Canadian Apartment Properties: Crowd Comes Around To Our View

Core Viewpoint - CAPREIT has shown strong performance despite challenges in the Canadian real estate market, with a notable increase in stock price and positive financial results in Q2 2024 [6][7][20]. Financial Performance - CAPREIT reported a 5.4% increase in operating revenues, reaching CAD 278.1 million in Q2 2024 compared to CAD 263.8 million in Q2 2023 [15]. - Net income rose by 7.2% to CAD 186.3 million, with a net operating income (NOI) margin of 67.0% [15]. - The company achieved a 9.1% increase in funds from operations (FFO), amounting to CAD 109.1 million, with FFO per unit rising to CAD 0.644 [15]. Portfolio and Occupancy - CAPREIT's total portfolio consisted of 64,155 suites as of June 30, 2024, with a slight decrease from 64,260 suites at the end of 2023 [9]. - Occupancy rates dipped slightly to 97.7% across the total portfolio, down from 98.2% [9][10]. - The Canadian residential portfolio maintained a high occupancy rate of 98.2%, while the Netherlands portfolio occupancy was at 97.7% [9]. Rent Growth and Market Conditions - Monthly rents increased by 5% due to strong market conditions, despite low suite turnovers [10][12]. - CAPREIT has significant embedded value in its portfolio, with a mark-to-market opportunity in rents expected to be captured over the next 5-9 years [12][17]. Debt and Financing - CAPREIT completed mortgage financings totaling CAD 409.9 million with a weighted average interest rate of 4.51% and a term to maturity of 7.5 years [18]. - The company’s debt strategy remains conservative, with a total debt to gross book value ratio of 41.5% [13]. Dividend and Future Outlook - A 3% distribution hike was announced, increasing the annual distribution from CAD 1.45 to CAD 1.50 [20]. - The stock trades at approximately 19.6 times the 2025 FFO, indicating potential for further growth as NAV estimates may rise by 3%-5% over the next year [20][22].