CAPREIT Reports Fourth Quarter and Year End 2023 Results

TORONTO, Feb. 22, 2024 (GLOBE NEWSWIRE) — Canadian Apartment Properties Real Estate Investment Trust (“CAPREIT”) (TSX: CAR.UN) announced today strong operating and financial results for the three months and year ended December 31, 2023. Management will host a conference call to discuss the financial results on Friday, February 23, 2024 at 9:00 a.m. ET.

HIGHLIGHTS

“After many proud years of increasing our size and scale, we’ve entered a new era for CAPREIT in which we are thrilled to be modernizing our portfolio and growing earnings per unit, as opposed to growing suite count,” commented Mark Kenney, President and Chief Executive Officer. “We have a reinvigorated strategy and team, focused on optimizing our properties to improve quality and operational efficiencies, while also supporting the alleviation of the Canadian housing crisis in all the ways that we can. We’re committed to the enhancement of value for our Unitholders and our communities, and we’ll continue to execute on our strategic objectives going forward, as we effectively demonstrated in 2023.”

“This year, we achieved our target and completed the disposition of over $400 million in non-core properties at a premium to IFRS NAV, while reinvesting approximately $300 million into new purpose-built rental properties located in Canada’s most attractive, highest-density markets, where long-term fundamentals are strongest,” said Julian Schonfeldt, Chief Investment Officer. “Not only have we acquired these prime new buildings at prices that are well below replacement cost, we’ve also reinvested approximately $100 million in our NCIB program in 2023 at unit prices that represent a significant discount to IFRS NAV. Our value-creation strategy is working, and we’re excited to continue recycling our capital and repositioning our portfolio toward high-quality, recently constructed rental apartment properties in Canada.”

“We’re pleased with our operational performance in 2023, with vacancies at a minimum and margins holding strong,” added Stephen Co, Chief Financial Officer. “We’re cognizant of the tight Canadian rental market in which we’re operating today, and in response, we’ve actively scaled back on our in-suite and common area capital expenditure initiatives, as we focus on maximizing our cash returns. However, this strategy involves, to a lesser extent, an intentional increase in repairs and maintenance, which negatively affected our margins as compared to 2022. Despite this, our same property NOI margin expanded by 30 basis points to 65.3% in 2023, which highlights our strong rent growth and other cost-mitigating measures. Our active management of debt financing and leverage has maintained our conservative balance sheet position, and we had up to $340 million in available liquidity on our Acquisition and Operating Facility at year end, in place to provide financial flexibility and support our strategic priorities moving forward.”

SUMMARY OF Q4 AND YEAR-END 2023 RESULTS OF OPERATIONS

Strategic Initiatives Update

• CAPREIT continues to invest in strategic opportunities that are accretive. For the three months ended December 31, 2023, CAPREIT acquired two properties with 162 suites in British Columbia for a total acquisition cost of $91.2 million. For the year ended December 31, 2023, CAPREIT acquired seven properties with 631 suites primarily in British Columbia for a total acquisition cost of $299.4 million.

• For the three months ended December 31, 2023, CAPREIT disposed of 372 suites which were comprised of three non-core properties located in Canada and ten single residential suites located in the Netherlands, for $69.6 million (excluding transaction costs and other adjustments). For the year ended December 31, 2023, CAPREIT disposed of 2,969 suites and sites for $424.1 million (excluding transaction costs and other adjustments) worth of non-core property dispositions.

• CAPREIT did not purchase any Trust Units for cancellation during the three months ended December 31, 2023. During the year ended December 31, 2023, CAPREIT purchased and cancelled approximately 2.2 million Trust Units under the normal course issuer bid (“NCIB”) program, at a weighted average purchase price of $46.53 per Trust Unit, for a total cost of $100.9 million.

• Pursuant to CAPREIT’s strategy to upgrade the quality and diversification of the property portfolio through repositioning and capital recycling initiatives to grow earnings and cash flow potential, CAPREIT achieved its goal of disposing between $400 million and $500 million of non-core Canadian properties in 2023. CAPREIT is currently targeting the disposition of over $400 million of non-core Canadian properties in 2024.

Operating Results

• Same property Occupied AMR for the Canadian residential portfolio as at December 31, 2023 increased to $1,509, up 6.2% compared to December 31, 2022, while same property occupancy for the Canadian residential portfolio remained relatively stable at 98.8%.

• Same property NOI increased by 7.9% and 7.3%, respectively, for the three months and year ended December 31, 2023 compared to the same periods last year. Additionally, same property NOI margin increased to 64.7%, up 0.2%, for the three months ended December 31, 2023 and increased to 65.3%, up 0.3%, for the year ended December 31, 2023 compared to the same periods last year.

• Diluted FFO per unit (formerly known as “diluted NFFO per unit”) increased by 3.8% and 2.9%, respectively, for the three months and year ended December 31, 2023 compared to the same periods last year, primarily due to contributions from acquisitions, same property operational growth and lower trust expense, net of non-routine reorganization costs, partially offset by dispositions and higher interest expense on credit facilities payable and mortgages payable, supplemented by accretive NCIB purchases.

Balance Sheet Highlights

• CAPREIT’s financial position remains strong with $340.1 million of available capacity on its Canadian Acquisition and Operating Facility.

• In 2023, CAPREIT completed mortgage financings of $552.5 million for the Canadian portfolio. To date, CAPREIT completed consolidated mortgage financings of $662.3 million. The mortgages refinanced have a weighted average term to maturity of 6.8 years and a weighted average interest rate of 4.41%.

• For the three months and year ended December 31, 2023, CAPREIT recorded a fair value loss on investment properties (including assets held for sale) of $111.4 million and $914.6 million, respectively, primarily driven by capitalization rate (“cap rate”) expansion in both the Canadian and Netherlands portfolio, as a reflection of the market conditions. The overall carrying value of investment properties (excluding assets held for sale) as at December 31, 2023 was $16.5 billion compared to $17.2 billion as at December 31, 2022.

• Diluted NAV per unit as at December 31, 2023 decreased to $54.23 from $58.01 as at December 31, 2022, primarily due to fair value losses recognized in investment properties, partially offset by the effects of accretive purchases of Trust Units for cancellation through the NCIB program.

OPERATIONAL AND FINANCIAL RESULTS

Portfolio Occupied Average Monthly Rents

The rate of growth in total portfolio Occupied AMR has been primarily driven by (i) new acquisitions completed over the past 12 months and (ii) same property operational growth. The rate of growth in same property Occupied AMR has been primarily due to (i) rental increases on turnover in the rental markets of most provinces across the Canadian portfolio and (ii) rental increases on renewals.

The weighted average gross rent per square foot for total Canadian residential suites was approximately $1.80 as at December 31, 2023, increased from $1.70 as at December 31, 2022.

Net Operating Income

Same properties for the three months and year ended December 31, 2023 are defined as all properties owned by CAPREIT continuously since December 31, 2021, and therefore do not take into account the impact on performance of acquisitions or dispositions completed during 2023 and 2022, or properties that are classified as held for sale as at December 31, 2023.

Operating Revenues

For the three months ended December 31, 2023, same property operating revenues increased by $18.2 million, primarily driven by increases in monthly rents on turnovers and renewals. Total operating revenues increased by $15.3 million during the same period, due to $18.3 million of operational growth, primarily on the same property operating portfolio and to a lesser extent on assets held for sale as at December 31, 2023 and a $3.7 million increase from acquisitions, partially offset by $6.7 million lower revenues due to dispositions.

For the year ended December 31, 2023, same property operating revenues increased by $64.9 million, primarily driven by increases in monthly rents on turnovers and renewals. Total operating revenues increased by $58.0 million during the same period, due to $65.1 million of operational growth, primarily on the same property operating portfolio and to a lesser extent on assets held for sale as at December 31, 2023 and a $16.8 million increase from acquisitions, partially offset by $23.9 million lower revenues due to dispositions.

Operating Expenses

For the three months and year ended December 31, 2023 operating costs increased for the same property portfolio compared to the same periods last year primarily due to increase in other operating expenses. Other operating expenses increased primarily due to higher R&M costs and higher insurance costs. The higher R&M costs in both periods are due to general inflationary pressures, as well as higher maintenance costs that correspond with a reduction in suite and common area capital improvements, reflecting CAPREIT’s strategic reallocation of capital in response to the tight rental market in Canada.

For the three months and year ended December 31, 2023 operating costs increased for the total property portfolio compared to the same periods last year primarily for the same reasons described above. Additionally, for the year ended December 31, 2023, other operating expenses increased for the total portfolio due to certain required maintenance costs for the operation of CAPREIT’s septic systems at primarily two MHC properties, one of which was disposed of on March 1, 2023 while the other was disposed of on June 30, 2023.

SUBSEQUENT EVENTS

The table below summarizes the disposition of an investment property completed subsequent to December 31, 2023:

AT-THE-MARKET (“ATM”) PROGRAM

On February 22, 2024, CAPREIT will file a prospectus supplement to establish an ATM Program that would allow CAPREIT to issue Trust Units up to an aggregate sale price of $400.0 million from treasury to the public from time to time, at its discretion. The ATM Program is designed to provide CAPREIT with additional financing flexibility, should it be required in the future. CAPREIT intends to use the net proceeds from the ATM Program, if any, for future acquisitions, repayment of indebtedness, and for general trust purposes.

“We are excited to launch our inaugural ATM program that will allow CAPREIT to cost-effectively raise equity, from time to time, when favourable market conditions exist, providing CAPREIT with added financial flexibility to execute on its capital allocation strategy,” commented Stephen Co, Chief Financial Officer.

In connection with the establishment of the ATM Program, CAPREIT has entered into an equity distribution agreement dated February 22, 2024 (the “Equity Distribution Agreement”) with TD Securities Inc. (the “Agent”). Any Trust Units sold in the ATM Program will be distributed through the Toronto Stock Exchange or any other permitted marketplace at the market prices prevailing at the time of sale. The volume and timing of distributions under the ATM Program, if any, will be determined at CAPREIT’s sole discretion. There is no certainty that any Trust Units will be offered or sold under the ATM Program. The ATM Program will be effective until June 9, 2025, unless terminated prior to such date by CAPREIT or otherwise in accordance with the terms of the Equity Distribution Agreement.

Given that Trust Units sold in the ATM Program, if any, will be distributed at the market prices prevailing at the time of sale, prices may vary among purchasers during the period of the distribution. Distributions of Trust Units through the ATM Program, if any, will be made pursuant to the terms of the Equity Distribution Agreement. In connection with the establishment of the ATM Program, CAPREIT will file a prospectus supplement dated February 22, 2024 (the “Prospectus Supplement”) to the final base shelf prospectus dated May 9, 2023 (the “Shelf Prospectus”). The Prospectus Supplement, the Equity Distribution Agreement and the Shelf Prospectus will be available on SEDAR+ at www.sedarplus.ca under CAPREIT’s profile. Alternatively, the Agent will send copies of the Prospectus Supplement, the Equity Distribution Agreement and the Shelf Prospectus, as applicable, to investors upon request to TD Securities Inc., attn: Symcor, NPM, 1625 Tech Avenue, Mississauga, Ontario, L4W 5P5, by email at sdcconfirms@td.com or by phone at (289) 360-2009

This press release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction in which such offer or solicitation is unlawful. This press release is not an offer of securities for sale in the United States (“U.S.”). The securities being offered have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and accordingly are not being offered for sale and may not be offered, sold or delivered, directly or indirectly within the U.S., its possessions and other areas subject to its jurisdiction or to, or for the account or for the benefit of a U.S. person, except pursuant to an exemption from the registration requirements of that Act.

ADDITIONAL INFORMATION

More detailed information and analysis is included in CAPREIT’s consolidated annual financial statements and MD&A for the year ended December 31, 2023, which have been filed on SEDAR+ and can be viewed at www.sedarplus.ca under CAPREIT’s profile or on CAPREIT’s website on the investor relations page at www.capreit.ca.

Conference Call

A conference call hosted by Mark Kenney, President and Chief Executive Officer, Stephen Co, Chief Financial Officer, and Julian Schonfeldt, Chief Investment Officer, will be held on Friday, February 23, 2024 at 9:00 am ET. The telephone numbers for the conference call are: Canadian Toll Free: (833) 950-0062, International: +1 (929) 526-1599. The conference call access code is 504875.

The call will also be webcast live and accessible through the CAPREIT website at www.capreit.ca – click on “For Investors” and follow the link at the top of the page. A replay of the webcast will be available for one year after the webcast at the same link.

The slide presentation to accompany management’s comments during the conference call will be available on the CAPREIT website an hour and a half prior to the conference call.

About CAPREIT

CAPREIT is Canada’s largest publicly traded provider of quality rental housing. As at December 31, 2023, CAPREIT owns approximately 64,300 residential apartment suites, townhomes and manufactured home community sites that are well-located across Canada and the Netherlands, with approximately $16.5 billion of investment properties in Canada and Europe. For more information about CAPREIT, its business and its investment highlights, please visit our website at www.capreit.ca and our public disclosures which can be found under our profile at www.sedarplus.ca.

Non-IFRS Measures

CAPREIT prepares and releases unaudited condensed consolidated interim financial statements and audited consolidated annual financial statements in accordance with IFRS. In this and other earnings releases and investor conference calls, as a complement to results provided in accordance with IFRS, CAPREIT discloses measures not recognized under IFRS which do not have standard meanings prescribed by IFRS. These include Funds From Operations (“FFO”), Net Asset Value (“NAV”), Total Debt, Gross Book Value, and Adjusted Earnings Before Interest, Tax, Depreciation, Amortization and Fair Value (“Adjusted EBITDAFV”) (the “Non-IFRS Financial Measures”), as well as diluted FFO per unit, diluted NAV per unit, FFO payout ratio, Ratio of Total Debt to Gross Book Value, Debt Service Coverage Ratio and Interest Coverage Ratio (the “Non-IFRS Ratios” and together with the Non-IFRS Financial Measures, the “Non-IFRS Measures”). These Non-IFRS Measures are further defined and discussed in the MD&A released on February 22, 2024, which should be read in conjunction with this press release. Since these measures and related per unit amounts are not recognized under IFRS, they may not be comparable to similar measures reported by other issuers. CAPREIT presents the Non-IFRS Measures because management believes Non-IFRS Measures are relevant measures of the ability of CAPREIT to earn revenue and to evaluate its performance, financial condition and cash flows. These Non-IFRS Measures have been assessed for compliance with the new National Instrument 52-112 and a reconciliation of these Non-IFRS Measures is included in this press release below. The Non-IFRS Measures should not be construed as alternatives to net income (loss) or cash flows from operating activities determined in accordance with IFRS as indicators of CAPREIT’s performance or the sustainability of our distributions.

CAPREIT undertook a comprehensive review of MD&A disclosures and, starting with the first quarter of 2023, streamlined disclosures to focus on measures and metrics that management believes are the most relevant. Accordingly, CAPREIT is no longer disclosing Ratio of Total Debt to Gross Historical Cost and Ratio of Total Debt to Total Capitalization, amongst others. In this press release, CAPREIT relabelled Normalized Funds from Operations (“NFFO”) to FFO (formerly known as “NFFO”) and as such, introduced a modified definition of FFO which is identical to the prior definition of NFFO. As a result, CAPREIT will no longer refer to NFFO throughout the press release.

Cautionary Statements Regarding Forward-Looking Statements

Certain statements contained, or contained in documents incorporated by reference, in this press release constitute forward-looking information within the meaning of applicable securities laws. Forward-looking information may relate to CAPREIT’s future outlook and anticipated events or results and may include statements regarding the future financial position, business strategy, budgets, litigation, occupancy rates, rental rates, productivity, projected costs, capital investments, development and development opportunities, financial results, taxes, plans and objectives of, or involving, CAPREIT. Particularly, statements regarding CAPREIT’s future results, performance, achievements, prospects, costs, opportunities and financial outlook, including those relating to acquisition, disposition and capital investment strategies and the real estate industry generally, are forward-looking statements. In some cases, forward-looking information can be identified by terms such as “may”, “will”, “would”, “should”, “could”, “likely”, “expect”, “plan”, “anticipate”, “believe”, “intend”, “estimate”, “forecast”, “predict”, “potential”, “project”, “budget”, “continue” or the negative thereof, or other similar expressions concerning matters that are not historical facts. Forward-looking statements are based on certain factors and assumptions regarding expected growth, results of operations, performance, and business prospects and opportunities. In addition, certain specific assumptions were made in preparing forward-looking information, including: that the Canadian and Dutch economies will generally experience growth, which, however, may be adversely impacted by the global economy, inflation and increasing interest rates, potential health crises and their direct or indirect impacts on the business of CAPREIT, including CAPREIT’s ability to enforce leases, perform capital expenditure work, increase rents and apply for above guideline increases (“AGIs”), obtain financings at favourable interest rates; that Canada Mortgage and Housing Corporation (“CMHC”) mortgage insurance will continue to be available and that a sufficient number of lenders will participate in the CMHC-insured mortgage program to ensure competitive rates; that the Canadian capital markets will continue to provide CAPREIT with access to equity and/or debt at reasonable rates; that vacancy rates for CAPREIT properties will be consistent with historical norms; that rental rates on renewals will grow; that rental rates on turnovers will grow; that the difference between in-place and market-based rents will be reduced upon such turnovers and renewals; that CAPREIT will effectively manage price pressures relating to its energy usage; and, with respect to CAPREIT’s financial outlook regarding capital investments, assumptions respecting projected costs of construction and materials, availability of trades, the cost and availability of financing, CAPREIT’s investment priorities, the properties in which investments will be made, the composition of the property portfolio and the projected return on investment in respect of specific capital investments. Although the forward-looking statements contained in this press release are based on assumptions and information that is currently available to management, which are subject to change, management believes these statements have been prepared on a reasonable basis, reflecting CAPREIT’s best estimates and judgements. However, there can be no assurance actual results, terms or timing will be consistent with these forward-looking statements, and they may prove to be incorrect. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond CAPREIT’s control, that may cause CAPREIT’s or the industry’s actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, risks related to: rent control and residential tenancy regulations, general economic conditions, privacy, cyber security and data governance risks, availability and cost of debt, acquisitions, dispositions and property development, valuation risk, liquidity and price volatility of units of CAPREIT (“Trust Units”), catastrophic events, climate change, taxation-related risks, energy costs, environmental matters, vendor management and third-party service providers, operating risk, talent management and human resources shortages, public health crises, other regulatory compliance risks, litigation risk, Trust Units CAPREIT’s investment in ERES, potential conflicts of interest, investment restrictions, lack of diversification of investment assets, geographic concentration, illiquidity of real property, capital investments, leasing risk, dependence on key personnel, adequacy of insurance and captive insurance, competition for residents, controls over disclosures and financial reporting, the nature of Trust Units, dilution, distributions and foreign operation and currency risks. There can be no assurance that the expectations of CAPREIT’s management will prove to be correct. These risks and uncertainties are more fully described in regulatory filings, including CAPREIT’s Annual Information Form, which can be obtained on SEDAR+ at www.sedarplus.ca, under CAPREIT’s profile, as well as under the “Risks and Uncertainties” section of the MD&A released on February 22, 2024. The information in this press release is based on information available to management as of February 22, 2024. Subject to applicable law, CAPREIT does not undertake any obligation to publicly update or revise any forward-looking information.

SOURCE: Canadian Apartment Properties Real Estate Investment Trust

SELECTED NON-IFRS MEASURES

A reconciliation of net income (loss) to FFO (formerly known as “NFFO”) is as follows:

Reconciliation of Total Debt and Total Debt Ratios:

Debt Service Coverage Ratio

Interest Coverage Ratio

Reconciliation of Net Income (Loss) to Adjusted EBITDAFV:

Reconciliation of Unitholders’ Equity to NAV:

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