Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) has repositioned its Ontario portfolio by selling four properties – two in Scarborough and two in Ottawa – and acquiring one in the national capital.
CAPREIT (CAR-UN-T) president and chief executive officer Mark Kenney told RENX non-disclosure agreements prevent him from identifying the purchaser of the four properties it sold.
CAPREIT owned 100 per cent of the Scarborough portfolio’s 608 units and a 50 per cent stake in the 185 units in Ottawa. They were sold for total consideration of $200.1 million. Existing mortgages of approximately $57.8 million were either repaid or assumed by the purchasers.
“A big part of what we want to do at CAPREIT is make an impact on assets by investing significant amounts of capital in buildings,” Kenney said of the two Markham Road properties in Scarborough which it had owned for a long time. “We felt that we had done the good work and saw this as an opportune time to sell.
“Valuations for apartment buildings have continued to go up throughout the pandemic.”
The sale of the two Ottawa buildings was part of an unwinding of a joint venture with an unnamed partner.
Luxury property acquisition in Kanata
CAPREIT has also acquired a new luxury property with 36 apartment suites and 76 townhomes in the West Ottawa community of Kanata for $43.7 million from an unnamed merchant builder with whom it had an advance arrangement.
The REIT had the building tied up during construction and bought it on stabilization.
Occupancy was 98.2 per cent at closing on May 4.
“We see significant value in being part of new Canadian apartment construction supply,” said Kenney.
“CAPREIT wants to be participating in new rental supply in this country and sees significant value in buying brand new assets that we think are 20 per cent below replacement cost because of inflation and everything else that’s happened.”
The deal was funded by the assumption of an existing two-year, $26.5-million mortgage with a 2.4 per cent interest rate, with the balance funded by CAPREIT’s acquisition and operating facility.
“One of the attributes of new construction assets that we look for is in-place financing where you’re getting rates from a year ago,” said Kenney, who acknowledged this is becoming more important in today’s environment of rising interest rates.
CAPREIT’s focus has transitioned from acquiring value-add assets to buying and building new apartment buildings.
“We are very focused on high-grading the CAPREIT portfolio,” said Kenney. “That involves selling some assets that we’ve owned for a long time.”
CAPREIT is Canada’s largest publicly traded provider of rental housing.
It owns or has interests in approximately 67,000 residential apartment units, townhomes and manufactured housing community sites across Canada and the Netherlands, with approximately $18 billion of assets under management.
CAPREIT is buying back stock
Some of the sales proceeds from the Scarborough and Ottawa portfolios will be used to buy back CAPREIT stock.
“We are selling assets with a mid-to-high two cap and buying back our stock at a 4.5 cap at today’s price levels,” said Kenney.
“We remain very committed to buying back our own stock at these levels because the market value of the real estate is completely disconnected from the stock value.”
Kenney expects this phase of recycling capital and upgrading CAPREIT’s portfolio to continue as a means of generating value for unitholders.
CAPREIT’s stock price closed at $44.10 on the Toronto Stock Exchange on June 22 when its market capitalization was $7.69 billion. The stock’s 52-week high and low prices were $62.77 and $42.90, respectively.
“I don’t like seeing our stock at these levels, but I certainly love buying it at these levels,” said Kenney.
“The market is volatile right now, which is where the opportunity is. The private markets don’t see real estate the same way that the capital markets see it. It’s a tale of two markets.”