Canadian Apartment Properties REIT is Awesome, Is it Still a Buy?

Real estate is one of those sectors that help retirees generate income. There is not that much growth of capital but the monthly income they provide is pretty steady. 

When you are looking for monthly income to rely on, this is a sector you shouldn't overlook. But what to buy?

One REIT I own is Canadian Apartment Properties REIT (CAR-UN.TO).

Also known as CAPREIT.

CAPREIT owns interests in multi-unit residential rental properties, including apartments, townhouses and manufactured home communities primarily located in and near major urban centres across Canada. 

Price: $34.98 (as of close 2 March 2018)
Dividend Yield: 3.64%
Payout Ratio: 70%

The Latest Results

CAPREIT just published their latest results on 27 Feb. If you are a long term investor like me these mean nothing, however in the short term prices can rock back and forth. This is not something I really care about because as I always state, it's the business I like to own and own it long term.

In the latest quarter ending 31 December, CAPREIT's operating revenues and net operating income (NOI) were up just less than 10%, and normalized funds from operations (FFO) rose almost 8%.

Rental income per month is up due to another 1,924 suites added and occupancy rates still remain high at over 98%. On a per rental basis FFO rose by over 4% which is not much of a change from quarter to quarter. Same property NOI rose 7.2% which is a nice increase.

A Powerful Financial Profile

CAPREIT still manages to maintain and improve a strong financial profile by reducing debt and adding more income through accretive acquisitions in 2017.

• debt to gross book value declined from 44.3% to 43.5% moving lower than previous years
• weighted average mortgage interest rate was 3.08% down from 3.20% last year
• weighted average term to maturity also moving down from 6.1 to 5.7 years
• debt service coverage ratio was stable at 1.63 times, which was consistent in years prior
• interest coverage ratio was 3 times, steadily and slowly moving lower than previous years

Distribution

They are collecting more in monthly rent while paying out less in earnings at a ratio of 70%. This is an outstanding combination for a REIT.

CAPREIT trades at a p/e of 8.25 times. Very cheap on a historical basis. They pay shareholders a distribution of almost .11 cents a month.

They have room to improve that but they will probably save money for more debt reduction and or more acquisitions to feed growth.

They recently sold 4,270,000 units at a price of $35.15 to fund their recent acquisition credit facility. This is dilutive but a good use of proceeds.

Summary

If you are looking for a high quality residential REIT then you owe it to yourself to look at CAPREIT. It is cheap here at 8 times forward earnings and the price has moved lower with the recent threat of interest rates moving higher on both sides of the border. I would like to see the price get cheaper and the yield move up over 4%.

However, I would have no problem buying it here as a long term forever hold.

Do you invest in REITs?

Related Post: High Yield Stocks-Buyer Beware!

Recommended Reading: The Intelligent REIT Investor