Canadian Apartment Properties REIT (TSE:CAR.UN) reported lower third-quarter funds from operations per unit as property sales and higher interest expenses weighed on results, even as rental turnover spreads returned to positive territory.
Diluted funds from operations (FFO) per unit fell 1.7% to $0.652 for the three months ended September 30, 2026, from $0.663 a year earlier. Chief Financial Officer Stephen Co said lost net operating income (NOI) from dispositions and higher interest expense were partly offset by lower trust and current tax expenses and the benefit of unit repurchases.
President and CEO Brad Cutsey said the next few quarters are likely to remain challenging as markets absorb new rental supply amid slower population growth and higher mortgage refinancing costs pressure earnings. While some leasing indicators have improved, he said it was too soon to call a sustained recovery.
Turnover Rents Improve, but Shorter Leases Remain a Drag
The blended change in monthly rent on turnover was positive 0.3% in the third quarter, compared with declines of 1.2% in the second quarter and 2.1% in the first. In October, the measure improved to positive 0.4%.
Co said 48% of Canadian turnover in the third quarter came from residents who had lived in their units for less than two years. Those leases saw an average rent decrease of 5.2% upon turnover, a smaller decline than the 7.1% recorded in the second quarter and 10.8% in the first.
The remaining 52% of turnover involved residents with leases of at least two years, where rents increased by an average of 5.9%. Co said the longer-tenured leases provide a source of rent growth while supply and demand return to balance.
As of September 30, 32% of residents had lived in their homes for less than two years. Within that group, approximately 18% of in-place rents remained more than 5% above estimated market rents, down from 20% at the end of the second quarter. Co said the drag from peak leases could persist for another 15 to 17 months, assuming market rents remain flat.
Occupancy Holds Up as Incentives Decline
Occupancy in CAPREIT’s same-property Canadian portfolio was 97.2% at September 30 and held relatively stable at 97.1% at October 31. The September figure was above Yardi’s latest quarterly national average of 95.3%, according to the company.
Same-property Canadian operating revenue rose 0.6% in the third quarter, while operating costs increased 2.4%, primarily because of higher building and suite maintenance costs in Ontario. The same-property NOI margin declined to 66% for the quarter.
The value of new residential incentives granted across the portfolio fell 27% from the second quarter. However, amortization of incentives represented 1.6% of total Canadian operating revenue, up from 1.1% a year earlier.
Cutsey said occupancy remains the company’s top operating priority and that it will continue to use incentives where vacancies are elevated or leasing activity is weak. He said the company has also challenged leasing teams to remove incentives where properties show strength.
In the Greater Toronto Area, occupancy was 98.5% at September 30, while occupied average monthly rent increased 1.9% year over year to $1,873. Incentives granted in the region fell 31% from the second quarter. Cutsey said he was constructive on the market and hoped the company could modestly push rents when the leasing season begins in April, provided conditions remain stable.
Other markets faced greater pressure. Combined same-property NOI fell 6.9% in London and Kitchener-Waterloo and 7.3% in Calgary and Edmonton. Co cited new supply in those markets, along with higher maintenance costs in London and Kitchener-Waterloo and higher realty taxes in Calgary and Edmonton.
Buybacks and Refinancing Remain in Focus
CAPREIT spent approximately $101 million year to date repurchasing 2.9 million units at a weighted average price of $34.83, below its September 30 diluted net asset value of $52.94 per unit. Cutsey said repurchases remain a capital allocation priority and would be funded by disposition proceeds on a leverage-neutral basis.
The company also completed approximately $88 million of acquisitions and dispositions in Canada, $145 million of European property divestments and the $99 million privatization of European Residential REIT. Cutsey said the privatization provided greater flexibility to manage the sale of the remaining European assets.
Total debt rose to 42.1% of gross book value at September 30, from 41.2% at June 30, mainly because of a decline in the fair value of investment properties. CAPREIT expects to complete approximately $1.2 billion in mortgage refinancings in 2026, including top-up financing and assuming no acquisitions or dispositions; $960 million had been completed or committed at the time of the call.
Co said another $655 million of Canadian mortgages mature in 2027 at a weighted average effective rate of 3.3%, compared with estimated current market rates of 4.2% for five-year terms and 4.6% for 10-year terms, excluding certificate of insurance costs.
Management plans to provide more detail on operating strategy and capital allocation at its November 19 investor day in Montréal. Newly appointed Chief Operating Officer James Lawrence is expected to outline the company’s operating strategy at the event.
About Canadian Apartment Properties REIT (TSE:CAR.UN)
CAPREIT is Canada’s largest publicly traded provider of quality rental housing. As at June 30, 2026, CAPREIT owns approximately 45,400 residential apartment suites and townhomes (excluding approximately 100 suites classified as assets held for sale), that are well-located across Canada and, to a lesser extent, the Netherlands, with a total fair value of approximately $14.4 billion (excluding approximately $21.6 million of assets held for sale). For more information about CAPREIT, its business and its investment highlights, please visit our website at www.capreit.ca and our public disclosures which can be found under our profile at www.sedarplus.ca.
