Toronto is apparently in the middle of a condo apocalypse. Rents are sliding, vacancies are ticking up, and more than a few owners are underwater. It’s due to a combination of lower immigration targets, a glut of new supply, and overleveraged buyers with variable-rate mortgages banking on rate cuts that still haven’t arrived.
Right now, cap rates on condos are effectively zero, if not negative. But that doesn’t mean all real estate is a bad investment. Real estate investment trusts, or REITs, are a different animal. They pool investor capital to buy and manage income-producing properties, then pay out most of the profits as distributions.
One I like is Canada’s largest apartment-focused REIT, Canadian Apartment Properties REIT (TSX: CAR.UN).
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What Canadian Apartment Properties REIT owns
CAR.UN’s portfolio spans over 66,000 rental units across Canada, including mid-rise and high-rise apartment buildings as well as townhomes and manufactured housing communities. Most properties are in urban and suburban locations with steady rental demand. Many are purpose-built rentals, meaning they were designed from the ground up to be leased rather than sold. This generally leads to more efficient layouts, lower turnover, and more consistent long-term occupancy compared to condos converted to rentals.
CAR.UN’s financials
CAR.UN currently offers a 3.72% yield, paid monthly, making it a natural fit for income-focused investors. Over the past five years, the REIT has grown its distribution at an average annual rate of 5.4%, reflecting management’s ability to steadily increase cash flows.
Its payout ratio sits at 61% of adjusted funds from operations (AFFO), meaning it retains nearly 40% of its earnings to reinvest in property upgrades, acquisitions, and debt repayment.
On the balance sheet, CAR.UN looks disciplined. Debt to assets is 38.7%, which is moderate for the sector and suggests it’s not overleveraged like some office REITs are.
Interest coverage, a measure of how easily it can pay interest costs, is a solid 3.1 times, indicating a comfortable buffer even if rates stay higher for longer. Occupancy is holding steady at 97.9%, showing strong tenant demand despite the softer condo market.
The Foolish takeaway
You can hold CAR.UN in a Tax-Free Savings Account (TFSA) and keep every dollar of monthly rent income tax-free, something you can’t do with a condo. Better yet, you won’t get 2 a.m. calls about leaky pipes or have to chase tenants for rent. For exposure to residential real estate without the headaches of direct ownership, CAR.UN is a simple, scalable option.
