Canadian Apartment Properties REIT
(CAR.UN-T) C$53.92
Acquires Newly Built Quebec Portfolio for $281.0mm Event
Last night, CAPREIT announced that it has acquired a portfolio of six newly built apartment properties in Quebec, including three in downtown Montreal and two in the city's suburbs. The portfolio, which aggregates 516 suites, was acquired for $281.0mm, or ~$545,000/door. We estimate a cap rate in the high-3% range. The REIT also announced the acquisition of a 24-suite apartment building in Victoria, B.C., for $7.2mm ($300,000/door). The two acquisitions add ~1.7% to the REIT's asset base.
Impact: SLIGHTLY POSITIVE
Our Take: Overall, we believe the Quebec assets are a nice addition to CAPREIT's portfolio. Built between 2017 and 2021, this acquisition lines up nicely with the REIT's asset-allocation strategy to high-grade its portfolio via acquisition. Pro forma NOI from the Quebec portfolio increases ~140bps to 15.3%. Although the pricing of $545,000/door is high, these are newly built, higher-end properties, three of which are located in downtown Montreal. These assets also have energy-efficient heating, air conditioning, and lighting systems, include electric vehicle charging stations and are all sub-metered. The portfolio was acquired from Cons Properties Inc., a Montreal-based developer (link).
Quebec Portfolio. The six assets total 516 suites, including 44 bachelors, 236 one- bedroom, 211 two-bedroom, and 25 three-bedroom suites. The suites range between 687-1,056sf. Resident amenities include gyms, outdoor pools, terraces, and rooftop patios, and the buildings are located close to shopping, transit, parks, recreational facilities, and schools. The assets are currently in lease-up.
Funding. The Quebec acquisition will be funded with drawings on its credit facility and the assumption of $55.5mm of mortgages (WAIR: 2.75%; WADM: 6.5 years). The Victoria acquisition was funded with cash on hand.
Valuation. CAPREIT is trading at 25.8x 2022F P/AFFO versus its closest peers at 26.1x. On P/NAV, the REIT is trading at a 13% discount versus its closest peers at a 9% discount and its long-term average of a 2% premium.