Q4 2019 Earnings Call

February 27, 2020

Participants please standby you've gone from since Lucky to begin good morning, ladies and gentlemen, and welcome to do you get Sweet fourth quarter and year end 2019 results conference call I wouldn't like to turn the meeting over to Mr. David Miller. Please go ahead Mr. mail.

Operator: Good morning, ladies and gentlemen, and welcome to the CAPREIT Q4 and year-end 2019 results conference call. I would now like to turn the meeting over to Mr. David Mills. Please go ahead, Mr. Mills.

Operator 2: I would now like to turn the meeting over to Mr. David Mills. Please go ahead, Mr. Mills.

David Mills: Thank you, Maura, and good morning, everyone. Before we begin, let me remind everyone that the following discussion may include comments that constitute forward-looking statements about expected future events and the financial and operating results of CAPREIT. Our actual results may differ materially from these forward-looking statements as such statements are subject to certain risks and uncertainties. Discussions concerning these risk factors, the forward-looking statements, and the factors and assumptions on which they are based can be found in our regulatory filings, including our annual information form and an MD&A, which can be obtained at SEDAR. I'll now turn things over to Mark Kenney, President and Chief Executive Officer.

Thank you more bought and good morning, everyone. Before we begin number in mind every one of the following discussion may include comments constitute forward looking statements about expected future events.

Financial and operating results of cap rate or actual results may differ materially from these forward looking statements such statements are subject to certain risks and uncertainties discussions concerning these risk factors. The forward looking statements in the factors and assumptions, which they're based can be found in or regulatory filings, including our annual information form and then and Mdna, which.

Obtained at Cedar.

I'll now turn things over to Mark Kenney, President and Chief Executive Officer.

Thanks, David Good morning, and thanks for joining us today.

Mark Kenney: Thanks, David. Good morning, and thank you for joining us today. Scott Cryer, our Chief Financial Officer, is also on the call today. 2019 was another significant year of accomplishment for CAPREIT. We achieved record portfolio growth. We generated record operating and financial results. We delivered strong and accretive growth for our unitholders, and all while maintaining one of the strongest balance sheets in our business. These accomplishments point to the continued growth and strong performance going forward. Let's look at some of our accomplishments for the year. Looking at our three operating platforms, Canada, Ireland, and the Netherlands, we see on slide 4 that all achieved record operating and financial performance in 2019. We continue to increase our size and scale in each market, generating solid growth in our key financial benchmarks.

Scott Schrier, our Chief Financial Officer is also on the call today.

2019 was another significant year accomplishment for cap rate, we achieved record portfolio growth.

We generated record operating and financial results, we delivered strong and accretive growth for unit holders and all while maintaining what are the strongest balance sheets in our business.

These accomplishments point to the continued growth and strong performance going forward.

Let's look at some of our accomplishments for the year.

Looking at our three operating platforms.

Our lives in the Netherlands, we see on slide four that all achieved record operating and financial performance in 2019.

We continue to increase our size and scale in each market jittery solid growth in our key financial benchmarks.

Clearly demand for quality rental accommodation remained strong.

Mark Kenney: Clearly, demand for quality rental accommodation remains strong in all of our chosen markets, and we believe these solid fundamentals will continue going forward. Our presence in the Netherlands continues to drive value for our unitholders, as shown on slide 5. By the end of 2019, we had sold all of our Netherlands properties to ERES through our pipeline agreement, generating a stable and growing base of fee revenues from our asset and property management services. CAPREIT now owns 66% of ERES, fully aligning our interests with all ERES unitholders. For the year ended 31 December 2019, we earned CAD 56.2 million in NOI from the properties in Europe. ERES' strong presence in the vibrant Netherlands market further diversifies our business and provides the opportunity for additional growth going forward.

All of our chosen markets and we believe solid fundamentals will continue going forward.

Our presence in the Netherlands continues to drive value for unitholders as shown on slide spot.

By the end of 2019, we sold Oliver Netherlands properties to eat through.

Through our pipeline agreement.

Generating stable and growing base of fee revenues for from our <unk> and property management services.

Cap rate now owns 66% or the rose.

We widening or interest with Oh, you read to unit holders.

For the year ended December 31st 2019, we are 56.2 billion in Hawaii from the properties in Europe.

He resident strong presence in the vibrant aneurysms market further diversifies, our business and provides the opportunity for additional growth going forward.

We also continued to be pleased with our performance in Ireland.

Mark Kenney: We also continue to be pleased with our performance in Ireland, as you can see on slide 6. Asset and property management fees for the year ended 31 December 2019 increased more than 10% to CAD 8 million, driven by acquisitions and NAV appreciation. We expect our fee revenue will increase as IRES continues to grow its portfolio. IRES also completed a successful equity raise in 2019 through which we increased our ownership position in IRES to 18.3%. This retained interest continues to generate a solid stream of dividend income amounting to CAD 7.3 million in 2019. Turning to slide 7, CAPREIT generated record portfolio growth in 2019, further increasing the size, the scale, and diversification of our portfolio through accretive acquisitions.

On slide six.

Oh sit in property management fees for the year ended December 31st 2019 increased more than 10% $8 million.

Driven by acquisitions and NAV appreciation.

We expect or fee revenue will increase its iris continues to grow its portfolio.

We're also completed a successful equity raise in 2019 through which we increased our ownership position in <unk>, 18.3%.

This retained interest continues to generate a solid stream of dividend income amounted to 7.3 million in 2019.

Turning to slide seven.

GAAP regenerated record portfolio growth in 2019 further increasing the size scale and diversification of our portfolio through accretive acquisitions.

During the year, we acquired 9241 residential suites, and MHC site in Canada, and the Netherlands.

Mark Kenney: During the year, we acquired 9,241 residential suites and MHC sites in Canada and the Netherlands, totaling approximately CAD 1.4 billion. These acquisitions have strengthened our market presence and are driving further economies of scale and operating synergies through our experienced and proven property management teams. We also sold 2,710 of our Netherlands suites to ERES. As of year-end, all our Netherlands properties were owned by ERES. Looking ahead, we continue to evaluate further accretive growth opportunities both in Canada and in Europe. Turning to slide 8, we've significantly expanded our presence in the manufactured home community business. We are now Canada's second-largest owner and operator of MHC properties, with the acquisition of over 5,180 sites across Canada in H1 2019.

Totaling approximately $1.4 billion.

These acquisitions have strengthened our market presence and are driving further economies of scale and operating synergies through our experienced improving property management team.

We also sold 2710 of our Netherland Sweet tea rose.

At year end, all are Netherlands properties were owned by yearend.

Looking ahead, we continue to evaluate further accretive growth opportunities both in Canada and in Europe.

Turning to slide eight we significantly expanded our presence in the manufactured home community business. We're now candidate second largest owner and operator of MHC properties with the acquisition of over 5180 sites across Canada in the first top 2019.

I really see portfolio now represents approximately 19% of the total portfolio by Sweet insight count at 6.2% of our total in Hawaii in 2019.

Mark Kenney: Our MHC portfolio now represents approximately 19% of the total portfolio by suite and site count, and 6.2% of our total NOI in 2019. We really like the MHC business. Revenues are highly stable with residents owning their homes. Capital requirements and maintenance needs are significantly reduced. MHC properties also provide another level of diversification within our portfolio. From a geographic standpoint, they enable us to have a presence in smaller markets we wouldn't normally enter. Finally, they allow for greater operational efficiency as we are able to leverage the same platforms and people used across our other properties. We are also investigating the opportunity to sell manufactured homes to current and new residents in our MHC properties. This will generate further potential growth in our MHC business.

We really like yeah, Mixi business revenues are highly stable with residents owning their home capital requirements and maintenance needs are significantly reduced.

And they see properties also provide another level of diversification within our portfolio.

From a geographic standpoint, they need looks to have a presence in smaller markets, we wouldn't normally enter.

Finally, the allow for greater operation for operational efficiency, as we're able to leveraged to see platforms. The people used across our other properties.

We're also investigating the opportunity to sell manufactured home to current and new residents in Rmhc properties. This will generate further potential growth inner MHC business.

Looking ahead, we believe this strong market presence will generate solid stable and growing returns for our unitholders over the long term.

Mark Kenney: Looking ahead, we believe this strong market presence will generate solid, stable, and growing returns for our unitholders over the long term. Moving to slide 9, we also continue to modernize our asset base by targeting the purchase of more modern, recently built, and brand-new properties in key growth markets. These new build properties generate better and higher rents, attract stronger residents, require much less ongoing maintenance and capital spending, and strengthen the overall long-term diversification of our portfolio. As an example, during the year, we completed the purchase of a one-third interest in King's Club in downtown Toronto. This brand-new luxury property is situated in the trendy part of Toronto, containing three residential towers, 506 suites in total. The property also contains commercial, retail, and office space. Suites range across a number of sizes, with some designed for families.

Moving to slide nine we also continue to modernize their asset base by targeting the purchase of more modern recently built in brand new properties in key growth markets.

These new build properties generate better at higher rents attract stronger resident require much less ongoing maintenance and capital spending and strengthen the overall long term diversification of our portfolio.

As an example during the year, we completed the purchase of a one third interesting Kings club in downtown Toronto.

Brand new luxury properties is situated in the trendy part of Toronto getting three residential towers 506 suites in total.

The property also contains commercial retail and office space.

Suites range across a number of sizes.

With some design for families.

Going forward, we will continue to focus our efforts on purchasing newer recently constructed properties that further strengthen or asset base and reduce the average age of our portfolio.

Mark Kenney: Going forward, we will continue to focus our efforts on purchasing newer, recently constructed properties that further strengthen our asset base and reduce the average age of our portfolio. Turning to slide 11, you can see our proven property management programs continued to drive strong operating performance in 2019. Occupancies remained at effectively full levels in both the residential and MHC segments of our business, while net average monthly rents continued to rise, driven by solid increases on turnovers and renewals. Our track record of organic growth also continues, with same-property NOI up 4.9% for the year, with strong growth in our NOI margins. Looking ahead, we are confident this solid operating performance will continue going forward. Driving this growth is our continuing ability to increase our average monthly rents in all of our markets.

Turning to slide 11, you can see our proven property management program continued to drive strong operating performance in 2019.

Talk is occupancy has remained at effectively full levels in both the residential and MHC segments of our business well net average monthly rents continue to rise.

Driven by solid increases on turnovers in renewals.

Our track record organic growth also continues at the same property NOI up 4.9% for the year with strong growth in or in a wide margins.

Looking ahead, we are confident solid operating performance will continue going forward.

Driving this growth is our continuing ability to increase our average monthly rents in all of our markets.

As you can see on slide 11, we're seeing solid increases in monthly rent a book turnover and renewals in Canada, the Netherlands Indian our investment Iris read in Ireland.

Mark Kenney: As you can see on slide 11, we are seeing solid increases in monthly rents on both turnover and renewals in Canada, the Netherlands, and in our investment in IRES REIT in Ireland. Overall, the strong fundamentals and demand in all of our markets resulted in an overall 4.1% increase in our total stabilized net average monthly rents as of 31 December 2019. Our diversification also allows us to capitalize on the attractive spreads between cap rates and interest rates in our markets, as you can see on slide 12. The spreads in the Netherlands and IRES are particularly attractive at roughly 2.4% and 3% respectively, and we don't believe we will see any major negative change in these spreads for the foreseeable future.

Overall, the strong fundamentals and demand in all of our markets resulted in an overall, 4.1% increase in our total stabilized that average monthly rent as of December 30, Onest 2019.

Our diversification also allows us to capitalize on the attractive spreads between cap rates in interest rates in our markets as you can see on slide 12.

The spreads in the Netherlands, and Iris are particularly attractive at roughly 2.4% and 3% respectively and we don't believe we will see any major negative change in these spreads for the foreseeable future.

Our fourth quarter results demonstrated significant growth, we're generating in or operating and financial performance as shown on slide 13 revenues were up over 16% over the same quarter last year driven by the positive contribution from our acquisitions increased monthly average.

Mark Kenney: Our Q4 results demonstrated the significant growth we are generating in our operating and financial performance, as shown on slide 13. Revenues were up over 16% over the same quarter last year, driven by the positive contribution from our acquisitions, increased monthly average rents, and continuing high occupancies. NOI rose almost 21%, with FFO up a significant 25%. We also generated another quarter of strong organic growth, with same property NOI up 5.7%. In addition, our growth continued to be accretive, as FFO per unit was up 11.2%, despite the 12.4% increase in the weighted average number of units outstanding, resulting from the 3 bought deal equity offerings we completed during the year.

Rent and continuing high occupancy.

And then why rose almost 21% with NFL CFO up a significant 25%.

We also generated another quarter of strong organic growth with same property NOI up 5.7%.

In addition, our growth continued to be accretive as in AFFO per unit was up 11.2%. Despite the 12.4% increase in the weighted average number of units it standing resulting from three bought deal equity offerings, we completed during the three year.

[noise] significant accomplishments, we achieved in 2019 combined with the continuing strong market fundamentals in the residential rental business drove record financial performance for the year as shown on slide 14.

Mark Kenney: The significant accomplishments we achieved in 2019, combined with the continuing strong market fundamentals in the residential rental business, drove record financial performance for the year, as shown on slide 14. Revenues were up 13%, driven by the contributions from our portfolio continuing near full occupancies and increased monthly rents. This revenue increase generated a 15.3% increase in NOI, which in turn drove a 17.2% increase in our FFO. Again, our growth was accretive, as FFO per unit rose 5.7%, despite the almost 11% increase in the weighted average number of units outstanding. Looking ahead, we are confident that strong performance will continue. I'll now turn things over to Scott for his financial review.

Revenues were up 13% driven by the contributions from our portfolio continuing near near full occupancy and increased monthly rents.

This revenue increased generated 15.3% increase in Hawaii, which in turn drove a 17.2% increase in our NFV CFO.

Again, our growth was accretive as an AFFO per unit rose, 5.7%, but you almost 11% increase in the weighted average number of units its standing.

Looking ahead, we are confident this strong performance will continue.

I'll now turn things over to Scott for his financial review.

Thanks Mark.

Scott Cryer: Thanks, Mark. Turning to our balance sheet on slide 16, we continue to maintain a strong and flexible financial position, with conservative leverage, strong coverage ratios, and historically low interest costs on our mortgage portfolio. Debt to GBV strengthened to 35% at year-end, providing the financial resources and flexibility to continue our track record of strong portfolio growth. If we adjusted for the proportionate consolidation of ERES and the CAD 450 million of cash on our balance sheet, our leverage is approaching under 33%. Our mortgage portfolio remains well-balanced, as shown on slide 17. Looking ahead, our ability to top up renewal mortgages through 2034 will provide significant liquidity to fund our acquisitions and development pipeline. In 2020, we have CAD 308 million in mortgages maturing, with an average interest rate of 2.7%.

Turning to our balance sheet on slide 16, we continue to maintain strong and flexible financial position.

Conservative leverage strong coverage ratios.

Darkly low interest costs on our mortgage portfolio.

That's a GBB strengthen to 35% at year end, providing the financial resources and flexibility to continue our track record of strong portfolio growth.

If we adjusted for that proportionate consolidation of year as in the $450 million of cash on our balance sheet, our leverage is approaching under 33%.

Our mortgage portfolio remained well balanced as shown on slide 17.

Looking ahead, our ability to top up renewal mortgages through 20.

34 will provide significant liquidity to fund our acquisitions and development pipeline.

In 2020, we have 308 million in mortgages maturing with an average interest rate of 2.7%.

Expected mortgage renewals and refinancings for 2020 are between 480 to 530 million excluding finance on acquisitions.

Scott Cryer: Expected mortgage renewals and refinancings for 2020 are between CAD 480 and 530 million, excluding finance on acquisitions. We are looking at additional debt strategies to lower all-in financing costs, increase the weighted average term of the portfolio, and maximize top-ups. With the recent drop in GOC rates, we have seen 10-year financing costs drop back below the 2.5% range, creating a tailwind for continuing lower interest costs. Our most recent deal was at 2.07% for a 7-year term. On the liquidity front, slide 18 demonstrates that we will remain well-positioned to continue our growth programs. To fund our growth, in 2019, we completed 3 successful bought deal offerings, raising a total of CAD 1.1 billion in funds, including the over-allotment options.

We're looking at additional that strategy to lower all in financing cost.

Increase the weighted average chime in the portfolio and maximize top off.

With the recent dropping geos the rate, we have seen 10 year financing costs dropped back below the 2.5% range, creating a tailwind for continuing lower interest costs. Our most recent deal was that 2.07% for a seven year term.

On the liquidity from slide 18 demonstrates that we will remain well positioned to continue our growth programs.

To fund our growth in 2019, we completed three successful bought steel offerings.

Raising a total of 1.1 billion in funds, including the over allotment option.

As at December 31st 2019, we had approximately 146 million available borrowing capacity on our credit facility.

Scott Cryer: As at 31 December 2019, we had approximately CAD 146 million available borrowing capacity on our credit facility, which bear an interest rate of 1.1% after factoring cross-currency swaps. We have over CAD 440 million of cash in short-term investments generating interest revenue at a rate of 1.5%. In addition, CAPREIT has investment properties with a fair value of over CAD 940 million as of 31 December that are not encumbered by mortgage. Finally, our operating lease buyouts, if successful, could provide significant top-up financing in the coming years. As you can see on slide 19, our exposure in Europe, including our investment in IRES and our proportionate share of ERES, is well hedged at 83% by European debt.

Which bear an interest rate of 1.1% after factoring cross currency swaps.

And we have over 440 million of cash and short term investments generating interest revenue at a rate of 1.5%.

In addition cap rates have investment property with a fair value of over 940 million as at December 31st that are not encumbered by mortgage.

Finally, our operating lease buyouts, if successful to provide significant top up financing in the coming years.

As you can see on slide 19, our exposure in Europe, including our investment in Iran, and our proportionate share of year as is well hedged at 83% by Europe European debt.

We are managing European exposure by utilizing a number of different tactics.

Scott Cryer: We are managing European exposure by utilizing a number of different tactics with favorable impacts, including obtaining local euro third-party mortgages at very favorable interest rates, utilizing our euro acquisition and operating facility, and entering into cross-currency swaps to further hedge our euro exposure. Currently, we have over EUR 1.2 billion of euro-denominated debt after factoring in the swaps. During 2019, due to the use of these swaps, CAPREIT realized interest rate savings by borrowings and swapping into euros at a blended rate of 1.1% instead of borrowing Canadian dollars at an interest rate of 3.44%, a significant financial benefit. I'll now turn things back to Mark to wrap up.

With favorable impacts, including obtaining local your own third party mortgages at very favorable interest rates.

Utilizing our euro acquisition and operating facility and entering in a cross currency swaps to further hedge our euro exposure.

Currently we have over 1.2 billion of euro denominated debt after factoring in the swaps.

During 2019 due to the use of these swab cap rate realize interest rate savings by borrowings and Swabbing, India grows at a blended rate of 1.1% instead of boring Canadian dollars at an interest rate of 3.44% significant financial benefit.

I'll now turn things back to Mark to wrap up.

Thanks Scott.

Mark Kenney: Thanks, Scott. There are also a number of long-term initiatives that we've undertaken to continue to add value across the business. On the development front, our updated pipeline includes over 8,700 rental suites that we are targeting to go into the approval process this year. These units will be primarily located in the strong markets of Toronto, Vancouver, and Quebec, where demand remains high and monthly rents support profitable investments. Over the next few years, we'll be focusing on pushing multiple application submissions and seeing through the approval process at the municipal level as required. The focus on multiple application submissions with associated approval processes is designed to add significant value to these properties. Even if we do not move forward with construction all at once, these properties will be much more valuable with its new zoning provisions.

There are also a number of long term initiatives that we've undertaken to continue to add value across the business.

On the development front or updated pipeline includes over 8700 rental suites, we're targeting to go into the approval process. This year. These units, we primarily located in the strong markets and Toronto Vancouver and for that we're demand remains high and monthly rent support profitable investment.

Over the next few years, we'll be focusing on pushing multiple applications submissions and seeing through the approval process at the municipal level as required.

The focus on multiple applications submissions with associated approval processes is designed to adds significant value to these properties. Even if we do not move forward with construction all at once these properties will be much more valuable with its new zoning provisions.

In 2019, we completed the conversion of an existed existing unoccupied commercial space at 25, 25 cabin displace Montreal into a 52 rental suite, which are now fully occupied the total project costs came in at $6.9 million, which is under the.

Mark Kenney: In 2019, we completed the conversion of an existing unoccupied commercial space at 2525 Cavendish Place, Montreal, into 52 rental suites, which are now fully occupied. The total project cost came in at CAD 6.9 million, which is under the estimated budget of CAD 7.5 million. In addition, we've previously shared with you our two most active applications in the GTA, 100 Wellesley, and 141 Davisville in Toronto. These properties have been in approvals throughout 2019. For 100 Wellesley, the Toronto City Council in December, on 18 December, endorsed the settlement option. The hearing will take place in Q1 2020 at the Local Planning Appeal Tribunal. For 141 Davisville, the applications have been submitted, and we expect to receive zoning approval in July of this year.

So to me that budget of 7.5 million in.

In addition, we previously shared with you our two most active applications in the GTK 100, Wellesley and 141, David So in Toronto. These properties have been in approvals throughout 2019.

For 100 wealthy the trauma City Council in December on December 18, endorse the settlement option hearing will take place in the first quarter of March 2020 at the local planning appeal Tribunal.

For 141 Davis, Phil the applications have been submitted and we expect receive zoning approval in July of this year.

These two applications will add over 270, new suites to be constructed on land that we currently own adjacent or connected to existing rental buildings.

Mark Kenney: These two applications will add over 270 new suites to be constructed on land that we currently own, adjacent or connected to existing rental buildings. In addition, we understand that investor expectations are constantly evolving. Over the years, we have observed an increasing interest in ESG disclosure within the real estate market. Slide 22 outlines our progress on implementing measurable ESG initiatives. Although CAPREIT has been applying sustainable practices for over a decade, we see value in developing an overall ESG strategy to help deliver programs and services to all of our stakeholders. It's with this in mind, an internal and dedicated ESG team was established in early 2019 to further align our operations with the corporate strategy of being the best place to live, work, and invest.

In addition, we understand that investor expectations are constantly evolving and over the years, we as observed an increasing interest in SG disclosure within the real estate market Slide 22 outlines our progress implementing measurable SG initiatives.

Although cap rate has been applying sustainable practices for over a decade, we see value in developing an overall SG strategy helped deliver programs and services to all of our stakeholders.

It's with this in mind, an internal and dedicated SG team was established in early 2019 to further liner operations with the corporate strategy being the best place to live work and invest.

We're also happy to share that subcommittees were also formed as part of this initiative and we formalized E. G policy effective 2020.

Mark Kenney: We are also happy to share that subcommittees were also formed as part of this initiative, and we have formalized an ESG policy effective 2020. In conjunction with the release of our annual report, our debut 2019 corporate ESG report provides a strong narrative around our performance disclosure. The report is made available on our website, and we welcome you to review. Looking ahead, our focus for 2020 is to prepare for inaugural submission into the Global Real Estate Sustainability Benchmark, and we look forward to sharing our results with you at the end of 2020. With our record operating and financial performance in 2019, we continue to focus on our long-term goal of making CAPREIT the best place to live, work, and invest.

In conjunction with the release of our annual report our debut 2019 corporate Yes. You report provides a strong narrative around our performance disclosure.

The report is made available on our web site and we welcome you to review.

Looking ahead, our focus for 2020 is to prepare for inaugural submission into the global real estate sustainability benchmark and we look forward to sharing our results with you at the end of 2020.

With a record operating and financial performance in 2019, we continue to focus on our long term goal, making cap rate the best place to live work and invest.

To become the best place to live we strive to enhance the lives of our residents by building strong relationships through or hands on approach to management, a relentless focus on attracting retaining the best residents and the use of new and innovative technologies to deliver on our resident experience.

Mark Kenney: To become the best place to live, we strive to enhance the lives of our residents by building strong relationships through our hands-on approach to management, a relentless focus on attracting and retaining the best residents, and the use of new and innovative technologies to deliver on our resident experience. To ensure we attract and retain the best people, we continue to use new and updated tools to help each other and our team members stay connected and up to date on CAPREIT and industry information. As one of Canada's best employers, we continue to cultivate our talent pool and promote innovative leadership development programs to engage and help enhance their careers while implementing state-of-the-art tools and technologies to become more efficient and promote a more collaborative working environment.

To ensure we attract and retain the best people, we continue to use new an updated tools to help each other.

And our team members stay connected and up to date on cap rate and industry information.

As one of candidates best employers, we continue to cultivate our talent pool and promote innovative leadership development programs to engage and help enhance their careers well implementing state of the our tools and technologies to become more efficient and promote our collaborative working environment.

Most importantly, our ultimate goal is to enhance unitholder value and cap rate has been one of the best places to invest for more than 22 years.

Mark Kenney: Most importantly, our ultimate goal is to enhance unitholder value, and CAPREIT has been one of the best places to invest for more than 22 years. Thank you for your time this morning, and we would now be pleased to take any of your questions that you may have.

Thank you for your time this morning, and we would now be please take any of your questions that you may have.

Thank you, we'll now take questions from the telephone lines. If you have a question and you are using his speakerphone. Please lift your handset before making a selection. If you have your question. Please press star one on your telephone keypad.

Operator 2: Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Jonathan Kelcher from TD Securities. Please go ahead.

Operator: Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Jonathan Kelcher from TD Securities. Please go ahead.

Any telling you wish to dance on your question. Please press the pound sign.

Chris Dodd one at this time, if you have a question that one baby bonds from all participants switches thoughtful question.

We thank you for your patience.

Our first question is from Jonathan Caltrans from TD Securities. Please go ahead.

Thanks, Good morning, Good morning, John John.

Jonathan Kelcher: Thanks. Good morning.

Mark Kenney: Morning, Jonathan.

Jonathan Kelcher: First question just on the gains that you guys have been getting on turnover have been pretty consistent, the last six or seven quarters. Do you expect any changes in that heading into 2020?

First question just on the games that you guys have been getting on on turnover been pretty consistent last six or seven quarters.

We expect any any changes are not a heading into 2020.

No there's really no change in overall trend.

Mark Kenney: No. There's really no change in overall trend. We're seeing very strong increases in BC, but they're moderating slightly. We're seeing increasing turnover results in places like London, Ontario, and the suburbs of the GTA. Overall, we would be indicating no change in trend.

We're seeing very strong increases in BC, but they are moderating slightly we're seeing increasing.

Turnover results in places like London, Ontario in the suburbs that the DTA and but overall, we would be indicating no change in trend.

Okay.

Jonathan Kelcher: Okay. Then just secondly, I guess, switching to the developments, and I know it's still early days for you guys there, but if assuming you get the approvals for Wellesley and Davisville, would you be looking to go into the ground on either one of those in 2020 or 2021?

[music].

And then just secondly, I guess.

Switching to the.

Elements today I know, it's still early days for you for you guys, there, but assuming you get the approvals for Wellesley and Davis Phil.

Would you be looking to go into the ground on either one of those in 2020 or 2021 I think.

Mark Kenney: I think, as you know, we are exercising a great deal of patience with the municipalities on this. As we get close to entitlement, we'll revise our pro formas and make decisions at that point. I still remain cautious about Toronto with the current price of development fees and hard costs. Our goal right now is to get the zoning in place. We will pro forma with updated construction costs at that point. We'll be giving better guidance though as we get closer to those approval dates.

As you know we are exercising their adult patients with municipalities on this as we get close to entitlement.

Revise our pro Formas and make decisions at that point I still.

Remain cautious the Toronto with the current prices development fees and hard costs.

Our goal right now is to get the zoning in place we will pro forma with updated construction costs at that point, we'll be getting better guidance. So as we get closer to those Ah approval dates.

Okay. Thanks, just Scott on that on that on the GE in a in Q4 I know you called out some costs there.

Jonathan Kelcher: Okay. Thanks. On just Scott, on the G&A in Q4, I know you called out some costs there. What's a good run rate going forward?

What would be what's a good run rate going forward.

Yes, I mean, I think definitely.

Scott Cryer: Yeah, I mean, I think definitely, you need to adjust for ERES. We're obviously consolidating all their corporate G&A as well as, you know, we did have some one-time costs. We've provided some guidance for ERES within the ERES from MD&A, so you can look to there to adjust that. I would say generally, our run rate's pretty good this year compared to next year, you know, just regular inflationary increases. It's probably a good basis right now.

You need to adjust for you as we were obviously consolidating all their corporate DNA as wallet.

We did have some onetime cost so I would.

Provided some guidance or erad within the raz.

I am DNA. So you can look to their to adjust that.

And I would say generally we're probably I run rates pretty a pretty good.

This year compared to next year, you know just regularity in freight inflationary.

Increases so it's probably going basis right now.

Okay. Thanks, I'll turn it back.

Jonathan Kelcher: Okay. Thanks. I'll turn it back.

Thank you.

Operator 2: Thank you. Our following question is from Mike Markidis from Desjardins. Please go ahead.

Operator: Thank you. Our following question is from Mike Markidis from Desjardins. Please go ahead.

Following question is from Mike marketers.

Good day. Please go ahead.

Hey, guys good morning.

Mike Markidis: Hey, guys. Good morning.

Mark Kenney: Morning, Mike.

Just on the I guess this year you guys experienced a fairly significant volatility on the Opex line.

Mike Markidis: Just on the, I guess this year you guys experienced a fairly significant amount of volatility on the OpEx line. The decline of 2% or 1.9, I should say, on your stabilized portfolio this quarter, would that reflect sort of year-end true up adjustments or was that just a normal quarter, so to speak?

The decline of 2% or 1.9, I should say on your stabilized portfolio this quarter would that reflect.

Sort of year end true up adjustments or or was that just a normal quarter so to speak.

I I sit the normal quarterly each each quarter, you'll see has its own seasonal characteristics.

Mark Kenney: I'd say it's a normal quarter. Like each quarter you'll see has its own seasonal characteristics. As you've seen, the Q4 is traditionally quite light, because moving activity stops pre-Christmas. It's also a matter of when we decide to take on preventative maintenance measures. We would prefer, and I know this is complicated quarter by quarter, just to take the annual run rate approach.

And you've seen the fourth quarters traditionally quite light.

'cause moving activity starts pre Christmas.

It's also a matter of when we decide to take on preventative maintenance measures.

We would prefer I'm no. This is complicated quarter by quarter just to take the annual run rate approach.

Mike Markidis: Sure.

Mark Kenney: which we feel is completely intact.

Which we feel is completely intact.

Mark Kenney: which we feel is completely intact.

Okay. That's a that's helpful. Thank you.

Mike Markidis: Okay. That's helpful. Thank you. Maybe just switching to the focus on the top line, sort of one of the areas we wouldn't expect to see much volatility might be top-line revenue. I guess year over year, the Q4 showed a 3.2% versus you were trending at about 5% and 4% the last few quarters. Just wondering if there was something specific there to explain why that would be lower on a year-over-year basis.

Maybe just switching is a focus on the on the topline sort of one of the areas. We wouldn't expect to see much as much volatility might be topline revenue in.

This year over year, the the fourth quarter sort of 3.2% versus your trading at about five and 4%. The last few quarters I'm. Just wondering if there was something specific there.

To explain why that would be flown on a year revisions.

Mark Kenney: No, again, I wouldn't see seasonal adjustments. Again, we're seeing no change in trend going into 2020. The rental markets are strong across the country and in Europe. Canada's leading the charge here, obviously. We're very comfortable. We're very comfortable with the new markets that we've gone into, that will just help the process of delivering strong increases.

Again, I wouldn't I wouldnt see seasonal adjustments again.

We're seeing no change in trend going into 2020, the the rental markets are strong across the country and ending year, but Canada's leading the charge here, obviously and we're very very comfortable and were very tough with the new markets that we've gone into that that will help the processes from delivering strong.

Strong incurred the composition of the composition of growth is definitely a little different Mark noted that BC has.

Scott Cryer: The composition of growth is definitely a little different. Mark noted that BC has, you know, it's still very strong and high single digit, low double digit growth. That has come back in from where we would've seen, you know, quarter-over-quarter. We're seeing additional strengthening in Montreal markets, Halifax markets, and some of the other ones that Mark was talking about, outside the Greater Toronto Area.

You know, it's still very strong and high single digit low double digit growth, but that has come back in from where we would've seen.

Quarter over quarter, but we're seeing additional strengthening in Montreal markets, Halifax markets and some of the other ones that Mark was talking about outside.

Later Toronto area. We also in BC of it's noteworthy that that's where we had a lot of new construction acquisition activity and the mark to market on those new construction assets are not the value I'd Mark to market. That's why we're going with stronger cap rates that.

Mark Kenney: We also, in BC, it's noteworthy that that's where we had a lot of new construction acquisition activity. The mark-to-market on those new construction assets are not the value add mark-to-markets. That's why we go in with stronger cap rates. Just growing the modernizing portfolio aspect of our business in BC will naturally moderate increases.

Just growing the modernizing portfolio aspect of our business in VC will naturally moderate increases.

Okay.

Mike Markidis: Okay. That's helpful. Thank you. Just, I can't remember if you remind me, though. Last quarter, I think you alluded to maybe getting gap in-place versus market rent estimates for your portfolio. Is that something you guys are progressing closer to now or?

That's helpful. Thank you just I can't remember if you remind me, though last quarter I think you alluded to maybe getting.

Got it in place versus market rent estimates for your portfolio.

Is that something you guys are progressing closer to an hour we will continue to push push forward on that yes.

Mark Kenney: We will continue to push forward on that, yes. You'll hopefully see better disclosure from us in 2020 on those gaps. It's an ongoing question. Obviously, now given the current environment that we're in, we've always been cautious about doing it, but seeing no change in trend, it should be not difficult for us to give you some guidance on that. Give the market guidance in general.

Hopefully see better disclosure from us in 2020 on those on those gaps. It's an ongoing question. Obviously now given the current environment. The RIN, we've always been cautious about doing it but.

Seeing no change in trend it should be not difficult for us to give.

Give you some guidance on that and get the market guidance and general Okay. Last question for me before I turn it back there's probably no specific question here, but just given.

Mike Markidis: Okay. Last question for me before I turn it back. There's probably no specific question here, but just given, you know, continued emphasis on affordability, I was wondering when you guys do your underwriting on new leases, presumably, you've got better tenants coming in. Have you been monitoring sort of income coverage on leases in your portfolio? Or, maybe if not, stated alternately, when you underwrite a lease-

The continued emphasis on affordability.

I was wondering if when you guys do if you have a when you do your underwriting on new leases.

Presumably you've got better tons coming in I have you been monitoring sort of income.

Income coverage on on leases in your portfolio or or maybe if not stated alternately when you underwrite at least.

Mark Kenney: Really-

Mike Markidis: Is there a general rule where you say, you know, at a certain level of coverage, we just wouldn't approve this tenant?

General rule, where you say you know at a certain level of coverage, we just wouldn't approved the stuff.

I'm really thrilled you actually asked this question because what sets caffrey depart from every other read out there is a is the fact that.

Mark Kenney: I'm really thrilled that you actually asked this question, because what sets CAPREIT apart from every other REIT out there is the fact that the majority of our apartments now are at 50% replacement cost, okay? That's put our rents, our core market rents at 50% of new market rent. When CAPREIT's buying modernized assets, we target the CAD 2 rent market, CAD 2 to CAD 2.30 market. From an affordability point, when you look at the overall CAPREIT portfolio relative to Canadian census family income, our affordability index is about low 20%. Traditionally, in housing, you use a metric of around 35%. In the new construction market, in some of the assets we're seeing in Toronto, you're seeing upwards to 60%, 70% in some cases.

The majority of our apartments now are at 50% of replacement cost okay.

That's put our rents are core market rents at 50% of new market rent.

So when cap rates buying modernized assets, we target the two dollar rent Marquette $2 to 230 sent market.

So from an affordability point when you look at the overall Capri portfolio relative to Canadian census family income.

Our affordability index is low 20%.

So traditionally in housing use a metric around 35% in the new construction market in some of the assets were seeing in Toronto, you're seeing upwards to 60%, 70% in some cases.

But the cap rate portfolio, because the nature of what it is and the in that how we bought the buildings and the fact that they're significantly below replacement cost we have a very affordable MHC segment, it's highly highly defensive from an affordability point of view.

Mark Kenney: The CAPREIT portfolio, because of the nature of what it is and the how we bought the buildings and the fact that they're significantly below replacement cost, we have a very affordable MHC segment. It's highly defensive from an affordability point of view.

Just that add to that as far as tracking the data, though were due to privacy. We don't maintain income levels of our tenants. So we're not able to say specifically what our income levels are by building relative to rent. So in our investor decks, we provided general population.

Scott Cryer: Just to add to that, as far as tracking the data, though, due to privacy, we don't maintain income levels of our tenants, so we're not able to say specifically what our income levels are by building relative to rent. In our investor decks, we've provided general population examples around our key cities and relative rent affordability. Those are on investor slides, but we can't maintain that data, unfortunately.

Examples around our key cities and relative not rent affordability. So those are in investor slides that we can maintain that data. Unfortunately, that's exactly what's got saying exactly correct and just to add further clarification to that the.

Mark Kenney: What Scott's saying is exactly correct. Just to add further clarification to that, we look at Toronto, Vancouver, and Montreal, and as Scott said, we take the family income for those particular nodes where our buildings are located, and we match that against our actual average rents, and that's where you'll see an affordability scale in the 20% range. That is a very unique characteristic of CAPREIT and something to watch for when there's new construction assets being built out there, 'cause there's certainly the affordability index on fifty dollar rents is very, very different than the CAPREIT portfolio.

We look at trying to Vancouver, Montreal, and as Scott said, we take the family income for those particular nodes where buildings are located and we matched up against our actual average rent and that's where you'll see an affordability scale in the 20% range.

So that that is a very unique characteristic of a cap rate and something to watch for when when theres, new construction assets being built it there because the certainly the affordability index on $5 rents is very very different than the cap re portfolio.

Thank you for the color and congrats on a stronger yeah. Thank you.

Mike Markidis: Thank you for the color, and congrats on the strong year.

Mark Kenney: Yeah, thank you.

Thank you.

Operator 2: Thank you. Our following question is from Julian Schonfeldt from Raymond James. Please go ahead.

Operator: Thank you. Our following question is from Julian Schonfeldt from Raymond James. Please go ahead.

Following question is some yellen Rodriguez from Raymond James. Please go ahead.

Julian Schonfeldt: Hi. I joined late, so I might have missed this. What was the portfolio-wide turnover in 2019?

So I might have missed this.

The portfolio wide turnover.

29.

It was 19%.

Scott Cryer: It was 19%, down from 21% last year, and probably down from 35% 10 years ago. So we've definitely seen, in the markets with the strongest mark-to-markets on rents, we've seen, you know, low double-digit, you know, 10% to 15% turnover. We still maintain, you know, some markets that are higher turnover like Alberta, etc. But yeah, 19-

Down from 21 last year.

And probably down from 35 10 years ago.

So we've definitely seen in the markets with the strongest mark to market.

On rents we've seen.

Low.

Double digit 10% to 15% turnover, we still maintain you know some markets at a higher turnover like guy, Alberta et cetera, but.

Yes, 19, Bharti expected to fall for Tony Tony I would think much of the same and I would I actually also I think the characteristic we got to point out here is that despite the fact that were hitting lowest churn we're delivering highest ever revenue results and you had as you know what that does it just drive them.

Julian Schonfeldt: How far do you expect it to fall for 2020?

Mark Kenney: I would think much of the same. I would actually also add, I think the characteristic we got to point out here is that despite the fact that we're hitting lowest churn, we're delivering highest ever revenue results. Julian, as you know, what that does, it just drives the mark-to-market even higher. As churn slows down and the market continues to drift upwards, the mark-to-market in the portfolio continues to grow. The incredible benefit of the slowing churn rates is that the runway for deliverable rent increases gets longer.

Mark to market, even higher has turned slows down in the market continues to drift upwards, the mark to market in the portfolio continues to grow.

So the incredible benefit of the slowing a churn rate is that the runway for deliverable rental increases gets longer.

Right.

Julian Schonfeldt: Right. That's a good bridge to my next question. I know when Mike asked the question, you guys were planning on disclosing in 2020, but if you were to kinda take a stab in the dark as to what that mark-to-market would be, you know, what's the range?

Enbridge to my next question I know.

A question you guys.

I'm planning to disclose in 2020, but if you're.

Take a stab and I'd argue with that mark to market would be.

Well what range you know what I'd, rather I'd, rather give you the market by market. What those are we will we will undertake to get that out.

Mark Kenney: You know what? I'd rather give you the market by market, what those are. We will undertake to get that out. It's, I think, important for the market to understand. You can simply look at the rent increases by region.

I think it's important for the market I understand but you can simply look at the rent increases by region and essentially that is the mark to market, there's a little bit more work to do that but if you. What you want to general idea look at the rent increases in each market and that will be reviewed with you what the market Mark to market is.

Julian Schonfeldt: Mm-hmm.

Mark Kenney: Essentially, that is the mark-to-market. There's a little bit more work to it, but if you want a general idea, look at the rent increases in each market, and that will be revealing to you what the market mark-to-market is, when you blend in old leases with new.

When you blend in old leases with new but definitely I mean, what we're showing 13%.

Scott Cryer: Definitely, I mean, we're showing 13%, you know, on turnover nationally. We think it's well in excess of 15, probably approaching more like 20. We'll get some more detail on that.

On turnover nationally, we think as well in excess of 15, probably approaching more like 20, but we'll get some more detail because it is it is growing.

Mark Kenney: Because it is growing.

Scott Cryer: Yeah.

Okay.

Julian Schonfeldt: Okay. How many zoning applications are you planning on submitting this year?

How many zone applications are you planning.

This year.

Well, there's 8700 and the pipeline in total.

Mark Kenney: Well, there's 8,700 in the pipeline in total. 8,700 units.

The 700 units.

Julian Schonfeldt: Do you have a sense as to how many you'd be applying for zoning this year?

Just how many you'd be applying for zoning this year.

Are those are all in brought in progress.

Mark Kenney: Those are all in progress.

Julian Schonfeldt: Oh, they're all in progress. Okay.

So yes, they were initiated in 2019, they're going to continue through 2020.

Mark Kenney: Yeah. They were initiated in 2019. They're gonna continue throughout 2020.

Okay and then last question can you just explain.

Julian Schonfeldt: Gotcha. Okay. Last question, can you just explain what was going on with the Greater Vancouver area? There was like a stabilized NOI decline there.

What was going on with the greater Vancouver.

Decline there.

Yeah I think.

Scott Cryer: Yeah, I think, you know, there was definitely a little bit of impact from energy costs, was a small piece of it. Also, our staffing model changed a little bit there. Really, like, we were almost understaffed, and we kinda changed our regional model out there, so we saw a little bit of incremental cost as a result of that.

There was you know there was definitely a little bit of.

Impact from energy caught.

Small piece of it also our staffing model changed a little bit there.

Really like we're almost understaffed and we kind of changed our regional model out there. So we saw a little bit incremental costs. As a result, but you also have the effective when you buy buildings that required lease up you take bacon possession netted to go through that lease up cycle. It starts to have an effect. It makes the result.

Mark Kenney: You also have the effect of when you buy buildings that require lease-up, you take vacant possession, and as you go through that lease-up cycle, it starts to have an effect. It makes the results a little bit choppy from a revenue point of view, but 'cause vacancies are obviously started at 100% and then grind themselves down. Once buildings are full, you have a more stable model. Those are the buildings we're able to buy at higher cap rates. Like, we had one in particular that we had modeled vacant possession at 4.5 cap. It worked out to over a 5 cap because we ended up getting stronger rents than possible.

A little bit choppy.

From from a revenue point of view, but good vacancies are obviously it started in 100% and grind themselves down so what's buildings are fully.

More stable model.

But those are the buildings that those are the goes we're able to bite higher cap rates that we had one in particular that we at model Bacon possession at four four and a half cap and worked at over five cap because we ended up getting stronger rents than impossible. So theres, a give and take when it comes take up taking Lisa.

Mark Kenney: There's a give and take when it comes to taking the lease up.

But I would say, where we are today is probably a good representation of next year as we wouldn't expect to have continued.

Scott Cryer: I would say where we are today is probably a good representation of next year, as we wouldn't expect to have continued cost pressures.

Pressures like we did you every year.

Mark Kenney: Yeah

Scott Cryer: like we did year-over-year.

Okay perfect.

Julian Schonfeldt: Okay, perfect. I'll turn it back. Thanks.

Thanks.

Scott Cryer: Thanks.

Thank you.

Operator 2: Thank you. Once again, please press star one at this time for any questions or comments. Our following question is from Troy MacLean from BMO Capital Markets. Please go ahead.

Operator: Thank you. Once again, please press star one at this time for any questions or comments. Our following question is from Troy MacLean from BMO Capital Markets. Please go ahead.

Once again, please press star one at this time for any questions well comments. Following question you some Troy Mclean from BMO capital markets. Please go ahead.

I'm good morning.

Troy MacLean: Good morning.

Good morning Troy.

Mark Kenney: Morning, Troy.

Troy MacLean: For the large acquisition you made in Halifax, I was kind of curious what level of market rent growth did you underwrite, and how would that compare to the, you know, the kind of the previous three or four years in that market?

The large acquisition you made an Halifax it was kind of curious what level of market rent growth did you underwrite and how would that compare to the you know that kind of the previous three or four years in that market.

Well, we always model or from a very conservative point of view. So I believe we've modeled so in Hawaii grows.

Mark Kenney: Well, we always model from a very conservative point of view, so I believe we've modeled some NOI growth in the neighborhood of about 4%. However, we are extremely optimistic over what we think the rent increases can be there, and we are very confident investing in that marketplace because there, it's quite, as you know, Troy, quite landlord-friendly rent increase legislation. We can ultimately determine where we wanna go there with that. Properties are definitely in a value-add state. There's one brand new construction at, well, two years old now. The rest are very much what we'd call our traditional value add, and we think that we will have a strong return on our capital investment in those assets.

In the neighborhood of the 4%.

However, we are extremely optimistic over what we think the rent increases can be there and we are I'm very confident investing in that marketplace, because it's quite as you know Troy.

Landlords Randy friendly rents increase legislation, we can ultimately determine where we want to go there with that properties are definitely unit value add state. There's one brand new construction not well two years old now the rest are are very much what we call or traditional value add and we think that we will.

Have a strong return on our capital investment in those assets. We are you know we're we're the dominant landlord now on the peninsula Allfast, there's there isn't a landlord with more suites in the core walking distance to the towers.

Mark Kenney: We are, you know, the dominant landlord now on the peninsula in Halifax. There isn't a landlord with more suites in the core, walking distance to the towers than our portfolio now has.

Our portfolio now house.

And in 2018, we saw Montreal start to take off with mid to high single digit turnover growth and we started to that same phenomenon and how fast. This year. So help me some or all back to become one of the tightest markets a east of a drone.

Scott Cryer: In 2018, we saw Montreal start to take off with mid to high single-digit turnover growth, and we started to see that same phenomenon in Halifax this year. Definitely a strong market.

Mark Kenney: Halifax has become one of the tightest markets east of Toronto.

On the 2020, Capex budget, you're forecasting to spend less sense, we'd improvements digit then you did last year, but yeah. You know tenant turnover is expected to stay the same what's driving that the decline is it just you know the type of investment you want to make or is getting better pricing on some of the improvements.

Troy MacLean: On the 2020 CapEx budget, you're forecasting to spend less on suite improvements than you did last year. You know, tenant turnover is expected to stay the same. What's driving the decline? Is it just, you know, the type of investments you wanna make, or is it, you know, getting better pricing on some of the improvements?

Mark Kenney: A reduced churn is a big factor. Reduced churn. The suites that turn most frequently tend to be newer leases. The investments that are going into the real mark-to-market rents are the larger ones. It's very difficult to look at the suite program holistically when you've got all these different factors by region going on. I wouldn't read anything into it other than the fact that that number is driven by a number of factors.

Reduce churn is a big factor.

Reduce churn.

The suites that turn a most frequently tend to be newer leases. So the investments that are going into the market real mark to market rents are the larger ones.

So it's very difficult to look at the Sweet program Holistically when you've got all these different factors by region going on I wouldn't read anything into it.

Other than the fact that it's that number is driven by a number of factors.

It's very hard to budget suite improvement.

Scott Cryer: It's very hard to budget suite improvements, to be completely honest, because you don't know which suites are gonna turn over. You know, we definitely see trends by region of which types of buildings we're doing, but you don't know which units are gonna turn over. Sometimes it's the same units, and sometimes it's, you know, old ones. It is a bit of a guessing game, unfortunately, but,

To be completely honest because you don't know what suites are going to turn it over we've definitely you know we definitely see trends by region of which types of buildings were doing but you don't know what units are going to turn on or sometimes same units and sometimes it's all one so it is a bit of a guessing game Unfortunately, but.

Nothing to be read by the day to those right yeah.

Mark Kenney: There's nothing to be read by the data, though, Troy.

Scott Cryer: Yeah.

And then I know this is probably hard to answer but in Toronto for example, which the range of value that can get attitude property when you get zoning in place for development.

Troy MacLean: I know this is probably hard to answer, but in Toronto, for example, what's the range of value that can get added to a property when you get zoning in place for development?

It's not about question, we know the reference point for that would be a land cost in my mind.

Mark Kenney: Oh, that's not a bad question. We know the reference point for that would be land cost in my mind. We know that land is trading on a per unit basis, CAD 150 to 180 thousand per unit. From a condo perspective, you could use that number. From a rental perspective, it's gotta be very close to CAD 150 thousand a door.

And we know that land its trading on a per unit basis, a 150 to 180000 per unit. So from a from a condo perspective, you could use that number.

From a rental perspective, it's got to be very close to 150000 a door.

So as you get the Bruins them in place to expect to have a fair value game.

Troy MacLean: As you get the approvals in place, do you expect to have a fair value gain?

That was the point, we were trying to make in the presentation is regardless of Ah of what we do with our development ambitions. Once the properties are zone. We have created the value devalue is there for someone.

Mark Kenney: Well, that was the point we were trying to make in the presentation. It is regardless of what we do with our development ambitions. Once the properties are zoned, we have created the value. The value is there for someone. Well, it likely be us, but the value will have been created. I just wanna add that on the two properties, the ones that I never stop talking about because they're taking so long, 100 Wellesley and 141 Davisville, there's the additional value add, Troy, of the underground parking spaces. Today, in Toronto, it costs north of CAD 70,000 a parking space to build.

We will likely likely be us, but the value. We will have been created and I just want to add that on the two properties the ones that I never stopped talking bags and taken so long 100, Wellesley 141 days, though theres the additional value add Troy of the underground parking spaces. So today in Toronto.

It cost north of $70000 the parking space to build so in terms of the competitive advantage. We have the land cost and we have the cost of not building parking, which we believe it gives us over $200000 unit in a in value to get started it makes for very viable rental.

Mark Kenney: In terms of a competitive advantage, we have the land cost, and we have the cost of not building parking, which we believe gives us over CAD 200,000 a unit in value to get started. Makes for a very viable rental.

That's great color I I just one more question I was kind of curious I just on the AG I process is taking longer to get through because of an increased level of applications or its things pretty much steady versus the last couple of years, well cap rate portfolios in exceptional shape. So the H.I. opportunities are declining as we go each year.

Troy MacLean: Oh, that's a great color. Just one more question. I was kinda curious, just on the AGI process, is it taking longer to get through, because of an increased level of applications, or is things pretty much steady, versus the last couple of years?

Mark Kenney: Well, CAPREIT portfolio is in exceptional shape, so the AGI opportunities are declining as we go each year by year. Because the properties are in such good shape, you have a window of time to add up your spend, and so we're dragging that window as long as we possibly can to make optimal applications. That's got a little bit to do with it as well.

By here the the a weird because the properties are in such good shape, you have a window trying to add up your spend and so we are dragging that window as long as we possibly can do make optimal applications.

That's that's got a little bit to do with it as well Oh.

Troy MacLean: Oh, perfect. That's it for me, guys. I'll turn it back. Thank you.

That's it for me guys I'll turn it back. Thank you. Thanks Roy.

Mark Kenney: Thanks, Troy.

Troy MacLean: All right.

Thank you.

Operator 2: Thank you. Our following question is from Mario Saric from Scotiabank. Please go ahead.

Operator: Thank you. Our following question is from Mario Saric from Scotiabank. Please go ahead.

Following question is from the miles Sirek from Scotia Bank. Please go ahead.

Hi, Good morning, What America, just maybe sticking to the operations.

Mario Saric: Hi, good morning.

Mark Kenney: Morning, Mario.

Mario Saric: Just maybe sticking to the operations, specifically the mark-to-market that kinda Scott highlighted, the 15%, maybe closer to 20%, that we'll get a bit more information on over time. What would the estimated spend per door be to capture that, ballpark? Is it CAD 3 to 4 thousand a door, or is that pure-

The mark to market.

Scott.

15%, maybe closer to 20 that we'll get a bit more information on overtime.

What.

What would the estimated spend per door.

To capture that.

Well part three 4000, a door or as a pure no. It's it really varies. So again. This is a so complicated will sit down maybe even with the analysts continue to help us here, but when we're when we're getting 30% plus.

Mark Kenney: No, it really varies. Again, this is so complicated. We'll sit down maybe even with the analyst community to help us here. When we're getting 30%+ increases in rent, then you're talking a CAD 30,000 renovation. When we're getting 10% increases in rent, it all is specific to the condition of the unit. Because this is not our first year of operation, we've got 20 years of rental programs behind us. Those rental programs, we're doing various stages of work depending on what the market needed or the unit needed. Sometimes we'll take on a unit that has a kitchen that needs to be done and that's all. Other times, the kitchen's been done, it's just cleaning the unit.

Increases in Red then you're talking a $30000 renovation.

Well when we're getting 10% increases in read it all is specific to the condition of the unit. So because this is not our first year of operation. We've got 20 years of rental programs behind us and those rental programs were doing various stages of work depending on what the market needed or the unit.

Good so sometimes take on a unit that has a kitchen that needs to be done and and that's all the time to get has been done. It's just cleaning the unit. So it really theres not a a binary calculation to see X equals X, except I I will tell you that what we have or market rents in our.

Mark Kenney: There's not a binary calculation to say X equals X, except I will tell you that what we have are market rents in our system and existing rents that get turned over. Our staff has approval. If they can get rent over the established market rent, they do not require a budget if it gives a three-year payback. The way we gear our staff is, the unit is gonna, at virtually no renovation cost, deliver the market rent. If they feel renovation could give us a three-year return, they are allowed to run that budget however they deem fit. The programs work very, very effectively that way, and that's what we're doing in 2020.

System and existing rents they get turned over our staff has approval if they can get rent over the established market rent. They do not require it budget. If it gets a three year payback. So the way we hear our staff is unit is going to at virtually no renovation costs.

US deliver the market rent if they feel renovation could give us a three year return they're allowed to run that that budget. However, they deem that and that's the programs were very very effectively that way and that's what we're doing 20 point.

Okay, and then maybe sticking to 2020 or more to appreciate your commentary on kind of looking at things on annual basis, given no timing on a quarterly be somewhere north of.

Mario Saric: Got it. Okay. Maybe sticking to 2020, Mark, I appreciate your commentary on kinda looking at things on an annual basis, given, you know, timing on a quarterly basis and whatnot. Like in 2019, you did almost 5% same-store NOI growth, 64.3% margin. Like, when you look at 2020, you know, given the increasing strength that you're seeing in some of the suburban markets, you know, potentially offsetting a bit of moderation in Vancouver, do you think that 2020 can see similar type growth in terms of same-store? Do you think that there's margin potential or margin expansion potential if you're able to hit that type of growth?

2019 did almost 5% same center NOI growth, 64.3% margin when you will get 2020.

Given the increasing strength that you're seeing in some of the suburban markets.

Potentially offsetting the moderation Vancouver do you think chart 2020.

Similar type growth.

The same store and then.

I think brokers or margin potential or margin expansion potential.

I would do it margins could move around if we buy more MHCV buying more new construction assets settlements, we migrate our margins.

Mark Kenney: I would do it. Margins could move around if we buy more MHCs, if we buy more new construction assets, that'll naturally migrate our margins. We've got insurance pressures in terms of cost. We have some realty tax pressures in terms of cost. All that being said, I would prefer to answer the question this, Mario. We're very confident the portfolio can deliver more than 4% growth.

I got insurance pressures in terms of.

Cost, we had some real detox pressures in terms of cost, but all that being said I would prefer to answer. The question. This mirror, we're very confident in the portfolio can deliver more than 4% growth.

Right.

Mario Saric: Right. Okay. Then, from a capital deployment standpoint, given the increasing rent, or the stronger rent growth that you're seeing in the suburbs, is the plan to potentially, you know, allocate more capital to suburban markets given your very kind of downtown core type portfolio? Is that changing over time?

Okay and then.

From a capital deployment standpoint, given the increasing.

Our rent growth that you're seeing them suburbs is the plan.

I mean.

More capital to suburban markets given your varies.

Core.

Portfolio.

Changing over time.

We <unk> I would love to be able to target acquisitions like that instead, we target markets and we underwrite everything that comes to market, which is limited.

Mark Kenney: I would love to be able to target acquisitions like that. Instead, we target markets, and we underwrite everything that comes to market, which is limited. CAPREIT has its established markets. We consider ourselves the urbanizing apartment REIT, so markets that are going through a significant urbanization, those are the ones that we've identified. You won't see us going into any new markets. That's certainly not in the plan. You never say never. If it's not an urbanizing market, a large Canadian urbanizing market, we cover those markets completely. We model with discipline our acquisitions, and if we see accretion and growth, then we will bid to achieve the right results. We won't overpay, but we'll cover the markets.

So cap rate has established markets. We are we consider ourselves the urbanizing apartment Reits so markets that are.

Going through a significant urbanization those are the ones that we've identified you won't see us going into any new markets.

That's certainly not in the plan you never say never but if it's not an urbanizing the market a large Canadian urbanizing market, we cover those markets completely we model with discipline or acquisitions, and if we see accretion and growth and then we will bid.

To achieve the rate results, we don't overpay.

But we will cover the markets, but to answer your question I would love to be to find opportunities in those suburban type locations, but we'll be covering the market's a cap rates currently in.

Mark Kenney: To answer your question, I would love to find opportunities in those suburban-type locations, but we'll be covering the markets that CAPREIT's currently in.

Okay, and then just shifting gears to the development pipeline, you're providing a pretty specific.

Mario Saric: Got it. Okay. Just shifting gears to the development pipeline. You're providing a pretty specific number at 8,790. It's a bit below kind of the in excess of 10,000 that you were talking about previously. Can you maybe reconcile those two numbers for us?

Number 80, 790, it's a bit below.

In excess of 10000.

You were talking more previously can you maybe reconcile.

Those two numbers for us.

Yeah, I I'm really trying to get concern as it's I think you've also heard me say Merrell is a you know.

Mark Kenney: I'm really trying. As I think you've also heard me say, Mero, you know, we're seeing here at CAPREIT how long this process is. Our portfolio is in many different municipalities. We're learning as we go here that it's a very long process. I'm in typical CAPREIT fashion, trying to be as conservative as we can possibly be with the number of units that we will get zoned and only the ones that we deem are market viable. I would stick to that. We'll continue to give guidance, but I'm really trying to message. I wanna give more detailed guidance on the projects that we see coming to market in the next 12 months.

We're seeing here a cap rate how long this process is.

And our portfolio is in many many different municipalities.

And we're learning as we go here that it's a very long process. So I'm in typical coppery fashion trend to be as conservative we can possibly be with the aid the number of units that we will get zoned and and the one only ones that we've diemer market viable. So I would stick to that we'll continue to get.

Guidance, but I'm really trying to to message.

I Love I want to get more detailed guidance on the projects that we see coming to market in the next 12 months and looking at I find it interesting, but it's so hard to know whether that's your two or three so we will be focusing our disclosures on actual activities within the calendar year 2020 in as we get closer to 2021 the same.

Mark Kenney: Looking out, I find it interesting, but it's so hard to know whether that's year two or year three. We will be focusing our disclosures on actual activities within the calendar year in 2020, and as we get closer to 2021, the same there.

But just to reconcile I mean not applications.

Scott Cryer: Just to reconcile, I mean, that's applications, you know, going in in 2020. It doesn't mean we don't have 10,000 plus still of total opportunities, so that number hasn't changed. It's more of just, here's, you know, what we're actively working on today, and that we think we can execute on within the next 12 months to get applications in.

Going in in 2020, it doesn't mean, we don't have 10000, plus still on total opportunity. So that number hasn't changed it's more of just here you know what we're actively working on today and that we think we can execute on within the next 12 months to get applications and we do see offers Scott.

Mark Kenney: Scott's absolutely right. We do see the opportunity being bigger than that, but I'm trying to message down 'cause it does take so long.

Absolutely <unk> do you see the opportunity being bigger than that that I'm trying to message down.

It does take so long I see okay, and then just on the timeline.

Mario Saric: I see. Okay. Then just on the timeline, you know, if we look at the Cavendish disclosure, it took almost 3 years from date of application submission to full lease-up. Is that kind of a reason? That was a smaller development. Is that

If we look at the Cavendish disclosure.

Almost three years from dilutive.

Mission submission to full we saw.

Is that kind of a reason.

Smaller development.

Mark Kenney: Yeah

Mario Saric: ...kind of a reasonable timeline to think about, in terms of the 87 90?

A reasonable timeline to think about.

In terms of southern 90, it again I'd be cautious on them every municipality different the process is getting more regulated it's getting more cumbersome, it's more demanding.

Mark Kenney: Again, I'd be cautious on that. Every municipality is different. The process is getting more regulated. It's getting more cumbersome. It's more demanding. Again, it's just caution, Mero. I'm trying to give a bit of a taste of what could happen, but really caution over the timelines.

Again, it's just caution mirror I I tried to give a bit of a taste of what could happen, but really caution over over the timelines.

Okay.

Mario Saric: Okay. That's it for me. Thanks, guys.

Okay. Thank you.

Mark Kenney: Thank you.

Thank you.

Operator 2: Thank you. Our following question is from Brad Sturges from iA Securities. Please go ahead.

Operator: Thank you. Our following question is from Brad Sturges from iA Securities. Please go ahead.

Following question, Brad The Star Jones from Securities. Please go ahead.

Hi, there we're not right.

Brad Sturges: Hi there.

Mark Kenney: Morning, Brad Sturges.

Just a follow up on that.

Brad Sturges: Just to follow up on that, obviously, you know, it's well known how slow or patient you've had to been in Toronto. Are you expecting the process to be that much different in other markets like BC or, you know, in terms of timeline or process to get the development applications approved?

Obviously, you know it's well known.

Slower pace and you've had been in trone just is it.

Are you expecting the process without much different than other markets like BC or.

In terms of timeline or process to to get the development applications approved.

Well I would say I do I talked a lot of people and I would say generally speaking I try to the most difficult place I think cap rate has one of the biggest challenges because we are right art properties are right Dead Center in the core of these cities where zoning is the most difficult.

Mark Kenney: Well, I would say I've talked to a lot of people, and I would say, generally speaking, like, Toronto is the most difficult place. I think CAPREIT has one of the biggest challenges because our properties are right dead center in the core of these cities, where zoning is the most difficult. Even in Toronto, if I was in Scarborough, it would be easier than the Davisville and Wellesley. I'm right absolutely in centralized locations, which is the good news. The bad news is our process takes much longer because of the prime nature of the sites. When you get to places like Montreal, we actually find it much better. Places like Pickering are just unbelievable.

So even in Toronto, if I was in Scarborough, it would be easier than the Dave is still and a and Wellesley I'm right absolutely incentive rights locations, which is the good news. The bad news is our process takes much much longer because the prime nature the sites.

So when you get to places like Montreal, a we actually find it much much much better places like Pickering, or just unbelievable, they're not going down or door, saying you know, let's let's get going so it's a very very different proposition for cap rate because of our Senate race locations. If we were in the <unk>. So.

Mark Kenney: They're knocking down our door saying, you know, "Let's get going." It's a very different proposition for CAPREIT because of our centralized locations. If we were in the outside regions, it would go more quickly. We have ratepayer issues that others don't have. We have political municipal politics that others may not have. The good news is, once we get there, it's gonna be incredible.

Right regions I would go more quickly, but we have right here issues that others don't have we have.

Old municipal politics that others may not have but the good news is once we get there it's going to be incredible the type of build also changes the equation, we have a mcos site that's.

Scott Cryer: The type of build also changes the equation. You know, we have a Mimico site that's you know, multi-phase development over 2,000 units. That's obviously gonna take much longer to get through, and to build out because it'll be done in phases versus single towers that are a little bit more straightforward. Each project comes with its own specific timelines as a result of that.

You know multi phase development and over 2000 units, that's always going to take much longer to get through and to build out because it will be done in phases versus single towers that are a little bit more straightforward. So.

Each project comes with a zone.

Its own specific timelines as a result of that Brad I think we're not the only apartment REIT with this but some some others that are trying to build apartment buildings.

Mark Kenney: Brad, like, we're not the only apartment REIT with this, but some others that are trying to build apartment buildings, we have the incredible advantage of we're not sitting on costly land here. Our land is paid for, and time will be our friend. So highest and best use is definitely my objective. Not speed. Speed is frustrating, but it will deliver ultimate value to CAPREIT shareholders in the long run by being patient here and waiting for highest and best use.

We have incredible advantage, if we're not sitting on a cost we land here. Our land is a is paid for and and time will will be our friend and so highest and best use is definitely my objective not not be speeds frustrate.

Reading, but it will deliver ultimate value to cap rate shareholders in the long run by being patient here and waiting for highest and best use.

Makes sense makes sense.

Brad Sturges: Makes sense. Just last question. Maybe back to the turnover rate. Based on the portfolio, construction or composition today, how low could turnover rate theoretically go, you know, structurally?

Just last question, just maybe back to the turnover rate based on that portfolio.

Construction or composition today, how low could turnover rate theoretically go structurally.

Strongest structurally can only look at worldwide examples in.

Mark Kenney: Structurally, you can only look at worldwide examples, and we have very different dynamics here in North America. But I have not experienced many rental buildings that go below 12%. The nature of the location of our properties, if we've got families, we've got young professionals, the people don't. As much as they've got maybe good rental deals, they wanna move on to homeownership. The changes in life are bigger in our Canadian big cities than they are in other places. Certainly not a European situation here. Canadians still aspire to homeownership, and that will always happen. I think we're near the bottom.

We have very very nice different dynamics here in North America.

But I had not experience many rental buildings that go below 12% and the nature of the location of our properties. If we've got families. We got young professionals. The people don't as much as they've got maybe good rental deals the they want to move on to homeownership.

Changes in life or bigger in in our Canadian Big cities than they are in other places so certainly not a European situation here Canadian still aspire to home ownership and that will always happen I think we're near the bottom.

Okay, great. Thank you yeah.

Brad Sturges: Okay, great. Thank you.

Mark Kenney: Yeah.

Thank you so have no further questions, but just so at this time back to you Mr. Kenny [noise].

Operator 2: Thank you. We have no further questions registered at this time. Back to you, Mr. Kenny.

Operator: Thank you. We have no further questions registered at this time. Back to you, Mr. Kenny.

Thank you very much.

Mark Kenney: Thank you very much. We're very, very proud of our accomplishments at CAPREIT this year. Thank you for your time. Thank you for your attention. If you have any further questions, please don't hesitate to contact us at any time. Have a great day and take care.

Very very proud of our accomplishments that cap accomplishments a cap rate. This year. Thank you for your time. Thank you for your attention and if you have any further questions. Please don't hesitate to contact us at anytime I have a great day and.

Take care.

Thank you.

Operator 2: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation. This conference is no longer being recorded.

Operator: Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation. This conference is no longer being recorded.

Vince has now ended please disconnect your lines at this time.

Thank you for your question.

This conference is no longer being recorded.

Now, let's just put modest said coffeehouse it does WP.

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