Edited Transcript of CAR.UN.TO earnings conference call or presentation 14-Nov-19 3:00pm GMT

Our strong performance this year continues to be driven by our portfolio growth, solid increases in monthly rents and continuing high occupancies. We look for this growth to continue.

Our growth and success for more than 21 years is also the result of strong fundamentals in the residential sector, as detailed on Slide 7.

Our focus remains on large urban centers that are experiencing strong population growth and rising demand for quality rental properties. A number of factors are driving this strong demand: natural population growth around the world; immigration trends that largely favor moving to cities; the global trend to urbanization with families and young people gravitating to these urban centers for jobs and a quality lifestyle. Younger people are delaying having families and remaining in apartments and townhouses longer before they purchase a house or condo. The growing seniors population is downsizing and finding rental properties more affordable and desirable. They also look to live on one floor and avoid stairs as they age, a perfect market for an apartment.

And finally, the lack of new rental property development in most urban markets. We believe these market fundamentals will continue to drive demand in all of our target markets.

In addition, demand continues to grow as people recognize how affordable renting can be.

As you can see on Slide 8, our average monthly rents in our largest Canadian markets, while they continue to rise, still remain very affordable compared to average family incomes in those neighborhoods. An affordable cost for a CAPREIT rental home ranges between only 18% and 25% of family income, much more affordable than the estimated 56% of income being experienced for home ownership in Canada.

As a percentage of median family income, the cost of homeownership in 2019 in the key cities of Toronto and Vancouver is even higher at 79% and 88%, respectively, with Montréal homeownership sitting at 46%.

Looking ahead, as the cost of owning a home continues to become more expensive, we believe that the demand for quality rental accommodation will continue to increase. These strong market fundamentals continue to drive our growth and our performance, as shown on Slide 9.

Occupancies remain very strong, while average monthly rents continue to increase, driven by solid rent increases on turnovers and renewals.

Our track record of organic growth also continues, with same-property NOI up 4.7% for the 9 months ended September 30, 2019.

In summary, we are confident our strong growth and operating performance will continue going forward.

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

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [4]

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Thanks, Mark. Turning to our balance sheet on Slide 11. We continue to maintain a strong and flexible financial position with conservative leverage, strong coverage ratios and historically low interest cost on our mortgage portfolio. Debt to GBV strengthened to just under 37% at September 30, putting us in a great position for future acquisitions and development.

You’ll also note that our historical cost debt to GBV went from 53% to 50%, showing our prudent managing our equity.

As you can see on Slide 12, our foreign exchange exposure in Europe, including our investment in IRES, is at only 6% of our portfolio, while we maintain about 15% of our total asset value in Europe. We are managing our European exposure by utilizing a number of different tactics with favorable impacts, including obtaining third-party mortgages at very favorable interest rates, utilizing our euro acquisition and operating facility, and entering into close to EUR 100 million CAD/euro swap to further hedge our euro exposures.

Currently, we have over $1.4 billion of euro-denominated debt after factoring in these swaps.

Our mortgage portfolio remains well balanced, as shown on Slide 13.

Looking ahead, our ability to top-up renewing mortgages through 2034 will provide significant liquidity to fund our acquisitions and development pipeline.

Through the balance of 2019, we have $85 million in mortgages maturing with an average interest rate of 2.8%. Expected mortgage renewal and refinancings for 2019 are between $365 million to $415 million, excluding financings on acquisitions.

And with the recent drops in the GoC rates, we have seen 10-year financing cost drop back below the 2.5% range, creating, once again, a tailwind for continuing lower interest costs.

On the liquidity front, Slide 14 demonstrates that we remain well positioned to continue our growth programs.

In January 2019, we completed a successful bought-deal offering, raising a total of $288 million in funds, including the overall allotment option. To fund further growth, on April 23, we completed another successful bought-deal offering, raising a total of $345 million in funds, including the overall allotment option.

The result — this results in a total equity raised to date in 2019 of $633 million. With the acquisitions completed so far this year, we have approximately $50 million available in borrowing capacity on our credit facilities at quarter end. In addition, there is an available borrowing capacity under an existing bridge facility as well as that, that’s available under ERES unsecured credit facility.

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

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [5]

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Thanks, Scott. Before we take your questions today, I wanted to walk you through why we believe our diversification strategies are so key to our ability to drive value for our unitholders.

Our geographic diversification across Canada and internationally ensures that our unitholders are not overly exposed to any one market or demographic segment of the population as detailed on Slide 17. Additionally, our increased presence in the manufactured housing community business this year has added to our strength. We really like the MHC space for a number of reasons. Revenues are highly stable and with residents owning their own homes, capital requirements and maintenance needs are significantly reduced. From a geographic standpoint, they enable us to have a presence in smaller markets, which we wouldn’t normally enter. They allow for great operational efficiency as we leverage the same platforms and people used across all of our other properties.

And finally, we have the opportunity to boost revenues in the future by selling homes to residents.

Importantly, CAPREIT is now the second largest owner of manufactured home communities in Canada.

Internationally, we continue to be pleased with our performance in Ireland, as you can see on Slide 18.

Through the first 9 months of 2019, asset and property management fees have increased 9%, driven by acquisitions and NAV appreciation, and we expect this revenue will increase as IRES continues to grow its portfolio.

IRES has also completed a successful equity raise earlier this year, which we increased our ownership position to 18.3% and this retained interest continues to generate a solid stream of dividend income amounting to $7.2 million for the 9 months ended September 30, 2019.

Our presence in the Netherlands also continues to drive value for unitholders as shown on Slide 19. By the end of September, we had sold a total of 2,710 residential suites to ERES through our pipeline agreement for over $740 million.

We now have sold all of our Netherlands properties to ERES, generating a growing base of fee revenues for our asset and property management services.

CAPREIT now owns just under 74% of ERES, full aligning — fully aligning our interest with all ERES unitholders. You can see through the first 9 months of 2019, we earned $29.2 million of NOI from ERES properties in Europe and another $9.7 million from CAPREIT-owned properties in the Netherlands, which have now been sold to ERES. ERES strong presence in the vibrant Netherlands market further diversifies our business and provides opportunity for additional growth going forward.

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

As you can see on Slide 21, we are seeing solid increases in monthly rent on both turnover and renewals in Canada, The Netherlands, and our investment in IRES REIT in Dublin.

Overall, the strong fundamentals and demand in all of our markets resulted in an overall 4.8% in our total stabilized net AMRs as at September 30, 2019. Our diversification also allows us to capitalize on the attractive spreads between cap rates and interest rates in our markets, as you can see on Slide 22.

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

In summary, we continue to focus on our long-term goal of making CAPREIT the best place to live, to work and invest. To become the best place to live, we strive to enhance the lives of our residents by building strong relationships through our hands-on approach to management, our relentless focus on attracting and retaining the best residents and the use of new and innovative technologies. To ensure that we attract and retain the best people, we have introduced new tools to help everyone stay connected and up-to-date on CAPREIT and industry information. We have developed innovative leadership training programs to engage and help advance their careers, while implementing state-of-the-art tools and technologies to become more efficient. Most importantly, our ultimate goal is to enhance unitholder value, and CAPREIT has been one of the best places to invest for more than 21 years.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Jonathan Kelcher from TD Securities.

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Jonathan Kelcher, TD Securities Equity Research – Analyst [2]

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First question is just on the same-property operations, in particular, the expense growth, that’s been trending higher than your revenue growth for at least a couple of quarters now. What are your expectations on that going forward?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [3]

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So I think we’ve talked about this before. Definitely, R&M is something that’s a little lumpy. So we definitely saw a higher run rate there. So that we would see as more of a temporary. There are a couple of items that have been more permanent. First of all, we have 4 ground leases that all kind of came to a renewal period in the current year. So that’s impacted kind of Q2 and Q3 pretty hard to the tune of over $0.5 million each quarter in incremental land payments. So that’s something that’s — it’s kind of an increase that will hit the next quarter as well and then kind of flatten out there. So that’s definitely a permanent increase that we’ve had to incur.

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [4]

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Yes, we don’t see R&M at the end of the day being a rising trend increase. The third quarter, we got a lot of moves that happened in our student portfolio, a lot of activity, just in general, people moving in the month of September. I would see a return to more stabilized numbers going forward.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [5]

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Yes.

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Jonathan Kelcher, TD Securities Equity Research – Analyst [6]

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Okay. So for 2020, you are assuming you continue to get the revenue growth that you’ve — it appears, you should. You’d expect that to outpace cost growth?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [7]

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Yes.

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Jonathan Kelcher, TD Securities Equity Research – Analyst [8]

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Okay. And then just — and sorry, and Scott, those 4 ground leases, I guess, that would be Toronto, Vancouver and Calgary?

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [9]

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No, it’s actually…

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [10]

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Calgary and Vancouver.

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [11]

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3 in — 1 in Vancouver and 3 in Calgary, and some of them are still being negotiated, while we’ve been prudent in making sure we’re appropriately accruing for the potential step up.

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Jonathan Kelcher, TD Securities Equity Research – Analyst [12]

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Okay. And then just turning to Slide 8. I guess, that’s 2016 family income versus the current AMR. So your stats should actually look a little bit better, assuming that family incomes went up the last 2 or 3 years?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [13]

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That’s right.

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [14]

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That’s correct, yes.

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Jonathan Kelcher, TD Securities Equity Research – Analyst [15]

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Okay. And just flipping that to the other side, how under market do you think your month — average monthly rents are in those 3 markets?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [16]

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Well, I can give some general views. We’ll be producing more information on this. But in the GTA, we see our mark-to-market being close to 30%. I would say the rest of Ontario 21%, Québec, we think we’ve mark-to-market 12%, and BC 18%, with both Alberta, we’re seeing positive mark-to-market in Alberta, about 4% in our estimation with Nova Scotia, sitting at around 6%. So what’s notable here is that for one of the first times in our history, we’ve got very positive mark-to-market across the portfolio.

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Jonathan Kelcher, TD Securities Equity Research – Analyst [17]

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Good. And is that — like the GTA, if you were thinking about that 6 months ago, how much would that have changed?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [18]

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I think the number has been pretty stable over at least the last 18 months because the spread continues to hold, if not grow due to the low churn so just by virtue of rents gradually rising in the marketplace, our churn has been equally shrinking, which has been raising that mark-to-market overall.

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Operator [19]

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(Operator Instructions) Our following question is from Mario Saric from Scotiabank.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division – Analyst [20]

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I’m going to stick to Slide 8 as well. The percentage of household income that you’re reporting there, I think in the past within the Cap portfolio we’ve talked about kind of rent to household income in the 30% to 35% range. So these numbers are meaningfully below that. Is that a calculation difference? Or is there something else that?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [21]

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No, what we wanted to do there is to show just average family household incomes to compare the rental proposition and homeownership. If we took average family income for our portfolio, and then took a different family income number for homeownership, you wouldn’t have a true representation, but you can see that by taking just average family incomes, the huge disconnect between affordability in homeownership versus the very attractive, even today, homeownership — rental proposition in the CAPREIT portfolio. That’s taking our actual rents, comparing it to average family income and comparing it to homeownership rates in the markets that we’ve described.

It’s quite compelling. Quite often, we’re getting these affordability questions. And we just thought it was better — our best to give some representation of how truly affordable the CAPREIT portfolio is.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division – Analyst [22]

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So if we just — if we look at your AMR divided by like the household income estimate in your portfolio, what would those percentages look like today?

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [23]

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They would be slightly higher, but still well within our traditional 35% guidance.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division – Analyst [24]

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Got it. Okay. And just a second question, just on the fair value gain during the quarter, pretty substantial at $264 million, 80% of it was due to higher expected NOI. Can you walk us through how that is calculated on the NOI side? And specifically, kind of how you capture the very attractive mark-to-markets in the portfolio that Mark alluded to earlier on the call in that IFRS valuation.

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [25]

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Yes. I mean, we — it’s — we do a stabilized 1-year forward role of our rent rolls based on kind of turnover and renewal rates that we’re seeing. So we do that quarterly, just to kind of keep up and then we obviously have our third-party evaluator help us with cap rates. The reality is that the year-end process is obviously more robust in that you kind of need to take those growth rates into consideration on the cap rates, but so we generally just roll our rent rolls and take the impacts of those, of a 1-year roll forward.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [26]

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And we don’t fully — the mark-to-market that we talked about earlier is — would be somewhat reflected in the cap rates when the appraiser takes a look, but we’ve had a very conservative practice at CAPREIT over the years of being careful with those cap rates, because there can be market distortions that happen. Just because 1 transaction happens doesn’t mean it’s truly reflective of the whole market.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division – Analyst [27]

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Great. So I guess to summarize, it’s partially reflected in the cap rate, i.e. the IFRS…

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [28]

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Partially reflecting in the cap rate. Yes.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division – Analyst [29]

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But not nearly to the extent of the full mark-to-market upside over time?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [30]

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No.

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [31]

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Correct. That’s true. The CAPREIT upside mark-to-market is in excess of 20% portfolio wide.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division – Analyst [32]

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Okay. And then just there’s been a lot of transaction activity or the expectation for transaction activity in the market in Q4 with larger portfolios, including the Continuum deal announced last week. Is any of that reflected in your cap rates that you highlighted in Q3? And then secondly, would the King’s Club fair value bump be reflected in the $264 million at all?

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [33]

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Yes. So definitely, the transactions as of recently are not included in any of these. So obviously, we’ve been paying attention to that transaction. And it would only allude to a further compression, definitely, at least in the GTHA, of course. So yes, those are not incorporated at all.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [34]

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When we look at the mark-to-market rents, we feel that our properties are overall superior locations and condition wise are exceptional given our long record of investing in the properties and given similar mark-to-markets and given the quality of the CAPREIT portfolio, I would suggest that our unitholders are sitting on tremendous value.

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [35]

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Yes, in regard to your second half of the question, we did take a fair value bump on that asset in this quarter that was fairly significant. So that definitely had a strong contribution to the overall gain.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [36]

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It’s interesting, Mario, on that — on King’s Club, only because we’re on the topic of mark-to-market, I think, well, I know that you know and others know that we’ve been progressing with the purchasing of brand-new properties in the portfolio quite robustly. And so even with those big transactions, clearly, the mark-to-market on those rents are 0 if we’re doing our job properly, but even with those fully mark-to-market properties, we’re still seeing very significant overall spread.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division – Analyst [37]

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Okay. And then just on the liquidity position on Slide 14 that you noted, the existing liquidity is back to where it was in early 2016 in terms of size, given kind of the strength in the market on the valuation side that you’re seeing and the acquisition opportunities going forward, how do you think about selling assets into the strength in terms of enhancing that liquidity or essentially recycling capital from one asset to another?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [38]

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Yes, we — I think you may have seen some of the assets that we recycled in 2018. And we really have taken a nonstrategic approach — sorry, if the asset is nonstrategic, we’ll consider disposition. But given these mark-to-market spreads in the CAPREIT portfolio, I would say, overall, we would like to enjoy to deliver value to the unitholders. With these kind of mark-to-markets, we can’t find assets of the quality of the CAPREIT portfolio. We talked a little bit earlier about repairs and maintenance spend. And I do — this is a seasonal change for us. However, our commitment to investing in the buildings is completely unwavered. And the quality of the portfolio, I think, just really stands out relative to other transactions that have happened in the market.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division – Analyst [39]

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Okay. My last question, and I may be reading too much into this, but on the development side, I noted that you removed the word well in front of the excess of 10,000 suites in some of your disclosure when describing your pipeline. Is that an indication that you’re perhaps becoming a little less optimistic on the development potential within the portfolio going forward? And if so, what is driving it?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [40]

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Well, that’s an incredibly astute — I’m not sure we noticed the change. It was certainly not intentional. We remain extremely optimistic about our development opportunities in the CAPREIT portfolio, especially given our locations. The transactions that are happening, looking at condo prices hitting brand-new records, we know our land is not replaceable. That being said, we are — we continue to be mildly frustrated with the length of time it’s taking to get entitlement done. But very encouraged at the value creation that lays ahead. We’ve got no real change of heart in terms of our ambitions to move forward. We’re really going as fast as we can, and it’s a slow process.

However, it continues to, unfortunately, just express that supply problem that the market has in general. If we’re unable to do this with free land, it’s really not good news for the market in general in terms of delivering affordable supply.

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Operator [41]

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Our following question is from Mike Markidis from Desjardins.

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Michael Markidis, Desjardins Securities Inc., Research Division – Real Estate Analyst [42]

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Mark, thanks very much for all those spreads that you gave by region. I think it’s very helpful. I think you managed — or you mentioned that you’ve been doing some work on that. Is that something that is going to be rolling itself into CAPREIT’s quarterly disclosure in the near future?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [43]

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Yes, it is. Yes, it’s something that we feel that the market has been asking for. I know you’ve been asking for it, Mike. And it’s such a great story. We temper everybody, market rents can change, we don’t see that in Ontario anytime soon, even BC. But some of the other markets, as we all learned, especially at west can be quite punitive fast. So we’re really encouraged that all of our markets are firing well. But I would continue to deliver caution around those numbers being permanent in all markets. They’re indicative. They’re indicative, moment in time.

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Michael Markidis, Desjardins Securities Inc., Research Division – Real Estate Analyst [44]

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Okay. Small change, but I guess, sequentially in the Canadian portfolio, your rent spread on turnover did come down a little bit. Is that impacted at all by your Québec portfolio and the fact that there’s still a high proportion of leases that turn on July 1? Or is that not a factor?

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [45]

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No. I mean, actually, we’ve seen Québec probably accelerate generally over the — definitely, over the last year, we’ve seen Québec performing quite well. So I don’t think it’s driven out of the Québec market at all.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [46]

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There’s a little bit of — like I said, to repeat, there is a little — obviously, a bit of an effect of new construction assets as they come into the marketplaces. That’ll lower the mark-to-market, again, because we’re at market, and we continue to strongly believe that if we’re able to acquire assets at favorable cap rates with the quality of the assets and the CapEx profile that the market likes to understand, there’s a major benefit to that. So we’re mindful of the fact that mark-to-market is important, but we’re also mindful of the fact that buying good accretive acquisitions that don’t have CapEx exposure in the future can also be meaningful.

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Michael Markidis, Desjardins Securities Inc., Research Division – Real Estate Analyst [47]

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Yes, that’s a good point. I didn’t even actually think about that. You guys have bought some new assets. And obviously, the turnover on that would be different. Okay.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [48]

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King’s Club will be a great example of that.

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Michael Markidis, Desjardins Securities Inc., Research Division – Real Estate Analyst [49]

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Right, right. No, that’s fair. Okay. Just in terms of your fee revenue, just given all the known activity that’s been completed or announced in ERES, are you able to give us a sense of what the run rate for your fee revenue would be now?

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [50]

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Yes, I think we’ve actually got some hopefully, what you’ll find is a decent disclosure in our other income section on the MD&A. So I point you towards that. I think what’s excluded, unfortunately, but we’ve added a note to kind of give a run rate. We have the IRES income coming through. The ERES income because we consolidate, it’s considered a related party transaction. So it’s completely eliminated from our income statement, but we provided disclosure. So as our percentage ownership drops down, we’ll see a bigger percentage of that hit the FFO line item. But yes, there’s some disclosure in there that will get you numbers. I think it was about $4.4 million for ERES as of Q3.

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Michael Markidis, Desjardins Securities Inc., Research Division – Real Estate Analyst [51]

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Got it. So all of that is IRES and the ERES portion is clearly eliminated, but you actually get a bump in your FFO on the bottom — below line.

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [52]

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Sorry, the $4.4 million is just ERES. IRES is closer to $6 million for the 9 months.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [53]

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(inaudible).

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [54]

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For the 9 months. So you’ll see it there, and you can kind of translate what that looks like forward. But yes, from an FFO point of view or from an income statement point of view, not to get too technical, we eliminate the asset and property management fee. But from an FFO point of view, we actually do include the noncontrolling interest percentage of that fee in our FFO. So that’s trending around 25% to 30% right now.

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Michael Markidis, Desjardins Securities Inc., Research Division – Real Estate Analyst [55]

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Okay. Awesome. And last one for me, another type of question, apologies, but your liquidity position being what it was, I guess, the prom note being repaid from ERES subsequent to quarter, the way you’re disclosing and thinking about liquidity, that would be incremental to your liquidity at quarter end, would it not fully?

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [56]

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Yes. And then, obviously, normal course mortgage financing, et cetera. And we are — obviously, our leverage continues to drop significantly. So we continue to look for other debt financing opportunities.

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Operator [57]

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Our following question is from Matt Kornack from National Bank Financial.

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Matt Kornack, National Bank Financial, Inc., Research Division – Analyst [58]

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Just a quick question on the mark-to-market. I assume that, that doesn’t include potential suite renovations in terms of improvements? And then can you comment — I mean, you’ve done a lot of heavy lifting, obviously, on building improvements, but presumably, you’ve also renovated a lot of your suites. So is there still an opportunity along those lines to generate higher mark-to-markets.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [59]

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The mark-to-markets have been done on established rents. So — and we’re running a rental program, it would take that into account. When we’re mark to marketing, we’re not guessing what the market can deliver. We’re basing on what we’ve achieved. So there are opportunities, perhaps, where we decide a rental program in a particular building can have a dramatic impact, and that would change the mark-to-market.

So I would say, to be clear, we — the current mark-to-market that we’ve been quoting here takes into account the rental program we’ve been running.

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Matt Kornack, National Bank Financial, Inc., Research Division – Analyst [60]

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Okay. That makes sense. And I don’t know where it stands, but a rough percentage in terms of the opportunity you see at this point in terms of higher-end suite renovations?

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [61]

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Well, I think the path that we’re currently on, like the higher end is really showing up in the suburbs, as you may have heard us say that in the format, like the move from the core and into the suburbs has really been where we’ve seen the most success. And affordability, in general, in the core has been pushed for so many years now that the rentals in the core don’t seem to take hold as well as they are in the suburbs.

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Matt Kornack, National Bank Financial, Inc., Research Division – Analyst [62]

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And some of your peers are pushing rents pretty aggressively in Montréal. I know it’s an interesting rent control regime there. But are you seeing improved dynamics in that market in your portfolio as well?

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [63]

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Yes, I think we said almost 6% mark-to-market. And we also believe in that. It would only — the only caution here is that when you get into that fully maximized highest level of rent, you are now in a bigger churn environment and your cost can also be affected by that churn. So sometimes the math doesn’t ultimately play out. It will in a year. But as you see over time, if you’ve got high increased churn at absolute high end rents, then, a, your vacancy will be impacted, your churn costs will be impacted, and you just end up with a little more volatility. So we explore that stuff, we explore it cautiously.

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [64]

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Our actual like turnover last year, year-to-date versus this year, year-to-date. Last year, we were closer to 5 in Québec overall, and this year, we’re closer to 11. So we are definitely seeing a significant increase in the Québec market there, yes.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [65]

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Greater churn to the higher rents.

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Matt Kornack, National Bank Financial, Inc., Research Division – Analyst [66]

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Interesting. And I think the answer to this is going to be no, but would you ever consider selling the air rights in your properties or developing condos for profit as opposed to rental?

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Scott Cryer, Canadian Apartment Properties Real Estate Investment Trust – CFO [67]

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We are a rental company. That being said, as we get entitlements done, we will be looking for the highest and best use of that land. And if it’s incredibly compelling to sell land at condo premiums, then we would consider doing that and recycling the money into value-add or new income-producing properties. It’d have to be very, very compelling for us to do that.

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Matt Kornack, National Bank Financial, Inc., Research Division – Analyst [68]

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And I would assume that would be Urban Toronto or maybe Vancouver.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [69]

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Oddly enough, it’s like suburban again, Toronto, where you’re seeing real density allocations being given. But yes, we’ve got a number of properties that as we get close to entitlements we’ll give much better guidance in terms of what our intentions are.

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Operator [70]

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Our following question is from Mario Saric from Scotiabank.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division – Analyst [71]

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Sorry, just one more for me. Just a clarification on the 20%-plus mark-to-market on the total portfolio. What would the implied CapEx spend per door be to generate that 20%? It would be…

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [72]

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I don’t have the number handy, but it would follow the trend of what’s happened to date. There would be no — there’s no — I’m not sure who asked the question. We’re not planning giant rentals to achieve those numbers, we would be continuing with the program that we have because what we’re doing is we’re looking at actual rents that we’ve achieved and those actual rents that we’ve achieved had been a result of the CapEx program we currently have in place. So there wouldn’t be a trend from the current CapEx spend. That’s a big number, Mario, to — if you look at our in-suite trend and you look at the mark-to-market rents that we’re achieving, that would give you the answer. I just don’t have the per unit down.

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Operator [73]

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This concludes today’s Q&A session. I would now like to turn the meeting over to Mr. Kenney.

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Mark Kenney, Canadian Apartment Properties Real Estate Investment Trust – CEO, President & Director [74]

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Well, thank you very much. As we appreciate everybody’s ongoing interest in CAPREIT. And thank you so much for your time today.

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Operator [75]

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Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.