Canadian Apartment Properties REIT (TSE:CAR.UN) used its fourth-quarter 2025 earnings call to outline continued portfolio repositioning, disciplined capital allocation, and cost control initiatives, while also acknowledging softer rental market conditions tied to a wave of new supply and a pause in population growth.
Portfolio repositioning and capital allocation
President and CEO Mark Kenney said CAPREIT met its 2025 disposition target by selling more than CAD 400 million of non-core assets in Canada, alongside CAD 784 million of ancillary interests in Europe. The company used a portion of proceeds to acquire CAD 659 million of “well-built, strategically aligned” properties in key urban Canadian markets, which management said require lower capital investment and offer cash returns above the portfolio average.
Portfolio mix and disposition flexibility
Management said CAPREIT’s portfolio has shifted toward a mix designed to reduce capital needs and improve resilience. Kenney said 79% of the portfolio is classified as value-add assets, with 68% considered a core long-term holding. Another 11% is categorized as “opportunistic dispositions,” which Kenney described as steady-performing assets that the company would consider selling if pricing is compelling.
CAPREIT also reported an intentional 19% allocation to recently constructed properties to lower the portfolio’s average age and operating cost profile. Meanwhile, ERES represented 2% of the consolidated portfolio at year-end, down from 6% at the start of the year, reflecting European dispositions that Kenney said have simplified the business.
Operating environment: supply, incentives, and retention
Chief Financial Officer Stephen Co said the broader Canadian rental market is facing pressure from new supply coming online at the same time population growth has “temporarily paused” due to changes to immigration targets. He said CAPREIT has leaned on targeted incentives and an increased focus on resident retention to mitigate those headwinds, including working directly with residents on “price adjustments and other solutions.”
Despite the softer backdrop, CAPREIT reported same-property occupancy of 97.3% at December 31, 2025, and Kenney said average rent grew 3.8% for 2025. Co added that among occupied suites, average rent was CAD 1,718 per month.
Management provided additional detail on turnover and mark-to-market dynamics:
- 2025 blended rent uplift on turnover was +4.2%.
- Residents in suites for less than two years accounted for 48% of turnover and those leases turned at -6.3%.
- Turnover among residents in place for two years or longer generated +16 rent growth.
- As of December 31, 2025, 27% of residents had tenure under two years and many of those leases were negative mark-to-market.
In response to analyst questions, management said the under-two-year cohort averaged roughly -8% mark-to-market, while the two-years-plus cohort was +20% or higher. Kenney said the pace at which above-market leases turn remains uncertain and that the spring leasing season will provide more clarity, noting winter leasing is typically slower and weather can delay renter decisions.
On incentives, Kenney said incentives rose to 1.3% of revenue in the quarter and that CAPREIT saw a similar seasonal pattern last year—higher incentives in winter that tapered in spring. He said CAPREIT is using incentives “disciplined” and tied to local competition, adding that the company is “following the leader instead of being the leader” this year. He also said CAPREIT has already reduced base rents in certain cases and does not view additional base rent cuts as the strategy going forward, with incentives remaining the main lever.
Financial results and cost controls
Co reported fourth-quarter same-property operating revenues increased 2.8% year-over-year to CAD 224.4 million, while same-property operating expenses decreased 1%, driven by lower repairs and maintenance and tighter controllable spending. The same-property NOI margin expanded 1.3 percentage points to 64.4% for the quarter.
Diluted FFO per unit increased 1.6% to CAD 0.632 in the fourth quarter, which Co attributed to lower interest costs and the accretive impact of buybacks reducing the unit count. For the full year, diluted FFO per unit was CAD 2.541, up 0.3% from 2024. Co said earnings growth was partially offset by net disposition activity and elevated vacancy in Europe related to the wind down of ERES.
CAPREIT reported a 2025 same-property NOI margin of 64.7%, up 50 basis points from 2024, supported by cost management and procurement governance efforts. Kenney added that CAPREIT reduced capital expenditures as a percentage of NOI to 37% in 2025, down from a prior 10-year average of 46%, framing cash flow improvement as a key priority.
On the balance sheet, Kenney said total debt to gross book value ended the year at 39.3%, which he described as on target. Co added that the mortgage renewal ladder has no more than 13% maturing in any single year, and liquidity included CAD 188 million of cash and credit facility capacity, CAD 200 million of unused accordion capacity, and CAD 1.4 billion of Canadian investment properties unencumbered by mortgages.
Outlook themes: spring leasing, operating expenses, and acquisitions
Management repeatedly pointed to the importance of the spring leasing season for visibility into demand and turnover trends. Kenney said CAPREIT’s objective is to achieve 2% to 3% revenue growth, but he cautioned that confidence depends on spring market data, including tenant notices—particularly in Ontario, where 60-day notice periods provide more visibility closer to the season.
On operating expenses, management said technology, procurement, and a shift toward newer buildings with lower costs and more pass-through items are supporting ongoing cost discipline. Co said that excluding weather impacts and the carbon tax base effect, operating expense growth in 2026 was expected to be around inflation. He noted an unusually cold winter and incremental snow hauling costs—estimated at CAD 200,000 to CAD 300,000—as near-term pressures.
On acquisitions, Kenney said fewer deals are coming to market and cap rates are holding relatively strong, reflecting continued investor interest and liquidity in Canadian apartments. He said CAPREIT remains open to opportunities including potential joint ventures, particularly where creative solutions are needed in a market with lower transaction volumes.
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.
