Canadian Apartment Properties (CAR.UN.TO)

When talking apartments, where are they located? Most of these are located in Ontario. It has done incredibly well because the Ontario economy has done well. They don’t have much exposure in Alberta, but they do have some in the Netherlands. A good company. They are not over distributing their balance sheet, so he does like this. Rent controls are back on which is not a big thing for this company, but also not a great thing. Trading at about 16X Price to AFFO, on the high side historically.

Mr. Swartz passed away in the last couple of days after being ill. That is why you saw dislocation. Along with other REITs it took a hit from higher rates. It is okay to hold. He would not want to hold retail REITs.

He likes this and the apartment sector in general. Apartments are more affordable housing, and tend to be countercyclical. When the economy goes down, you tend to have people move into more affordable housing. A lot of their Net Operating Income is concentrated in Ontario. Spent a lot of money in the last 5 years on improving their properties, which has resulted in significant increases in rents. If you hold this longer-term, you should be fine. Dividend yield of 3.9%.

Apartment REITs? Apartment REITs are very defensive. If the economy slows down, it actually increases the demand for low income housing, which is what these apartments are. If you see the Canadian economy decline or slip into a recession, you’ll probably see more people migrate into apartments that rent out for a lot less than what it would cost you for a house or a condo. This one has been very well-managed and have spent a lot of money reinvesting back into properties. That has allowed them to affect an increase in rents above the guideline increases that is allowed in Ontario.

Wonderful management team that have sold out of their apartments in Ontario. They have the best apartments across Canada. They are looking to expand outside of Canada. It is inexpensive here. He likes apartments here.

They have some exposure to Alberta but most is Ontario, Quebec and BC. There is very little vacancy. They have executed incredibly well. He likes the company and its assets. This one is defensive in nature. Apartments do well in a real estate downturn.

He is not a fan of REITs. They generally don’t increase the distributions. To grow they have to issue more capital. They’ve never been the best compounders of capital. However, this one is a wonderful company, and one that pretty much increases distribution every year. They own the best apartments in Canada, and are now looking for growth outside of Canada.

Canada’s biggest land lord. They are opening up frontiers in Europe. It is a wonderfully run company. Very nice distribution. Very solid balance sheet. (Analysts target: $33.15).

(A Top Pick Dec 18/15. Up 22.55%.) The minute you put in mortgage reforms and try to avoid people overextending themselves on a house, they are going to rent. He is a big fan of renting. It has a great role in society. This is the largest landlord in Ontario, and benefits from that.

H&R Reit (HR.UN-T) or Canadian Apartment Properties (CAR.UN-T)?On REITs, it is not the front-page story that kills you, but the story you don’t know that kills you. Everybody knows interest rates are probably going to go up, which may already be priced into some. A lot of them benefit from rising interest rates because it means the economy is improving. These are 2 of the best along with RioCan (REI.UN-T). These are great investments, but are not his best investment idea. If he had a list of 30 stocks, 29 and 30 would be a REIT. You don’t get a lot of dividend increases or capital appreciation. You own them for the income. A younger person’s portfolio should not have a REIT.

(A Top Pick Nov 12/15. Up 23.09%.) He is really concerned about Toronto prices. This move of mortgage rates going up is very dangerous for housing prices. They are also making it harder for new buyers, which means they have to rent longer, so you want to own the biggest apartment landlord in Ontario.

The sector is relatively fairly valued, but apartments have really pulled off. This one started to drop after they announced they had some weakness in their Calgary portfolio, which is only about 7% of the portfolio. Everything else was doing very well. The stock pulled off about 10%. An opportunity to pick up a high quality, very liquid real estate. Yield of 4.11% and a decent valuation.

Canadian REITs generally tend to do well in the spring and summer. It is now starting to break down. Chart shows a strong upward trend line which was just violated today. Investors are shying away from these defensive names, which have had substantial run ups from their low. Seasonality has worked out well, but it is now reaching that Sell signal. We are a month away from the seasonal peak, but you want to stay away from this for now.

To buy this, you might not get the dips that you need. Sometimes you just draw a line in the sand and then you miss it. This is a great company with great prospects going forward. Affordable housing. There is nothing more attainable than renting a quality apartment. He likes the prospects long-term.

REITs in general have been a really hot group. Low interest rates help the REITs. Also, they are signalling that the economy is probably not going to be too bad. Chart shows that this one is trending higher. Dividend yield of 4%.