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  5. CAR.UN: We recently sold our rental units and are considering adding CAR. [Canadian Apartment Properties Real Estate Investment Trust]
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Investment Q&A

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Q: We recently sold our rental units and are considering adding CAR.UN to our income portfolio for exposure to Canadian residential units and rental income. I'm curious about your thoughts on valuing Canadian REITs. What specific factors or metrics do you consider when determining if a REIT is in value territory?
Asked by Derek on January 29, 2024
5i Research Answer:

There are several REIT-specific metrics and ratios that we look at when analyzing REITs, many of which are discussed in a previous blog of ours here. For CAR.UN, a few other metrics that we are looking at include its FFO interest coverage ratio, its FFO/Debt, and buyback yield. Its FFO interest coverage ratio has been climbing over the years, and this signals a strong ability to service its interest expenses. Its FFO/Debt has been hovering at levels of 0.1X, a slight decline over the past several years, but an overall strong ratio. Its buyback yield is 1.7%, signaling that it has been using its free cash flows to buyback shares.

One factor that we look at is its price compared to distribution yield (as price declines yield typically increases). To a certain point, this can set up an attractive scenario where the yield is competitive with bonds, and if it generates enough free cash to service both debt and distribution yields, then the name can be considered at an attractive point. Overall, we like CAR.UN and feel that it is one of the stronger REIT names in the Canadian landscape.