Hello, everyone, and thank you for joining the Canadian Apartment Properties Real Estate Investment Trust fourth quarter 2025 results conference call. My name is Claire, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two on your telephone keypad. I will now hand over to your host, Nicole Dolan, Investor Relations, to begin. 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 two 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. Let's start on slide four with some key highlights from 2025. This past year, we continued to actively reposition our portfolio, and we met our disposition target by selling more than CAD 400 million of non-core assets in Canada. We also sold CAD 784 million of ancillary interests in Europe. We used a portion of net proceeds to purchase CAD 659 million in well-built, strategically aligned properties, which offer low capital investment requirements and high cash returns above our portfolio average. We also continued to capitalize on the public-private market disconnect by spending CAD 294 million on our NCIB program to enhance earnings for unitholders.
Operationally, same-property occupancies remained healthy at 97.3% as of December 31st, 2025, across which average rent grew by 3.8%. This reflects the effectiveness of our leasing and retention strategies, which Stephen will expand on shortly. Combined with ongoing enhancements to cost management and procurement governance, our same property NOI margin expanded to 64.7% for 2025. In addition, we finished the year with a total debt to gross book value ratio on target at 39.3%, in line with our commitment to maintain balance sheet strength. Turning to slide 6, I want to highlight the progress we've made in transforming the portfolio for long-term value creation. Today, 79% of our portfolio is made up of value-add assets, with 68% of this considered a core long-term holding.
This 68% comprises high-quality, well-located communities that form the backbone of CAPREIT's strategy and will continue to drive stable, predictable performance over the long run. We've classified the other 11% as opportunistic dispositions. These are assets that we would consider selling if we were able to achieve compelling pricing. Maintaining this flexibility is an important part of our ongoing capital recycling strategy, ensuring that we are consistently rotating into higher quality, higher cash-yielding opportunities. In addition, we have an intentional 19% allocation to recently constructed properties. These newer assets help balance the portfolio, bringing down its average age and capital requirements and adding stability from a building quality and operating cost perspective. This mix gives us a more resilient platform through various market cycles.
Finally, ERES now represents just 2% of our consolidated portfolio, down from 6% at the beginning of the year, reflecting the extent of our European dispositions in 2025, which have greatly simplified our business. On slide seven, we've displayed our 2025 non-core divestments in Canada, with CAD 411 million sold. These properties had higher capital expenditures, lower expected returns, or other attributes that no longer met our strategic standards. These sales allowed us to recycle capital into stronger-performing properties, which also contributed to important community partnerships, including meaningful transactions with nonprofits and the Squamish Nation. Then on slide eight, you will see how we spent CAD 659 million to add to our portfolio, 15 well-built, prime-located properties across key urban markets in Canada.
These buildings were acquired at attractive price points with strong economic yields that boost the cash flow-generating potential of our portfolio. In addition, the recently constructed properties were purchased at pricing well below replacement cost. By investing in these mid-market properties and divesting from off-strategy, underperforming buildings, we reduced the portfolio's long-term capital needs and enhanced its performance. Our NCIB activity is summarized in slide nine. This program has effectively allowed us to invest in our own optimized portfolio at a cap rate well above current market levels for comparable assets while increasing unitholder returns. In 2025, we remained active on this buyback program, with CAD 294 million invested at a weighted average purchase price of CAD 41. This represents a substantial discount to our NAV per unit of CAD 56 as of December 31st, 2025.
Since we started leveraging this program in 2022, we've spent a total of CAD 960 million to date to generate higher earnings for unitholders. With that, I'll hand it over to Stephen to discuss our operational and financial results.
... Thanks, Mark. On slide 11, you can see how our portfolio is performing amid softer rental market conditions. The broader housing market is working through a finite wave of new supply coming online at a time that population growth has temporarily paused due to government changes to immigration targets. That combination has put some pressure on operational results. But given these conditions, we're performing resiliently because we have experienced and tactical teams in place who are effectively mitigating those headwinds. A key part of that resilience is how we're deploying incentives. We're using them strategically, not broadly and reactively, but in a targeted, competitive way. At the same time, we have intensified our focus on retention, which has become a major driver of stability.
Our teams are working directly with residents to keep them in their homes through thoughtful, personalized resident experience and retention initiatives, including price adjustments and other solutions. And all of this translated into metrics shown on the slide. Even with the softer backdrop, occupancy remained healthy and above market averages at 97.3% as of December 31st across the total Canadian residential portfolio. And among occupied suites, average rent increased to CAD 1,718 per month. This reflects both the challenges in today's market and how proficiently we're navigating them. So while the broader environment has temporarily softened, our operational strategy, particularly our leasing discipline and retention management, is ensuring the impact to our portfolio is meaningfully better than it otherwise would be.
Turning to slide 12, I want to walk through the turnover metrics for the year and what they're telling us about the current leasing environment in Canada. In 2025, our blended rent uplift on turnover was +4.2%, but the composition of that turnover is important. Residents who have been in their suites for less than two years accounted for nearly half of all turnover at 48%, and those leases turned at a -6.3%. In contrast, the rest of our turnover among residents who have lived in their homes for two years or longer continued to generate stronger performance with +16 rent growth.
Looking ahead, you can see that as of December 31st, 2025, we have 27% of our residents who have been in their suites for under 2 years, and many of those leases currently carry negative mark-to-market. This represents a new cohort of leases in this situation versus 1 year ago. As market rents have declined through 2025, more leases were driven into this negative category, which has in turn extended the period over which we are expecting to feel the impact from this. So while we have absorbed much of the impact from leases that were in the negative mark-to-market bucket a year ago, we are now working through another tranche of leases that fall into this category as conditions soften further. We anticipate this dynamic will continue until we see an inflection point in market forces.
Housing starts are down significantly across Canada, and population growth is projected to readjust and stabilize at sustainable levels, supporting a return to a more constructive supply-demand balance. In the meantime, we still have 73% of our leases with residents who have been in their homes for at least two years, and the vast majority of those suites are embedded with positive mark-to-market value, even in a declining rent environment. This upholds a runway of stable overall rent growth, even if more moderated, while reinforcing the stability of our long-tenured resident base. With this context on our suite turnover in Canada, let's look at how these trends flow through to our financial results. Referring to slide 13, same-property operating revenues grew by 2.8% in the fourth quarter to CAD 224.4 million, reflecting the operational dynamics we have just discussed.
On the cost side, same-property operating expenses decreased 1% year-over-year, driven by lower repairs and maintenance as our organization-wide focus on prudent cost reduction, strong procurement practices, and tighter controllable spend discipline continued to make progress. Together, this drove a 1.3 percentage point expansion in our same-property NOI margin to 64.4% for the fourth quarter of 2025. Our diluted FFO per unit increased 1.6% to CAD 0.632, benefiting from lower interest costs as well as accretive impact of our NCIB program, which reduced our unit count and enhanced per-unit performance. Our fiscal 2025 metrics are shown on slide 14.
Despite heightened cost pressures in the beginning of the year, we grew our same-property NOI margin by 50 basis points since 2024 to 64.7% in 2025, reflecting stronger performance achieved in subsequent quarters. Diluted FFO per unit was CAD 2.541 for the year ended December 31, 2025, up by 0.3% compared to 2024. This earnings growth has been partially offset by net disposition activity and elevated vacancy, particularly in Europe, with the wind down of ERES. On slide 15, we provide an overview of our strong financial structure with a well-balanced mortgage renewal ladder that has no more than 13% maturing in any single year.
We also have ample liquidity, with CAD 188 million in cash and credit facility capacity, a further CAD 200 million in unused accordion option for additional capacity, and CAD 1.4 billion of Canadian investment properties uncovered by mortgages. This flexibility gives us the agility needed to deploy capital into high return opportunities as they, as they arise. On that note, I will return the call back to Mark.
Thanks, Stephen. Turning to the next slide, I want to take a moment to focus on one of our top priorities: cash flow. Our portfolio repositioning program recycles capital from low to high cash yielding properties, and our rigorous property management seeks to strategically minimize discretionary spending, while not compromising on safety, quality, energy efficient, or service standards. On slide 17, you can see that these two initiatives have reduced our capital expenditure as a percentage of NOI to 37% in 2025, down from the prior 10-year average of 46%, which is in addition to the decrease in operating costs highlighted earlier. As we move forward, further strengthening of our cash flow performance will remain a key objective. With that, on slide 18, I'd like to recognize the exceptional talent at CAPREIT.
Our people's dedication and shared vision remain our greatest strength, and this was key to our delivery of solid, strategic, operational, and financial results in 2025. We're proud to see this culture also validated by CAPREIT's certification as a 2025 Mercer Best Employer in Canada. We've never had a more capable team in place to achieve our goals, and on behalf of everyone here, thank you to our stakeholders for your continued trust and support. We look forward to further enhancing the living experience of our residents, improving the communities in which we operate, and creating value for our unitholders in 2026. We would now be pleased to take your questions.
Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Jimmy Shan from RBC Capital Markets. Your line is now open. Please go ahead.
Thanks. So just thanks for the added color on the turnover stats. So two questions there, I guess. On the 27% of the portfolio that are less than two years, how much above market are they? And similarly, on the remaining, how much below market are the above two-year tenure?
Yeah. So, yeah, Jimmy, you're asking for, I guess, the mark-to-market on that portfolio. If we look at the under two years, we're averaging probably around -8%, is what we're seeing. And then anything above that, it's in the +20%. And we would-
Twenty? [crosstalk]
expect to see that, sort of trend to hold over the next, short term, at least as far as we can see in the market. And we'll keep people updated as we see change in trend on that.
Okay. And, I just wanna make sure I understood, I heard right. 20% you said, right?
Yeah, plus. Plus 20%, so it's above that.
+20%. Yeah. Okay. And then, I guess, you know, by my math then, if your turnover rate is around 20%, your churn rate, and half of them are these above-market leases. So it'll take probably, you know, 2.5-3 years to churn through these leases, everything else staying the same.
I think it's got a lot to do with resident mentality as well. Like, if you're paying an above-market rent, then, and you're shopping the market, you're going to leave more quickly than just following the trend line to date. So it is. Again, we've not been through this COVID leasing post-freeze phenomenon before, but we would expect to have a lot more clarity in the spring as the spring market emerges with notices and seeing, you know, what is actually gonna happen. So it's hard to gauge trend right now because the winter season is always slower, but the spring season will really reveal sort of the acceleration of those leases, and we'll be able to give better quantification to the impact.
Yeah. Okay. No, that's fair. And then, then on the OpEx growth, what, what's your... Obviously, this quarter you saw, you know, another pretty good savings, on the other OpEx category. How, how do we think about that for 2026 on a year-over-year basis?
We're pretty excited. We're using more and more technology to help draw in competitive process. And we obviously are looking forward to the benefits of the newer portfolio, which tend to have more pass-through costs to begin with and generally lower operating costs, so that's also helping. It's also a slight function of the assets that we're selling, having higher costs associated with both CapEx and operating costs, and then bringing in these higher quality. But there is more obviously happening than just that. So we think that with ongoing technology and being able to better access the market, we look forward to those cost controls continuing without compromising standard.
Yeah, Jimmy, well, if I look at 2026, I mean, we're in the first quarter, we're, you know, there's a mix of things happening, but we're gonna have a benefit of the carbon tax reduction that, you know, was effective last year as of April. So on a base effect, it's gonna be.
... you know, favorable. But again, the winter season has been a bit challenging. There's a lot more snow. It's a lot colder in terms of the weather. I mean, if I exclude all those things, I mean, I would just say OpEx growth was, you know, where we were forecasting was gonna be about inflation. But if there's that impact of carbon tax and the heavier snow and colder winter, you know, you kinda have to balance that or adjust that in your model.
Okay. Okay, thanks, guys.
Thank you. Our next question comes from Mike Markidis from BMO Capital Markets. Your line is now open. Please go ahead.
Thanks, operator. Good morning, Mark and Stephen. I just wanted to ask, like, I guess, following on Jimmy's line of questioning, and came up with his own estimate 1 to 3 years to get through the less than 2-year cohort, I guess we would call it. But that presumes, you know, they stay in place, and they don't reset along the way. So I guess my question would be is, you know, given what you're seeing, should we expect that your renewal rate experience will continue to be under pressure just because you're gonna try and retain some of these, and they get reset down to market as we go without term?
I would say, you know, Ontario renewals are extremely solid, given the guideline. But we still think that we can expect greater than 2% type renewals overall. Different markets that are, you know, western markets that are fully at market, obviously, are gonna have a different renewal experience than places like Ontario or even in Quebec, for that matter. But it's-- we're still feeling strong in the renewal front. It's adjusting through these post-COVID leases that CAPREIT overall have to sort of work through, given our +30% mark-to-market achievement during post-COVID. That's what we're working through now.
Okay. No, that's fair. So, I mean, I guess if you think about sort of revenue, and I know you don't like to give forward guidance, but, I mean, this 2%-3% revenue growth kind of the, the objective for this year, or would that be a good outcome, given what you're seeing?
Objective and what we're shooting for is a good way to put it. And yes, we're... Again, the only reason I'm pausing slightly is it's all in the spring market. The spring market will really give us confidence in sort of direction here, but we will keep people posted.
Okay. And I guess you guys do get leads, but, I mean, when does the, you know, in keeping with that theme, with the spring market, because your, your comment's not dissimilar to what we're hearing from other peers. But when do you typically, Mark, historically, see that uptick in spring leasing and, and maybe not just the leasing, but the leads and the traffic, where we'll be able to, you know, get a sense of how that's shaping up?
Ontario, 60-day notice, so 60 days prior to whatever month we're calling spring, spring or summer, we get, we get a lead, get an idea of velocity. Quebec is, we get a lot more lead time, so we're already starting to form a view in, in Quebec, and some of the other markets are 30 days, so they it comes up and sneaks on you quite, quite quickly. And so we're not seeing, notices given. So the CAPREIT portfolio is anchored in Ontario, with, you know, 60 days kind of visibility, and, and we, we don't quite have a view on that yet.
Okay. Last one from me before I turn it back. You know, market rents obviously declined last year, and you've got many different markets, so I'm sure it's very specific. But just broadly speaking, do you think market rent growth has decelerated? Has it stabilized? What are your thoughts on that right now?
We're in a very interesting window of adjusting to the impacts of temporary residents leaving and new supply coming at never-before-seen volumes in Toronto, Vancouver, Montreal. These are key markets for us, obviously, but we're somewhat insulated. The Greater Toronto market for us is suburbs primarily, and that's holding up quite strong. You know, the core of Toronto is where the most pressure is, and we've talked extensively about, you know, micro condos not being competition for us. But you can't really. There is a window here that we've never seen before in our country's history of decelerated population growth and supply that was initiated four years ago, so four and five years ago, quite frankly.
So despite that, we're quite optimistic with how things are holding together, but that's why it's hard to call the market. It was quite easy when we had steady immigration and steady housing supply, and that was the substory for over 20 years. And now we're in this period of rapid adjustments, really going back to 2015 of COVID, you know, 2015 to 2020, temporary resident acceleration, COVID. What happened post-COVID has never happened in the country's history before, with over one million people a year coming in three years in a row, followed by a population decline. So obviously, this is gonna have short-term impacts on the rental market, but the broader outlook is incredibly positive, given the lack of starts of housing that we're seeing in coast to coast.
It is very, very difficult to kind of navigate exactly where this is gonna line up, but the outlook is very positive.
Understood. Thanks. I appreciate the comments.
Thank you. Our next question comes from Jonathan Kelcher from TD Cowen. Your line is now open. Please go ahead.
... Thanks. Good morning. Just going back to the turnover slide. You talked about the mark-to- market under, on the under two years being at - 8%. How has that trended, and do you think that's peaked?
Well, Stephen can talk about what, what percentage of those under twos are left, and then really what you're asking is what we're all trying to figure out, when will those people give notice? Will it be steady as it's been, or will it be accelerated in the spring? You know, anyone's guess is, is really there, Jonathan. We don't have the insights of what people are thinking with their, with their, intentions to move. But we know what's happened so far, and it's been relatively steady. But we haven't been through, like, that spring season like this, so we'll see. I know I'm not giving too much clarity on this, but I can only talk about our experience to date and what we can anticipate, given the fact we've never been through this before.
Okay. Fair, fair enough. And then, Stephen, just back on the op cost question. You said, excluding carbon tax in the winter season, you're expecting about inflation for the year. Would you say the, like, challenges from the winter season, the carbon tax, did it—like, do they fully offset each other, or is one sort of bigger than the other?
Yeah. Well, I mean, I would say the colder winter probably has a bigger effect. And then you also have some of the additional, we have snow hauling that we, I would say, is non-recurring, or at least for this year, is going to be much greater than last year. And what we're expecting is about CAD 200,000-CAD 300,000 incremental in terms of cost. But definitely, I think the colder season has a much bigger impact. And we're right, we're right in the middle of it. Like, you know, we had a week of - 20 degrees Celsius weather in Toronto, so real-time, it's hard to kinda grasp-
Yeah. [crosstalk]
... the first quarter when we're literally in the middle of it, but it, it's been cold. It's been cold, definitely in the eastern part of Canada. And yet we've got a lot of energy initiatives that we put in last year that will help mitigate, but it's real-time, right now, Jonathan, like we're mid-February kind of thing, and it's warming up a little bit. But if we had a 40-day, 45-day forecast, we could probably give you a better answer, but it's hard, hard to tell right now.
Fair. Fair. It has been cold. It has been cold. And lastly, just on the 11% of the portfolio that's still in the opportunistic disposition bucket, how, like, how should we think about timing on that? Do you have any, any disposition targets for this for 2026?
So we have we haven't guided on that at all, but this is definitely opportunistic. There is no rush here. These are steady-performing assets, but if we can arm the market with getting low cap rate deals across the line and replacing them with new, newer construction or legacy assets at a higher cap rate with better CapEx profiles, then we will want to pursue that. And we're really about you know this the adjustment period is over, and we're looking for opportunistic growth now. We are a real estate company that's committed to real estate, and we're out there looking very hard for the right deals for cap rate.
Okay. That's, that's it for me. I'll turn it back. Thanks.
Thank you. Our next question comes from Kyle Stanley, from Desjardins. Your line is now open. Please go ahead.
Thanks. Morning, guys.
Morning.
Appreciate, appreciate all the commentary on the spring leasing season and how obviously difficult that is to forecast this early. But just maybe thinking about before we get to the spring leasing season, how has leasing demand been to start the year? Have you noticed any changes versus the fourth quarter? You know, obviously, the snow and cold, late January, early February, that you were just talking about, has that impacted demand at all? Just curious on your thoughts.
Yeah, it's a good question. It's been chilly in the rental offices as well. You know, it's weather does impact things. We saw the same phenomenon last year, and we were trying to figure out was it the effect of Trump tariffs or was that having an effect? And then, the spring leasing season was pretty decent. We feel very good about the quality of the portfolio. We feel very good about the acquisitions and dispositions that we've done. We think we're well-positioned once the weather does kind of warm up. But it's a very typical phenomenon to see people, like, defer the decision when it's -25 degrees Celsius outside. And this has been an exceptionally cold season.
So again, hard to say, but we have to acknowledge the fact that it's definitely not been a robust season of leasing.
Okay. No, that's fair enough. Maybe just moving over to kind of your commentary on the, the capital recycling program and, you know, indicating that you're, you're approaching the end, the bulk of the work's been done after a busy couple of years. How does your, your kind of corporate strategy shift in, in response to that? I mean, and, you know, you just talked about the 11% of the portfolio that's opportunistic for dispositions. I mean, has the disposition environment shifted? You know, do you expect that you can still get the, the solid pricing that you've been able to get? I'm just trying to think about, you know, the next steps, as, you know, maybe this chapter is a little more closed.
... So the disposition market has definitely had an effect of I think programs, government programs, whether they be nonprofit programs or MLI Select. And those programs marry up with our ambitions of the part of portfolio we want to sell. And it's also good corporate citizenship to be vending into a good cause for Canada. So we will always be focused on maintaining value for our unitholders, but if those programs continue, as we expect they will, especially on the Rental Protection Fund front, we're still waiting to hear from the federal government on more clarity there. But that, that's very positive for the value of the portfolio.
I'm glad you brought this up, Kyle, because what I can tell you is, we, you know, have seen our valuations really hold up well. You know, it's been proven out by our disposition program, and we're seeing trades in the marketplace that people are still very much interested in the apartment market. There's plenty of liquidity for apartment buildings. There's a lot of trades going on out there, and it's very. It's much more diverse in who the buyers are than I've ever seen before. So it's not like one party is leading the valuation in the marketplace. It's highly diversified in terms of who the buyer pool is, and that's great news for CAPREIT. It's great news for all the apartment REITs, quite frankly.
That's why we're all quite passionate about our NAV and very comfortable about NAV because we keep all of us, quite frankly, CAPREIT and our peers, are proving it out in dispositions. And we're really proving it out with the dispositions that are probably not strategically aligned for the long run. So all good news there. Stephen, would you add anything to that?
No, I guess, you know, Mark always talks about it. We have three buckets that we can deploy capital, and right now, debt is, you know, it's fairly stable in terms of rates, and that's definitely not where we're going to deploy. But opportunistic acquisitions, obviously, the NCIB program, where, you know, the private-public disconnect in terms of pricing, I definitely think the NCIB is very attractive to us.
Okay. No, that's very helpful.
Yeah, and we've talked about this, like, you know. Again, I'll talk to our peers as well. Like, none of us are trading at valuations where you can buy apartments at these cap rates. Like, when you look at our trading values, when you look at cap rates, it's massively disconnected, coast to coast, not just unique to CAPREIT. It's coast to coast. And we are, in particular, puzzled by this disconnect in our case, because there's such strong liquidity for our assets. But that, that's a story that'll continue on, no doubt, and we love to talk about that whenever we have a chance to, because there's plenty of proof.
Right. No, that, makes a lot of sense. I appreciate that. Just another maybe a high-level question. The last Rentals.ca report, it kind of highlighted an improvement in affordability across the country, with rents now on average representing less than 30% of median incomes. That obviously probably isn't the case in Ontario, but I'm just wondering, are you seeing any changes in tenant behavior that would suggest maybe affordability is less of a concern today than it's been?
All I can say is that it's great news for Canada. I love hearing these kinds of statistics for Canadians. It's not the greatest news for development because as rents fall, the likelihood of breaking ground on new homes also falls. We need a bit of balance in the market, given the population decline story that we're seeing in pockets across Canada. And we need that absorption of that supply from a business point of view for it. But as a Canadian that's talked loudly about this, I'm very happy to see affordability falling in line, and the market will become balanced, and that's good news for all of us.
Right. Okay. Thank you very much. I will turn it back.
Thanks.
Thank you. Our next question comes from Brad Sturges, from Raymond James. Your line is now open. Please go ahead.
Hey, good morning. Just, I guess following on some of the lines of questions that Kyle had there, just on, maybe broadly speaking on the acquisition opportunity set today, what, what are you seeing in the market, whether it's new construction or kind of your core legacy asset pool, that would have kind of a low CapEx feature that you're looking for? Is the opportunity set sort of shifted or the composition changed at all in the last few months?
I think that we are seeing a fewer deals come to market. It is quite difficult to find opportunities out there, which is a double-edged sword. It shows the strength and the interest that investors have in apartments in Canada. It will. We have to remain disciplined in CAPREIT's approach to hunting value. But, as an example, Brad, the developers that got caught during COVID with higher interest rates and just had to sell because of leverage, those situations have washed through the market now, and we're seeing less and less of that. It's more portfolios that maybe have other assets attached to them, other asset classes that need some liquidity, and apartments are a good place to go for strong liquidity....
But it's volumes are relatively light, and cap rates are holding up relatively quite strong. So, you know, the spread between cost of money and cap rates that are trading in the market is very much in line with historical, if not on the low side. So the rates are a bit higher, cap rates are a little higher, but the spreads are holding together, if not compressing slightly, which is, again, a bullish story for the Canadian rental market.
If, you know, if there's a bit of distress or liquidity requirements from a developer, like, would you be willing to take on a bit of lease-up risk to get better pricing on a very attractive long-term asset?
Absolutely. We're absolutely... You know, we are a real estate company that has gone through repositioning that's poised to grow. Steve had talked about our leverage levels being very conservative. But to temper enthusiasm, because rents have fallen a little bit, it's not the developer selling that we would see opportunity in. It would actually be bank repossessions, where you really get, you know, rents falling in line with what valuation should be, and that's really yet to happen. So you've seen a little bit of that on the land development front, but we've not seen that in the apartment market. There's still, you know, frothy demand for deals out there, and values really just haven't collapsed to the same extent that rents have.
Understood. Thanks. I'll turn it back.
Thank you. Our next question comes from Sairam Srinivas from ATB Capital Markets. Your line is now open. Please go ahead.
Thank you, operator. Mark, going back to your comments on, you know, the various markets and their performance, and then you overlay that with your comments on the growth for CAPREIT ahead, how are you seeing a geographic capital location strategy in terms of acquisitions?
It's a great question. CAPREIT maintains that the best rental markets in Canada are Toronto, Vancouver, and Montreal. And as we work through this shift in temporary residents, those are the markets that are affected. And because those markets were really the landing spot for immigration, that is where we saw the most development. Okay? So there is no question that when we return to, like, stable population growth, these are the markets to be in for the long term. Canada is working through unprecedented post-COVID temporary resident growth. You know, and we, I think, Sai, we may have showed you before, in our investor deck, this phenomenon of temporary residents that's never happened in our history before. And those residents are being converted into permanent residents now, which is the form of immigration, but it's resulting in population decline in some markets.
So what we will look for, in all likelihood, are opportunities, across the board, but we're going to look for more stability in markets that represent good affordability, that represent good strength. But we're going to remain disciplined. And it's hard to predict because we're in 10 markets now. We've got our eyes on all 10 of those markets and open to new ones, but really with a keen focus to what CAPREIT's all about, which is our key big Canadian rental markets. And we remain quite bullish on the outlook for those markets. But again, we've not been through this window of time before. But the outlook is strong. It's very, very good.
It's, it's just, you know, you look at that population growth chart, and you look at supply, and you see the whole story.
No, that definitely makes sense, Mark. There's a lot of strength out there. Maybe just looking at your comments on, you know, possibly these mixed asset portfolios that could be out there, could we see CAP probably partner up with maybe some other, public or private partners specialized in other asset classes to take on these acquisitions?
We're very open to looking at all opportunities. You know, joint ventures, if there's good value for us, is something that we would obviously, we've always been open to. There's nothing new there. There might be a little bit more of that if you get, you know, partnerships in distress, and we think we can add value or look for compelling value. Again, when there's low trading volumes, because, you know, when values are holding up, you have to look at creative solution, and CAPREIT has a history of looking at creative solution, and we remain committed to that.
That makes sense. And, speaking of solutions, other operating expenses, which were significantly down this quarter, I think that's a big win for you guys. I know we spoke about this in September last year, but would you say the entire impact of all the OpEx initiatives was reflected in Q3, Q4, or could we probably expect a little bit more of that going forward?
Yeah, I think we've got our team hard at work, and they're looking at all opportunities within R&M, any controllable expenses. And also, even when we talk about, Mark mentioned about energy efficiency initiatives, we're also looking at that. I would say, you know, there are probably some opportunities within the next couple of quarters. So it's not completely baked in, but again, I'm leaning more on the conservative side of saying there's probably, you know, OpEx is probably excluding the weather and also the carbon tax is going to be about inflation, but I think we can probably, you know, exceed that.
That's amazing. Thanks for the color, guys. I'll turn it back.
Thank you. Our next question comes from Mario Saric from Scotiabank. Your line is now open. Please go ahead.
Hi. Thank you, and good morning, guys. Mark, I want to come back to your comment on unseen supply in Montreal, Vancouver, and Toronto. Great long-term markets, but facing a bit of a perfect storm in the short term. Based on your kind of internal data, what's your expectation of the timing of peak deliveries in each of those markets? Is it a late 2026 thing?
That's a-- Yeah. Yeah, that is definitely a 10-market question to answer, because they all, they all are quite different. And it's further complicated by the fact that if you looked at the... I'll use Toronto as the example, Mario. If you look at the deliveries in Toronto, you, you could not form a clear view because our portfolio is suburban and not affected by the deliveries that you see in the data. So it is. And I'm not trying to skirt the question. It's so unique to each market, that there's impacts that would appear to be severe for us, that are not, and then there's other impacts that don't appear to be there in the data, but they are because of the maybe rent level, for example.
So it's in general, directionally, we've got this issue going on, not CAPREIT, but all the apartment REITs. CAPREIT for Toronto, Vancouver, and Montreal is being sensitive to where we're located. But when you have population decline and deliveries of supply, unprecedented on both metrics, you're really navigating. Now, where we're quite fortunate is we have this affordable mid-tier market, and what we're waiting to see play out is that we know when there's a housing crisis, there's a strong rental market, and we know when there's uncertainty, people will rent over buy. So it's very difficult to see that be revealed right now because of the season that we're in, and just the nature of this situation is very, very unprecedented. So, and it's highly concentrated. So, you know, you've got these very unique pockets of markets with high supply.
You've got to look at the immigration impacts and poor population growth in general, and it's playing out not as bad as it would appear on paper, simply because of the affordability of the portfolio and the desirability of the assets that we're buying. So it really is around that kind of expertise more than it's around data.
Got it. Zoning in on your GTA portfolio, I don't know how you answer this, but in terms of being able to quantify the variance in performance, between the downtown core portfolio and the suburban portfolio, how would you characterize that? Like, whether it's, direct growth or some other metric.
It's a great question, Mario. Like, our portfolio is primarily suburban. The downtown core assets that we have have more of a COVID impact than they have, like, this market impact because we have large suites, not micro condos. We were getting above new construction rents in some of our downtown core buildings. That's what we're working through, but we're still seeing mark-to-market in those assets in the non-COVID, COVID leasing period or post-COVID leasing period. So our portfolio is holding up quite well in the core because of size, desirability, and we don't have a lot of this new construction, you know, four-dollar-plus foot rent comparative. We have one asset, our Strata asset, that's in Little Italy, downtown Toronto, and it's holding up like it's in a great market.
So it's literally, you know, corner, the corner of, whatever streets you're on that, that really does impact things. Strata, as an example, very, very small asset, large suites. Large suites, desirable area, smaller building, boutique-high style, and, and holding up really, really well.
Okay. Just shifting gears to the incentives. They ticked up to 1.3% of revenue during the quarter. As, as you indicated on the Q3 call, it may tick up during the winter. Sounds like the leasing velocity thus far, because of the weather, may be a bit tempered. So I guess two-part question: Would you expect a similar ratio of incentives to revenue in Q1? And then secondly, is it still a fair assumption, granted, there's lack of visibility with respect to this new leasing season, but are you still targeting something closer to 1% through the remainder of 2026?
Yeah, we're feeling comfortable there. If you look at last year's experience, we saw exactly the same thing. We saw incentives really roll up in the winter season and then taper off in the spring leasing season. And again, we hadn't seen that before. CAPREIT was quite aggressive with our incentives granted last year because we weren't quite exactly sure the direction of the market, but then it tailed off. And so the hope is, again, with the emergence of the spring market, we'll have far better clarity on where we're going here. But we're, our use of incentives is very disciplined, and it's completely correlated to local competition and who's using them, but we're following the leader instead of being the leader this year.
Let's maybe the last question on the incentives. I think, in Q2 or Q3 last year, they came down a little bit, but it was in part because it concluded that, cutting base rent, was being more impactful, than the use of incentives. Where are you leaning on that spectrum today in terms of offering incentive versus, reducing the base rate? And is one more impactful than the other from a tenant psychology standpoint?
Yeah. Mary, I think it's the same. I mean, in terms of we've already cut base rent, so it's not our strategy to do that going forward. We've already done that exercise. So really, it's just your use of incentives. Again, I think it's probably a seasonality that's at play right now. And then we'll really see what happens in the spring leasing season. Our expectation is hopefully it's gonna be similar to last year. But we do see elevated, you could say, just as a percentage of revenues, incentive use just during this winter season so far, and then hopefully it'll taper off.
Okay. Steve, now, now you made one last question of mine. Sorry. That's slide 12, the turnover slides. It's great information. I think we all really appreciate it. Do you have a sense of what those bars looked like a year ago? So the less than two year being 20%, 27% of the lease tenure today, and do you have a sense of how those look compared to a year ago?
I'll have to get back to you, but I'm happy to chat offline about that, Mario.
Sound good. Thank you.
Yeah.
Thank you. Our next question comes from Matt Kornack, from National Bank Financial. Your line is now open. Please go ahead.
Hey, guys. I actually wanted to talk about renewals, because you have this artificial now post-COVID spike in January. Are you still getting kind of roughly rent control levels? You're not having to give too much in the way of concessions or, how should we think about that figure for Q1 on the renewal front, given the outsized GTA renewals, Ontario renewals, I should say?
Yeah. So yeah, we have, we have that data. I would say, Matt, it's, we are getting close to, the guideline increase. So there has been, like, as we kind of pointed out in the conference call, we, you know, our retention team is really working diligently with our existing tenants, trying to work out, certain payment plans that they're ex- you know, exceptionally above, if they're exceptionally above market. But, generally, I'll just say, we're, we're, we're achieving close to, the guideline increase.
Okay. So that's a nice anchor for growth at the end of the day, because as much as it seems like, turnover has ticked up a bit, it doesn't seem like people are necessarily leaving suites, in, in a significantly higher portion than we saw. But maybe if you could give us a bit of color with regards to the type of turnover you're seeing, because I guess if you're sitting at an above-market rent, but you like your unit, don't you just ask the landlord to give you a lower rent? Like, I'm trying to understand that dynamic a bit.
So, I would say, Matt, I want to highlight the, you know, the double-barrel benefit we're going to get here, in the midterm. We're seeing—gonna see the bleed off of the COVID leases, which would be beneficial, and we're going to see the rebalancing of the market as we work through supply and population growth. These are both big drivers for CAPREIT. Everybody's trying to guess when that exactly happens, but, you know, we've talked about when the COVID lease thing will bleed off. That's more predictable than the overall health of the Canadian rental market, which again, could be very surprisingly offset by economic uncertainty and people wanting to rent versus own. So that is all kind of good news that I'd want to highlight.
It's literally working through the timing of when that all materializes.
That's fair. And I-- not to talk up someone else's economist, but I think Ben Tal at the Toronto Real Estate Forum was talking about the fact that in Toronto and Vancouver, you had this huge amount of roommating and doubling up, that there's probably excess demand sitting on the sidelines. So, I mean, at a certain point, would you expect to see kind of that demand come back if they're well-employed and making money into the rental market or-
Yeah.
Consolidating the housing?
Well, it's a great point, and we concur with Ben Tal's comments. I've been talking about this as another potential driver. When we saw a 10% turnover, we had a lot of this built up demand because the market was just so tight. Now, we're getting to 20%, which is in part due to the new construction portfolio. But there's no question that when the average age of a first-time homebuyer, for example, in Ontario, is 40 years old now. 40. I don't believe they're living with mom and dad, so that means they're probably renting a roommate. And so that stat alone is very much leading towards this household consolidation of roommating.
And I hate to say this, but again, another tragic fact for Canada is just the birth rate is just so low, that the younger people are going to be looking for a lifestyle if they're not getting married, or they're going to be looking for rental, like we said. So we've, you know, intentionally focused our new construction portfolio around amenitized buildings, where we see young professionals. And young professionals that aren't married, that aren't having kids, are far more likely to want well-amenitized buildings, and that's what we're kind of playing into. So a bit of a long answer there, but absolutely we concur with Ben's assertion. It's well known that this whole roommating phenomenon is very prevalent in Toronto, Vancouver, Montreal.
Yeah, makes sense. Switching gears completely, and I admittedly have not had time to fully vet the numbers, but it looked like the G&A was lower, right? And there may be some one-time issues there. But maybe, Stephen, if you could give us a sense as to kind of where you expect G&A to come in for 2026, or what a good kind of quarterly run rate is at this point.
Yeah. So Matt, I think we expect it to be, I would say, fairly flat to 2025. If I give it as a percentage of revenues, it's about, you know, 4.8%. So I think, you know, there's opportunities within G&A. I truly believe that we can probably do better. So, but I just tend to be on more of the conservative side.
Stephen makes a very important point here, that we've talked about, but relative to peers, we're doing extremely well as a percentage of revenue. And, we've got a great team, and, that team is capable of more. And, we've right-sized the team with the size of the portfolio in an exceptionally well-matched way.
We continue to see technology having opportunity, which we will, through attrition, no doubt be able to capitalize, and we remain fully committed on the G&A front to show progress.
Okay, thanks. Then last one for me, just on procurement. I know you guys were going through that process. Not a fun process to kind of rejig those, but how is it progressing, and is there still more to go from a cost-saving standpoint as you look to-
Well-
-rationalize procurement?
Yeah. The team is working very, very hard. And again, I made comments on technology. We have more technology. We hope to help us access the market even more broadly. But again, this is an area that we know that we can find improvements in, and we will do everything we possibly can to deliver that in the short term.
Okay, thanks. Makes sense.
Thank you. Our next question comes from Dean Wilkinson from CIBC. Your line is now open. Please go ahead.
Thanks. Morning, guys, and Matt, feel free to talk over anonymous all you want. Mark, just want to go back on the inducements question that Mario asked. The tripling of that number, 2025 over 2024, do you think that that's more related to those newer tenured tenants, perhaps in the newer buildings? And if so, how do you look at that going forward and the trade-off between being able to mark those rents and sort of buying ostrich, if you will, in short term?
I think I heard you. You're a little bit muted, but I'll try to answer what I thought I just heard there, okay? If we're talking about escalated turnover, Dean, is that what I heard?
The lift from the inducements.
Inducements. Okay. I think the lift in inducements does have. The new portfolio definitely has an impact on that. I'll kind of go back to the point I thought I was going to answer. The newer construction portfolio, higher churn, so 20% of that portfolio is experiencing higher churn rates than the core portfolio. In those, both the core and the higher churn new portfolio, we're using incentives, okay? But the acceleration to your answer is, yes, it is because of that. It is having an effect, but what that also means is it falls off much more quickly when the market sort of regains balance. But we're very, very happy with our decision here on the new construction portfolio in particular because of the cash flow attribute.
So even with these incentives and even with, you know, accelerated turnover, these are proving to be exceptionally wise cash flow investments. And we're very excited about the ability for those assets to capture the market when the market comes back in strength. Our problem in the Ontario portfolio is always low churn and not able to access market rents when the market was improving, and we're well positioned to capture that when the market is well-balanced.
Perfect. That's great. Thanks, Mark.
Thanks, Dean.
Thank you. We have a follow-up question from Mike Markidis from BMO Capital Markets. Your line is open. Please go ahead. Mike, your line is now open. Please go ahead.
Thank you. Sorry about that. Unprecedented times, perfect storm, all this stuff. Totally get that, Mark. I'm just curious, how would you compare what we're seeing today in Toronto, Montreal, and Vancouver to what we saw in Calgary and Edmonton in 2016 and 2017?
Different dynamics, different rent levels, like the market in, in Toronto in particular, the part of the market that's most impacted is the +CAD 4 a foot market. So definitely affordability, would be a bigger driver here versus people leaving, okay? When an economy gets hit, like you see in Alberta, and people leave because they lost their job, that's very different than roommating because of affordability and, you know, that, that kind of, pressure. The kind of supply that we're seeing in Toronto, Vancouver, Montreal, is typically concrete and far more expensive, therefore commanding a far higher rent level. So that, that's a little bit different than wood frame, Alberta, Saskatchewan, I'm gonna call it. So that's how I would say the difference is here.
But also, it's this adjustment, like you said, Mike, the perfect storm, which isn't really—it's more of a spring shower than it is a hurricane in our case. We've been holding up our vacancies like we are and holding up our rents like we are. So we're trying to give good color on the changing environment, but we're also really excited about inflection, and it's gonna happen. And it's just a matter of us trying to figure out the data. You know, we were talking internally here about all the data we're now gearing in on our markets, to really try to better understand the specifics around completions, starts, immigration, unemployment.
None of these things had to be looked at in the past when you had steady population growth with immigration and natural population growth and steady supply. So, this is a very much made in Canada problem in our big centers and highly influenced by government policy. I do feel that the government gets the message, and they're doing what they can, and balance will be restored. We don't want to lose our development industry in Canada, and government understands that, and we're really, really pleased with the kind of conversations that we're hearing from the provinces and the feds.
I think we can all hope for that spring shower that you referred to after this winter. And I guess the one important point is you've got embedded Mark-to-Market, which I guess is the key difference. Not all your rents are at market, so appreciate the comments.
Absolutely. And thank you for highlighting that, because if it wasn't for CAPREIT's dramatic increase in rents mark-to-market post-COVID, you'd be seeing more of the real value we've got in the embedded portfolio. And we do have a big insurance policy sitting underneath this portfolio in those mark-to-market rents, and we're very, very happy about our strategy and what we've done to keep that insurance policy strong.
Great. Thanks so much.
Thanks.
Thank you. We currently have no further questions, and I would like to hand back to Mark Kenney for any closing remarks.
I'd like to thank everybody for your time today. It was a long call, and if you have any further questions, please do not hesitate to contact us at any time. Thank you again, and have a great day.
Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.