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Monthly Dividend Stock In Focus: Canadian Apartment Properties Real Estate Investment Trust


Published on October 8th, 2024 by Felix Martinez

Investing in real estate investment trusts, or REITs, can be a fruitful option for investors seeking high-income yields. This is due to their obligation to distribute the majority of their profits to shareholders in the form of dividends. Many income-focused investors, particularly retirees, find REITs appealing but usually focus on the U.S.-based ones.

It may be wise to explore opportunities beyond the U.S. market, as reliable dividend-paying REITs exist in other countries. Canada, in particular, features several REITs that boast decades of consistent shareholder value creation. One such is Canadian Apartment Properties Real Estate Investment Trust (CDPYF).

Canadian Apartment Properties REIT stands out among other REITs because it offers monthly dividend payments, whereas most REITs provide dividends quarterly.

While there are a few other REITs that also offer monthly dividends, this is a distinguishing feature that sets Canadian Apartment Properties REIT apart from the pack. This is especially true in this case, as the company has paid a monthly dividend consistently since 1998 and has never cut it despite the hardships that have arisen since.

There are currently just 77 monthly dividend stocks.

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Canadian Apartment Properties REIT offers a dividend yield of more than 3% at current prices, which is notably higher than the broad market’s dividend yield, as that stands at about 1.3% right now.

The above-average dividend yield and Canadian Apartment Properties monthly dividend payments make the REIT worthy of research for income investors. This article will discuss the investment prospects of Canadian Apartment Properties (in short, CAPREIT) in detail.

Business Overview

CAPREIT is Canada’s largest real estate investment trust. The company owns approximately 64,155 suites, including townhomes and manufactured housing sites, in Canada. Further, the company, directly and indirectly, owns a 66% equity stake in European Residential Real Estate Investment Trust, another publicly-traded Canadian REIT. Through this investment, the company also owns approximately 6,900 suites in the Netherlands.

In total, CAPREIT manages approximately 64,155 of its owned suites in Canada and the Netherlands and, additionally, approximately 3,800 suites in Ireland.

Source: Investor Presentation

The company reported strong financial and operational results for the second quarter of 2024, with improvements in both revenues and portfolio performance. Operating revenues for Q2 2024 reached $278.1 million, a 5.4% increase from the same period in 2023. Net operating income (NOI) also rose to $186.3 million, while the NOI margin increased to 67.0%. High occupancy rates and rent growth, especially in the Canadian residential portfolio, contributed to these solid results, while the Netherlands portfolio also showed consistent performance with occupancy remaining high at 97.7%.

CAPREIT continued its strategic acquisitions and dispositions throughout the first half of 2024. The company acquired properties totaling 537 suites in Canada for $238.8 million and disposed of 646 suites for $187.9 million. Additionally, CAPREIT announced the sale of its Manufactured Home Communities (MHC) portfolio for $740 million. This divestment is expected to streamline CAPREIT’s portfolio, allowing the company to focus on core multi-residential assets and reinvest proceeds into high-value opportunities.

On the balance sheet, CAPREIT maintained strong liquidity with $478.5 million in available Canadian funds. The total portfolio fair value as of June 30, 2024, was $16.6 billion. CAPREIT’s net asset value per unit increased to $55.05, reflecting higher property values. The company also raised its distribution rate to $1.50 per unit on an annualized basis, demonstrating its commitment to enhancing shareholder returns.

Growth Prospects

Moving forward, we expect CAPREIT to drive growth through accretive acquisitions and organic rent growth, as it has done in the past.

Management believes that acquiring newly built properties should be a favorable strategy these days, as such properties should reduce the company’s future capital investment needs and, therefore, its exposure to inflationary pressures.

Source: Investor Presentation

Like all REITs, CAPREIT taps into both debt and equity markets to finance its future growth. As interest rates are now higher, one valid concern investors could have is the potential challenges to the company’s expansion efforts due to financing becoming notably more expensive lately. Despite this, CAPREIT has established an impressive credit profile over the years, which allows it to access financing at highly competitive rates.

CAPREIT’s total debt to gross book value was 41.5%, a slight decrease from 41.6% at the end of 2023. The company’s debt is primarily mortgage-based, with a weighted average interest rate of 2.91%, reflecting an upward trend from 2.80% in December 2023. The weighted average term of these mortgages is 4.7 years, providing the company with a stable long-term financing structure. CAPREIT’s debt service coverage ratio remains consistent at 1.8 times, while its interest coverage ratio is at 3.3 times, indicating the company’s ability to meet its debt obligations effectively.

CAPREIT also maintains strong liquidity, with $78.2 million in cash and cash equivalents as of June 30, 2024, and $470.9 million available in Canadian credit facilities. This available liquidity includes a $400.9 million facility for acquisitions and operations and a $70 million GHG Reduction Facility for environmental initiatives. Despite an increase in interest rates, CAPREIT has managed to secure financing of $409.9 million in new mortgages with a weighted average interest rate of 4.51% and a term of 7.5 years, ensuring sufficient capital for future acquisitions and operations.

Dividend Analysis

CAPREIT boasts an impressive track record of paying monthly dividends for 25 consecutive years. Most importantly, the company never had to cut its dividend, even during challenging times like the Great Financial Crisis and the COVID-19 pandemic, when most REITs struggled significantly.

Except for the years between 2004 and 2011, when the dividend remained stable at C$1.08 annually, CAPREIT has consistently increased its dividend every other year during its 25-year history.

Although the current annual rate of C$1.45 yields just over 3%, below average for the sector and somewhat underwhelming given today’s interest rates, we remain highly confident in CAPREIT’s dividend safety. Not only has the company proven its resilience in harsh economic conditions, but with a comfortable NFFO payout ratio of 67%, there is ample room for future hikes and no concerns about potential cuts.

Final Thoughts

CAPREIT is one of Canada’s most reputable REITs, with a proven track record of growing its financials and dividends. In 2022, the company achieved record-breaking figures, and although the current macroeconomic climate may not align with its growth strategy, we predict that CAPREIT will fare better than its peers in the face of rising interest rates.

Overall, while CAPREIT’s yield is not sizeable, the stock is likely to continue serving income-oriented investors who seek a predictable payout satisfactorily. After all, the company’s number one objective is long-term, stable, and predictable monthly cash dividends.

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