Multiple Upgrades “Momentum [is] beginning to build” for Canadian Apartment Properties Real Estate Investment Trust , said Echelon Capital Markets analyst David Chrystal.
On Wednesday, the Toronto-based REIT reported normalized funds from operations of 61 cents, matching Mr. Chrystal’s projection and up 4 per cent year-over-year.
“While same-property NOI was modest, we believe that Q221 was a trough and the REIT’s portfolio is showing early signs of recovery,” he said. “During Q321, occupancy and average rents ticked higher from Q2 lows, and bad debt expense and tenant incentives dipped from higher Q2 levels. Lifts on turnover leasing are trending higher after bottoming out in Q121, and with the expiry of rent freezes in Ontario and British Columbia at year-end, we expect lifts on renewal leasing will strengthen.”
Mr. Chrystal emphasized accretive asset rotation is becoming “an emerging theme” for investors to track.
He noted: “During Q3 CAPREIT disposed of a property in midtown Toronto for $52-million, and subsequent to quarter-end, sold its one-third managing interest in a downtown Toronto property for $91-million. Management commentary suggests that select properties with development potential in core markets are attracting interest at sub-2-per-cent cap rates based on in-place NOI. We believe that management will continue to opportunistically rotate out of assets where land value and potential development upside are driving prices well beyond the value of the existing cash flow. We expect proceeds will be redeployed accretively, into acquisitions with initial yields in the 3-per-cent range and better cash flow growth prospects.”
He also expects the REIT to be much more active on the acquisition front, seeing it “continue to pursue selective acquisitions in its core markets going forward.”
“The REIT’s liquidity position is strong, and could support significant incremental activity; cash and availability on existing facilities sits at $380-million, $1.2-billion of the REIT’s properties are currently unencumbered and debt and interest service coverage ratios are trending higher.”
Keeping a “buy” rating, Mr. Chrystal raised his target to $68 from $67.50. The average is $67.95.
Elsewhere, Canaccord Genuity analyst Mark Rothschild raised his target to $66 from $65 with a “buy” rating, while CIBC’s Dean Wilkinson bumped up his target to $67 from $65 with a “neutral” recommendation.