TSX:CAR.UN - Post Discussion
Post by
retiredcf on Mar 15, 2022 8:27am
TD Upgrade
Canadian Apartment Properties REIT
(CAR.UN-T) C$52.71
Upgrading CAPREIT to ACTION LIST BUY
Event
We are upgrading CAPREIT to ACTION LIST BUY from Buy.
Impact: NEUTRAL
Recent unit-price underperformance following Q4/21 results overdone, in our view. CAPREIT units have declined 4% since reporting a Q4/21 "miss" in late- February. This compares with its closest peers that have seen unit prices increase by an average of 2% over the same time period (led by BEI.un at +12%) and the Canadian Capped REIT index, which is +1%. As we noted (link), we viewed the Q4/21 miss as one-time in nature (due to a catch-up in R&M costs) and are inclined to look through it to the continued recovery in demand fundamentals.
Disconnect remains between public and private market valuations. Strong demand for apartment properties by private players has kept asset pricing elevated (low cap rates and high per-suite valuations). This is not being reflected in the public markets, with apartment REITs on average trading at a 9% discount to NAV. We expect this gap to narrow over the course of 2022 as strengthening demand fundamentals start translating through to financial results.
Valuation. CAPREIT is currently trading at a 15% discount to our NAV estimate, a level it has only traded at 6% of the time since we started tracking in 2005 and 17 percentage points below the long-term average (Exhibit 4).
Forecasts. We are not making any changes to our forecasts, although we do acknowledge some risks to our Q1/22 estimates due to the more challenging 2022 winter season experienced in many of CAPREIT's markets.
TD Investment Conclusion
As the largest, most liquid name in what we view as the most defensive asset class, we view CAPREIT as a core REIT holding. In consideration of the current valuation and the 36% total return to our $70.00 target price, we are upgrading CAPREIT to ACTION LIST BUY from Buy.
Be the first to comment on this post