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

RE:RE:CAR Q2 - quick summary of analyst call - "super sale"

[Defiance2050]

AlwaysLong683 wrote: Meph, thanks for the summary - didn't get a chance to listen to the CC. For those interested, here is the Q2 2022 Slide Presentation that gives you a visual of the current state of CAR along with its plans going forward.

One of the things of interest to me is page 15 shows the quality of CAR's mortgage book, which is key in a rising interest rate environment. Not only do they have a nice runway re. term to maturity at attractive interest rates, but over 99% of their current mortgages are fixed rate, so no change in the rate of interest paid until maturity. Even with the low percentage of upcoming renewals, CAR currently expects to be able to get interest rates of 3.6% to 3.7% for 5 and 10 year mortgages (page 17). This is where a large REIT with a traditionally conservative debt strategy really pays off vs. other REITs that may be debt-heavy, have a sizeable dollar amount of mortgages coming due in the near future relative to their total mortgage book, and/or are more exposed to variable-rate mortgages.

Further to Meph's point, one other advantage of selling older buildings and buying newer ones is a siginficant reduction in ongoing rennovation / maintenance expenses as everything from the building structure to the suite interiors, appliances, latest amenities, etc. are new or nearly new. This is a real advantage in a rising inflationary environment as far less needs to be spent in these areas. The fresh, new, modern look is also much more appealing than older buildings. Thus I suspect new tenants are more likely to be willing to pay higher rents on tenant turnover, even if the new buildings are located in the suburbs, what with the inceased fequency of work-from-home, online purchases, at-home entertainment (e.g., big-screen TVs, Netflix, custom sports TV/online packages, etc.), large new retail centres increasingly popping up in the suburbs as new homes of all types are built and more and more people are choosing to live in the area, etc.

Really like the direction CAR is going. Guess we'll just have to wait until the market catches on......

The reason why public REITs try to avoid or minimize both development and old building refurnishing is cash flow generation.

Lets say there is a 75-100 year life span for these buildings before they have to be torn down, on maintenance projects such as new patios, elevators, garage repair companies can reclaim the cost within roughly a decade on existing renters, pushing up the dollar value of the same yearly percentage increase. Another tactic is hydro meters, swifting this from apartment owner to tenant (can't really force this onto existing tenants). If there is land such as an outdoor parking lot, shift it underground and build, or if there is additional space that it is permited build additional units. 

This is quite cash draining and sell the building allows a cash out. 

This quarter wasn't a suprise just apartments doing what they should and investors on the stock market not valuing them the same as on the private market (majority of commercial real estate is on the private side). The REIT structure doesn't work well with developing or fixing up older buildings