Good morning. Thank you for attending today's Canadian Apartment Properties REIT second quarter 2022 results conference call. My name is Alexis, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions 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 our host, David Mills. You may proceed.
Thank you, operator. Before we begin, let me remind everyone that the following discussion may include comments that constitute forward-looking statements about expected future events and the financial and operating results of CAPREIT. Our actual results may differ materially from these forward-looking statements, as such statements are subject to certain risks and uncertainties. Discussions concerning these risk factors with forward-looking statements and the factors and assumptions on which they're based can be found in CAPREIT's regulatory filings, including our annual information form and MD&A, which can be obtained at SEDAR. I'll now turn things over to Mark Kenney, President and Chief Executive Officer.
Thanks, David. Good morning, everyone, and thank you for joining us. Stephen Co, our Chief Financial Officer, is with me this morning, as is our new Chief Investment Officer, Julian Schonfeldt. We are very pleased to have Julian join our team. He brings a wealth of strategic, capital market, and property investment experience to CAPREIT, and we welcome him to our first investor conference call. Welcome, Julian. Turning to slide four. Despite some lingering issues related to the pandemic and inflationary pressure on our cost structure, we are pleased to see solid increases in our NOI and FFO in the second quarter. FFO per unit was impacted by the 1.7% increase in the number of units outstanding in the quarter.
Driving this improved performance was a 10% increase in revenues due to the contribution from our acquisitions, increased monthly rents, and much stronger occupancy at 98.2% compared to 97.2% last year. In May, we began purchasing our trust units for cancellation under our approved normal course issuer bid. At the end of the second quarter, we have purchased approximately 1.4 million units, which has since increased to approximately 1.8 million units as of the end of July for an aggregate purchase price of $ 85 million. We believe, given that our units are trading at a significant discount to our net asset value, these purchases are another way we are enhancing long-term value for our unitholders.
Turning to our six-month results on slide five, you can see all of our key performance benchmarks were up, including revenues, NOI, and FFO. Most importantly, market rent recovery is well underway. From an operations perspective, our ability to generate solid and resilient performance through all economic cycles is clearly demonstrated by the strong, consistent occupancies and growing revenues across our portfolio, as you can see on slide six. Occupancies improved again in the second quarter, while net average monthly rents continue to increase. Our same property NOI is being impacted by the increased costs we are experiencing, which are higher maintenance costs, increases in utilities, and higher real estate taxes. We believe such inflationary cost pressures will impact our NOI over the next few quarters. In addition, CAPREIT has an experienced team that is exploring alternatives to minimize usage and exposure to operating expenditures, including hydro submetering.
As of quarter end, approximately 64% of the 59,635 suites in Canada are submetered or direct metered. Additional suites and sites have submetering or direct metering in place that will be assumed by new tenants on turnover. CAPREIT will continue to evaluate implementing submetering in the remaining suites and sites. Submetering lowers consumption, resulting in a smaller environmental impact, lower operating costs, and lower inflation exposure. Similarly, to protect against rising water and natural gas rates, our utility teams continue to evaluate effective alternatives to mitigate our risk to rising utility costs. Our leasing and marketing programs continue to generate increasing occupancies and average market rents, as you can see on slide seven.
After two years operating under significant pandemic restrictions, our occupancy continues to strengthen, rising to 98.2% in the second quarter, up from Q1 and 97.2% in last year's second quarter. You can also see that rents for the total portfolio have risen 4.4% compared to the same time last year. Tenant incentives are continuing to decline to pre-pandemic levels, and we expect the majority of the amortization to be completed by the end of 2022. We experienced a solid and positive trend in rent increases on turnover each quarter since we bottomed out at the height of the pandemic in Q1 last year, as you can see on slide eight.
While turnovers were impacted by the pandemic over the last two years, we are now starting to see solid increases as we move rents closer to market. A 10.6% increase on turnover in the Canadian portfolio is a solid result, and we expect to see this continue and grow through the balance of the year. Our churn rate remains strong and are tracking at the historical trends of seasonal variations. Looking ahead, we are experiencing more in-person and online visits, and we expect we will start to see more higher mark-to-market increases in the quarters ahead, moving us towards the higher levels of increases we generated prior to the pandemic. I'll now turn things over to Julian to outline how we are repositioning and strengthening our property portfolio.
Thanks, Mark. Turning to slide 10, we continue to focus on increasing the quality of our portfolio through our active asset management program. Through 2021, our strong acquisitions team added 3,744 high-quality suites and sites to our portfolio, focusing on our key markets. Another 1,237 suites and sites have been acquired to date in 2022, with a further 300 suites subsequent to June 30th. Importantly, almost all of our acquisitions in 2022 represent new build assets in our targeted geographies. These new additions to our portfolio are in line with CAPREIT's strategy of rejuvenating its asset composition and increasing our geographic diversification into desirable major markets in Canada. Additionally, we're happy to be contributing to stimulating the market for new build multi-family assets, contributing to the increase of new supply in Canada.
Looking ahead, our acquisition pipeline remains strong, and we intend on leveraging our best-in-class acquisitions and operations platforms to generate further accretive portfolio growth in the quarters and years ahead. In addition to acquisitions, CAPREIT is also using dispositions to advance its core capital allocation strategy. CAPREIT's CAD 18 billion asset base is the result of 25 years of acquiring, operating, and enhancing multi-family properties. Some of our assets were bought decades ago with strategic criteria that no longer perfectly align with our current strategic objectives, making some of these assets non-core. Many of these non-core assets continue to attract premium pricing and generate bids that are above our IFRS NAV. As shown in slide 11, we've been selectively executing dispositions which have so far amounted to approximately CAD 350 million in 2022.
These strategic dispositions not only enhance the quality of our overall portfolio, but also result in disposition gains and introduce an incredibly attractive source of capital to fund our capital deployment priorities, which we previously discussed being our new build acquisitions, MHC sites, and NCIB program. We're committed to increasing the quality of the portfolio and enhancing returns and unitholder value. As you can see on slide 12, we are making real progress in repositioning our portfolio to reduce our exposure to older value-add properties while increasing our presence in new build properties and MHC sites in markets where CAPREIT wants to increase exposure. Our strategy is enhancing our portfolio quality, diversifying our tenant base and geographical exposure, decreasing our operating expense and capital expenditure exposure, important in these inflationary times, and ultimately enhancing our risk-adjusted return profile.
With that said, I'd like to thank you for your time this morning, and I will now turn things over to my partner and CAPREIT's new full-time CFO, Stephen Co, for his financial review.
Thanks, Julian, and good morning, everyone. As you can see on slide 14, our balance sheet and financial position remains strong and flexible at quarter end, with a conservative debt to gross book value and continuing high liquidity. Our CAD 1.2 billion in Canadian unencumbered properties, which includes the majority of our MHC properties, provides additional liquidity should it be needed. Looking at our financings in the second quarter, we locked in interest rates of 3.4% on our refinancings and extended our term to maturity. We expect to finance a total of CAD 1.1 billion in mortgages and top-ups in 2022. Importantly, over 99% of our mortgage portfolio incurs a fixed interest rate, protecting us from potential future interest rate increases.
In total, if we were to access all our available sources of debt capital, we would have approximately CAD 1.4 billion available at quarter end. Slide 15 shows we are successfully managing our interest costs in Canada and extending the term to maturity. In fact, our strategy to leverage ten-year CMHC-insured mortgage debt has resulted in CAPREIT having one of the longest terms to maturity and lowest weighted average interest rate among our publicly traded peers. This provides us with strong protection against renewal risk given where interest rates are at today. Additionally, another benefit of our disposition program is a lower reliance on debt. As I mentioned, over 99% of our mortgage portfolio incurs a low fixed interest rate, protecting us from expected future rate increases.
As of today, we have locked approximately 72% of our 2022 maturing mortgages at a 3.15% interest rate. Further to our strong and flexible financial position, looking back over the last few years, you can see on slide 16 that we have met our goal of maintaining a very conservative debt and coverage ratios even through the pandemic. This conservative approach underpins the stability and resiliency of our business and the sustainability of our monthly cash distributions to unitholders. This focus on maintaining one of the strongest balance sheets in our business will continue going forward. Our mortgage portfolio remains well-balanced, as shown on slide 17. As you can see, in any given year, no more than 14% of our total mortgages come due, thereby reducing risk in the rising interest rate environment.
Looking ahead, our current ability to top up renewing mortgages through to 2036 will provide further significant liquidity in the future. As we expected, interest rates have risen after the Bank of Canada announced its four policy rate increases so far this year. In anticipation, we moved up the refinancing opportunities for our 2022 matured mortgages from second half of the year by paying some hedge costs and prepayment penalties, and were able to achieve financing cost savings through closing on or pre-locking rates for those five-year and ten-year mortgages. Their rates were 2.8% and 3.3% respectively, lower than the current five-year and ten-year estimated rates of approximately 3.6% and 3.7%. I'll now turn things back to Mark to wrap up.
Thanks, Stephen. Looking ahead, we continue to see a number of very positive value drivers that we are confident will generate strong and growing return for our unitholders over both the short and long term. We will continue to focus on our proven asset allocation strategy as detailed on slide 19. On the apartment front, we are targeting the acquisition of new build, modern properties in well-located markets in Canada's strongest centers. Yields are attractive, growth is strong and stable, and CapEx is modest. We also see condo rental rates increasing significantly in major urban centers, increasing the appeal of our more affordable rental rates. With respect to our MHC focus, revenue and revenue growth are as robust as our apartment properties and have a very low risk profile. With residents owning their own homes, CapEx needs are significantly reduced.
Additionally, with home ownership costs rising significantly across the country, CAPREIT's large MHC portfolio provides an affordable alternative for families looking for quality residences at a truly affordable cost. Our third focus is on our NCIB program. While our unit price remains disconnected from the strong pricing we are seeing in the private markets, we will continue to crystallize the value spread and execute instant value creation for our unitholders. Key to our growth in the coming months will be our ability to capitalize on a number of market trends. Demand for our quality properties is growing as immigration accelerates, with new Canadians seeking affordable homes in our largest urban markets. The return of international students is also contributing to the increased demand. The pandemic generated what we call household consolidation as young students and young people returned to home to save costs and seek safety.
These young people are now moving back to rental accommodations as offices reopen and in-class learning returns. Demographics are also on our side as the growing seniors population looks to the rental market to meet their needs. We believe our quality and well-located properties offering more space on one floor at affordable rates will see increased demand by seniors looking to capitalize on the significant equity in their homes. We also see families looking to quality rental accommodation, including our MHC properties. As a highly affordable alternative to the increasing cost of home ownership, these are an excellent solution. Additionally, cash flows will increase as we prudently and responsibly increase rents. Finally, on our ongoing property investments, as outlined on slide 21, are reducing our costs and reducing our exposure to commodity prices through energy saving and other initiatives.
Our technology solutions are increasing our operating efficiency, enhancing resident safety, and making our properties more attractive, and helping us meet our ESG commitment to enhance environmental performance. We issued our most recent ESG report on June 10. In it, you will see significant progress that we are making with our environmental, social, and governance performance, as detailed on slide 22. On the environmental front, our investments in energy efficiency have generated an 11% reduction in consumption and a 10% reduction in greenhouse gas emissions since 2010. Not only are our ESG programs improving our environmental footprint, they are also reducing costs.
Looking ahead, we remain committed to our ESG programs and look forward to keeping you updated on our progress in the years ahead. To further strengthen our operating platform, we have added significant depth and experience to our senior management team over the last few months. The new members joining our team on slide 23 and other additions reinforce our ability to capitalize on opportunities in our markets, ensure continuing strong and resilient operating performance, and build on our track record of generating long-term value for our unitholders. In summary, we remain very excited about our future. Our strategy of acquiring new build properties increases portfolio quality, diversifies our asset base, reinforces revenue growth, and reduces our CapEx exposure. Our focus on high-demand locations in strong major markets across Canada is responding to the strong population growth and is meeting the need for more housing space.
We continue to leverage our best-in-class acquisitions and operations teams to create value throughout our portfolio. Our industry-leading balance sheet, leverage, and liquidity position provide stability and the ability to grow going forward. With demographic trends and increasing immigration, we are confident we will continue to drive value for our unitholders in the years ahead. Thank you for your time this morning, and we would now be pleased to take any questions that you may have.
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 one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. The first question comes from the line of Jonathan Kelcher with TD Securities. You may proceed.
Thanks. Good morning.
Morning.
First question, just on the mark-to-market turnover, the turnover uplifts that you're getting. It looks like they're sort of trending back to 2019 levels. Do you think you get there over the course of the next couple of quarters? Really, do you think the market might be stronger now than it was pre-pandemic?
Yeah, I think our predictions are coming through. I think we called Q3 as the strong quarter. The evidence is clear. The ruler analogy that I've given in the past still holds true. You know, we're getting very, very quick uptake, and our pricing teams are obviously looking at inventory and adjusting pricing relative to inventory by the day. We're very, very encouraged that it's feeling more like the first quarter of 2020.
Okay. That is helpful. Just I guess, the new slide that Julian spoke to, just on the portfolio repositioning, do you have targets? Do you have set targets for value add versus new build versus MHC?
No, we just remain opportunistic. You know, at the end of the day, you can only buy what's in the market, and you can only buy what makes sense. We're extremely conservative, as you have heard us say in the past, Jonathan, with our underwriting practice. It's a matter of things panning out. We do not have ambitions at CAPREIT to grow bigger. We have ambitions at CAPREIT to become a higher- quality portfolio with stronger earnings per share. If we have to do that through recycling, we're gonna do that.
Okay. Where would development fit into that?
Again, it's opportunistic by site because every site's a little bit different. We're extremely open to still looking at development, providing it pans out. We are very ambitious on growing our development team. The development team has now grown to the largest size in CAPREIT's history. If extracting value through the sale of land or the sale of assets, once we can recognize and crystallize density, we'll do that as well. It's on a property-by-property basis. I can tell you that we are a cautious organization, as we've always said, and the first few projects you see come to market for us will probably not be the biggest projects we'll do in CAPREIT's history. We wanna wade slowly. Very open to selling our land as much as we are building on it.
Okay. Thanks for that. I'll turn it back.
Thank you, Mr. Kelcher. The next question comes from the line of Kyle Stanley with Desjardins. You may proceed.
Thanks. Morning, guys.
Morning.
You've made, you know, really strong headway on the capital recycling program, you know, year to date. I'm just wondering, you know, do you believe there's still a decent amount of wood to chop on that front?
We'd like to chop that wood all day long. You know, we'll stay opportunistic with sales, and where we're seeing very strong pricing in some of the value add assets. The wonderful matching exercise of buying our stock on super sale is an easy one to pan out. We really are embracing the notion of hydrating the portfolio through either acquiring new assets or buying back our own stock. You know, as Stephen talked about, we've got this tremendous debt ladder of low interest rate long debt. If I can buy that at significant discounts to NAV, it's what you call in real estate a complete no-brainer.
Okay. No, fair enough. I mean, you mentioned the various kind of strategic uses of capital you have, including the buyback and, you know, rotating into newer build assets. I mean, how do you make those decisions? You know, has that criteria shifted at all? Obviously, I mean, you know, with the stock trading at a discount to book, obviously, that pushes you more into the NCIB. Just wondering how you kind of balance those things.
Geographic diversification is one criterion. We do try to pencil out return on assets five years out. We say 10, but really, you can only count on five, so you take into account CapEx- type investments. We look at the maturity of the asset, how long we've held it for, how optimal we think it is, and we look at fit. You know, we sold a couple of one-and-a-half caps last year to developers. It just wasn't in our wheelhouse of expertise. Again, if I can match one-and-a-half cap sale with buying back CAPREIT stock in the low to mid fours, I'm comfortable doing that. There's just a variety of factors. You know, you have to match the buyers with the ability to deploy the capital, and it'll be a real mixture.
We've seen some very interesting new build assets that we'll have to really make the decision. Do we buy back our high-grade stock or do we buy into high-grade properties? Not a bad problem to have.
Yep. Couldn't agree more with that. Just one more. This is probably for Stephen. I'm just wondering if you could provide some color on the sequential decline in the other OpEx line. Was this just seasonal or were there some other factors there?
Sorry, you were saying the sequential decline in OpEx?
In the other OpEx line.
Well, it's seasonal. On the other OpEx line. Yeah. They're basically seasonal decline. It's if you look at the normalized NOI margin going forward, I mean, that would be a good run rate for you to project out for the future quarters.
Okay, perfect. That's it for me. I'll turn it back. Thanks, guys.
Thank you, Mr. Stanley. The next question comes from the line of Jonathan Rodriguez with Industrial Alliance. You may proceed.
Hi, everyone. Just further on the asset sales. You know, are you listing those or are they unsolicited bids? If you can maybe give a range of the cap rates of the stuff that you've sold in Toronto, East York, and Ottawa.
Well, to me, it's always a mixture. They were listed, the deals that we did. Two of the buildings in Ottawa, we came to agreement with a joint venture partner to take those to market. We did that in a listed process. The same thing happened in Toronto. Cap rate-wise, we targeted assets that we think, again, we've maximized value where we can recognize high twos, low threes cap rate type transactions. We'll continue to kind of plot around at that pace.
Got you. Okay.
A guiding principle, just as Jonathan, on that is our IFRS values, as you heard Julian talk about.
Yeah.
We also give consideration to what the customers look at. When we can exceed those values and achieve all the other objectives, then we've got something that we'll consider.
Got you. Okay. Just on the, you know, the new build versus value- add. You know, what is the difference in IRRs if you're buying today? Like, say you're buying a new build property right next to a value add. What would be the difference in your IRRs?
Well, just go to cap rate to start with. Like, you know, value- add assets are still selling in, again, the high two s, low threes. If you're looking at low-rise suburban new build, which is kind of what we've kind of targeted ourselves around, you're talking low fours.
Oh, okay.
Low four, low fours. Another metric that we pay very close attention to is price per foot cost in these new builds. What we've realized is that a lot of the new builds that have come to market are probably a good 20% below replacement cost. That's an unheard- of number to walk into a brand new asset below replacement cost without the development risk. I think pretty smart real estate decisions.
Okay, thanks. I'll turn it back.
Thank you, Mr. Rodriguez. The next question comes from the line of Jimmy Shan with RBC Capital Markets. You may proceed.
Thanks. Good morning, guys.
Morning.
Just to follow up on Jonathan's question on the value- add versus the new build. I guess when I think about value add, I think about there's a lot of embedded mark-to-market rent that could come down the road. I guess the question is, like kind of what makes it non-core? 'Cause yes, you may be selling them at a low cap rate today, but maybe on a longer- term IRR it actually looks, you know, at the same or even higher than some of the new builds. Maybe you could talk about that. Then the second question is on just in terms of what's the expectation for more asset sale for this year?
Yeah. I would just say that again. I go back to the, you know, the starting point is kind of pure our number, not broker number, our number cap rate kind of calculations. Again, we shift our mind to looking at what's going on in Canada. What is going on with housing? What's going on with housing supply? What we see is the tide is rising on rents in all asset classes. It's not the old game of mark-to-market and repositioning and getting those increases. That is still there. For an asset that we've held for 20 years or more, the reality is we've done a lot of the heavy lifting.
I look at other brand new assets in a backdrop macro environment where rents are going up, and in an environment where in many cases, the regulatory environment is different, to capture those market rents, even for renewals, we see opportunity. This isn't a broad-based, large sweeping change. We have to stay on this path, and over time, I think do a better job of geographical diversification and move the quality ladder in the portfolio higher. We started with, looking back a couple of years ago, I would have characterized CAPREIT's portfolios being one of the highest quality apartment portfolios in Canada to begin with. We're just going to the next level now.
Okay. What would be your expectation for the rest of the year in terms of asset sales?
Again, it's opportunistic. If you ask me what's on our desk today in terms of deals that we're looking at, I'd have to check with Julian, but it's probably CAD 600-CAD 700 million. A high likelihood we'll do zero of that. We're always underwriting a pretty robust pipeline of opportunity, and I've never been confident saying exactly what we're gonna do. I can only kind of describe the environment. There's a lot of lot of deals in the marketplace. A lot. Even with these higher interest rates.
Okay
We do think that there will be the opportunity for yield spread.
Okay. Okay. Thanks, guys.
Thank you, Mr. Shan. The next question comes from the line of Matt Kornack with National Bank Financial. You may proceed.
Hey, guys. I guess it's a continuation of Jimmy Shan's comments there. I think from your answer, you're essentially saying that you can achieve similar type rent growth in the new assets as some of your existing assets, given the rent control regimes with lower CapEx. Is that a fair assumption? I guess it would be more economically sensitive in that it's at market today. Is that how we should think about the rent growth potential within these new properties?
Yeah. I think that's fair. I would just add that, you know, when all your markets are at rent, if regulatory intervention does happen, you're in a good spot for maintaining value.
Fair enough. On land value within your existing portfolio, and how to potentially get at that and provide new supply. Is there an opportunity to sell the land to a partner that would develop and then buy back the asset or a portion of the asset on completion if you don't necessarily want to incur the development risk or dilution associated with that? Or is that something you've entertained at this point?
Hey, Matt , it's Julian Schonfeldt speaking. You know, we're considering all options and all alternatives there. Specifically, what you mentioned about entitling the land and then selling it there and recognizing the value. Like Mark Kenney said, it's case by case, but if I can get 90% of the value for 10% of the work and let the developer, you know, squeeze out the last 10% of value and do 90% of the work and risk and take the dilution for a few years, you know, sure, we would consider that. It really is case by case and parcel of land by parcel of land.
Especially in an environment where our stock's on super sale, and we can instantly deploy that small amount of gain that we've given up into an even greater opportunity in buying CAPREIT stock.
Okay. No, that makes sense. I guess, nothing in Canada is easy government-wise, but our tax system isn't entirely great in terms of capital recycling. How should we think of the ability to manage tax in this process?
Yeah. We're actually, if you're talking about the taxes that are associated to these sales, we're looking at how we're gonna, you know, manage that for our unitholders, and that's something that we're gonna take a keen look at and, you know, have something in place, hopefully by year-end.
Okay. Thanks, guys.
Thank you, Mr. Kornack. The next question comes from the line of Mario Saric with Scotiabank. You may proceed.
Hey, good morning.
Good morning.
I wanted to touch on the IFRS valuation and kind of the CAD 400 million, give or take, decline. Can you break that down between cap rates and any underlying changes in forecast NOI?
I'm gonna let Stephen take it, but I just, before I do, I just wanna reiterate, you know, we've had a very conservative approach at CAPREIT over the years in calculating our valuations. When you do this by quarter, you have to really kind of assess what's happening in the quarter with trades and really talk on the street and how things are looking. This is a process that does change quarter by quarter. We felt it entirely appropriate to be as transparent and honest with our investors on being conservative on the valuation approach. I'll let Stephen kind of build on the actual NAV calculation process and how we look at things.
Yeah. Just in terms of how we look at it on a quarter-to-quarter basis, our methodology hasn't changed. I mean, we have discussions, various discussions with brokers, with our valuators, and we have extensive discussions internally around values. As you already know, there's been a huge volatility around interest rates, inflationary pressures, and also, you know, you could say there's limited buyers and sellers. There are, you know, strong fundamentals. We see our stabilized NOI has increased. In light of all that, when uncertainty does exist, we believe conservatism is the right approach. The adjustment really is more of a conservatism decision.
You can think of when we usually think about values, valuators are usually ±10% in terms of difference in how they look at the asset. We're taking the more of the lower end of the range or more conservative range point in the range, actually. That's how we looked at the values. As you've already pointed out, stabilized NOI's fundamentals are strong. You can see that in our stabilized NOI on those assets. If we were trying to, you know, dissect the cap rate increase, I would say part of that there was an adjustment for conservatism, and a little bit is also just to ensure that we don't bring up our values too significantly.
We've adjusted through the stabilized NOI component.
Mario, it's Julian. I'm just gonna layer on there. As Stephen mentioned, our lower values they're purely accounting conservatism, and they have nothing to do with, you know, actual transactional evidence in the market over what's been a relatively quiet summer. More importantly, they have zero bearing on our price expectations for our disposition program. When I'm looking at our disposition program, I don't even consider our Q2 values. My starting point is the Q4s, and then we have comprehensive discussions with our acquisitions team that is always active in the market and really has their finger on the pulse.
Okay. Maybe just a couple of quick follow-ups then. In terms of the breakdown of the CAD 400 million between NOI and cap rates, what you're saying is 100% of the CAD 400 million loss is related to higher cap rates and none related to any impact.
That's-
In terms of NOI?
Yeah. The majority of it. That's correct. I mean, there's some CapEx in there, but yes.
Okay. Secondly, on the CAD 600 million-CAD 700 million of assets that you're looking at for sale, are you able to quantify how much of the CAD 400 million would be attributable to those?
Sorry, repeat that. Of the CAD 400, you mean of the write-down?
Yeah. I'm just wondering if a disproportionate amount of the write-down would be attributable to the CAD 600 million-CAD 700 million of sales that you're looking at.
I don't have the number in my hand, but I don't think. Like, I think it would be proportionate to the portfolio. I don't think there's anything to read there.
Okay. Maybe just shifting gears on the operational side. There's a lot of R&M catch-up due to the pandemic. I think last quarter, Mark, you talked about that kind of being done from an expense perspective. Is that consistent in terms of the view today? Like, is the pandemic-related catch-up done in terms of operating cost pressures?
Yeah. At this point, the pandemic catch-up is done. If we're seeing, you know, the pressures in R&M at this point, it would be inflationary pressures. Part of the expectation for us is we have put together a very dynamic new procurement team that we didn't even talk about in the presentation, that we hope offsets some of those inflationary pressures through better pricing. Yeah, we've got our own little signs now of inflation. Pandemic build-up and the volume talk that we were having in Q4 and Q1 is over.
In terms of the same-store revenue growth, it's getting better. Do you have any sense today what the rent-to-income ratio looks like in the portfolio relative to where it was 12 months ago, given the strong-
Extraordinarily low. Like, the average renter at CAPREIT is, you know, putting about 20% of their income into rent, which is just a jaw-dropping number when you look at the markets that we're in and the whole topic of affordability. You know, we are Canada's affordable housing solution. There are folks out there that are definitely struggling. When you look at a portfolio average of 20% of income going towards rent, that is just a screaming sign of affordability in our view.
Got it. Just to be clear, the 20% is reflective of CAPREIT's rent versus kind of disposable income in CAPREIT's portfolio? Or is it kind of more broader market-
Yeah.
Disposable income metrics?
Well, it has to. We do it on broader market disposable income because we use, we have to dispose of the data once we approve an application. For privacy reasons, we have to eliminate that information. We can't hold it. When I'm quoting those numbers, we're looking at average Canadian family income in the markets that we serve.
Got it. Okay. Do you think it'd be materially higher or lower than 20% if we looked at CAPREIT in particular?
No, I think it's very indicative.
Okay.
Again, our port-
Thank you.
Our portfolio is on the higher end of quality. You would expect on that higher end of quality to see slightly higher incomes.
Makes sense. Okay, thanks.
Thank you, Mr. Saric. The next question comes from the line of Jenny Wong with BMO Capital Markets. You may proceed.
Thanks. Good morning, congrats to Stephen and Julian on your appointments.
Thanks, Jenny.
I'm wondering for the CAD 600 million-CAD 700 million of dispositions you're contemplating, could you comment on the geographies of these assets? Are they still very much concentrated in the GTA, or is there opportunity to maybe peel off some assets in other lower cap rate jurisdictions like BC, for example?
The focus has definitely just been Ontario, call it. There's been some, like I said, a joint venture in Ottawa situation we continue to look at. A couple of assets where premium pricing is the most frothy is in the GTA, and so helping us diversify Ontario is great. We really believe in the market. By the way, Jenny, we don't see the new builds in Ontario being quite the same as some of the value adds in the GTA, for example. I would say, though, that what we are looking at is we try to take a long view on return. I would say that if there was opportunities in places like BC, where pricing is still very, very strong, I can't ignore this screaming super buy that we get through our NCIB.
We would definitely have to weigh the future return horizon of assets with the unbelievable value that we're seeing in buying our own stock.
Okay, great. You kind of touched points that lead into my next question. Is that when you look at the capital recycling that you've done and some of the new acquisitions, it would appear that there's a bit of a shift in terms of your market weightings. I mean, it's not that much, but directionally, it's trending that way. When you're thinking about buying new assets, is there any goal in terms of your geographic distribution, or is this really just the result of the individual investment decisions that you're making?
It's always a consideration, but it remains opportunistic. Like I said, when there's assets in the market, we have to take a keen look. Like, I think it's just in part, if I wanna comment on GTA, you know, we're talking now construction costs CAD 1,300 a foot. That makes, you know, buying rental in the GTA concrete high-rise pretty difficult. You know, when we're looking at brand-new construction in markets like, you know, Quebec, and you're talking CAD 300- CAD 400 a foot brand-new construction, this is pretty compelling stuff. It's a multiple deep dive that we look at, always being mindful of geographical focus. You know, this is not a, like I said at the beginning, not a wholesale change of asset composition.
We are moving in a high-grading diversification direction that I think you'll see the trend that you're seeing continue.
I guess, there's no deliberate target in terms of reducing exposure to the GTA and increasing exposure to other markets. It's really just a function of the investment decisions that you're making then, sort of on the margin.
Yeah. Jenny, just to kind of layer onto what Mark said, we do have views on certain markets. You know, our portfolio, which has taken over 25 years to amass, has some overweight positions and some underweight positions. I'd say when we're looking at either acquisitions or dispositions, if they do help us achieve our diversification goals, then we'll consider them very clearly. If they are a little bit off strategy in that regard, we'll still consider them. But I'd say just given they're slightly off strategy, we'll need a little bit better pricing to effect a transaction. That's been our philosophy or guiding principles with that.
Okay, great. Going back to the 20% discount to replacement costs that you were mentioning, Mark. Is that a fairly good number across different markets, or is it a little bit different in the GTA, say, versus in Edmonton and in Quebec?
Well, that's what we haven't seen much in the GTA. I don't think we would find that phenomenon here. The new builds-
Mm-hmm
That are being really happening in Ontario is being held by those that are building. We haven't seen a lot of merchant building at all in Ontario. A little bit in Ottawa, but not so much in Toronto. The scarcity value in our view for new construction are places like you've just said, like Alberta, for example, where projects were conceived five to seven years ago. It takes time to build, finally getting to market now. Low rise, you're seeing incredible price per foot value in my mind for new construction there. Likewise in Quebec. Again, these projects don't show up, you know, two weeks after there's an idea to build an apartment building. We're getting, you know, pricing really that was locked in, I think, three to four years ago.
When you have, you know, a high velocity inflationary market like we have right now, 20% is probably conservative.
Okay. Great. Thank you very much. I'll turn it back.
Thank you, Jenny.
Thank you, Ms. Wong. There are currently no further questions registered at this time, so I'll now pass the conference over to Mr. Kenney for closing remarks.
Well, thank you very much for joining us here today. On behalf of the management team, here at CAPREIT, we thank you for your ongoing interest in our story. If you have any additional questions, I would urge you to reach out to myself, Julian, or Stephen. Thanks again. Have a great day.
That concludes the Canadian Apartment Properties REIT second quarter 2022 results conference call. Thank you for your participation. You may now disconnect your lines.