Canadian Apartment Properties Real Estate Investment Trust T.CAR.UN

Q1-22 results - medicore with poor NOI

[Mephistopheles3]

The following are some of my comments after quickly going through the results last night and will update with a few comments from the call today. Feel free to correct any factual mistakes or disagree with anything.

Overall results were mediocre for the quarter. 

1.  NAV 
- NAV of $59.43 vs. share price of $48.24 means that it is trading at a 20% discount right now, which is very low for residential REIT's which before the recent slowdown were trading at par. 

- This NAV is flat lined from December's which was $59.78.  So no NAV growth in the quarter.

2.  Rental growth

- Weighted average rent growth of 1.9%, of which there was 10.2% increase for suite turnovers and 1.3% on lease renewals (which have rent control). 

- The 10% increase is good to see, we are back into double digit increases for suite turnovers as compared to 2021 which had single digit increases.  Only 3.7% of suites turned over though which is quite low - we are not in the summer season though when you would expect to see more movement.  One thing I'm concerned with is that with the large increase in rent prices across Canada, everyone is hunkered down with rent control and not leaving.

Overall I would say the rental growth is positive, especially with potential CPI increases coming for 2023 which would increase this substantially. 

3.  NOI 

- Brutal NOI in the quarter at 62.1% which means that SP NOI went down by 1.7%.  As a comparison, InterRent runs at 62.8%.

- All about inflation increases, coming from property taxes, utilities and repair cost.  Interesting to note that the explanation on the deferral of repair work from 21 due to Covid was never explained last year as being a reason why margins were higher.  

- There are other reports in the news talking about how landlords these days are actually losing money and are cash flow negative due to inflation.  Rent control is hammering landlords as they cannot get their value out of their rental properties.  This is partly why it will be huge to see what the CPI indexation will be for next year for rent control.  

4.  Management reorg
- There was a $2.2 million charge for senior management reorg. which is likely the prior CFO. Looks like he got the boot with 1-2 others.  Not sure what the story is here, but hopefully whatever drama is there is over with. 

Conclusion:
- NOI is not great and this was a not a great quarter.  CAR made some good acquisitions in the quarter, rental growth looks promising and the share price has already been taking a beating lately.  I don't know if we will see a downward adjustment after these results this morning as the company is already trading at a 20% discount.

- Residential REIT's are still attractive and CAR is well placed in there, however they are getting hit by inflation.  There is a big potential for them if the provinces allow their rent control to follow their historical rules which is CPI.   

- I'm not selling, but not expecting much increases over the next few months.