Q1 2024 Canadian Apartment Properties Real Estate Investment Trust Earnings Call

Okay.

Megan: Good morning. Thank you for attending today's Canadian Apartment Properties REIT first quarter 2024 results conference call. My name is Megan, and I'll be your moderator for today's call. All lines will be needed during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to Nicole Dolan, Investor Relations. Please go ahead.

Good morning. Thank you for attending today's Canadian apartment properties REIT first quarter 'twenty 'twenty four results conference call. My name is Megan and I'll be your moderator for today's call all lines will be needed during the presentation portion of the call with an opportunity for questions and answers at the end if he would like to ask a question. Please press star one on your telephone.

Nicole Dolan: I would now like to pass the conference over to 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 May include forward looking statements about expected future events, and the financial and operating results and cap rates, which are subject to certain risks and uncertainties. We direct your attention to slide two in our other regulatory filings for <unk>.

Nicole Dolan: Information about these statements I will now turn the call over to Mark <unk>, President and CEO.

Nicole Dolan: Thanks, Nicole. Good morning, everyone.

Nicole Dolan: Thanks, Nicole and good morning, everyone Joy.

Mark Kenney: Joining me this morning is Stephen Co, our Chief Financial Officer, and Julian Schonfeldt, our Chief Investment Officer. Let's turn to slide four and begin with our operational performance. We've experienced another quarter of low turnover and vacancy, and our Canadian apartment portfolio was 98.4% occupied on March 31st, 2024. Across that, our average monthly rent was $1,552, which is meaningfully lower than the national average.

Nicole Dolan: Joining me. This morning is Stephen Ko, our Chief Financial Officer, Julian Sean <unk>, our Chief investment Officer.

Mark Kenney: Let's turn to slide four and begin with our operational performance, we've experienced another quarter of low turnover and vacancy in our Canadian apartment portfolio was 98, 4% occupied on March 31 2024.

Mark Kenney: Across that our average monthly rent was $552, which is meaningfully lower than the national average. These stats reflect the ongoing high demand for cap rates rental accommodation.

Mark Kenney: These stats reflect the ongoing high demand for Capri's rental accommodation, as we remain the provider of affordable living in many of Canada's least affordable cities. We're proud of this position, especially as we continue to experience one of the worst housing crises our country has ever experienced. On slide five, we summarized our financial results for the first quarter as compared to Q1 of 2023. Operating revenues were up by 5.7% due primarily to strong rent growth. In addition, operating expenses, as a percentage of operating revenues, were down, mainly driven by lower utility costs given the milder winter weather experienced throughout the country.

Mark Kenney: That's a relief as we remain the provider of affordable living and many of Canada's least affordable cities.

Mark Kenney: We're proud of this positioning, especially as we continue to experience one of the worst housing crisis, our country ever experienced.

Mark Kenney: On slide five we summarized our financial results for the first quarter as compared to Q1 of 2023.

Mark Kenney: Operating revenues were up by five 7% due primarily to strong rent growth.

Mark Kenney: In addition, operating expenses as a percentage of operating revenues were down maybe.

Mark Kenney: Mainly driven by our lower utility cost given the milder winter weather experienced throughout the country.

Mark Kenney: As a result, NOI grew by 8%, and our margin expanded by 140 basis points to 64.2%. This growth offsets elevated interest, which we're continuing to absorb on our credit facilities and mortgages payable. And FFO was up by 6.4% to $103.4 million. Combined with accretive purchases made under our NCIB program, which decreased our weighted average unit count by 0.9%, our diluted FFO per unit increased by 7.4% to 60.9%. On slide 6, we have an illustration of our repositioning strategy.

Mark Kenney: As a result, NOI grew by 8% and our margin expanded by 140 basis points to 64, 2%.

Mark Kenney: This growth offset elevated interest, which we're continuing to absorb under our credit facilities and mortgages payable.

Mark Kenney: And <unk> was up by six 4% to $103 4 million.

Mark Kenney: Combined with accretive purchases made under our NCI program, which decreased our weighted average unit count by <unk>, 9%, our diluted <unk> per unit increased by seven 4% to <unk> 69 times.

Mark Kenney: On slide six we have an illustration of our repositioning strategy.

Mark Kenney: At Capri, we're focused on getting better, not bigger, and that means a laser focus on improving quality and growing earnings. To achieve this, we're purchasing new purpose-built rental apartment properties across Canada. We're proud of the progress we've made so far.

Mark Kenney: Category, we're focused on getting better not bigger and that means a laser focus on improving quality and growing earnings too.

Mark Kenney: To achieve this we're purchasing new purpose built rental apartment properties across Canada. We're proud of the progress we've made so far with new construction assets now representing 11% of our total portfolio.

Mark Kenney: With new construction assets now representing 11% of our total portfolio, we're funding these acquisitions through the sale of our older non-core legacy buildings, which we've identified to be approximately 22% of our portfolio. Our goal is to replace non-core with new build, and you can see that this recycling excludes our high quality legacy apartments that comprise about half of our total portfolio. These properties have historically produced predictably higher growth returns, and they remain core to our business. I will now turn things over to Julian to provide a more detailed update on our capital allocation progress.

Julian: We're funding these acquisitions through the sale of our older noncore legacy buildings, which we've identified to be approximately 22% of our portfolio.

Julian: Our goal is to replace non core with new build and you can see that this recycling exclude our high quality legacy apartments that comprise about half of our total portfolio.

Julian: These properties have historically produced predictably higher growth returns and they remain core to our business.

Mark Kenney: I will now turn things over to Julian to provide a more detailed update on our capital allocation progress.

Julian Schonfeldt: Thanks, Mark. Turning to slide 8, you can see the evolution of our repositioning strategy, which Mark just outlined. As he mentioned, we're at 11% new build today, and that is up from 5% where we were just four years ago. We've been actively recycling our capital from low-growth to high-growth investments each year to achieve this. Increasing our allocation towards targeted, newly constructed rental properties has also been lowering our capital investment requirements, improving our environmental performance, diversifying our geographic exposure and tenant base, and ultimately bettering our portfolio and business. We're excited to be maintaining momentum on this so far in 2024.

Julian: Thanks, Marc turning to slide eight you can see the evolution of our repositioning strategy, which mark just airline as he mentioned, we're at 11% Newbuild today and that is up from 5% where we were at.

Julian Schonfeldt: Yes.

Julian Schonfeldt: It's more years ago, we've been actively recycling capital from low growth to high growth investments each year to achieve this increasing our allocation towards targeted newly constructed rental properties have also been lowering our capital investment requirements, improving our environmental performance diversifying our geographic reach.

Julian Schonfeldt: Closure and tenant base and ultimately bettering our portfolio of business. We are excited to be maintaining momentum on this so far in 2024.

Julian Schonfeldt: Slide nine highlights our progress achieved during the first quarter. We sold $83.6 million of non-core properties, and we also transacted on the sale of approximately $58 million worth of equity in Irish residential property REITs, which reduced our ownership from 18.7% to 11.3% as of March 31st, 2024. Subsequent to the period, we settled on the disposition of an additional $12.7 million, lowering our ownership further to 9.7% as of yesterday. We redeployed part of the proceeds to accretively repurchase approximately $27 million worth of CapReITs units at a discount to MAV.

Julian Schonfeldt: Slide nine highlights our progress achieved during the first quarter, we sold $83 $6 million of noncore properties and we also transacted on the sale of approximately $58 million worth of equity in Irish residential properties, which reduced our ownership from 18, 7% to <unk>.

Julian Schonfeldt: Seven 3% at March 31, 2024 subsequent to the period, we settled on the disposition of an additional $12 $7 million.

Julian Schonfeldt: Lowering our ownership further to nine 7% as of yesterday.

Julian Schonfeldt: We redeploy part of the proceeds to accretively repurchased approximately $27 million worth of cap rates unit at a discount to NAV.

Julian Schonfeldt: We also reinvested capital in the acquisition of Alto Towers, two new-build concrete rental apartment buildings in London, Ontario, which we purchased at a steep discount to replacement costs and at a cap rate that exceeds the weighted average cap rate on our first quarter dispositions. This past quarter, we've continued to optimize our portfolio and our capital to improve the quality of earnings simultaneously, and we're looking forward to keeping up this solid effort in our strategic execution. I will finally touch on slide 10, which provides an overview of our Acid Light development model.

Julian Schonfeldt: We also reinvested capital into the acquisition and also towers, two newbuild contracts and rental apartment buildings in London, Ontario, which we purchased at a deep discount to replacement cost and at a cap rate that exceeds the weighted average cap rate on our first quarter dispositions. This past quarter, we continued to optimize.

Julian Schonfeldt: Our portfolio and our capital to improve quality of earnings simultaneously and we're looking forward to keeping up a solid effort on our strategic execution.

Julian Schonfeldt: Finally touch on slide 10, which provides an overview of our asset light development model as many already know we have a large amount of excess density potential throughout our portfolio. Our development team is working to identify and undertake the cumbersome entitlement of this underutilized land, which we can then sell to developers to add intensity.

Julian Schonfeldt: As many of you already know, we have a large amount of excess density potential throughout our portfolio. Our development team is working to identify and undertake the cumbersome end-to-end entitlement process for this underutilized land, which we can then sell to developers to add density to growing communities in need of more homes. This past quarter, we also announced that we entered into an agreement to dispose of a 0.3-acre parcel of unused land in Halifax to a neighboring developer for $2 million.

Julian Schonfeldt: ROE and communities in need of more homes.

Julian Schonfeldt: This past quarter, we also announced that we entered into an agreement to dispose of the <unk>.

Julian Schonfeldt: Three acre parcel of unused land in Halifax to a neighboring developer for $2 million. We also secured a right of first offer on the neighboring site. One of the apartment is constructed and we're expecting to close on in the second quarter of 2024, I will now turn things over to Steven for his financial review.

Julian Schonfeldt: We also secured a right-of-first offer on the neighboring site once the apartment is constructed, and we're expecting to close on this in the second quarter of 2024. I will now turn things over to Stephen for his financial review.

Stephen Co: Thanks Julian, and good morning everyone. Our financial position supports our ability to execute on our investment strategy, and our balance sheet has remained strong, as shown on slide 12. At current period end, we had approximately $370 million in available liquidity in Canada. This includes cash on hand as well as $255 million worth of capacity on our acquisition and operating facilities.

Stephen: Thanks, Julian and good morning, everyone.

Stephen Co: Our financial position supports our ability to execute on our investment strategy and our balance sheet has remained strong as shown on slide 12 at current period end, we had approximately $370 million and available liquidity in Canada. This includes cash on hand, as well as $255 million worth of capacity.

Stephen Co: <unk> on our acquisition and operating facilities.

Stephen Co: We also have $70 million in an unsecured, non-revolving construction and term credit facility provided by the Canada Infrastructure Bank this quarter for the retrofitting of certain properties to reduce greenhouse gas emissions at very favorable financing rates. In our mortgage financing, we take a prudent approach, and we fix 100% of our mortgage interest costs, which mitigates volatility risk. As a result, our portfolio continues to carry a below-market weighted average effective interest rate of just under 3%, and it also has one of the longest terms of maturity in our peer universe at over five years.

Stephen Co: We also have a $70 million in unsecured non revolving construction and term credit facility provided by the Canadian Canada infrastructure Bank this quarter for retrofitting of certain properties to reduce greenhouse gas emissions at very very favorable financing rates.

Stephen Co: And our mortgage financing, we take a prudent approach and we fixed 100% of our mortgage interest cost, which mitigates volatility volatility.

Stephen Co: Volatility risk.

Stephen Co: As a result, our portfolio continues to carry a below market weighted average effective interest rate just under 3% and it also has one of the longest term maturity and our peer universe at over five years.

Stephen Co: If you turn to slide 13, you'll see that we also methodically staggered our mortgage portfolio. At period end, we had $364 million in Canadian mortgages maturing in the remainder of 2024, which represents only 8% of our total portfolio. We have laddered our maturity so that we have no more than 13% of our mortgages in Canada coming due in any given year, which again reduces our renewal risk. Referring to slide 14, our total debt to gross book value ratio was 41.8% at March 31st, 2024. And this is relatively stable compared to year-end. Our coverage ratios also remain conservative and compliant with covenant restrictions. I will now turn things back over to Mark to wrap things up. Thanks, Stephen.

Stephen Co: If you turn to slide 13, Youll see that we also methodically stagger our mortgage portfolio.

Stephen Co: At period end, we had $364 million and Canadian mortgages maturing in the remainder of 2024, which represents only 8% of our total portfolio we have ladder.

Stephen Co: Charities, so that we have no more than 13% of our mortgages in Canada coming due in any given year, which again reduces renewal risk.

Stephen Co: Referring to slide 14, our total debt to gross book value ratio was 41, 8% at March 31, 2024, and this is relatively stable compared to year end.

Stephen Co: Our coverage ratios also remain conservative and compliant with the covenant restriction I will now turn things back over to Mark to wrap up thanks, Steve.

Mark Kenney: I wanted to take this opportunity to expand on one important deal which we are proud to be part of during the past quarter. In March, we sold two of our legacy properties located in Langley, BC, to New Vista Society, a local non-profit organization that provides affordable housing to seniors and families. The New Vista Society received funding from the BC Rental Protection Fund, which we previously applauded and advocated for as a cost-effective way for governments to preserve existing affordable housing at a fraction of the cost of constructing new purpose-built affordable housing.

Mark Kenney: I wanted to take this opportunity to expand on one important deal, which we are proud to be part of during the past quarter in March we sold two of our legacy properties located in Langley BC to New Vista Society, a local nonprofit organization that provides affordable housing to seniors and families.

Mark Kenney: New Vista Society received funding from the BC rental protection plan, which we previously applauded and advocated for as a cost effective way for governments to preserve existing affordable housing at a fraction of the cost with the construction new purpose built affordable housing this instrument.

Mark Kenney: This instrumental sale will enable those suites to remain affordable in perpetuity, while we were able to free up capital to reinvest in new supply that will, in turn, encourage incremental residential development in Canada. We were pleased to be able to participate in a productive public-private partnership such as this, and we hope to see more of our non-profit core legacy buildings transferred into the hands of these providers. On that note, looking ahead, we remain increasingly focused on our core legacy and new-built apartment portfolio in Canada and will continue moving forward with our capital recycling strategy to improve the quality and drive ongoing value for our residents, our communities, and our unit holders. With that, I would like to thank you for your time this morning, and we would now be pleased to take your questions.

Mark Kenney: It'll sale will enable those suites to remain affordable in perpetuity, while we were able to free up capital to reinvest in new supply that will in turn encourage incremental residential development in Canada.

Mark Kenney: We were pleased to be able to participate in a productive public private partnership such as this and we hope to see more of our nonprofit core legacy buildings transferring into the hands of these providers.

Mark Kenney: On that note looking ahead, we remain increasingly focused on our core legacy and Newbuild apartment portfolio in Canada, and we will continue moving forward with our capital recycling strategy to improve the quality and drive ongoing value for our residents our communities and our unit holders.

Mark Kenney: With that I would like to thank you for your time. This morning, and we would now be pleased to take your questions.

Megan: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star 1. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question goes to the line of Jonathan Kelcher with TD Cowan. Your line is now open.

Speaker Change: Thank you.

Speaker Change: I would like to ask a question. Please press star followed by one on your telephone keypad.

Megan: If for any reason you would like to remove that question. Please press star followed by two.

Jonathan Kelcher: Again to ask a question press star one.

Megan: A reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question. Please we'll pause here briefly ask questions are registered.

Jonathan Kelcher: Our first question comes from the line of Jonathan <unk> with TD Cowen. Your line is now open.

Jonathan Kelcher: Thanks. Good morning. First question: just on the portfolio repositioning disclosure, if we look at the non-core assets, which I think are roughly three and a half billion dollars, should we just think of those as assets that you plan to sell over X number of years with the proceeds going towards a new build in the NCIB, or would you also consider adding to the core legacy portfolio?

Jonathan Kelcher: Thanks, Good morning.

Speaker Change: Our next question just on the just on the.

Jonathan Kelcher: Portfolio repositioning disclosure.

Jonathan Kelcher: We look at the non core assets.

Jonathan Kelcher: And that's I think that's roughly $3 5 billion or should we just think of those.

Jonathan Kelcher: Assets that you acquired.

Jonathan Kelcher: Sell over X number of years with the proceeds going towards Newbuild in the CIB or would you also consider adding to the core legacy portfolio.

Mark Kenney: I'll let Julian build on my answer, but we have the option, when pricing presents itself at acceptable levels, to pay down our revolver, to buy back our shares, or to invest in new construction assets that we deem to be well below replacement costs. So we have the best of both worlds, but we're not in a rush to do so, and we'll remain disciplined. I don't know, Julian, if you would add any more to that.

Speaker Change: I'll, let Julian build on my answer, but we have the optionality.

Julian Schonfeldt: When pricing.

Julian Schonfeldt: Presents itself at acceptable levels to pay down our revolver to buyback our shares or to invest in new construction assets that we deem to be well below replacement cost. So we have the best of all worlds.

Julian Schonfeldt: But we're not in a rush to do so and we'll remain disciplined I don't know Julien if you would add any more to that I think that covered it perfectly.

Julian Schonfeldt: Okay, how should we think about the ancillary?

Julian Schonfeldt: Okay, how should we think about the ancillary assets.

Julian Schonfeldt: Yeah.

Julian Schonfeldt: Okay.

Julian Schonfeldt: They continue to perform strongly for us and earn good growth, but the focus of the capital allocation strategy right now is exactly as Mark mentioned, growing exposure to new construction properties overall.

Julian Schonfeldt: Yes.

Julian Schonfeldt: Continue to perform strongly for us and earn good growth.

Julian Schonfeldt: The focus of the capital allocation strategy right now is exactly as Mark mentioned it.

Julian Schonfeldt: From a growing exposure to the new construction.

Julian Schonfeldt: Properties overall.

Mark Kenney: Okay, and then Mark, just... You've been at the forefront of this, but just your thoughts on all the recent government announcements on both the supply and the demand side and what you think they might do to near-term fundamentals.

Julian Schonfeldt: Okay.

Julian Schonfeldt: And then Mark just.

Mark Kenney: You've been at the forefront of this but just your thoughts on all the recent government announcements on both the supply and the demand side.

Mark Kenney: And what do you think it might do to the near term fundamentals.

Mark Kenney: Well, I think that we're making really great progress in our conversations with the government. I think I would take this moment, Jonathan, to make an announcement that the federal government really is recognizing the critical role that REITs are playing, and they have indicated that there will be no changes to the tax treatment of REITs. So that's been a topic of conversation now for several years, and that announcement was made official by the federal government yesterday, and we're very pleased with that as an indicator of how closely we are working with the federal government and provincial governments, quite frankly.

Mark Kenney: Well I think that we're making.

Mark Kenney: Really great progress in our conversations with government.

Mark Kenney:

Mark Kenney: The announcement of the acquisition fund at the federal level just really shores up and marries into our strategy of dealing with the non-core. We think that that non-core has a really important role in preserving affordability, and so that again lines up.

Mark Kenney: I think I would take this moment Jonathan too.

Mark Kenney: Make an announcement that the federal government really is recognizing the critical role that reached their plane and they have indicated that there'll be no changes to the tax treatment of rights. So that's been a topic of conversation now for several years and that announcement was officially made official by the federal.

Mark Kenney: <unk> yesterday, and we're very pleased with that being an indicator of how closely we are working with.

Mark Kenney: With the federal government and provincial governments by frankly, the announcement of the acquisition fund at the federal level, just really shores up and mirrors into our strategy of dealing with the non core and we think that that noncore has a really important role in preserving.

Mark Kenney: Affordability and so that again lines up extremely well with the core mission that we're on high grading our portfolio.

Mark Kenney: Okay, and then, but thoughts on, I guess, the curbing of population growth and all like, what do you think that's going to do to fundamentals, say, over the next two to three years?

Mark Kenney: Okay and then.

Mark Kenney: But thoughts on on I guess, the curbing of population growth at all like what do you think that's going to do two fundamental let's say over the next two to three years.

Mark Kenney: I don't really see it doing too much of anything. We've got a situation that's so backed up, you know. It's not, not a day goes by anymore where people are talking to me about tent cities across the country, the people that are rooming up, and families that have their younger generation still in bedrooms into their 30s. This thing is so incredibly popular that it's really a math exercise of looking at new supply, which is also creative.

Speaker Change: I don't really see it doing.

Mark Kenney: Too much of anything.

Mark Kenney: We've got a situation that so backed up it is not a day doesn't go by and Moreover, people are talking to IMO 10 cities.

Mark Kenney: Across the country.

Mark Kenney: People that are room meeting up in families that have the younger generation is still even bedrooms into their 30. This thing is so incredibly backed up.

Mark Kenney: Like, despite good intentions and good efforts being made by all levels of government, we are really not keeping up with traditional supply levels in Canada. So we've got a really backed-up situation that I don't see an end to. This has come out in terms of, you know, a change. I think it's a positive change. Again, the government is definitely listening and doing what it can, but what they can't do is make up the supply.

Mark Kenney: It's really a math exercise of looking at new supply, which has also created like despite good intentions and good efforts being made by all levels of government. We are really not keeping up traditional supply levels in Canada. So we've got a really backed up situation that I don't see an end to this has come out.

Mark Kenney: In terms of a change I think it's a positive change again and the government is definitely listening and doing what they can but what they can't do is make up the supply that's going to be a private sector job and what they have done is really put measures in place to stop the demand.

Mark Kenney: That's going to would have showed up even more acutely 345 years from now so they are doing good things for the future, but it's so far out we are in such a desperate situation I personally don't see any any any immediate effect of this at all.

Mark Kenney: That's going to be a private sector job. And what they have done is really put measures in place to stop the demand that would have shown up even more acutely three, four, five years from now. So they're doing good things for the future, but it's so far out, and we're in such a desperate situation. I personally don't see any immediate effect of this at all.

Jonathan Kelcher: Okay, that's helpful. Turn it back to Hank.

Mark Kenney: Okay.

Speaker Change: Helpful I'll turn it back thanks.

Jonathan Kelcher: Yeah.

Megan: Thank you, Jonathan. Our next question goes to the line of Kyle Stanley with Desjardins Capital Market. Your line is now open.

Hank: Thank you Jonathan.

Megan: Our next question comes from the line of Kyle Stanley with Desjardins Capital markets. Your line is now open.

Kyle Stanley: Thanks, Good morning, guys.

Kyle Stanley: or online. There is a bit of a slowdown on the new leasing spread this quarter. I mean, it's hard to call the 23% spread slow, and you know, it is quite strong. Just curious if you could talk about the drivers of that deceleration, you know, with the more likely sweet mix or seasonal in nature. I would love your thoughts on that.

Kyle Stanley: There was a bit.

Kyle Stanley: A bit of a slowdown on the new leasing spread this quarter I mean, it's hard to call it 23% spread.

Kyle Stanley: Low and it is quite strong just curious if you could talk about the drivers of that deceleration.

Kyle Stanley: More likely sweet mix are seasonal in nature, just love your thoughts on that.

Mark Kenney: Well, you've already got half the answer. But I would just add that, you know, we're more than 12 months now into this elevated rental cycle. And what we're really seeing is the turnover for those more recent leases has a more narrow mark to market than the older leases. So I'm very encouraged that we found a good place here. It's still exceptionally strong. I'm not sure that what we saw initially was fully sustainable, but we're in a very good spot here. I think what we're really seeing now is a more plateaued, stable level that's predictable, and we're just seeing the mark-to-market of new releases 12 months into the cycle.

Speaker Change: Well, you've already got the answer but I would just add.

Mark Kenney: We're more than 12 months now into this elevated rental cycle and we're what we're really see it turn it over for those more recent leases has a more narrow mark to market than the older leases.

Mark Kenney: So I I am very encouraged that we found a good place here, it's still exceptionally strong.

Mark Kenney: Not sure that what we saw initially was fully sustainable but we're in a very good spot here.

Mark Kenney: What we're really seeing now is more plateaued stable level, that's predictable and we're just seeing the mark to market of newer leases 12 months into into the cycle.

Mark Kenney: Yeah.

Mark Kenney: Okay, makes sense. Just on the OPEX side of things, you know, how should we think about the pace of OPEX growth for the balance of the year now that we're going to be lapping that more elevated spend from the prior year period?

Speaker Change: Okay. It makes sense.

Mark Kenney: Just on the Opex side of things how should we think about the pace of opex growth for the balance of the year, just now that we're going to be lapping that more elevated spend from the prior year period.

Stephen Co: Yeah, so Kyle, I think I mentioned in the prior call. So we really started this strategy last year, Q2. So likely, you'll see another quarter of elevated R&M costs because you're going to get the base effect of last year. And then in Q3, Q4, it's going to be on a

Speaker Change: Yes, so Kyle I think I had mentioned in the prior call.

Stephen Co: So we really started this strategy in last year Q2.

Stephen Co: So likely you will see another another quarter.

Stephen Co: Elevated R&M cost because youre going to get the base effect of last year and then on the Q3 Q4, its going to view on a more stable basis.

Kyle Stanley: Okay, when you say stable, like probably closer to the low single digit versus maybe the mid? Yeah. Okay. Okay, and then, Just the last one, I think you kind of touched on it with your focus on the new build, but let's focus on the kind of non-core portion of the portfolio, but just on the iRez ownership, should we think about this, you know, your intention being to continue to orderly sell down your stake going forward?

Kyle Stanley: Okay. When you say stable probably closer to the low side, yes.

Kyle Stanley: Maybe that in the mid <unk>.

Kyle Stanley: Okay.

Kyle Stanley: Okay.

Kyle Stanley: And then just the last one I mean, I think you've kind of touched on it.

Kyle Stanley: What's kind of your focus on the new build but.

Kyle Stanley: And let's focus on the kind of noncore portion of the portfolio, but just on the IRA ownership should we think about this is your intention being to continue the orderly sell down your stake going forward.

Julian Schonfeldt: Yeah, thanks Kyle. So yeah, we did, we did touch on it. And, you know, we described that as a non-core holding. And you've seen, you've seen the sell down over the last couple months. Kind of gives you insight on the strategy there. Okay.

Speaker Change: Yes, Thanks, Kyle So yes, we did we did touch on it in.

Kyle Stanley: Describe that as a non core holding.

Speaker Change: And you've seen you've seen.

Speaker Change: The sell down over the last couple of months.

Kyle Stanley: Kind of give you insight on the strategy there.

Kyle Stanley: Okay, perfect. I'll turn it back on. Thanks.

Speaker Change: Okay, perfect I'll turn it back thanks.

Speaker Change: Thank you.

Speaker Change: Thank you Kyle.

Megan: Our next question goes to the line of Mike Markidis with BMO Capital Markets. Your line is now open.

Kyle Stanley: Our next question comes from the line of Mark Mike marketed with BMO capital markets.

Michael Markidis: Thank you, operator. Good morning, everybody.

Michael Markidis: Your line is now open.

Michael Markidis: I guess there's been a little bit of Unknown Speaker out there just in terms of, at the high end of the market in Toronto, there being some softness in rents over the past maybe six months. And I know you guys don't necessarily play at the high end of the market. You have a very affordable portfolio, but you are downtown, and you have some buildings that have probably benefited from strong, you know, catching up to those high-rent per square foot buildings.

Michael Markidis: Thank you operator, good morning, everybody.

Michael Markidis: I guess theres been a little bit of.

Michael Markidis:

Michael Markidis: Reports out there just in terms of.

Michael Markidis: At the high end of the market in Toronto are being some softness in rents over the past maybe six months and I know you guys don't play necessarily at the high end of the market and got a very affordable portfolio, but you are downtown and do you have some buildings that have probably benefited from.

Michael Markidis: Strong catching up to those high rent per square foot buildings or is that something that you guys are seeing in your portfolio at all like is there a softening at the high end of the curve or high end of the rental spiros.

Michael Markidis: Is that something that you guys have seen in your portfolio at all? Like, is there a softening at the high end of the curve or the high end of the rental sphere, or is that? That may be overblown at this point.

Michael Markidis: I just thought maybe overblown at this point.

Mark Kenney: Yeah, not even close. You know, it's like when I guess Mercedes is doing bad, Kia does great.

Speaker Change: Yeah, not not even close.

Mark Kenney: I guess Mercedes is doing back here does great.

Mark Kenney: At the end of the day, we love that $3 a foot market, and we're well protected in that range. You know, the average rent is $1,552. There's significant room to travel. Absolutely, in the CAFRI portfolio, no sign of slowdown.

Mark Kenney: At the end of the day, we loved that $3 a foot market and.

Mark Kenney: We're well protected in that range the average rents at $552.

Mark Kenney: There's significant room to travel.

Mark Kenney: Absolutely.

Mark Kenney: <unk> Calgary portfolio no sign of slowdown.

Michael Markidis: Okay, the CIB loan that you guys announced and you have there, I haven't had a chance to look into the details, but I think there you mentioned that the rates were very attractive. And I think there is a commitment to preserving some of those units as affordable. But I'm going by memory, if you could just provide some additional color in terms of the terms of that loan, that would be great.

Mark Kenney: Okay.

Mark Kenney: The CIB alone that you guys have announced and you have there.

Michael Markidis: I haven't had a chance to look into the details but.

Michael Markidis: I think there are you you mentioned that the rates were very attractive and I think there is a commitment to preserving some of those units of affordable, but I'm going by memory. If you could just.

Michael Markidis: Provide some additional color in terms of the terms of that loan that would be great.

Stephen Co: Yeah, Mike, so it's not that the unions have to be preserved as affordable, they're just that we can apply ATIs or above guideline increases on those, but the interest rates are very favorable. There's an availability period of around five years that we will pay an interest rate of 3%. And then once we get out of the availability period, where there's

Speaker Change: Yes, Mike So it's not it's not that the union has to be preserved as affordable. They are just that we can apply hei or above guideline increases on those.

Stephen Co: But.

Stephen Co: The interest is a very favorable there is availability period around five years that we will pay interest rate at 3%.

Stephen Co: And then once we.

Stephen Co: We get all the availability period, where there is a 20 year amortization period, where we're paid.

Stephen Co: Interest rates between $2, 47% to $4 47, depending on the <unk> reduction that we achieve on our projects.

Stephen Co: It's another great example.

Stephen Co: It's another it's another drug that Mike the government really working with us to achieve our ESG goals.

Stephen Co: With our sympathy and understanding towards the capital structure, that's required to do that so again, we applaud the government for embracing this it's quite a sensible program and obviously worked well to help us advance our climate change investments.

Stephen Co: Got it. Okay.

Mike: Got it okay. So so you are locked in at 3% and that fluctuates based on your ghd goals.

Stephen Co: So you basically got 25 years of financing there.

Stephen Co: Okay.

Mike: Gotcha, and then like so the amount that you took was that basically based on what you were anticipating the spend.

Stephen Co: For a certain period of time or are there limitations to how much of this capital is out there.

Michael Markidis: So you're locked in at 3%, and then it fluctuates based on your GHG goals. So you basically got 25 years of financing there. Okay, yeah, gotcha. And then like, so the amount that you took, was that basically based on what you were anticipating to spend over a certain period of time? Or are there limitations to how much of this capital is available?

Stephen Co: So it's currently what we've identified as projects.

Michael Markidis: This process was it wasn't like it took us a data to find out what civ. It took a long time to do this but.

Michael Markidis: But we identified around.

Michael Markidis: $100 million projects.

Michael Markidis: They're going to provide 70% of financing on that so that's how we got to like $70 million.

Michael Markidis: Facility.

Stephen Co: So it's currently what we've identified as projects, and this process, it took us a day to sign up with CIB, it took a long time to do this, but we identified around $100 million in projects, which are going to provide 70% of the financing for that, so that's how we got to $70 million.

Michael Markidis: Got it and then the projects is that over a five year period, that's what you're expecting to see.

Michael Markidis: Got it. And then the project, is that over a five-year period? That's what you're expecting to spend that $100 million. Yeah. Okay, got it. Thanks. Last thing for me before I turn it back just on the liquidation of IRAs. Are there any adverse tax consequences? Is that capital staying in Europe? Is it coming back?

Stephen Co: Then the $100 million yes.

Speaker Change: Okay got it.

Michael Markidis: Thanks.

Speaker Change: Last one for me before I turn it back just on the.

Michael Markidis: Liquidation of Iras.

Michael Markidis: Is there any adverse tax consequences.

Michael Markidis: Is that capital staying in Europe is coming back I'm, just trying to get a sense of.

Michael Markidis: I'm just trying to get a sense of what it was like, in a Fleming, so to speak.

Michael Markidis: In our plumbing so to speak.

Stephen Co: Yeah, Mike, we've done the analysis. It's gonna be minimal taxes that will be, you know, transferring that cash back to Canada. Minimal.

Speaker Change: Yes, Mike we done the analysis is going to be minimal taxes that will be.

Stephen Co: Transferring that cash back to Canada minimal taxes.

Stephen Co: Okay, and is that position because you've got a European operating facility, or is that at the IRS level? I'm just trying to remember if there was debt against that.

Stephen Co: Okay, and does that position because you've got a European operating facilities or does that that'd be iron level I'm just to remember if there was debt against that.

Stephen Co: No, we don't have an Irish facility. It's all within our, you know, current facility, Canadian facility that we can use, European funds or whatnot, but we don't have our own facility. Okay.

Stephen Co: No we don't have a Irish facility.

Stephen Co: All within our.

Stephen Co: Current facilities Canadian facility that we can use.

Stephen Co: European funds or whatnot, but we don't have our facility.

Michael Markidis: Okay, thanks for the clarification. I'll turn it back.

Speaker Change: Okay. Thanks for the clarification I'll turn it back.

Speaker Change: Thank you Mike.

Megan: Our next question goes to the line of Jimmy Shan with RBC Capital Markets. Your line is open.

Michael Markidis: Our next question comes from the line of Jim Sheehan with RBC capital markets. Your line is now open.

Jimmy Shan: Thank you.

Jimmy Shan: Just on your turnover rate, I was wondering what your expectation is on where you think the turnover rate will be for the year?

Jimmy Shan: Just on your turnover rate.

Jimmy Shan: Was wondering what your expectation is on on where do you think the turnover rate will be for the year.

Mark Kenney: Well, we're in obviously uncharted territory, and you can see it probably as clearly as we can with the affordability crisis. It's completely linked to people holding leases. We think that we're at structurally low numbers here. And by that, I mean, you know, the normal things in life where people will move out.

Jimmy Shan: Well, Brian obviously uncharted territory and you can see it probably as clearly as we can with the affordability crisis, it's completely linked to people holding holding leases.

Mark Kenney: We think that we're at structural low.

Mark Kenney: Numbers here and by that is just the normal things in life, where people will move out.

Mark Kenney: So we don't see much of a change to that, Jimmy. There will be some changes to that as time evolves with our new construction portfolio, which we expect to have more traditional turnover rates, but the investment there isn't, you know, material enough to really be tilting the numbers for modeling purposes. I think you stick to where we're at right now.

Mark Kenney: So we don't see much of a change to that Jimmy.

Mark Kenney: There will be.

Mark Kenney: Some some changes to that as time evolves with our new construction portfolio, which we expect to have more traditional turnover rates.

Mark Kenney: The investment there isn't.

Mark Kenney: Material enough to really be tilting the numbers for modeling purposes, I think you stick to where we're at right now.

Jimmy Shan: And when you say where we are right now, you mean... (inaudible)

Mark Kenney: And when you see where we're at right now you mean.

Jimmy Shan: Sort of in the <unk>.

Jimmy Shan: No.

Mark Kenney: Yeah, 12% touch on 13.

Speaker Change: Yes, 12, 12% touch on 13.

Jimmy Shan: Okay, yeah, got it. Thanks. And then on the CapEx, obviously, it's come down quite a bit. What will the CapEx budget look like for 2024? I think last year was about $250 million for the Canadian portfolio. I would think about that.

Speaker Change: Okay, Yes.

Speaker Change: Got it.

Jimmy Shan: Thanks, and then on the Capex, obviously, it's come down quite a bit what is the capex budget look like for 2024.

Jimmy Shan: I think last year, it was about $250 million for the Canadian portfolio.

Mark Kenney: We're really, really, really proud of this, and we do think we're distinguishing ourselves with what we've been able to do with our discretionary topics. The market is delivering for us the rent increases that we need without the kind of investment we saw during COVID when we were trying to attract residents and compete. That's the big area, but we're also being mindful of the fact that with such low turnover, the need, again, to compete with new construction products, which have also fallen off, has gone down. I'll turn it to Stephen to give a little more clarity on the run rate of what you can think. Yeah.

Jimmy Shan: I would think about that and we're really we're really really proud of this.

Stephen Co: And we do think we are distinguishing ourselves.

Stephen Co: With what we've been able to do with our discretionary capex.

Stephen Co: The market is delivering for us the rent increases that we need without.

Stephen Co: The kind of investment we saw during COVID-19, when we were trying to attract residents and compete.

Stephen Co: That's the big area, but we're also.

Stephen Co: Being mindful of the fact that with such low turnover the need again to compete with new construction product, which has also fallen off has gone down.

Stephen Co: I'll turn it to Steven to give a little more clarity on a run rate of what you can think yes.

Stephen Co: Yeah, so, Jimmy, I mean, you can see the CapEx; we spent around $40 million on a consolidated basis for Q1. I wouldn't take that as a full run rate.

Stephen Co: Yes, so Jimmy I mean.

Stephen Co: You can see the Capex, we spent around $40 million on a consolidated basis for Q1, I wouldn't take that as a full run rate. There is a seasonality timing of projects with tendering out work.

Stephen Co: There's seasonality, timing of projects, tenure out work. So, I would say, you know, last year's a pretty good proxy. However, I would still, you know, just to adjust that we are being mindful of the scope of work within the discretionary spend. So, that should come down relative to last year. However, we are going to spend more on our energy and conservation projects as, you know, part of the CIB funding and, you know, our internal targets around, you know, getting those GHG investments in place.

Stephen Co: So I would say last year is a pretty good proxy. However, I would still just to adjust that we are.

Stephen Co: Being mindful of the scope of work within the discretionary spend so that should come down relative to last year. However, we are going to spend more on our LNG and conservation projects.

Stephen Co: Part of the CIBC funding and our internal targets around chemicals GHT investments in place.

Stephen Co: Okay.

Stephen Co: Okay, and then sorry, just last one on the CIB funding. Do you intend to draw down the full amount, or do you have, you sort of, you draw it as you spend it? How does that funding work?

Speaker Change: And then sorry, just last one on the CIB funding.

Stephen Co: Is it your intention to draw the full amount or do you sort of you draw. It as you spend it how does that funding work.

Stephen Co: Yeah, we have a draw schedule that's all based on the anticipated projects that we plan to do over the next five years. So it will, it's not drawn all at once. Okay, so it's cool.

Speaker Change: Yes, we havent draw schedule, that's all based on.

Stephen Co: Anticipated projects that we plan to do over the next five years.

Stephen Co: So it will it's not drawn all at once.

Jimmy Shan: Okay, so it's over a period of time, over five years. Yeah. Okay. Thanks.

Stephen Co: Okay. So it's over a period of time.

Jimmy Shan: Over the five year.

Speaker Change: That's right.

Speaker Change: Okay. Thanks.

Megan: Our next question goes to the line of Sairam Sournivas with Cormark Security. Your line is now open.

Speaker Change: Thank you Jimmy.

Jimmy Shan: Our next question comes from the line of Ziram certain either with core Mark Securities. Your line is now open.

Sairam Sournivas: Thank you operator.

Sairam Sournivas: Good morning, everybody.

Sairam Sournivas: Just looking at the transaction market. Julian, if you compare this to last year, are you seeing a different level of traction in volumes, especially the amount of deals you're seeing in the transaction market?

Sairam Sournivas: Good morning, looking at the transaction market.

Sairam Sournivas: Hey, Julien if you compare this to enough deal are you seeing a different.

Sairam Sournivas: Level of traction within volumes, especially in the amount of deals you're seeing in the transaction market.

Julian Schonfeldt: Yeah, it's a good question. With interest rates staying elevated, it's still slow. It's still a very tough market. The one thing that we're not having to contend with that we did last year was the incredible backlog in the CMHC backlog. That did, you know, make an already challenging multi-residential transaction market even more challenging. So the short of it is, you know, with rates where they're at and capital still somewhat scarce in the sector, I'd say it's still quite challenging, but a little less challenging than last year because of what I said there with the CMHC backlog.

Julian Schonfeldt: Yes, good question.

Julian Schonfeldt: With interest rates sustained elevated.

Julian Schonfeldt: Still slow its still a very tough market. The one thing that we're not having to contend with that we did last year with the incredible backup in the CMA the backlog that did.

Julian Schonfeldt: Make an already challenging multi residential transaction market, even more challenging so the short of it is with rates, where they're at and capitals doses somewhat scarce in the sector.

Julian Schonfeldt: I would say it is still quite challenging but.

Julian Schonfeldt: A little a little less.

Julian Schonfeldt: A little less than last year.

Julian Schonfeldt: What I said.

Julian Schonfeldt: Hello.

Sairam Sournivas: And have the recent announcements by the feds in terms of all the housing policies announced over there changed how people are actually looking at these assets now in the market?

Julian Schonfeldt: And do you have announcements by the Feds in terms of.

Sairam Sournivas: Policies announced all of that.

Sairam Sournivas: That changed how people are looking at these assets now in the market.

Sairam Sournivas: Sorry, I missed the last part of what you said there. Have you changed anything?

Speaker Change: Sorry, I missed the last part of what you said there hasnt changed.

Sairam Sournivas: So, with all the initiatives being announced by the federal and provincial governments, has that changed how, let's say, potential vendors who probably would have sold assets last year, look at these assets now, as well as their valuations?

Sairam Sournivas: So I know with all the initiatives being announced by the federal and provincial government has changed.

Sairam Sournivas: That's a potential windows, we probably would have sold assets.

Sairam Sournivas: How do you look at these assets now as well as valuations.

Julian Schonfeldt: I would say that the announcements will be favorable as they materialize, but because the Rental Protection Fund money either in the provinces or at the announced feds hasn't really come in yet, the provinces in BC are well into their plan, but at the federal level, it's planned money but not executed money, so you won't see any immediate effect there. I think it'll be a wait-and-see in terms of how the money is deployed and when it's deployed, but there is no immediate effect on that front.

Speaker Change: Yes, I would say that the announcements will be favorable as they materialize, but because the rental protection fund money.

Julian Schonfeldt: The provinces are announced that Hasnt really.

Julian Schonfeldt: Provinces in D. C are well into their plan, but at the federal level its planned money, but not executed money. So you won't see any immediate effect there I think.

Julian Schonfeldt: It'll be a wait and see in terms of how the money is deployed and when it's deployed but there is no immediate effect.

Julian Schonfeldt: Immediately.

Julian Schonfeldt: On that front.

Sairam Sournivas: That makes sense. Thanks for the color, guys. I'll turn it back.

Speaker Change: That makes sense. Thanks for the color guys I'll turn it back.

Speaker Change: Thank you Sir I am.

Megan: The next question will go to the line of Matt Kornack with National Bank Financial. Your line is now open.

Sairam Sournivas: The next question will go to the line of Matt Cormac with National Bank Financial Your line is now open.

Matt Kornack: Hey guys, just on capital allocation. Last quarter, maybe the quarter before you, you highlighted Davisville in terms of density, potential, and other sites as well.

Matt Kornack: Hey, guys.

Matt Kornack: Just on capital allocation.

Matt Kornack:

Matt Kornack: Last quarter or maybe it's a quarter before you highlighted David so in terms of density potential other sites as well and now youre working on entitlements.

Matt Kornack: Can you give us a sense as to how you're thinking about that in the current market context, obviously land prices are probably down in most cities across the country are just going to pro forma this but how.

Matt Kornack: I know you're working on entitlements. Can you give us a sense as to how you're thinking about that in the current market context? Obviously, land prices are probably down in most cities across the country, just given performance, but how should we think about what you'll do with the excess density that you have in your portfolio?

Matt Kornack: How should we think about what you'll do with the excess density.

Matt Kornack: Portfolio.

Julian Schonfeldt: Perfect. Thanks, Matt.

Speaker Change: Perfect. Thanks, Matt really proud of the team to go through the entitlement process, which is just about wrapped up on those two days of cell sites and Thats about 600000 square feet of <unk> in there.

Julian Schonfeldt: I'm really proud of the team that went through the entitlement process, which is just about wrapped up on those two Davisville sites, and that's about 600,000 square feet of GFA in there. Those are marquee sites. As you noted, the landmark is down.

Julian Schonfeldt: Those are marquee face as you noted in the land market is down.

Julian Schonfeldt: This is all just kind of free upside for us in defense and.

Julian Schonfeldt: This is all kind of free upside for us, in a sense. We don't have any pressure to act quickly on it, and we're not going to be a desperate seller, so we remain open to monetizing it, but we're going to be patient and disciplined to make sure that we get good value for it. In terms of developing it in-house, for us, just given where we think land values, costs, and interest rates are, we don't think that it's viable within our model, but like I said, I think there'd be good demand for it, and with some patience, we expect to be able to monetize some decent value there.

Speaker Change: We don't we don't have any pressure to act quickly on it and we're not going to be a desperate seller. So we remain open to monetizing it but we're going to we're going to be patient and disciplined to make sure that we get we get good value with it.

Julian Schonfeldt: In terms of developing it in house.

Julian Schonfeldt: For us just given where the.

Julian Schonfeldt: I think land values and costs and interest rates are or we don't think that it's economic within our model, but like I said I think.

Julian Schonfeldt: There'll be good demand for it in with.

Julian Schonfeldt: With some patients we expect to be able to monetize some decent value there.

Julian Schonfeldt: And then maybe just on the opportunity to buy new assets. I mean, it's not going to be a forever opportunity.

Julian Schonfeldt: And then maybe just on the opportunity to buy new assets.

Julian Schonfeldt: Not gonna be it forever opportunity, we thought maybe it would be a bit more fleeting when interest rates were moving lower but they move higher or are you seeing kind of more opportunities in form of new assets coming to market from developers that maybe got a little bit over their skis and have higher financing costs right now.

Julian Schonfeldt: We thought maybe it would be a bit more fleeting when interest rates were moving lower, but they have moved a bit higher. Are you seeing kind of more opportunities in the form of new assets coming to market from developers that maybe got a little bit over their skis and have higher financing costs right now? And is there a buyer base that you're competing against that maybe would be driving prices to points that wouldn't be as attractive?

Julian Schonfeldt: And is there a buyer base that you're competing against that maybe it would be driving pricing point, so it wouldn't be as attractive.

Julian Schonfeldt: Yeah, no, it actually touches on what I was just saying about not developing at Davis. So we continue to be able to look at opportunities where we're buying new construction properties that are already built and fully leased, and we're able to get them for less than it would cost to develop. You know, with rates staying higher, yes, we are seeing more pressure on some of the developers, and we are seeing motivated sellers.

Julian Schonfeldt: Yes, no I'm actually touches on what I was just saying about not developing at data. So we continue to be able to.

Julian Schonfeldt: We look at opportunities, where we're buying new construction properties that are already built.

Julian Schonfeldt: Built in fully leased and we're able to get them through lower than it would cost to develop.

Julian Schonfeldt: With the rate staying higher yes, we are seeing more pressure on some of the developers that we are seeing motivated sellers.

Julian Schonfeldt: So it continues to remain favorable climate and I think as long as rates.

Julian Schonfeldt: So it continues to remain a favorable climate, and I think as long as rates stay higher, we'll continue to see that. With respect to competition, you know, I'd say it still remains fairly thin. The buyer pool hasn't come out aggressive, and so, as you noted, it's a good window for us. And I mean, the activity we did in Q1, and we'll point again to that London property, but buying that at $385 per leaseable square foot for a luxury concrete building in a great location with very favorable in-place financing, you know, you couldn't even come close to that price.

Julian Schonfeldt: They hire will continue to see that with respect to competition.

Julian Schonfeldt: It's still I'd say, it's still remains fairly thin.

Julian Schonfeldt: The buyer pools have been come out of aggressive and so.

Julian Schonfeldt: As you noted its a good window for us and the activity we did in Q1.

Julian Schonfeldt: Again to that London property with buying that at $385.

Julian Schonfeldt: For leasable square foot for a luxury concrete building in a great location with very favorable in place financing.

Julian Schonfeldt: You can even come close to that price to rebuild that.

Stephen Co: Fair enough. Stephen, I know you like to be conservative, but on your CapEx commentary, I think CapEx was down 30% in Q4, and down 40% in Q1 on a year over year basis. What would constitute a kind of ramp up if you got there?

Speaker Change: Fair enough.

Speaker Change: Steven I know you like to be conservative, but on your Capex commentary I think capex was down 30% in Q4 down 40% in Q1 on a year over year basis.

Stephen Co: I understand the energy side, but I don't think that's been a huge component of overall CapEx. Have you deferred stuff through the winter months, maybe that could potentially take place? and Q2. Yeah, Matt, there's, like I said, some timing to this, and there's tendering that's being completed. As you can see, there was a little bit of seasonality in our CapEx. A lot of the CapEx will be completed in Q3, and Q4 of the year.

Stephen Co: Yes.

Stephen Co: What would constitute kind of the ramp up if you get there I understand the energy side, but I don't think that's been a huge component of overall capex.

Q2: Have you deferred stuff through the winter months, maybe potentially takes place in Q2.

Speaker Change: Yes, Matt there is like I said, there is some timing of this and Theres tendering that's been that's being completed.

Stephen Co: Usually you see there is a little bit of seasonality in our capex along with Capex will be completed in Q3 Q4 of the year.

Stephen Co: So I would say some of it's timing, but a lot of it is going to be, you're going to see on the discretionary CapEx, specifically on in-suite and common areas, that will continue to come down relative to last year. And I also said that what will go up will be our energy investment. And you see, we only spent, I think, under $3 million in Q1. That will ramp up over the course of the next couple of quarters.

Speaker Change: So I would say it.

Stephen Co: Some of it's timing, but a lot of it is going to be you're going to see on the discretionary capex specifically in Sweden.

Stephen Co: And common area that will continue to come down relative to last year and I also said what will go up will be our energy investment and you see we only spent I think under $3 million in Q1.

Stephen Co: That will ramp up over over the course of the next couple of quarters.

Stephen Co: Yeah, I am conservative, but I would say on an overall basis, relative to last year, it will be, it will be lower. It's a subtle point, Matt, but it's quite material in the numbers.

Speaker Change: Yes, I am Conservative I would say on overall basis relative to last year. It will be it will be lower.

Stephen Co: It's a subtle point, Matt, but it's quite material in the numbers.

Mark Kenney: You know, going through COVID, we were in a very, very competitive market. Competitive markets are where you see discretionary CapEx surge. But our strategy of new acquisitions that are brand new obviously comes with a very different CapEx profile. And the competitive landscape, as I said, we see no change in. So very, very proud of the team's ability to be agile here and sensible with the new environment. But the new environment will be very much the driver of this more restrained capital spend cycle for us, for Capri.

Stephen Co: Going through Covid, we were in a very very competitive market the competitive markets, where you see discretionary capex surge.

Mark Kenney: But our strategy of new acquisitions that are brand, new obviously comes with a very different capex profile.

Mark Kenney: And the competitive landscape as I said, we see no change too so very very proud of that.

Mark Kenney: Team's ability to be agile here.

Mark Kenney: Sensible with the new environment, but the new environment will be very much the driver of this more restrained capital spend cycle for us per cap rate.

Matt Kornack: Yeah, no, that makes sense. And we've seen, I know you guys have been a little bit more conservative in terms of the R&M you're running through OpEx, but we've seen this corresponding kind of decrease in CapEx, which I think is positive from a free cash flow standpoint, broadly. I'm glad you said that. I can't help myself on this point.

Speaker Change: Yes that makes sense and then we've seen I know you guys have been a little bit more conservative in terms of the R&M here running through Opex, but we've seen the corresponding kind of decrease in Capex, which I think is positive from a free cash flow standpoint.

Matt Kornack: But I think it's now being understood that when we're spending less on CapEx, obviously, there's ongoing needs in the assets, and it does result in higher repairs and maintenance. But a dollar is a dollar, and we are committed to that. And as investors look through the balance sheet, I think many will agree this is extremely sensible. So, you know, we're not living on one metric here at CapRe. And as painful as it is to have mildly elevated repair and maintenance costs, we are elated with the progress being made on the CapEx front.

Speaker Change: Rob I'm glad I'm glad you said that I can't help myself on this point, but.

Matt Kornack: I think it's now being understood that when we're spending less capex, obviously, there's ongoing needs in the assets and it does result in higher repairs and maintenance, but a dollar is a dollar and we are committed to that.

Matt Kornack: And as investors look through the balance sheet I think many will agree this is extremely sensible.

Matt Kornack: So we're not living on one metric here at cap rate and as painful as it is to have mildly elevated repairs and maintenance costs. We are elated with the progress being made on the Capex front.

Matt Kornack: Okay, no, that makes sense. Last one for me, just a technical one, Stephen. On the other revenue, it seems like there was a bit of a change in the allocation and how you've done that. Like, is there anything to that? Or is it just... only a couple million dollars that moved, I think, out of other revenue into rental revenue. Matt, we can probably pick that up.

Speaker Change: Okay, No that makes sense last one from me just the technical one Stephen.

Matt Kornack: On the other revenue it seems like there was a bit of a change in the allocation.

Matt Kornack: How you've done that.

Speaker Change: Is there anything to that or is it just it's.

Matt Kornack: It's only a couple of million dollars that moved I think out about other revenue into rental revenue.

Stephen Co: Matt, we can probably take that offline. We can talk through it. Okay, sorry. Thanks, guys.

Matt Kornack: Yes, Matt we can probably take that offline, we can talk to it okay alright.

Stephen Co: Yes.

Stephen Co: Okay.

Speaker Change: Thank you Matt.

Megan: Our next question goes to the line of Mario Scro, with Georgia Bank. Your line is now open.

Stephen Co: Our next question comes from the line of Mario <unk> with Deutsche Bank. Your line is now open.

Megan: Okay.

Mario Saric: Hi. Good morning, guys. Good morning. I'm coming, coming back to the cab. Coming back to the CapEx question, maybe in a different fashion, because it is a bit confusing in terms of, I'm kind of guiding to kind of flattish and again, appreciate the higher spend on energy and whatnot. But if we were to look at your expected return on investment on the number of whatever it may be in 24, relative to what it was in 23, how differentiated would that return on investment within that CapEx bucket be?

Megan: Alright.

Mario Saric: Hey, guys.

Mario Saric: Good morning, coming coming back to the cap.

Mario Saric: Coming back to the Capex question, maybe in a different fashion because it.

Mario Saric: It is a bit confusing in terms of.

Mario Saric: Kind of guiding to kind of flattish and again I appreciate the the higher.

Mario Saric: And on the energy and whatnot, but.

Mario Saric: If we were to look at.

Mario Saric: Your expected return on the investment on the number whatever it may be in 'twenty four.

Mario Saric: Relative to what it was in 'twenty three how differentiating that return on.

Mario Saric: Within that Capex bucket.

Mark Kenney: So I think that the accelerated energy investments are going to be strong ones, and that number is going up. The in-suite returns are really going up because we're spending money on repairs and maintenance. We're spending a lot less money to get higher rent returns. So that's, again, quite positive. When it comes to structural, that's unchanged. That is really the seasonal effect that Stephen is making reference to.

Mario Saric: So I think I think that the accelerated.

Mark Kenney: Energy investments are going to be strong wins and that number is going up.

Mark Kenney: In suite returns.

Mark Kenney: Are really going up because we are spending money in repairs and maintenance and spending a lot less money to get higher rent returns. So that's again quite positive.

Mark Kenney: When it comes to structural that's unchanged that is really the seasonal effect that Stephen is making reference to and when it comes to the other discretionary much of that money was always spent to compete and to improve the overall quality of of <unk>.

Mark Kenney: And when it comes to the other discretionary spending, much of that money was always spent to compete and to improve the overall quality of the repositioning assets. So, I think, without the detailed math, because we haven't gone to that granular level, you would see a better return on our capital spend, even at these lower levels. But what is definitely here to stay is the competitive environment, which we believe has changed for the foreseeable future. Therefore, the need for discretionary investment has slowed down.

Mark Kenney: Repositioning assets.

Mark Kenney: So I think.

Mark Kenney: Without the detailed math, because we haven't gone to that granular level.

Mark Kenney: You would see a better return on our capital spend even at these lower levels, but what is here to definitely stay is the competitive environment. We believe has been changed for the foreseeable future. Therefore, the need for discretionary investment has has slowed down.

Mark Kenney: The call, and we're listening to our friends in government leadership, the stress around AGI's and tenants claiming they don't need new carpets and hallways, we are listening to that as well, and so we will be mindful of those kinds of chargebacks to our residents, which they don't like to see, they like the climate investments, they obviously want their buildings to be safe, with life safety, and so we're listening on that front, but in short, without rambling here too much, I would say that at the end of the day you can expect strong investments from our CapEx spending program, and a great deal of enthusiasm with our investment group on these new construction assets that don't have that profile at all. So, hopefully that answers the question.

Mark Kenney: The call and we're listening to to our friends in government leadership.

Mark Kenney: Stress around agi and tenants, claiming they don't need new new carpet and always we are listening to that as well and so we will be.

Mark Kenney: Mindful of those kinds of charge backs to our residents, which they don't like to see they liked the climate investments. They obviously want their buildings to be safe with life safety and so we're listening on that front, but in short without rambling here too much I would say that at the end of the day you can expect strong investments from our Capex.

Mark Kenney: Spending program and a great deal of enthusiasm with our investment group on these new construction assets that don't have that profile at all so hopefully that answers the question.

Mark Kenney: Yeah.

Mario Saric: Okay. And then just a quick follow-up on the strategic portfolio repositioning disclosure, the ancillary versus the non-core legacy, the differentiation between the two is that simply ancillary is Europe and not apartments, whereas non-core legacy would be Canadian apartments, or is there something else to it?

Mark Kenney: Okay.

Mark Kenney: And then just a quick follow up on the strategic portfolio repositioning disclosure.

Mario Saric: Ancillary versus the non core legacy the differentiation between the two is that just simply ancillary of the Europe.

Mario Saric: Not apartments, whereas non core legacy would be Canadian apartments, or is there something more to it.

Mark Kenney: Now that you've got that exactly right.

Speaker Change: Now that you got that exactly right.

Mario Saric: Okay, and then based on what's been kind of announced in the federal budget recently, what are your initial thoughts on your ability to execute on selling down the non-core legacy or the ancillary, presumably I-RES and E-RES, no impact? In terms of the MHCs and then selling some of your older assets, on the Monaco legacy, are there any implications from what was when I lost my job?

Mark Kenney: Okay.

Mark Kenney: Then based on what's been kind of announced and the federal budget.

Mario Saric: Certainly.

Mario Saric: What are your initial thoughts on your ability to execute.

Mario Saric: Hum settling down the non core legacy core the ancillary.

Mario Saric: <unk> raised no impact.

Mario Saric: In terms of MHC, one selling some of your older assets.

Mario Saric: Amongst the legacy are there any implications for more than that.

Mario Saric: Last month.

Mark Kenney: No, I think that we can say it's all positive news at the end of the day. You know, the BC Rental Protection Fund is established. They were very thoughtful in terms of rolling that out, but the fund is now being executed well and going to great non-profits. The federal program, we're awaiting better clarity on how that will be executed, but again, we'll be thoughtful in terms of potential assets, non-core assets, to be incorporated into that program if it makes sense.

Speaker Change: No I think we could say, it's all positive announcements at the end of the day.

Mark Kenney: BC rental protection fund has established it.

Mark Kenney: They were very thoughtful in terms of building that out.

Mark Kenney: The fund is now.

Mark Kenney: Being executed well and going to great nonprofits.

Mark Kenney: Federal program.

Mark Kenney: Awaiting better clarity on how that will be executed.

Mark Kenney: But again, we'll be we'll be thoughtful in terms of potential assets noncore assets to vend into to that program.

Mark Kenney: If it makes sense on the European.

Mark Kenney: On the European IRAs investment, you can't really say it much more clearly than, you know, what we'd rather own cap rate, be buying back cap rate shares than owning equities and something we don't manage. And in terms of other assets that are deemed to be non-core or opportunistic, this is the investment team's complete focus with an emphasis, as Julian keeps saying, on being disciplined. And if we can find that arb of value where we're able to sell cap rates lower than what the company is currently trading at or a cap rate trade of something legacy or non-core for something brand new that is core, we will make that commitment, or we've made that commitment to unit holders, and we are going to execute. And you can expect ongoing announcements from us proving that we're able to do this, as we have over the last 18 months plus now.

Mark Kenney: <unk> investment.

Mark Kenney: You can't really say it much more clearer than what we'd rather own cap rate.

Mark Kenney: Be buying back <unk> shares than owning equities and something we don't vantage.

Mark Kenney: In terms of other assets.

Mark Kenney: That are deemed to be noncore opportunistic. This is the investment teams complete focus with an emphasis as Julian keep seeing on being disciplined and if we can find that arb has value.

Mark Kenney: Where we're able to sell cap rates lower than what the company is currently trading at.

Mark Kenney: Or a cap rate trades of something legacy or noncore for something brand new that is core.

Mark Kenney: We will make that commitment we've made that commitment to unit holders and we are going to execute and you can expect ongoing announcements from us.

Mark Kenney: Proving that we're able to do this as we have over the last.

Mark Kenney: 18 months plus now.

Mark Kenney: Okay, and I guess maybe more specifically, but the one that was referenced just on the MHC, anything within the budget, regulatory wise, that would have an impact in terms of what you want to do with that portfolio, timing, etc.

Mark Kenney: Okay.

Mark Kenney: I guess, maybe more specifically, but.

Mark Kenney: The one that was referenced just on the MHC.

Mark Kenney: Anything within the budget regulatory wise.

Mark Kenney: Will that have an impact in terms of what you want to do on that portfolio.

Mark Kenney: Timing et cetera.

Mark Kenney: Now, we were really encouraged. At the end of the day, the Apartment Reads in Canada, through our For Affordable group, had that recommendation for governments to really think about manufactured housing as a source of affordable supply. I'm very encouraged to hear the government recognizing that and talking about that. I think that sets the stage for more development in that category, and we're really, from a Canadian lens, really excited to see that happening. Again, I have to say that through the work of my peers here and our people in-house at CAFRI, we've made tremendous progress dialoguing with government and helping them understand that we're here to help.

Speaker Change: No we were really encouraged.

Mark Kenney: At the end of the day.

Mark Kenney: The apartment Reits in Canada through our four affordable group.

Mark Kenney: That recommendation to government to really think about manufactured housing as a source of affordable supply very encouraged to hear government recognizing that and talking about that I think that sets the stage for.

Mark Kenney: For more development in that category and we're really.

Mark Kenney: From a Canadian land is really excited to see that happening.

Mark Kenney: Again, I have to say that through the work of my peers here.

Mark Kenney: And our people in house to cap rate, we've made tremendous progress.

Mark Kenney: Logging with government and helping them understand that we're here to help.

Mario Saric: Okay, my last question is just with respect to the share buyback. The average share buyback price is 48. Your IFRS NAV was up a little bit quarter over quarter. I don't know the answer to that question, but I just kind of wanted to highlight it. To the extent you're trading at 46 or so this morning, has anything changed since your buyback in Q1 that would suggest that? You don't see better value in the units today than you did three months ago.

Speaker Change: Okay. My last question just.

Mario Saric: With respect to the share buyback.

Mario Saric: Yes, I would share buyback price was 48.

Mario Saric: For us was up a little bit quarter over quarter.

Speaker Change: I know the answer to it but just kind of wanted to highlight it to the extent.

Mario Saric: At 46, or so this morning.

Mario Saric: Has anything changed since your buyback in Q1 that would suggest that.

Mario Saric: You don't see better value in the United States.

Mario Saric: Three months ago.

Stephen Co: Yeah, thanks Mario. We can't, we can't guide on any activity that we may or may not do, but you know, as Mark alluded to earlier, the NCIB is definitely a very viable use of proceeds as we continue to go down our discipline track of selling assets, and price to NAB and implied cap rates are certainly very relevant metrics when we consider deploying into it as it is.

Speaker Change: Yes, Thanks, Mario I mean, we can't we can't guide on any activity that we may or may not do but.

Stephen Co: As mark alluded to earlier.

Stephen Co: <unk> is definitely a.

Stephen Co: Very viable use of proceeds as we continue to go down our disciplined track that selling assets and.

Stephen Co: Price to NAV is an implied cap rates are certainly.

Stephen Co: Relevant metrics, when we consider deploying and do it at the asset.

Stephen Co: How much proceeds we raised through the disposition.

Mark Kenney: You know, I can give you a little bit of a peek under the hood here. We spend a lot of time on liquidity analysis, we spend a lot of time on the benefits of new construction purchasing, and we spend a lot of time on the merits of buying back our shares. So, the good news is all three of those categories are extremely appealing, and it's based on the inflow of capital through asset sales, not through the use of debt.

Stephen Co: I can I can give you a little bit of a peek under the hood here.

Mark Kenney: We spent a lot of time on liquidity analysis, we spend a lot of time on the benefits of do construction purchasing and we spend a lot of time on the merits of buying back our shares. So the good news is all three of those categories are extremely appealing and it's.

Mark Kenney: Be disciplined on the inflows of capital.

Mark Kenney: Through asset sales not through the use of debt, we could easily jump into debt here and make some accretive decisions. We're not prepared to do that we've messaged to the market, we're not going to do that and I can reconfirm, we're not going to do that so if we.

Mark Kenney: We could easily jump into debt here and make some accretive decisions, but we're not prepared to do that. The market, we're not going to do that, and I can reconfirm that we're not going to do that. So if we are able to get fair value for our unit holders on just positions, then we are extremely excited that we have good places to put that cash. It does vary from deal to deal, the price of the stock, and the market. We're fortunate to have that option.

Mark Kenney: Are able to get fair value for our unit holders on dispositions. Then we're extremely excited that we have good places to put that cash it doesn't vary from deal to deal.

Mark Kenney: The stock and.

Mark Kenney: <unk>.

Mark Kenney: We're fortunate to have those that optionality.

Mark Kenney: All three are very appealing. How would you rank them today at the current unit price?

Mark Kenney: All three are very appealing how would you rank the three today the current unit price.

Mark Kenney: Well, I don't know, Stephen kind of wins, I guess I'm paying down debt revolvers kind of expensive, although Julian shows up with amazing deals that are under replacement costs. And, you know, I look at the stock price and go, wow, who could ever imagine buying a cap rate at five caps. So You know, it would be movement between those three categories today.

Mark Kenney: Well I don't know if Stephen Stephen kind of wins, I guess I'm paying down debt revolver side of expenses, although Julian shows up with amazing deals that are under replacement cost and.

Mark Kenney: Look at the stock price and go Wow, who could ever imagine buying to operated five cap. So.

Mark Kenney: It would be it would be movement between those three categories today.

Mario Saric: Okay, that's fair. And then there's maybe one last one for me. Related to that, Julian, you mentioned the transaction market kind of remaining low as people think about interest rates or the visibility thereof. When you talk about rates, do you think it's visibility on the long end of the curve or monetary policy that is really the catalyst to get transaction volumes back up again?

Speaker Change: Okay, that's fair.

Speaker Change: Maybe one last one for me.

Mario Saric: Related to that Julien you mentioned.

Mario Saric: On the transaction market.

Mario Saric: The remaining slow as people think about interest rates on our visibility thereof.

Mario Saric: But when you talk about rates.

Mario Saric: Do you think visibility on the long end of the curve or monetary policy.

Mario Saric: That is really the catalyst to get transaction volume spike up or down.

Julian Schonfeldt: Look, I think it's the long end of the curve because people are financing, you know, they're doing CMHC mortgages for the most part and, you know, financing on the long end of the curve. But obviously, what they do on the short end of the curve can change sentiment that can impact the long end of the curve, right? So, you know, rate cuts and maybe some of you on the slightly lower long end of the curve could be helpful.

Julian Schonfeldt: Look I think it's the long end of the curve as people are financing there didn't seem to see mortgages for the most part.

Julian Schonfeldt: And final thing on the long end of the curve, but obviously, what they do on the short end of the curve, but it can change sentiment that can impact the long end of the curve right. So.

Julian Schonfeldt: Rate cuts and maybe some of you on that.

Julian Schonfeldt: The slightly lower volume and mix.

Julian Schonfeldt: It.

Julian Schonfeldt: It could be helpful and another thing I will say Mario is also just the volatility in the rates as the other part right.

Julian Schonfeldt: And, you know, another thing I'll say, Mario, is just the volatility in the rates is the other part, right? Like, you know, when people underwrite or tie up a deal, the rates start swinging. You know, unpredictably, it just, you know, brings about an element of instability.

Julian Schonfeldt: When people underwrite or tie up a deal.

Julian Schonfeldt: <unk> start to swing.

Julian Schonfeldt: Unpredictably.

Julian Schonfeldt: It brings it adds an element of instability.

Mario Saric: Okay, okay.

Julian Schonfeldt: Okay.

Julian Schonfeldt: Okay.

Speaker Change: Thank you Mario.

Megan: There are currently no additional questions registered, so as a reminder, it is star 1 on your telephone keypad. There are no additional questions waiting at this time, so I'll pass the conference back over to Mark Kenney for closing remarks.

Mario Saric: There are currently no additional questions registered so as a reminder, the star one on your telephone keypad.

Mark Kenney: There are no additional questions waiting at this time, so I'll pass the conference back over to Mark Kenny for closing remarks.

Mark Kenney: Thanks, Operator. And 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, and have a great day.

Mark Kenney: Thanks, operator, and 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.

Mark Kenney: You again and have a great day.

Megan: That concludes today's conference call. Thank you for your participation. I hope you have a wonderful rest of your day.

Mark Kenney: That concludes today's conference call. Thank you for your participation I Hope you have a wonderful rest of your day.

Megan: [music].