Q4 2023 Canadian Apartment Properties REIT Earnings Call

Operator: Hello and welcome to the Canadian Apartment Properties REIT fourth quarter 2023 results conference call. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star followed by one on your telephone keypad, and I will hand it over to your host, Nicole Dolan, Investor Relations. Please go ahead.

Hello, and welcome to the Canadian apartment properties rates post 2020 results come in that's cool.

It's Alex I'll be close thanks, Nicole stay if.

If you'd like to ask a question in the presentation each breast style funds by one on your telephone keypad.

I'll hand, it over to your host Nicole Nicole <unk> Investor Relations. Please go ahead.

Nicole Dolan: Thank you, Operator, and good morning, everyone. Before we begin, let me remind everyone that during our conference call this morning, we may include forward-looking statements about expected future events and the financial and operating results of CapReit, which are subject to certain risks and uncertainties. We direct your attention to slide two 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.

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 cap rate, which are subject to certain risks and uncertainties. We direct your attention to slide two and our other regulatory filings for important information about these statements I will now turn the call over to Martin.

Evidence as CEO, Thanks, Nicole and good morning, everyone join.

Mark Kenney: Joining me this morning is Stephen Coe, our Chief Financial Officer, and Julian Schoenfeldt, our Chief Investment Officer. Let's start with a quick overview of our operational performance. On slide four, you can see that our occupancies held high all year, with 99% of our suites in Canada occupied on December 31st, 2023, and 2022. Across our Canadian residential portfolio, occupied AMR was $1,516 as of year-end, which represents an increase of 8.2% since 2022. This market-driven growth reflects the increasingly tight rental fundamentals that we're continuing to experience across Canada. This past year, demand for affordable rental accommodation grew higher again as our population expands further and the housing gap widens.

Joining me this morning, it's Stephen Ko, our Chief Financial Officer, and Julian Sean <unk>, Our Chief investment Officer.

Let's start with a quick overview of our operational performance.

On slide four you can see that our Occupancies held high all year with 99% of her suites in Canada occupied on December 31, 2023.

In 2022.

Across our Canadian residential portfolio occupied EMR was 15 $516 as of year end, which represents an increase of eight 2% since 2022.

This market driven growth reflects the increasingly tight rental fundamentals that we're continuing to experience across Canada.

This past year demand for affordable rental accommodation through higher again as our population extends further and the housing gap widens.

Mark Kenney: Later, I'll speak more about the work that CAFRI has been doing to help turn around the trajectory of this crisis. Turning to slide 5, I'll take a moment to go through our financial results for the fourth quarter. Our strong rent growth throughout 2023 drove the 5.9% increase in operating revenue, while our NOI was up by 7.4% as compared to Q4 of 2022. This was achieved despite the size of our portfolio, having a net decrease of over 2,000 suites and sites during the year, a result of our repositioning initiatives that Julian will expand on shortly.

Later I'll speak more on the work the cap rate's been doing to help turnaround the trajectory of this crisis.

Turning to slide five I'll take a moment to go through our financial results for the fourth quarter our.

Our strong rent growth throughout 2023, gross or five 9% increase in operating revenues, while our NOI was up by seven 4% as compared to Q4 of 2022.

This was achieved despite the size of our portfolio, having a net decrease of over 2000 suites insights during the year.

<unk> of our repositioning initiatives that Julian will expand on shortly.

Mark Kenney: Combined with our prudent cost control measures, which remain a top priority for us, we are pleased to report a 90 basis point increase in our NOI margin to 64.9% for the fourth quarter. However, I'd like to remind everyone that this includes higher repairs and maintenance costs associated with our capital allocation strategy. This year we started scaling back on in-suite and common area capital expenditures, and we reallocated a part of that into additional repairs and maintenance work, as a strategic initiative that we implemented in response to the tight rental market that we're now operating in. This capital redeployment increases our property operating costs as compared to 2022, which negatively affects our margins.

Combined with our prudent cost control measures, which remain a top priority for US. We are pleased to report a 90 basis point increase in our NOI margin to 64, 9% for the fourth quarter.

I'd like to remind everyone that this includes higher repairs and maintenance costs associated with our capital allocation strategy.

This year, we started scaling back on in Sweet and common area capital expenditures and we reallocated a part of that into additional repairs and maintenance work. This was a strategic initiative that we implemented in response to the tight rental market that we're now operating in this.

This capital redeployment increases our property operating costs as compared to 2022, which negatively affects our margins. However, it lowers our overall capital expenditure and this positively impact our long term cash returns.

Mark Kenney: However, it lowers our overall capital expenditure, and this positively impacts our long-term cash return. We're looking forward to seeing the merits of this property management strategy show in our future financial results. FFO increased by 2.2% compared to Q4 2022 due to our organic growth, as well as lower trust partially offset by higher interest rates. Along with accretive purchases made on our NCIB program in early 2023, our FFO for diluted units was up by 3.8 percent. 60.2 cents a share for the fourth quarter of 2023.

We're looking forward to seeing the merits of this property management strategy show in our future financial results.

<unk> increased by two 2% compared to Q4 of 2022.

Due to our organic growth as well as lower trust expenses, partially offset by higher interest rate cost.

Along with accretive purchases made on our NCI program in early 2023 or <unk> <unk> per diluted unit was up by three 8% to 62.

2% to $2 62.

For the fourth quarter of 2023.

Mark Kenney: Referring to slide 6, we've included some key financial metrics for the year ended December 31, 2023, which I'll briefly highlight. Strong rent growth increased operating revenues by 5.8%, and combined with cost mitigating measures, net operating income grew by 6.5%. NOI margin for the total and same property portfolio increased by 40 and 30 basis points, respectively, to 65% and 65.3% for 2023. Again, organic growth, lower trust expenses, and accretive NCIB repurchases all positively contributed to growth in our FFO per diluted unit, which was partially offset by interest rate increases. The result was a 2.9% increase in FFO per diluted unit to $2.39.6 for the year ended December 31, 2023.

Referring to slide six we've included some key financial metrics for the year ended December 31, 2023, which I'll briefly highlight.

Strong rent growth increased operating revenues by five 8% and combined with cost mitigating measures net operating income grew by six 5%.

NOI margin for the total and same property portfolio increased by 40, and 30 basis points, respectively to 65% and 65, 3% for 2023.

Again organic growth lower trust expenses, and accretive and CIB repurchases all positively contributed to growth in our <unk> per diluted unit, which was parked were partially offset by interest rate increases.

The result was a two 9% increase in <unk> per diluted unit to $2 39 six.

For year ended December 31, 2023.

Mark Kenney: We maintained our annual rate of distribution steady at $1.45 per unit, and our FFO payout ratio was 60.5% for 2023. On slide 7, we summarized our current strategy, and we're very proud of the progress that we've made on that in 2023. Capri's strategy has always been centered on the creation of value for our unit holders.

We maintained our annual rate of distribution steady at $1 45 per unit and our <unk> payout ratio was 65% for 2023.

On slide seven we summarized our current strategy and we're very proud of the progress that we've made on that in 2023 cap.

<unk> strategy has always been centered on the creation of value for unitholders.

Mark Kenney: However, our operating environment has changed in recent years, and we've established a new and improved edition of our strategy to align with that. Today, our objectives revolve around the modernization of our portfolio and the recycling of capital in order to create value. I'll let Julian and Stephen expand on these initiatives, but as an overview, we've been very focused on optimizing our portfolio and operational efficiency. That means we're disposing of our older non-core properties, and we're reinvesting the net proceeds into strategically aligned new build rental apartment properties in Canada. We've also been investing in our NCIB program, depending on the capital market conditions and the other opportunities available for capital redeployment, such as paying down higher interest debt. In 2023, we invested $101 million in our NCIB program to repurchase and cancel approximately 2.2 million trust units at significant discounts.

However, our operating environment has changed in recent years and we've established a new and improved edition of our strategy to align with that today, our objectives revolve around the modernization of our portfolio and the recycling of capital in order to create value I'll.

I'll, let Julian and Steven expand on these initiatives, but but an overview we've been very focused on optimizing our portfolio and operational efficiencies that means we're disposing of our older non core properties and we're reinvesting the net proceeds into strategically aligned new build.

Rental apartment properties in Canada, we've also been investing in our NCI program, depending on the capital market conditions and the other opportunities available for capital redeployment, such as paying down higher interest debt.

In 2023, we invested $101 million in our NCI program to repurchase and cancel approximately $2 2 million Trust unit at significant discounts to NAV or.

Julian: Our development program is another increasingly important component of our strategy. We've been working on the identification, entitlement, and sale of our excess land to developers, which not only generates incremental funding that we can then reinvest in our core business, but it also helps to contribute to the supply of new homes for Canadians. I'll now turn things over to Julian to provide a more detailed update on our strategic program. Thanks, Mark.

Our development program is another increasingly important component of our strategy, we've been working on the identification entitlement and sale of our excess land to developers, which not only generates incremental funding that we can then reinvest in our core business, but it also helps to contribute to the supply of <unk>.

New homes for Canadians I'll, now turn things over to Julian to provide a more detailed update on our strategic progress.

Thanks, Marc turning to slide nine we are very excited to have achieved our annual target in 2023 with the sale of over $400 million of non core properties, primarily located in regulated lower growth Canadian market. We've disposed of these older properties at prices that are at or above their <unk> fair value.

Julian: Turning to slide 9, we're very excited to have achieved our annual target in 2023 with the sale of over $400 million in non-core properties primarily located in regulated lower growth Canadian markets. We've disposed of these older properties at prices that are at or above their IFRS fair value, and we've reinvested approximately $300 million of the net proceeds into new purpose-built rental apartments located in Canada's most attractive high-entity markets where long-term fundamentals are strongest. We're buying these high-quality, recently constructed assets at a discount to what it would cost to build today, and they produce higher returns than are effectively unrestricted by rent. They also have lower capital investment requirements, superior energy efficiency, and overall, they strengthen the risk-return profile of our portfolio through this repositioning program for diversifying our tenant base and upgrading the average age, geographic exposure, and quality of our properties.

And we've reinvested approximately $300 million of the net proceeds into new purpose built rental apartments located in Canada as most attractive higher density markets, where long term fundamentals are strongest.

We're buying these high quality recently constructed assets at a discount to what it would cost to build today and they produce higher returns that are effectively unrestricted by rent control. They are also that we also have lower capital investment requirements superior energy efficiency and overall, they've strengthened the risk return profile of our portfolio.

Through this repositioning program, we're diversifying our tenant base and upgrading the average age geographic exposure and quality of our properties in terms of enhancing the quality of our long term earnings potential.

Julian: In turn, we're enhancing the quality of our long-term earnings potential. We're happy to see that these OnStrategy assets now represent 12% of our Canadian apartment portfolio, up from 9% this time last year, and we're excited to continue increasing that allocation in the years ahead. On slide 10, we showcase the 7 on-strategy properties that we acquired this past year for an aggregate purchase price of $304 million, excluding transaction costs and other accounting adjustments. Most recently, in the fourth quarter, we completed two acquisitions of newly built rental properties located in highly coveted communities in British Columbia. First, in November, we closed the purchase of the Lancaster for $22.5 million.

We're happy to see that these on strategy assets now represent 12% of our Canadian apartment portfolio up from 9%. This time last year and we're excited to continue increasing that allocation in the years ahead.

On slide 10, we showcase the seven on strategy properties that we acquired this past year for an aggregate purchase price of $304 million, excluding transaction costs and other accounting adjustments. Most recently in the fourth quarter. We completed two acquisitions of newly built rental properties located in highly <unk>.

<unk> communities in British Columbia.

First in November we closed the purchase of the Lancaster for $22 5 million.

Julian: This 48-suite property was built in 2022 and has ocean views from its location in the metropolitan Victoria area of southwestern B.C. In December, we acquired Hub Place, a brand new 12-story concrete purpose-built rental apartment containing 114 high-quality residential suites and over 5,000 square feet of commercial retail at grade. The building is located beside one of the most important transit Hubs in Vancouver, and we use net disposition proceeds to purchase this premium property following lease up for $68 million. Acquiring a newly constructed concrete prime location building at this attractive price significantly below replacement costs and without having to incur any of the development or lease up risk perfectly demonstrates our strategy in action. Slide 11 displays a sample of non-quarter dispositions completed throughout 2023. And you can really see the type of assets that we're selling here versus the high-quality properties that we're buying, as shown on the previous slide. In the fourth quarter alone, we closed on the sale of an aggregate of 362 suites for a combined $64.2 million in gross disposition proceeds.

This 48 suite property was built in 2022 and has fully made use from its location in the metropolitan Victoria area of southwestern Beasley.

In December we acquired how place a brand new 12 storey concrete purpose built rental apartment containing 114 high quality residential suites and over 5000 square feet of commercial retail Accuray. The building is located in one of the most important trend in Vancouver, and we use net.

Issuing protein to purchase this premium property all in lease up for $68 million.

Acquiring a newly constructed concrete private located building at this attractive price significantly below replacement cost and without having to incur any of the development or lease up risk perfectly demonstrates our strategy in action.

Slide 11 displays with ample of noncore dispositions completed throughout 2023, and you can really see the type of asset that we're selling here versus the high quality properties that we're buying as shown on the previous slide in the fourth quarter alone. We closed on the sale of an aggregate 362 suites for a combined with <unk>.

$54 2 million and gross disposition proceeds combined with the Lancaster and hub place deal. This brings our total transaction volume to over $700 million worth of strategic acquisitions and dispositions in 2023, our purchases and sales together have the objective of modernizing our portfolio and improved.

Julian: Combined with the Lancaster and Hub Place deals, this brings our total transaction volume to over $700 million worth of strategic acquisitions and dispositions in 2023. Our purchases and sales together have the objective of modernizing our portfolio and improving its quality and geographic exposure. These dispositions all represent older properties which we've identified as non-core due to their low financial returns, geographical asymmetries, or operational challenges.

It's quality and geographic exposure. These dispositions all represent older properties, which we've identified as noncore due to their low financial return geographical asymmetries, where operational challenges looking ahead into 2024 were again aiming to dispose of over $400 million worth of our off strategy properties.

Julian: Looking ahead into 2024, we're again aiming to dispose of over $400 million worth of our off-strategy properties that will further upgrade the quality of our Canadian portfolio and enhance its long-run return. I will lastly expand on our Asset Life Development Program, which we highlighted on slide 12. After many years of acquisitive growth, Capri has accumulated one of the largest portfolios of residential accommodation in Canada, and that came with a sizable amount of excess density potential, particularly given the substantial presence Capri has in the Ontario and BC markets. This year, we have been actively combing through our portfolio to identify, entitle, and monetize our high-value, underutilized land. In March of 2023, we celebrated the program's first disposition of approximately 280,000 square feet of buildable GFA in Montreal, which we sold for $17.25 million.

That will further upgraded the quality of our Canadian portfolio and enhance its long term long run return.

I will add and expand on our asset light development program, which we've highlighted on slide 12. After many years of acquisitive growth cap rates accumulated one of the largest portfolios of residential accommodation in Canada and that came with a sizable amount of exit entity potential, particularly given the substantial PRASM Kathryn.

In Ontario, and BC market.

This year, we've been actively combing through our portfolio to identify entitle and monetize our high value underutilized land in March of 2023, we celebrated the program's first disposition of approximately 280000 square feet of billable GSA in Montreal, which we sold for $17 5 million.

Stephen: We were able to redeploy those proceeds shortly thereafter with the purchase of our new-build property in Dartmouth, demonstrating the benefits of this development program in the context of our overall capital allocation strategy. This represents the essence of the model; we're unlocking the land value embedded in our portfolio and effectively crystallizing the potential development profit up front without having to take on any development financing or lease up risk. We can then reallocate the capital into our core strategic initiatives while enabling our development partners in the construction of new residential homes for Canadians. We're pleased to be able to contribute to the supply solution in this way and help with the intensification of the communities in which we're embedded. We're excited to announce that our two Davisville site applications were recently unanimously approved by Community Council and City Council in Toronto, and we're looking forward to finalizing those applications soon. I will now turn things over to Stephen for his financial review. Thanks, Julian, and good morning, everyone.

We're able to redeploy those proceeds shortly thereafter, which with the purchase of our new growth property in Dartmouth demonstrating the benefits of this development program in the context of our overall capital allocation strategy.

This represents the essence of the model, we're servicing the land value embedded through our portfolio and effectively crystallizing the potential development profit upfront without having to take on any development financing or lease up risk. We can then reallocate that capital into our core strategic initiatives, while enabling our development partners in the <unk>.

Structure of new residential homes for Canadian we're pleased to be able to contribute to the supply solution in this way and help with the intensification of the communities in which we're invested.

We're excited to announce that our two data spill site applications, where recently unanimously approved at community Council and City Council in Toronto, and we're looking forward to finalizing those applications. Soon I will now turn things over to Steven for his financial review.

Thanks, Julian and good morning, everyone.

Our liquidity position remained robust throughout 2023 as you can see on slide 14, we got $340 million in available capacity on our Canadian credit facility at year end, which was occurring a weighted average interest rate of six 5%.

Stephen: Our liquidity position remained robust throughout 2023. As you can see on slide 14, we got $340 million in available capacity on our Canadian credit facility at year-end, which was incurring a weighted average interest rate of 6.5%. We also have $1.5 billion worth of unencumbered investment properties that provide additional access to liquidity should we need it. Our latter mortgage profile in Canada carries one of the longest terms of maturity in our peer universe, with an average weighted average term of maturity of 5.4 years as of December 31, 2023.

We also have $1 $5 billion worth of unencumbered investment properties that provides additional access to liquidity should we need it.

Our ladder mortgage profile in Canada carries one of the longest terms of maturity in our peer universe with an average weighted average term to maturity of five four years as of December 31 2023.

This conservative approach to financing is also evidenced by the fact that we fixed 100% of our interest costs on our Canadian mortgage profile.

Which carried a weighted average effective interest rate of 295% at year end next year, we've got $397 million and Canadian mortgage matured maturities, which will provide incremental top of financing upon renewal.

Stephen: This conservative approach to financing is also evidenced by the fact that we fixed 100% of our interest costs on our Canadian Mortgage Profile, which carried a weighted average effective interest rate of 2.95% at year-end. Next year, we've got $397 million in Canadian Mortgage Maturities, which will provide incremental top-up financing upon renewal. Our liquidity and active debt management remains a key component of our overarching strategy and supports our ability to execute on our strategic endeavors. To that end, we're excited to have launched our At-The-Market, or ATM, program yesterday, which will allow CapFree to cost-effectively raise capital from time to time when favorable market conditions exist.

Our liquidity and active debt management remains a key component of our overarching strategy and supports our ability to execute on our strategic and.

Endeavors to that end, we're excited to have launched our aftermarket or ATM program yesterday, which will allow cap REIT to cost effectively raise capital from time to time when favorable market conditions exist. This provides us with another tool to add to our capital raising capabilities and further.

Enhances our financial flexibility as we execute on our capital allocation strategy.

Slide 15 displays our well staggered Canadian mortgage maturity profile and here you can see that we have no more than 13% of our total mortgage debt coming due in any given year going forward. We will continue to prudently manage our mortgage financing in order to minimize volatility and renewal risk.

Stephen: This provides us with another tool that adds to our capital-raising capabilities and further enhances our financial flexibility as we execute on our capital allocation strategy. Slide 15 displays our well-stretched Canadian Mortgage Maturity Profile, and here you can see that we have no more than 13% of our total mortgage debt coming due in any given year. Going forward, we'll continue to prudently manage our mortgage financing in order to minimize volatility and renewal risk, as we've done to date. Turning to slide 16, our debt metrics all remain safely within the limits of our covenant.

As we've done to date.

Turning to slide 16, our debt metrics all remain safely within the limits of our covenants.

Our debt to gross book value ratio was marginally elevated at 41, 6% as of December 31, 2023, which is slightly above our target range. However, still remains conservative and we are actively managing our leverage as part of our overall strategy I will now turn things back over to Mark to wrap up thanks Steven.

Our New addition of the cap REIT strategy revolves around getting better instead of getting bigger.

Stephen: Our debt to gross book value ratio was marginally elevated at 41.6% as of December 31st, 2023, which is slightly above our target range. However, it still remains conservative, and we are actively managing our leverage as part of our overall strategy. I will now turn things back over to Mark to wrap things up. Thanks, Stephen.

And we did just that in 2023, we accomplished a lot and we're becoming a better place to live work and invest.

Our cap rate, we're focused on upgrading the quality of our portfolio enhancing the living experience of our residents.

Proving the communities in which we operate and ultimately increasing returns for unitholders.

Internally, we have also been optimizing our people technology and organizational structure to ensure alignment with our renewed strategy for success now and in the future.

Mark Kenney: Our new edition of the Cap Reap Strategy revolves around getting better instead of getting bigger. And we did just that in 2023. We accomplished a lot, and we're becoming a better place to live, work, and invest. At Capri, we're focused on upgrading the quality of our portfolio, enhancing the living experience of our residents, improving the communities in which we operate, and ultimately increasing returns for our unit holders.

Going forward, we will continue to focus on executing on our refined strategy and our vision for value creation for our residents our people and our unit holders.

We also recognize the role we play as a core provider of high quality safe and affordable rental housing in Canada, and we're prioritizing our commitment to helping with the solution to the housing affordability and supply prices on that front, we've been continuing to work with there.

Mark Kenney: Internally, we've also been optimizing our people, technology, and organizational structure to ensure alignment with our renewed strategy for success now and in the future. Going forward, we will continue to focus on executing on a refined strategy and our vision for value creation for our residents, our employees, and our unit holders. We also recognize the role we play as a core provider of high-quality, safe, and affordable rental housing in Canada, and we're prioritizing our commitment to helping with the solution to the housing affordability and supply crisis. On that front, we've been continuing to work with our peers through the Canadian Rental Housing Providers for Affordable Housing Initiative and its website, foreaffordable.ca, where you can learn more about all the ways in which we' This year, our environmental, social, and governance performance has also remained a focus for us.

Peers through the Canadian rental housing providers for affordable housing initiative and its web site for affordable Dot CA, where you can learn more about all the ways in which we're advocating for changes in government policies and programs to address these important issues.

This year, our environmental social and governance performance has also remained a focus for US we plan to release, our 2023 ESG report this upcoming June and we encourage you to review that to learn more about the meaningful strides, we're making on our ESG.

Priorities.

In summary, we're very pleased with the progress we've made this year on the execution of our strategy, we want to thank all of our stakeholders for their ongoing support.

Moving ahead, we are excited to continue optimizing on all three pillars of our business to be the best place to live the best place to work and the best place to invest with that I would like to thank you for your time. This morning, and we would now be pleased to take your questions.

Thank you.

If you ask a question.

Mark Kenney: We plan to release our 2023 ESG report this upcoming June, and we encourage you to review that to learn more about the meaningful strides we're making on our ESG priorities. In summary, we're very pleased with the progress we've made this year on the execution of our strategy, and we want to thank all of our stakeholders for their ongoing support. Moving ahead, we're excited to continue optimizing all three pillars of our business, making Singapore the best place to live, the best place to work, and the best place to invest. With that, I would like to thank you for your time this morning, and we would now be pleased to take your questions. Thank you. As a reminder, if you'd like to ask a question, that's star 5 by 1 on the telephone keypad. Our first question for today comes from Frank Liu of BMO Capital Markets. Your line is now open, please go ahead. Thank you. Good morning, everyone.

One on the telephone keypad.

Our first question for today comes from Frank Lee of BMO capital markets. Your.

Your line is now open. Please go ahead.

Thank you good morning, everyone. Thanks for taking my questions.

Wanted to touch on the acquisition side that down several deals in the BDC. This year looking at hiring 'twenty 'twenty four is there any specific markets you see more opportunity than others.

I'll just pass it to Julien.

We're always offered to nasdaq's, we've got full scan on the market coast to coast, we don't particularly pick a market and go hunting, we tend to pick the entire country and analyze but I'll, let Julian talk about where you see the opportunity today.

Mark Mark credit right on the.

The market continues to be favorable if you are an acquired the competition is nowhere near the levels that it used to be in the auto market. So we are scanning coast to coast.

Everyone knows that we are in active buyer and we're seeing everything in underwriting everything in.

It'll be a matter of.

What hits, our return thresholds and which properties we find attractive.

Got it.

Mark Kenney: Thanks for taking my questions. I just want to touch on the acquisition side. You have done several deals in B.C. this year and are looking ahead to 2024. Is there any specific market you see more opportunities than others? I'm going to pass it to Julian, but we're always opportunistic; we've got a full scan of the market, coast to coast. We don't pick a market and go hunting; we tend to pick the entire country and analyze it, but I'll let Julian talk about where he sees opportunities today. Yeah, and Mark brought it right on.

All of this type of newly constructed assets do you think the pricing out this type of product will become more attractive being 24 versus of what you'll have gallium nitrate.

Well, we think that the opportunity is not a permanent one most of the buildings that the investment team is focused on.

Conceptual hedged and launched seven years ago in some cases.

So the market has has obviously cooled during this interest rate period, but that's where we remain opportunistic and disciplined in terms of our mind.

To be fair, we've never know what the future held in terms of acquisitions from day. One you can only analyze what's in the market and stay disciplined with your your criteria. So I think it.

Julian: The market continues to be favorable if you're an acquirer; the competition is nowhere near the level that it used to be in the auto market, so we are scanning coast to coast. Everyone knows that we are an active buyer and we're seeing everything and underwriting everything, and it'll be a matter of what hits our return thresholds and which properties we find attractive.

It really stays.

True for the Newbuild acquisitions, there is really not too much deviation from that.

Yes.

All the acquisitions that we've done and we've been looking at candidly had been at discounts to replacement cost and they have been in the face of a higher interest rate environment. So.

Julian: And then, on this type of newly constructed asset, do you think the pricing of this type of product will become more attractive in 2094 versus what you have down in 2093? Well, we think that the opportunity is not a permanent one. Most of the buildings that the investment team is focused on were probably conceptualized and launched seven years ago in some cases.

For now we are still seeing it's a buyer's market, but if you. If you if we were to see interest rates go lower.

Just given where the replacement costs are in.

What we view as attractive opportunities there is potential for them to go up.

Expectations, but for now still remains a buyer's market.

Got it that's fair.

Just wanted to switching gears to the G&A side, if I did the math correctly this quarter G&A net of restructuring costs <unk> <unk>.

Julian: So the market has obviously cooled during this interest rate period, but that's where we remain opportunistic and disciplined in terms of our buying. You know, to be fair, we've never known what the future held in terms of acquisition from day one. You can only analyze what's in the market and stay disciplined with your criteria, so I think it really stays true for new build acquisitions. There's really not too much deviation from that.

This quarter.

It looks a bit low relatively to last Q end of prior year.

<unk> got a run rate for 2024.

Yes, yes, I think I would say actually use the full year as a as a run rate I mean, we've been making a lot of adjustments and optimizing teams.

Stephen: Yeah, you know, all the acquisitions that we've done and we've been looking at candidly have been at discounts to replacement costs, and they've been in the face of a higher interest rate environment. So, you know, for now, we're still seeing it's a buyer's market, but if we were to see interest rates go lower, just given where the replacement costs are and, you know, what we do is attractive opportunities, there is potential for them to go up, and that is our expectation. But for now, it still remains a buyer's market. I got it. That's fair. Just want to switch gears to the GNA side.

Factoring in.

Salary increases one I think 2023 is a pretty good run rate.

For 2024, we remain very optimistic and focused on improvements in this area and look forward to more.

Positive announcements on that front as we go through 2024.

Yes, so I guess side.

<unk> I understand it will be just sorry about.

Yes, sorry, keep cutting you off there.

Just to understand.

It goes to the strategy of being better not bigger the company was built for.

Growth and as we've said in the past we were serial issuers of new capital that is not our focus now our focus is on better.

Stephen: If I did the math correctly this quarter, GNA net of the restructuring cost came in around like $11 million this quarter. It looks a bit low relatively to last Q and prior year. Is this got the wrong rate for 2024? Yeah, I think I would actually use the full year as a run rate. I mean, we've been making a lot of adjustments and optimizing teams.

Not bigger and I'll use that opportunity and I'll say it as many times as I can on the call today I'm so incredibly proud.

Of our result, because we are high grading this portfolio at a pace never seen before in an accretive way and growing earnings, which I think is a rare event like I know, it's been it's been relatively small in bite sized announcements, but when we look back on what the investment team.

Stephen: You know, factoring in, you know, salary increases and whatnot, I think 2023 is a pretty good run rate for 2024. We remain very optimistic and focused on improvements in this area and look forward to... more positive announcements on that front as we go through 2024. Yeah, so I guess $15,000-ish will be it.

This year and with the company is going through in terms of its transformation, we are getting better and the results are also getting better and I don't think that can be understated.

Understated enough. So how does that relate to G&A I guess I'm using it as an excuse but to talk about it and very proud of it but the team that we're focused on for the new strategy is going to be different.

Mark Kenney: It goes to the strategy of being better, not bigger. The company was built for growth, and as we've said in the past, we're serial issuers of new capital. That is not our focus now. Our focus is on better, not bigger. And I'll use that opportunity and I'll say it as many times as I can on the call today: I'm so incredibly proud of our results because we are high-grading this portfolio at a pace never seen before in an accretive way and growing earnings, which I think is a rare event. Like I know it's been relatively small in bite-sized announcements, but when we look back on what the investment team accomplished this year and And I don't think that can be understated enough.

Oh Thats great comments.

Thank you for that.

Just lastly on the property tax side without being heard from our peers that are prototypes is going higher and higher.

During 2024 do you have a rough way of like pretty memory.

Just like thanks, a lot.

Property taxes inflation across your portfolio in 2004.

Yes, I would say generally there is we're expecting property taxes to increase across the portfolio.

We are working with our advisors Realty tax advisers to mitigate some of those cost increases.

But it is as expected I would say general comments that youre getting from the peers are exactly the same.

Okay.

Thanks, guys I'll turn it back. Thank you very much have a great weekend guys.

Okay.

Okay.

Thank you. Our next question comes from Jonathan Chang.

TD Cohen.

Mark Kenney: So how does that relate to G&A? I guess I'm using it as an excuse to talk about it because I'm very proud of it, but the team that we're focused on for the new strategy is going to be different. Oh, that's a great comment.

Your line is now open. Please go ahead.

Thanks, Good morning.

Just to clarify before I start here just to clarify on the G&A that'd be 2023 X the X the onetime charges.

Stephen: Thank you for that, just lastly on the property tax side, we got to hear from our peers that property taxes are going higher, by a higher degree in 2024; do you have a roughly like a preliminary, like things on property tax and inflation across your portfolio in 2024? Yeah, I would say generally, we're expecting property taxes to increase across the portfolio. We are working with our advisors, realty tax advisors, to mitigate some of those cost increases, but it is expected. I would say the general comments that you're getting from the peers are exactly the same. Okay, thanks guys. I'll turn it back on. Thank you very much. Have a great weekend.

That's correct, yes, that's correct so but.

Understood.

Sorry, sorry, Jonathan just just to clarify just to add to what Mark just said there are continue.

Continue to be opportunities for our us to.

To refine our G&A going forward in 2024.

But I would say just use that as a.

Our model for your 2024, it goes without saying that some of the improvements happen throughout 2023, So you've got a full year run rate improvement for 2024.

And we did to be fair.

Have a heavier lift on changes in the.

Back nine of the year call. It Q3 Q4.

Okay.

On the property management strategy.

Are you most of the way through that and I guess, what I'm really asking here is your expectations for operating expense growth in 2024.

Operator: Thank you. Our next question comes from Jonathan Coucher of TD Coing. Your line is now open, please go ahead.

Operator: Thanks. Good morning. Just, just to clarify, before I start here, just to clarify on the G&A, that'd be 2023 X, the X, the one-time charges looking at. That's correct. Yeah. Okay. That's correct. So, but on today, on.

And your total capex expectations.

So that's what we spent a little bit of time in the slide deck on this because we're seeing kind of two things is the same at the same time.

Number one we've got changes in general scope going on.

Operator: Sorry Jonathan, just to add to what Mark just said, there will continue to be opportunities for us to refine that G&A going forward in 2024, but I would say just use that as a model for your 2024. It goes without saying that some of the improvements happened throughout 2023, so you've got full year run rate improvement for 2024, and we did, to be fair, have a heavier lift on changes in the back nine of the year, call it Q3, Q4. Okay.

With respect to common area capital investment and in suite upgrade investment when the market's as hard as it is in the turnover is as low as it is in <unk>.

Just don't get a return since those investments fall off but what replaces those investments to a certain degree is an impact on you still have to maintain.

Common areas and you still have to do minor.

Minor repair work on turnover. So those that investment program of high improvement has been replaced with a more traditional.

Mark Kenney: On the property management strategy, are you most of the way through that? And I guess what I'm really asking here is your expectations for operating expense growth in 2024 and your total CapEx expectations. We spent a little bit of time on this in the slide deck because we're seeing kind of two things at the same time.

Property management approach and that has.

And impact on our cost base.

Spike that we're really proud of the team is holding up in revenues were out pacing those costs, but that's part one.

Second part of this is just an enhanced procurement department.

Policies processes tendering.

Mark Kenney: Number one, we've got changes in general scope going on with respect to common area capital investment and in-suite upgrade investment. But when the market's as hot as it is and the turnover is as low as it is, and you just don't get a return, then those investments fall off. But what replaces those investments to a certain degree is an impact on the cost base. You still have to maintain the common areas, and you still have to do minor repair work on turnover. So that investment program of high improvement has been replaced with a more traditional property management approach, and that has an impact on our cost base. Despite that, we're really proud that the team is holding up and revenues are outpacing those costs, but that's part one. The second part of this is just an enhanced procurement department, policies, processes, tendering, just a whole different approach there.

Pull different approach there, we're seeing some improvements on that front. So the core run rate for the future is going to be fantastic, but we got this adjustment period, where we're walking away from our value investment strategy of putting large amounts of capital into repositioning our assets for rent maximization to a market that delivers that.

So that's great news for the long term and that's what we're trying to get to in the in the presentation, but it is it is a little bit difficult to understand because I don't think all of our peers are doing this to be fair. Our peers are not experiencing the low turnover rates that cap read it so our market.

And where we're positioned.

We think the best locations in Canada have obviously been under the most pressure for affordability and people to start using it.

And the numbers they used to.

Okay. So so I can take from that that Opex will probably still be a little elevated for 2024.

I would say Jonathan lichter.

Started this program.

Mark Kenney: We're seeing some improvements on that front, so the core run rate for the future is going to be fantastic, but we've got this adjustment period where we're walking away from our value investment strategy of putting large amounts of capital into repositioning our assets for rent maximization in a market that delivers it without it. So that's great news for the long term, and that's what we're trying to get across in the presentation, but it is a little bit difficult to understand because I don't think all of our peers are doing this. To be fair, our peers are not experiencing the low turnover rates that CapReit is experiencing.

Q2 of last year. So you can kind of if you wanted to you have a base effect on Q3 Q4.

That will have more of a population area.

Yes.

And same I guess on the on the <unk>.

Overall capex right.

Thank you, we'll just get at 300 billion.

You can see year over year, we've already reduced our total discretionary capex for the Canadian side, excluding energy and conservation initiatives, we've reduced it by around $30 million. So.

We're very happy about.

Very happy with that and again, you don't want to start fully projected with yes, but it goes without saying our new strategy of new construction assets are going to be Capex light and that will also start revealing itself as the percentage of the portfolio gets larger in that category. So we are very very.

Stephen: So our markets and where we're positioned, we think the best locations in Canada, have obviously been under the most pressure for affordability and people to start moving out in the numbers they used to. Okay, so I can take from that that OpEx will probably still be a little elevated for 2024. I would say, Jonathan, we really started this program in Q2 of last year, so you can kind of, if you wanted to, you have a baseline effect on Q3, Q4, that will have more of a relational impact. And same, I guess, on the overall CapEx, right? I think you were just talking about $300 million.

But the attributes of the strategy, but that's something else that will really be running in our favor.

Okay, well that's a good segue to my next question on that.

You talked about selling another 400 million.

In 2024.

Do you have a target on the acquisition side.

Yeah. Thanks, Jonathan so for US, it's really been a matter of raising capital through the dispositions and then allocating that between debt repayment acquisition and the share buyback and it's a dynamic decision that we made quick.

Stephen: Yep, you can see that year over year we've already reduced our total discretionary CapEx for the Canadian side, excluding energy and conservation initiatives. We've reduced it by around $30 million, so we're very happy about that. We're very happy about that, and again, you don't want to start fully projecting this yet, but it goes without saying that our new strategy of new construction assets is going to be CapEx Lite, and that will also start revealing itself as the percentage of the portfolio gets larger in that category. So we are very, very excited about the attributes of the strategy, but that's something else that will really be running in our favor. Okay, well, a good segue to my next question on that.

Last year it was it was.

<unk>.

There was a bit of NCI I think this year, we probably target a little bit more on the acquisition side, given the discount to NAV.

Have tightened a bit and we continue to see some pretty compelling acquisition opportunities.

I think it will more closely track the disposition activity that we see.

I'd only add that.

Targets are really only.

Realized through the disciplined and selling in the discipline of buying.

The team is very disciplined in making sure that we realized at a minimum <unk> value or more an extremely disciplined on the buy side that its accretive and so that makes it how you forecast that out is anybody's guess quite frankly, but you can look at the volumes and kind of draw your own conclusions.

Julian: You talked about selling another $400 million in 2024. Do you have a target on the acquisition side? Thanks, Jonathan.

And I'm, not saying that we know when we're not telling you its just something in the marketplace that if the market doesn't the market was to change.

And loosen up on the valuation of the sale of properties and tighten up on the valuation on the buy side and it targets where can move quite a bit.

Julian: So for us, it's really been a matter of raising capital through the dispositions and then allocating that between debt repayment, acquisitions, and the share buyback. And it's a dynamic decision that we make, but you know last year there was a bit of NCIB. I think this year we'll probably target a little bit more on the acquisition side given the discounts and NAV have tightened a bit, and you know we continue to see some pretty compelling acquisition opportunities. So I think it'll more closely track the disposition activity.

One point that Mark and I mentioned earlier, but everything that we continue to see now is that cap rate on the disposition side. The acquisition side is that similar cap rate so as mark mentioned going through this.

Able to high grade and improves the overall quality of the portfolio without suffering any dilution, which I think is fair.

Fairly unique and pretty impressive.

Pretty impressive results of the investment teams.

A very disciplined approach, we talked we talked about.

Julian: You know, and I would only add.., that you know targets are really only realized through the discipline of selling and the discipline of buying. You know the team is very disciplined in making sure that we realize at a minimum IFRS value or more and extremely disciplined on the buy side that it's accretive and and so that makes how you forecast that out is anybody's guess quite frankly but you can look at the volumes and and kind of draw your own conclusions and I'm not saying that we know and we're not telling it it's just something in the marketplace that if the market doesn't the market was to change and you know loosen up on the valuation of the sale properties and tighten up on the valuation on the buy side and then the targets are to move quite a bit.

The.

I attribute to reduce Capex I think we've talked in the past about.

The fact that these assets off.

Our geographical diversification, but also deregulation.

We also have talked about.

A variety of other attributes like a lot of these new construction buildings have been built to see Medici financing that has an affordable component. So we're not abandoning our mission.

In serving the affordability space in Canada, we're actually enhancing it with every acquisition because we attribute to the financing we're very proud of that but we keep going back and we're really celebrating here in the office. The strong results that are coming along with the recycling of the portfolio.

Okay.

Very helpful I'll turn it back thanks.

Thank you.

Our next question comes from titles finally offline shopping.

Your line is now open. Please go ahead.

Julian: Yeah, I mean one point that Mark kind of mentioned earlier, but everything that we continue to see now is that cap rate on the disposition side and acquisition side is that similar cap rate, so as Mark mentioned, going through this, we're able to upgrade and improve the overall quality of the portfolio without suffering any dilution, which I think is fairly unique and pretty impressive, a pretty impressive result of the investment team's very disciplined approach. You know, we talked about the attribute of reduced capex. I think we've talked in the past about the fact these assets offer geographical diversification but also deregulation. We also have talked about a variety of other attributes, like a lot of these new construction buildings have been built using CMHD financing. It has an affordable component, so we're not abandoning our mission of serving the affordability space in Canada. We're actually enhancing it with every acquisition because the attributes of the financing. We're very proud of that, but we keep going back, and we're really celebrating here in the office the strong results that are coming Okay, that's, that's very helpful. I'll turn it back. Thank you. Our next question comes from Kyle Stanley of Desjardins. All your lines are now open; please go ahead.

Thanks, Good morning, guys.

Good morning.

So.

It's great to see the mark to market opportunity or the gain to lease continuing to expand during what is traditionally a seasonally weaker quarter and the fourth quarter, where do you see the turnover spreads trending as we approach the stronger spring summer leasing months in 2024.

It's we're in many of the properties.

We're reaching the top of affordability. So I don't expect the mark to market rents to change too much.

We're hopeful that it releases some units in our turnover, which will help.

Lease revenue gains, but at this point I'm not getting any sort of.

Vibration from the field that rents are continuing to go up I think we've hit a spot here thats quite flat.

You may see things like move somewhere in the range of 25% to 30%.

Now the turnover that is really the key metric that we should all be focused on a cap rate not knock the mark to market rent Thats almost just now built in.

So so that would be my first comment.

In terms of.

Turnover.

Housing situation is so profound now.

Never in my career have I seen a situation where people have nowhere to go and so therefore, we are a structural low turnover, albeit this is the season, where things should pick up a little bit, but I wouldn't be expecting anything too.

Surprising for the for the next couple of quarters.

Operator: Thanks, morning guys. Good morning. So, it's great to see the mark to market opportunity or the gain to lease continuing to expand during, you know, what is traditionally a seasonally weaker quarter in the fourth quarter. Where do you see the turnover spreads trending as we approach the stronger kind of spring and summer leasing months in 2024? You know, in many of the properties, we're breaching the top of affordability, so I don't expect the market-to-market rents to change too much. We're hopeful that it will release some units in our turnover, which will help release revenue gains. But at this point, I'm not getting any sort of vibration from the field that rents are continuing to go up. I think we've hit a spot here that's quite flat. You may see things move somewhere in the range of 25 to 30 percent, but it's now the turnover that is really the key metric that we should all be focused on, the cap rate, not the mark-to-market rent. That's almost just now built in.

Fair enough and I think you've said in the past.

Turn over probably in the low teens.

10 to 12, youre still comfortable with that with that outlook.

Yes.

Yes, I do remain optimistic though.

Back to our new strategy.

Market building, new construction those are still turning over.

Traditional numbers because they are market rents, but at the same time the team is capturing higher rents on those turnovers than definitely pro forma but but.

It's just more productive in the marketplace. So it's a way of.

Feeling at the market on turnover with still having a lot of two for most of them to adjusting renewals to market. So this is.

Another part of the strategy that worked so well in the in the current environment that Brent and quite frankly, we don't see a change to this environment people have been asking is this a five year event. This is a 10 year event from where I sit I don't see any impetus of change over the next decade at a minimum I think it's going to take longer than that to bring balance back into the market.

So with that in mind, we feel incredibly comfortable with this strategy of new construction assets as being a great way to tap into the changes in the ever.

Mark Kenney: So that would be my first comment in terms of turnover. The housing situation is just so profound now. Never in my career have I seen a situation where people have nowhere to go, and so therefore, we are at structurally low turnover, albeit this is the season where things should pick up a little bit.

Improving housing market.

Right. Okay. Thank you for that maybe just shifting over to the asset light development program.

Mark Kenney: But I wouldn't be expecting anything for the next couple of quarters. Fair enough. And I think you've said in the past, turnover probably in the low teens. I mean, you know, 10 to 12, you're still comfortable with that with that outlook. Yeah.

It looks like good progress on the Davis fill development approvals, thus far in the quarter can you just comment on that the current market for density land values in the GTA and maybe what your expectations are with regards to monetization as we progress through the year.

Mark Kenney: I do remain optimistic though, going back to our new strategy of the market building new construction. Those are still turning over at traditional numbers because they're market rents, but at the same time, the team is capturing higher rents on those turnovers than, definitely, pro forma, but it's just more productive in the marketplace. So it's a way of feeling out the market on turnover but still having a latitude for most of them to adjust renewals to the market. So this is another part of the strategy that works so well in the current environment that we're in. And quite frankly, we don't see a change in this environment. People have been asking, is this a five-year event? Is this a 10-year event?

And I think trial, which seems really proud of.

Getting those two properties over the lines about 600000 square feet.

Within meters of young Indians fill subway stations, but just really primo infill development opportunities. So really glad I'm really proud of the team for getting that done I would say right now the land values the market for land and land values are a bit softer I mean, these are AAA locations and just amazing.

Opportunities, but the opportunities the land values are definitely a bit of.

This offer now.

<unk> our program, we didn't really spend a material amount of doing this we don't have.

Mark Kenney: From where I sit, I don't see any impetus for change over the next decade at a minimum. I think it's going to take longer than that to bring balance back into the market. So with that in mind, we feel incredibly comfortable with this strategy of new construction assets as being a great way to tap into the changes in the ever-improving housing market. Right. Okay. Thank you for that.

An acquisition facility, that's bearing interest in putting pressure on us to do anything so from our point of view as Mark mentioned, the beginning of the call we're focused on value maximization and so.

We are open to selling them now.

We're not compelled or in a rush to and just given the dynamics you may take a pause on those until there's a better market just given the nature of the assets and not wanting to sell something for too little of a soft market. It's another opportune moment for liquidity when we need it so.

Julian: Maybe just shifting over to the Asset Light Development Program. Obviously, it looks like good progress on the Davisville development approvals thus far in the quarter. Can you just comment on the current market for density land values in the GTA and maybe what your expectations are with regard to monetization as we progress through the year? Yeah, thanks Kyle. The team is really proud of getting those two properties over the line. That's about 600,000 square feet within meters of the Yonge and Davisville subway stations.

Steven talked we've got a great debt ladder, but if we choose not to get into the refi market, we have optionality there and the.

The mood in the in the office the cap rate is still a whole property until we feel that we've maximized value. So just because they.

They've become entitled I don't think as an indicator of.

Liquidity event at all.

Okay that makes sense and just one last one for me.

As part of your kind of government relations initiatives improving the current state of the housing market has there ever been a discussion of adopting a capital gains deferral mechanism kind of like what we see in the U S. With the 10 31 exchange is that come up at all or do you believe that would be beneficial to helping the situation.

Julian: So just really prime Intel development opportunity and so really glad, really proud of the team for getting that done. I think right now land values, the market for land, and land values are a bit softer. These are AAA locations and just amazing opportunities, but the land values are definitely a bit softer now. The beauty of our program is we didn't really spend a material amount doing this. We don't have an acquisition facility that's bearing interest and putting pressure on us to do anything.

I think it's fantastic idea like it has been discussed.

We've been taking the policies the worldwide to Ottawa and sharing that with with the federal government and.

Julian: So from our point of view, as Mark mentioned at the beginning of the call, we're focused on value maximization. So we're open to selling them now, but we're not compelled or in a rush to. And just given the dynamics, we may sit and pause on those until there's a better market, given the nature of the app. Wanting to sell them for too little; it's off the market.

This is squarely in their corner.

It's an incredible idea, we've got all kinds of.

Creative ideas and quite frankly.

Even if it was to rollover to nonprofits at some sort of advantage that could free up assets that can roll into nonprofits and give them an advantage and we're happy to see that advantage in the right hand. So there's there's all kinds of interesting things. There can I also urge you to write the online share your views and telling your neighbors.

Mark Kenney: It's another opportune moment for liquidity when we need it. So, you know, as Stephen said, we've got a great debt ladder, but if we choose not to get into the refi market, we have optionality there. And the mood in the office at CapReit is to hold property until we feel that we've maximized value. So just because they become entitled, I don't think it's an indicator of, you know, a liquidity event at all. Okay, that makes sense. And just one last one for me.

Read the word.

It's a great idea.

We will do alright, thank you for that I will turn it back.

Okay.

Thank you.

Our next question comes from Brian <unk> of Raymond James.

Please go ahead.

Hey, guys good morning.

Good morning, just on the to.

To go back to the questioning around that.

The development entitlement.

Process and application I'm, just curious you got three outstanding today.

Obviously, good progress on the dealer fill sites are there any other sites in the near term that we could see in terms of.

Mark Kenney: As part of your kind of government relations initiatives, improving the current state of the housing market, has there ever been a discussion of adopting a capital gains deferral mechanism, kind of like what we see in the US with the 1031 exchange? Has that come up at all? Or do you believe that would be beneficial to helping the situation?

Applications being submitted.

Yes. So if you if you look at some of the materials. We've said that we've identified about 6 million square feet just in the Toronto alone.

Potential density there. So the team is working in the background.

Mark Kenney: I think it's a fantastic idea. As has been discussed, we've been taking the policies that work worldwide to Ottawa and sharing that with the federal government. And this is squarely in their corner. But it's an incredible idea.

Journal policy your view on this is we own the.

The only publisher Who's got an application that we've put in progress so.

Stay tuned.

Okay.

Makes sense.

If you go back to your comment on the acquisition market being more of a buyer's market today can.

Mark Kenney: We've got all kinds of creative ideas, and quite frankly, even if it was to roll over to non-profits, that could free up assets that could go into non-profits and give them an advantage, and we're happy to see that advantage in the right hands. So there are all kinds of interesting things there, Kyle, so I urge you to write to Ottawa and share your views and tell your neighbors and spread the word. It's a great idea.

Can you give us I guess, a general comment on the.

The acquisition competition, Youre seeing or just kind of the composition of the buyer pool.

For Newbuild assets in sort of the areas that you're you're kind of seeking to be active in has there been much change in the composition of other buyers out there.

Operator: We'll do it. All right. Thank you for that.

Operator: We'll turn it back. Thank you. On Please see the complete disclaimer at https://sites.google.com.au, Hey guys, good morning. Just on the question around the development entitlement process and applications, just curious, you've got three outstanding today, you've obviously made good progress on the Davisville site. Are there any other sites in the near term that we could see in terms of applications being submitted?

For those particular assets.

Today versus let's say.

What you're seeing through 'twenty 2023.

Well I'll, let Julian comment.

With more detail a bit.

We're reputation matters and.

Our long track record of not being price Adjustors.

Closing in doing.

The handshake of what the LOI says, it's really played into our favor Julie can give examples of that.

The other thing is there has been with.

The increase of premiums CNBC quite a quite a backlog and that has put bought some some buyers on hold.

Julian: Yeah, so if you look at some of the materials, we've said that we've identified about six million square feet just in Toronto alone of potential density there, so the team is working in the background. Our internal policy or view on this is that we only publish it if we've got an application that we've put in progress, so stay tuned. Program, uh, make sense, and to go back to your comment on the acquisition market and how it is more of a buyer's market today, Can you give a general comment on the acquisition competition you're seeing or just the composition of the buyer pool for new build assets in the areas that you're seeking to be active in? Has there been much change in the composition of other buyers out there for those particular assets today versus, let's say, what you were seeing throughout 2023? Great

We've been in a fortunate position of not having to do that with Julien can you provide some additional color yes. So.

I will say that as I look at the acquisitions, we did other than hub place, which was an auction.

All off market and most of these deals pretty much just one on one negotiation and not so much competing with other buyers, but more just whether we can.

Fix the bid ask spread between the buyer and the seller so.

The hub lakes was a bit unique just given it was in a really really core Vancouver location concrete asset.

<unk> desirable but.

Otherwise it continues to just be off market I think the larger check side in <unk>.

A lot of cases.

Slightly lower leverage.

That was able to be achieved makes for big equity checks and just given the scarcity.

Julian: I'll let Julian comment with more detail, but you know this is where reputation matters, and our long track record of not being price adjusters and closing and doing the handshake of what the LOI says has really played into our favor, so we can give an example of that. The other thing is there has been, with the increase in premiums at CMHC, quite a backlog, and that has put some buyers on hold. We've been in a fortunate position of not having to do that, but Julian, could you provide some additional colors?

Capital.

It's resulted in just having a much much lower.

The amount of buyers on the market and a lot of folks know our reputation.

Our access to liquidity and our ability to act quickly and friendly on acquisition side and Thats really really helped us and so I think going forward.

Not indefinitely, but in the short to near term, we're going to continue to be in that dynamic where it's really just us negotiating one on one with the seller.

Know that historically haven't honestly question very very different and I have no doubt that.

At some point in the future when rates are lower about the more competitive environment will return but for now.

Julian: Yeah, so I'll say that as I look at the acquisitions we did, other than HubPlace, which was an auction, they're all off market, and most of these deals are pretty much just a one-on-one negotiation and not so much competing with other buyers, but more just whether we can fix the bid-ask spread between the buyer and the seller. The HubPlace was a bit unique just given it was in a really, really poor Vancouver location, you know concrete assets, www.realestate.com, And the strategy remains intact. We're not getting nervous about the strategy.

Pretty good pretty good window to acquire amazing assets in great locations.

Good prices below replacement cost and the strategy remains intact, we are not getting nervous and the strategy.

We continue to push through with this strategy and feel like the pipeline of opportunity is steady as she goes right now.

Okay. That's great. One last question for me just to go back to the.

I guess some of the organizational restructuring you did you would you say most of the heavy lifting has been done beyond I guess some of the ongoing.

Mark Kenney: We continue to push through with the strategy and feel like the pipeline of opportunity is steady as it goes right now. That's great. One last question for me, just to go back to the, I guess from a G&A perspective, a lot of the one-time items that we've seen. A lot of that's been put through. We won't see as much going forward. No, like the A lot of the big work that's been done, it's the run rate that needs maybe a little bit more clarity because a lot of the changes again happen either throughout the year or towards the end of the year. You know, we do think that the focus on balancing the asset base here, having better, not bigger, will have impacts as we move deeper into the strategy.

Improvement that you always do.

From a G&A perspective, a lot of the one time items that we've seen a lot of that's been kind of put through we won't see as much going forward.

No.

A lot of the big work that's been done it's the run rate.

That needs, maybe a little bit more clarity because a lot of the changes again happened either throughout the year or towards the end of the year.

And.

We do think.

The focus on balancing.

The asset base here and having better not bigger.

We will have impacts as we as we move deeper into the strategy.

Mark Kenney: I think I said on conference calls before that it's not our strategy anymore, or ambition, I should say, to be the biggest in Canada in terms of unit count. We are absolutely focused on being the best and growing earnings per share. So gone are the days of wanting to just boast about the size of how many units we have. Okay, that's helpful. I'll put him back. Thanks a lot.

I think I said on conference calls before it is not our strategy anymore ambition I should say to be the biggest.

In terms of unit count we are absolutely focused on being the best and to grow earnings per share. So gone are the days of.

Wanting to just bolster the size of the units we have.

Operator: Thank you, www.realestate.com, Mario Saric of Scotiabank. Hi, good morning, and thank you for taking the question. Mark, I wanted to start off with clarifying a comment that you made that rents have hit a flat spot. So I just wanted to understand what you're referring to. For example, if I look at your in-place Canadian Occupied AMR, it was 1516 a month.

Okay. That's helpful I'll turn it back to Paul.

Thank you.

Next question comes from Mario <unk> of Scotia Bank.

Your line is now open. Please go ahead.

Hi, good morning, and thank you for taking the questions.

Mark I wanted to start off with a clarifying a comment that you made upfront.

Quad spot.

I just wanted to understand.

What you're referring to I guess, if I look at your in place Canadian occupied EMR. It was 15 16.

Mark Kenney: So if we just gross that up by 30%, which coincides with your new spread this quarter, it implies a market rent of, let's say $19.70 a suite. So are you saying the $19.70 a suite, i.e., the market rent, isn't expected to rise going forward into the strong spring season because of affordability? No, it's a tricky, tricky question.

Amongst.

So if we just gross that up by 30%, which coincides with your newly spread this quarter. It implies a market rental let's say 1970.

Sweet So are you seeing in the $19 70, a sweet market Brent.

Expect it to rise.

Going forward into a strong spring season because of affordability.

Yeah.

No.

It's a tricky tricky question the turnover rate increases are plateauing for the value add properties. Okay. So what I'm, what I was meaning by that comment and we're now getting into a little bit of a tricky math your Marriott because the composition of the portfolio is changing.

Mark Kenney: The turnover rate increases are plateauing for the value-added properties, okay? So what I was meaning by that comment, and we're now getting into a little bit of tricky math here, Mary, because the composition of the portfolio is changing. We are seeing these mark-to-market rates at this sort of 30% level because the Value Added Portfolio is obviously producing the most dramatic increase. However, the average rent of the portfolio is accelerating because of the new construction assets that we're buying. Obviously, when you're buying assets with a $2,400 a month average rent for an entire rent roll, that's going to start tilting the average rent.

We are seeing the mark to market rates.

At this sort of 30% level because the value add portfolio is obviously producing the most dramatic increases.

However.

Average rent of the portfolio is accelerating because of the new construction assets that we're buying.

Obviously, when you are buying assets with $2400 a month average rents for an entire rent roll that's going to start tilting average rent. So I would be cautious about focusing on the metric of average monthly rent, it's really now more of a <unk>.

Mark Kenney: So I would be cautious about focusing on the metric of average monthly rent. It's really now more of an understanding of the difference between the core portfolio mark to market and the increases that we're generating on turnover, guiding the market a little bit as much as I can to turnover being the most critical issue. To me, market to market is kind of table stakes now and not really changing; it's plateaued. Not going down; it's plateaued. It's turnover that's going to release that 30% that is really, for Capri, a big differentiator compared to our peers. I guess where I'm going is, you know, whether it's a new construct building or a value-add building, are you continuing to see market rent? in your geographies move higher. So, like, for example, if you're asking for $5 a square foot in December, are you expecting to pass for $5.25 or $5.50 a square foot in April-May because broader market rents are still going higher? Yeah, Mario, so the short answer is yes.

Understanding the difference between the core portfolio mark to market and the increases that we're generating.

On turnover, that's why I keep.

Guiding the market a little bit as much as they can to turnover being the most critical issue to me Mark to market is kind of table Stakes now and not really.

Changing it's plateaued not going down it's plateaued, it's turnover that is going to release that 30%.

It's really for cap rate.

A big differentiator compared to our peers.

Okay.

Where I'm going.

It's a new construct building or a value add building.

Are you continuing to see market rents.

Your geographies move higher so like for example, if you are asking for $5 a square foot.

Or are you expecting from slide 25 looks like a square foot in April made because broader market rents are still going on.

Okay.

Yes, Mario so so the short answer is yes, I mean, we're in we're in a bit of a seasonal slower period, just given given where in the winter and there is a little bit less activity, but.

Julian: I mean, we're in a bit of a seasonal slower period, just given that we're in the winter and there's a little bit less activity. But, you know, the imbalance of supply and demand continues to get worse, as population growth continues to outpace housing completions.

Imbalance of supply and demand continues to get worse population growth continues to outpace housing completions and so as a result.

Julian: And so, you know, as a result, it's. You naturally would expect market rent growth to exceed inflation growth, right? Okay, we could take it offline, Mary.

Naturally you would expect market rent growth to exceed inflation growth rate.

Okay.

Mark Kenney: We're watching it really carefully because remember, even within the value-added buildings, the churn is going to generally come from the market rent units, and we haven't. The real encouraging thing is that mark to market rents are holding somewhere between $25,000 and $30,000 on a quarterly basis, but that becomes a bigger stretch as market rents in the value-add portfolio turn over because you're not going to see as much of a So we're not seeing that yet, so I would say if you want to see market rents or how overall market rents are rising, you're seeing it in just our ability to hold that mark to market rent levels. No, I understand that. Okay, that's helpful.

We could take it offline area, we're watching that really carefully because remember even within the value add buildings. The churn is going to generally come from the market rent units and not the real encouraging thing is the mark to market rents are holding somewhere between 25 and 30.

On a quarterly basis, but that becomes a bigger stretch as market rents in the in the value add portfolio turnover, because youre going to occupancy as much of a profound impact. So we're not seeing that yet so I would say if you want to see market rents or the overall market rents are rising youre seeing it is just our ability to hold.

That mark to market.

Rent level.

Okay.

I understand that okay. That's helpful and then.

Mark Kenney: And then switching gears just to a quick question on the expected usage of the $400 million ATM. Capitard is trading at a 7% discount to its IFRS NAV. I appreciate that executing on the ATM will depend on the attractiveness of the opportunities that you kind of laid out during the call. That said, does IFRS NAV kind of provide a benchmark for where you're comfortable issuing or participating in the ATM, or would you want to see CAP trading closer to your IFRS NAV in order to do that?

Switching gears just to a quick question on the expected usage of the $400 million ATM.

Capstone today trading at a 7% discount to NAV.

I appreciate that executing on the ATM will depend on the attractiveness of the opportunities that you kind of laid out.

During the call.

That said those the bias for us not to kind of provide a benchmark for where youre comfortable issuing or participating in the ATM.

Would you want to see cap trading closer to arrive for us in order to do so.

Mark Kenney: We're going to apply the same discipline that we do with our NCIB. There has to be a wide enough discount, obviously, for us to use the NCIB. I think I've said it before, I don't believe in issuing capital below IFRS NAV, so I think that statement hasn't changed, or that point of view hasn't changed. I think that as our peers have nudged up valuation because of mark-to-market rents, and as we realize some of these development land opportunities, I think it's fair to say you'll see our NAV not continue to see the So Mario, I wouldn't read anything into the time limit; our view is to just give ourselves more optionality for the future and just have it in place should the dynamics change, but the intention is not to be using it now. It's another tool in the toolbox.

Oh, yes, we're going to apply the same discipline that we do with our and CIB. There has to be a wide enough discount obviously for rescue these in CIB and I think I've said it before I don't believe in issuing capital below Ly for us now.

So I think that statement hasnt changed that point of view hasn't changed.

I think that.

As our peers have nudged up valuation because of mark to market rents.

And as we realized some of the development plan.

Opportunities I think it's fair to see Youll see our NAV.

Not to continue to see the same degradation that we put in it.

But eight quarters or so.

So Mario I wouldn't read anything into that.

Our view is to just give ourselves more optionality for the future and just have it in place.

Should the dynamics change, but the intention is not to be using it now it's another tool in the tool another tool in the toolbox.

Stephen: Got it. Yeah, the question really emanates from the notion that, let's say you're trading at a mid four implied cap. Is it a reasonable trade to trade some paper at a mid four for the existing portfolio if you get mid four caps on the new construct that you're targeting? So I'm not sure if you can get mid fours on that new construct, but does that trade make sense to you?

Got it Yeah. My question really emanates from kind of an ocean.

Let's say you're trading at a mid four implied cap.

Is that a reasonable trade to trade some pay per item, but for the existing portfolio should get mid four caps on the new construct that youre targeting and so I'm not sure. If you can get in the tours.

Let me start with the thought it makes sense to you.

Julian: Yes, so far, what we're looking at, and actually, what we saw last year, was that we acquired at higher cap rates than we sold. You know, the current market, or at least the dynamic with the properties we're looking to sell now, is that the cap rates are approximately the same as what we're buying now. So it continues to be a very good trade in the sense that we're improving the quality of the portfolio without suffering any dilution, which again is something that's fairly unique. Usually, companies that go through these repositionings and improve the portfolio have a little bit of a low or a negative impact on earnings in the interim; for us, it's either neutral or even positive.

Yes, so far but we're looking at and what we saw actually what we saw last year was we acquired at higher cap rates and we sold the current at the current market dynamic.

Dynamic with the properties, we're looking to sell now is that the cap rates are approximately the same as what we're buying now so it continues to be a very good trade in the sense that we're improving the quality without suffering any dilution, which again is something that's fairly unique usually companies that go through these repositioning and improving the portfolio have a little bit of a lull or an impact.

The impact on earnings in the interim for us, it's either neutral or even positive last year.

Got it Julian maybe just a follow up for you.

Julian: Julian, maybe just a follow-up question for you, how would you characterize required thresholds, like return thresholds, on the new construct? So we don't give those numbers; it puts us at a competitive disadvantage if the counterparties know where our thresholds are at, but what I will say is that what we are buying is going to have higher IRRs. So the cap rates are similar, but the IRRs are higher, and the reason is one, we view the acquisitions that we've bought in really good geographies and deregulated as having good growth potential, but then also, as Mark mentioned, the capex is significantly lighter. And not only is it significantly lighter on a dollar per suite basis, but the suites tend to be valued at three or four times higher.

How would you characterize required thresholds return thresholds on the new construct.

Think about that.

So we don't give those numbers I, just don't like putting our.

It puts us in a competitive disadvantages to counterparty of nowhere our thresholds are at but what I will say is that we are buying.

He is going to be at higher IRR. So the cap rates are similar but the irr's are higher and the reason being is one we view the acquisitions that we've gotten really good geographies and deregulated is having good growth potentials, but then also as Mark mentioned the Capex is significantly later and not only is it significantly later on a dollar per suite basis, but this.

<unk> tended to be valued at three or four times higher so when you look at it as a percentage of Sweet valley of ours NOI.

Stephen: So when you look at it as a percentage of the suite value as NOI, the capex is almost nothing. So you've got a similar NOI yield, but a lower capex profile, and in many cases, even a higher growth one. So we end up with higher IRRs and total returns than what we're selling. Okay, that makes sense. My last one is just maybe a follow-up for Steve and just on property taxes

Capex is almost nothing so you've got a similar NOI yield, but a lower capex profile and in many cases, even a higher growth. One. So we ended up with higher IRR in total returns than what we're selling.

Okay, Let me close.

My last one is just maybe a follow up for Stephen just on the property taxes.

Stephen: I think you mentioned you expected them to be higher. I wasn't sure if higher meant just up year over year or above the 24% of the same properties that you saw in 23. Yeah, I think we're looking at inflationary increases. I mean, you hear municipalities are increasing their taxes to cover their budgets. So I would say, you know, follow that, you could say dynamic, and that would be the right projection for real estate taxes.

I think you mentioned you expect them to be higher I wasn't sure.

Hi, Matt.

Up year over year core.

Sure.

Bob.

Same property.

That you saw in 'twenty three.

Yes, I think.

We're looking at inflationary increases I mean, you'd hear municipalities are increasing there.

Taxes.

To cover their budgets, so I would say.

Fall fall.

You can say dynamic and that will be the right <unk>.

<unk> for real estate taxes.

Stephen: Okay, so inflationary, not much more. Okay. That's it for me, thanks guys. Thanks, Muriel, on the Go.

Okay. So inflationary.

One.

Yes.

Okay.

That's it for me thanks, guys.

Thanks Maria.

Thank you. Our next question comes from Jimmy Chen of RBC capital markets.

Your line is now open. Please go ahead.

Operator: Follow-Up, you are. See ya. Better. Is the ATM really just optionality, or how do we... You're right. For more information, visit www.

Thanks, maybe just a couple of follow up on the ATM program.

I guess given that you are targeting $400 million in asset sale and I think you mentioned a few times now bigger not better not bigger.

Kimberly just optionality or is it or is it how do we read that is it that you're not sure that you'd be able to achieve the asset sale to fund your acquisitions or that maybe you had a bigger pipeline of opportunities.

Operator: FEMA.gov, Bye. Secondly, does that also... Price The Unit By... Well, I think we want to call it another option available to us. We are so excited about the investments that are coming in. We don't want to be fully reliant as we go forward with disposition. That market could change, and we don't want to give up value. So, by having both the NCIB and the ATM, you know, we've got opportunities on either side of the capital market, you know, for valuation of the company.

And then secondly does that also mean that at the current price the unit buyback is sort of off the table at this stage.

Well I think.

We want to call it another option available to us.

We are so excited about the <unk>.

Investments that are coming in we don't want to be fully reliant as we go forward and on disposition that market could change and we.

We don't want to give up value so by having both the CIB and the ATM.

We've got opportunity on either side of the capital market.

The valuation of the company.

Mark Kenney: So, I wouldn't read too much into the... 400 million; I would just really focus on the fact that, you know, Capri in the past has always done the best on the individual asset purchases. We have portfolio announcements from the past; we don't really see that being the path forward in acquiring new construction portfolios. But we are most comfortable when we're writing hard discipline around individual sales, and the ATM matches that profile well.

So that I wouldn't read too much into the.

$400 million.

I would I would just really focus on the fact that cap rate in the past.

As always done the best on the individual asset purchases. So not we're not we have portfolio analysis of the past, we don't really see.

That being the path forward and acquiring.

New construction portfolios.

But we are most comfortable when we're writing hard discipline around individual sales in the ATM matches that.

That profile well like if there's smaller amounts of equity coming in at a more steady pace, we like we like steady we're not looking for.

Mark Kenney: Like if there's smaller amounts of equity coming in at a more steady pace, you know; we like steady. We're not looking for, you know, big announcements of acquisition for the sake of saying we've done it. We like discipline and buying things well, selling things well, and having that optionality of capital should we need it. Right, but I guess... Priority, Fund www.realestate.com, Yeah, I mean, Jimmy, let me layer on to that, but, you know, we didn't put this in at the current time because we had a plan to use it; we put it in to have optionality to be opportunistic. And, you know, if you ask me right now, do we plan on using it? Probably not.

Big announcements of of acquisition for the sake of saying, we've got it we like disciplined and buy things well selling things well and having that optionality optionality of capital should we need it.

Right.

Yes.

The priority in terms of funding source, but still be asset sales at this stage.

Yes.

Let me layer on to that but.

We didn't put it in at the current time, because we had a plan to use it we put it in to have optionality to be opportunistic.

Asked me right now as we plan on using it probably not the current dynamic exists that we're funding our acquisitions with dispositions that we're doing so we're effective we're selling them all out at or above our ion for aetna to effectively already equal to raise equity above our <unk> now while also improving the portfolio so that to us.

Stephen: The current dynamic exists that we're funding our acquisitions with dispositions that we're doing, so we're selling them all at or above our IFRS NAF, so we're effectively already able to raise equity above our IFRS NAF while also improving the portfolio. So that, to us, is the primary way of raising and sourcing capital. But that said, things change. Market dynamics can change, and these types of tools, which are pretty broadly adopted in the U.S. REIT space and more so in the Canadian space, take time to put into place. So we thought it was prudent for us to have it in place and be ready and able to be opportunistic in a similar way to how we have the NCIB in place.

As the primary way of.

Raising sourcing capital, but that said things change market dynamics can change in these types of tools.

Which are pretty broadly adopted in the U S REIT space and more so in the Canadian space.

Take time to put in place and so we thought it was prudent for us to have it in there and be ready and be able to be opportunistic in a similar way to how we had the NCI in place I mean, the dynamics for ATM are obviously different but I mean I've heard some people globally.

Stephen: I mean, the dynamics for ATM are obviously different, but I've heard some people colloquially call it reverse NCIB, and so again, you know, it's another arrow in the quiver or tool in the toolbox for us to have, and then I'm going to miss it. www.realestate.com No, Jimmy, we actually didn't include that disclosure, just because of the recycling program that we're undertaking and the It's hard for us to point to a good number for investors, but I would say if you're looking at a total capex number, given our strategic allocation and the tight rental market, you can expect that to come down. The only area of enthusiasm for spending capital dollars is on our ESG investments in energy, and those all have very high returns.

Call it reverse in CIB and so again, it's another arrow in the quiver tool in the toolbox for us to have.

Okay. Thank you.

And then I might have missed it but did you mention what your total capex budget would be for 2024.

No Jimmy we actually we didn't include that disclosure.

Just because of the the recycling program that we're undertaking in the capital allocation strategy.

It's hard for us to get.

Point to a good number for.

For for investors, but I would say.

Looking at the total Capex number.

Are you at all.

Strategic allocation in the rental market.

You can expect that to come down.

The only area of enthusiasm for spending capital dollars on her.

<unk> investments for energy and those all have very high returns so.

Stephen: So again, it's watching the behavior of the categories to see, but I always tell the team there's unlimited capital for 30% energy investment. We'll stick to that. Our next question comes from Matt Cornack of National Bank Financial.

It's watching the behavior of the categories.

To see but I always tell the team there is unlimited capital for 30% energy investment so.

We will stick to that.

Alright.

Okay. Thanks, guys.

Thank you.

Our next question comes from Matt <unk> of National Bank financial.

Your line is now open. Please go ahead.

Operator: Hey guys, just a quick follow-up on Jimmy's question there, year over year for the total year, CapEx was down I think 10% across the board, but Q4 was down quite a bit. Are you seeing kind of a trend towards spending less in the more recent quarters or was there an anomaly in Q4?

Hey, guys just a quick follow up on <unk>.

Jimmy It's question there.

Year over year for the total year Capex was down I think 10% across the board, but Q4 it was down.

Quite a bit.

Are you seeing kind of a trend towards spending less.

And the more recent quarters or was there an anomaly in Q4.

Mark Kenney: There's a little bit of seasonal adjustment with CapEx because the big stuff is obviously the beginning of the structural work, which has to be done in the summer months. But I'll let Stephen expand. Yeah, I mean, that's to the point Mark was just saying. There's seasonality. I would say, you know.

There is a little bit of seasonal adjustment with capex because the big stuff is obviously, we're getting the structural has to be done in summer months, but I'll, let Stephen Stephen expand yes.

Thats.

To the point when Mark was just saying Theres seasonality I would say.

Stephen: As I mentioned to Jimmy, the CapEx, especially with our Disposition Program, as Julian has pointed out, some of the attributes of the dispositions, they're CapEx-heavy, so you're going to expect non-discretionary CapEx to come down as we progress with our strategy. And then on the discretionary side, especially in suites and common areas, really rationalizing that. So that should come down over time, and as Marcus pointed out, really, the energy and conservation investments are something that we continue to focus on, and that provides a very high return for us. So overall CapEx, I would say, will come down. Again, I haven't provided a number, but you can expect that number to come down over time.

We've mentioned that Jimmy.

The capex, especially with our disposition program as Julian has pointed out there.

One of the.

Some of the attributes of the dispositions are their capex habit right. So youre going to expect non discretionary capex to come down as we progress with our strategy.

On the on the non just on the discretionary.

Discretionary side, especially in Sweden, and common area of really rationalizing that so that should come down.

Overtime, and Marcus pointed out really the energy and conservation investments are something that we continue to.

<unk> focus on.

And that provides a very high return for us. So overall capex I would say will come down.

I haven't provided numbers, but you can expect that to come down over time. The only other thing that I would add that we never got right with the market and other REIT struggle as well.

Stephen: The only other thing, Matt, that I would add is that we never got right with the market, and other REITs struggle as well. When you're doing a value-add acquisition program, the choppiness of investing in CapEx is pretty severe. Like we used to get very excited when there was major CapEx to spend on a new acquisition because it meant opportunity. Now that's changing because we're not focusing on those assets on the acquisition front anymore. The past was always moving, dependent on the opportunity.

When youre doing a value add acquisition program, the Choppiness and invest in Capex is pretty severe like we used to get very excited when there was major capex to spend on a new acquisition because it meant opportunity now that's changing because we're not focusing on those assets on the acquisition front is there any more so.

The Pos was always moving dependent on the opportunity the market would get spooked when Capex went up and we would be having a party say thank goodness. We did that acquisition. So that that is just going to stabilize things. So I think you can expect again with the new strategy, just an ever declining spend on.

Mark Kenney: The market would get spooked when CapEx went up, and we would be having a party saying, thank goodness we did that acquisition. So that is just going to stabilize things. So I think you can expect... Again, with the new strategy, just an ever-declining spend on CapEx. This is going to become less and less and less of a conversation for CapRe as we burrow into the strategy deeper. Fair enough. That is helpful. Steven, this may be an unfair question, and I don't know if you have the numbers in front of you. But is it possible to quantify what the allocation would have been from this kind of maintenance capital into the expense line?

Capex this is going to become less and less and less of the conversation for cap rate as we grow into the strategy deeper.

Fair enough.

Helpful.

Steven that's maybe an unfair question and I don't know if you have the numbers in front of you but.

Is it possible to quantify what the allocation would have been some kind of maintenance capital into the expense line, but I'm just.

Stephen: I'm just saying your numbers are a little off the peers at this point because of this allocation. And I think the guys that have reported to the state have actually seen expense declines on the same property basis. So trying to figure out what the delta to get back to kind of a more comparable would be. It's not an unfair question, but it's a question that Stephen can't really fully answer because it's not a direct correlation.

Your numbers are a little off the peers, but that's because of this allocation.

The guys that have reported to date have seen actually expense declines on a same property basis.

So I'm trying to figure out what the delta to get back to kind of a more comparable.

It's not an unfair question, but it's a question that Stephen can't really fully answer because it's not a direct co relation okay, well sorry, it's not a I don't know what you call it.

Mark Kenney: Okay. Well, sorry. It's not a, I don't know what you call it, mathematically tied equations. They're cousins, they're not siblings.

Mathematically tied equation, there cousins theyre not siblings, so use that analogy all the time.

When youre not doing the major Capex and you have to do repairs and maintenance.

Mark Kenney: I use that analogy all the time. When you're not doing the major topics and you have to do repairs and maintenance, then obviously, there's a cause and effect, but you can't actually quantify that relationship one-for-one. It's just a by-product of not doing big capital projects; you're back to traditional property management. So that's about it, you know, fuzzy answers I can give you because there is no actual number Stephen can provide. Yeah, Matt.

Obviously, there is a cause and effect, but you can't actually quantify one for one that relationship. It's just a byproduct of not doing big capital projects Youre back in traditional property management, so that about us.

Fuzzy answer as I can give you because there is no actual numbers Steven can provide.

Yes, Matt.

Yes, I'm going to say it was a difficult it's difficult for me to answer.

Can take it offline but.

It's not a one for one as Mark has pointed out.

Mark Kenney: I mean, I... It's difficult for me to answer that. I mean, we can take it offline, but it's not as one-for-one as Marcus pointed out. Yeah, I think we've gravitated to looking at the same property revenue number as a better indicator. When do you think capital will start to get invested, given the government is trying to incentivize it to build new products? I understand the capital markets have to be there, but do you start to see some more purpose-built rental get developed in the near term, or are we in a waiting game at this point? Well, I'll start off and then and then the more views that get shared here, the better, but it's quite a quiet side.

Yeah, I think we've gravitated to looking at the same property revenue number is a better proxy for relative performance.

You guys are deploying well there.

Very last one for me just in terms of the I mean, we saw building permits actually decline while population growth has accelerated.

When do you think that starts to get invested.

The government.

Trying to incentives.

And building new product I understand the capital market's ought to be there, but do you start to see some more purpose built rental get developed in the near term or.

I mean in a waiting game at this point.

Well I'll start off and then and then the more views to get shared here the better but it's quite side.

Mark Kenney: What you're seeing with the decline in Bobski Building Permits is the crisis is getting worse, okay? And it's not a weekend event where they prop up new supply and everybody's got a home to be in. So that's really, that's a bad forward indicator.

What's happening because what youre seeing.

With the decline in <unk> building permits as the crisis is getting worse and it's not a weekend event, where the prop up new supply and everybody's got a home to be and so that's really.

That that's a bad forward indicator.

Mark Kenney: It is, however, a strong indicator for what we were talking about earlier. Like, we're happy to sit on our development land and wait, because when things get turned on again, things become viable, there will be a rush for zoned property, a major rush for zoned property. Because most developers don't want to sit on the capital for too long, not knowing when there's real stability.

It is however.

A strong indicator for what we were talking about earlier, we're happy to sit on our development plans.

And wait because when it things get turned on again things become viable there will be a rush for zoning property a major Russia is one of the properties because most developers don't want to sit on the capital for too long not knowing when theres a real real stability. So we can sit on.

Julian: So we could sit on the land, as Julian said, and wait for that window of opportunity in the market. I'll ask Julian to build on that a little bit more, Matt. It could be just that simple.

The land as Julian said and wait for that window of opportunity in the market.

I'll ask Julie to build on that a little bit more than that it could be just that simple but.

Julian: It's not that surprising that you're seeing building permits go down, and so, you know, we tout with the acquisitions that we did, all of them below replacement costs. So, when you go into developing a purpose-built rental, particularly as a merchant builder, what you're trying to do is, you know, recover all your costs plus make a reasonable return on costs. So, you should be selling, you know, or projecting to sell for higher than the cost of the build. When I go and buy stuff right now at a 15, 20, 25% cost of what it takes to build without any development or lease-up risk, who's going to build in that environment, right? When they're doing their pro forma, the end value of the apartment is less than what it costs to build. It, frankly, obviously needs to be on the other side to justify the risk.

You know, Matt it's not that surprising that you're seeing the building turns go down and so.

With the acquisitions that we did all of them below replacement cost. So when you go into developing and purpose built rental and particularly as a merchant builder, which youre trying to do is recover all your cost plus.

Reasonable return on costs, so you should be selling.

We're projecting to sell at higher than cost me to build when when I go and buy stuff right now at 15% to 20% and 25% cost of what it takes to build without any development or lease up risk who is going to build into that environment right. When theyre doing their pro forma the end value of the apartment is less than what it cost to build frankly, obviously needs to be on the other side.

To justify the risks so.

Julian: So, you know, part of it is interest rates going down to lower their costs. Part of it is, you know, hopefully, some moderation on the construction cost side. And then the other part is just going to need more capital coming in to be an end buyer on the other end. You know, there's that, and there's a whole host of other issues on the construction side, you know, shortages of labor and all the other things that could come together. But there are a lot of things that kind of need to change, I think, for that to really ramp up. As Mark mentioned, even when it does start ramping up, you can't build apartment buildings in a day, right?

Part of it is going to be interest rates going down to lower their cost part of it is hopefully to moderation on the construction cost side and then the other part is just going to need the need to see more capital coming in DNN buyer on the other end.

And a whole host of other issues on the construction side and the shortages of labor and all the other things that can prime off there's a lot of things that kind of need to change I think for that to really ramp up as mark mentioned, even when it does start ramping up and you can't you can't build apartment buildings in a day range. So.

Mark Kenney: So, you know, take time for those conditions to potentially fix. And even from there, it's going to be a long lead time until you see those projects actually get delivered. That absolutely makes sense.

Take time for that for those conditions to potentially fix and even from there. It is going to be a long lead time until you see those projects actually get delivered.

That absolutely makes sense, okay. Thanks, guys I appreciate it.

Operator: Okay. Thanks, guys. I appreciate it.

Thanks.

Operator: Thank you. Our next question, from Dean Wilkinson of CIP, is now open. Please go ahead.

Thank you.

Next question comes from Dean Wilkinson of CIBC.

Please go ahead.

Dean Wilkinson: Thanks. Good morning, guys. Mark, one question and it could have us on the phone for another hour, a philosophical one. Oh, I like you. You're argue. Arguably the largest owner of affordable housing in the country. You can't turn a paper or flip on a TV today without just hearing about it. It's everywhere.

Thanks, Good morning, guys Mark.

One question in the end it could have us on the phone for another hour philosophical one.

Ooh.

Argue.

Okay.

Arguably the largest owner of affordable housing in the country.

You can't turn a paper or flip on the television today with just hearing it.

It's everywhere.

Mark Kenney: Has any level of the government reached out to CapReap and asked you for your input other than you going to them, and what would you tell them? Well, we have four affordable sites. That's what we're trying to tell them. We're trying to do it as an industry. The reality is that I think I've talked about education and the housing issue, and it's a tough one. So we're going through this period of educating the government about the opportunities that are there. Capri made progress years ago with the rent geared to income approach to provincial governments and even municipalities in some cases, and that message was heard. The good news is I think now we've got more active listening at all three levels of government than ever before, but it's a slow machine. There's no one person that's making a decision, and it's coordinating this spider's web of three levels of government.

Has any level of the government reached out to cap REIT and asked you for your input other than you're going to them and what would you tell them.

Well, we have to for affordable site.

That's where we're trying to tell them.

We're trying to do it as an industry.

The.

Reality is that I think <unk>.

Talked about education, and the housing trial and it's a tough one so we're going through this period of educating government and the opportunities that are that are there.

<unk>.

Kathleen made progress years ago with the rent geared to income.

Approach to provincial governments, and even municipal and in some cases and that that message was heard the good news is I think now we've got more active listening at all three levels of government than ever before but it's a slow machine theres no one person that's making.

Decisions.

It's coordinating spiders web.

Mark Kenney: This is the number one problem, and their interests are not necessarily aligned from a political standpoint. It's this whole, am I a municipal politician that worries about NIMBYism, or am I a provincial politician that worries about the state of the market in my province, or am I a federal politician that is worried about balancing immigration with housing supply, which is a file they never really had, quite frankly, other than the good work that CMHC does. So it's difficult, but I do believe there's a will. I do believe there are signs of progress. I think what we're seeing right now is that there are some provinces that are really standing out. At the end of the day, when you track progress, I would look at the provinces that are doing the best work and coordinating the pressure on the municipalities and bridge building with the feds. So I'm giving you a bit of a fuzzy answer because it is a, I don't know that an hour is enough.

Three levels of government. This is the number one problem and their interests are not necessarily aligned from a political standpoint. Its this hole in light of municipal politician that worried a bit NIMBY ism or am I, a provincial politician that worries about the state of the market in my province.

Or am I, a federal politician is worried a bit balancing immigration with housing supply, which is a file they never really had quite frankly other than the the good work that <unk> does so it's difficult, but I do believe there is a willingness I do believe there are signs of progress.

I think what we're seeing right now is there are some provinces that are really standing at the end of the day. When you track progress I would look to the provinces that are doing the best work and coordinating the pressure on the municipalities and bridge building.

With defense.

So I'm, giving you a bit of a fuzzy answer because it is.

Don't know that in hours and after I think you need like a couple of years here for this conversation, but there's a lot of.

Mark Kenney: I think you need a couple of years here for this conversation. But there's a lot of willingness, I'm going to say, at all three levels of government. We've come a long way in our campaign of discussion from two years ago. We are being turned to for our views, not necessarily to have them all implemented.

Willingness I'm going to say at all three levels of government, we've come a long way in our campaign a discussion from two years ago.

We are.

Being turned to for our views not necessarily.

Mark Kenney: That's why I touched on the For Affordable site in the slide deck because we tried to distill our ideas there. Hmm. Is it fair to say that those provinces that are a little more receptive to this also coincidentally are the ones without rent control? There's a historic connection to that. Like you can look for examples around the planet Earth, I like to say, of where there are deregulated markets, and you'll find a balance supply. You can look around the world and find regulated markets where there's not a balance supply. So, you know, a lot. I keep looking for this example of where regulation builds more apartments, and nobody can spot it for me. So that kind of goes without saying, but that doesn't necessarily solve somebody's affordability issues in the now and today. So this is the push and pull. Yeah, everywhere there is rental housing in the world, there's this direct correlation between no regulation and balanced price.

Having them all implemented but that's why I touched on the four affordable safe.

In the in the slide deck, because we've tried to distill or ideas there.

Hum.

Is it fair to say that those provinces that are a little more receptive to this also coincidentally are the ones without rent controls.

There is there is a historic connection to that like you can look for examples around the planet Earth is what I like to say, where theres deregulated markets and youll find balanced supply.

Can look around the world defined regulated markets, where theres not balance supplies.

A lot of.

I keep looking for this example of where regulation builds more apartments and nobody can spot for me so.

That kind of goes without saying, but that doesn't necessarily solve somebody's affordability issues.

Now and today. So this is the push and pull but.

Yes.

Everywhere everywhere there is rental in the world. There's this direct co relation between no regulation and balanced pricing.

Mark Kenney: Well, maybe we'll come back to that. That's all I have. Thanks, guys. Hey, guys.

Yeah.

Maybe we'll come back to that that's all I had thanks guys.

Okay.

Operator: Thank you. At this time, we currently have no further questions. So I'll hand back to Mark Kenney for any further remarks. Yeah, well, I'd like to thank everybody for their time today, and if you have any further questions, please do not hesitate to contact us at any time. Thank you again. Have a great day. Thank you for calling today's call. You may now disconnect your line, www.realestate.com

Thank you.

At this time, we currently have no questions. So I'll hand back to month, Kenny for any closing remarks.

Yeah, well I'd like to thank everybody for your time today. If you have any further questions. Please do not hesitate to contact us at any time. Thank you again have a great day.

Thank you John States call you may now disconnect your lines.

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