Canadian Apartment Properties REIT Q2 Earnings Call Highlights

Key Points

• Occupancy remained resilient: Same-property Canadian occupancy was 97.5% in June, well above the 95.3% national benchmark, though CAPREIT increased incentives to manage competitive rental markets.
• Rental trends showed improvement, with blended turnover rents declining 1.2% in Q2 versus 2.1% in Q1 and turning positive in July; management expects further normalization before new-lease growth potentially reaches inflationary levels in 2027.
• Capital allocation focused on unit buybacks: CAPREIT repurchased C$71 million of units at an average C$36, substantially below its C$54 diluted NAV per unit, while maintaining leverage at 41.2% of gross book value.

Canadian Apartment Properties REIT TSE: CAR.UN reported second-quarter results marked by resilient occupancy, modest same-property net operating income growth and continued capital deployment toward unit repurchases, while management said Canadian rental markets remain competitive.

Brad Cutsey, who was participating in his first earnings call as president and chief executive officer, said the company’s portfolio and operating platform provide a solid foundation despite pressure across the multifamily sector. He also said he is still assessing the business and sees potential opportunities to improve leasing and other operating processes.

Occupancy Remains Above Industry Benchmarks

Physical occupancy in CAPREIT’s same-property Canadian portfolio was 97.5% as of June 30, compared with Yardi’s national quarterly average of 95.3%, according to Cutsey. Occupancy was 97.3% as of July 31, reflecting the typical seasonal decline between June and July.

Toronto, the REIT’s largest market, recorded physical occupancy of 98.4% at June 30, compared with a reported market average of 95.2%. Occupied average monthly rent in Toronto increased 2.1% year over year to C$1,867.

Stephen Co, CAPREIT’s chief financial officer, said the company has used incentives strategically to support occupancy in a competitive market. New residential inducements totaled C$4.6 million in the second quarter, compared with C$2.6 million a year earlier and C$4.8 million in the first quarter.

Co said incentives are more pronounced at recently built properties than in the legacy portfolio. In certain locations, the company is offering incentives generally equivalent to one month of rent, with two months offered in some cases. CAPREIT expects incentive levels to moderate in the second half of 2026 but remain elevated.

Turnover Rent Trends Improve

CAPREIT reported signs of stabilization in turnover rent spreads. During the second quarter, 51% of Canadian turnover came from residents who had occupied their suites for fewer than two years. Monthly rents on these leases declined by an average of 7.1%, improving from a 10.8% decline in the first quarter.

The remaining 49% of turnover involved residents with tenures of at least two years, where rents increased 5.4% on average. The resulting blended turnover change was negative 1.2%, compared with negative 2.1% in the prior quarter. In July, the overall turnover rent change improved to positive 0.2%.

Co attributed the improvement primarily to stabilization in market rents. He said July’s rent decline on leases shorter than two years improved further to approximately 5.2%. However, management said there remains additional normalization to work through: about 20% of in-place rents within the less-than-two-year resident group were more than 5% above CAPREIT’s estimated market rents as of June 30.

Cutsey said market conditions vary by region. Management is constructive on Toronto, Ottawa, Edmonton and Victoria, while describing Montreal as mixed and Vancouver as still working through new supply. Cutsey said CAPREIT hopes Toronto could approach a more balanced market in the quarters ahead, while he expects new lease spreads could reach inflationary levels sometime in 2027, potentially in the first half if recent trends persist.

Financial Results and Operating Costs

Same-property Canadian operating revenue rose 0.8% in the second quarter, while operating costs increased 0.7%. That produced same-property net operating income growth of 0.9% and a stable NOI margin of 66.2%.

Diluted funds from operations per unit totaled C$0.654, down 1.1% from C$0.661 in the second quarter of 2025. Co said the decline primarily reflected lower NOI following property dispositions and higher financing costs, partly offset by the accretive effect of unit repurchases.

For the first six months of 2026, same-property Canadian operating revenue increased 1%, while operating costs were flat. The same-property Canadian NOI margin increased 0.3 percentage points to 64.2%. Diluted FFO per unit was C$1.249, and the FFO payout ratio was 62%.

Management said operating-cost performance benefited from competitive vendor tendering and lower or flat repair-and-maintenance costs. Co said the company expects it can maintain that trend through the remainder of the year. He also indicated that general and administrative expenses, excluding severance costs, were running at roughly 4% and are expected to remain near that level.

Capital Allocation Focuses on Repurchases and Recycling

CAPREIT completed approximately C$66 million of acquisitions and dispositions in Canada year to date, along with €145 million of European property divestments. It also privatized European Residential REIT for €99 million, a move Cutsey said provides greater flexibility in managing sales of the remaining European assets.

The company deployed C$71 million under its normal course issuer bid program during the year, repurchasing units at a weighted average price of C$36 each. Since 2022, CAPREIT has deployed approximately C$1 billion to repurchase nearly 24 million units at an average price of about C$43 per unit.

Cutsey said the C$36 repurchase price represented a substantial discount to CAPREIT’s June 30 diluted net asset value of C$54 per unit. He said the company will continue to evaluate repurchases against other capital-allocation options and will pursue the NCIB on a leverage-neutral basis.

Total debt represented 41.2% of gross book value at June 30, up modestly from the prior year mainly because of fair-value losses on investment properties. CAPREIT had C$180 million of immediately available liquidity under its acquisition and operating facility. Its mortgages carried a weighted average interest rate of 3.4% and a weighted average term to maturity of 4.2 years.

Cutsey said future dispositions would be evaluated opportunistically, primarily among non-core assets where management believes value has been maximized. CAPREIT has rescheduled its Investor Day in Montreal to Nov. 19.

About Canadian Apartment Properties REIT (TSE:CAR.UN)

Canadian Apartment Properties Real Estate Investment Trust, or CAPREIT, is a real estate investment trust primarily engaged in the acquisition and leasing of multiunit residential rental properties located near major urban centers across Canada. The company's real estate portfolio is mainly composed of apartments and townhouses situated near public amenities. Most of CAPREIT's holdings are aimed towards the midtier and luxury markets in terms of demographic segments. The company derives nearly all of its income in the form of rental revenue from leasing its properties to tenants.

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