Canadian Apartment Properties Real Estate Investment Trust

Canadian Apartment Properties Real Estate Investment Trust (TSX: CAR.UN) or CAPREIT is one of the leading real estate investment trusts in Canada and engaged in the acquisition and leasing of multi-unit residential rental properties located near major urban centers across the region. The portfolio of the company mainly composed of apartments and townhouses situated near public amenities. The group’s holdings are aimed towards the mid-tier and luxury markets in terms of demographic segments.

The company would disclose its second quarter FY20 result on August 11, 2020.

Key Highlights:

• The company announced a monthly distribution of CAD 0.11500 per Unit, payable on August 17, 2020.
• Recently, the company confirmed the previously announced buyout of eight operating leases for properties in Toronto at a price consideration of ~CAD 123 million.
• The company confirmed the sales of its Queen’s Park Village Townhomes property located in Calgary, Alberta at a price consideration of CAD 30.5 million. The group acquired the same property in December 2002.

Q1FY20 Financial Highlights: The company declared its first-quarter results, wherein the company posted revenue from investment properties of CAD 216.060 million as compared to CAD 181.896 million in the previous corresponding period (pcp). The increase was driven by higher monthly rents collection along with the impact of the acquisition. Net rental income stood at CAD 138.058 million against CAD 113.835 million in pcp. During the quarter, the group reported a loss from fair value adjustments of investment properties amounting CAD 31.919 million as compared to a profit of CAD 123.316 million in pcp. Furthermore, the company reported the inclusion of gain on non-controlling interest amounting CAD 69.679 million during the quarter. Loss on foreign currency translation stood at CAD 53.808 million against a gain of CAD 12.266 million in pcp. Thus, due to the aforesaid facts, the company reported a lower net income of CAD 79.633 million as compared to CAD 205.510 million in pcp. Funds from operations stood higher at CAD 92.51 million, as compared to CAD 73.81 million in the previous corresponding period.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the current economic downturn, the business might be impacted by a decline in the value of the investment properties. Further, due to the current challenging environment, the company might face a delay in the rent collection.

Valuation Methodology: EV to EBITDA Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock corrected ~16% and ~13% in the last six months and nine months, respectively, due to weak investor’s sentiment prevailing across the equity market. The company has maintained a stable performance in the recent past and has reported higher rent collection, which is a key positive. The group showed improved operational efficiency and reported NOI margin at 63.9%, as compared to 62.6% in the previous corresponding period, which is impressive. The company made capital investments of CAD 42.7 million for developing its existing properties. The company might face hiccups in the collection of rent a decline in the value of investment properties in the near term owing to challenging economic conditions. We have valued the stock using EV to EBITDA value-based relative valuation method and have arrived at a target downside of lower double-digit (in percentage terms). For the said purposes, we have considered peers like Killam Apartment REIT, Allied Properties Real Estate Investment Trust etc. Hence, we recommend a ‘Watch’ stance on the stock at the current market price of CAD 47.56 on July 24, 2020.

CAR.UN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

CT Real Estate Investment Trust

CT Real Estate Investment Trust (TSX: CRT.UN) is an unincorporated, closed end real estate investment trust formed to own income-producing commercial properties primarily located in Canada. The Company’s portfolio comprised of over 350 properties of ~28 million square feet of GLA, consisting primarily of retail properties located across Canada. The Company has properties across the major geographies in Canada.

The Company would disclose its second quarter FY20 results on August 4, 2020.

The Company declared a distribution of CAD 0.06562 per trust unit, payable August 17, 2020 to each unitholder.

Q1FY20 Financial Highlights: CT Real Estate Investment Trust announced its quarterly results, wherein the Company reported property revenue of CAD 126.845 million as compared to CAD 121.564 in the previous corresponding quarter. Net income stood at CAD 43.196 million, declined significantly from CAD 71.445 million in Q1FY19. The decline was primarily attributable to a decrease in fair value adjustment on investment properties and an increase in net interest and other financing charges, partially offset by an increase in Net Operating Income. The Company reported improvement in the operations and posted funds from operations at CAD 66.885 million, representing a 5.4% growth on y-o-y basis. Cash generated from operating activities stood higher at CAD 98.817 million as compared to CAD 89.66 million in Q1FY19. The Company reported its occupancy levels at 99.4% at the end of March 31, 2020.

Q1FY20 Financial Snapshot (Source: Company Reports)

Risks: Due to the recent outbreak of coronavirus, the unemployment rate is likely to go up because of the closure of the non-essential businesses. Consequently, the group might witness a delay in rent collection.

Valuation Methodology: P/E based Relative Valuation (illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of CRT.UN corrected ~17% and ~9% in the last six months and nine months, respectively due to weak investor's sentiment prevailing in the recent past on account of COVID 19 pandemic. The Company has a decent presence across Canada and witnessed decent occupancy rate, amidst the current economic cycle. As on May 01, 2020, the Company reported 96.5% of tenants had paid rent, which is impressive. The Company has ample liquidity of CAD 315 million, adequate to sail through the current pandemic. The group reported 3.7% y-o-y growth in Adjusted Funds from Operations at CAD 58.2 million, which is impressive, looking at the current downturn. Despite a stable operating performance, we remain skeptical about the group's performance going forward due to a soft economic scenario and rising unemployment rate. Further, the group might face a decline in the value of investment properties following a weaker economic scenario. We have valued the stock using the P/E based relative valuation approach and arrived at a target price, which suggests a double-digit correction (in % terms). For the said purpose, we have considered the industry median (Residential & Commercial REITS). Hence, considering the aforesaid facts, we recommend a 'Watch' rating on the stock at the closing market price of CAD 13.55 as on July 24, 2020.

CRT.UN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.