Canadian Apartment Properties Real Estate Investment Trust (TSX: CAR.UN) is a real estate investment trust primarily engaged in the acquisition and leasing of multiunit residential rental properties located near major urban centers across Canada.

Key Updates:

• Delivered Consistent Growth: Over the years, the company reported consistent growth in its operating revenue, Net operating income and Normalized funds from Operations (NFFO), driven by revenue growth, combined with successful property management programs during the period. We expect the above momentum to continue in the coming days due to the company’s operating benefits from programs that enhance ancillary revenues, including fees for parking, commercial leases, laundry, cable, telecommunications, and other income sources.

       Source: Company Report

• Growth in Cash Flows: The company reported a higher cash flow from operations of CAD 551.4 million, as compared to CAD 481.3 million in FY20, supported by higher net income. This is impressive as it would support the overall liquidity of the company.
  

• Acquisition Update: Recently, the company reported the acquisition of a six-property luxury portfolio of modern, recently constructed apartment buildings in Montréal, Laval, Côte Saint-Luc and Saint Hyacinthe, Québec at a price consideration of CAD 281 million. The suites range between 687 to 1,056 square feet in size and include modern designs with open-concept kitchens, quartz countertops, stainless steel appliances and private terraces. This is expected to enhance the average age and quality of the company’s portfolio, which is a key positive.
• Result Update: The company will disclose its Q1FY22 results on May 16, 2022.

 Risk associated with the Investment:

The performance of the company is co-related to the occupancy rate, rent collection etc., and a change in consumer preference along with change in Government regulations might hinder the above metrics.

   Financial Highlights:  FY 2021 (in CAD 000’s)

FY21 Income Statement Highlights (Source: Company Report)

• For FY21, operating revenue increased to CAD 933.1 million from CAD 882.6 million in FY20, supported by higher monthly rents on turnover and renewals. Additionally, added contributions from the recent acquisitions also supported the company’s performance.
• The period was marked by higher operating expenses (CAD 323.1 million v/s CAD 304.4 million in FY20) due to higher property operating costs. Net rental income increased to CAD 609.9 million from CAD 578.1 million in FY20, supported by higher income as mentioned above.
• Fair vale adjustments of investment properties soared to CAD 1,048.7 million from CAD 595.8 million in FY20. This resulted to higher net income of CAD 1,392.7 million, as compared to CAD 925.9 million in FY20.

 Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group

Stock Recommendation:

Despite the ongoing pandemic, the company managed to report a higher occupancy rate of 98.1% in FY21, which is an improvement over 97.5% in FY20. Moreover, the stock of CAR.UN carries a dividend yield of ~2.812% on an annualized basis, which looks impressive considering the persisting interest rate and ongoing macro scenario. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers Allied Properties Real Estate Investment Trust, Killam Apartment REIT etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of CAR.UN at the last closing price of CAD 51.56 on April 25, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on April 25, 2022). Analysis by Kalkine Group

Technical Analysis Summary

Disclaimer

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