Canadian Apartment Properties Real Estate Investment Trust

Hello everyone and thank you for joining the Canadian Apartment Properties second quarter 2025 results conference call. My name is Lucy and I'll be coordinating your call today. During the presentation you can register a question by pressing star followed by one on your telephone keypad. If you change your mind please press star followed by two. It is now my pleasure to 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 CAPRE which are subject to certain risks and uncertainties. We direct your attention to slide two and our other regulatory filings for important information about these statements. I will now turn the call over to Mark Kenny, President and CEO.

Thanks Nicole and good morning everyone. Joining me this morning is Stephen Coe our Chief Financial Officer and Julian Schonsfeld our Chief Investment Officer. Let's get started with an update on our achievements so far in 2025 as highlighted on slide four. To date we've sold 274 million of non-core underperforming assets in Canada with the lowest cash returns and we've completed or committed to approximately 743 million dollars of dispositions in Europe. We've reinvested 165 million of the net proceeds into the acquisition of well-located high-performing low capex Canadian properties and we've reinvested 187 million into our value enhancing NCIB program. We've also been extremely focused internally on improving our operational performance. On our Canadian same property residential portfolio we've increased occupancies to 98.3 percent as the period end across which our average monthly rent grew by 5.2 percent since June 30th 2024. We've made meaningful strides on the expense side as well and we've been working hard to contain and reduce controllable expenditures in all areas of the business. These improvements together drove the 40 basis points expansion in our same property NOI margin to 66.3 percent for the second quarter of 2025. Additionally our balance sheet fundamentals remain best in class with low total debt to gross book value ratio of 38.5 percent as of the current period end. With that initial overview I will now turn the call over to Julian to expand further on our capital allocation progress.

Thanks Mark. Turning to slide six you will see all the work we've put in the repositioning of our portfolio not just this year but over the course of the past several years. We now have 16 percent of our portfolio represented by new generation apartments in Canada up from only five percent as of December 31st 2019. Over the same period ancillary segments are down from 17 percent allocation to five percent as of today. Subject to the completion of all committed and pending dispositions in Europe that exposure would go down to only two percent of our consolidated portfolio all else held equal. In addition as announced by European residential REIT a sale process is launched for the balance of the portfolio with the goal of surfacing its residual value and distributing the proceeds net wind-up costs to investors. With this progress on our European divestment strategy we're excited to be moving much closer to our vision of returning to a pure play Canadian apartment. On slide seven we provide a visual snapshot of our portfolio. On the top right our recently constructed properties come with strong cash flow profiles arising from largely unregulated rents that still contain embedded mark to market potential on acquisition combined with low capital expenditure requirements and operating costs. Their prime highly sought after locations also enhance our geographical diversification and the quality of our resident base with improved affordability characteristics that reduce our political and reputational risks. These properties represent the ideal complement to the stable long-run rent growth trajectory produced by our core legacy assets which still account for the majority of our total portfolio at 67 percent today. We're also continuing to dispose of our non-core properties which generally have the weakest economic returns with regulated rent and low cash flow yields. This repositioning is not only improving the overall quality of the capri portfolio but also our income profile and net cash generation. Turning to slide eight our NCID also remains a key strategic tool allowing us to invest in our own portfolio and earn a stronger return over acquiring comparable assets in the private market today. In 2025 we reinvested 187 million dollars of our own net disposition proceeds to buy back Capri's trust units at a weighted average purchase price of approximately $43 per unit. This represents an average 24 percent discount to our diluted NAF per unit of $56 as of June 30th 2025 demonstrating the sizable disconnects that we're arbitraging to generate higher earnings for our unit holders. With that I will now turn over the call to Stephen to expand further on our operational and financial results.

Thanks Julian. We've been working on recalibrating our rent optimization and vacancy mitigation strategies in response to some short-term market-driven headwinds and in doing so we're pleased to report that our residential occupancy in Canada are up again to 98.3 percent as of June 30th 2025. At the same time occupied AMR on the total Canadian residential portfolio was up by 7.4 percent to $1,693 as of June 30th 2025. This not only shows sustained demand for professionally managed rental housing but it also demonstrates our flexible and proficient operational strategy is working. Turning to slide 11 with focus on maintaining high occupancies while optimizing rent growth our same property offering revenues were up by 4.4 percent for the current quarter. Furthermore we're pleased to have successfully mitigated the magnitude of cost increases cost increases which we were seeing at the outset of the year and for the three months ended June 30th 2025 operating costs as a percentage of operating revenues decreased versus Q2 of 2024. This was in part due to the elimination of the federal carbon tax effective April 1st 2025 which lowered overall utility costs. In addition repairs and maintenance spending was down resulting from more competitive procurement practices and the implementation of more rigorous cost control measures while not compromising on quality or service standards. The result was the expansion of our NOI margin by 40 basis points to 66.3 percent on the same property portfolio. This organic growth contributed to the 2.6 percent increase in our diluted FFO per unit to 66.1 cents in the current period. However it was the Creative Trust Unit revenue and the increase in earnings. revenue repurchases and cancellations under our NCIB program which mainly drove this increase in earnings as well as to a lesser extent lower interest expense partly offset by decreased NOI due to dispositions. Results for the six months ended June 30th 2025 are shown on slide 12. As mentioned operating costs as a down year to date despite our strong performance in the second quarter. Combined with the loss NOI due to disposed properties hardly offset by lower interest expense as well as trust unit buybacks our diluted FFO per unit was 1.246 for the six months ended June 30th 2025. Turning to our financial position as summarized on slide 13 we continue to boast one of the strongest balance sheets in our peer universe. Our total debt to gross book value ratio remains low at 38.5 percent as of period end which is down considerably from 41.5 percent as of June 30th 2024. We take a conservative approach to managing our mortgages with staggered renewals and fixed interest costs and we actively adjust the maximum foreign capacity we have available on our acquisition and operating facility in order to reduce financing fees. Most recently on July 9th 2025 we strategically increased capacity from 200 million to 400 million effective until September 30th 2025 to temporarily fund acquisitions, capital investments and for other general trust purposes in anticipation of income and capital from the C-RES's expected special cash distribution in September 2025 associated with this upcoming disposition. This disciplined approach to debt financing provides us with the ability to efficiently manage our portfolio while capitalizing on available market opportunities that maximize value for unit holders. On that note I will turn the call back over to Mark to wrap up.

Thanks Stephen. The past few months have been incredibly productive across every facet of the business and the solid results we achieved during the second quarter of 2025 underscores the success and the merits of our strategy. That strategy is focused on high grading the quality of our Canadian portfolio, improving its operational performance in investing in our value enhancing NCIP. On top of these initiatives we have one overarching priority and that is our cash flow position as highlighted on slide 14. All of our strategic objectives are ultimately working together to boost the generation of free cash flow and bring us closer to one day funding capital expenditures and distributions entirely through our FFO and that in turn drives stronger growth and earnings for our unit holders. We are well on our way to achieving that in the near future and we have never had a better team in place to make it happen. With that on slide 15 I would like to thank all of our unit holders for their ongoing support as we continue working to enhance the future of our residents, our people and our investors. We would now be pleased to take your questions.

Thank you. To ask a question please press staff followed by one on your telephone keypad now. If you change your mind please press staff followed by two. When preparing to ask a question please ensure your device is unmuted locally. The first question comes from Fred Blondeau of Green Street. Your line is now open. Please go ahead.

Thank you and good morning. When looking at the new supply how do you compare Toronto, Montreal, Vancouver over the next 18 months or so? Is it fair to say that it looks like the GTA is a bit more new when compared to Montreal and Vancouver looks a bit more risky. Is that fair to say?

Yeah it is fair. I'll give it some Capri context Fred. The problem is the most acute in Toronto but Capri is the least affected I'll say by that supply in Toronto because it's primarily a preponderance of bachelor and one bedroom condominiums which we're not competing with. Capri's workflow is extremely suburban, large suites and built for affordability. I would say secondly we're seeing obviously the effects of supply in Vancouver where it's affecting us a little bit more because that's been a primary focus zone for Capri's new construction investment program and high grading and we've been able to buy some exceptional assets albeit not in the core but still there's competition there. Then I would probably say Montreal ranks third but that's a market for us where again we've invested in high graded assets but have a nice blend of legacy assets and if anything we're quite ahead of Capri.

I don't think there's

a playbook. At the end of the day we are finally getting our heads around this very complicated market and we're not going to be able to And I would just start off Fred by saying we are in a housing crisis but we are now more in an affordability crisis. The real driver of weakness in the housing market is not immigration in our humble opinion. It's got more to do with unemployment and wage issues out there. This is what finding the fine balance is. So incentives, they're still being used in the marketplace and we have to use them where we're competing albeit not as much but people are reacting more to the sticker price of the unit. When you hit that right affordability spot we're finding a very deep market in Canada. It's really now more about an overall affordability crisis in Canada more than it is a supply issue and the impact of immigration. We're just not seeing that.

So what would be your scenario on this affordability crisis? Do you think it will still prevail in 26? Or do you think it's longer or shorter? I think

the effect of tariffs are not fully absorbed into the Canadian economy. I'm not an economist but we're watching closely. That's not a tailwind. I would characterize that as a headwind. But I think our portfolio is exceptionally well positioned to deal with any sort of economic downturn. We all know that apartments thrive in economic downturn. So that would be a tailwind. I think that right now the market has down stability. There's good leasing activity in the summer. We think that's probably a sign of people being concerned about the housing market and that will tilt in our favour. But I would expect a sort of steady state as we go into at least the next six months. Looking at any further than that is pretty much guessing.

Yeah, I totally agree on that. Thank you for the call.

Thanks,

Fred. The next question comes from Mike of BMO. The line is now open. Please go ahead.

Thanks, operator. I could notice that your incentive activity just in terms of an aggregate dollar amount declined fairly meaningfully quarter over quarter versus Q1. I was wondering if you could just comment, was that a change in strength in the market or was it just a change in terms of how you were adjusting your actual face rents or quarter over quarter?

That is a great question. We have been kind of going back to the last question trying to find that affordability sweet spot. We're getting definite feedback that incentives on their own are not effective fully. We are in situations where there's housing providers offering multiple months free rent to get traffic in the door and we're returned volume with one free month rent but not in all properties. Our focus is definitely around finding occupancy stability as we go into the winter months. But the trend is positive. We are definitely seeing a more active market than we did in Q4 and even in Q1. I'm feeling relatively optimistic about the stability of the market.

I'll just say that in terms of when we looked at the incentives, there are targeted buildings and we're obviously trying to be competitive within the region or in that area. Those incentives have come down dramatically. Obviously we have adjusted the market rent as well to reflect that which is why you also see occupancy coming up. They're mainly in select target buildings across the nation but they're coming down compared to Q1.

Okay. I guess we're in August now and it seems like you feel like things have stabilized. I'm just trying to get a sense of I guess the early reading on Q3 just how the new leasing spreads have been projecting so far.

Yeah, I would again, the stability is the underscored word we're using here. I would just remind, we have this issue of COVID leases that are still bleeding off and those COVID leases we're seeing neutral to negative spreads and seeing extremely encouraging spreads on the non-COVID leases. But using the word I think stable would be the direction I would give you. I'm pleasantly surprised. We weren't sure what the effects of unemployment were going to actually be and I think it's being offset by this concern around the state of the housing market which is the typical first few innings of a housing shift. You see people starting to go into rental as a safe haven. So that part is good.

Okay, that's useful commentary. Thanks for the back.

Thanks, Mike.

The next question comes from Jonathan Kelcher of TD Cowan. Your line is now open. Please go ahead.

Thanks. Good morning. Just to stay with that on the lift on turnovers at .6% in the quarter. Is that, when you say stable, so we should sort of think about -5% on turns over the next few quarters?

Yeah, that would be a fair assumption based on our comments.

Okay. Fair enough. And then secondly, just a little modeling one, but there has been a lot of noise in your G&A the last few quarters. How should we think about a run rate going forward there?

Yeah, Jonathan, so obviously there has been some structural changes within the organization. You know, we're looking at our teams and we're trying to optimize to make sure that it's set up for success. And when you look at the G&A numbers, what we've done in the financials or the MD&A is we separated between trust expenses and re-org costs. Those re-org costs are what we consider non-recurring. And hopefully, you know, we won't see that going forward. Obviously, we're still going through our structural review. But we don't hope to see that going forward, at least for the next Q4 onwards. But if you're looking at it for modeling purposes, I would say what we've provided is a percentage of our operating revenues. I think that 5%, around 5%, is a good modeling for going forward.

You know, CapReet has become a smaller unit count entity, albeit the rents are higher in the new construction buildings. But we are really digging internally. You know, Julian has talked about the capital allocation change. And to match that, we have to optimize our overhead costs. And we're being very mindful looking forward into this new stable period of slightly lower -to-market rents. We're going to get the overheads exactly optimized to have great stable state going forward. But we've made a lot of progress today. There is not much more to do. But yeah, we're very excited about the improvements that have been made there.

Okay, that's helpful. I'll turn it back next. Thanks, Jonathan.

The next question comes from Sarim Serenovis of Cormac Securities. Your line is now open.

Hi, CapReet. Good morning, everybody. Mark, just going back to your comments on incentives, and how do you evaluate that on to the acquisition strategy and the opportunities you're seeing out there for acquisitions of data between long-term opportunity and short-term costs over there?

Yeah, that's a great question. So the team does, we do a lot of work in due diligence around market rents. And in many cases, it is hard to determine because you may have a new construction asset surrounded by no real purpose-built competition. But then we use the data comparisons that we have in every market and get comfortable with where things can be at. We of course look at the incentives that are being offered in the market and put that also into place. And in many cases, the investment team will come to an arrangement in the short term on what incentives are required. Julie, maybe you can give some color on that?

Yeah, I mean, one overarching point that I'll mention, and I know Mark, Steven, and myself have mentioned this, but oftentimes these types of buildings are actually the most affordable ones because the income of the tenants in there can be quite a bit higher. So the rent increases you put on there stretch their affordability a lot less. I'll also say that when we, like we look across the whole spectrum of potential acquisition opportunities, but even looking at some of the acquisitions that we have done this year so far, I look at the Beacon, McLaren, Mondes, those were rents, those buildings were all buildings with rents in the $3 per square foot range, which still quite affordable, I'd say, for new construction. And many of those actually had embedded loss to leases or gaps between in place and market rents. So we are very tactical about trying to avoid getting the microsuites that are in the $6 per foot range. It doesn't mean we don't look at everything, but again, we think that we've got good properties that are affordable to the tenants in them, in AAA locations, as well as a couple of small legacy buildings that we bought in Vancouver in just exceptional, exceptional AAA locations with rents that are also quite affordable.

That's really good, Julian. Mark, thank you for that. Maybe just quickly on, I think earlier in June, I guess you guys put out a small release on potential developments that you could probably see or densification in the portfolio. Is that something that could be a part of the capital allocation program?

Well, I'm going to let Julian talk to that, but we were so, so excited about this and I'm really glad you brought this up because I really will take every opportunity I can to kind of better describe what's going on there. Of course, development almost has a negative connotation to it, especially in Toronto, but what the investment team and development team put together here is really exceptional where we did this with no parking cost because we're utilizing the parking and adjacent building, no development fees, no land cost, wood frame, and we're doing it with political support. We have the mayor of Mississauga applauding us for adding new supply. We're proud to add supply for families in Canada, and it's pending out to a very, very attractive cap rate. I don't want to steal all the thunder on this, but Julian can give some more color around how incredibly positive that announcement really was.

Yeah, it's great. We think we can build that all in, all cost total for, call it around $500 per square foot, which you can't get anything new in the GTA for that cost. The other thing that's interesting is for all those reasons Mark mentioned, there's an incredible amount of incentives and synergies in there. We're going to be doing it at an incredible NOI margin because we don't really have any staff that we need to use. We can use them from the existing high-rise tower. You don't really have incremental landscaping and snow removal, those types of costs for submetering everything. So I want to say development's not our primary business. We're not converting to a developer. We're not going to be a reef where you're going to look at it and say, wow, there's that huge percentage of assets under development. This is small tucking stuff that's incredibly accretive. And by the way, for this low-rise wood-framed stuff, it's very quick and very small amount of capital in there. So given all those synergies and incentives, there's enough margin that it'd be really hard to get in trouble with that. And it helps renew the GTA portfolio because the point that there's mentioned is there isn't really much purpose-built rental to acquire in GTA because it was all historically done as condos. There's a little bit that was done as purpose-built rental by some owners that were long-term owners. And so again, small, fast, low cost, tons of margin, just a nice, neat tuck in. And

a wonderful cash flowing property, like getting back to the cash flow story. So this, as Julian said, brings renewal to the portfolio. We will not be able to buy new construction assets that were built with pre-COVID contracts forever. We were always noting that that new construction opportunity would be a moment in time in the marketplace. But we've got our eyes to better cash flow. We've got our eyes on these AAA locations. And at the end of the day, we are fixated on renewing the quality of the portfolio. So cash flow improvements are here to stay for the long term. So it marries in very nicely to the overall arching strategy, but it really is for Capri, all of the AAA locations, well cash flowing properties and high grading the quality.

And that's really exciting, Dave. And just to clarify that $500 per square feet number is excluding all the incentives and synergies you're seeing there?

So the $500 is the approximate estimated cost of all the hard costs, all the soft costs, financing costs, divided by the leasable square feet. So it's all inclusive. So again, we couldn't acquire anywhere near that cost. And we're estimating it's going to be north of a 6% cap rate on our cost. And by the way, that's with rents that we're saying today are sub $3 per foot. So we think we're being pretty conservative in a lot of our estimates to get to that. We're not the type of folks that are going to do development for a 25 or 50 basis spread on current cap rate. We're doing this because there's a really huge margin and just tons of reasons. And again, it's very modest in size, but great opportunity. And it might be

helpful if, Julian, you just comment on what purpose built rental concrete is costing developers out there today on a per square foot basis for context in the Toronto problem.

Yeah, well actually I was just on the phone with a pretty prominent developer a couple of days ago and we were trading numbers on a few things, but he was telling me that one of the projects that are underwriting right now without any land value in there, the cost when dividing all the costs by the usable square foot for concrete was in the 900 per square foot. And again, that was without profit or without land value, which to be honest, you'd be building at a loss with a huge timeline, a lot of risk, and a ton of capital. And so for us, we view that as completely unviable and something we don't like. But this stuff, again, 12 to 18 month construction period, around 500 bucks per square foot and very little risk.

That is very good, Colin, Julian, Mark. Thank you so much. I'll turn it back.

The next question comes from Kyle Stanley of Desjardins. Your line is now open. Please go ahead.

Thanks. Morning, guys. Maybe just going back to your optimization commentary from a bit earlier. Now that you're approaching the end on the ERES value maximization program, it seems like a lot of the heavy lifting on the capital recycling fund in Canada is finished. Where does management focus efforts next to find that next leg up or that extra value to add?

Yeah, it's ruthless internal optimization at the end of the day on all fronts. Like it's the team. We have the best, like I said in the commentary, we have the best team that we've had that I can remember. And operational excellence is the focus of everyday conversation. Tensions are extremely high internally because we are digging very, very deep. And there's just feels like the Capri of many years ago, quite frankly, we are digging right in and looking at everything. Everything is under review. And I think while we're seeing the results, but there's there's we're very excited about how our cost structure is looking going forward. And every day is revealing more, more good news in terms of opportunities that we can harvest.

OK, that makes sense. Thank you for that. Maybe just looking at the performance in your Southwestern Ontario portfolio, it did look quite strong in the quarter with the same property up 13 percent. Anything specific you can call out there that's contributing?

Yeah, that was there was some lower RM cost that was like, I guess, you know, we're really kind of talking to what Mark was saying, operational excellence, looking at our contracts, looking at costs, make cost containment and even looking at procurement effectiveness strategies. We were able to manage some of the RM costs while we didn't have higher operating revenues. Partly there was some, you know, AGI that were included in there that was helpful. So that that drove the performance in Q2.

OK, thank you. And then just the last one. You know, can you comment on maybe how active you expect to be on the transaction front in the second half? And more specifically, has the the level of acquisition opportunity, has that changed at all maybe over the last quarter or two? Are you seeing any changes on seller pricing expectations, just given maybe this softer market outlook that we've been talking about?

It's a fantastic question. I'll let Julian handle it. But I want to just again, sort of footnote our opportunity to find new construction buildings that were built with pre-COVID contracts are obviously coming. They're slowing down, not that we're not doing them, but they are definitely slowing down. And the team has done a phenomenal job. But this whole triple A location, triple A quality optimization synergy is is definitely something the team is looking at. But Julian, can you comment on some of the challenges even?

Yeah, I'll first answer your question on the plan for the rest of the year. We still target doing this. We put in there that we're targeting dispositions of four hundred million dollars in the Canadian side. We're still planning on achieving that. We think we will. As it relates to acquisitions, we're going to try and match those proceeds, see if we can do a little bit more, particularly given the repatriation of the European capital. As Mark mentioned, there are other competitors now, you know, quite active on the new construction side. There's always a bid ask spread just given the construction cost, like to the point that actually we made in the last question, the construction costs are worth more than what the buildings are worth. And so that's never a fun discussion with a vendor when you're when you're telling them it's worth less than what they put in. We do tend to try and look at ones that were done pre covid. Those are around and we're working hard hunting for them. It's another point I'll actually make is I'd say for most of the acquisitions we have, it takes almost I don't have a stat, but probably close to a year to make it work. And really what it ends up happening is they come to market, you underwrite it, you tell them what it's worth. They don't believe it. They go and test the market out. There's a lot of waiting and back and forth thing and keeping those relationships up. So it's a lot of work. You know, the team is hard at work on it. But and there is a bit of competition. So we'll keep going with it. We feel good about being able to match our dispositions this year. We're hopeful to be able to potentially do a little bit more and we'll continue going with it. But again, we're on a mission to high grade the portfolio, triple A locations. And, you know, we feel good about that.

I'm exceptionally proud of the team for the discipline and we will remain disciplined. This high grading exercise is extremely exciting, but it is being constrained by discipline. And we will continue to balance the difficult market with discipline and keep Capri unit holder value first and foremost in mind.

OK,

thank you for that. That's great color. I'll turn it back.

The next question comes from Jimmy Shan of RBC Capital Markets. Your line is now open. Please go ahead.

Thanks. I have two questions. One, just to clarify your answer to the question on sequential decline in incentives. So does that have more to do with you dropping the face rents versus you not having to provide the incentive because of market conditions? I guess that would be the first question. And then the second one is I noticed the turnover rate did pick up in the quarter. How do you see that trending over the next few quarters?

Jimmy, so yeah, yeah, to your first question, yes, it has a lot to do with the, you know, we brought down the asking rents, so therefore it made it more competitive. So therefore, yeah, you provide less incentives. But I guess in general, like we, as I kind of pointed out, we try to be competitive around the area for our buildings. If others are offering incentives with similar market rents, then we try, we obviously have to adjust. So that part is where we're looking at. Just in terms of the turnover, I'm sorry, turnover, they are they are increasing as as as market rents are, you could say, now more stabilized. And have declined year over year. We have seen a higher turnover. And and I would say if you look at Q2, that's a fairly good projection for the rest of the year.

That is the good news that we were hoping for. As rents moderate, you loosen up the churn numbers and you can actually get to a better end result. But that's healthy for the market. And we're encouraged to see that actually.

So, so 5% was a turnover. So you're thinking potentially we could be at a 20% run rate on an annualized basis.

That's the information we have. I think that is that's possible.

Yes. Are there any discernible trends in terms of where those turnovers are happening?

Yeah, majority of those turnover that we know is 50% or more kind of touch on and Julian touched on previously. It's on those cobit visas. There are more one under 2 year leases where the rents are quite high, obviously relative to today's market rents. And so those tenants are taking advantage of, you know, moving out and obviously getting a better rent deal.

Our story to Jimmy is a little bit now becoming a little bit different than our peers in the sense that the new construction portfolio will be turning higher numbers and those market rents that are there will adjust to market. That's the positive attribute. Those are also holding up relatively well. Well, but I call them stable. It's really the legacy AAA locations that are fueling our growth more than the market rents on new construction. And so within the legacy portfolio, we have this covert lease turnover phenomenon that is slowing and we think coming to an end that that will be positive for the legacy portfolio contribution.

Great. Thank you.

The next question comes from Matt Kornak of National Bank Financial. Your line is now open. Please go ahead.

Hey guys, just a follow up on that last thought. Do you have a sense of how many of those leases existed and kind of what proportion of them you've turned through at this point? I'm just trying to get a sense because the mark to market, I think you guys would say within your portfolios well above what you're getting on new leasing spreads. So I'm trying to understand the timeline of which maybe reverts back to a more normal growth rate.

We're not getting at the actual numbers at this point, but I can guide you around the period of time that we were seeing mark to market rents in the plus 25% range. And that lasted for multiple quarters. You can look back in time and see that. And those lease expiries are shorter in duration. And those are the ones that we're working through. Now it's a little bit complicated because we have a new construction portfolio in there. And then you have new leases obviously as we talked about coming to market. But it's whatever we had low churn during that high mark to market rent period. And that churn is not exactly we have higher churn today, which would reveal more legacy leases coming to market. A little confusing, Matt, but it's really looking back in time and you can kind of see with short duration how long it would take to bleed out.

Yeah, I mean, if I look at it, it looks like it was five quarters of that 25 to 30% range. You've had kind of two depressed levels, but with higher turnover. But I guess maybe beyond that, maybe there's two or three more quarters left of this. But do you expect the environment coming out of this to look like 2017 to 2020 where you were getting kind of 10 to 15% spreads? Or are we in that kind of 2010 to 2015 where you kind of low single digits in terms of spreads and renewals?

Without providing guidance because we can't and the market is in a period of transition definitely. But your assumption and your thought process aligns exactly with ours. Once we don't have the negative impact of COVID leases, then you will see a jump and it won't be a market jump. It'll just be the impact of the COVID leases going out. But that, those I'll let Stephen get provide a little bit more color as well. Yeah,

Matt, I think when we looked at our data, it's, you know, we think it's like kind of spoke about it. 12 to 18 months will be kind of how we roll out of the COVID leases that have a, you know, a, you could say negative turnover uplift. And that represents currently like 50% of our turnover are those type of leases. So it will take a little bit of time. But to Mark's point, I mean, once we get all those COVID leases, we can have that very strong mark to market embedded growth of that, those longer term leases that will then show its form. So they're currently in there. It's just when you blend it all out, it doesn't look as strong. Yeah, I think,

and repeat Stephen, just so that we're clear on the 12 to 18 months. That's the duration of tenancy that we would expect from those COVID leases. And then you could look at the quarters of bleed and we haven't gotten on that either. But this wasn't the first quarter that started happening. It started happening probably two, three quarters ago. And so we're working our way through that period of time. So if you thought it was five quarters of those kind of numbers, you'll see about five quarters of the bleed out.

Okay, nope, that makes sense. It's logical and we'd expect it to improve. And then an area of improvement this quarter, Stephen, on the margins. And I understand that you guys are focusing on costs. So should we expect you've had kind of two quarters of RNM? I understand the portfolio is changing, but in that call it mid 40s range, is that where the back half of the year and kind of with normal growth, what we should expect is a normal number for this portfolio, understanding the portfolio could change.

Yeah, maybe I'll just focus on the off-back side. I mean, that is what you see in Q2 is hopefully what we'll see in the rest of the quarters for 2025. We are again, as I pointed out earlier and Mark has alluded to, we are looking internally, looking for operational excellence and really, really focusing on getting the best procurement practices and being very effective with our tendering. So hopefully we can also contain costs, obviously, and therefore, you know, you on that other operating cost line, you'll see not as a big increase relative to prior quarters.

And then I guess there hasn't been a corresponding increase in capex. So presumably you're also continuing along on keeping that spend at a relatively low number as well. Thank you

for bringing that up, Matt, because that's the strategy we've been talking to the market about is capital allocation program towards newer construction, low capex assets is definitely playing a role there. But the operational excellence is definitely what we're focused on and even in the capex number, can let Steve talk about some of the interesting categories.

Bear in mind. Yeah, so Matt, I mean, there are some increases in capex, particularly in energy and conservation. So that actually has a positive impact on both from a revenue perspective. If we were to either apply for an AGI or not, and also on the expense side where you have lower energy consumption. So this is something that I think it's the math really works well, because obviously it meets it should. It always meets and it's above our hurdle rate. So therefore, you know, we'll make those investments as necessary. So that is the only part that I would say that you see a higher increase in capital expenditure. But again, they have a payback. So if you back that even better than all Stephen.

Fair enough. Appreciate the.

We take our next question from Mario Sarah of Deutsche Bank. Mario, your line is now open. Please go ahead.

Thank you. Good morning. Just a couple of kind of, I guess, rapid fire questions coming back to incentives. How would you characterize the 2.6 million offered during the quarter? How does that compare to your internal expectations for the quarterback?

Sorry, you're saying how does it compare to I missed that word there?

Yeah, like back in early May, how was your expectation for the intensive level for the quarter relative to the 2.6 that you provided?

Yeah, I think I think when we look at what our expectation was in May, where we have a lot of uncertainty around tariffs and market rents, I think there's a little bit more visibility and clarity around that. And we have adjusted our market rents down. So. Hello. Are you there?

Yeah, I'm still here. Oh,

yeah, sorry. Looks like we're in a nightclub. Sorry. So, yeah, we obviously our expectations are much lower now in terms of where we for the incentives are given in Q2 and hopefully Q3, Q4 will be a little bit more market rents. Yeah,

sorry, we apologize. We don't know what's going on. We haven't got a clue. Okay. Thank you, operator. Don't know what happened there. Murray, did you get that answer?

Yeah,

I did. So, just on the back of that, your occupancy was up 30 basis points sequentially to 90.2%. Calp is higher in the past, but not by very much. So is there a target occupancy that you want to hit before you really start to kind of taper those incentives or are the incentives simply a function of what others are doing in the market? And do we have to wait until like the spring season next year when seasonally strong demand starts picking up again in order for the incentives to really get bought? Yeah, it's definitely the

latter. Yeah, it's definitely the latter. Mario, like we're not doing macro strategy. Definitely. I just literally building by building and local competition more than macro competition. But I don't think we'll have to wait till the spring. We're getting a sense here just as we move month by month. We're making rapid change. And as Stephen said, like it's highly focused in certain properties. And so as those properties like fully fully stabilized and the competition adjusts, then you can see a quick drop. We're dropping and changing obviously by month, but because we're amortizing incentives over 12 months, it is a burn period. And so, you know, immediate changes are kind of still with us for the next 12 months, but the trend is generally downwards. And it's so difficult at this stage to predict the state of the market, given tariff discussions, impacts around that kind of thing. And so, but what we're seeing is good traffic flow, good lease conversion, a market that is definitely still alive and well. And it's literally a matter of trying to figure out, you know, the effects of unemployment rising on affordability and immigration, which is to a lesser extent our problem. And this fear of the housing market crisis and that which does draw people into our into our product. So it's definitely volatile period of time in a macro sense. But in terms of the capri portfolio is experiencing, it's stable.

Are you still kind of seeing occupancy uptick in July into August or the too early to say? And then are you are you starting to see your asking rents stabilize or even increase a little bit

in Q3 thus far? Our occupancy is in pretty good shape. It's optimal for where we would like it to be. It's the cove at least drop off phenomenon that we've been discussing that will really. And again, I don't want the market to think there's some sort of rapid change in the marketplace. It's literally a matter of leaning out those plus 25 percent mark to market leases and allowing more room for the legacy rents to kind of settle in. But I think that without a change in the market, you're going to see positive positive outlook on that front because of the cove at least lead off.

Okay, that last question, any I know your exposure to students is relatively low, but in your kind of student oriented buildings, any initial thoughts on student demand heading into the school year?

Well, we're in we're in university markets that are in pretty good shape and more domestic students than I'll say foreign students. And we are nothing to report of alarm there in any sort of material way.

Great.

Okay.

Thank you, Mario. We take our next question from Dean Wilkinson of CIBC. Your line is now open. Please go ahead.

Thanks. Morning, everybody. Marcus might be a bit of an esoteric question. When you look at a new Capri residents, can you give us a sense of where they coming from? Are they coming from condos specifically for price or are they coming to Capri because they are now recognizing the value of a stable landlord who might not sell their unit or rent a victim or something like that? Where are the people coming from?

That's a great question. I would report no real change in the demographic of who we're seeing. It as the portfolio gets newer and the market rent buildings take a bigger position within Capri, we're obviously dealing with more young professionals, high income earner young professionals. And that's why, as Julian pointed out earlier, those are the most affordable units we have in the portfolio is the market that attracts those young professionals. Those same young professionals, Dean, are in a very bizarre environment where they can't afford to buy homes. Like our predominant buying has been in B.C., but the Ontario story to me is incredible. The average age of a first time home buyer now in Ontario is 40 years old. People are well into their professional careers at 40 and with no real outlook to be able to afford to buy a home. So the affordability crisis, interest rate environment is keeping young people out of home ownership, which is really sad for our country. But that is why we see opportunity in that part of the market. In terms of the legacy portfolio, it's the same people and maybe those people like families for the most part. And for those people, again, home ownership has come a little more scary and it's become a little bit more unattainable.

OK, yeah, that helps. I know my own two young professionals are lamenting that they'll never own a home and they're happy renters. So thanks for the color. I'll turn it back.

Yeah, thanks,

Dean.

We have no further questions in the queue, so I will turn back to Mark Kenny for any closing remarks.

Thank you, operator, and apologies for that music interlude we had, but we got beyond that somehow. I'd like to thank everyone for your time today. 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.