Citing improving fundamentals, diminishing near-term regulatory risk and thinking its valuation “looks good,” Scotia Capital raised Canadian Apartment Properties REIT to “sector outperform” from “sector perform” on Monday.
“We are upgrading CAR ... with CAR joining
increase
InterRent REIT as our 2nd SO-rated CAD multi-family REIT,” he said. “Our intact $64.50 TP = a 28-per-cent NTM [next 12-month] total return, the 2nd highest of our Sector-Perform REITs, and well above 16-per-cent sector average (peer average = 22 per cent). ‘
“We’ve discussed a potentially more positive view on the ‘regulated’ Apartment REITs (i.e., Ontario-focused) since last year but resisted upgrading any prior to [Thursday’s] Federal Budget. While it (Budget) doesn’t fully eliminate the overhang (see link to our note) as it “kicks the can on some policy reviews”, we think CAR’s 19-per-cent under-performance vs. Sector since Sept/21 (down 2 per cent since Liberal-NDP announcement on March 22nd) is overdone and should reverse. The 14-per-cent trading discount to our Current NAVPU [net asset value per unit has been worse only 6 per cent of the time. We see 10-per-cent-plus unit price outperformance (vs. sector) through the summer. Our NTM NAVPU growth (11 per cent) + yield (3 per cent) = 14% per cent without the trading discount narrowing (CAR trades at a 23-per-cent discount to our $66.50 Forward NAVPU). The time feels right to get into the CAR...units!
Mr. Saric’s target for CAP REIT shares remains $64.50. The average is $67.
“Bottom-line, we think CAR is a high-quality REIT with a very good track record of superior growth available at a superior price. 2022 catalysts include: improved rent spreads, NCIB activity, clarity on Ontario election and Federal policy reviews (and privatization if outcome is negative),” he said.