TSX:CAR.UN - Post Discussion
Post by
retiredcf on Mar 01, 2021 9:15am
RBC Upgrade
Their upside scenario target is also raised to $70.00. GLTA
February 28, 2021
CAPREIT
The right product, locations, and team
Our view: Supported by its portfolio of affordable, mid-tier apartments in major suburban markets, CAPREIT's relative operating performance remains among the best in our coverage universe. While we continue to expect tepid demand in early 2021, we are increasingly constructive on the outlook for 2022, based on our view that CAPREIT will remain a key beneficiary of: 1) deteriorating Canadian homeownership affordability; 2) the release of pandemic-driven household consolidation; and, 3) higher immigration levels in 2021–23. We increase our price target by $5 to $64 on the back of rising private market apartment values and reiterate our high-conviction Outperform rating on CAPREIT's units.
Key points:
Q4 results are proof that mid-tier is the place to be. As detailed herein, CAPREIT's Q4 results were solid and 5% ahead of our expectations, with NFFOPU and increasing 6% YoY to $0.58. While top-line growth decelerated, as expected, SP-NOI growth of 3% was aided by good cost control. This compares to: 1) the REIT's +4% full-year print; 2) residential peers at +1%; and, 3) our broader coverage universe at -3%.
We see CAPREIT as part of the affordability solution. Over the past 21Y, home prices have risen at a 6% CAGR, compared with incomes at 3%. This has pushed ownership costs to 49% of household income vs. the 42% LT average (link). With this backdrop, we're pleased to see CAPREIT: 1) reinvesting in its affordable portfolio, which has rents of $1.60/sf vs. newly built apartments/condos at more than $3.00/sf; and, 2) ramping up its MHC development program to bring more affordable housing to market.
Pondering pent up demand. While it's difficult to quantify the number of
young adults living at home, a Pew study pegged this at 52% of 18–29 year olds in the U.S. in Jul-2020. Assuming a similar pattern in Canada, the 5pp increase from 47% in Jul-2019 would equate to: 1) 301,000 individuals out of 6.0MM; and, 2) 100,000–120,000 households at 2.5–3.0 persons/HH. With ~4.5MM units of rental stock (incl. condos, houses, etc.) and vacancy of ~3%, this demand could fill most of Canada's ~135,000 vacant units.
Immigration drag is likely to become a tailwind. With 51% of its NOI derived from Toronto, Montreal, and Vancouver, we estimate CAPREIT has the most exposure to immigration in our coverage universe (page 128). Looking ahead, the Federal government has increased its 2021–23immigration targets by ~14% to make up for the 2020 shortfall.
Raising our FFOPU and NAVPU estimates by 4–5%. Post Q4, our 2021– 22E FFOPU increase by $0.09/$0.12 to $2.35/$2.47, reflecting a 3Y CAGR of 5%. Our NAVPU estimate increases by 5% (+$3) to $55, with our 1Y forward NAVPU reflecting growth of 5% to $58 (+$4). Our target remains based on a 10% premium to our NAVPU one-year hence. This compares to an average premium of 6%/5% over the past 3Y/5Y and 11% in 2018–19.
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