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:

• Growth in operating metrics: In Q1FY22, the company reported a better occupancy across its overall occupancy rate of 98%, which improved from 97.3% in pcp, supported by more than 99% occupancy level from Ontario and British Columbia regions. Additionally, the company’s overall portfolio net Average Monthly Rents stood at CAD 1,159 in Q1FY22, which is higher than CAD 1,115 in pcp. The company’s net operating income also surged to CAD 153.1 million in Q1FY22, higher than CAD 146.6 million in pcp. Growth in the above metrics suggest improved operating performance due to better demand dynamics.

Source: Company Report 

• 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 145.2 million in Q1FY22, as compared to CAD 123.3 million in pcp, supported by gain from fair value adjustments. This is impressive as it would support the overall liquidity of the company.

• Investment in Affordable Housing segment: Recently, the company completed the purchase of a 172-site Manufactured Housing Community located in Red Deer, Alberta with a price consideration of CAD 16.5 million. This property was built during 2000 and reports 100% occupancy at closing. This is likely to support the company’s overall operations.
  

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. 

Q1FY22 Income Statement Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• In Q1FY22, operating revenue increased to CAD 246.6 million from CAD 227.5 million in pcp, 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 93.4 million v/s CAD 80.8 million in pcp) due to higher property operating costs. Net rental income increased to CAD 153.1 million from CAD 146.6 million in pcp, supported by higher income as mentioned above.
• The flip side the company reported a loss from Fair value adjustments of investments amounting CAD 44.3 million v/s a gain of CAD 3.0 million in pcp. Moreover, the company reported a higher finance cost of CAD 43.8 million v/s CAD 36.6 million in pcp. This resulted to a lower net income of CAD 45.3 million, as compared to CAD 104.0 million in pcp.
  

Valuation Methodology (Illustrative): EV to Sales based

Analysis by Kalkine Group 

Stock Recommendation:

The real estate sector has recovered from the pandemic while the company expects a further acceleration in average monthly rents on turnovers and renewals in the coming quarters. The management seems confident to strong returns in the coming days driven by successful asset allocation strategy, constant focus on strong suburban markets, rebounding immigration etc.

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 like SmartCentres Real Estate Investment Trust, Allied Properties Real Estate Investment Trust etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of CAR.Un at the last closing price of CAD 48.24 on May 16, 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 of May 16, 2022). Analysis by Kalkine Group

The reference data has been partly sourced from REFINITV

Technical Analysis Summary

Disclaimer

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