CAPREIT's Q1 earnings narrow to C$9.7M from C$10.7M a year ago as sales grew to C$86.3M from C$83.5M; average monthly rents rose 3.7%, occupancy grew to 98.3% from 97.8%

Cindy Allen

Cindy Allen

May 10, 2011 – Marketwire

TORONTO , May 10, 2011 (press release) – Canadian Apartment Properties Real Estate Investment Trust ("CAPREIT") (TSX:CAR.UN) announced today strong operating and financial results for the three months ended March 31, 2011.

- Q1 2011 operating revenues up 3.4% compared to prior year period on higher average monthly rents, increased occupancies, and contributions from acquisitions

- Average monthly rents rose a significant 3.7% at March 31, 2011 compared to prior year

- Occupancy improved to 98.3% at March 31, 2011 compared to 97.8% in prior year

- Q1 2011 NOI up 6.7% from last year by $2.9 million with NOI margin increasing to 53.9%

- Organic growth continued with Q1 2011 stabilized NOI up 4.7%, the 21st consecutive quarter of stable or improved year-over-year same property NOI

- Q1 2011 NFFO up a significant 12.4% generating an improved NFFO payout ratio of 92.6%, overcoming the negative impacts of HST and low guideline increases for lease renewals in Ontario

- Q1 2011 NFFO per Unit remained stable at $0.301 despite the dilutive impact of the Q4 2010 equity offering

- Closed or committed $111 million of mortgage refinancings so far this year at an average interest rate of 3.53% and an average term to maturity of 5.3 years, which is expected to produce significant future interest rate savings

- Completed the acquisition of a 83-suite mid-tier townhome complex in Burlington, Ontario and disposed of a non-core property comprising 143 suites located in Hamilton, Ontario

- Subsequent to quarter end, completed the acquisition of five properties comprising 495 suites in the Greater Vancouver Region for $72.0 million excluding transaction costs

- Completes first reporting period presented under International Financial Reporting Standards ("IFRS")

"The strong operating and financial performance generated in the first quarter of 2011 has maintained CAPREIT's trend of steady and stable growth," commented Thomas Schwartz, President and Chief Executive Officer. "Looking ahead, we continue to capitalize on the strong fundamentals in the majority of our markets, and anticipate further growth in the coming quarters."

Operating Revenues

For the three months ended March 31, 2011, total operating revenues increased by 3.4% compared to the same period last year due to increased average monthly rents and higher occupancies in most regions and the contribution from acquisitions, though partially offset by dispositions. Ancillary revenues, such as parking, laundry and antenna income, rose by 21.8% for the three months ended March 31, 2011 as Management continued its focus on maximizing the revenue potential of its property portfolio as well as the result of a partially non-recurring item of $0.6 million.

CAPREIT's annualized net rental revenue run-rate based on the average monthly rents in place and CAPREIT's share of residential suites and sites as at March 31, 2011 is $325.5 million, or 1.9% higher than $319.3 million as of March 31, 2010. Net rental revenue for the twelve months ended March 31, 2011 was $324.7 million (2010 – $316.8 million).

Average monthly rents increased in all sectors and geographic regions of the portfolio resulting in a 3.7% increase in overall average monthly rents as at March 31, 2011 to $978, compared to $943 as at March 31, 2010. Overall occupancy at March 31, 2011 improved slightly to 98.3% from 97.8% in the prior year period. The increases in average monthly rents were due to ongoing successful sales and marketing strategies and continued strength in the residential rental sector in the majority of CAPREIT's regional markets.

Suite turnovers in the residential suite portfolio (excluding co-ownerships) during the three months ended March 31, 2011 resulted in a $8 or 0.8% increase in average monthly rents compared to an increase of $4 or 0.4% for the same period last year. Although the change in average monthly rents from suite turnovers improved from last year, the effect of aggressive rent discounting in the Alberta market by approximately $24 or 2.3% per suite for the three months ended March 31, 2011 continues to have an adverse impact. Excluding the impact of the Alberta portfolio, residential suite turnovers would have instead resulted in average monthly rent increases of $11 or 1.1% for the three months ended March 31, 2011.

Pursuant to Management's focus on increasing overall portfolio rents, for the three months ended March 31, 2011, average monthly rents on lease renewals increased by approximately $13 or 1.3% compared to increases of $21 or 2.1% for the same period last year. The lower rate of growth in average monthly rents on lease renewals during the current quarter is due primarily to the Ontario guideline increase of 0.7% for 2011, which compares unfavourably to the permitted Ontario guideline increase of 2.1% in 2010. Management is actively pursuing applications for above guideline increases to raise average monthly rents on lease renewals.

Operating Expenses

For the three months ended March 31, 2011, operating expenses as a percentage of operating revenues improved to 46.1% compared to 47.7% for the same period last year. This significant decrease through the three months ended March 31, 2011 was primarily due to the decrease in utility costs, partially offset by increases in repairs and maintenance ("R&M") costs. The decrease in utility costs, despite the impact of property acquisitions and a cooler winter in 2011 compared to last year, was primarily the result of CAPREIT's various energy-saving initiatives and the revised natural gas supply and pricing strategy implemented in 2010 that resulted in lower pricing compared to the unfavourable fixed-price arrangements in effect prior to March 1, 2010. Higher R&M costs for the first quarter of 2011 were the result of the adverse impact of the Harmonized Sales tax ("HST") as well as properties acquired since March 31, 2010 though partially offset by the dispositions in the same period.

Net Operating Income

Overall NOI improved in the current quarter by $2.9 million or 6.7% and the NOI margin improved to 53.9% as compared to 52.3% in the prior year period due to the combination of higher revenues and significantly lower overall operating costs.

As of March 31, 2011, CAPREIT has generated 21 consecutive quarters of stable or improved year-over-year NOI growth for stabilized properties demonstrating Management's strong operating and financing strategies. For the three months ended March 31, 2011, operating revenues for stabilized suites and sites increased 3.5% while operating costs increased 2.1% compared to the same period last year. As a result, stabilized NOI increased by 4.7% for the three months ended March 31 2011.


CAPREIT has completed its transition to IFRS for financial reporting purposes with effect from January 1, 2010. The change from Canadian GAAP to IFRS had significant impacts to certain components of CAPREIT's consolidated balance sheets and statements of income and comprehensive income. Despite these impacts, Management believes the underlying performance of CAPREIT is largely unaffected by the change in accounting principles and, as a result, where possible, Management has adjusted the calculation of its non-IFRS measures to exclude substantially the effects of the adoption of IFRS. These adjustments enable CAPREIT to maintain comparability with prior periods and with industry peers.

For additional information and reconciliations of non-IFRS figures as previously reported in 2010 to those reported under IFRS, refer to CAPREIT's Management's Discussion and Analysis ("MD&A") as well as notes 4 and 5 in the unaudited consolidated interim financial statements for the three months ended March 31, 2011.

Normalized Funds From Operations

NFFO is not a financial measure determined by IFRS, however, it is used by CAPREIT to assess overall operating performance. NFFO, which substantially excludes from Funds From Operations ("FFO") the effect of the change in fair value of hedging instruments originally put in place for interest rate protection, losses incurred on the amendment of natural gas physical delivery contracts and the effect of certain non-recurring items, increased by 12.4% for the three months ended March 31, 2011, compared to the same period last year. The increase was primarily due to the contribution from acquisitions, higher average monthly rents and higher occupancy levels, resulting from Management's sales and marketing programs as well as reduced operating costs. These gains were partially offset by the impact of the introduction of the HST in Ontario and British Columbia and the lost contribution from properties sold since March 31, 2010. Basic NFFO per Unit for the three months ended March 31, 2011 remained essentially unchanged from the same period last year notwithstanding the 12.7% increase in the weighted average number of Units outstanding primarily due to the equity offering completed in December 2010.

The payout ratio of distributions declared to NFFO for the three months ended March 31, 2011 of 92.6% is largely unchanged from the ratio of 93.1% for the same period last year, despite the dilutive impact of the equity offering.

The effective NFFO payout ratio, which compares net distributions paid to Unitholders to NFFO, improved significantly to 72.5% for the three months ended March 31, 2011, from 80.1% in the same period last year, primarily due to the higher reinvestments of distributions under the Distribution Reinvestment Plan ("DRIP"). The average participation rate in the DRIP increased to 21.7% for the three months ended March 31, 2011 from 13.9% for the same period last year.

Financial Strength

Given CAPREIT's strong fundamentals, in the fourth quarter of 2010, CAPREIT successfully completed the issuance of 7,600,000 Units at $17.30 per Unit for aggregate gross proceeds of $131.5 million. The net proceeds of $125.3 million were used to repay borrowings on CAPREIT's Acquisition and Operating Facility. The strengthened balance sheet and financial position will enable Management to take advantage of future acquisition and property investment opportunities.

CAPREIT is achieving its financing goals as demonstrated by the following key indicators:
- The available borrowing capacity under the Acquisition and Operating Facility as at March 31, 2011 was $198.0 million in addition to the Land Lease Facility capacity of $8.7 million;

- The ratio of total debt to gross book value as at March 31, 2011 improved to 52.28% compared to 56.04% last year;

- Debt service and interest coverage ratios for the rolling four quarters ended March 31, 2011 remained strong at 1.34 times and 2.11 times, respectively, despite the impact of top up mortgage financing obtained in the period on principal and interest payments;

- At March 31, 2011, 95.7% (March 31, 2010 – 96.2%) of CAPREIT's mortgage portfolio is insured by the Canada Mortgage and Housing Corporation ("CMHC"), excluding the mortgages on CAPREIT's manufactured home community land lease sites;

- The effective portfolio weighted average interest rate on mortgages has steadily declined from 5.06% as at March 31, 2010, to 4.74% as at March 31, 2011, which will result in significant interest rate savings in future years; and

- Total financings of $110.9 million, including $97.9 million for renewals of existing mortgages and $13.0 million for additional top up financing have been closed or committed up to May 9, 2011 at a weighted average rate of 3.53%, significantly below the weighted average interest rate of mortgages maturing in 2011 of 5.11%.

Management does not anticipate any material difficulties in completing the renewal of mortgages maturing during the remainder of 2011 of approximately $144.8 million, which have an effective interest rate of approximately 5.37%, and refinancing a significant portion of the approximately $36.9 million remaining principal repayments through 2011 with new mortgages at lower interest rates. Management expects to raise between $250 million and $275 million in total mortgage renewals and refinancings for 2011 and to renew its land lease facility in the second half of 2011.

Property Capital Investment Plan

During the three months ended March 31, 2011, CAPREIT made property capital investments of $12.8 million as compared to $8.4 million for the same period last year.

Property capital investments were higher compared to the prior year period primarily due to the acceleration of building improvement programs, and higher investments in suite improvements, common areas and equipment, which generally tend to increase NOI more quickly. The acceleration is in line with the revised capital investment plan for 2011 announced in the fourth quarter of 2010. CAPREIT continues to invest in environment-friendly and energy-saving initiatives, including boilers, energy-efficient lighting systems, and water-saving programs, which permit CAPREIT to mitigate potentially higher increases in utility and R&M costs and significantly improve overall portfolio NOI.

Acquisitions and Dispositions

On January 31, 2011, CAPREIT completed the acquisition of a mid-tier townhome complex comprising 83 suites, located in Burlington, Ontario.

On March 29, 2011, CAPREIT completed the sale of an affordable property comprising 143 suites located in Hamilton, Ontario for a sale price of $6.0 million, excluding closing and transaction costs. The net cash proceeds from this sale of $3.6 million were used to repay the existing mortgage in the amount of $2.1 million, and the balance to reduce bank indebtedness.

Subsequent to the quarter end, on April 15, 2011, CAPREIT completed the acquisition of five properties comprising 495 suites in Richmond and New Westminster, British Columbia. The purchase price of $72.0 million was funded through new CMHC-insured mortgages totaling $49.4 million, at an effective interest rate of 4.38%, for ten-year terms, maturing on May 1, 2021 and the balance from the Acquisition and Operating Facility.

"We remain confident we will meet our goal of acquiring between 1,500 and 2,000 suites this year as we further expand, diversify and strengthen our property portfolio," Mr. Schwartz stated. "As we apply our proactive property management and capital investment programs, as well as reduce operating costs through our proven national procurement and energy management initiatives, we expect these acquisitions will make a strong and growing contribution to our cash flows over time."

Additional Information

More detailed information and analysis is included in CAPREIT's unaudited consolidated interim financial statements and MD&A for the three months ended March 31, 2011, which have been filed on SEDAR and can be viewed at under CAPREIT's profile or on CAPREIT's website on the investor relations page at

Conference Call

A conference call hosted by Thomas Schwartz, President and CEO and Richard J. Smith, Chief Financial Officer, will be held Tuesday, May 10, 2011 at 10.00 am EST. The telephone numbers for the conference call are: Local: (416) 340-2218, North American Toll Free: (877) 240-9772.

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 website at, 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 (905) 694-9451 or toll free (800) 408-3053. The Passcode for the Instant Replay is 4413380#. The Instant Replay will be available until midnight, May 17, 2011. The call and accompanying slides will also be archived on the CAPREIT website at For more information about CAPREIT, its business and its investment highlights, please refer to our website at


As one of Canada's largest residential landlords, CAPREIT (TSX:CAR.UN) is a growth-oriented investment trust owning interests in 27,607 residential suites and two manufactured home communities comprising 1,325 land lease 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 website at and our public disclosure which can be found under our profile at

Non-IFRS Financial Measures

CAPREIT prepares and releases unaudited quarterly and audited consolidated annual financial statements prepared in accordance with IFRS. In this and other earnings releases and investor conference calls, as a complement to results provided in accordance with IFRS, CAPREIT also discloses and discusses certain non-IFRS financial measures, including Net Rental Revenue Run-Rate, NOI, FFO, NFFO and applicable per Unit amounts and payout ratios. These non-IFRS measures are further defined and discussed in the MD&A released on May 9, 2011, which should be read in conjunction with this press release. Since Net Rental Revenue Run-Rate, NOI, FFO and NFFO are not determined by IFRS, they may not be comparable to similar measures reported by other issuers. CAPREIT has presented such non-IFRS measures as Management believes these non-IFRS 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 Net Income and such non-IFRS measures and Adjusted Funds From Operations ("AFFO") is included in this press release. These non-IFRS measures should not be construed as alternatives to net income (loss) or cash flow from operating activities determined in accordance with IFRS as an indicator of CAPREIT's performance.

Cautionary Statements Regarding Forward-Looking Statements

Certain statements contained, or contained in documents incorporated by reference, 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 investments, financial results, taxes, plans and objectives of or involving CAPREIT. Particularly, statements regarding CAPREIT's future results, performance, achievements, prospects, costs, opportunities and financial outlook, including those relating to acquisition and capital investment strategy and the real estate industry generally, 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. Forward-looking statements are based on certain factors and assumptions regarding expected growth, results of operations, performance and business prospects and opportunities. In addition, certain specific assumptions were made in preparing forward-looking information, including:
that the Canadian economy will generally experience growth, however, with specific geographic areas of weakness including Alberta; that inflation will remain low; that interest rates will rise modestly in 2011; that CMHC mortgage insurance will continue to be available and that a sufficient number of lenders will participate in the CMHC-insured mortgage program to ensure competitive rates; that conditions within the real estate market, including competition for acquisitions, will become more favourable; that the Canadian capital markets will continue to provide CAPREIT with access to equity and/or debt at reasonable rates; that vacancy rates for CAPREIT properties will be consistent with historical norms; that rental rates will grow at levels similar to the rate of inflation on renewal; that rental rates on turnovers will remain stable; that CAPREIT will effectively manage price pressures relating to its energy usage; and, with respect to CAPREIT's financial outlook regarding capital investments, assumptions respecting projected costs of construction and materials, availability of trades, the cost and availability of financing, CAPREIT's investment priorities, the properties in which investments will be made, the composition of the property portfolio and the projected return on investment in respect of specific capital investments. Although the forward-looking statements contained in this press release are based on assumptions Management believes are reasonable as of the date hereof, there can be no assurance actual results will be consistent with these forward-looking statements; they may prove to be incorrect. 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: real property ownership, leasehold interests, co-ownerships, investment restrictions, operating risk, energy costs and hedging, environmental matters, insurance, capital investments, indebtedness, interest rate hedging, taxation, harmonization of federal goods and services tax and provincial sales tax, government regulations, controls over financial accounting, International Financial Reporting Standards, legal and regulatory concerns, the nature of units of CAPREIT ("Trust Units") and of CAPREIT's subsidiary, CAPREIT Limited Partnership ("Exchangeable Units") (collectively, the "Units"), Unitholder liability, liquidity and price fluctuation of Units, dilution, distributions, participation in CAPREIT's distribution reinvestment plan, potential conflicts of interest, dependence on key personnel, general economic conditions, competition for residents, competition for real property investments, continued growth and risks related to acquisitions. There can be no assurance that the expectations of CAPREIT's Management 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, under CAPREIT's profile, as well as under Risks and Uncertainties discussion under Section 7 of the MD&A contained in CAPREIT's 2010 Annual Report. The information in this press release is based on information available to Management as of May 9, 2011. Subject to applicable law, CAPREIT does not undertake any obligation to publicly update or revise any forward-looking information.

Industry Intelligence Editor’s Note: In an omitted table, the company reported Q1 net sales of C$86.3 million and net earnings of C$9.7 million . For the same period a year ago, the company reported net sales of C$83.5 million and net earnings of C$10.7 million.

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