Canadian Apartment Properties Real Estate Investment Trust (CARUN) Earnings Call Transcript & Summary

Thanks, Corinne. Good afternoon, everyone, and thank you for joining us today. Before I begin, on behalf of the Board of Trustees, I want to thank everyone at CAPREIT for their significant contributions over the last 18 months. It is the experience and the dedication of our team that's generated such strong performance through the challenging times resulting from the pandemic, and we owe them a real vote of gratitude. I also want to thank our residents for their understanding as we work through these months together. We know the challenges that you've faced, and we are grateful for your patience. Turning to Slide 3. You can see that 2020 was a year of significant accomplishments for CAPREIT as we successfully manage through the pandemic, generating another year of record performance. Most importantly, we met our goals established when the pandemic hit. We preserved capital, maintaining a strong and flexible financial position, mitigating risk and generating the best operating results possible. Let me touch on a few highlights from last year. Despite the almost full year of operating under the COVID-19 pandemic in 2020, CAPREIT achieved a number of real accomplishments that we believe will contribute to continued strong performance in 2021. As you can see on Slide 4, all of our key performance benchmarks were up over 2019. Organic growth was strong, we continue to expand our property portfolio, and the ongoing strong fundamentals of the residential rental real estate sector resulted in a significant increase in the value of our asset base. Clearly, our focused and proven asset allocation strategy is working, delivering solid and stable returns for our unitholders in both good times and bad times. Over the last 24 years, we have built the team, the assets and the operating platform to continue our growth and strong performance. And we look for continued success in 2021 and the years ahead. Turning to Slide 5. Our growth and strong performance continued in the first quarter of 2021. Despite the third wave of the pandemic, we still achieved a solid and stable result, a testament to the skill and dedication of our people, the stability of our asset base and the resiliency of the rental residential real estate sector. As you can see, we generated solid increases in revenues, NOI and NFFO in the quarter. And we believe we will generate even stronger performance as Canada emerges from the pandemic. It's also important to remember that it wasn't until the end of last year's first quarter that the pandemic began to affect our markets. A key reason for our success in 2020 was our ability to mitigate the impacts of the pandemic as detailed on Slide 6. With the onset of the pandemic in March last year, we began to implement programs aimed at getting closer to our residents, communicating with them, understanding the issues facing them and helping them stay in their homes, while, at the same time, collecting as much rent as possible. Clearly, these initiatives have proven effective. Our Compassionate Care Program is seeing an average of 3,500 to 4,500 calls to our residents each month. We also generated over 2,400 new leases in the first quarter of 2021. This is accomplished by continuing to support much of our leasing activities online, in addition to safely arranging in-person viewings. To facilitate more efficient rent collections, to date, more than 85% of our rents are now paid electronically. These programs have had a lasting and positive impact on our cash flows, with bad debt at only 0.6% of total revenues at quarter end, while over 99% of our rents have been collected. We are very proud of these achievements. And again, we thank our residents for their understanding as we work through these challenging times. As shown on Slide 7, over the last 2 years, we have significantly enhanced the size and scale of our Canadian property portfolio. In 2020, we purchased a total of 3,262 suites and sites for $820 million, with another 484 suburban GTA suites so far this year. Last year, we also sold certain noncore properties, raising $57 million in cash proceeds to finance future growth. Our acquisitions will contribute to our growth this year and going forward. Our financial position and balance sheet has remained strong and resilient through the pandemic, as you can see on Slide 8, with conservative debt to gross book value and continuing high liquidity. Our almost $1.2 billion in Canadian unencumbered properties provide additional liquidity, should it be needed. In addition, we have $578 million in liquidity available through our credit facility as of March 31. In total, if we were to access all these sources of capital, we have available liquidity of over $1.8 billion. And even if we did this, our leverage ratio would still remain a very conservative 43%. We continue to lock in very low interest rates, 1.84% on financings last year and 2.2% through the first quarter. And we expect we will continue to benefit from the current low interest rate environment for some time. At year-end, we recorded almost $1.3 billion in increase in the fair value of our property portfolio, another strong indication of the stability of our business and the value our properties bring to our unitholders. I would like to spend the balance of our time today outlining our strategies going forward, programs that have generated strong performance and increasing value for unitholders over the last 24 years. Turning to Slide 10. A key factor in our success has been our focused asset allocation strategy. We continue to target value-add apartment properties in the mid-tier segment. These properties can be acquired at well under 50% of replacement cost. We have proven our ability to invest in them to increase their value. And their stability is driven by the very affordable rental rate levels. We also like the MHC sector, a highly stable, low-risk business, with very strong potential to increase cash flows. Revenues are highly stable, and with residents owning their own homes, capital requirements and maintenance needs are significantly reduced. Additionally, with homeownership costs rising significantly across the country, MHCs provide a real alternative if prices have not appreciated to the same extent. Our European presence is also driving value. Dividends from our ownership interest in ERES and IRES are strong and stable, while fee income on our asset and property management services continues to grow. As 1 of the only professionally managed operating platforms in Europe, the opportunities for further growth and enhanced value are significant. We are also able to capitalize on very low-cost European debt to finance our growth at attractive returns. The second key value driver, as outlined on Slide 11, is our focus on Canada's 3 largest and most vibrant rental markets, Toronto, Montreal and Vancouver. Our focus is on more suburban markets rather than downtown locations, properties that are attracting increased demand as families seek more space at affordable rents. In addition to offering quality rental accommodation in these high-demand areas, our rents constitute a very manageable percentage of total disposable income for our residents. Our rates, between $1.50 and $2 per square foot, are clearly affordable compared to other rental alternatives. For example, in Toronto, rents for new build condo rentals are going for upwards of $3 to $5 per square foot. Quality properties and more space at affordable rents, this is the CAPREIT value proposition. Immigration has always been a demand driver in our markets, but is significantly reduced over the last year due to pandemic and travel restrictions. As you can see on Slide 12, the pace is now picking up. And we believe this trend will accelerate in the months ahead. The number of international students in Canada has also been impacted throughout the pandemic. Normally numbering in about 650,000 range in Canada, international students have declined significantly during the pandemic. We expect a return to normal in the future. Compounding these issues is the closing of in-class learning, and what we call household consolidation. Young people have returned home to live during the pandemic to manage costs and to stay safe. And we don't see them returning to the rental market until vaccines have been fully rolled out. We're seeing evidence of that now, and we're optimistic on what lays ahead. We believe demographics are also on our side as seniors increasingly look to the rental market to meet their needs. With significant equity in their homes and seeking single-floor living space as the best place in which to age. Millennials are another strong and growing demand driver in our markets. And as you can see on Slide 13, the population of Canadians age 65 and older continues to grow, accounting for over 23% of the population or more than 9.5 million people by 2030. We believe our quality and well-positioned portfolio, offering more space at more affordable rates than smaller condos, will see increased demand for this demographic group. Finally, as shown on Slide 14, we believe all of these strong market fundamentals will increase the value of our property portfolio going forward. Over the past few months, we have seen significant compression in comparable market cap rates for completed transactions in these cities as pension funds and others increasingly recognize the positive fundamentals in the residential rental sector. For example, recent transactions in the GTA has seen stabilized cap rates as low as 3%, with deals in Montreal down to 3.6%, and in Vancouver, rates are as low as 2.3%. We recorded a significant $600 million increase in the fair value of our portfolio in 2020 and expect to see further increases in asset value going forward. With increasing demand and little new supply of rental accommodation in these and other markets, we believe the value of our property portfolio will only grow and provide another strong driver for unitholder returns over the long term. Turning to Slide 15. For decades, CAPREIT has adopted policies and strategies that enhance our environmental, social and governance performance. These programs are helping us reduce costs, attract and retain the best people and ensure the CAPREIT remains strong with its governance policies and transparency. Our commitment to reducing our environmental footprint is increasing the resiliency of our properties, building healthy communities and delivering strong returns on investment. Our employee recognition programs, courses and conferences, and our career development programs continue to generate very strong engagement among our employees. We are pleased to be recognized for the seventh consecutive year in the top-tier of Canada's Best Employers. Looking ahead, this commitment to leading ESG policies will continue. In conclusion, we are very excited about our opportunities for further growth and enhanced unitholder value in the years ahead. Our focus on the mid-tier sector meets increased demand for affordable, high-quality homes. Our predominantly suburban locations outside the downtown cores and our larger-sized suites, townhomes and MHC sites are meeting the needs for renters seeking more space. We are experiencing a strong pipeline of accretive acquisition opportunities and expect to see solid portfolio growth in the quarters ahead. The continuing low-interest-rate environment provides significant opportunities to acquire properties with strong cap rate spreads to -- and to reduce interest costs on our refinancing initiatives. Our industry-leading balance sheet, leverage and liquidity position us for growth going forward. And with demographic trends and increasing immigration, we are confident we will continue to drive value for our unitholders in the years ahead. In closing, I want to, again, thank everyone at CAPREIT for their hard work and dedication over the last 18 months, and also to our residents for their patience during these challenging times. Thank you for your attention, and we would now be pleased to take any questions you may have. Corinne, please read...

There are no comments or questions to be addressed. I will now turn the meeting back over to you, Mr. Kenney.

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