Canadian Apartment Properties REIT, or CAP REIT (TSX: CAR, OTC: CDPYF), owns 30,821 apartment buildings and townhouses, including several manufactured home courts, in or near urban centers across Canada.

Toronto-based CAP REIT is driving organic growth through acquisitions, which generally add to earnings and help cash flow growth. In late June, CAP REIT announced that it had completed its CAD455 million acquisition of 3,562 suites of 14 properties located in the Greater Toronto Area, Southwestern Ontario, Montreal Region, Quebec City and Halifax.

CAP REIT has benefited from rising occupancy rates and investor demand for high yields, two factors that currently outweigh concerns that the Bank of Canada might raise interest rates to cool the country’s hot real estate market.

CAP REIT also has benefited from large numbers of former homeowners who have returned to renting and young professionals who either can’t qualify for their first home mortgage or don’t want to own.

In May, CAP REIT announced strong results for the first quarter of 2012. Normalized funds from operations (NFFO), which exclude the effects of financial instruments and other non-recurring expenses, increased in the first quarter by 23.3 percent, for an improved NFFO payout ratio of 83.5 percent. NFFO per unit increased 10.6 percent from year-ago levels.

First-quarter net operating income (NOI) was up 13.3 percent, while NOI margin increased from 53.9 percent to 55.4 percent.

First-quarter operating metrics were solid, a clear sign that CAP REIT has chosen its assets well. CAP REIT has built its portfolio around recession-resistant properties in the steadier markets of eastern Canada. In the first quarter, overall average monthly rents rose 2.4 percent for properties owned prior to March 31, 2011, and 1.7 percent for all properties.

Overall portfolio occupancy held steady at 98.3 percent.

During the past several years, CAP REIT has consistently expanded its business. Since January, CAP REIT has added CAD251 million of premium quality real estate to its portfolio. Although supply has grown in its markets, demand has kept pace.

Management announced in May that it would yet again increase the distribution paid to unitholders, to CAD1.49 per unit annually from CAD1.44. This marks the 11th consecutive year that CAP REIT has increased its distributions. With a solid yield of nearly 5 percent, Canadian Apartment Properties REIT looks undervalued at current levels.

John Persinos is Editorial Director at Investing Daily.