Canadian Apartment Properties Real Estate Investment Trust (CARUN) Earnings Call Transcript
November 7, 2025
Earnings Call Speaker Segments
Hello, everyone, and thank you for joining the Canadian Apartment Properties REIT Third Quarter 2025 Results Conference Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions] I will now hand over to Nicole Dolan, Investor Relations at Canadian Apartment Properties REIT, to begin. Please go ahead.
Thank you, operator, and good morning, everyone. Before we begin, let me remind everyone that during our conference call this morning, we may include forward-looking statements about expected future events and the financial and operating results of CAPREIT, which are subject to certain risks and uncertainties. We direct your attention to Slide 2 and our other regulatory filings for important information about these statements. I will now turn the call over to Mark Kenney, President and CEO.
Thanks, Nicole, and good morning, everyone. Joining me this morning are Stephen Co, our Chief Financial Officer; and Julian Schonfeldt, our Chief Investment Officer. I'll start with a high-level update on our progress in 2025 as summarized on Slide 4. So far this year, we've sold $411 million in noncore underperforming Canadian properties. On a consolidated basis, we've disposed of $783 million in European assets. With the sale proceeds, we've invested $366 million into the purchase of 9 high-quality, low-CapEx properties located in some of Canada's most highly sought-after neighborhoods. We've also allocated $200 million to our NCIB program, repurchasing CAPREIT's trust units at a weighted average price of $43. With this being well under -- well below our diluted NAV per unit of $56 as of September 30, it continues to represent a highly accretive use of capital. Operationally, our same-property Canadian portfolio was 97.8% occupied at period-end, across which we achieved 4.4% growth in average monthly rent. Combined with disciplined cost management, we are pleased to report our same-property NOI margin expanded to 66.4% in Q3. We've also strengthened CAPREIT's balance sheet with leverage decreasing to 37.7% as of September 30, 2025. With that overview, I will now turn the call over to Julian to provide an update on our capital allocation progress.
Thanks, Mark. On Slide 6, you'll see the significant progress we've made on our portfolio repositioning program. We've been actively divesting underperforming assets and redeploying proceeds into strategically aligned mid-market apartments that come with low capital investment requirements and strong cash flow yield. This upgrading has strengthened the performance of our affordable, well-maintained portfolio and reduced our noncore exposure, which is now at only 11% in Canada and 2% in Europe. Looking ahead, we're committed to advancing this transformation, simplifying the business and returning to our roots as a pure-play provider of Canadian apartment properties. Our NCIB is another important component of our capital allocation strategy. As shown on Slide 7, we executed $200 million of accretive repurchases in 2025, bringing total activity since inception in 2022 to $866 million. This mechanism has delivered meaningful value by allowing us to invest in our own high-quality portfolio at an implied cap rate well above market comparables without due diligence, with quick execution and minimal transaction costs. Subject to market conditions and other strategic priorities, we plan to continue leveraging this tool to maximize unitholder returns. With that, I'll hand it over to Stephen to review our results.
Thanks, Julian. In today's operating environment, our seasoned and agile leasing and retention strategies are playing an increasingly crucial role in sustaining performance and driving value. On Slide 9, while occupancy softened slightly given recent market dynamics, it remained healthy at 97.8% on September 30 for the total Canadian residential portfolio. Across occupied suites, our average monthly rent increased by 5.7% year-over-year to $1,709. Turning to Slide 10. Robust rent growth was supplemented by prudent cost control. You can see that the same-property expenditures increased by 1.3% compared to Q3 last year. However, excluding realty taxes and utilities, operating costs were down by 2.5%, driven mainly by lower R&M costs. Several initiatives contributed to this, including more competitive quoting and closed bidding processes, stricter approval thresholds, enhancements to our procurement practices and improved sourcing and tendering through software optimization. These operational efforts drove a 0.8 point increase in our same-property NOI margin to 66.4% for the quarter. Diluted FFO per unit was up by 0.6% for the 3 months ended September 30, 2025, primarily due to NCIB repurchases and, to a lesser extent, reduced interest expense on credit facilities and mortgages payable. These gains were partially offset by lower NOI from asset dispositions. However, with sale proceeds used in part to repay debt, CAPREIT successfully decreased its debt to gross book value ratio by 3.2% since September 30, 2024. However -- I mean, sorry -- higher vacancy also weighed on performance versus prior year period, including elevated vacancy in the Netherlands tied to ERES's disposition program, which intentionally holds more suites vacant each month in order to maximize sale value. Results for the 9 months ended September 30, 2025 are summarized on Slide 11. With heightened cost pressures in the beginning of the year, our 9-month same-property NOI margin held approximately flat compared to the same period in 2024, while our total portfolio margin declined to 65.2%. This reflects those early headwinds despite strong performance in the second and third quarters. Slide 12 provides an overview of our balance sheet, which remains one of the most resilient in our peer group. At period-end, we had $281 million in available liquidity, including $84 million in Canadian cash and $197 million in unused capacity on our acquisition and operating facility. This flexible financial position enables us to continue acting swiftly and decisively on accretive market opportunities as they arise. On that note, I will turn the call back over to Mark to wrap up.
Thanks, Stephen. In summary, our third quarter 2025 performance underscores the enduring strength and stability of our affordable apartment portfolio in Canada: the value created through strategic capital recycling, the effectiveness of our rigorous property management and the resilience of our conservative financial framework. Importantly, these elements all work together to support one primary objective: increase free cash flow generation. We view this as an essential to sustaining earnings growth and enhancing long-term unitholder value. On Slide 14, as we approach year-end, we remain focused on driving continued progress across all areas of our business and reinforcing CAPREIT's long-standing position as a trusted choice for living, working and investing. We would now be pleased to take any of your questions.
[Operator Instructions] Our first question comes from Jonathan Kelcher from TD Cowen.
First question, just on the capital allocation, and the NCIB specifically with the stock below $40 here. Can we expect you to sort of increase the pace or pick up the pace going into year-end and the beginning of next year?
Well, there's no question that at today's stock price level, there's extremely compelling value for anybody purchasing the unit. So it's something that we got in our stack of capital allocation, and it remains in that stack.
Okay. I guess then shifting to operations, the uplifts on turnover obviously being weighed down by above-market leases turning. How far do you think you're into that? Like how much longer do you think that's going to really weigh on the turnover stats?
Yes. I think we're -- hey, Jonathan. I think we're still probably 12 to 18 months away. But I would say as we see a lot of the turnover represented by those above-market leases, we're going to get through that over time.
Okay. So do you think the kind of 3% to 4% where you are right now is kind of the bottom and maybe start to grow from there in the back half of next year?
Yes, I think that's a pretty reasonable range.
Our next question comes from Brad Sturges from Raymond James.
Just to follow-up on Jon's capital allocation question. Just what would be holding you back on the NCIB here today? Are you seeing more opportunities on the acquisition side that might compete for that capital? Or what would be the reason for the, I guess, the cautious tone there?
Well, what we have always said is that we've got the 3 pillars of use of capital, whether it be property acquisitions, NCIB or paying down debt. And we are very focused on our cash flow journey. And the opportunities to buy new construction assets at significantly below replacement cost is one that we had to balance with the other decisions, okay? At these, obviously, how we're compelled to allocate capital is dependent on acquisition opportunities, the level that the stock is trading at and the cost of debt. And going back to what I said in the first case, there is extremely compelling value in the stock price today.
Okay. And just maybe just a question on the acquisition opportunity set today. How has that evolved or -- improved or not improved over the last few months? What are you seeing in the market today? I know you highlighted some opportunities in Vancouver when we were there a few weeks ago. But just maybe an update on the acquisition opportunity.
Thanks, Brad. There remains a lot of product out there to look at, but the bid-ask spread continues to be very wide with a lot of the product that's coming online now born during the kind of COVID elevated construction cost time line, diversions between what it cost folks to build the buildings and what they're actually worth now. So we see a lot of opportunities, but I'd say very few of them are actually executable at prices that make sense for us. But we underwrite hundreds of acquisitions a year. We're not seeing that slow down. And it's just you have to be very agile, nimble and take advantage of opportunities when they are executable, which is generally when there's either vendor distress or the vendors made an explicit statement or strategy to just get out of them and take whatever the market offers. So in short, lots of opportunities, but still there's wide bid-ask spread.
Are the better opportunities still more on a one-off basis? Or are you seeing product coming to the market in a more larger portfolio size?
For the newer construction stuff, it's, by and large, on a one-off basis. And to be honest, it's the right approach. The larger you get, the less of a bid you get. And so for the most part, I think folks are trying to sell into whatever liquidity there is, which tends to be on the smaller side. So haven't seen too many large portfolios, there's a few. But by and large, it's kind of one-off.
Our next question comes from Kyle Stanley from Desjardins.
Maybe just kind of sticking with the capital allocation theme. What's your outlook for additional capital recycling within Canada in the year ahead. And given your leverage profile is in a pretty good spot, is it safer to assume that further success on the capital recycling maybe allows you to just be that much more aggressive on the buyback given the value -- the attractive value that you mentioned?
I think we're covering this. We're seeing acquisitions in the mid-4 cap sort of zone, and you're seeing cap rate stock trading in the mid-5s. So I think there's not much more color we can say than that.
Okay. But just on the capital recycling front, I guess, your expectations there for the year ahead?
Yes. We're not providing guidance on that at this point.
Okay. Moving over to the cost improvement this quarter, that was really encouraging to see on the R&M side. Can you just walk through maybe your ability to continue improving that cost profile and maybe what's your outlook for potential savings in the year ahead?
As Stephen pointed out, we're encouraged by technology changes. We're encouraged by our approach, and we look forward to improvements going forward there.
Our next question is from Jimmy Shan from RBC Capital Markets.
Just to follow up on that $2.3 million R&M savings on the procurement side. Can you -- I guess I'm still a little confused as to exactly what it is that you've done that's different now that's allowing you to get those savings. And then when we think about the balance of the year, does the $2.3 million savings sort of sustain through the balance of the year or into next year? How do we think about that?
Yes. We've had a real dollar-to-dollar approach to scope. In a changing environment like the one that we're seeing today, you've got to just do what is required in the assets. When you're not building into a high-velocity mark-to-market rent environment, you've got to be very cautious of the scope that you do. In terms of the sustainability, we are very confident in our ability to sustain the path that we're now on.
Okay. On the turnover, the cohort of tenants that have above-market rents, do you have a rough percentage of what that represents as a percentage of the portfolio?
Yes. Looking at the stats, it's about 20% is representative, of the total leases that are above market -- or sorry, below market -- above market, yes.
Above market. And how -- what's the average differential between...
It's about -- when we look at it, it's about negative 6%.
Our next question is from Mike Markidis from BMO.
Just with the -- if we look at the -- if I look at it anyways, the Canadian portfolio, it looked like your -- I think if we looked at turnover in the last several quarters, it was accelerating. And it was still up year-over-year, but it was only up by 20 basis points in Q3. So is that just an anomaly or are you starting to see that the increase in turnover is starting to taper off here?
Well, a couple of factors. The people with COVID leases are definitely moving into the market and churning. That will have some impact. The new construction portfolio will churn at a higher percentage rate than the legacy portfolio. And we are seeing just a generally more affordable rent market, so that the legacy leaseholders are more inclined now to look at options than they would have previously. It's really those 3 factors.
No, I understand why turnover would be higher relative to where we were sort of 12 to 18 months ago. It just looked like the increase in Q3 is starting to taper off. So I was just wondering if I'm looking into it too strongly or if you guys have noticed anything where turnover -- the acceleration in turnover is starting to slow off a bit.
No. I think, Mike, I think that's, based on what we see, that's a pretty normal pace that we're going to see throughout the rest of the year. Again, you do see a lot more in the leasing season of the fall, it does turn over quite a bit. Same as the summer season. But there will be probably a little bit of taper off going into Q4.
Okay. And then as you guys think about sort of Q4 and Q1 just with a seasonally slower period, I think, you had made it -- you noted last call that you guys have adjusted rents to sort of become more in tune with market reality. Do you think as traffic slows here into the winter months that further rent adjustments will be required? Or do you see market rents right now being stable?
Well, we saw a seasonal effect last year and we were having difficulty reading the environment. We will no doubt have another seasonal effect this year. But we're quite confident that the general marketplace is in stable territories. It's just the seasonal effects do tend to show up in Q4 and Q1.
Okay. No, that's fine. And then last one for me before I turn it back. On ERES, see the elevated vacancy that you guys have there as you maximize value in the wind-down process. I guess my question would be is, is there further vacancy loss that you would expect as that process continues? Or should we expect the existing vacancy level for the U.S. to sort of hold until further notice?
Yes, it will continue to elevate until there's the completion process there.
Our next question comes from Matt Kornack from Bank Capital Markets.
Stephen, just I guess last quarter, about 24% of your portfolio was minus 6% MTM and sub 2-year leases. Is that 20 a rounded figure or was the bulk of kind of your turnover this quarter impacted or at least 50% impacted by kind of sub 2-year leases turning?
Yes. That is -- I would say those are the post -- or more recent leases that are currently above market. Yes, I think it will take a bit of time to go through. I kind of said 12 to 18 months. Again, those -- a lot of the turnover that's occurring in the quarters are related to those tenures. So that would -- that is turning approximately representing 50% of the turnover currently. So it will take some time, but 12 to 18 months is what we're expecting.
Okay. And then, I guess, broadly, we've seen you guys and your peers kind of hold occupancy at a pretty high level, albeit again taking a bit of a hit on the rent side. But we've also seen broader market vacancy increase. Is there a flight to quality here or your portfolio is relatively well positioned? Or is it that just your peers are holding rents and not trying to drive occupancy at this point? I'm just trying to square that variance.
Yes. We're being agile. We're looking at all our pricing. It's all about holding vacancy -- sorry, occupancy high. So it's a combination of using incentives and then within targeted buildings, we know which building they are. But it's a strategy that our operations and marketing team are deploying. So yes, we're trying to keep occupancy up.
Okay. And on the incentive front, I know it was about 1% of the portfolio and seems to be holding, if not, maybe ticking down a little bit this quarter. Is your view still that -- you've said once that an appropriate pricing incentives are less of a driver at this point?
Yes, correct. I think based on what we've been seeing for the last couple of months, Q3 is a pretty good run rate going forward.
Winter months, Matt, are definitely the more challenging months. When we get good velocity in the spring and the summer, incentives do tend to ease a little bit. So there's a mild adjustment for quarters when you think about the run rate.
And I know we focus on R&M when we think of cost constraints, but you also saw this quarter ex the -- some of the onetime expenses on the processes you're updating, lower G&A, and your CapEx still remains very low on a relative historic basis. Is that all procurement? And on the trust expense side, is that kind of sustainable at this point? I know you guys have gone through some rationalization of costs. But just how should we think about that going forward?
Yes. We did -- we were quite aggressive, I'll say, with our NCIB program, with our debt repayment and, certainly, the high grading of assets, which has resulted in lower unit count. The heavy lifting there is, in our view, done. And I think you could rely on G&A at a far more stable level. And on the CapEx front, we continue to look at scope. We've got a tilt towards energy investments where they make sense. So we would want to give thought to those -- the cost of those investments as really being accretive investments. And in terms of repairs and maintenance, it's all about scope and rigorous market testing.
Okay. I appreciate the color, and it seems to be working.
Our next question comes from Anish Thapar from Scotiabank.
So my first question is on incentives. So do you still believe incentives trend at 1% of revenue in 2026? And what are your thoughts on bad debt expenses trend as well?
Well, I think on the incentive front, we wouldn't give guidance for the year, but what we're seeing is stability. And that's really all that I can say. Looking out is a little bit more -- we don't do that. And on the bad debt expense, we've seen encouraging things happen in Ontario with respect to attempts by government to make things more efficient at the tribunal. A lot of our portfolio is in Ontario. So that would be a net positive. Not your question, but just the general regulatory environment, what we're talking about, changes to the tribunal, it's quite positive coast-to-coast right now. Provinces are really tilting their minds to how to get more supply and how to engage with housing providers. So we're encouraged by just the general regulatory front.
My second question is how did the asking rents in your portfolio -- and does the primary focus right now remains occupancy stabilization?
Yes. So the asking rent, I guess you kind of talked about the mark-to-market on our portfolio. It has come down slightly, but it's nowhere near what we saw, you could say, kind of in Q4 of last year and Q1 of this year. So it's pretty much stabilizing based on what we see in the market.
And does the focus right now remains occupancy stabilization?
Yes, yes. I mean, yes, yes, occupancy is our key priority.
Our next question is from Mike Markidis from BMO.
Just a follow-up, Mark. I know obviously, a big focus for you guys is your cash flow journey. I wonder if you could somehow give us -- I know it's improving, but where you see your retained cash flow now annually for the business? I mean how that would have compared to, say, maybe a couple of years ago?
Yes. So just in terms of our journey to get to, you can say, self-sustaining, it's -- we were in a -- a couple of years ago, we were growing, we spent a lot of CapEx and we had a lot of legacy assets. Today, we have now transformed the portfolio into a much newer CAPREIT, younger CAPREIT, which results in a much stronger economic cash flow. And therefore, I think, if we're looking out, it will be a couple of years or -- until we get to a self-sustaining model.
I think the timing, Mike, what we've said, is highly dependent on our acquisition [ distribution ] program. If we do newer-quality, low-CapEx acquisitions and, at the same time, sell dispositions that have higher CapEx burden, we get to the end result much faster. So we're trying to balance those 2 things together. And at the same time, be relentless on seeking out efficiency within the existing portfolio to help move things along as well. If we do the combination of those things well together, the time line shrinks, we think, quite quickly.
Okay. And I'll have to look back [ probably your ] numbers, but you guys don't think you're at a self-sustaining point in time yet?
Not at this point.
And to a certain extent, we've really focused on deleverage as the primary focus. We did a lot of that in 2025. So ability to raise cash is absolutely not a problem. The balance sheet is fortified, and our focus will stay there.
Thank you. We currently have no further questions. And I would like to hand back to Mark Kenney for closing remarks.
I'd like to thank everybody for your time today. And if you have any further questions, please do not hesitate to contact us at any time. Thank you again, and have a great day.
This concludes today's call. Thank you for joining. You may now disconnect your lines.
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