Multiple Upgrades Pointing to “a strong balance sheet, significant liquidity and reasonable valuation,” Desjardins Securities analyst Michael Markidis sees Canadian Apartment Properties Real Estate Investment Trust as a “core holding.”
“CAR does not have the same degree of upside potential to a reopening as certain multifamily peers, in our view; however, we still believe it can deliver a three-year FFOPU CAGR [funds from operations per unit compound annual growth rate] of approximately 4 per cent through 2023,” he said.
Mr. Markidis was one of several analysts on the Street to raise his target price for the Toronto-based REIT following the release of largely in-line financial results for the first quarter
“Same-property occupancy ended 1Q21 at 97.2 per cent (down 100 basis points),” he said. “Compared with certain peers, the degree of occupancy slippage experienced by CAR over the past year has been less pronounced. We believe this reflects (1) locational attributes/ tenant mix, and (2) management’s willingness to give a bit more on rates in the short term. Regarding the latter, same-property occupied AMR [average monthly rent] was up 1.9 per cent year-over-year and turnover spreads during 1Q21 were only 3.4 per cent. We believe the pandemic impact is temporary, not structural. As lockdowns are lifted and students/young professionals who gave up their accommodation subsequent to the pandemic begin to re-form households, occupancy should improve and pricing power should firm.
Though he trimmed his 2021 and 2022 financial projections based on “more conservation” assumptions of higher expenses and interest, Mr. Markidis hiked his target to $62 from $57, keeping a “buy” rating. The average on the Street is $59.94.
Other analysts making changes include:
* iA Capital Markets’ Frdric Blondeau, who called its post-pandemic optionality “exceptionally solid,” to $65 from $59.50 with a “buy” rating.
* BMO Nesbitt Burns’ Joanne Chen to $62 from $59 with an “outperform” rating.
“We continue to believe the resiliency of CAR.UN’s mid-tier portfolio in Canada’s suburban markets and its diversified scale and platform will support the REIT through this extended recovery. We expect overall earnings growth to be further augmented by CAR.UN’s ability to take advantage of acquisition opportunities,” said Ms. Chen.
* Canaccord’s Mark Rothschild to $62.50 from $59 with a “buy” rating.
“Although cash flow per unit was relatively stable year-over-year, Canadian Apartment Properties REIT (CAP REIT)’s Q1/21 results highlight the softening in demand for rental apartments in many Canadian markets over the past year,” he said. “Though the long-term outlook, underpinned by a return to robust levels of immigration to Canada, remains positive, in the near term, vacancy has increased and leasing spreads on new leases have dropped significantly. At the same time, government controls on rent increases have become stricter. Our bullish view on CAP REIT remains though, largely based on two factors. 1) we expect immigration to recover over the next year, which along with university students returning to in-person classes, should lead to an improvement in occupancy and result in greater leasing spreads, and 2) investor demand for rental apartment properties is extremely strong and there has been additional downward pressure on cap rates.”
* CIBC’s Dean Wilkinson to $60 from $56 with a “neutral” rating.
* Raymond James’ Brad Sturges to $67 from $61 with an “outperform” rating.
* National Bank Securities’ Matt Kornack to $65.50 from $65 with an “outperform” rating.
* TD Securities’ Jonathan Kelcher to $67 from $63 with an “action list buy” rating.