Canadian Apartment Properties REIT Is Great, but There’s 1 Big Problem

Canadian Apartment Properties REIT (TSX:CAR.UN) is a rare gem in the Canadian REIT world. But there’s one big problem with it today.

| More on:
The Motley Fool

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

There’s no denying Canadian Apartment Properties REIT’s (TSX:CAR.UN) high quality. It is a residential real estate investment trust (REIT) that owns apartments, townhouses, and land-lease communities in or near major urban centres in Canada.

The REIT is growth oriented. It has grown its suite count from 2,900 in 1997 to 47,559 today.

It has 50% of its properties in Ontario, and many see this as a positive. It also has 23% of its properties in Quebec, 10% in British Columbia, 6% in Alberta, and 5% in New Brunswick.

First-quarter results

Quarterly results only affect short-term prices. So, long-term investors can choose to ignore them. However, the results indicate the REIT’s health, so let’s take a look at it.

In the first quarter, Canadian Apartment’s operating revenues and net operating income (NOI) were up by almost 13%, and normalized funds from operations (FFO) rose almost 20%.

Additionally, Canadian Apartment’s NOI margin improved by 30 basis points to 58.1%, and its same property average monthly rent improved by 1.7%. Although its occupancy rate decreased slightly by 40 basis points, it still maintains a high occupancy rate of 98.2%.

On a per-unit basis, the REIT’s FFO only rose about 4%. As well, its same property NOI rose 2.6%.

Strong financial profile

Canadian Apartment maintains a strong financial profile with strong coverage ratios and debt levels that are in alignment with its peers.

At the end of the first quarter, Canadian Apartment reported the following:

  • Its debt-to-gross book value was 45.8%, 1.5% higher than in the same period in 2015
  • Its weighted average mortgage interest rate was 3.36%, 24 basis points lower than in the same period in 2015
  • Its weighted average term to maturity was 6.1 years
  • Its debt-service coverage ratio was 1.64 times, which was stronger than 2015’s 1.59 times
  • Its interest coverage ratio was three times, which was also stronger than 2015’s 2.82 times

Distribution

Over time, Canadian Apartment’s FFO per unit has been trending up, while its payout ratio has been declining.

So, at $31.80 per unit, the REIT’s 3.8% yield is rock solid, especially since its first-quarter payout ratio was only 76%.

The big problem: Too pricey

As noted before, Canadian Apartment’s FFO per unit only rose 4.1%. Don’t get me wrong. It’s still strong growth.

However, Canadian Apartment now trades at a multiple of 19.6. The REIT has never traded at this high a multiple before–even when it had higher FFO per-unit growth in previous years.

Simply put, Canadian Apartment is just too expensive as an investment today.

Conclusion

Canadian Apartment is one of the highest-quality residential REITs you can invest in. However, you should not buy shares today because they’re simply too pricey. If the shares fell to $26.80 or lower, the REIT would be a buy at a yield of 4.5% or higher.

Should you invest $1,000 in Canadian Apartment Properties right now?

Before you buy stock in Canadian Apartment Properties, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Canadian Apartment Properties wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng has no position in any stocks mentioned.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

senior relaxes in hammock with e-book
Dividend Stocks

How I’d Invest $8,200 in Canadian Monthly Dividend Stocks to Pay for My Retirement Lifestyle

If you have some cash on hand, then these monthly dividend stocks can provide you with cash for life.

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Here’s Exactly How $20,000 in a TFSA Could Grow to $300,000

Can you grow $20,000 into $300,000 by holding the iShares S&P/TSX Index Fund (TSX:XIC) in a TFSA?

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

How to Use $15,000 in a High-Yield Dividend ETF for Steady Passive Income

This ETF has it all, a strong portfolio of dividend payers, along with a high yield for investors.

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

A 9.9 Percent Dividend Stock Paying Cash Every Month

If you are looking to park your money for the short term and earn from it, this 9.9% dividend stock…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

Have Room in Your TFSA? 1 Canadian Dividend Champion for April Investors

If you've got extra cash in your TFSA, the latest dip in markets may provide you with a golden opportunity…

Read more »

engineer at wind farm
Dividend Stocks

Beginner Investors: How I’d Allocate $5,000 in 2 Safe Dividend Stocks

There are plenty of great dividend stocks on the market, but these two are buy-and-forget candidates that will boost your…

Read more »

grow money, wealth build
Dividend Stocks

Invest $25,000 in These 3 Dividend Stocks for $1,600 in Annual Income

These three Canadian dividend stocks could deliver a reliable passive income of over $1,600 annually.

Read more »

Woman in private jet airplane
Dividend Stocks

Why I’d Start My Investing Journey With $7,000 in 4 Foundational Stocks

These four stocks have high-quality and reliable operations, making them among the best long-term investments in Canada.

Read more »