Canadian Apartment Properties REIT: Is It A Cheap Dividend Stock? (OTCMKTS:CDPYF)

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Canadian Apartment Properties REIT (OTC:CDPYF, TSX:CAR.UN), which is more fondly known as CAPREIT, is the largest multi-residential REIT on the TSX. The over-the-counter version of the stock has too low a trading volume. So, it would defeat the purpose of investing in the asset class of stocks that are advantageous for their liquidity. Therefore, interested investors should invest on the TSX, where the trading volume is about 257x higher with an average volume of 565,625. As a result, we’ll discuss the stock, in terms, of TSX:CAR.UN and in CAD$ going forward unless otherwise noted.

The stock has corrected more than 20% from its high in August 2021. It goes to show that when it comes to the grand scheme of things, the small dividends paid out by stocks are not as important as the stock valuation paid by investors, which is highly connected to the potential price appreciation you could get from a stock investment.

Canadian Apartment Properties REIT price and return
Data by YCharts

The Proper Valuation For CAPREIT

Since 2005, CAPREIT’s long-term normal price-to-funds-from-operations (P/FFO) has been ~16.8, which is a premium valuation but still way lower than where it trades now. Looking at a closer timeframe, since 2011, the REIT’s long-term normal P/FFO has pushed up to ~18.8. Since 2016, the long-term normal valuation has been further elevated to 21.6x. In 2021, CAPREIT traded as high as beyond 27x FFO.

From 2005 to 2021, CAPREIT only increased its FFO per unit (“FFOPU) at a compound annual growth rate (“CAGR”) of ~4.4% and cash distribution per unit (“DPU”) by ~1.7%.

From 2011 to 2021, its FFOPU and DPU increased at a CAGR of 5.7% and 2.7%, respectively. From 2016 to 2021, CAPREIT experienced FFOPU and DPU growth at a CAGR of 5.6% and 2.6%, respectively.

Actually, from 2005 to 2010, the residential REIT’s FFOPU growth was under 3.3% per year while its DPU was constant.

Surely, the ~73% higher FFOPU growth rate in the decade of 2011 to 2021 versus the period of 2005 to 2010 wasn’t enough to push the stock’s soaring valuation to 27x in 2021. There must have been other underlying drivers. We suspect the catalysts were low interest rates and higher real estate prices.

Now, in a rising interest rate environment, the monthly dividend stock has quickly fallen to ~21 times FFO, as investors worry rising interest rates will somewhat cool off the hot real estate market in Canada, which CAPREIT is primarily invested in. Next, let’s take a look at CAPREIT’s portfolio.

CAPREIT’s Quality Residential Property Portfolio

As CAPREIT’s 2021 annual report illustrated, it’s primarily invested in Canada, particularly in Ontario and Quebec, the most populous provinces in the country. “Ontario’s population reached 14,951,825 on January 1, 2022,”[1] while Quebec’s population is estimated to reach almost 8.5 million by the end of this year. [2]

Overview of CAPREIT's Canadian residential real estate portfolio

Source: CAPREIT 2021 Annual Report, Page 6

In its annual report, CAPREIT noted its plans to “expand its portfolio of primarily value-add properties in the mid-tier segment in well-located suburban markets in Toronto, Vancouver, and Montreal — Canada’s three largest cities.” It continued, “we have proven our ability to invest in these assets to increase their value, and the stability of their cash flows is driven by continuing high stable occupancies and affordable rental rates.”

The rise in property value (including land prices) has been a big driver in the stock’s valuation. Since this is not reflected in the FFO changes, it is reflected in the stock price.

“In 2021, we recorded a $1,049 million gain in the fair value of our income producing properties following a $596 million gain in 2020.” The gain in 2021 primarily came from acquisitions of new investment properties and secondarily by capital investments in properties.

One growth area includes the intensification and redevelopment opportunities on its owned land. In the long run, management believes it can add ~10,000 new apartment suites through these initiatives.

Its Canadian residential real estate portfolio is complemented by a European portfolio that’s predominantly in the Netherlands. It generates ~87% of revenues from Canada.

The Investor Takeaway

From a P/FFO perspective, CAPREIT trading at ~21x appears to be expensive. However, if you incorporate the unrealized gains of its investment properties, the dividend stock is cheap. This is why, across 15 analysts, the consensus 12-month price target is $63.42 per unit. So, the stock trades at a ~23% discount at $48.87 at writing. Its FFO payout ratio is estimated to be about 61% this year. So, its yield of close to 3% is safe.


  1. Ontario population 2022
  2. Quebec population 2022
  3. CAPREIT 2021 annual report

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