Q1 2023 Canadian Apartment Properties Real Estate Investment Trust Earnings Call

Hello and welcome to the Canadian Department of the U3 first quarter 2023 results conference call. My name is Elliot and I'll be coordinating your call today. If you would like to register a question during the presentation, please press star four by one on your telephone keypad.

I would now like to hand over to Nicole Dolan, Investor Relations. The floor is yours. 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 CAFRE, 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 is Stephen Coe, our Chief Financial Officer, and Julian Schonfeldt, our Chief Investment Officer.

Let's get started with an overview of our operational performance on slide 4.

We continue to see strong rent growth across our Canadian apartments.

which account for approximately 80% of our total portfolio value.

We've been maintaining this track record while also keeping near full occupancies with 98.6% occupancy at March 31st.

On a same property basis, occupied AMR for our Canadian residential portfolio was up by 5% compared to Q1 of 2022.

increase in our NOI margin, up by 0.7% versus the prior period. On the same property basis, our margin was up by 0.6%.

Diluted FFO per unit increased by 2.2% despite headwinds in interest, accelerated CMHC amortization, septic system maintenance costs, and elevated G&A, mainly from wage inflation.

Our active NCIB program contributed to the increase, as did a non-refundable deposit received on a property disposition that did not close.

We are proud to have maintained a constant distribution rate and a conservative FFO payout ratio, which was 63.6% for the quarter.

Diluted nav per unit at March 31st was $57.47.

This decreased slightly compared to Q4 due to the fair value loss on our European portfolio.

Partially offset by NCIV repurposes.

We also continue to make good progress on our Capri 2.0 strategy.

which is summarized on slide six.

On the Canadian Apartments front, we're improving the quality of our portfolio by disposing of non-core properties and acquiring new construction assets in attractive markets.

We are also working on entitling and selling our access land. This generates additional funding for us to allocate toward Capri's core competencies.

But more importantly, it helps to bring housing to the Canadian marketplace.

Right now, we have incredible capital deployment opportunities.

In addition to our focus on new purpose-built rental apartments, we are also allocating funds towards our value-enhancing NCIV program, which Julian will expand on shortly.

together with our active debt management program that Stephen will then speak to.

I will now turn things over to Julian to provide an update on our capital recycling and strategic repositioning.

Turning to slide eight, you can see that we've been gaining traction on the strategic repositioning of our portfolio over the past couple of years, and we continue to make solid progress in 2023.

So far this year, we have already executed on $178 million worth of dispositions and have acquired $84 million in targeted new construction rental assets.

That brings our portfolio allocation to 9% new build today versus only 1% just over five years ago.

Slide 9 provides a great snapshot of some of the strategic recycling we've done in the first quarter of 2023 and displays the type of asset which we're purchasing versus selling. In January , we dispose of our non-managing interest in three older non-core properties at a mid 3% cap rate.

We paid down higher interest rate debt, and then in February we reallocated some of that capital back into Ottawa through the purchase of this newly built Eagle Point asset. It has strong growth profile, low capex needs, and we were able to acquire it at a mid 4% cap rate at a price that is below replacement.

In March, you will see on slide 10 that we completed our first disposition of entitled land as part of our re-envisioned development program. The underutilized parking lot site is located next to a property we own in Montreal and we undertook the end-to-end entitlement process to obtain building permits for approximately 280,000 square feet of gross floor area.

in that growing neighborhood, but we were also able to effectively monetize the majority of the prospective development profit upfront without having to take on the development risk.

It's a win-win for our community and for our unit holder.

community and for our unit holders.

Looking ahead, we've identified over 6 million square feet of possible GFA across potential development sites in the GTA alone. In partnership with development managers, we have submitted several planning applications for new residential buildings, which together provide for the construction of 2 to 3 million square feet of new residential GFA.

Subject to municipal approval, these will help to address the increased demand for high-rise residential intensification in high-growth and major transit station areas across the city.

Net disposition proceeds from our development and repositioning programs are then in part funneled into our NCIB as summarized on slide 11. We have been very active on this front given that it provides a strong and ongoing source of accretion and today we have made over $338 million worth of repurchases.

at significant discounts to NAV. In the first quarter of 2023, we purchased and cancelled 2 million trust units at an attractive weighted average price of approximately $46 per trust unit, generating meaningful value for our unit holders.

With that, I will thank you for your time this morning, and I will now turn things over to Stephen for his financial review.

Thanks Julian and good morning everyone. Our NCIV strategy goes hand in hand with our active debt management program and both also depend on the timing of our acquisitions and disposition.

Referring to slide 13, you can see that we've got $266 million in assessable liquidity at March 31st from cash and available credit on our Canadian facility.

This balance fluctuates as we allocate excess proceeds from our strategic recycling to pay down this higher interest rate debt while also using the facility as temporary funding in between disposition dates.

We're expecting the latter to incur elevated interest costs in the near term in anticipation of top financing in the latter part of the year, including disposition proceeds.

We also proactively manage our mortgage refinancing and top-ups and are expecting to up-finance between $250 and $300 million in 2023.

Our mortgage portfolio is almost fully fixed and currently carries a low weighted average interest rate of 2.6% with a weighted average term to maturity of just over five years.

Not only that, but you can see on slide 14 that no more than 13% of our Canadian mortgages come due in any given year, which reduces renewal risk and gives us flexibility in this volatile interest rate environment. And finally, slide 15 shows how we've consistently...

growing our asset base while also strengthening the balance sheet.

We've got one of the lowest leverages in our peer group with a death to gross book value ratio currently at 40% while our coverage ratios remain conservatively high. I will now turn things back over to Mark.

Thanks, Dina.

As we reflect on Capri's first quarter of 2023, I just want to take a step back to look at the extraordinary conditions

that are affecting Canada's housing market. It's impossible to deny that the housing affordability crisis in Canada is directly co-related to demand for homes in Canada. This demand is primarily driven by population growth.

From Statistics Canada, we've taken a look back at population growth since the year 2000.

Canada, we've taken a look back at population growth since the year 2000. And as you can see on slide 17.

The fundamentals support our view that the affordability crisis in Canada started to show its first signs in 2015.

However, COVID changed the trajectory of apartment affordability, population growth, tapering off and households consolidating. This temporary masked the increasing shortfall in housing supply, which then caught up dramatically as the pandemic eased.

We believe that these fundamentals form the root cause of the affordability crisis.

that we have the most expensive housing market in the G7. On slide 19, combining this extreme population growth with a persistent lack of housing supply, the result is a steady decline in housing affordability, and this is driving demand for rental accommodation. In 2022, Canada's purpose-built rental apartment vacancy rate fell to 1.9%, which is its lowest level since 2001, reflecting the widespread tightening across all of Canada's rental markets.

According to CMHC, it is projected that an additional 3.5 million new housing units are needed by 2030 to restore affordability in Canada.

On slide 20, you can see the gravity of this gap. For context, this represents approximately $2 trillion worth of new construction.

This is over and above the 2.3 million new homes estimated to be built by 2030.

which assumes the current rates of construction continue.

But construction costs are rising rapidly. In 2022, the cost of constructing a residential building rose by nearly 20%, a double-digit increase to the second consecutive year according to Statistics Canada.

CMHC also just recently predicted that housing starts will decline significantly in 2023 due to elevated construction and financing costs, as well as a labour shortage.

Making the situation even more difficult.

Slide 21 points to where the problem is concentrated. CMHC estimates the supply gap to be the greatest in the largest, most in-demand markets, which are the most unaffordable.

And as a provider of housing, that's exactly where you'll find capris. 80% of our residential suites in Canada are located where supply shortfalls are the greatest.

that's in the top five most unaffordable cities. With the vast majority of our portfolio located in the most unaffordable markets, you can understand how these two crises, the housing supply crisis and the affordability crisis, are coming together to drive up demand.

therefore mark to market rents on turnover.

That said, when we look at our portfolio as a whole, as shown on slide 22, you can see that uplifts on turnover affect only a minority of our suites.

Most of our portfolio receives an average sub 2% rent increase on renewal, entirely in line with regulatory rent caps and guidelines that apply to almost all of our Canadian suites. Speaking at our most recent full year, we renewed 90% of our leases across the Canadian

which the average increase was only 1.4%, including both turnover and renewal. Our Canadian weighted average uplift on the Canadian residential portfolio was 3.4%.

and 3.7% in this most recent first quarter.

This graph highlights another trend as demand for rental accommodation drives up market rents. Capri's in-place residents are experiencing rents that have fallen well below market value.

You can see the steady decline in our turnover rate over the past decade with only 2.6% of our suites turning over in this most recent quarter, which would be just 10% turnover on an annualized basis.

Compare that to the 35% turnover that we saw back in 2010.

Slide 23 demonstrates that we are providing affordable accommodation in increasingly unaffordable cities.

In fact, nearly half of our suites are designated as affordable according to the CMHC measure of affordability. In our largest markets, which are the least affordable markets, our average rent-to-income ratio is significantly less than that of the market, and that's what is required for home ownership.

Which brings me to our final slide 24. As one of the largest providers of residential housing Canada, we acknowledge the impact we can make in helping to resolve the housing crisis.

And we are now sitting on the side, and we are not sitting, I should say, on the sidelines.

We also prioritize the primary duty that we have to our residents and the communities that they live in. We aim to continue setting the precedent when it comes to responsible and accountable property management.

Importantly, we are working to achieve all of our ambitions while also seeking the strongest returns for our valued unit holders.

Our objectives are not mutually exclusive and we intend to continue making progress on all fronts as we move forward in 2023.

Thank you for your time this morning, and we would now be pleased to take your questions.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two.

When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Jonathan Kelcher with TD Cohen. Your line is open. If the policy and ASA yet Greta

your question, please ensure your device is unmuted locally. First question comes from Jonathan Kelcher with TD Cohen. Your line is open. Thanks. Good morning. Good morning.

First first question.

Just following up on the turnover at 2.6%, which I think is probably the lowest you guys have ever recorded. Q1 is normally a slower period, but how do you think that plays out the rest of this year? What do you think the year ends up at?

I think you'll see a normal curve with respect to seasonality, but just lower overall churn.

So I think we're comfortable that we'll probably see you in the Canadian apartment portfolio.

you know, 12 maybe 13 percent churn for the year. That's a guess obviously, but based on what's happening the seasonal curve will stay and the trends will probably also follow.

Okay, is there any, like I'm assuming Toronto would be among the lowest with your turnover, are there any markets that stand out?

either low or high relative to your average.

No, it's pretty much settled in in terms of an issue from coast to coast.

I would say...

that some of the newer construction assets that we've been purchasing are experiencing a slightly higher turn because the market rents are closer to market. That being said, we're seeing very strong increases on those assets as well, but no particular geography that's standing out.

Okay, and then secondly, just on the mid 20% increases that you got again this quarter, is that something we could expect to see carry through over the next couple of quarters? And what markets? Professor Native American Studies conclusions

we're the strongest in that regard, if any. Yeah, we're gonna see a flattening. We're getting the COVID impact here clearly. Jeffrey was very cautious with rent setting during COVID. And so as we come out of COVID, we're obviously seeing.

some of those rents that were at least closer to market come to bear. So I wouldn't say it's an ever-increasing trend. We might see a flattening now. And sorry, the second part of your question I...

Which markets? Any market. Toronto absolutely stands out as being a market of incredible potential, in particular Southwestern Ontario. And you certainly can't...

ignore what's happening in Calgary and Vancouver. So almost all except Montreal? Montreal we're seeing, you know, we have a new construction portfolio for Capri. We had the struggles with lease up there during the worst possible time.

But no, we're seeing oxygen back in that marketplace in terms of occupancy. We are not seeing Toronto-level rents, but we're going to be seeing double digits in the strong end here pretty soon in the quarters to come. Look at all the...

All the punch of revenue out of Quebec really does come middle of summer, June , July . So we're looking forward to seeing some...

some full recovery by that period of time.

recovery by that period of time.

Thanks, I'll turn it back. Our next question comes from Kyle Stanley with Desjardins. The line is open.

Thanks, good morning everyone. Julian, just on your outlook for additional capital recycling for the year, I mean you've now done close to $180 million I think on the year. Would that imply another $300-350 million based on your per-

previous guidance that was kind of in the range but I'm just wondering if your outlook has changed at all.

Thanks for the question Kyle. We initially said we were targeting $500 million and we are still on track for that. This is always subject to markets and demand. As we discussed earlier, a lot of these transactions are with private buyers so there is a bit of higher execution risk but we feel confident.

No, it's largely the smaller private buyers. We think as interest rates stabilize, rent growth goes up, inflation stabilizes, you might start to see some of the institutions coming back in, but it is still predominantly the private buyers.

Okay, great. I think last quarter you mentioned...

Sorry, just to build on that, in terms of volume of transactions, we've now entered the period of the lowest amount of apartment transactions Canada has seen in about 15 to 20 years. So again, I think the market is readjusting. As Julia said, you've got institutions on the sidelines that have kind of been waiting for.

or a signal that it's about to pick up again. Okay, great. Thank you for that additional color. I'm just wondering, so last quarter you mentioned on the same property OpEx line, looking for a kind of four to 5% annual growth and maybe hitting the lower end of that. I mean, I think we saw that this quarter, just confirming that that's still.

still guiding four to five and you know rates continue to be low and and the weathers continue to be mild then I would say we'll be on the lower end of the range.

them. Thank you. And if not, okay, perfect. Thanks for that.

Our next question comes from Mike Maquides with BMO Capital Markets. Your line is open.

Thank you, operator. Good morning, Capri team. Mark, I don't know if you're willing to talk about this, but maybe if you could just touch on how your government engagement has evolved since the

Thank you, operator. Good morning, CACRE team. Mark, I don't know if you're willing to talk about this, but maybe if you could just touch on how your government engagement has evolved since the budget has been released.

What.

Yeah, I think...

Along the lines of what I said probably in the last call, maybe the one before, it's definitely been a journey of education. Thank God.

We have had tremendous interest in learning more from federal government.

I would describe the environment now just as one of better understanding. There are a couple of housing committees that are underway in Ottawa, and the voice of the industry is definitely being heard at those committee meetings. One just cannot deny.

that the cause of affordability now is clearly in the direction of population growth and building starts that we talked about in the presentation. There was definitely a period of time when...

you know, frustrations were forcing people to find a boogeyman and the boogeyman is definitely population growth and the inability to match housing needs with that population growth.

As we spread that word, and I would encourage all Canadians to spread that word, we have a struggle in front of us with the population growth ambitions that the country has.

started to undertake and has in its view, without more housing, we are going to stay in this very, very sad affordability crisis.

Okay, thanks for that. And then just following up on that line of topic is, is the focus mainly with the current governing party or just given, I mean, it seems like it's far away, but 2025 will be here before you know it. Is there any effort on the opposition side as well?

Now we've taken an approach of all parties are needing this education, political parties come and go, and the housing file is one that has at least at a federal level never really been sort of top priority. We've had Housing Affordability Canada for so long.

But it's all part of communication.

were putting an exorbitant amount of effort into the parties that are the most skeptical and Part of you would expect to be the most understanding

Just maybe the lightest conversations quite frankly.

We are definitely not stopping and the battle continues at the provincial level because premiers are all struggling with the same voter pushback of housing affordability.

So, you know, keeping the file active at the provincial level is something that we're also on. Okay, great. Thanks. Last question for me before I turn it back.

Just with respect to your capital deployment opportunities.

get the focus on the NCIB and debt repayment. Historically, CAP's been a dividend aristocrat. Just curious if you could get any thoughts about where your head is on the distribution these days.

Yeah, wait, listen, cash has came right now. As our payout ratio drops, we certainly have a more comfortable retention of earnings situation.

something that we're seeking. The team constantly talks internally here about the lowest cost of capital being the winning real estate company and all of our attentions are turned to how we can best use low cost capital and that is the mission.

Just really happy to see the growth of earnings in the entity. This is a trend that's going to continue to to reveal itself more as we go through 2023 and what we do with those earnings is going to be really really important for the future.

I appreciate your comments. Thank you very much. We now turn to Jimmy Shunn with RBC Capital Markets. Your line is open. Jimmy Shunn with RBC Capital Markets.

Thanks. So on the 6 million of additional density that you mentioned, have you penciled in some sort of timeline on when you expect to get these done? And then how are you approaching the rezoning work again? I think you've mentioned you're partnering with developers.

and they're going through the process. If you could just give us a call on that, that would be great. Thanks, Jimmy. So right now we have our TAN Green site, which we submitted an application for in March for over 2 million square feet of density, and then we've got two sites in Midtown near Yonge and Davisville, about 300,000 each.

We're expecting approvals maybe later this year, early next year on one, another one later in next year and then another one maybe the year or two after that. I mean these take time. We've got a few other sites, you know, we've looked at and mapped everything in the GTA and have a good grip on the potential here and you know we're going to put a few other ones into that.

into that process as well and hopefully we'll have stuff to announce over the near to midterm. But the approach that we've been taking with that is, and especially on those sites where there's a bit more complication like rental replacement, multiple phasing, we've been working with

large best in class developers here in Toronto who have just been partnering with us, helping consult through the entitlement process. Going forward, depending on the site, we may do that or we may do it internally if it's very simple kind of until the development, but we maintain the flexibility on our end.

finding another partner to come in along with the developers that you have working.

on those projects? It's likely to be a monetization, Jimmy. Here in Toronto, you know the vast majority of developments, condo development, we're not condo developers. It's not our business. It's the primary business of those other entities and so for our end it would be just to monetize it and redeploy it back into our bread-and-butter business being you know acquisitions of new builds and

you know, share buyback, debt repayments, and those types of things. Whether it's the developers that are consulting with us or others, we also have that flexibility.

Okay, great. Last question, just in your discussion with the government.

sort of their recognition of the demand-supply mismatch. Do you get the sense at all that they may change or lower their immigration targets? Is that part of the discussion?

No, I think Canada has been built on a foundation of immigration. That immigration is loved deeply by all Canadians. It resonates with voters.

I think Canada has been built on a foundation of immigration. That immigration is loved deeply by all Canadians. It resonates with voters.

And that is something that at the federal level where immigration is controlled, politicians have to be mindful I guess.

And that is something that at the federal level where immigration is controlled, politicians have to be mindful, I guess. At the same time, at the-

provincial level, it's definitely understood. We even have premiers on the left side of the spectrum calling for more supply across Canada, which is encouraging.

I said to Stephen and Julian, and Julian in particular, we've got the wind in our sails now on intensification of our capri lands. The decision to hold off or the consequences of not being fully organized will turn out to be a very valuable one for capri.

because the monetization of our land will be, I think, just jaw-dropping given the current environment and municipal appetite to grant density.

It wasn't so long ago that Not In My Backyard was a local saying. And I think Canadians are waking up to the fact that we have a supply crisis, that this is for sure. I'm not quite sure they've linked population growth with that yet.

so long ago that Not In My Backyard was kind of a local saying. I think Canadians are waking up to the fact that we have a supply crisis. This is for sure. I'm not quite sure they've linked population growth with that yet.

We're going to win on the intensification side and sadly will benefit by, you know, disproportionate population growth attribute.

The country just really needs to get the building and in particular building on lands that just require municipal services to be rebuilt to give us the density we need. We have lots of land in Canada, we can solve this problem. You know, quite frankly the problem is held at the municipal level where the capacity for municipal services is also going to determine how much housing can get built.

So, you know, it's not the most difficult problem in the world to solve. It's the competing ambitions of three levels of government that we have to work with.

We now turn to Matt Cormack with National Bank Financial. Your line is open. Hi guys. I just wanted to quickly talk on the capital recycling as well as mortgage up financing front.

You have a line of credit still drawn at 6% interest rates right now. Should we expect that some of the use proceeds on future dispositions or on up financing would be used to reduce outstanding balances?

Hey, Matt. Yeah, absolutely. I think I can have daily conversation with both Mark and Julian. When those dispositions do occur and those funds do come in, it's really the application between new build construction assets where we buy them or NCIB are paying down debt. Right now, our appetite is really to pay down debt.

That's an interesting conversation. I just want to point out what we're thinking.

The most accretive use of Dispo Cash today is paying down our revolver and the best long-term use of Dispo Cash is buying 4.5-cap new construction department assets.

So NCIB is right in the middle. Also, I would call that a mid-long strategy. But to have an actual portfolio of income-producing properties, we need the right properties in the mix. So we've got to resist the temptation of just paying down debt because if interest rates fall, that will turn out to be...

not the best use of equity.

So we need this equity optionality. That absolutely makes sense. And then I guess with regards to the eREZ credit facility, there's the added benefit of having a Euro-denominated debt against a Euro.

vehicle, so it's fair that you'd continue to kind of carry that debt in euros even though the interest rate is increased there.

I mean we have some swaps within the you could say our Euro investment that are very favorable but I mean it all depends on you know what we do with that both assets and whatnot. So but I mean we will try to...

try to pay down as much debt as we can, especially with our top-up financing on our Canadian line as much as possible, to convert that, like we can get a CMHC mortgage right now at 3.7, 3.8, and pay down the 6% line as much as we can. So we're actively monitoring that. Okay, that makes sense. And then you have...

unencumbered assets relating to our MHC portfolio, which currently there is no CMHC program in place, but it is a source of capital if we ever need it and it allows us to tap into it if we need flexibility. But right now, I mean, there are some assets that are unencumbered simply because we...

you know, for Julian purposes, we want to have it discharged so we can sell the acid-3 and clear. So, yeah, that balance may increase over time and therefore that might put another, like we might have to draw on our facility as we discharge those out as we identify our prone solidarity

purposes, we want to have it discharged so we can sell the acid-free and clear. So yeah, that balance may increase over time and therefore that might put another, like we might have to draw on our facility as we discharge those acids as we identify our prime predisposition. Okay great, thanks for the color.

Our next question comes from David Crystal with Echelon Capital Markets. Your line is open. Thanks. Good morning guys. Maybe just building on Matt's question there, with CMHC debt now about 100 basis points lower than European mortgage debt, is there any opportunity to leverage your Canadian portfolio to...

intention at this current stage to do any type of promissory notes or whatnot to reduce that level. I would point though, David, this is really getting in the weeds here.

One thing again that Steven is doing is when Julian has spotted an ideal disposition candidate building and we don't want to enter into refinancing.

that asset, it means we have to let things go on the revolver for a period of time, which is a great investment at the end of the day, even though the interest is more expensive. Julian's been able to realize higher than IFRS valuation on the sale of those assets. So it's managing this debt situation. Now we could in the early days affect the overall leverage of cap read by

having a higher levered E-res when things were positive, but we can't really do it the other way around. Our strategy for managing debt here is really around highest and best use, which is today paying down that revolver with some equity.

Okay, thanks. That's great. And then maybe turning to the cost side, you pointed out you hedged 85 plus percent of your natural gas for 23. How do those hedge rates compare to spot and for 24...

What amount is heads and what kind of savings could we be looking at? So I'll have to get back to you on the 2024 numbers, but definitely 2023. Our rates are below spot rate. Last year was definitely, we were in the money of

If we look at the future, I would probably have to take that offline with you, David. And David, I would just add that we are not commodity experts here. We follow the same conservative strategy of hedging our utility costs as we do our mortgage portfolio and pushing it out long.

So we always follow the long strategy in terms of trying to protect gyrations in the market.

Okay that makes sense and maybe last one on the cost side. I think the septic issues at the MHC have been several quarters running now and you mentioned that one of the assets that's challenged was sold in the quarter. Of the kind of

you know call it a million dollars of extra cost how much will be burning off in the second quarter and what's the timeline on resolving the second site.

Let me get a little bit of an update on our approach here. Yeah, so there were two properties that were causing quite a bit of pain on that front. You'll see one of them was disposed of. We have one left, so you'll have a bit of drop off.

from having had sold one of the big offenders, you know, that said, there's a bit of a counter in the spring. There's just a lot more infiltration that occurs with the snow melting. So you may not get as much relief immediately. And you might have that same kind of run rate that we saw in the first quarter happen in Q2 just because of that effect. You know, we continue to work in the background on mitigating.....when is it going back to normal? Just past October . filming

measures that we can implement and we hope to get that lower, but I wouldn't expect a huge release in Q2, just given the weather and the spring.

Okay. Makes sense. Thanks. I'll turn it back.

Now turn to Mario Cezalek with Deutsche Bank. Your line is open. You can unmute yourself up here now.

Well, that was interesting. Okay. Okay.

Mark, just on capital deployment, I'm just curious if you could square your comment, I think at the onset of the call where you identified incredible capital deployment opportunities.

in an environment where, as you noted, transaction volumes are the lowest they've been in 15 years. Yeah, so between our revolver and our our mortgages that are coming due this year.

That is all money that equity could be utilized to defer. I think we would be well served by avoiding what we see as a declining interest rate environment over the next three years. If we're going to lay a bet that rates will be lower three years from now, which I think I would make that bet.

itís best not to be entering into mortgages. So thatís the mortgage front. On the acquisition market, Julianís got at least a half a dozen emerging opportunities of new construction assets across the country.

We can see that number probably go up as condo developers get in trouble. There could be assets available for rental. There's lots of talk in the province of Alberta about office conversion opportunities.

And we just don't see the acquiring side of our strategy to be a problem. We are very committed to this new construction approach.

The NCIB has been wonderful. We can't buy enough stock at this level. It's one of the joys of seeing your stock trading so dramatically under NAV. It's waking up knowing you bought and cancelled some shares. That is good. The list goes on.

So we're very excited to recycle some of the assets that we have in the portfolio into more creative and more sustainable income producing properties.

So it wasn't a comment inferring a notable uptick in potential acquisition opportunities, whether it's on a new build or portfolios, for example. It's a combination of all the previously discussed opportunities in terms of deploying capital.

Yeah it is, but not to beat this thing to death, but if we're predicting I think on a conservative basis 500 million to Dispo, we could easily put that money to work tomorrow with 600-700 million of acquisition. There's deals that are absolutely available out there. So even though transactions are low.

there's this in-between stage with a lot of properties in development that we think we could bring into the mix if we had the capital and pricing was correct. Just in terms of those low transaction volumes.

There could be several factors that are driving it, whether it be interest rates, expectations for maybe cap rates coming up, regulatory. How would you?

characterizes the primary drivers behind why institutions have stepped aside. Well, in short, Canadian apartments have become a yield spread game over the last 20 years. And the institutional interest in apartments have really been about this 150 basis points of yield spread between cap rates and long-term money.

So clearly that yield spread has gone to zero, if not negative. But clearly also the institutions are smart and they have their own portfolios and they can all see what's happening with rent.

So it doesn't take a terribly sophisticated analyst to forecast out what's going to happen and the delta between yield spread and rent growth is now getting very interesting, especially in an interest rate environment that's showing...

you know, not short term, but kind of mid and long term stability. Okay, so your expectation is that the institutional interest is going to start to accelerate.

I'm quite confident you're going to see activity in that.

Yeah, I'm quite confident you're going to see activity in the quarters to come.

Okay, that's it from me. Thank you. Our next question comes from Kaurav Mathur with IA Capital Markets. Your line is open.

Thank you and good morning everyone.

When we are thinking about turnover rates and where they are currently, how should we think about the CAPEX spend for the year ahead?

I can tell you that there's been a focus on reducing in-suite fed and...

clearly the market is now the market. So the need to compete that we saw in COVID is definitely being replaced.

with a more frugal program, especially when the revolver is costing us what the revolver is costing us, where traditionally we'll put our Catholic dollars.

You know, Julie and the investment team are doing a really good job at repositioning us into new construction which will also have benefits in the years to come.

So I think as you see Capri glide through the other side of the value-add strategy into a new construction, high service, high quality.

strategy, you will see CapEx become less and less of a question on these conference calls. Okay, great. And just lastly, when we are talking about high grading the portfolio going ahead, what sort of assets are coming to the market and is there a specific vendor pool that is putting up assets on the market for sale?

So far what we've been seeing on our end is it's been largely merchant developers. A lot of them, and it creates an interesting dynamic, a lot of them locked in costs in the years past, so had lower costs going in and are feeling the pressures of the higher interest rate environment. S

I said merchant developers with purpose built rentals, mostly not at a huge scale, but we have been seeing some of the larger scale too for those developers that are looking to pay down variable rate debt. Okay, and just as a follow up on that, any signs of distress in the market that you could potentially capitalize on and...

Our next question comes from Brad Sturgess with Raymond James. Your line is open.

the next question. Hi there. Um just to clarify on the 500 million in disposal this year, potentially, Um. Does that include any assumptions around contributing affordable

the government agencies or would that be incremental to that potential activity? We're exploring all avenues and there are discussions that we've been having, but the $500 million is not dependent on any of those. Our invitation to the government is to go...

Sadly, no. BC has announced...

know, BC has announced a $500 million fund.

We're very excited to hear that at the table with buildings to offer repeatedly putting phone calls in. We haven't seen too much there. We've got one maybe situation on a small asset.

We continue to work, Montreal for example also has a bit of a program. Julian's been trying there. It's slow.

So the opportunity with cap rate remains, I think, a great one because you can see that even when there's a marketed process, I don't know how governments can react to a marketed process, but when there's a willing...

The opportunity with cap remains a great one because you can see that even when there's a marketed process, I don't know how governments can react to a marketed process, but when there's a willing party at the table.

We continue to keep the offer open. We continue to make ongoing offers into both the provinces and the federal government. We remain hopeful. Everybody seems to be very excited and very enthusiastic, very well received, and at this stage nothing to report.

contact us at any time. Thanks again.

Thanks again. Have a great day.

Ladies and gentlemen, today's call is now concluded. We'd like to thank for your participation. You may now disconnect your lines.