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

Canadian Apartment Properties Real Estate Investment Trust

August 11, 2009 17:14 ET

CAPREIT Announces Second Quarter 2009 Results

TORONTO, ONTARIO--(Marketwire - Aug. 11, 2009) - Canadian Apartment Properties Real Estate Investment Trust ("CAPREIT") (TSX:CAR.UN) announced today its operating and financial results for the three and six months ended June 30, 2009.

Q2 2009 HIGHLIGHTS:

- Revenues up 3.8% on acquisitions and higher average monthly rents

- Net Operating Income increases 4.6%

- Net Operating Income margin improves to 56.9%

- Same property NOI up for fourteenth consecutive quarter

- Distributable Income rises 4.2%

- Normalized Funds from Operations increase 4.5%

- DI per Unit and NFFO per Unit increase 3.2% and 3.8%, respectively

- Solid progress in refinancing and mortgage renewal programs

- Further reduction in weighted average interest rate to generate substantial savings

- Improved interest coverage ratios

For the three months ended June 30, 2009, operating revenues increased 3.8% to $82.0 million compared to $79.0 million last year. For the first six months of 2009, operating revenues rose 4.5% to $164.2 million compared to $157.1 million for the same period last year. The growth in revenues is primarily due to acquisitions completed over the last year and increased average monthly rents across CAPREIT's portfolio compared to the prior year.

Overall average monthly rents increased to $929 at June 30, 2009 compared to $919 last year. Average monthly rents for residential suites owned prior to June 30, 2008 increased to $943 at June 30, 2009 from $935 at June 30, 2008. The increases 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. Increases of $22 or 2.3% were achieved on lease renewals while marginal reductions of $3 or 0.3% were experienced on suite turnovers due primarily to the effect of aggressive rent discounting in the Alberta market as well as small reductions in certain Ontario markets. Overall portfolio occupancy at June 30, 2009 was 97.5% compared to 98.2% in the prior year period, with the residential suite portfolio at 97.3% compared to 98.2% in the prior year. The modest decrease in occupancies in the residential suite portfolio was due primarily to a continuing focus on improved tenant quality combined with weaker overall market conditions in Alberta as well as London, Ontario, and certain short-term operational issues in Victoria, British Columbia. The average portfolio occupancy improved to 97.5% from 97.3% in the first quarter of 2009. Average monthly rents for the land lease portfolio rose as at June 30, 2009 to $601 compared to $595 the prior year, while occupancy increased to 99.8% from 99.7% last year.

For the three and six months ended June 30, 2009, operating expenses as a percentage of operating revenues were 43.1% and 47.4% compared to 43.6% and 47.2%, respectively, for the same periods in 2008. The increase in operating expenses through the first six months of 2009 was primarily due to the increased size of the property portfolio due to acquisitions made over the past twelve months and 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. These increases were partially offset by lower realty taxes (13.1% of operating revenues in first half of 2009 vs. 13.2% for the same period last year) and utility costs (14.4% of operating revenues in first half of 2009 vs. 14.9% in the same period last year).

In spite of the increase in operating costs in the period, net operating income ("NOI") for the quarter and six months ended June 30, 2009 were $46.6 million or 56.9% of revenues and $86.4 million or 52.6% of revenues compared to $44.6 million or 56.4% of revenues and $83.0 million or 52.8% of revenues in the same periods last year, respectively.

CAPREIT generated its fourteenth consecutive quarter of stabilized portfolio growth for the three months ended June 30, 2009 as NOI for properties owned at December 31, 2007 increased 1.1%.

"Despite the slow Canadian economy, we were pleased to generate improved operating performance in the second quarter compared to the first three months of the year, the result of higher average monthly rents and occupancies combined with our ongoing and highly effective cost control programs," commented Thomas Schwartz, President and CEO. "While our results were moderately impacted by weaker market conditions in Alberta, we are not overly exposed to this region."

For the three months ended June 30, 2009, net income increased to $9.1 million or $0.138 per Unit compared to $3.4 million or $0.052 per Unit in last year's second quarter. For the first half of 2009, net income was $4.6 million or $0.069 per Unit, compared to $17.8 million or $0.272 per Unit in the same period last year.

For the three months ended June 30, 2009, Distributable Income ("DI") increased to $23.5 million or $0.357 per Unit compared to $22.6 million or $0.346 per Unit for the same period last year. The 3.2% increase in DI per Unit in the second quarter of 2009 was despite the 0.9% increase in the weighted average number of Units outstanding compared with the prior year period. For the first half of 2009, DI increased 3.5% to $40.6 million compared to $39.2 million for the same period last year. For the second quarter and first six months of 2009, CAPREIT's DI payout ratio improved to 78.4% and 90.7% respectively, compared to 80.5% and 92.6% for the same respective periods last year. The effective DI payout ratio, which compares net cash distributions paid to DI, was 71.6% in the second quarter and 81.2% for the first half of 2009 compared to 66.5% and 75.6% for the same respective periods last year. Participation in CAPREIT's DRIP has declined through the first six months of 2009, and management believes it will stabilize in the range of 9% going forward.

Funds From Operations ("FFO"), including realized and unrealized gains on derivative financial instruments, increased 29.2% to $28.6 million or $0.434 per Unit in the second quarter and 15.5% to $44.3 million or $0.672 per Unit in the first six months of 2009 compared to $22.2 million or $0.339 per Unit and $38.3 million or $0.587 per Unit in the same respective periods in 2008.

Normalized Funds From Operations ("NFFO"), which excludes the effect of the decline in the fair value of hedging instruments, rose 4.5% to $23.2 million or $0.351 per Unit for the three months ended June 30, 2009 compared to $22.2 million or $0.339 per Unit in last year's second quarter. For the six months ended June 30, 2009, NFFO increased 3.4% to $39.6 million or $0.602 per Unit compared to $38.3 million or $0.587 per Unit for the same period in 2008. The NFFO payout ratio for the second quarter and first six months of 2009 improved to 79.7% and 92.8% respectively, compared to 82.0% and 94.7% for the same respective periods in 2008. The effective NFFO payout ratio, which compares net cash distributions paid to NFFO, was 72.7% in the second quarter and 83.2% for the first half of 2009 respectively, compared to 67.7% and 77.4% for the same respective periods last year.

Adjusted Funds From Operations ("AFFO"), which deducts from NFFO the provision for maintenance capital expenditures and non-cash compensation for incentive plans, increased 4.3% to $20.6 million or $0.312 per Unit in the second quarter of 2009 from $19.7 million or $0.302 per Unit in the same period last year. For the first six months of 2009, AFFO increased 3.5% to $34.7 million or $0.526 per Unit from $33.5 million or $0.513 per Unit for the same period in 2008. The AFFO payout ratio was 81.9% and 95.1% in the second quarter and first six months of 2009 compared to 76.2% and 88.6% respectively in the same prior year periods. AFFO in the six months ended June 30, 2009 has been negatively impacted by the reduction of reinvestments of distributions under the Dividend Reinvestment Plan to $3.8 million in the first half of 2009 from $6.7 million in the same period last year. Management believes that on an annualized basis AFFO will be sufficient to fund its distributions and maintenance capital expenditures.

The ratio of total debt to gross book value was 62.42% at June 30, 2009 compared to 60.45% at the end of the second quarter last year. The effective weighted average interest rate of CAPREIT's total mortgage portfolio reduced further in the second quarter to 5.15% (excluding amortization of the realized component of the loss on settlement included in AOCL) at June 30, 2009 compared to 5.35% at the end of the second quarter last year, while the weighted average term to maturity fell to 4.9 years compared to 5.1 years at the same time last year. Approximately 95.3% of CAPREIT's mortgages are insured by the Canada Mortgage and Housing Corporation ("CMHC"). CAPREIT's interest coverage ratio at June 30, 2009 improved to 2.07 times from 2.01 times at the same time last year, while its debt coverage ratio remained stable at 1.29 times.

CAPREIT has also successfully renewed its $250 million Acquisition and Operating Credit Facility which matured on June 30, 2009 to provide a one-year revolving facility of $100 million and a three-year revolving facility of $150 million. Availability under this Credit Facility was approximately $92.3 million at June 30, 2009. In addition, the $10 million Land Lease Facility was also renewed for a one-year term maturing on June 30, 2010.

During the first six months of 2009, total refinancings of $155.5 million, including renewal of existing mortgages aggregating to $101.1 million and additional financing of $54.4 million, were completed at a weighted average interest rate of 3.60%, significantly below the weighted average interest rate of mortgages maturing in 2009.

Despite tight credit markets, management has made significant progress in implementing its total mortgage renewal and refinancing plan of $300 million ($200 million for renewals and $100 million for additional refinancings), of which $224.8 million ($136.8 million for renewals and $88.0 million for additional refinancings), has been closed or committed up to August 11, 2009.

"We are making solid progress with our mortgage renewal and refinancing programs and we expect to achieve our targets through the balance of the year. Importantly, with our ongoing access to CMHC-insured financing and our strong balance sheet, we are seeing continued reductions in the weighted average interest rate on our mortgage portfolio which will generate substantial savings in the years ahead," Mr. Schwartz added.

Capital expenditures for the second quarter and the first six months of 2009 were $25.7 million and $34.9 million compared to $11.8 million and $18.3 million, respectively, for the same periods last year. The increases are in line with CAPREIT's stated objective to accelerate investment in its property portfolio during 2009, including energy savings initiatives and building improvements to capitalize on the availability and competitive pricing from construction trades.

"Looking ahead, we believe the Canadian residential rental market will remain relatively stable in the majority of the markets in which we operate. As a result, we believe we will generate further improvements in our operating and financial results through the balance of 2009 and going forward," Mr. Schwartz concluded.



Financial Highlights:

----------------------------------------------------------------------------
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Period Ended June 30,
($ Thousands, except per Three Months Six Months
Unit amounts) 2009 2008 2009 2008
----------------------------------------------------------------------------
Operating Revenues $ 82,017 $ 78,977 $ 164,215 $ 157,081
Net Operating Income
(NOI) $ 46,644 $ 44,581 $ 86,372 $ 83,002
NOI Margin (%) 56.9 56.4 52.6 52.8
Income from Continuing
Operations before Other
Costs and Income Taxes $ 3,325 $ 4,104 $ 474 $ 2,355
Reorganization Costs $ - $ (345) $ - $ (1,550)
Unrealized Gain on
Derivative Financial
Instruments $ 3,748 $ - $ 3,437 $ -
Realized Gain on
Derivative Financial
Instruments $ 1,859 $ - $ 1,325 $ -
Recovery of (Provision
for) Future Income Taxes $ 141 $ (313) $ (662) $ (210)
(Loss) Income from
Discontinued Operations $ - $ (59) $ - $ 17,155
Net Income $ 9,073 $ 3,387 $ 4,574 $ 17,750
Net Income per Unit -
Basic $ 0.138 $ 0.052 $ 0.069 $ 0.272
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Distributable Income
(DI)(1)(2) $ 23,523 $ 22,582 $ 40,555 $ 39,199
DI per Unit - Basic(1) $ 0.357 $ 0.346 $ 0.616 $ 0.600
Distributions Declared
per Unit $ 0.270 $ 0.270 $ 0.540 $ 0.540
Payout Ratio (%)(1) 78.4 80.5 90.7 92.6
Effective Payout Ratio
(%)(1)(3) 71.6 66.5 81.2 75.6
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Funds from Operations
(FFO)(1)(4) $ 28,630 $ 22,164 $ 44,253 $ 38,324
FFO per Unit - Basic(1) $ 0.434 $ 0.339 $ 0.672 $ 0.587
Normalized Funds from
Operations (NFFO)(1) $ 23,153 $ 22,164 $ 39,621 $ 38,324
NFFO Payout Ratio (%)(1) 79.7 82.0 92.8 94.7
NFFO per Unit - Basic(1) $ 0.351 $ 0.339 $ 0.602 $ 0.587
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Adjusted Funds from
Operations (AFFO)(1) $ 20,556 $ 19,707 $ 34,655 $ 33,477
AFFO per Unit - Basic(1) $ 0.312 $ 0.302 $ 0.526 $ 0.513
AFFO Payout Ratio (%)(1) 81.9 76.2 95.1 88.6
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Number of Suites & Sites 28,902 27,807
Income Properties $ 2,191,020 $ 2,192,945(5)
Weighted Average Number
of Units (000's) - Basic 65,938 65,334 65,855 65,288
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(1) 2008 excludes gain on sale of assets of $17.0 million or $0.261 per Unit
for the six months ended June 30, 2008.
(2) DI is defined in CAPREIT's Declaration of Trust dated May 20, 2009.
(3) Excludes from distributions cash reinvested by Unitholders through the
DRIP.
(4) FFO is calculated in accordance with the recommendations of the Real
Property Association of Canada ("REALpac").
(5) As at December 31, 2008.


CAPREIT's Consolidated Financial Statements for the three and six months ended June 30, 2009, including Management's Discussion and Analysis, can be found on the investor relations page at www.capreit.net.

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 1,288 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 generally accepted accounting principles ("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, DI, FFO, NFFO and AFFO. These non-GAAP measures are further defined and discussed in the August 11, 2009 Management Discussion and Analysis of the Results of Operations and Financial Condition which should be read in conjunction with this news release. Since NOI, DI, FFO, NFFO and AFFO 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 August 11, 2009 Management Discussion and Analysis of the Results of Operations and Financial Condition. 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

All statements in this press release that do not relate to historical facts constitute forward-looking statements. These statements represent CAPREIT's intentions, plans, expectations and beliefs and are subject to certain risks and uncertainties that could result in actual results differing materially from these forward-looking statements. 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, 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 are more fully described in regulatory filings, including CAPREIT's Annual Information Form, which can be obtained on SEDAR at www.sedar.com. Investors should not place undue reliance on any such forward-looking statements. 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. Yazdi Bharucha
    Chief Financial Officer
    (416) 861-5771