Tag Archives: TSX:CAR.UN

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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Canadian Apartment Properties REIT: Should You Buy It?

If you want safe monthly income, add Canadian Apartment Properties REIT (TSX:CAR.UN) to your watch list. You can sleep well at night holding the quality units.

apartments

Why is it a high-quality REIT? What’s a good valuation (i.e. price range) to buy its units to prevent overpaying and to boost your starting yield? First, let’s see if it’s the kind of business you want to own.

Canadian Apartment Properties REIT Overview

  • Market cap: $4.1 billion
  • Price: $29.60 per unit
  • Yield: 4.2%
  • Payout ratio: 72%

Canadian Apartment Properties REIT started out with 2,900 residential suites in 1997 when it had its IPO. Since then, it has grown to a portfolio of about 48,514 suites.

CAPREIT growth 1997 to 2016

Source: CAPREIT Q2 2016 Presentation – Slide 7

Assets

Canadian Apartment Properties REIT is most notable for its assets from the stable Ontario province, which makes up half of its portfolio. Its assets in Ontario, Quebec and British Columbia all maintain high occupancies.

In total, the three provinces make up 83% of the REIT’s portfolio and adds stability to its financial performance. As a result, the REIT’s portfolio occupancy was 98.2% as of the end of June 2016.

CAPREIT portfolio diversification by geography Q2 2016

Source: CAPREIT Q2 2016 Presentation – Slide 23

The top three provinces from where the company earns the highest net operating income (NOI) margins are British Columbia (an NOI margin of 68.8%), Ontario (60.4%), and Alberta (60.4%).

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