Canadian Apartment Properties Real Estate Investment Trust
TSX : CAR.UN

Canadian Apartment Properties Real Estate Investment Trust

November 13, 2009 17:39 ET

CAPREIT Announces Third Quarter 2009 Results

TORONTO, ONTARIO--(Marketwire - Nov. 13, 2009) - Canadian Apartment Properties Real Estate Investment Trust (TSX:CAR.UN) ("CAPREIT") announced today its operating and financial results for the three and nine months ended September 30, 2009.

    Three Months Ended    Nine Months Ended 
    September 30   September 30 
    2009   2008      2009   2008 
   
Operating Revenues (000s)$82,990 $80,721  $247,205 $237,802  
                 
Net Operating Income ("NOI") (000s) (1)$47,726 $46,364  $134,098 $129,366  
   
NOI Margin  57.5%  57.4%  54.2%  54.4%
   
Normalized Funds From Operations (1) ("NFFO")                    
       per Unit – Basic$0.357 $0.358  $0.959 $0.945  
                 
NFFO Payout Ratio (1)   78.4%   77.6%   87.4%   88.2%
  1. NOI, NFFO and NFFO per Unit are measures widely used by analysts and investors in evaluating the operating performance of real estate issuers. However, such measures do not have a standardized meaning under Canadian generally accepted accounting principles ("GAAP") and therefore may not be comparable to similar measures presented by other issuers. Please refer to the cautionary statements under the heading "Non-GAAP Financial Measures" in this press release.

Q3 2009 HIGHLIGHTS:

Portfolio Performance

  • Operating revenues increased 2.8% due to acquisitions, higher average monthly rents and stable occupancies
  • Average monthly rents up 1.5% with steady increases in all markets except Calgary
  • NOI increased 2.9% (1.0% on a stabilized portfolio basis)
  • NOI margin, occupancy levels and bad debt levels remained stable despite the current soft economic environment
  • Same property NOI stable or up for fifteenth consecutive quarter

Operating Performance

  • NFFO increased by 0.5% and remained effectively unchanged at $0.357 per Unit with a relatively stable NFFO payout ratio

Liquidity and Leverage

  • Solid progress achieved in debt refinancing and mortgage renewal programs, maintaining a conservative total debt to gross book value ratio of 63.0%
  • Year to date mortgage refinancings of $244.9 million consisting of renewals of existing mortgages of $153.9 million and additional top-up financings of $91.0 million, completed at a weighted average interest rate of 3.84%, significantly below the weighted average interest rate for the mortgages maturing in 2009 of 5.27%
  • Stable interest coverage and debt coverage ratios
  • Settlement of all interest rate forward contracts mitigating impact to future earnings and cash flow

PORTFOLIO OPERATING RESULTS

    Three Months Ended    Nine Months Ended 
    September 30   September 30 
    2009   2008      2009   2008 
Overall Portfolio Occupancy (1)            98.3%   98.3%
Overall Portfolio Average Monthly Rents (1)          $943 $929  
Operating Revenues (000s)$82,990 $80,721  $247,205 $237,802  
NOI (000s)$47,726 $46,364  $134,098 $129,366  
NOI Margin  57.5%  57.4%  54.2%   54.4%
(1) As at September 30.                     

Operating Revenues

For the three and nine months ended September 30, 2009, total operating revenues increased by 2.8% and 4.0%, respectively, compared to the same periods last year primarily due to acquisitions completed in 2008 as well as increased average monthly rents and stable occupancies.

Average monthly rents increased in all sectors of the portfolio resulting in a 1.5% increase in overall average monthly rents as at September 30, 2009 to $943, compared to $929 last year. The occupancy at September 30, 2009 for the residential suite portfolio remained strong at 98.3%, the same level achieved in the prior year. The increases in average monthly rents were due to successful sales and marketing strategies and, despite the recent economic slowdown, continued strength in the rental residential sector in the majority of CAPREIT's regional markets. For the three months ended September 30, 2009, average increases of $19.4 per suite per month were achieved on lease renewals which represent 28.3% of total suites while marginal reductions of $10.4 per suite per month were experienced on suite turnovers, which represent 12.6% of total suites, due primarily to the effect of aggressive rent discounting in the Calgary market as well as small reductions in certain Ontario markets.

Operating Expenses

For the three and nine months ended September 30, 2009, operating expenses as a percentage of operating revenues were 42.5% and 45.8% ,respectively, compared to 42.6% and 45.6% for the same periods in 2008. The increase in operating expenses through the first nine months of 2009 was primarily due to the increased size of the property portfolio due to acquisitions made over the past twelve months as well as a general increase in overall costs. Increased repairs and maintenance costs arising from the implementation of a new garbage levy introduced in the City of Toronto in late 2008 as well as implementation costs for waste recycling programs also contributed to the increase in overall operating costs. These increases were partially offset by lower relative realty taxes (13.0% of operating revenues for the first nine months of 2009 vs. 13.2% for the same period last year) and utility costs (12.6% of operating revenues for the first nine months of 2009 vs. 12.9% in the same period last year).

Net Operating Income

In spite of the increase in operating costs in the period, overall NOI improved in the third quarter by $1.4 million or 2.9% and the NOI margin improved marginally to 57.5% as compared to 57.4% in the prior year. For the first nine months of 2009, the increase in overall NOI was $4.7 million or 3.7% and the NOI margin decreased modestly to 54.2% as compared to 54.4% in the prior year.

As of September 30, 2009, CAPREIT has generated 15 consecutive quarters of stable or improved NOI growth for its stabilized properties. On a stabilized property basis, for the three and nine months ended September 30, 2009, operating revenues increased 1.3% and 1.2%, respectively, while operating costs increased 1.7% and 1.6%, respectively. As a result, stabilized NOI increased by 1.0% and 0.8%, respectively, for the three and nine months ended September 30, 2009.

"The defensive strengths of our portfolio, combined with our capital investments and proven property management programs, continue to deliver solid performance despite the slow Canadian economy," commented Thomas Schwartz, President and Chief Executive Officer. "As economic conditions improve, we expect to generate further growth in revenues and cash flow."

NON-GAAP FINANCIAL MEASURES

    Three Months Ended    Nine Months Ended 
    September 30   September 30 
    2009   2008      2009   2008 
NFFO (1)$23,581 $23,469  $63,202 $61,793  
NFFO Per Unit - Basic (1)$0.357 $0.358  $0.959 $0.945  
Cash Distributions Per Unit$0.270 $0.270  $0.810 $0.810  
NFFO Payout Ratio (2)  78.4%  77.6%  87.4%  88.2%
Effective NFFO Payout Ratio (3)  69.3%  64.6%  78.0%  72.5%
  1. NFFO and NFFO per Unit are measures widely used by analysts and investors in evaluating the operating performance of real estate issuers. However, such measures do not have a standardized meaning under GAAP and therefore may not be comparable to similar measures presented by other issuers. Please refer to the cautionary statements under the heading "Non-GAAP Financial Measures" in this press release.
  2. The payout ratio compares NFFO to distributions declared.
  3. The effective payout ratio compares NFFO to net distributions paid (net of distributions reinvested under CAPREIT's distribution reinvestment plan (the "DRIP")).

Normalized Funds From Operations

NFFO is a non-GAAP financial measure used by CAPREIT to assess overall operating performance. NFFO, which excludes the effect of changes in the fair value of hedging instruments and certain other non-recurring expenses, increased by 0.5% and 2.3% respectively for the three and nine months ended September 30, 2009, compared to the same periods last year primarily due to acquisitions completed during 2008 and higher average monthly rents resulting from management's sales and marketing programs. NFFO per Unit was stable for the three months ended September 30, 2009 compared to the prior year period and increased 1.5% during the nine months ended September 30, 2009 compared to the prior year period.

The payout ratio of NFFO to distributions declared increased for the three months ended September 30, 2009 to 78.4%, compared to 77.6% for the same period last year. For the nine months ended September 30, 2009 the payout ratio improved to 87.4%, compared to 88.2% for the same period last year.

The effective NFFO payout ratio, which compares NFFO to net distributions paid to Unitholders, increased to 69.3% from 64.6%, and to 78.0% from 72.5%, respectively, for the three and nine months ended September 30, 2009, primarily due to the reduction of reinvestments of distributions under the DRIP.

LIQUIDITY AND LEVERAGE

    As at or for the Period 
    Ending September 30 
    2009 2008 
Debt Coverage (times)(1)  1.27  1.31  
Interest Coverage (times)(1)  2.06  2.04  
Total Debt to Gross Book Value Ratio  62.97% 61.64%
Weighted Average Mortgage Interest Rate(2)  5.09% 5.33%
Weighted Average Mortgage Term (years)  5.1  5.2  
Available Liquidity - Acquisition and Operating Facility (000s)$89,347 $94,484 (3) 
  1. For the four quarters ended September 30.
  2. Effective weighted average interest rate includes deferred financing costs and fair value adjustments but excludes CMHC premiums. Additionally, including the amortization of the realized component of the loss on settlement included in AOCL, the effective portfolio weighted average interest rate at September 30, 2009 would be 5.16%.
  3. As at December 31, 2008.

Financial Strength

CAPREIT's strong balance sheet and financial position has enabled management to take advantage of the current low interest rate environment through the combination of refinancings as well as modest increases in overall leverage.

Management believes CAPREIT is achieving its financing plan goals as demonstrated by the following key indicators:

  • The ratio of total debt to gross book value as at September 31, 2009 increased modestly to 62.97% as compared to 61.64% in the same period last year.
  • At September 30, 2009, 96.1% (September 30, 2008 – 95.1%) of CAPREIT's mortgage portfolio is CMHC- insured (excluding the land lease portfolio).
  • The effective portfolio weighted average interest rate on mortgages has steadily declined from 5.33% as at September 30, 2008 to 5.09% as at September 30, 2009, which will result in significant interest expense savings in future years.
  • The available borrowing capacity under the Acquisition and Operating Facility as at September 30, 2009 was $89.3 million in addition to the Land Lease Facility capacity of $7.2 million.
  • During the first nine months of 2009, total mortgage refinancings of $244.9 million, consisting of renewals of existing mortgages of $153.9 million and additional top-up financings of $91.0 million, were completed at a weighted average interest rate of 3.84%, significantly below the weighted average interest rate of the mortgages maturing in 2009 of 5.27%.

Despite the general deterioration in credit markets, management believes that because of the continuing availability of insured mortgage financing through CMHC, CAPREIT is well positioned to meet its mortgage renewal and refinancing goals in 2009. Management does not anticipate any material difficulties in renewing approximately $29.9 million of maturing mortgages through the remainder of 2009, which have an effective interest rate of approximately 4.74%. Based on current interest rates for CMHC-insured mortgages, management expects to be able to continue to realize continued interest rate savings for mortgages maturing in 2010 that will benefit CAPREIT over the long term.

"Our top-up refinancing programs, combined with retained earnings and DRIP contributions, continue to provide sufficient capital to fund our capital investment programs. Looking ahead, we remain confident we can comfortably finance our projected capital investments for the foreseeable future," Mr. Schwartz added.

Capital Expenditure Plan

During the first nine months of 2009, CAPREIT incurred capital expenditures of $61.3 million as compared to $34.7 million in 2008. Capital expenditures are higher in 2009 compared to last year due to the acceleration of building improvement programs and higher suite improvement costs. The increases are in line with CAPREIT's stated objective to accelerate investment in its property portfolio during 2009 to capitalize on the availability and competitive pricing from construction trades. In addition, CAPREIT continues to invest capital in environmentally friendly and energy savings initiatives, including high-efficiency heating boilers, energy-efficient lighting systems, water savings and garbage recycling programs, which have resulted in reductions in operating costs and improved overall portfolio NOI.

"Our decision to accelerate our investments in building improvements has enabled us to reduce costs while enhancing the value and productive capacity of our portfolio. Looking ahead, building improvement investments in our current portfolio, the largest component of our total capital investment program, are expected to decline from current levels to approximately $10 million by 2014," Mr. Schwartz concluded.

Additional Information

More detailed information and analysis is included in CAPREIT's interim consolidated financial statements for the three and nine months ended September 30, 2009, including management's discussion and analysis ("MD&A"), which have been filed on SEDAR and can be viewed at www.sedar.com under CAPREIT's profile or on the CAPREIT's website on the investor relations page at www.capreit.net. Supplemental information is also provided at www.capreit.net, and should be read in conjunction with, the interim consolidated financial statements and MD&A for the three and nine months ended September 30, 2009.

Conference call

A conference call hosted by Thomas Schwartz, President and Chief Executive Officer and Richard Smith, Chief Financial Officer, will be held Monday, November 16, 2009 at 10.00 am ET. The telephone numbers for the conference call are: Local: (416) 340-8018, North American Toll Free: (800) 769-8320.

A slide presentation to accompany management's comments during the conference call will be available one hour and a half prior to the conference call. To view the slides, access the CAPREIT web site at www.capreit.net, click on "Investor Relations" and follow the link at the top of the page. Please log on at least 15 minutes before the call commences.

The telephone numbers to listen to the call after it is completed (Instant Replay) are local (416) 695-5800 or toll free (800) 408-3053. The Passcode for the Instant Replay is 3055488#. The Instant Replay will be available until midnight, November 23, 2009. The call and accompanying slides will also be archived on the CAPREIT web site at www.capreit.net. For more information about CAPREIT, its business and its investment highlights, please refer to our website at www.capreit.net.

Corporate Profile

As one of Canada's largest residential landlords, CAPREIT (TSX:CAR.UN) is a growth-oriented investment trust owning interests in 27,614 residential suites and two land lease communities comprising 1,302 sites located in or near major urban centres from coast to coast. For more information about CAPREIT, its business and its investment highlights, please refer to our web site at www.capreit.net and our public disclosure which can be found under our profile at www.sedar.com.

Non-GAAP Financial Measures

CAPREIT prepares and releases quarterly unaudited and annual audited consolidated financial statements prepared in accordance with Canadian GAAP. In this and other earnings releases and investor conference calls, as a complement to results provided in accordance with GAAP, CAPREIT also discloses and discusses certain non-GAAP financial measures, including NOI, NFFO and NFFO per Unit. These non-GAAP measures are further defined and discussed in the November 13, 2009 MD&A, which should be read in conjunction with this news release. Since NOI and NFFO are not measures determined by GAAP, they may not be comparable to similar measures reported by other issuers. CAPREIT has presented such non-GAAP measures as management believes these non-GAAP measures are relevant measures of the ability of CAPREIT to earn and distribute cash returns to Unitholders and to evaluate CAPREIT's performance. A reconciliation of such non-GAAP measures is provided in the November 13, 2009 MD&A. These non-GAAP measures should not be construed as alternatives to net income (loss) or cash flow from operating activities determined in accordance with GAAP as an indicator of CAPREIT's performance.

Cautionary Statements Regarding Forward-looking Statements

Certain statements contained, or contained in this press release constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to CAPREIT's future outlook and anticipated events or results and may include statements regarding the future financial position, business strategy, budgets, litigation, projected costs, capital expenditures, financial results, taxes, plans and objectives of or involving CAPREIT. Particularly, statements regarding future results, performance, achievements, prospects or opportunities for CAPREIT or the real estate industry are forward-looking statements. In some cases, forward-looking information can be identified by terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or the negative thereof or other similar expressions concerning matters that are not historical facts. These statements are based on certain factors and assumptions regarding expected growth, results of operations, performance and business prospects and opportunities. Although the forward-looking statements contained herein are based upon assumptions that management believes are reasonable as at the date hereof, there can be no assurance that actual results will be consistent with these forward-looking statements. Forward-looking statements necessarily involve known and unknown risks and uncertainties, many of which are beyond CAPREIT's control, that may cause CAPREIT or the industry's actual results, performance, achievements, prospects and opportunities in future periods to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, risks related to: liquidity and price fluctuation, real property ownership, leasehold interests, income- producing properties, competition for real property investments, competition for tenants, interest rates, general economic conditions, general uninsured losses, availability of distributable income, government regulation, environmental matters, Unitholder liability, dependence on key personnel, potential conflicts of interest, tax related risks, dilution, restrictions on potential growth and reliance on credit facilities, financing and the nature of CAPREIT Units. There can be no assurance that the expectations of management of CAPREIT will prove to be correct. These risks and uncertainties are more fully described in regulatory filings, including CAPREIT's Annual Information Form, which can be obtained on SEDAR at www.sedar.com, under CAPREIT's profile, as well as the MD&A accompanying the September 30, 2009 financial statements. The information in this press release is based on information available to management as of November 13, 2009. Subject to applicable law, CAPREIT does not undertake any obligation to publicly update or revise any forward-looking information.

Contact Information

  • CAPREIT
    Mr. Michael Stein
    Chairman
    (416) 861-5788
    or
    CAPREIT
    Mr. Thomas Schwartz
    President & CEO
    (416) 861-9404
    or
    CAPREIT
    Mr. Richard J. Smith
    Chief Financial Officer
    (416) 861-5771