Category Archives: Seeking Alpha article

Canadian Apartment Properties REIT: Is It A Cheap Dividend Stock?

Canadian Apartment Properties REIT (TSX:CAR.UN), which is more fondly known as CAPREIT, is the largest multi-residential REIT on the TSX. The stock has corrected more than 20% from its high in August 2021. It goes to show that when it comes to the grand scheme of things, the small dividends paid out by stocks are not as important as the stock valuation paid by investors, which is highly connected to the potential price appreciation you could get from a stock investment.

In 2005, CAPREIT traded at about 12.2 times funds from operations (“FFO”). The Canadian REIT trades at a much higher valuation today — about 21 times funds from operations (“FFO”) — than about 17.5x a decade ago. And this was after it corrected +20% from last year’s high around 27x!

Surely, the ~73% higher FFOPU in the decade of 2011 to 2021 versus the period of 2005 to 2010 wasn’t enough to push the stock’s soaring valuation to 27x in 2021. There must have been other underlying drivers. We suspect the catalysts were low interest rates and higher real estate prices.

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Why Inter Pipeline Stock Cut Its Dividend

As recent as August 2019, Inter Pipeline (TSX:IPL) received a takeover bid – that it rejected – of CAD$30 per share. Who would have thought that the company would trade at only a third of that price today?

Personally, I avoided the stock for reasons that were unrelated to the headwinds that it and other energy infrastructure companies are facing today.

Specifically, I saw that Inter Pipeline had project concentration risk, as its major Heartland Petrochemical Complex project made up about 95% of its capital program at the time.

Inter Pipeline had project concentration risk, as its major Heartland Petrochemical Complex project made up about 95% of its capital program at the time.

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Brookfield Property Stock: Still Attractive with 7.3% Dividend Yield

Summary

  • Brookfield Property Partners LP’s (TSX:BPY.UN)(NASDAQ:BPY) / Brookfield Property REIT’s (NASDAQ:BPR) Core Retail business is resilient, and it’s going through a phase of redevelopment to be more relevant in today’s retail environment.
  • The REIT’s Core Office business is doing well.
  • Realized gains reduced 2019 payout ratio from 95% to 84%.
  • We’re comfortable with BPY’s token raise (+0.8%) of the Q1 2020 cash distribution, as the yield is high at 7.3%.

Financial Overview for Q4 and 2019

Funds from operations (FFO) per unit (excluding opportunistic portfolio investment gains) declined 6% for 2019 against 2018. However, BPY stock did increase its cash distribution by 4.8% year over year.

Based on FFO only, the payout ratio was 95%. Thanks to the investment gains from its opportunistic portfolio, the actual payout ratio (based on “total earnings”) is lowered to 84% for 2019. Although this is higher than the 60% range in the previous years, it’s still sustainable.

Capital Recycling Program

BPY has been consistently able to sell assets in the opportunistic portfolio or mature assets at higher than their accounting values and recycle that capital into properties with expected higher returns.

In 2019, BPY sold $3.3 billion of assets at 6% higher than their accounting values and generated net proceeds of $1.8 billion that were deployed at higher returns.

Management expects to continue this capital recycling program of stabilized or mature assets to achieve net proceeds of $1.5-$2.0 billion for redeployment.

Token Dividend Increase; Dividend Yields 7.3%

Admittedly, BPY’s 2019 payout ratio of 95%, based solely on FFO, was higher than normal. Its average payout ratio (based solely on FFO) from 2014 to 2018 was 85%.

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