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 muted 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 1 on your telephone keypad. I would now like to pass the conference over to Nicole Dolan, Investor Relations. Please go ahead.
Thank you, operator, and good morning, everyone. Before we begin, let me remind everyone that during our conference call this morning, we may include forward-looking statements about expected future events and the financial and operating results of CapREIT, which are subject to certain risks and uncertainties. We direct your attention to slide 2 and our other regulatory filings for important information about these statements. I will now turn the call over to Mark Kenney, President and CEO.
Thanks, Nicole, and good morning, everyone. Joining me this morning is Stephen Co, our Chief Financial Officer, and Julian Schonfeldt, our Chief Investment Officer. Let's turn to slide 4 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 CAD 1,552, which is meaningfully lower than the national average.
These stats reflect the ongoing high demand for CapREIT's rental accommodation, as we remain the provider of affordable living in many of Canada's least affordable cities. We're proud of this positioning, especially as we continue to experience one of the worst housing crises our country's ever experienced. On slide 5, 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 our lower utility costs given the milder winter weather experienced throughout the country. As a result, NOI grew by 8%, and our margin expanded by 140 basis points to 64.2%. This growth offset elevated interest, which we're continuing to absorb on our credit facilities and mortgages payable, and FFO was up by 6.4% to CAD 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 CAD 0.609. On slide 6, we have an illustration of our repositioning strategy. At CapREIT, 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, 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. 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 at 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. Slide 9 highlights our progress achieved during the first quarter. We sold CAD 83.6 million of non-core properties, and we also transacted on the sale of approximately CAD 58 million worth of equity in Irish Residential Properties REIT, which reduced our ownership from 18.7%-11.3% as of March 31st, 2024. Subsequent to the period, we settled on the disposition of an additional CAD 12.7 million, lowering our ownership further to 9.7% as of yesterday.
We've redeployed part of the proceeds to accretively repurchase approximately CAD 27 million worth of CapREIT's units at a discount to NAV. We also reinvested capital into 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 quality and earnings simultaneously, and we're looking forward to keeping up this solid effort on our strategic execution. I will finally touch on slide 10, which provides an overview of our asset-like 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 end-to-end entitlement of this underutilized land, which we can then sell to developers to add intensity 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 CAD 2 million. 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.
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 CAD 370 million in available liquidity in Canada. This includes cash on hand as well as CAD 255 million worth of capacity on our acquisition and operating facility.
We also have a CAD 70 million in an unsecured non-revolving construction and term credit facility provided by the Canada Infrastructure Bank this quarter for retrofitting of certain properties to reduce greenhouse gas emissions at very favorable financing rates. And 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-term maturity in our peer universe at over 5 years. If you turn to slide 13, you'll see that we also methodically stagger our mortgage portfolio. At period end, we had CAD 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 up.
Thanks, Stephen. I wanted to take this opportunity to expand on one important deal, which we were 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.
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. 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 nonprofit core legacy buildings transferring 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 we'll 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.
Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. 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 Cowen. Your line is now open.
Thanks. Good morning. First question, just on the portfolio repositioning disclosure. If we look at the non-core assets, and I think that's roughly CAD 3.5 billion, should we just think of those as assets that you plan to sell over X number of years with the proceeds going towards new-build in the NCIB, or would you also consider adding to the core legacy portfolio?
I'll let Julian build on my answer, but we have the optionality 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 all 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.
No, I think that covered it perfectly.
Okay. How should we think about the ancillary assets?
Yeah, 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 it: growing exposure to the new construction properties overall.
Okay. And then, Mark, 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 it might do to near-term fundamentals?
Well, I think that we're making really great progress in our conversations with government. I think I would take this moment, Jonathan, to make an announcement that the federal government really is recognizing the critical roles 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 being an indicator of how closely we are working with the federal government and provincial governments, quite frankly.
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, and we think that that non-core has a really important role in preserving affordability. That, again, lines up extremely well with the core mission that we're on of high-grading the portfolio.
Okay. Thoughts on, I guess, the curbing of population growth and all? What do you think that's going to do to fundamentals, say, over the next 2-3 years?
I don't really see it doing too much of anything. We've got a situation that's so backed up. Not a day doesn't go by anymore where people aren't talking to me about 10 cities across the country, the people that are roommating up, and families that have their younger generation still in bedrooms into their 30s.
This thing is so incredibly backed up that it's really a math exercise of looking at new supply, which has also cratered. 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 in terms of a change. I think it's a positive change.
Again, 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 that would have showed up even more acutely 3, 4, 5 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.
Okay. That's helpful. I'll turn it back. Thanks.
Thank you, Jonathan. Our next question goes to the line of Kyle Stanley with Desjardins Capital Markets. Your line is now open.
Thanks. Morning, guys.
Morning.
There was a bit of a slowdown on the new leasing spread this quarter. I mean, it's hard to call a 23% spread slow, and it is quite strong. Just curious if you could talk about the drivers of that deceleration. Was it the more likely suite mix or seasonal in nature? Just love your thoughts on that.
Well, you've already got half the answer, but I would just add that 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 have 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 newer leases 12 months into the cycle.
Okay. Makes sense. 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?
Yeah. So, Kyle, I think I mentioned in the prior calls. So we really started this strategy in last year of 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 on the Q3, Q4, it's going to be on a more very stable basis.
Okay. When you say stable, probably closer to the low single digits versus maybe the mid?
Yes.
Yeah. Okay. Okay. And then just the last one. I mean, I think you kind of touched on it with kind of your focus on the new build and less focus on the kind of non-core portion of the portfolio. But just on the IRES ownership, should we think about this as your intention being to continue to orderly sell down your stake going forward?
Yeah. Thanks, Kyle. So, yeah, we did touch on it, and we described that as a non-core holding, and you've seen the sell down over the last couple of months. It kind of gives you insight on the strategy there.
Okay. Perfect, Kyle. I'll turn it back. Thanks.
Thank you.
Thank you, Kyle. Our next question goes to the line of Mike Markidis with BMO Capital Markets. Your line is now open.
Thank you, operator. Good morning, everybody. I guess there's been a little bit of reports out there just in terms of at the high end of the market in Toronto 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.
You got a very affordable portfolio, but you are downtown, and you have some buildings that have probably benefited from strong catching up to those high rent per square foot buildings. Is that something that you guys have seen in your portfolio at all? Is there a softening at the high end of the curve or high end of the rental sphere, or is that maybe overblown at this point?
Yeah, not even close. It's like when I guess Mercedes is doing bad, Kia does great. At the end of the day, we love that CAD 3 a foot market, and we're well protected in that range. With the average rents at CAD 1,552, there's significant room to travel. Absolutely, in the Capri portfolio, no sign of slowdown.
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 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.
Yeah, Mike. So it's not that the units have to be preserved as affordable. They're just that we can't apply AGIs or above-guideline increases on those. But the interest rates are very favorable. There's an availability period around 5 years that we will pay interest rate at 3%. And then once we get out of the availability period, there's a 20-year amortization period where we'll pay interest rates between 2.47%-4.47% depending on the GHG reduction that we achieve on our projects.
Wow. Okay. It's another great example, Mike, of the government really working with us to achieve our ESG goals with sympathy and understanding towards the capital structure that's required to do that. And so, again, we applaud the government for embracing this. It's quite a sensible program, and it obviously works well to help us advance our climate change investments.
Got it. Okay. 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, but it does break down. Okay. Gotcha. And then 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 out there?
It's currently what we have identified as projects. This process was, it took us a day to sign up with CIB. It took a long time to do this. We identified around CAD 100 million projects, of which they're going to provide 70% of financing on that. That's how we got to a CAD 70 million facility.
Got it. And then the projects, is that over a five-year period? That's what you're expecting to spend, CAD 100 million?
Yep. That's correct. Yeah.
Okay. Got it. Thanks. Last one for me before I turn it back. Just on the liquidation of IRES, is there any adverse tax consequences? Is that capital staying in Europe? Is it coming back? I'm just trying to get a sense of the interplay, so to speak.
Yeah, Mike, we've done the analysis. It's going to be minimal taxes that will be transferring that cash back to Canada. It's minimal taxes.
Okay. And is that position because you've got a European operating facility, or is that at the IRES level? I'm just trying to remember if there was debt against that.
No. We don't have an Irish facility. It's all within our current facility, Canadian facility, that we can use European funds or whatnot. But we don't have an Irish facility.
Okay. Thanks for the clarification. I'll turn it back.
Thank you, Mike. Our next question goes to the line of Jimmy Shan with RBC Capital Markets. Your line is now open.
Thank you. Just on your turnover rate, I was wondering what your expectation is on where you think the turnover rate will be for the year.
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 structural low numbers here. And by that, I just mean the normal things in life where people will move out. 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 material enough to really be tilting the numbers. For modeling purposes, I think you stick to where we're at right now.
When you say where we're at right now, you mean sort of in the low teens?
Well, yeah, 12%, touch on 13%.
Okay. Got it. Thanks. And then on the CapEx, obviously, it's come down quite a bit. What does the CapEx budget look like for 2024? I think last year it was about CAD 250 million for the Canadian portfolio. How do we think about that?
Yeah. We're really, really proud of this. We do think we're distinguishing ourselves with what we've been able to do with our discretionary CapEx. 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 product, which has also fallen off, has gone down. I'll turn it to Steven to give a little more clarity on the run rate of what you can think.
Yeah. So, Jimmy, I mean, you can see the CapEx. We spent around CAD 40 million on a consolidated basis for Q1. I wouldn't take that as a full run rate. There's seasonality, timing of projects. We're tendering out work. So I would say last year is a pretty good proxy.
However, I would still 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 part of the CIB funding and our internal targets around getting those GHG investments in place.
Okay. Okay. And then sorry, just last one. On the CIB funding, is it your intention to draw the full amount, or do you sort of draw it as you spend it? How does that funding work?
Yeah. We have a draw schedule that's all based on the anticipated projects that we plan to do over the next five years. It's not drawn all at once.
Okay. It's over a period of time, over the five years?
That's right. Yeah.
Okay. Thanks.
Thank you, Jimmy. Our next question goes to the line of Sairam Srinivas with Cormark Securities. Your line is now open.
Thank you, Operator. Good morning, everybody. Looking at the transaction market, Julian, if you compare this to last year, are you seeing a different level of traction within volumes, especially the amount of deals you're seeing in the transaction market?
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 backup in the CMHC backlog. That did make an already challenging multi-residential transaction market even more challenging. So the short of it is, 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 tough than last year because of what I said there with the CMHC backlog.
Has the recent announcements by the Feds in terms of all the housing policies announced over there, has that changed how people are actually looking at these assets now in the market?
Sorry, I missed the last part of what you said there. Has it changed what?
With all the initiatives being announced by the federal and provincial governments, has that changed how, let's say, your potential vendors who probably would have sold assets last year, how they look at these assets now as well as valuations?
No, 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. 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 immediately on that front.
That makes sense. Thanks for the call, guys. I'll turn it back.
Thank you, Sairam. The next question will go to the line of Matt Kornack with National Bank Financial. Your line is now open.
Hey, guys. Just on capital allocation, last quarter or maybe the quarter before, you've highlighted Davisville in terms of density potential and other sites as well. 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 on your portfolio?
Perfect. Thanks, Matt. Really proud of the team to go through the entitlement process, which is just about wrapped up on those two Davisville sites, and that's about 600,000 sq ft of GFA in there. Those are marquee sites. As you noted, the land market's down. This is all just kind of free upside for us in a sense.
And 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 with it. In terms of developing it in-house, for us, just given where we think land values and costs and interest rates are, we don't think that it's economic within our model. But like I said, I think there'd be good demand for it.
With some patience, we expect to be able to monetize some decent value there.
And then maybe just on the opportunity to buy new assets. I mean, it's not going to be a forever opportunity. We thought maybe it would be a bit more fleeting when interest rates were moving lower, but they 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 pricing to points that wouldn't be as attractive?
Yeah. No, and that actually touches on what I was just saying about not developing at Davisville. 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 lower than it would cost to develop.
With the rates staying higher, yes, we are seeing more pressure on some of the developers, and we are seeing motivated sellers. 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, 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.
I mean, the activity we did in Q1, we'll point again to that London property, but buying that at CAD 385 per leasable sq ft for a luxury concrete building in a great location with very favorable in-place financing, you couldn't even come close to that price to rebuild that.
Fair enough. 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. 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. Have you deferred stuff through the winter months maybe that potentially takes place in Q2 to Q3?
No. I mean, yeah, Matt, like I said, there's some timing of this, and there's tendering that's been completed. Usually, you see there was a little bit of seasonality in our CapEx. A lot of this CapEx will be completed in Q3, Q4 of the year. So I would say some of it's timing, but a lot of it, it's going to be you're going to see on the discretionary CapEx, specifically on in-suite 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 CAD 3 million in Q1. That will ramp up over the course of the next couple of quarters. So yeah, I am conservative, but I would say on an overall basis relative to last year, it will be lower.
It's a subtle point, Matt, but it's quite material in the numbers. 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.
The competitive landscape, as I said, we see no change to. 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 CapREIT.
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. But 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. And as investors look through the balance sheet, I think many will agree this is extremely sensible. So we're not living on one metric here at CapREIT. 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.
Okay. No, that makes sense. Last one for me, just the technical one, Steven. On the other revenue, it seems like there was a bit of a change in the allocation and how you've done that. Is there anything to that, or is it just it's only a couple of million dollars that moved, I think, out of other revenue into rental revenue, but?
Matt, we can probably take that offline. We can talk through it.
Okay. No worries. Thanks, guys.
Thank you, Matt. Our next question goes to the line of Mario Saric with Scotiabank. Your line is now open.
Hi. Good morning, guys.
Morning.
Coming back to the CapEx question, maybe in a different fashion because it is a bit confusing in terms of kind of guiding to kind of flattish. And again, I appreciate the higher spend on energy and whatnot. But if we were to look at your expected return on investment on the number, whatever it may be in 2024, relative to what it was in 2023, how differentiated would that return on investment within that CapEx bucket be?
So I think that the accelerated energy investments are going to be strong ones, and that number is going up. The en-suite returns are really going up because we're spending money in 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 Steven 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 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 here to definitely stay is the competitive environment, we believe, has been changed for the foreseeable future.
Therefore, the need for discretionary investment has slowed down. The call, and we're listening to our friends in government leadership, the stress around AGIs 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.
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 just simply ancillary is Europe and not apartments, whereas non-core legacy would be Canadian apartments, or is there something more to it?
No, you got that exactly right, Mario.
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 IRES and ERES, no impact, but in terms of the MHCs and then selling some of your older assets on the non-core legacy? Are there any implications from what was announced last month?
No, I think that we could say it's all positive announcements at the end of the day. 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 nonprofits. 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 vend into that program if it makes sense. On the European IRES investment, you can't really say it much more clear than what we'd rather own CapREIT, be buying back CapREIT shares than owning equities in something we don't manage. And in terms of other assets that are deemed to be non-core opportunistic, this is the investment team's complete focus with an emphasis, as Julian keeps saying, on being disciplined.
If we can find that arm of value where we're able to sell cap rates lower than what the company's 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. You can expect ongoing announcements from us proving that we're able to do this as we have over the last 18+ months now.
Okay. And I guess maybe more specifically, the one that was referenced just on the MHCs, anything within the budget regulatory-wise that would have an impact in terms of what you want to do on that portfolio in terms of timing, etc.?
No, we were really encouraged. At the end of the day, the Apartment REITs in Canada through our For Affordable group had 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 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 CapREIT, we've made tremendous progress dialoguing with government and helping them understand that we're here to help.
Okay. My last question, just with respect to the share buyback, the average share buyback price is CAD 48. Your IFRS NAV was up a little bit quarter-over-quarter. I don't know the answer to it, but I just kind of wanted to highlight it. To the extent you're trading at CAD 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?
Yeah. Thanks, Mario. I mean, we can't guide on any activity that we may or may not do. But 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 NAV and implied cap rates are certainly very relevant metrics when we consider deploying into it, as is how much proceeds we've raised through the dispositions.
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. We spend a lot of time on the merits of buying back our shares. The good news is all three of those categories are extremely appealing. It's being disciplined on the inflow of capital 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." I can reconfirm, "We're not going to do that." If we are able to get fair value for our unit holders on dispositions, then we are extremely excited that we have good places to put that cash. It does vary from deal to deal, price to the stock. We're fortunate to have that optionality.
All three are very appealing. How would you rank the three today at the current unit price?
Well, I don't know. Steven kind of wins, I guess, on paying down debt, the revolver's kind of expensive. Although Julian shows up with amazing deals that are under replacement cost. And I look at the stock price and go, "Wow, who could ever imagine buying CapREIT at a 5 cap?" So it would be movement between those three categories today.
Okay. That's fair. And then just maybe one last one for me related to that. Julian, you mentioned on the transaction market, kind of it remaining slow as people think about interest rates or 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?
Look, I think it's the long end of the curve because people are financing they're doing CMHC mortgages for the most part and 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 rate cuts and maybe some view on the slightly lower long end of the curve could be helpful. And another thing I'll say, Mario, is also just the volatility in the rates is the other part, right? When people underwrite or tie up a deal and then the rate starts swinging unpredictably, it just brings it adds an element of instability in there.
Yeah, for sure. Okay. Okay.
Thank you, Mario. There are currently no additional questions registered. As a reminder, it is star one on your telephone keypad. There are no additional questions waiting at this time. I'll pass the conference back over to Mark Kenney for closing remarks.
Thanks, operator. I'd like to thank everybody for your time today. If you have any further questions, please do not hesitate to contact us at any time. Thank you again, and have a great day.
That concludes today's conference call.