Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Canadian Apartment Properties Real Estate Investment Trust (CDPYF, Financial) reported a high occupancy rate of 98.2% as of June 30, 2024, with an average rent of $1,577 per month.
- Operating revenues increased by 5.4% for the three months ended June 30, 2024, compared to the prior year period.
- Net Operating Income (NOI) rose by 7.2%, and the margin expanded by 110 basis points to 67% for the second quarter.
- Diluted Funds From Operations (FFO) per unit increased by 9.2% to $0.644 in the past quarter.
- The company completed nearly $500 million in strategic transactions since Q1, increasing the portion of the property portfolio represented by recently built properties in Canada to 13%.
Negative Points
- Higher interest costs partially offset the benefits of increased NOI and lower trust expenses.
- The company faces challenges with the affordability of new rental units, particularly in high-end markets where rents are flattening.
- There is a significant amount of Canadian mortgage principal maturing in the second half of 2024, representing 6.3% of the Canadian mortgage balance.
- The company is experiencing a temporary increase in inducements and bad debt due to leasing up newer build assets.
- The market for development land remains soft due to high interest rates and a struggling condo market, impacting potential future acquisitions.
Q & A Highlights
Q: Can you provide more details on the $500 million acquisitions, specifically the average Loan-to-Value (LTV) and expectations for future acquisitions?
A: Julian Schonfeldt, Chief Investment Officer, explained that the LTV varies by property. Some acquisitions had no mortgage, while others had favorable LTVs, such as The View with around 80% LTV. The company manages leverage globally, adjusting as needed based on favorable mortgage trends.
Q: How do you view the NCIB (Normal Course Issuer Bid) compared to acquisitions?
A: Mark Kenney, President and CEO, stated that the stock remains a good value. The company balances liquidity from dispositions with market opportunities, focusing on acquiring real estate they are excited about. They are in no rush to add leverage, preferring to store value in assets for future opportunities.
Q: Are you seeing any impact from new rental unit supply, particularly in Ontario?
A: Mark Kenney noted that 2025 is expected to see record condo deliveries in the GTA, which will have an effect. Inflation has impacted young Canadians' wallets, flattening rents at the top end. However, CAPREIT's portfolio is well-protected, potentially becoming an affordable option in the GTA.
Q: How do rent-to-income ratios differ between new-build properties and older non-core properties?
A: Mark Kenney highlighted that new construction assets are more affordable due to higher tenant incomes, resulting in lower rent-to-income ratios. Conversely, older properties sold to non-profits have higher rent-to-income ratios, indicating an income distress problem rather than a rent problem in Canada.
Q: Are lease renewal spreads better for new-build properties compared to older ones?
A: Mark Kenney explained that new-build properties allow for bringing rent rolls to market, unlike regulated investments with constraints. Lease renewal spreads are excellent in some provinces for legacy assets, and the company is focusing on unregulated investments for growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
