Why Doesn’t Northview Apartment REIT Get Any Love?

Northview Apartment REIT (TSX:NVU.UN) trades at a much lower valuation than its main competitors and has a much higher yield.

| 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

As a value investor, I’m constantly delving into a similar mystery. Why does one company attract a premium valuation, while a competitor doesn’t get the same respect?

Unfortunately, the answer to this investing mystery isn’t quite as tidy as the ending to the usual episode of Law and Order. Investors can usually figure out the answer to the valuation-gap mystery, but then they’re left to interpret the results. Is such a gap justified? Or is it a buying opportunity?

That’s the hard part.

Northview Apartment REIT (TSX:NVU.UN) trades at a much lower valuation than its peers. Let’s take a closer look at this company to see whether the difference is justified or if it’s a buying opportunity.

Valuation difference

The difference between Northview and its two main competitors–Canadian Apartment Properties REIT (TSX:CAR.UN) and Boardwalk REIT (TSX:BEI.UN)–mostly has to do with location.

Northview has a true nationwide portfolio. It has 24,300 units with approximately 8,200 located in Ontario, 7,200 in western Canada, 4,150 in Atlantic Canada, 2,400 in northern Canada, and 2,300 in Quebec. Approximately 34% of portfolio income comes from northern Canada.

While Boardwalk and Canadian Apartment Properties also have diverse portfolios, those companies have concentrated their holdings in Alberta and Ontario, respectively. While Alberta is struggling, Boardwalk’s properties are viewed by the market as being well maintained and nice. Thus, the company is maintaining its premium valuation even through these tough times. And there isn’t much wrong with owning property in Ontario.

Based on results for the first half of the year, Northview is on pace to deliver $2.16 per share in funds from operations, despite one-time charges from the Fort McMurray wildfire hurting the bottom line. That puts shares at just 9.8 times funds from operations.

Boardwalk, meanwhile, which also suffered from its exposure to Fort McMurray, is trading at about 16.5 times its projected funds from operations for 2016. Canadian Apartment Properties is more expensive still, trading at 18 times projected funds from operations.

Dividends

Northview also beats its competitors on dividends. It’s not even close.

Northview pays investors a monthly payout of 13.58 cents per share, giving it a yield of 7.7%. It has a payout ratio of approximately 75% of 2016’s funds from operations. Remember, this payout ratio is projected to fall to around 70% in 2017 as earnings return to normal.

Compare that to Boardwalk, which is often complimented on the safety of its 4.4% yield. Boardwalk pays investors 18.75 cents per share each month, giving it a payout ratio of approximately 73%. Canadian Apartment Properties pays investors 10.167 cents per share monthly, giving it a payout ratio of approximately 76%. It currently has a yield comparable to Boardwalk at 4.3%.

In short, Northview pays a 7.7% dividend with a 75% payout ratio. Its competitors have payout ratios very similar, but they have much lower dividends.

What’s wrong with Northview?

There’s no such thing as a free lunch in investing, or so the saying goes. There must be something wrong with Northview if it trades at such a low valuation compared with peers.

We’ve already touched on one particular issue. Many Canadian investors don’t like the company’s outsized exposure to northern markets.

Another reason is the company’s debt. It currently has a debt-to-assets ratio of approximately 60%, much higher than its main competitors and a full 10 percentage points higher than the 50% debt-to-assets level REIT investors like to see as a maximum.

The debt is trending in the wrong direction, too. A year ago, Northview had a debt-to-assets ratio of 51.3%. It does plan to reduce debt by selling a few non-core assets, but it’s obvious the market is sending management a message.

The bottom line

Northview Apartment REIT has a higher dividend and trades at a much lower price-to-funds-from-operations ratio than its peers. As long as the company can pay down its debt and maintain that generous dividend, look for its valuation to move more in line with the rest of the sector, leading to nice profits for investors who get in today.

Should you invest $1,000 in Stingray Group Inc. right now?

Before you buy stock in Stingray Group Inc., 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 Stingray Group Inc. 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 $20,697.16!*

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 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Nelson Smith 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

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How I’d Allocate My TFSA Contribution to Canadian Value Stocks This Year

I’d split my $7,000 TFSA contribution across solid dividend-paying stocks from different sectors

Read more »

dividend growth for passive income
Dividend Stocks

Why I’d Invest in Canadian Value Stocks for Both Stability and Growth

Three Canadian value stocks are buying opportunities for investors looking for stability and growth.

Read more »

investment research
Dividend Stocks

Got $15,000? 3 Blue-Chip Stocks Every Canadian Should Consider

Here's why investing in blue-chip TSX stocks such as CNQ and CNR should derive outsized gains in 2025 and beyond.

Read more »

protect, safe, trust
Dividend Stocks

Where I’d Allocate $20,000 in 2 Safer High-Yield Dividend Stocks for Retirement Needs

Here are two safer, high-yield dividend stocks I'm looking at for my retirement needs.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

3 Reasons I’m Considering Enbridge Stock for a $5,000 Investment This April

I'm considering Enbridge stock to provide some defensive appeal and a juicy dividend to my long-term portfolio.

Read more »

monthly desk calendar
Dividend Stocks

A 9.2% Dividend Stock Paying Cash Every Single Month

With one of the highest dividends out there, this dividend stock deserves attention in your portfolio.

Read more »

Happy golf player walks the course
Dividend Stocks

Build a Powerful Passive Income Portfolio With Just $20,000

If you are worried that the bear market could reduce your savings, these stocks can build a powerful passive income…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

How I’d Use My $7,000 TFSA Contribution to Start Retirement Planning

These TSX stocks have solid fundamentals and are well-positioned to deliver significant tax-free total returns over time.

Read more »