area from a real GDP standpoint at 2.5% (largely due to manufacturing and construction activities) after Vancouver and Toronto at 2.8% and 2.6%, respectively. From a population point of view, Halifax is expected to increase by 1.2% in 2017 and 1.2% in 2018 vs. national average of 1.1% and 1.0%. Generally speaking, we like entities with either geographical and / or asset class focus – in this regard, KMP provides investors with a vehicle to gain major exposure to the multi-family segment in Atlantic Canada.

Organic Growth Remains Solid: Subsequent to operational challenges in 2013 / 2014, Killam reported an industry-leading SPNOI growth figure of 4.2% in 2015. In addition, during the first nine months of 2016, Killam exceeded organic growth expectations achieving a 4.7% increase in SPNOI, higher than the initial guidance of 1-3%. While 2017 figure may moderate slightly from last year, Killam will likely have another solid year on the back of lower natural gas charges in Nova Scotia which should benefit 30% of KMP’s apartment units within the province.

High Grading Portfolio through Development in Core Markets: The REIT targets a development yield of 5.5% - 6.0% and a cap rate of 4.5 – 5.0% upon completion which contributes to NAV per unit growth. For example, in 2015 KMP completed Saginaw Gardens in Cambridge, ON and Chelsea Place in St. John’s, NL for development costs of $25.3 million and $21.8 million, respectively. Upon completion, Killam recorded $5.2 million of fair value gains on developments (an 11% lift on cost). In addition, the newer properties (10 years or less) tend to incur less maintenance capital expenditure as the average spend was $700 per suite in 2015 vs. $2,600 per suite for buildings over 40 years old.


Company Profile: Killam Apartment REIT is one of Canada’s largest multi-family residential landlords that was incorporated in 2000 and completed its IPO as Killam Properties Inc. KMP graduated to the TSX in 2003 and converted into a REIT in 2016. As at Q3/16, the REIT had 13,952 apartment suites that were mostly located in Atlantic Canada’s six largest urban centres such as Halifax (37%), Moncton (12%), Fredericton (10%), Saint John (9%), St. John’s (7%) and Charlottetown (7%). Outside of this region, the REIT has a portfolio in Ontario (14%) and Alberta (2%).

Stock Performance

Source: Bloomberg

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Dawoon Chung - (416) 507-8102 [email protected]

Department Theme Piece Consumer Staples

KP Tissue Inc. KPT (T) $15.48


Canadian leader with solid U.S. growth, margin expansion prospects and 4.7% yield


Target: $18.00



Stock Data:


Bloomberg/Reuters: Canada KPT CN / KPT


Market Capitalization (mln)(Cdn $) $140.7

KPLP's Financials (KPT has a 16.1% stake in KPLP):

(Year-End Dec 31) 2014a 2015a 2016e 2017e

Revenue (mln) $1,046.2 $1,138.9 $1,210.7 $1,287.8

EBITDA (mln) $121.6 $126.4 $150.4 $178.4

EBITDA Margin 11.6% 11.1% 12.4% 13.8%

Earnings per unit $0.41 $0.03 $1.07 $1.35

EV/EBITDA* 10.5x 10.1x 8.5x 7.2x

*Using current EV

Financial Data: As at September 25, 2016 (Q3/16)

Total net debt (mln) $405.1

Total net debt / EBITDA (LTM) 2.9x

Dividend per share (annualized) $0.72

Dividend Yield 4.7%

HIGHLIGHTS Canadian tissue leader with a U.S. growth component

KPT provides investors with exposure to a Canadian consumer staples leader (>30% market share) with well-recognized tissue brands such as Scotties, Cashmere and SpongeTowels. In addition, KPT’s through-air-dried (TAD) tissue machine in Memphis has allowed the company to capture substantial new U.S. private label business, most notably from Walmart. TAD’s EBITDA contribution has been on an upward trend towards KP’s target of $60 million by the end of 2017 (LTM: $48 million).

Taking steps to enhance profitability and efficiency We expect an improving pricing environment in Canada, higher volume, cost reductions as well as growth and efficiency capex to act as tailwinds in the Consumer segment (80% of KP’s total revenue), partly offset by mixed pulp cost and CAD/USD backdrops. We also see upside in the Away-from-home segment thanks to gradual price hikes and KPT’s upcoming machine addition. All things said, we are forecasting EBITDA margin expansion from 11.1% in 2015 to 13.8% in 2017.

4.7% dividend yield is nothing to sneeze at The non-discretionary nature of products sold provides a relatively stable growth profile and contributes to making KP a reliable cash flow generator. Based on estimated payouts of 50-60%, the $0.72/share dividend is comfortable in our view.

Outperform, $18.00 target (8x 2017e EV/EBITDA) We view current levels as a compelling entry point for this growing consumer staples leader with margin enhancement opportunities. Investors receive an attractive 4.7% dividend yield (almost double the 2.5% tissue peer group average yield) while they wait for the benefits from price increases and other near-term initiatives to fully materialize.

Industry Rating: Underweight (NBF Economics & Strategy Group)

Company Profile: KP Tissue Inc. is a public entity holding a 16.1% minority limited partnership interest in Kruger Products L.P. (KPLP). KPLP is a producer, distributor, marketer and seller of bathroom tissue, facial tissue, paper towels and napkins for the consumer (household) and away-from-home (industrial and commercial) markets in North America. KPLP is the leader in the Canadian consumer market. Based on capacity, KPLP is the seventh largest tissue player in North America.

Stock Performance

Source: www.bigcharts.com

Leon Aghazarian, M.Sc. – (514) 879-2574 [email protected] Associates: Frederic Tremblay, M.Sc., CFA – (514) 412-0021 [email protected] Karim Meneeim - (514) 390-7825 [email protected]


MCAN Mortgage Corporation MKP (T) Cdn$14.93


Prudent Underwriting Supports Stable Outlook

Stock Rating: Sector Perform

Target: Cdn$14.50



Stock Data:

52-w eek Low -High $11.90 - $14.93

Shares Outstanding (millions) 23.1

Market Capitalization ($ millions) $345

Year-End 12/31 2015A 2016E 2017E 2018E

Core EPS $1.38 $1.74 $1.59 $1.53

Y/Y Growth 13.5% 25.9% (8.8%) (3.9%)

Price / Earnings 10.8x 8.6x 9.4x 9.8x

Net Investment Income $47.2 $57.9 $58.4 $61.6

Other Income $0.1 $0.0 $0.0 $0.0

Operating Expenses ($14.5) ($17.9) ($20.0) ($22.5)

Pre-Tax Income $32.8 $40.0 $38.4 $39.1

Income Tax Provision $0.1 $0.4 $0.0 $0.0

Net Income $32.9 $40.4 $38.4 $39.1

Adjustments ($2.6) ($0.4) $0.0 $0.0

Core Net Income $30.3 $40.0 $38.4 $39.1

Book Value Per Share $11.36 $12.06 $12.56 $12.89

Financial Data: (Quarter-End 09/30/2016)

Book Value per share $11.96

Price/Book Value 1.25x

Dividend Information:

Dividends/Share (NTM) $1.22

Payout Ratio (NTM) 75.4%

Dividend Yield (NTM) 8.3%

Capital:

Tier 1 Ratio 21.8%

Income Tax Assets to Capital Multiple (ACM) 5.01x

HIGHLIGHTS One of Canada’s most attractive MICs

MKP qualifies on an ongoing basis as a Mortgage Investment Corporation (MIC) under terms specified in the Income Tax Act of Canada. As such, all dividends paid to shareholders are fully tax deductible. Consequently, the company distributes substantially all of its earnings to shareholders.

Among the best-positioned MICs in Canada Unlike other MICs, MKP can exploit its status as a deposit-taking institution to generate leveraged returns. We regard CDIC-insured deposits as a low-cost, stable and reliable source of funding.

Prudent investing in Alt-A market MKP continues to invest in uninsured Alt-A residential mortgages; however, MKP tightened underwriting criteria, specifically for self-employed borrowers (more volatile income) and in the Toronto/Vancouver markets (rapid price inflation).

Margins stable to expanding Higher yields on construction and commercial loans, which now make up 56% of the Corporate portfolio vs. 46% in Q3 2015, will drive margin expansion, in our view. MKP continues to securitize single-family and multi-family mortgages, which also generate wider margins.

Generating attractive risk-adjusted return We believe the projected dividend yield of 8.3% (vs. the average yield of ~7% for other publicly-traded MICs and ~4% for other mortgage market comparables) is attractive. We use a target P/BV multiple of 1.15x Q3 2017 BV.


Company Profile: MCAN Mortgage Corporation (MKP) qualifies on an ongoing basis as a Mortgage Investment Corporation (MIC), whereby all dividends paid to shareholders are fully tax deductible. Consequently, the company distributes substantially all of its earnings to shareholders. As a MIC, the company is able to invest in a wide variety of real estate-related loans, but primarily residential mortgages and residential construction loans. These investments are funded by term deposits eligible for CDIC insurance, as well as shareholders’ equity.

Stock Performance


Title: Pason Systems Inc. - PSI (T) Cdn$21.74 Price: Cdn$21.74 StockRating: Sector Perform TargetPrice: Cdn$22.50 Headline: FX Helps Tough Q1; Operating Leverage Will Impact 2015

Department Theme Piece Oil and Gas Services

Pason Systems Inc. PSI (T) Cdn$19.76


Back to Life, Back to Reality; Material Drop-off in Payout Ratio Expected in 2017


Target: Cdn$22.50



Shares Outstanding (mm) 84.4

Market Capitalization (mm) $1,667.1

Net Debt (mm) -$154.6

Enterprise Value (mm) $1,512.49Dividend Yield 3.4%

52-w eek High-Low $20.26 - $15.10

Average Weekly VolumeNet Tangible Book Value per Share $4.14

Estimates 2016E 2017E 2018E

Revenue (mm) 157.6$ 247.1$ 311.8$

EBITDA (mm) 29.4$ 87.5$ 121.7$

CFPS 0.19$ 0.70$ 1.01$

DPS 0.68$ 0.68$ 0.68$

EPS (0.35)$ 0.11$ 0.42$

Estimates 2016E 2017E 2018E

Debt/EBITDA nmf nmf nmf

Interest Coverage nmf nmf nmf

Valuation 2016E 2017E 2018E

P/E (x) nmf nmf nmf

EV/EBITDA (x) 51.8x 17.9x 13.0xTarget EV/EBITDA 59.7x 20.6x 14.9x

All amounts in Cdn$ unless otherwise noted.

810,925

HIGHLIGHTS After Pason’s payout ratio skyrocketed to an

unsustainable level in 2016… Although we forecasted a payout ratio in excess of 375% in 2016, we believed PSI would utilize the sizable cash balance as a way of maintaining the dividend (despite operating cash flows dipping well below the full-year dividend requirement of $57 mln), provided that the cash balance was not pushed below $100 mln.

…we forecast PSI returning to a sub-100% payout ratio. With the low point of activity likely occurring during Q2 2016, we expect operating cash flow to rise heading into and throughout 2017. Our current estimates put the company below the 100% payout level in 2017, as we forecast an 86% ratio. Our 2018 estimates suggest the payout ratio falls further to a manageable 61%. We forecast PSI exiting 2017 with a cash position of $96 mln and no debt, reinforcing our view that the dividend is maintained.

Falling capital intensity to drive EV/EBITDA expansion. After the impressive technology buildout in 2014/15, PSI continues to transition to software-focused growth, with materially lower sustaining capex (furthering our confidence in dividend sustainability) and potentially bolstering PSI’s average EV/EBITDA multiple.

Reiterating $22.50 Target and Outperform rating With no changes to our near-term estimates, our DCF-driven $22.50 target implies 14.9x 2018 EV/EBITDA, representing a 53% premium relative to the post-2009 average of 9.5x that we continue to believe is warranted given PSI’s pristine balance sheet and top-notch management team. Outperform.


Company Profile: Pason Systems Inc. (Pason or PSI) is the global leader for drilling instrumentation with the Company’s flagship Electronic Drilling Recorder (EDR) on ~95% of rigs in Canada, ~60% of rigs in the United States and a significant market share overseas. PSI also provides a number of additional solutions encompassing instrumentation, data capture, communication and analysis that operators and contractors rely on for safe and efficient drilling. Pason is currently embarking on the most robust new product rollout in company history.

Stock Performance

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Greg Colman – (416) 869-6775 [email protected] Andrew Jacklin, CFA – (416) 869–7571 [email protected] Michael Storry-Roberson – (416) 607-8007 [email protected] Westley Macdonald-Nixon – (416) 504-9568 [email protected]


Pattern Energy Group Inc. PEGI/PEG (Q/T) US$19.76/ C$25.96


Attractive dividend yield of 8.5% supported by contracted wind assets


Target: US$26.00 Risk Rating: Above Average


HIGHLIGHTS Safe haven for a potentially up and down 2017E

PEGI is comprised of wind assets, primarily in the United States which have an average PPA length of about 14 years. Approximately 90% of generation is under fixed-price PPAs with credit worthy off-takers and debt amortized over the life of the contract. We believe PEGI could be a potential safe haven for investors, despite an uncertain global environment, especially with its low modified duration of about eight years and approximately 60% of its NPV from the next 10 years of cash flow. The company should be at least partially insulated from macro changes such as interest rates and spot power prices.

942 MW identified on ROFO; target 5 GW in 2019E PEGI has an installed capacity of about 2.6 GW and has identified about 942 MW of near-term projects from its ROFO pipeline with Pattern Development. These projects have PPAs with a duration of at least 20 years and an estimated COD from 2016 to 2019E. The company is targeting 5 GW of installed capacity in 2019E, supported by a long-term pipeline of projects from Pattern Development of over 5 GW.

Dividend yield attractive and sustainable PEGI currently has a dividend yield of about 8.3% and has increased its dividend for 11 consecutive quarters. We are forecasting a 2017E payout ratio of about 81% (long-term target of 80%).

Valuation and Rating Our target of US$26/sh is based on a DCF with a 7% discount rate on operating assets (US$23.60/sh) and on its ROFO pipeline (US$2.40/sh), which is equivalent to a 14x EV/EBITDA on 2017E. At these levels, drop-downs are likely not accretive, but transactions should occur once the stock price rebounds.


Company Profile: Pattern Energy is one of North America’s largest Independent Power Producers with a pure-play focus on renewable power. The company has an owned interest of 2,282 MW of wind power assets in Canada, the U.S. and Chile. The company has a large source of growth opportunities from its parent company, Pattern Energy Group LP.

Stock Performance

Source: Reuters


Stock Data:

52-w eek High-Low (U.S.) $25.13 - $14.56


Bloomberg/Reuters: US PEGI US / US;PEGI

Bloomberg/Reuters: Canada PEG CN / PEG.TO

(Year-End Dec 31) 2015a 2016e 2017eUS$ unless otherwise noted

Revenue (mln) 329.8$ 384.1$ 476.3$

adj. EBITDA (mln) 250.5$ 314.6$ 385.7$

adj. EPS (diluted) (0.47)$ (0.26)$ 0.44$

CAFD/sh 1.33$ 1.75$ 2.01$

Dividends/sh 1.43$ 1.58$ 1.63$



P/ CAFD 14.9x 11.3x 9.8x


Financial Data:






Source: Thomson Financial and NBF estimates1Sept. 30th, 2016



Pure Industrial RET AAR.UN (T) Cdn$5.58


Pure-play Industrial REIT Poised for Growth in Strong North American Markets


Target: Cdn$6.00



Stock Data:

52-w eek Low $4.28

52-w eek High $5.76

Bloomberg/Reuters: AAR-U / AAR.un


FFO per Unit $0.36 $0.39 $0.40 $0.44 $0.47

AFFO per Unit $0.30 $0.34 $0.35 $0.39 $0.41

FFO Grow th 8.0% 1.8% 10.7% 6.4%

Current Multiples

P / FFO 15.2x 14.1x 13.8x 12.5x 11.7x

P / AFFO 18.3x 16.2x 16.0x 14.3x 13.3x

Target Multiples

P / FFO 16.5x 15.3x 15.0x 13.6x 12.8x

P / AFFO 19.9x 17.7x 17.4x 15.6x 14.5x

Distribution $0.31 $0.31 $0.31 $0.31 $0.31

AFFO Payout 104% 92% 90% 81% 76%

Tax Deferral 57% 60% 60% 60% 60%

Financial Data:

Units Outstanding 246.4

Market Capitalization $1,358

Net Debt (Incl. Convertible Debt - Current) $989

Enterprise Value $2,346

Debt / Total Assets (Current - Incl. Convertible Debentures) 44%

Debt / Total Assets (Current - Excl. Convertible Debentures) 44%

Net Asset Value ("NAV") / Cap Rate $5.35 / 6.30%

Premium to NAV 3.0%

Debt / Market Value (Using NAV) 44%

Current Distribution (Annualized) $0.31



Sentry Investments Inc. 9.4 3.8%

BlackRock 7.1 2.9%

Maw er 5.3 2.1%

Sources: Company Prospectus, Thomson One

HIGHLIGHTS Solid Structural Attributes: PIRET has significantly improved

its leverage profile which, after hovering around ~50% from 2012 into 2016, has now been reduced to the low 40% range. This is also supported by longer-term leases (~7-year avg. term) which is matched by a sound debt maturity ladder (~5-year avg. term).

Acquisition Pipeline: Recent high quality asset acquisitions by PIRET, in Canada and the United States totalling ~$350 million at attractive cap rates, not only speak to the robust pipeline from which the REIT sources growth, but also to FFO/unit acceleration into 2017 and 2018 as transactions close and come online.

Strong Industrial Fundamentals: Given the high demand for industrial assets and strong fundamentals (particularly in the GTA), the REIT has as a result been able to produce solid results – SPNOI in Q3/16 was +3.2% while leasing spreads were +9.1%. The REIT also has ~300 bps of lease commitments above current occupancy levels which should reflect upside in near-term results as market rent spreads continue to point to positive re-leasing opportunities.

Development Upside: As developments (Barrington, Woodstock and Vaughan) impact results, we anticipate significant incremental NOI and FFO/unit growth. In addition the REIT has a pipeline for future projects.

Attractive Valuation: The REIT currently trades around NAV, but given its geographic exposure and ownership of highly sought after industrial assets, we believe that a portfolio premium is warranted.


Company Profile: PIRET is an unincorporated, open-ended REIT focused on acquiring, owning and operating a diversified portfolio of income-producing industrial properties in primary and secondary markets across Canada and select U.S. locations. PIRET focuses exclusively on investing in industrial real estate and currently owns a portfolio of 166 properties with approximately 17.8 million square feet of rentable area.

Stock Performance

Source: Bloomberg

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Pure Multi-Family REIT RUF.u (TSX.V) US$6.50


U.S. Multi-Family Exposure Continues to Deliver Strong Organic Growth


Target: US$7.00



Stock Data:

52-w eek Low $4.61

52-w eek High $6.60

Bloomberg/Reuters: RUF-U / RUFu.V


FFO per Unit US$0.46 US$0.45 US$0.42 US$0.47 US$0.52

AFFO per Unit US$0.42 US$0.42 US$0.39 US$0.44 US$0.48

Grow th (FFO per Unit) -2.0% -5.2% 10.7% 10.0%

Current Multiples

P / FFO 13.7x 14.0x 14.8x 13.3x 12.1x

P / AFFO 14.9x 15.0x 15.9x 14.3x 13.0x

Target Multiples

P / FFO 15.3x 15.6x 16.5x 14.9x 13.5x

P / AFFO 16.6x 16.8x 17.7x 16.0x 14.5x

Distribution US$0.38 US$0.38 US$0.38 US$0.38 US$0.38

AFFO Payout (No Conversion) 89% 90% 95% 86% 78%

Tax Deferral 23% 32% 32% 32% 32%

Financial Data:

Units Outstanding (Diluted for ITM Warrants & Class B Units) 58.2

Market Capitalization US$365

Net Debt US$475

Enterprise Value US$839

Debt / Total Assets (Current - Incl. Converts) 57%

Debt / Total Assets (Current - Excl. Converts) 55%

Net Asset Value ("NAV") / Cap Rate US$6.90 / 5.60%

Premium to NAV -9.2%

Debt / Market Value (Using NAV, Incl. Converts) 54%

Current Distribution US$0.38



Management 3.0 5.2%

Industrial Alliance 1.0 1.7%

1832 Asset Management 0.8 1.4%

Sources: Company Prospectus & Reports, Thomson One, NBF

HIGHLIGHTS Growing Sunbelt Markets with Continued Organic Potential:

While we expect moderation in rent appreciation across the United States after years of above-average performance, the sunbelt continues to benefit from favourable demographic trends and will likely support ongoing SPNOI appreciation, especially when compared with Canadian real estate opportunities.

Focus on Class A Product in Strong Sub-Markets: RUF’s acquisition focus has been on newer vintage class A properties in sub-markets with strong employment fundamentals and growing exposure to young urban professionals in recently constructed mid-rise product. Since IPO, the REIT has shown its ability to source acquisitions having averaged ~$150 million in purchases per year.

Favourable Rental Market Dynamics and Supportive Trends: Home ownership levels have been falling in the United States and have reached the lowest levels since the 1960s as a propensity to rent vs. buy has driven increased demand for apartments.

Internal Asset Management and Experienced Property Management Partner: RUF now offers an aligned structure while benefitting from a strong third-party property management relationship with the potential for future internalization.

Trading at a Discount to NAV while Offering a Solid Yield and Reasonable Payout Ratio: Structurally speaking the REIT has a reasonable (~86%) payout ratio and leverage levels (~56% debt / assets), but trades at an ~6% discount to NAV. In addition the REIT provides a solid ~6% distribution yield which is paid out in USD. Industry Rating: Market Weight


Company Profile: Pure Multi-Family REIT is a small-cap apartment property owner focused on investing in garden-style and mid-rise properties in the U.S. sunbelt (typically buying newer vintage and A class product). As at Q3/16 Pure Multi owned 17 properties with 5,565 units – the REIT uses Tipton Group as a third party for property management functions but internalized asset management in 2016.

Stock Performance

Source: Bloomberg

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Title: Thomson Reuters Corporation - TRI/TRI (T;N) $28.06;US$28.20 Price: StockRating: Sector Perform TargetPrice: Cdn$30.00 Headline: Q3 Revs/EBITDA Miss, EPS Helped By Tax Resolutions, Q4 Net Sales

Department Theme Piece Cable Services

Rogers Communications Inc. RCI.B; RCI (T;N) $56.77; US$43.24


Regaining Lost Footing/Focus with More to Come Including Likely Future Dividend Hikes


Target: Cdn$62.00



Stock Data:


52-w eek High-Low (U.S.) $45.50 - $33.25

Bloomberg/Reuters: Canada RCI/B / RCI'B-T

Bloomberg/Reuters: U.S. RCI US / RCI-US

(FYE Dec. 31) 2016a 2017e 2018e

Revenue (mln) $13,702 $14,262 $14,684

EBITDA (mln) $5,092 $5,296 $5,502

Adjusted EPS $2.86 $3.20 $3.45

P/E 19.8x 17.7x 16.5x

EV/EBITDA* 8.8x 8.3x 7.9x

FCF/Share $3.30 $3.42 $3.58

FCF Yield 5.8% 6.0% 6.3%

*Using forecast net debt.

Financial Data (as at December 31, 2016):


Shares Outstanding FD (mln) 516.8

Float (mln) 368.4


Net Debt as per B/S (mln) $15,328

Common Shareholders' Equity (mln) $5,269

Net Debt to Capital 54.1%

Leverage (Net Debt to EBITDA) 3.0x

BVPS / Price/Book $10.23/5.5x

Dividend $1.92

Dividend Yield 3.4%

HIGHLIGHTS Room for evolving progress after improving trends.

Wireless subscriber gains were much stronger in 2016, helped by elevated industry demand & better market positioning by Rogers. ARPU growth continues to lag that of its peers, but it has recovered over the past two years from declines. Driven by more aggressive bundle promos, Bell’s slowing fibre footprint expansion and greater leveraging of its broadband advantage, Rogers materially increased Internet customer additions and reduced TV & Telephony losses. We look for better growth in EBITDA & FCF in 2017, amidst a changing mix & efficiencies.

Joe Natale waiting to be CEO, Chair serving in interim. Less than three years since starting as President & CEO on Dec. 2, 2013, Guy Laurence stepped down on Oct. 17, 2016. He will be replaced in July by Joe Natale who worked at TELUS for 12 years and was CEO between May 2014 and August 2015 after being Chief Commercial Officer. Mr. Natale has a non-compete which runs to July 2017. In the interim, Chairman Alan Horn is serving as President & CEO.

Dividend growth should resume within year after pausing. Rogers opted not to increase its dividend with 4Q15 and 4Q16 reporting, as its focus skewed more toward deleveraging. While dividend growth should be expected to get renewed with 4Q17 reporting, it’s possible that this happens during 2H17. We calculate FCF payouts at 57.9% 2016A & 56.0% of 2017E.

Rogers is rated Outperform with a $62 target. Our target is based on the average of the 2017E value in our DCF and 2018E metric in our NAV, with implied EV/EBITDA multiples of 8.8x 2017E and 8.4x 2018E. On an EV/EBITDA basis, Rogers trades at 8.3x 2017E, reflecting a discount to peers (BCE 8.4x, TELUS 8.2x, Shaw 9.0x) which we believe is destined to disappear during the course of 2017.

Industry Rating (Cable Services): Market Weight (NBF Economics & Strategy Group)

Company Profile: Rogers is a diversified Canadian communications and media company providing a wide range of services including wireless, cable TV, Internet and telephony for residential and business customers, while owning conventional & specialty TV, radio, publishing, online and sports assets including the Toronto Blue Jays and Rogers Centre. It is the largest national wireless carrier and second largest cable operator in Canada with 90% of its cable subscribers in Ontario and the rest in the Maritimes.

Stock Performance (Source: Thomson Reuters) Daily /RCIb.TO 1/28/2016 - 2/8/2017 (TOR)

PriceCAD

47.0048.00

49.00

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Adam Shine, CFA - 514-879-2302 [email protected] Associates: Luc Troiani, CFA - 416-869-6585 [email protected] Ahmed Abdullah - 514-879-2564 [email protected]

Title: SmartREIT - SRU.UN (T) Cdn$32.31 Price: Cdn$32.31 StockRating: Sector Perform TargetPrice: Cdn$36.00 Headline: Portfolio Stability and Development Upside Create Compelling


SmartREIT SRU.UN (T) Cdn$31.74


Portfolio Stability and Development Upside Create Compelling Distribution Growth Story

Stock Rating: Sector Perform

Target: Cdn$36.00



Stock Data:

Cash Yield 5.4%


52-week High-Low $38.91 - $28.97

Bloomberg/Reuters: SRU-U CN / SRU.UN

Forecasts:

FYE Dec. 31 2015a 2016e 2017e

Revenue ($mln) 668.7 727.8 774.7

EBITDA ($mln) 417.5 449.5 460.2

EBITDA % 62.4% 61.8% 59.4%

Distribution $1.61 $1.66 $1.70

FFO/unit $2.10 $2.16 $2.25

FFO Payout 76.7% 77.1% 75.6%

AFFO/unit $1.99 $2.04 $2.14

AFFO Payout 81.0% 81.6% 79.4%


P/FFO 15.1x 14.7x 14.1x

P/AFFO 15.9x 15.6x 14.8x

Financial Data:

Units Outstanding (mln) 155

Market Capitalization ($mln) 4,942.8

Cash ($mln) 48.0

Debt ($mln) 3,861.2

Debt to GBV 52%

NAV per unit $33.00

HIGHLIGHTS Highly stable portfolio capable of navigating headwinds

SRU’s portfolio is comprised of 151 properties located in prime Canadian markets, with a tenant base that has lower sensitivity to economic cycles including Walmart which represents ~27% of the REIT’s total rental revenue. In our view, the REIT’s nearly fully occupied portfolio with occupancy ranging between 98% and 99%, combined with a ~1% targeted same-property NOI growth rate, should insulate the portfolio from Canadian retail headwinds.

Significant growth to be delivered via development Given the relative scarcity of high-quality acquisition opportunities within the Canadian retail space, we expect much of the REIT’s growth to be driven by its development activity moving forward. Presently the REIT’s sizeable development pipeline consists of ~4.7 mln square feet of GLA to be added to the portfolio upon completion. Given the REIT’s well located portfolio, we believe there exists a significant mixed-use development opportunity for the REIT and its internalized SmartCentres development platform, with the potential to partner with or sell land to residential, seniors’ housing and self-storage developers and investors.

Potential for future distribution hikes SRU’s ~52% debt to GBV leverage profile is largely consistent with retail REIT peers. We highlight that SRU offers investors a 5.4% distribution with potential for future growth supported by a ~79% 2017e payout ratio, stable portfolio operations, modest organic growth and a sizeable development pipeline.

Favourable combination of income and growth Our $36 target price implies ~17x 2017e AFFO, a premium to TSX retail REIT peers that in our view is warranted given the concentration of Walmart locations, near full occupancy, deep development pipeline, sustainable yield and aforementioned capacity for further distribution increases. We maintain a Sector Perform rating.


Company Profile: SmartREIT is an owner, manager and developer of shopping centres across Canada. Its 151 premium locations are spread over approximately 31 million square feet of gross leasable area and feature some of the strongest retailers in Canada (Walmart, Winners, LCBO, CT Brands).

Stock Performance (Reuters)

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Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16

Trevor Johnson, CFA, MBA - (416) 869-8511 [email protected] Associates: Kyle Stanley - (416) 507-8108 [email protected]

Alex Bauer- (416) 869-7535 [email protected]

Title: Student Transportation Inc. - STB/STB (T; N) Cdn$6.65; $5.47 Price: Cdn$6.65; StockRating: Outperform TargetPrice: Cdn$8.50 Headline: In-Line Quarter for STB; Contract Wins TBA and Dividend to be

Department Theme Piece Transportation

Student Transportation Inc. STB/STB (T; Ndq) Cdn$7.34; $5.58


Don’t Want to Cause No Fuss; Dividend Yield Looks Good to Us


Target: Cdn$8.50






Enterprise Value (mln) $837.9Dividend Yield 7.9%

52-w eek High-Low $7.95 - $0.50

Average Weekly VolumeNet Tangible Book Value per Share -$0.79

Estimates 2016 2017E 2018E

Revenue (mln) 600.2$ 646.0$ 664.0$

EBITDA (mln) 80.4$ 91.8$ 92.6$

CFPS 0.67$ 0.76$ 0.79$

DPS 0.44$ 0.44$ 0.44$

EPS $0.06 $0.09 $0.07

Balance Sheet 2016 2017E 2018E

Debt/EBITDA1 3.3x 2.8x 2.9x

Interest Coverage 5.5x 5.8x 6.8x

Valuation 2016 2017E 2018E

P/E nmf nmf nmf

EV/EBITDA 10.3x 8.6x 8.4xTarget EV/EBITDA 11.4x 9.5x 9.2x

1: year end debt net of cash vs. TTM EBITDA

1,060,760

Share price data in CAD; all other figures in USD unless otherwise noted.

HIGHLIGHTS Payout ratio expected to continue to trend lower…

We reiterate our faith in the sustainability of STB’s current USD$0.44/sh (annualized) dividend as we anticipate the payout ratio once again decreasing materially y/y in f2017. We calculate a manageable 53% gross payout ratio in f2017, falling from 70% in f2016 (and 98% in f2015).

…with FX tailwinds enhancing the return for Canadian STB shareholders. Recall Student Transportation’s dividend is paid in USD, aligning with approximately 90% of STB’s revenue and cash flow. Despite the recent share price appreciation (up ~53% y/y), STB’s dividend yields an attractive ~8% at the current price. With the U.S. dollar currently worth approximately $1.33 Canadian dollars, foreign exchange winds are blowing on the backs of Canadian STB shareholders.

Growth of asset-lite segment could drive payout ratio even lower. Our longer-term estimates suggest that as the asset-lite segment expands, cash available for dividends grows to ~$120 mln in f2021 (a 102% increase relative to our f2017 forecast). Assuming the dividend and share count remains relatively flat over this period, this would result in the payout ratio decreasing to an estimated 34%.

Outperform Rating and $8.50 target maintained With our prior estimates unaltered at this juncture, we reiterate our $8.50 target, now driven by 9.2x 2018e EV/EBITDA, in line with STB’s post-2009 average of 9.1x. We continue to like STB for both capital appreciation and the ~8.0% yield. OP.


Company Profile: Student Transportation is the third largest provider of school bus transportation services in the United States. STB is a leading school bus company aggregating operations through consolidation of existing providers, targeted bid-ins and conversion of in-house operations.

Stock Performance

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Source: Thomson ONE, NBF

Greg Colman - (416) 869-6775 [email protected] Andrew Jacklin - (416) 869-7571 [email protected] Michael Storry-Robertson - (416) 507-8007 [email protected] Westley Macdonald-Nixon – (416) 507-9568 [email protected]


Timbercreek Financial Corp. TF (T) Cdn$9.03


Sustainable and Growing Dividend

Stock Rating: Restricted

Target: Restricted

Risk Rating: Restricted

Est. Total Return Restricted

Stock Data:

52-week Low-High $7.86 - $9.05

Shares Outstanding EOP (mln) 73.9

Market Capitalization ($mln) $667

S&P/TSX Composite Weighting n/a

(Year-End 12/31) 2016E 2017E 2018E

(CAD $ millions)

Interest & fee income R R R

Operating expenses R R R

PCL R R R

Financing costs R R R

Other revenue R R R

Net income R R R

Adjustments R R R

Adjusted net income R R R

Adj. EPS R R RPrice-to-Adj. EPS R R R

Dividends per share R R R

Payout ratio R R R

Financial Data: (As of last quarter-end)

Price / Book Value 1.03xLeverage 37%Dividend Information:

Quarterly Dividend Per Share $0.171Annualized Dividend Yield 7.6%Payout Ratio (on dist. Income) 91%

HIGHLIGHTS Sustainable and growing dividend, yielding 7.7%

TF is required to distribute substantially all of its earnings to maintain its tax-advantaged status as a mortgage investment corporation under the Canadian Income Tax Act. The company set an annual dividend target of $0.68 per share, ~95% of management’s estimated EPS. As earnings grow, management may 1) increase the target dividend, 2) distribute surplus income in the form of a special dividend, and/or 3) retain surplus income to grow book value. Shareholders benefit in all scenarios.

Merger drove lower costs, increased market cap TF is the result of the amalgamation of Timbercreek Mortgage Investment Corporation (TMIC) and Timbercreek Senior Mortgage Investment Corporation (TSMIC). The company highlighted a more efficient cost structure, increased leverage and a broader investment set as advantages of the merger. Moreover, the market capitalization is nearly 2x the next largest peer.

Diversified, low-risk portfolio TF focuses on lending against a diversified portfolio of primarily income-producing properties (i.e., rental income in place to service the loan; 86% of the portfolio), rather than construction/land loans. Multi-residential loans form the majority of TF’s exposure (52% of the portfolio).

Restricted on TF We are restricted on TF owing to our participation in the company’s $40 million offering of convertible unsecured debentures, due to close on Feb. 7, 2017.


Company Profile: Timbercreek Financial Corp is a Canada-based non-bank commercial real estate lender. The Company provides shorter-duration, customized financing solutions to professional real estate investors. The Company invests in a portfolio of customized mortgage loans secured by commercial real estate, such as multi-residential, office and retail buildings located in urban markets across Canada.

Stock Performance


Title: Pembina Pipeline Corp. - PPL / PBA (T/N) $38.03 / US$34.32 Price: $38.03 / StockRating: Outperform TargetPrice: Cdn$45.00 Headline: NBF Dividend All-Star


Veresen Inc. VSN (T) $13.48


Dividend sustainability comes into focus


Target: Cdn$17.00



Stock Data:


Bloomberg/Reuters: Canada VSN CT / VSN.TO

(Year-End December 31) 2016e 2017e 2018e

EBITDA (mln) $683 $628 $674

Maint. Capex (mln) ($110) ($99) ($98)



Distr. CFPS (FD) $1.16 $1.10 $1.25

P/Distr. CF 11.6x 12.2x 10.8x

Dividend per Share $1.00 $1.00 $1.00



D/EBITDA (Prop. Cons.) 5.5x 5.4x 5.0x

Financial Data:





Net Debt/Enterprise Value 48%

Total Return 33.5%

HIGHLIGHTS Improving cash flow quality

We forecast VSN’s 2018e cash flows to be over 70% cost-of-service / take-or-pay, which includes AEGS (Alberta Ethane Gathering System), firm commitments on Alliance and Ruby gas pipelines and the Hythe/Steeprock gas plant in northeast B.C. Fee-based cash flows include the Dawson Montney gas plants under a maximum eight-year payback processing arrangement with Encana and Mitsubishi. Meanwhile, direct commodity price exposure has been reduced to <5%, stemming from Aux Sable frac spread.

Secured growth translates to 8% AFFO/sh CAGR Based on the ~$1.4 bln (net) worth of commercially secured, fully funded investments coming online, we forecast an AFFO/sh (FD) five-year CAGR of 8% through 2020e. Although the $7.5+ bln Jordan Cove LNG project continues to represent attractive option value (~$6/sh unrisked), we continue to leave the project out of our valuation pending FERC approval.

Long-term dividend sustainability Although we do not forecast any dividend upside through our forecast, we highlight a significantly improved long-term dividend sustainability picture to buoy the attractive current 7.4% dividend yield: 1) $1.0 bln power asset sale expected to close in Q1/17 will fully fund its secured capital program while shutting off the premium DRIP in mid-2016, 2) a reduced payout ratio of 69% by 2019e (Midstream peers: 72%) versus 99% in 2015, and 3) we forecast proportionately consolidated D/EBITDA trending down to 4.1x by 2019e (pro forma secured growth program) from 5.5x in 2016e.

Valuation and rating Our $17.00 target is based on a risk-adjusted dividend yield of 6.00% applied to our 2018e dividend of $1.00/sh, a 13.5x multiple of our 2018e Free-EBITDA of $667 mln, and our DCF valuation of $17.50/sh. We currently rate VSN an Outperform.


Company Profile: Veresen indirectly holds a 50% interest in the Alliance Pipeline and a 42.7% interest in Aux Sable. The 1.6 bcf/d Alliance Pipeline ships liquids-rich natural gas to markets in the midwest and northeastern States and eastern Canada. The Aux Sable facilities extract and recover natural gas liquids (NGLs) from raw natural gas and fractionate NGLs into ethane, butane, propane and condensate. Veresen also owns the 1,324 km Alberta Ethane Gathering System, as well as interests in various power assets.

Stock Performance

Source: Bloomberg

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Vol. (mln)Veresen Inc.

Patrick Kenny, CFA – (403) 290-5451 [email protected] Associate: Matthew Taylor, CPA, CA - (403) 290-5624 [email protected]

Department Theme Piece Oil & Gas Exploration and Production

Vermilion Energy Inc. VET (T) Cdn$54.02


Disciplined Capital Allocation Supports Profitable Growth Profile


Target: Cdn$66.00



HIGHLIGHTS Investment Case: During the bottom part of the cycle, inefficiencies

within the sector were made painfully clear as several companies were forced to dramatically cut/eliminate dividends, sell assets, and raise equity. In sharp contrast, Vermilion was able to maintain its financial strength, support the $0.215 monthly dividend and post strong production growth. In fact, Vermilion is now the only intermediate E&P to have never reduced its dividend and now has the potential to even post dividend growth over the next 12-18 months.

Strong Full Cycle Returns: We relate this success back to the full-cycle, capital disciplined model (a key characteristic to our broader sector thesis) and applaud management’s commitment to driving both capital and operating costs lower. In our opinion, this strategy and focus anchors Vermilion as one of the most sustainable E&Ps within the sector, largely driven by an internally funded production and dividend growth model, supported by attractive efficiencies, low production declines, high netbacks and a well suited capital structure.

Low Risk, Economic Asset Base Supports Growth Profile: Building out our forecast to 2020, we expect Vermilion can deliver a five-year production CAGR of 9.5%, while providing an attractive free cash flow profile. This growth potential is underscored by top quartile netbacks, improved capital efficiencies and a shallow effective decline rate. It is likely the company uses the excess cash to: 1) reduce debt levels, 2) drive production and/or dividend growth, or 3) expand on its global asset base.

Valuation: Based on our estimates Vermilion is trading at a 2018E EV/DACF of 9.3x (group average of 6.1x). Our target price is based on a 2018E EV/DACF multiple of 11.0x which is in line with its historical range of 9-11.0x.

Industry Rating: (Oil & Gas Exploration and Production): Underweight (NBF Economics & Strategy Group) Company Profile: Vermilion Energy is an internationally diversified and oil-weighted Intermediate Yield E&P pursuing a growth and income business model. The company has a globally diversified portfolio of assets located in France, Netherlands, Ireland, Australia, Germany, USA and Canada. Approximately 65% of current production is sourced outside of Canada, which provides the company with diversification across geographic areas, regulatory regimes and commodity price benchmarks.

Stock Performance (Bloomberg)

Travis Wood - (403) 290-5102 [email protected]

Associates: John Hunt - (403) 441-0955; [email protected] Dave Nielsen, CFA- (403) 355-6643; [email protected] Jordan Mcniven - (403) 290-5627; [email protected]

52-week Low-High (Cdn$) $29.71 - $58.98

Dividend Yield 4.8%


Market Cap. (mln) $6,436



Production 2015A 2016E 2017E

Oil & NGL's (bbls/d) 32,716 30,934 33,771

Nat. Gas (mmcf/d) 133.2 197.2 216.3

Boe/d (6:1) 54,922 63,800 69,826

% Nat. Gas 40% 52% 52%

Pricing 2015A 2016E 2017E

WTI (US$/bbl) $49.00 $43.50 $52.00

Edm Par (Cdn$/bbl) $57.50 $53.00 $64.45

AECO (Cdn$/mcf) $2.70 $2.14 $3.00

Estimates 2015A 2016E 2017E

Cash Flow (mln) $495.2 $520.4 $648.4

CFPS - diluted $4.46 $4.45 $5.39

EPS - diluted -$1.96 -$1.15 $0.07

Capex (mln) -$486.9 -$240.0 -$295.0

Net Debt (mln) $1,437.2 $1,322.5 $1,183.9

Net Debt / CF 2.9 x 2.5 x 1.8 x

Dividends ($/sh) $2.58 $2.58 $2.58

Basic Payout (%) 57% 57% 47%

Total Payout (%) 156% 104% 93%

Net Payout (%) 124% 70% 79%

NAV ($/sh) $29.84

Valuation 2015A 2016E 2017E

EV/DACF 12.6 x 13.5 x 11.1 x

EV/BOE/D $127,584 $121,612 $110,795

EV/BOE P+P $26.86 $28.73 $28.64

P/NAV 1.8 x

Source: Company reports, Bloomberg, NBF estimates

All figures in Cdn$ unless otherwise noted

Title: WPT Industrial REIT - WIR.U (TSX) US$10.00 Price: US$10.00 StockRating: Outperform TargetPrice: US$13.00 Headline: Exposure to US E-Commerce Space with High Yield Kicker


WPT Industrial REIT WIR.U (TSX) US$11.94


Exposure to U.S. E-Commerce Space with High Yield Kicker


Target: US$13.00



Stock Data

Cash Yield 6.4%


52-week High-Low US$12.10 - US$9.20

Bloomberg/Reuters: WIR/U.CN / WIRu.TO

Forecasts (US$):

FYE Dec 31 2015a 2016e 2017e

Revenue $67.4 $71.0 $82.2

EBITDA $43.9 $47.4 $56.2

FFO/Unit $0.92 $0.91 $1.02

AFFO/Unit $0.86 $0.84 $0.88

Distribution $0.71 $0.76 $0.76

FFO Payout 77.3% 83.3% 74.7%

AFFO Payout 83.4% 90.3% 85.9%


P/FFO 12.9x 13.1x 11.7x

P/AFFO 13.9x 14.2x 13.5x

0.0x 0.0x 0.0x

Financial Data (US$):

Public Units Outstanding (mln) 34.7

Public Market Capitalization (mln) $413.7

Class B Units Outstanding (mln) 6.7


Net Debt to GBV 36%

HIGHLIGHTS

Exclusive access to U.S. industrial real estate market WPT Industrial REIT owns 47 distribution facilities / warehouses and two office properties totaling ~15.6 million square feet of gross leasable area across 13 states located in key U.S. distribution markets. WPT is the only Canadian REIT offering investors exclusive access to the U.S. industrial space which has significantly benefitted from enhanced institutional investor interest in recent years.

Leverage to U.S. e-commerce space WPT’s exposure to the U.S. e-commerce space and online retailers through ownership of high-quality distribution centres is compelling given the projected growth profile of the space (sales expected to grow 56%+ by 2020 from 2015 levels). The REIT’s portfolio remains nearly fully occupied at ~99% while its top 10 tenants are comprised of key e-commerce players including Amazon and Zulily. With an average remaining lease term of ~3.7 years and key 2017 lease expiries already renewed, we believe the REIT has a stable recurring revenue base and is well positioned to generate additional cash flow growth moving forward. We would expect a significant portion of this growth to be delivered via acquisition and development activity in management’s key target areas of greenfield development, adding scale in core markets and entering new geographies.

Favourable leverage profile supports elevated yield At ~42% debt to GBV WPT’s leverage is largely consistent with industrial REIT peers, while it offers investors a favourable 6.4% yield to ~86% 2017e payout.

Sustainable yield bolstered by positive growth outlook Our US$13.00 target price implies an unchanged ~14.5x 2017e P/AFFO, a ~1.5x premium to TSX Industrial REIT peers that we believe is justified given WPT’s U.S. e-commerce exposure, portfolio quality, low leverage and strong growth outlook. We reiterate an Outperform rating.


Company Profile: WPT Industrial REIT offers investors USD-denominated exposure to industrial warehouses and distribution centres across the United States. WPT currently owns 47 warehouses / distribution facilities and two office properties totaling 15.6 million square feet of gross leasable area across 13 states.

Stock Performance (Reuters)

Price

USD

9

9.5

10

10.5

11

11.5

12

12.5

Volume

0

200,000

400,000

600,000


Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16

Trevor Johnson, CFA, MBA - (416) 869-8511 [email protected]

Associates:

Kyle Stanley - (416) 507-8108 [email protected] Alex Bauer - (416) 869-7535 [email protected]

APPENDIX 1 – Target Price, Recommendations and Industry Risk Ratings

Equity TickerTarget Price

Rating Analyst IndustryIndustry

RatingMarket Capitalization

(mlns)

Ag Grow th International AFN-T Restricted Restricted Colman Machinery Overw eight $842

Algonquin Pow er AQN-T $14.50 Outperform MererIndependent Pow er

Producers & Energy TradersMarket Weight $3,120

American Hotels HOT.un-T $12.50 Outperform Johnson Real Estate Market Weight $605

Bird Construction BDT-T $12.00 Outperform Sytchev Engineering & Construction Overw eight $376

Brookfield Infrascture Partners BIP.un-T US$38.00 Outperform Merer Infrastructure Market Weight $12,293

Capital Pow er Corporation CPX-T $29.00 Outperform Kenny Pipeline/Utilites Underw eight $2,358

Crius Energy Trust KWH.un-T $10.50 Outperform Johnson Utilities Market Weight $355

Enercare ECI-T $22.50 Outperform Johnson Diversified Market Weight $1,929

Exchange Income Corp EIF-T $50.00 Outperform Johnson Diversified Market Weight $1,236

First National Corporation FN-T $28.00 Outperform Gloyne Diversified Financials Market Weight $1,725

H&R REIT HR.un-T $25.75 Outperform Kornack Real Estate Market Weight $7,044

Innergex Renew able Energy INE-T $18.00 Outperform MererIndependent Pow er


Keyera Corp. KEY-T $49.00 Outperform Kenny Utilities Market Weight $7,502

Killam Apartment REIT KMP.un-T $14.00 Outperform Chung Real Estate Market Weight $861

KP Tissue Inc. KPT-T $18.00 Outperform Aghazarian Consumer Staples Underw eight $141

MCAN Mortgage Corporation MKP-T $14.50 Sector Perform Gloyne Diversified Financials Market Weight $345

Pattern Energy Group PEG-T US$26.00 Outperform MererIndependent Pow er


Pason Systems Inc. PSI-T US$22.50 Outperform Colman Oil & Gas Services Underw eight $1,667

Pure Industrial REIT AAR.un-T $6.00 Outperform Kornack Real Estate Market Weight $1,358

Pure Multi Family REIT RUF.u-T US$7.00 Outperform Kornack Real Estate Market Weight $365

Rogers RCI-T $62.00 Outperform Shine Cable Services Market Weight $29,226

Smart REIT SRU.un-T $36.00 Sector Perform Johnson Real Estate Market Weight $4,943

Student Transportation STB-T $8.50 Outperform Colman Transportation Market Weight $514

Timbercreek Financial Corp TF-T Restricted Restricted Gloyne Diversified Financials Market Weight $667

Veresen Inc. VSN-T $17.00 Outperform Kenny Pipeline/Utilites Underw eight $4,228

Vermillion Energy VET-T $66.00 Outperform WoodOil & Gas Exploration and

ProductionUnderw eight $6,436

WPT Industrial REIT WIR-u-T US$13.00 Outperform Johnson Real Estate Market Weight US$414

Source: NBF

DISCLOSURES: Ratings And What They Mean: PRIMARY STOCK RATING: NBF has a three-tiered rating system that is relative to the coverage universe of the particular analyst. Here is a brief description of each: Outperform – The stock is expected to outperform the analyst’s coverage universe over the next 12 months; Sector Perform – The stock is projected to perform in line with the sector over the next 12 months; Underperform – The stock is expected to underperform the sector over the next 12 months. SECONDARY STOCK RATING: Under Review Our analyst has withdrawn the rating because of insufficient information and is awaiting more information and/or clarification; Tender Our analyst is recommending that investors tender to a specific offering for the company’s stock; Restricted Because of ongoing investment banking transactions or because of other circumstances, NBF policy and/or laws or regulations preclude our analyst from rating a company’s stock. INDUSTRY RATING: NBF has an Industry Weighting system that reflects the view of our Economics & Strategy Group, using its sector rotation strategy. The three-tiered system rates industries as Overweight, Market Weight and Underweight, depending on the sector’s projected performance against broader market averages over the next 12 months. RISK RATING: NBF utilizes a four-tiered risk rating system, Below Average, Average, Above Average and Speculative. The system attempts to evaluate risk against the overall market. In addition to sector-specific criteria, analysts also utilize quantitative and qualitative criteria in choosing a rating. The criteria include predictability of financial results, share price volatility, credit ratings, share liquidity and balance sheet quality. General – National Bank Financial (NBF) is an indirect wholly owned subsidiary of National Bank of Canada. National Bank of Canada is a public company listed on Canadian stock exchanges. The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. Research Analysts – The Research Analyst(s) who prepare these reports certify that their respective report accurately reflects his or her personal opinion and that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views as to the securities or companies. NBF compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of NBF including, Institutional Equity Sales and Trading, Retail Sales, the correspondent clearing business, and Corporate and Investment Banking. Since the revenues from these businesses vary, the funds for research compensation vary. No one business line has a greater influence than any other for Research Analyst compensation. Canadian Residents – In respect of the distribution of this report in Canada, NBF accepts responsibility for its contents. To make further inquiry related to this report, Canadian residents should contact their NBF professional representative. To effect any transaction, Canadian residents should contact their NBF Investment advisor. U.S. Residents – With respect to the distribution of this report in the United States, National Bank of Canada Financial Inc. (NBCFI) is regulated by the Financial Industry Regulatory Authority (FINRA) and a member of the Securities Investor Protection Corporation (SIPC). This report has been prepared in whole or in part by, research analysts employed by non-US affiliates of NBCFI that are not registered as broker/dealers in the US. These non-US research analysts are not registered as associated persons of NBCFI and are not licensed or qualified as research analysts with FINRA or any other US regulatory authority and, accordingly, may not be subject (among other things) to FINRA restrictions regarding communications by a research analyst with the subject company, public appearances by research analysts and trading securities held a research analyst account. All of the views expressed in this research report accurately reflect the research analysts’ personal views regarding any and all of the subject securities or issuers. No part of the analysts’ compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. The analyst responsible for the production of this report certifies that the views expressed herein reflect his or her accurate personal and technical judgment at the moment of publication. Because the views of analysts may differ, members of the National Bank Financial Group may have or may in the future issue reports that are inconsistent with this report, or that reach conclusions different from those in this report. To make further inquiry related to this report, United States residents should contact their NBCFI registered representative. UK Residents – In respect of the distribution of this report to UK residents, National Bank Financial Inc. has approved the contents (including, where necessary, for the purposes of Section 21(1) of the Financial Services and Markets Act 2000). National Bank Financial Inc. and/or its parent and/or any companies within or affiliates of the National Bank of Canada group and/or any of their directors, officers and employees may have or may have had interests or long or short positions in, and may at any time make purchases and/or sales as principal or agent, or may act or may have acted as market maker in the relevant investments or related investments discussed in this report, or may act or have acted as investment and/or commercial banker with respect thereto. The value of investments can go down as well as up. Past performance will not necessarily be repeated in the future. The investments contained in this report are not available to retail customers. This report does not constitute or form part of any offer for sale or subscription of or solicitation of any offer to buy or subscribe for the securities described herein nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. This information is only for distribution to Eligible Counterparties and Professional Clients in the United Kingdom within the meaning of the rules of the Financial Conduct Authority. National Bank Financial Inc. is authorised and regulated by the Financial Conduct Authority and has its registered office at 71 Fenchurch Street, London, EC3M 4HD.. National Bank Financial Inc. is not authorised by the Prudential Regulation Authority and the Financial Conduct Authority to accept deposits in the United Kingdom. Copyright – This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of National Bank Financial.

NBF is a member of the Canadian Investor Protection Fund.

NBF quarterly ratings summary and the total ratings by month can be found on our website under Research and Analysis/Equities/About NBF Research/Quarterly Ratings Summary (link attached) http://www.nbcn.ca/cmst/site/index.jhtml?navid=803&templateID=249

The NBF Research Dissemination Policy is available on our website under Legal/Research Policy (link attached) http://www.nbcn.ca/cmst/site/index.jhtml?navid=712&templateid=243

Click on the following link to see the company specific disclosures http://www.nbcn.ca/contactus/disclosures.html

Click on the following link to see National Bank Financial Markets Statement of Policies http://nbfm.ca/en/statement-of-policies/ If a company specific disclosure is not found herein for a listed company, NBF at this time does not provide research coverage or stock rating for the company in question.

ADDITIONAL COMPANY RELATED DISCLOSURES AAR.UN 6,7 KPT 6,7 AFN 6,7 KWH.UN AQN 2,3,4,5,6,7 MKP 6,7 BDT PEG 2,3,4,5,7 BIP.UN 2,3,4,5,6,7 PSI CPX 2,3,4,5,6,7 RCI.B 6,7 ECI 2,3,4,5,6,7 RUF.U 2,3,4,5,7 EIF 2,3,4,5,6,7 SRU.UN 2,3,4,5,6,7,10 FN 2,3,4,5,6,7 STB 2,3,4,5,6,7 HOT.UN 2,3,4,5,7 TF 6,7 HR.UN VET 6,7,10 INE 6,7 VSN 2,3,4,5,6,7 KEY 2,3,4,5,6,7 WIR.U 2,3,4,5,7 KMP.UN

LEGEND FOR COMPANY RELATED DISCLOSURES: 2 National Bank Financial Inc. has acted as an underwriter with respect to this issuer within the past 12 months. 3 National Bank Financial Inc. has provided investment banking services for this issuer within the past 12 months. 4 National Bank Financial Inc. or an affiliate has managed or co-managed a public offering of securities with respect to this issuer within the past 12 months. 5 National Bank Financial Inc. or an affiliate has received compensation for investment banking services from this issuer within the past 12 months. 6 National Bank Financial Inc. or an affiliate has a non-investment banking services related relationship during the past 12 months. 7 The issuer is a client, or was a client, of National Bank Financial Inc. or an affiliate within the past 12 months. 8 National Bank Financial Inc. or its affiliates expects to receive or intends to seek compensation for investment banking services from this issuer in the next 3 months. 9 As of the end of the month immediately preceding the date of publication of this research report (or the end of the second most recent month if the publication date is less than 10

calendar days after the end of the most recent month), National Bank Financial Inc. or an affiliate beneficially own 1% or more of any class of common equity securities of this issuer.

10 National Bank Financial Inc. makes a market in the securities of this issuer, at the time of this report publication. 11 A partner, director, officer or research analyst involved in the preparation of this report has, during the preceding 12 months provided services to this issuer for remuneration other

than normal course investment advisory or trade execution services. 12 A research analyst, associate or any other person (or a member of their household) directly involved in preparing this report has a financial interest in the securities of this issuer. 13 A partner, director, officer, employee or agent of National Bank Financial Inc., is an officer, director, employee of, or serves in any advisory capacity to the issuer. 14 A member of the Board of Directors of National Bank Financial Inc. is also a member of the Board of Directors or is an officer of this issuer.

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