Canadian Apartment Properties REIT
(CAR.UN-T) C$44.35
Investor Meeting Takeaways Event
We recently hosted CAPREIT management for meetings with Asian and European investors.
Impact: SLIGHTLY POSITIVE
Market Update. CAPREIT believes that the portfolio MTM is currently +9-10%, down from 15% pre-pandemic, but still a healthy spread, in our view. From a rate perspective, the product being most affected by COVID-19 is brand-new units (purpose-built and condos) in downtown cores, where asking prices are declining from the $4+/sf range. CAPREIT's average rent is currently ~$1.70/sf. Although the REIT's properties are clustered around major urban centers like Toronto, Montreal, and Vancouver, we note that the majority of the assets reside in the suburbs of these cities, which have fared much better than the city centers. For example, of the 42% of CAPREIT's assets in the GTA, 5% are downtown, 8% are midtown, and the rest are located across the suburbs (exhibits 1-3).
Operating Update. We believe that the net impact of the pandemic will result in a few quarters of relatively flat NOI, as lower average rent increases on renewals, combined with slightly higher vacancies and bad-debt expense, is offset by continued rental-rate growth on turnover. Management's near-term focus remains on optimizing operations, including improving technology, revenue maximization and collections, as well as lowering staffing and overhead costs. We expect CAPREIT to generate both interest cost and G&A savings over the rest of 2020.
Acquisitions. Management noted an increase in property valuations following the resumption of trading activity as a combination of lower interest rates and buyers willing to look through any near-term softness in fundamentals has driven cap-rates downwards, especially for properties with significant MTM. With plenty of market deal flow, we expect CAPREIT to be active on the acquisition front through the rest of the year and in 2021. We estimate CAPREIT's acquisition capacity at ~$1 billion.
Q3/20 Results. CAPREIT will report Q3/20 results on November 9. The conference call is at 9:00 a.m. ET on November 10 (dial-in: 1-833-714-0874; passcode: 7396279).
TD Investment Conclusion
As the largest, most liquid name in what we view as the most defensive asset class, we view CAPREIT as a core REIT holding. We are maintaining our ACTION LIST BUY recommendation and $59.00 target price.