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

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[retiredcf]

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.

[AlwaysLong683]

Thanks for the info retired.- again much appreciated. The above excerpt from your post made me realize another alternative available to CAR.UN if the unit price continues to remain low: Privatization, i.e., a takeout by a private organization or group at a (hopefully generous) premium to the unit price at the time of the takeout.

[Mephistopheles3]

We'll have to see on this one as I don't think it's trading at such a discount that would make it attractive to the Canderel's of the world.  I would actually say H&R right now (which I'm very bullish on) is much more close to a privatization vs. CAR given that they are trading at something like 30-35% of a discount vs. 10% or so for CAR.    One thing that I

[AlwaysLong683]

1) RE. PRIVATIZATION: I also think privatization, though a possible option, is unlkely, but not because CAR.UN is not trading at a very attractive discount right now - I bet if all CAR.UN's properties were sold right now on the open market, the money they would get would be far more in total than their current market cap. These are residential properties, many of which are in big cities

[Mephistopheles3]

Good point on the privatization.  I was thinking that as well, but just didn't express it. There's only so many entities that could buy a TSX60 company and the share price is not at that much of a discount that would warrant it just yet.  Also have to keep in mind that capitalization rates will likely increase as a result of the massive change in the bond rates which should have

[AlwaysLong683]

My views: 1) I believe I significantly low-balled the 25% premium ask price over and above the current unit price for a takeout of CAR.UN. I think management realizes that CAR.UN is trading at a price signficantly below its full value right now. Typically, if you're executives / board members of company with coveted properties that are currently undervalued, you first want your unit price to

[Mephistopheles3]

Yeah, CAR only locks in fixed rate mortgages so they do not have anything floating which is appealing.  It just means that they're going to be subject to the rate increases on the debt that is coming up to maturity.  The mortgages and debt section of the financials are typically pretty boring, so most people skip past that and focus on FFO and occupancy which are a bit sexier,

[AlwaysLong683]

To add to your comments above Meph, one other thing I believe is advantageous to Residential REITs is the duration of leases are usually much shorter than for other types or REITs, maybe only a 1 or 2 year apartment rental lease agreement vs.10 or 20 year leases for retail / office / other commercial. Thus, I suspect a huge number of CAR.UN apartment leases expire each year, allowing them to boost

[Mephistopheles3]

The other REIT i'm very bullish on right now is H&R which had a nice pop.  It's strategy long-term is residential/industrial, but it has a way to get there, but it's trading at such a discount, that it's a steal.  In response to your comments, I would agree with you.  The leases are all typically one year leases which means that when you have your churn of