Canadian Urban Rental Demand Will Fuel Future Value

Key Takeaways

• Strategic portfolio shift to newer, unregulated Canadian apartments and divestment of regulated assets drive stronger rent growth, revenue, and margin expansion amid housing undersupply.
  
• Operational efficiency, disciplined capital allocation, and buybacks support sustained earnings growth, margin improvement, and management confidence in asset value.
  
• Regulatory risks, affordability challenges, and increased competition threaten to restrict CAPREIT's rental growth, profit margins, and future earnings potential.

Catalysts

CAPREIT is Canada's largest publicly traded provider of quality rental housing.

• The ongoing shift of CAPREIT's portfolio toward newer, well-located, low CapEx Canadian apartments with largely unregulated rents-combined with divestments of lower-performing and regulated assets in both Canada and Europe-positions the company to capture outsized rent growth and higher net operating income (NOI) in the context of a persistent housing undersupply and affordability crisis, directly benefiting revenue and margin expansion.
  
• Sustained high occupancies (98.3%) and rising average monthly rents, even amid affordability challenges, reflect robust demand dynamics resulting from continued urban population growth and the societal shift toward renting among younger, higher-income tenants. These dynamics support long-term leasing stability and organic revenue growth.
  
• Tactical investments in operational efficiency-including digital platforms, energy retrofits, and more rigorous procurement and cost control-are driving recurring reductions in controllable expenditures and higher NOI margins (expansion to 66.3%), with improved net margins expected as a result.
  
• The completion of the European portfolio divestment and continued disciplined capital allocation, including targeted, high-margin small-scale development projects at below-market construction costs, create runway for accretive reinvestment and FFO per unit growth, with a lower-risk balance sheet (debt-to-gross book value at 38.5%) supporting future earnings and possibly accelerated NAV per unit growth.
  
• The company's aggressive buyback program (NCIB), repurchasing units at a ~24% discount to NAV, is immediately accretive to FFO per unit and demonstrates management's confidence in underlying asset value, potentially serving as a catalyst for closing the valuation gap as long-term housing demand and persistent supply constraints reassert rental rate and earnings growth.

Canadian Apartment Properties Real Estate Investment Trust Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Canadian Apartment Properties Real Estate Investment Trust's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.6% today to 70.5% in 3 years time.
• Analysts expect earnings to reach CA$834.1 million (and earnings per share of CA$2.72) by about August 2028, up from CA$81.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CA$967 million in earnings, and the most bearish expecting CA$433 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, down from 82.5x today. This future PE is greater than the current PE for the CA Residential REITs industry at 6.6x.
• Analysts expect the number of shares outstanding to decline by 6.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

Canadian Apartment Properties Real Estate Investment Trust Future Earnings Per Share Growth

Risks

• Rising interest rates or elevated borrowing costs may persist, and as acquisition targets become overwhelmingly new construction assets (often priced above replacement cost), CAPREIT could face challenges with accretive acquisitions, resulting in slower FFO and NAV per unit growth and potential earnings stagnation.
  
• CAPREIT's increasing concentration in Canadian markets, especially urban and suburban Ontario, exposes the company to heightened regulatory risk; stricter rent control, affordability mandates, or government interventions could limit rental rate growth, directly reducing future revenues and earnings.
  
• Intensifying affordability crises in Canada-driven by stagnant wages, unemployment, and elevated housing costs-may require ongoing concessions, rental discounts, or incentives to maintain occupancy, ultimately pressuring net rental income and profit margins despite tactical management.
  
• The gradual turnover and bleed-off of high-rent COVID-era leases, combined with a transition to lower mark-to-market rent growth, implies a likely reversion to more modest rental uplifts after the next 12–18 months, reducing organic revenue growth drivers versus prior elevated periods.
  
• Increased supply of rental housing, especially in select markets like Vancouver and potentially Toronto, alongside competition from purpose-built renters and alternative living models, could constrain CAPREIT's ability to drive occupancy and rent growth, thereby limiting both revenue and net operating income over time.

Valuation

• The analysts have a consensus price target of CA$52.51 for Canadian Apartment Properties Real Estate Investment Trust based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$85.0, and the most bearish reporting a price target of just CA$45.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.2 billion, earnings will come to CA$834.1 million, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of CA$42.25, the analyst price target of CA$52.51 is 19.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.