CAR.UN is one of the stronger residential REITs names in Canada, with a good market cap of $7.25 billion, and a slight buyback yield alongside a decent distribution yield of 3.4%. Its FFO/debt ratio has been steady over the past decade, however, its FFO interest coverage ratio has been declining since 2022 amidst the higher interest rate environment. Its forward EV/EBITDA has been declining (now at 20.8X) from a high of 27X in FY2019 alongside the tough macro environment for REITs. Its balance sheet has also contracted slightly from its peak in FY2022, and we feel that all of these indicators are quite normal for REITs over the past few years. In a declining interest rate environment, we see REITs and CAR.UN benefiting in a few ways: lower cap rates can 'reinflate' their balance sheets as the fair market value of properties increases, and current and new financing becomes cheaper. We would be comfortable holding CAR.UN here for a potential turnaround as rates come down.
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