Opinions
Hap (Robert) Sneddon FCSI
Minto Apartment REIT
MI.UN-T
BUY
Apr 04, 2025
Stock price when the opinion was issued
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We reiterate this REIT which owns multi-resident properties across the country as a TOP PICK. With a rising cost of capital, the company prudently terminated an option to purchase an apartment complex, which allowed it to reduce debt and build its cash reserves. It trades under book value and supports a 14% ROE thanks to a 56% operating margin. It pays a good dividend, backed by a payout ratio under 15% of cash flow. We continue to recommend a stop-loss at $13, looking to achieve $19 -- upside potential of 24%. Yield 3.2%
(Analysts’ price target is $19.23)Our PAST TOP PICK with MI.UN has triggered its stop at $13. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss of 12%, when combined with previous recommendations.
Great portfolio, solid management. Surprising that it trades below its IPO price. Has had best-in-class portfolio, but not necessarily best-in-class balance sheet. Topline growth has not fallen to bottom line. Too much variable interest rate exposure.
Looking to sell assets to reduce leverage, giving them capacity to expand in BC market. Thinks troubles are behind them, "show me" in terms of execution.
Long-term, yes, for residential REITs, like apartment ones. They also benefit from more immigration. This leads to higher rents. InterRent, Minto and CAP are his preferreds in this space. CAP is the biggest, and they hold a super-quality portfolio that they've been upgrading in recent years. All these are focused in Ontario. but they benefit from lower interest rates. A caveat: Ottawa is slowing immigration to Canada, which feeds demand for apartments. Expect choppiness, but these are good holds. Minto has a great relationship with a private developer who build high-quality homes. They have great capital discipline. But they are exposed to the Toronto market, and their quality homes puts them in competition with the current condo glut in Toronto. This won't hurt Minto's long-term, but the stock will be choppy.
Good job on capital allocation. Trades at wide discount to private market value. Macro for Canadian apartment fundamentals has been somewhat lackluster. Lots of competitive new supply. Housing costs are unaffordable, so low rental turnover. Rent controls limit increases. Very safe distribution. Need patience for Canada's economic picture to improve.
After a successful IPO, has since traded at material discount to NAV. Management is trying to close the gap, buying back units in the REIT (a bullish indicator). Definitely more upside than down, but operating environment is a lot tougher today. Not for the faint of heart, but you can continue to hold and watch for the NAV gap to close.
Tilts more to the luxury side, facing increased competition in Toronto from new supply.
The sector's been acting quite well. He's been picking up some of this name, one of his favourite smaller names in Canada.