Owning real estate has been a good investment idea over the last couple of decades. But who wants to go through all the hassle of renting out property? Many investors have opted for a different route, choosing to get their exposure through a passive entity, like a REIT.
Northview Apartment REIT (TSX:NVU.UN) is Canada’s third-largest apartment REIT, trailing both Boardwalk REIT (TSX:BEI.UN) and Canadian Apartment Properties REIT (TSX:CAR.UN). Northview’s portfolio is much more concentrated in areas like Northern and Atlantic Canada, while its competitors stick to larger cities. Investments made in these remote communities come with greater cap rates than those in more competitive markets.
This has created a value opportunity. Northview shares are much cheaper than its two largest rivals despite owning better yielding assets.
Let’s look at valuation first. Boardwalk trades at just under 16 times funds from operations. Canadian Apartments is even more expensive, with shares at just under 18 times funds from operations. Northview trades at less than ten times funds from operations.
The company also trades within a few cents of its stated book value, while Canadian Properties trades at 5% above its book value. Boardwalk trades below book value, but many investors expect the company to write-down its Alberta holdings.
Northview investors are also getting a much better dividend. Shares currently yield 7.7% versus 4.8% for Boardwalk and 3.9% for Canadian Apartments. Northview’s payout ratio is higher than its two peers, but not excessively so. The distribution is safe.
