Canadian Apartment Properties Real Estate Investment Trust (CARUN) Q4 FY2025 Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining the Canadian Apartment Property REIT's Fourth Quarter 2025 Results Conference Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions]. 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 2 and our other regulatory filings for important information about these statements. I will now turn the call over to Mark Kenney, President and CEO.

Thanks, Nicole, and good morning, everyone. Joining me this morning is Stephen Co, our Chief Financial Officer. Let's start on Slide 4 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 $400 million of noncore assets in Canada. We also sold $784 million of ancillary interest in Europe. We used a portion of net proceeds to purchase $659 million in well-built, strategically aligned properties, which offer low capital investment requirements and high cash returns above our portfolio average. We also continue to capitalize on the public-private market disconnect by spending $294 million on our NCIB program to enhance earnings for unitholders. Operationally, same-property occupancies remained healthy at 97.3% as of December 31, 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. And 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 7, we've displayed our 2025 noncore divestments in Canada with $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. And then on Slide 8, you will see how we spent $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 on Slide 9. 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 $294 million invested at a weighted average purchase price of $41. This represents a substantial discount to our NAV per unit of $56 as of December 31, 2025. And since we started leveraging this program in 2022, we spent a total of $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 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 31 across the total Canadian residential portfolio. And among occupied suites, average rent increased to $1,718 per month. This reflects both the challenges in today's market and how professionally we're navigating them. So while the broader environment has temporarily softened, our operational strategy, particularly our leasing discipline and retention management is ensuring that 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 plus 4.2%, but the composition of that turnover is important. Residents who have been in their suites for less than 2 years accounted for nearly half of all turnover at 48%, and those leases turned at a negative 6.3%. In contrast, the rest of our turnover among residents who have lived in their homes for 2 years or longer continue to generate stronger performance with plus 16% rent growth. Looking ahead, you can see that as of December 31, 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 have fallen into this category as conditions softened 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 imbalance. In the meantime, we still have 73% of our leases with residents who have been in their homes for at least 2 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 $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 continue to make progress. Together, this drove a 1.3% 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 $0.632, benefiting from lower interest costs as well as accretive impact of our NCIB program, which reduced our unit count and enhanced unit 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 $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 $188 million in cash and credit facility capacity, a further $200 million in unused accordion option for additional capacity and $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 arise. On that note, I will turn 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 2 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 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.

[Operator Instructions] Our first question comes from Jimmy Shan from RBC Capital Markets.

So just thanks for the added color on the turnover stats. So 2 questions there, I guess. On the 27% of the portfolio that are less than 2 years, how much above market are they? And similarly, on the remaining, how much below market are the above 2-year tenure?

Yes. So, Jimmy, you're asking for, I guess, the mark-to-market on that portfolio. If we look at the under 2 years, we're averaging probably around negative 8% is what we're seeing. And then anything above that, it's in the plus 20%.

And we would 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 want to make sure I understood heard right, 20% you said, right?

Yes, plus, plus 20%. So it's above.

20%. Yes. Okay. And then I guess, by my math, if your turnover rate is around 20%, your churn rate and half of them are these above-market leases. So it will take probably 2.5 to 3 years to turn 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 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/pre phenomenon before. But we would expect to have a lot more clarity in the spring as the spring market emerges with notices and seeing what is actually going to 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.

Yes. Okay. That's fair. And then on the OpEx growth, what's your -- obviously, this quarter, you saw another pretty good savings on the other OpEx category. 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.

Yes. And Jimmy, if I look at 2026, I mean, we're -- in the first quarter, we're -- there's a mix of things happening, but we're going to have a benefit of the carbon tax reduction that was effective last year as of April. So on the base effect, it's going to be 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 take -- exclude all those things, I mean, I would just say OpEx growth was -- where we were forecasting was going to be above inflation. But if there is that impact of carbon tax and the heavier snow and colder winter, you kind of have to balance that or adjust on your model.

Our next question comes from Mike Markidis from BMO Capital Markets.

I just wanted to ask, I guess, following on Jimmy's line of questioning and came up with his own estimate of 2 to 3 years to get through the less than 2-year cohort, I guess, we would call it. But that presumes they stay in place and they don't reset along the way. So I guess my question would be is, given what you're seeing, should we expect that your renewal rate experience will continue to be under pressure just because you're going to try and retain some of these and they get reset down to market as we go without term?

I would say 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 -- Western markets that are fully at market, obviously, are going to have a different renewal experience than places like Ontario or even in Quebec for that matter. But it's -- we're still feeling strong on the renewal front. It's adjusting through these post-COVID leases that CAPREIT have all have to sort of work through, given our plus 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, is 2% to 3% revenue growth kind of the objective for this year? Or would that be a good outcome given what you're seeing?

Objectives 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 -- keeping with that theme with the spring market because your comment is not dissimilar to what we're hearing from other peers. But when do you typically, Mark, historically see that uptick in spring leasing and maybe not just the leasing, but the leads and the traffic where we'll be able to get a sense of how that's shaping up?

Ontario, 60-day notice. So 60 days prior to whatever month we're calling spring or summer, we get a lead -- get an idea of velocity. Quebec, it's -- we get a lot more lead time. So we're already starting to form a view in Quebec and some of the other markets are 30 days. So it comes up and sneaks on you quite quickly. And so we're not seeing notices given. So the CAPREIT portfolio is anchored in Ontario with 60 days kind of visibility, and we don't quite have a view on that yet.

Okay. And last one for me before I turn it back. Market rents obviously declined last year, and you've got many different markets, 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. And 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. The core of Toronto is where the most pressure is, and we've talked extensively about 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 4 years ago, so -- 4 and 5 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 story for over 20 years. And now we're in this period of rapid adjustments really going back to 2015 -- 2015 to 2020, temporary resident acceleration, COVID. What happened post-COVID has never happened in the country's history before with over 1 million people a year coming in 3 years in a row, followed by population decline. So obviously, this is going to 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. So it is very, very difficult to kind of navigate exactly where this is going to line up, but the outlook is very positive.

Our next question comes from Jonathan Kelcher from TD Cowen.

Just going back to the turnover slide. You talked about the mark-to-market under 2 years being at negative 8%. How has that trended? And do you think that's peaked?

Well, Stephen can talk about what percentage of those under 2s 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? Anyone's guess is really there, Jonathan. We don't have the insights of what people are thinking 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 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 the challenges from the winter season, the carbon tax, like do they fully offset each other? Or is one sort of bigger than the other?

Yes. 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 nonrecurring or at least for this year, it's going to be much greater than last year. And what we're expecting is about $200,000 to $300,000 incremental in terms of cost. But definitely, I think the colder season has a much bigger impact.

And we're right in the middle of it. we had a week of minus 20 weather in Toronto. So real time, it's hard to kind of grab the first quarter when we're literally in the middle of it, but it's been cold. It's been cold definitely in the eastern part of Canada. And yes, we've got a lot of energy initiatives that we put in last year that will help mitigate. It's real time right now, Jonathan, like we're mid-Feb kind of thing and it's warming up a little bit. But we had a 45-day forecast, we can probably give you a better answer, but it's hard to tell right now.

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. Like how should we think about timing on that? Do you have any disposition targets for this for 2026?

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 a the market with getting low cap rate deals across the line and replacing them with newer construction or legacy assets at a higher cap rate with better CapEx profile, then we will want to pursue that. And we're really about -- 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 CAPREIT.

Our next question comes from Kyle Stanley from Desjardins.

I 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? 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.

Yes, it's a good question. It's been chilly in the rental offices as well. It's -- weather does impact things. We saw the same phenomenon last year. And we were trying to figure out was 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, 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 minus 25 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 capital recycling program and indicating that you're approaching the end, the bulk of the work has been done after a busy couple of years. How does your kind of corporate strategy shift in response to that? I mean, you just talked about the 11% of the portfolio that's opportunistic for dispositions. I mean, has the disposition environment shifted? Do you expect that you can still get the solid pricing that you've been able to get? I'm just trying to think about the next steps as 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 the portfolio we want to sell. And it's also good corporate citizenship to be bending 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's very positive for the value of the portfolio. And what -- I'm glad you brought this up, Kyle, because what I can tell you is we have seen our valuations really hold up well. What'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. And 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 dispose. And we're really proving it out with the dispose 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 one, Mark always talks about it, we have 3 buckets that we can deploy capital. And right now, debt is -- 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 the private public disconnect in terms of pricing, I definitely think the NCIB is very attractive to us.

Okay. No, that's very helpful.

Yes. And we talked about this, like 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's a story that will 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 rental.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 kind 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. 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.

Our next question comes from Brad Sturges from Raymond James.

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 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 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 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 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 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 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 assets?

Absolutely. We're absolutely -- we are a real estate company that has gone through repositioning that's poised to grow. Stephen 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 and it would actually be bank repossessions where you really get 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 frothy demand for deals out there and values really just haven't collapsed to the same extent that rents have.

Our next question comes from Sairam Srinivas from ATB Capital Markets.

Mark, going back to your comments on the various markets and their performance and then you overlay that with your comments on the growth for CAPREIT ahead, how are you seeing your geographic capital allocation strategy in terms of acquisitions?

It's a great question. The CAPREIT maintains the best rental markets in Canada, Toronto, Vancouver, 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. I think 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've got a -- 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 is all about, which is our 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 just -- if you look at that population growth chart and you look at supply and you see the whole story.

No, it definitely makes sense. Maybe just looking at your comments on possibly the 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. 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 partnerships into distress, and we think we can add value or look for compelling value. Again, when there's low trading volumes because 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, and 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 the OpEx initiatives was reflected in Q4? Or could we probably expect a little bit more of that going forward?

Yes. I think we're -- we 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 there are probably some opportunities within the next couple of quarters. So it's not completely baked in, but again, I'm being leaning more on the conservative side of saying there's probably -- OpEx is probably -- excluding the weather and also the carbon tax is going to be above inflation, but I think we can probably exceed that.

Our next question comes from Mario Saric from Scotiabank.

Mark, I want to come back to your comments on unseen supply in Montreal, Vancouver, 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 that a late '26 thing?

Yes. That is definitely a 10-market question and answer because 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 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, Montreal is being sensitive to where we're located. But when you have population decline and deliveries of supply, you 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'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.

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, whether it's some of the metrics?

It's a great question, Mario. Like our portfolio is primarily suburban. The downtown core assets that we have had 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 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 $4-plus foot rent comparators. 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 the corner of whatever streets you're on that really does impact things. Strata, as an example, very, very small asset, large suites. suites, desirable areas, smaller building boutique style 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 you indicated on the Q3 call, they may tick up during the winter. It sounds like the leasing velocity thus far because of the weather may be a bit tempered. So I guess 2-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 the spring leasing season, but are you still targeting something closer to 1% throughout the remainder of '26?

Yes. 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.

And maybe last question on incentives. I think in Q2 and Q3 last year, they came down a little bit, but it was in part because you 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?

Yes. Mario, 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 a 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 going to be similar to last year. But we do see elevated, you could say, just as a percentage of revenues, incentives used just during this winter season so far, and then hopefully it will taper off.

Okay. And one last question on my end, sorry. Slide 12, the turnover slide, it's great information. I think we all really appreciate it. Do you have a sense of what those bars look like a year ago? So the less than 2 years being 27% of the lease tenure today? And do you have a sense of how those would compare to a year ago?

I'll have to get back to you, but I'm happy to chat offline about that, Mario.

Our next question comes from Matt Kornack from National Bank Financial.

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?

Yes. So yes, 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 on the conference call, our retention team is really working diligently with our existing tenants to kind of work out certain payment plans that they're exceptionally above -- if they're exceptionally above market. But generally, I'll just say 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 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 above market rent, but you like your unit, don't you just ask the landlord to give you a lower rent? I'm trying to understand that dynamic a bit.

So I would say that, I want to highlight the double barrel benefit we're going to get here in the midterm, we're going to see the bleed off of the COVID leases, which will 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 is trying to guess when that exactly happens, but we've talked about when the COVID leasing 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 want to highlight. It's literally working through the timing of when that all materializes.

That's fair. And not to talk up someone else's economists, 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 rooming 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 consolidating the housing?

Well, it's a great point, and we concur with Ben Tal's comments. We've been -- 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 room. 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 lifestyle if they're not getting married or they're going to be looking for rental, like we said. So we've intentionally focused our new construction portfolio around amenitized buildings where we see young professionals. And the 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 -- don't have clear stats on it, but it's well known that this whole roommating phenomenon is very prevalent in Toronto, Vancouver, Montreal.

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, and there may be some onetime 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?

Yes. 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 4.8%. So I think there's opportunities within G&A. I truly believe that, that we can probably do better. So I just tend to be on more of the conservative side.

Stephen makes a very important point here that we've talked about that 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 rightsized the team with the size of the portfolio in an exceptionally well-matched way. So 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. 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 savings standpoint as you look to rationalize procurement?

Yes. 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.

Our next question comes from Dean Wilkinson from CIBC.

Matt, feel free to talk [indiscernible]. Mark, I just want to go back on the inducement 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 occupancy, if you will, in the short term?

I think I heard you. 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 in 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. And 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 than the market sort of remains balance. But we're very, very happy with our decision here on the new construction portfolio, in particular, because of the cash flow attributes. So even with these incentives and even with 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.

We have a follow-up question from Mike Markidis from BMO Capital Markets.

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 '17?

A different dynamic, different rent levels like the market in Toronto, in particular, the part of the market that's most impacted is the plus $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 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's a little bit different than wood frame Alberta, Saskatchewan, I'm going to 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're 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 going to happen. And it's just a matter of us trying to figure out the data. We were talking internally here about all the data we're now hearing in on our markets to really try to better understand the specifics around completions, starts, immigration, unemployment. And 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. And 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 I appreciate that.

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.

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.