Canadian Apartment Properties Real Estate Investment Trust

TSX:CAR.UN

Earnings Call Transcript 2024-Q1

[Operator]

Good morning. Thank you for attending today's Canadian Apartment Properties REIT First Quarter 2024 Results Conference Call. My name is Megan, and I'll be your moderator for today's call. I would now like to pass the conference over to Nicole Dolan, Investor Relations. Please go ahead.

[Nicole Dolan, executive]

Thank you, operator, and good morning, everyone. Before we begin, let me remind everyone that during our conference call this morning, we may include forward-looking statements about expected future events and the financial and operating results of CAPREIT, which are subject to certain risks and uncertainties. We direct your attention to Slide 2 and our other regulatory filings for important information about these statements. I will now turn the call over to Mark Kenney, President and CEO.

[Mark Kenney, executive]

Thanks, Nicole, and good morning, everyone. Joining me this morning is Stephen Co, our Chief Financial Officer; and Julian Shconfeldt, our Chief Investment Officer. Let's turn to Slide 4 and begin with our operational performance. We've experienced another quarter of low turnover in vacancy, and our Canadian apartment portfolio was 98.4% occupied on March 31, 2024. Across that, our average monthly rent was $1,552 which is meaningfully lower than the national average. These stats reflect the ongoing high demand for CAPREIT's rental accomodation as we remain the provider of affordable living in many of Canada's least affordable cities. We're proud of this positioning, especially as we continue to experience one of the worst housing crisis our country's ever experienced. On Slide 5, we've summarized our financial results for the first quarter as compared to Q1 of 2023. Operating revenues were up by 5.7% due primarily to strong rent growth. In addition, operating expenses as a percentage of operating revenues were down, mainly driven by our lower utility costs given the milder winter weather experienced throughout the country. As a result, NOI grew by 8%, and our margin expanded by 140 basis points to 64.2%. This growth offset elevated interest, which we're continuing to absorb on our credit facilities and mortgages payable. -- and FFO was up by 6.4% to $103.4 million. Combined with accretive purchases made under our NCIB program, which decreased our weighted average unit count by 0.9%, our diluted FFO per unit increased by 7.4% to $0.609. On Slide 6, we have an illustration of our repositioning strategy. At CAPREIT, we're focused on getting better, not bigger, and that means a laser focus on improving quality and growing earnings. To achieve this, we're purchasing new purpose-built rental apartment properties across Canada. We're proud of the progress we've made so far with new construction assets now representing 11% of our total portfolio. We're funding these acquisitions through the sale of our older noncore legacy buildings, which we've identified to be approximately 22% of our portfolio. Our goal is to replace noncore with new builds, and you can see that this recycling excludes our high-quality legacy apartments that comprise about half of our total portfolio. These properties have historically produced predictably higher growth returns and they remain core to our business. I will now turn things over to Julian to provide a more detailed update on our capital allocation programs

[Julian Schonfeldt, executive]

Thanks, Mark. Turning to Slide 8, you can see the evolution of our repositioning strategy, which Mark just outlined. As we mentioned, we're at 11% new build today, and that is up from 5% where we were at just 4 years ago. We've been actively recycling our capital from low growth to high-growth investments each year to achieve this. Increasing our allocation towards targeted newly constructed rental properties has also been lowering our capital investment requirements, improving our environmental performance, diversifying our geographic exposure and tenant base, and ultimately better in our portfolio of business. We're excited to be maintaining momentum on this so far in 2024. Slide 9 highlights our progress achieved during the first quarter. We sold $83.6 million of noncore properties, and we also transacted on the sale of approximately $58 million worth of equity in Irish Residential Properties REIT, which reduced our ownership from 18.7% to 11.3% as at March 31, 2024. Subsequent to the period, we settled on the disposition of an additional $12.7 million, lowering our ownership further to 9.7% as of yesterday. We redeployed part of the proceeds to accretively repurchase approximately $27 million worth of CAPREIT unit at discount to NAV. We also reinvested capital into the acquisition of Alto Towers, 2 new build concrete rental apartment buildings in London, Ontario, which we purchased at a steep discount to replacement cost and at a cap rate that exceeds the weighted average cap rate on our first quarter dispositions. This past quarter, we continued to optimize our portfolio and our capital to improve quality of earnings simultaneously, and we're looking forward to keeping up this solid effort on our strategic execution. I will finally touch on Slide 10, which provides an overview of our asset light development model. As many already know, we have a large amount of excess density potential throughout our portfolio. Our development team is working to identify and undertake the cumbersome end-to-end entitlement of this underutilized land, which we can then sell to developers to add intensity to growing communities in need of more homes. This past quarter, we also announced that we entered into an agreement to dispose of a 0.3 acre parcel of unused land in Halifax to a neighboring developer for $2 million. We also secured the right of first offer on the neighboring site once the apartment is constructed, and we're expecting to close on this in the second quarter of 2024. I will now turn things over to Stephen for his financial review.

[Stephen Co, executive]

Thanks, Julian, and good morning, everyone. Our financial position supports our ability to execute on our investment strategy, and our balance sheet has remained strong, as shown on Slide 12. At current period end, we had approximately $370 million in available liquidity in Canada. This includes cash on hand as well as $255 million worth of capacity on our acquisition and operating facility. We also have a $70 million in an unsecured nonrevolving construction and term credit facility provided by the Canada Infrastructure Bank this quarter for retrofitting of certain properties to reduce greenhouse gas emissions at very favorable financing rates. And our mortgage financing, we take a prudent approach, and we fixed 100% of our mortgage interest costs, which mitigates a volatility risk. As a result, our portfolio continues to carry a below-market weighted average effective interest rate of just under 3%, and it also has one of the longest terms maturity in our pure reverse at over 5 years. If you turn to Slide 13, you'll see that we also methodically stagger our mortgage portfolio. At period end, we had $364 million in Canadian mortgages maturing in the remainder of 2024, which represents only 8% of our total portfolio. We have laddered or more maturities so that we have no more than 30% of our mortgages in Canada coming due in any given year, which again reduces our renewal risk. Referring to Slide 14, our total debt to gross book value ratio was 41.8% at March 31, 2024, and this is relatively stable compared to year-end. Our coverage ratios also remain conservative and compliant with covenant restrictions. I will now turn things back over to Mark to wrap up.

[Mark Kenney, executive]

Thanks, Stephen. I wanted to take this opportunity to expand on one important deal, which we are proud to be part of during the past quarter. In March, we sold 2 of our legacy properties located in Langley BC to New Vista Society, a local nonprofit organization that provides affordable housing to seniors and families. New Vista Society received funding from the BC Rental Protection Fund, which we previously applauded and advocated for as a cost-effective way for governments to preserve existing affordable housing at a fraction of the cost of constructing new purpose-built affordable housing. This instrumental sale will enable those suites to remain affordable in perpetuity, while we were able to free up capital to reinvest in new supply that will in turn encourage incremental residential development in Canada. We were pleased to be able to participate in a productive public private partnership such as this, and we hope to see more of our nonprofit core legacy buildings transferring into the hands of these providers. On that note, looking ahead, we remain increasingly focused on our core legacy and new build apartment portfolio in Canada, and we'll continue moving forward with our capital recycling strategy to improve the quality and drive ongoing value for our residents, our communities and our unit holders. With that, I would like to thank you for your time this morning, and we would now be pleased to take your questions.

[Operator]

Our first question comes from the line of Jonathan Kelcher with TD Cowen

[Jonathan Kelcher, analyst]

First question just on the portfolio repositioning disclosure. If we look at the noncore assets, and that's -- I think it's roughly $3.5 billion. Should we just think of those assets that you plan to sell over x number of years of the proceeds going towards new build in the NCIB? Or would you also consider adding to the core legacy portfolio?

[Mark Kenney, executive]

I'll let Julian build on my answer, but we have the optionality when pricing presents itself at acceptable levels to pay down our revolver, to buy back our shares or to invest in new construction assets that we deem to be well below replacement costs. So we have the best of all the worlds. -- but we're not in a rush to do so, and we'll remain disciplined. I don't know, Julian, if you would add any more to that.

[Julian Schonfeldt, executive]

I think that covered it basically.

[Jonathan Kelcher, analyst]

Okay. How should we think about the ancillary assets?

[Julian Schonfeldt, executive]

Yes, they continue to perform strongly for us, and they're good growth, but the focus of the capital allocation strategy right now is exactly as Mark mentioned it, growing exposure to the new construction properties overall.

[Jonathan Kelcher, analyst]

Okay. And then, Mark, just even on the forefront of this, but just your thoughts on all the recent government announcements on both the supply and the demand side and what you think it might do to near-term fundamentals.

[Mark Kenney, executive]

Well, I think that we're making really great progress in our conversations with government. I think I would take this moment, Jonathan, to make an announcement that the federal government really is recognizing the critical role that REITs are playing. And they have indicated that there will be no changes to the tax treatment of REITs. So that's been a topic of conversation now for several years. And that announcement was official -- made official by the federal government yesterday, and we're very pleased with that being an indicator of how closely we are working with the federal government and provincial governments quite frankly. The announcement of the acquisition fund at the federal level just really shores up and marries into our strategy of dealing with the noncore, and we think that, that noncore has a really important role in preserving affordability. And so that again, lines up extremely well with the core mission that we're on of high grading the portfolio.

[Jonathan Kelcher, analyst]

Okay. And then -- but thoughts on, I guess, the curbing of population growth and all -- like what do you think that's going to do to fundamentals say, over the next 2 to 3 years?

[Mark Kenney, executive]

I don't really see it doing too much of anything. We've got a situation that's so backed up. It's not a -- not a day doesn't go by any more where people are talking to me about 10 cities across the country. The people that are roommating up and families that have their younger generation, still in bedrooms into their 30s. This thing is so incredibly backed up that it's really a math exercise of looking at new supply, which is also created. Like despite good intentions and good efforts to be made by all levels of government, we are really not keeping up traditional supply levels in Canada. So we've got a really backed up situation that I don't see an end to. This has come out in terms of a change. I think it's a positive change. Again, the government is definitely listening and doing what they can. But what they can't do is make up the supply. That's going to be a private sector job. And what they have done is like really put measures in place to stop the demand that's going to -- would have showed up even more at least 3, 4, 5 years from now. So they're doing good things for the future, but it's so far out. We're in such a desperate situation. I personally don't see any immediate effect of this at all.

[Jonathan Kelcher, analyst]

Okay. That's helpful. I'll turn it back.

[Operator]

Our next question comes from the line of Kyle Stanley with Desjardins Capital Markets.

[Kyle Stanley, analyst]

There was a bit of a slowdown on the new leasing spread this quarter. I mean it's hard to call a 23% spread slow, and it is quite strong. Just curious if you could talk about the drivers of that deceleration. Was it the more likely sweet mix or seasonal in nature? Just love your thoughts on that.

[Mark Kenney, executive]

Well, you've already got half the answer, but I would just add that we're more than 12 months now into this elevated rental cycle. And what we're really seeing is the turnover for those more recent leases have a more narrow mark-to-market than the older leases. So I'm very encouraged that we found a good place here. It's still exceptionally strong. I'm not sure that what we saw initially was fully sustainable, but we're in a very good spot here. I think what we're really seeing now is more plateaued stable level that's predictable, and we're just seeing the mark-to-market of newer leases 12 months into the cycle.

[Kyle Stanley, analyst]

Okay. Makes sense. Just on the OpEx side of things, how should we think about the pace of OpEx growth for the balance of the year? Just now that we're going to be lapping that more elevated spend from the prior year period.

[Stephen Co, executive]

Yes. So Kyle, I think I had mentioned in the prior call. So we really started this strategy in last year Q2. So likely, you'll see another quarter of elevated R&M costs because you're going to get the base effect of last year. And then on the Q3, Q4, it's going to be on a more very stable basis.

[Kyle Stanley, analyst]

Okay. When you say stable, like probably closer to the low single digit versus maybe the mid?

[Stephen Co, executive]

Yes.

[Kyle Stanley, analyst]

Okay. And then... Just the last one. I mean, I think you kind of touched on it with kind of your focus on the new build, but -- and less focus on the kind of noncore portion of the portfolio. But just on the IRES ownership, should we think about this is your intention being to continue to orderly sell down your stake going forward?

[Julian Schonfeldt, executive]

Yes. Thanks, Kyle. So yes, we did touch on it, and we described that as a noncore holding. And you've seen the sell down over the last couple of months, kind of give you insight on the strategy there.

[Operator]

Our next question comes from the line of Mike Markidis with BMO Capital Markets.

[Michael Markidis, analyst]

I guess there's been a little bit of reports out there just in terms of -- at the high end of the market in Toronto being some softness in rents over the past maybe 6 months. And I know you guys don't play necessarily at the high end of the market. You've got a very affordable portfolio, but you are downtown and do you have some buildings that have probably benefited from strong catching up to those high rent per square foot buildings? Is that something that you guys have seen in your portfolio at all? Like is there a softening at the high end of the curve or high end of the rental sphere is that maybe overblown at this point?

[Mark Kenney, executive]

Yes, not even close. It's like -- I guess, Mercedes in doing bad, KIA doing great. At the end of the day, we love that $3 a foot market, and we're well protected in that range. The average rents at $1,552. -- there's significant room to travel. Absolutely, in the CAPREIT portfolio, no sign of slowdown.

[Michael Markidis, analyst]

Okay. The CIB loan that you guys announced and you have there, I haven't had a chance to look into the details, but I think there -- you mentioned that the rates were very attractive. And I think there is a commitment to preserving some of those units ia affordable, but I'm going by memory, if you could just provide some additional color in terms of the terms of that loan, that would be great.

[Stephen Co, executive]

Yes, Mike. So it's not that the units have to be preserved as affordable. They're just that we can apply EGIs or above guideline increases on those. But the interest rates are very favorable. There's an availability period around 5 years that we will pay interest rate at 3%. And then once we get out of the availability period, there's a 20-year amortization period where we pay interest rates between 2.47% to 4.47% depending on the GHG reduction that we achieved on our projects.

[Mark Kenney, executive]

It's another great example Mike. The government really working with us to achieve our ESG goals with a sympathy and understanding towards the capital structure that's required to do that. And so again, we applaud the government for embracing this. It's quite a sensible program and it obviously works well to help us advance our climate change investments.

[Michael Markidis, analyst]

Got it. Okay. So you're locked in at 3% and then it fluctuates based on your GHG goals. So you basically got 25 years of financing there. down. Got you. And then like -- so the amount that you took, was that basically based on what you were anticipating to spend over a certain period of time? Or are there limitations to how much of this capital is out there?

[Stephen Co, executive]

So it's currently what we have identified as projects. And that -- this process was -- it wasn't like -- it took us a date to sign up with CIB. It took a long time to do this. But we identified around $100 million of projects, which are going to provide 70% financing on that. So that's how we got to like $70 million facility.

[Michael Markidis, analyst]

Got it. And then the projects, is that over a 5-year period, that's what you're expecting to spend that $100 million?

[Stephen Co, executive]

Yes.

[Michael Markidis, analyst]

That's okay... Yes. Got it. Last one for me before I turn it back. Just on the liquidation of IRES. Is there any adverse tax consequences? Is that capital staying in Europe? Is it coming back? I'm just trying to get a sense of the cloning, so to speak.

[Mark Kenney, executive]

Yes, Mike, we've done an analysis, it's going to be minimal taxes that will be transferring that cash back to Canada is minimal taxes.

[Michael Markidis, analyst]

Okay. And is that position -- because you've got a European operating facility that's the IRES level? I'm just trying to remember if there was debt against that.

[Stephen Co, executive]

No. We don't have an Irish facility. It's all within our current facility -- Canadian facility that we can use European funds or whatnot, but we don't have Irish facility.

[Operator]

Our next question comes from the line of Jimmy Chen with RBC Capital Markets.

[J. Chen, analyst]

Just on your turnover rate, I was wondering what your expectation is on where do you think the turnover rate will be for the year.

[Mark Kenney, executive]

Well, we are in obviously uncharted territory, and you can see it probably as clearly as we can with the affordability crisis. It's completely linked to people holding leases. We think that we're at structural low numbers here. And by that is the normal things in life where people will move out -- so we don't see much of a change to that, Jimmy. There will be some changes to that as time evolves with our new construction portfolio, which we expect to have more traditional turnover rates. But the investment there isn't material enough to really be tilting the numbers. For modeling purposes, I think you stick to where we're at right now.

[J. Chen, analyst]

And when you see where we're at right now, you mean sort of in the low?

[Mark Kenney, executive]

Yes, 12%, touch on 13.

[J. Chen, analyst]

And then on the CapEx, obviously, it's come down quite a bit. What does the CapEx budget look like for 2024? I think last year, it was about $250 million for the Canadian portfolio. How do we think about that?

[Mark Kenney, executive]

We're really, really proud of this. And we do think we're distinguishing ourselves with what we've been able to do with our discretionary CapEx. The market is delivering for us the rent increases that we need without the kind of investment we saw during COVID when we were trying to attract residents and compete. That's the big area, but we're also being mindful of the fact that with such low turnover, the need again to compete with new construction product, which has also falling off has gone down. I'll turn it to Stephen to give a little more clarity on the run rate of what you can think.

[Stephen Co, executive]

Yes. So Jimmy, I mean, you can see the CapEx, we spent around $40 million on consolidated basis for Q1. I wouldn't take that as a full run rate. There's seasonality, timing of projects, we're tendering out work. So I would say, last year is a pretty good proxy. However, I would still -- just to adjust that, we are being mindful of the scope of work within the discretionary spend. So that should come down relative to last year. However, we are going to spend more on our energy and conservation projects as part of the CIB funding and our internal targets around getting those GHG investments in place.

[J. Chen, analyst]

Okay. And then sorry, just last one. On the CIB funding, do you -- is it your intention to draw the full amount? Or do you have sort of draw it as you spend it? How does that funding work?

[Stephen Co, executive]

Yes. We have a draw schedule. That's all based on the anticipated projects that we plan to do over the next 5 years. So it will -- it's not drawn all at once.

[J. Chen, analyst]

Okay. So it's over a period of time, over the 5 years.

[Stephen Co, executive]

That's right.

[Operator]

Our next question comes from the line of Sairam Srinivas with Cormark Securities.

[Sairam Srinivas, analyst]

Just looking at the transaction market, Julian, if you compare this to last year, are you seeing a different level of traction within volumes, especially the amount of deals you're seeing in the transaction market?

[Julian Schonfeldt, executive]

Yes, it's a good question. With interest rates staying elevated, it's still slow. It's still a very tough market. The one thing that we're not having to contend with that we did last year was the incredible backup in the CMHC backlog. That did make an already challenging multiresidential transaction market even more challenging. So the short of it is, with rates where they're at and capital is still somewhat scarce in the sector, I'd say it's still quite challenging, but a little less cost than last year because of what I said there was a lot..

[Sairam Srinivas, analyst]

And has the recent announcements by the Feds in terms of housing policies announced over there, has that changed how people are actually looking at these assets now in the market?

[Julian Schonfeldt, executive]

Sorry, I missed the last part of what you said there. Has it changed what?

[Sairam Srinivas, analyst]

So with all the initiatives being announced by the federal and provincial government, has that changed how, let's say, potential vendors who probably would have sold assets last year, how they look at these assets now as well as valuations?

[Julian Schonfeldt, executive]

I would say that the announcements will be favorable as they materialize. But because the rental protection fund money either in the provinces or the announcements hasn't really -- the provinces in BC are well into their plan. But at the federal level, it's planned money but not executed money. So you won't see any immediate effect there. I think it will be a wait and see in terms of how the money is deployed and when it's deployed, but there is no immediate effect immediately on that front.

[Operator]

The next question will go to the line of Matt Kornack with National Bank Financial.

[Matt Kornack, analyst]

Just on capital allocation, last quarter or maybe the quarter before, you've highlighted Davisville in terms of density potential and other sites as well. I know you're working on entitlements. Can you give us a sense as to how you're thinking about that in the current market context. Obviously, land prices are probably down in most cities across the country, just given pro formas. But how should we think about what you'll do with the excess density that you have on your portfolio?

[Mark Kenney, executive]

Perfect. Thanks, Matt. Really proud of the team to go through the entitlement process, which is just about wrapped up on those 2 days to fill sites, and that's about 600,000 square feet of GFA in there. Those are market faces. As you noticed, the land market is down, this is all just kind of free upside for us in a sense. And we don't have any pressure to act quickly on it. And we're not going to be a desperate seller. So we remain open to monetizing it, but we're going to be patient and disciplined to make sure that we get those value with it. In terms of developing it in-house for us, just given where the -- we think land values and costs and interest rates are, we don't think that it's economic within our model. But like I said, I think there'll be good demand for it. And with some patience, we expect to be able to monetize some decent value there.

[Matt Kornack, analyst]

And then maybe just on the opportunity to buy new assets. I mean, it's not going to be a forever opportunity. We thought maybe it would be a bit more fleeting when interest rates were moving lower, but they moved a bit higher. Are you seeing kind of more opportunities in form of new assets coming to market from developers that maybe got a little bit over their skis and have higher financing costs right now? And is there a buyer base that you're competing against that maybe would be driving pricing to points that wouldn't be as attractive?

[Julian Schonfeldt, executive]

No, it actually touches on what I was just saying about not developing it, David. So we continue to be able to look at opportunities where we're buying new construction properties that are already built and fully leased and we're able to get them for lower than it would cost to develop. With the rates staying higher, yes, we are seeing more pressure on some of the developers, and we are seeing motivated sellers. So it continues to remain a favorable climate. And I think as long as rates stay higher. We'll continue to see that. With respect to competition, it's still -- I'd say it still remains fairly thin. The buyer pool hasn't come out aggressive. And so as you noted, it's a good window for us. And I mean the activity we did in Q1, we'll point again to that London property, but buying that at $385 per leasable square foot for a luxury concrete building in a great location with very favorable in-place financing, you can even come close to that price to rebuild that.

[Matt Kornack, analyst]

Fair enough. Stephen, I know you like to be conservative, but on your CapEx commentary, I think CapEx was down 30% in Q4, down 40% in Q1 on a year-over-year basis. What would constitute kind of the ramp up if you get there? I understand the energy side, but I don't think that's been a huge component of overall CapEx. Have you deferred stuff through the winter months, maybe that potentially takes place in Q2?

[Stephen Co, executive]

Yes, Matt, there's -- like I said, there's some timing of this, and there's tendering that's been completed. Usually, you see there is a little bit of seasonality in our CapEx. A lot of the CapEx will be completed in Q3, Q4 of the year. So I would say some of this is timing, but a lot of it is going to be -- you're going to see on the discretionary CapEx, specifically on in-suite and common area that will continue to come down relative to last year. And I also said, what will go up will be our energy investment. And then you see we only spent, I think, under $3 million in Q1. That will ramp up over the course of the next couple of quarters. So yes, I am conservative, but I would say on an overall basis relative to last year, it will be lower.

[Mark Kenney, executive]

It's a subtle point, Matt but it's quite material in the numbers. Going through COVID, we were in a very, very competitive market competitive markets where we see discretionary CapEx surge. But our strategy of new acquisitions that are brand new, obviously comes with a very different CapEx profile. And the competitive landscape, as I said, we see no change, too. So very, very proud of the team's ability to be agile here and sensible with the new environment. But the new environment will be very much the driver of this more restrained capital spend cycle for us, for CAPREIT.

[Matt Kornack, analyst]

Yes that makes sense. And then we've seen -- I know you guys have been a little bit more conservative in terms of the R&M you're running through OpEx, but we've seen this corresponding kind of decrease in CapEx, which I think is positive from a free cash flow standpoint...

[Julian Schonfeldt, executive]

I'm glad you said that. I can't help myself on this point. But I think it's now being understood that when we're spending less CapEx, obviously, there's ongoing needs in the assets, and it does result in higher repairs and maintenance. But a dollar is a dollar, and we are committed to that. And as investors look through the balance sheet, I think many will agree this is extremely sensible. So we're not living on one metric here at CAPREIT and as painful as it is to have mildly elevated repairs and maintenance costs, we are elated with the progress being made on the CapEx front

[Matt Kornack, analyst]

Okay. No that makes sense. Last one for me, just a technical one, Stephen. On the other revenue, it seems like there was a bit of a change in the allocation and how you've done that. Like is there anything to that? Or is it just it's only a couple of million dollars that moved, I think, out of other revenue into rental revenue...

[Stephen Co, executive]

Matt, we can probably take that off-line. We can talk through it.

[Operator]

Our next question comes from the line of Mario Scroll with Deutsche Bank.

[Mario Scroll, analyst]

Coming back to the CapEx question, maybe in a different fashion because it is a bit confusing in terms of kind of guiding to kind of flattish. And again, I appreciate the higher spend on energy and whatnot. But if we were to look at your expected return on investment on the number, whatever it may be in '24 relative to what it was in '23? How differentiated that return on investment within that CapEx bucket be?

[Julian Schonfeldt, executive]

So I think that the accelerated energy investments are going to be strong ones, and that number is going up. The in-suite returns are really going up because we're spending money in repairs and maintenance, is spending a lot less money to get higher rent returns. So that's, again, quite positive. When it comes to structural, that's unchanged. That is really the seasonal effect that Stephen is making reference to. And when it comes to the other discretionary, much of that money was always spent to compete and to improve the overall quality of repositioning assets. So I think without the detailed math because we haven't gone to that granular level, you would see a better return on our capital spend even at these lower levels. But what is here to definitely stay is the competitive environment, we believe has been changed for the foreseeable future. Therefore, the need for discretionary investment has slowed down. The call, and we're listening to our friends and government leadership, the stress around AGIs and tenants claiming they don't need new carpets in hallways. We are listening to that as well. And so we will be mindful of those kinds of chargebacks to our residents, which they don't like to see. They like the climate investments. They obviously want their buildings to be safe with life safety. And so we're listening on that front. But in short, without rambling here too much, I would say that at the end of the day, you can expect strong investments from our CapEx spending program and a great deal of enthusiasm. With our investment group on these new construction assets that don't have that profile at all. So hopefully, that answers the question.

[Mario Scroll, analyst]

Okay. And then just a quick follow-up on the strategic portfolio repositioning disclosure. The ancillary versus the noncore legacy, the differentiation between the 2 is us just simply ancillary as Europe and not apartments, whereas noncore legacy would be Canadian apartments? Or is there something more to it?

[Mark Kenney, executive]

No, that -- you got that exactly right, Mario.

[Mario Scroll, analyst]

Okay. And then based on what's been kind of announced in the federal budget recently, what are your initial thoughts on your ability to execute on selling down the noncore legacy or the ancillary cost -- , no impact in terms of the MHC and then selling some of your older assets on the Macolegacy, are there any implications from what was announced last month?

[Mark Kenney, executive]

No. I think that we can say it's all positive announcements at the end of the day. The BC rental protection fund is established. They were very thoughtful in terms of rolling that out. But the fund is now being executed well and going to great nonprofits. The federal program, we're awaiting better clarity on how that will be executed. But again, we'll be thoughtful in terms of potential assets, noncore assets to vend into that program, if it makes sense. On the European IRES investment, you can't really say it much more clear than what we'd rather own CAPREIT be buying back CAPREIT shares than owning equities and something we don't manage. And in terms of other assets, that are deemed to be noncore opportunistic. This is the investment team's complete focus with an emphasis as Julian keeps saying on being disciplined. And if we can find that are value where we're able to sell CAPREIT lower than what the company is currently trading at or a CAPREIT trade of something legacy or noncore for something brand new that is core, we will make that commitment we've made that commitment to unitholders, and we are going to execute. And you can expect ongoing announcements from us proving that we're able to do this as we have over the last 18 months plus now.

[Mario Scroll, analyst]

Okay. And I guess maybe more specifically, like the one that was referenced just on the MHC. -- anything within the budget regulatory-wise that have an impact in terms of what you want to do in that portfolio, a timing, et cetera?

[Mark Kenney, executive]

No, we were really encouraged. At the end of the day, the apartment REITs in Canada through our 4 affordable group had that recommendation to government to really think about manufactured housing as a source of affordable supply. Very encouraged to hear government recognizing that and talking about that. I think that sets the stage for more development in that category, and we're really -- from a Canadian lens really excited to see that happening. Again, I have to say that through the work of my peers here and our people in-house at CAPREIT, we've made tremendous progress, dialoguing with government and helping them understand that we're here to help.

[Mario Scroll, analyst]

Okay. My last question, just with respect to the share buyback. The average share buyback price is 48%. -- your IFES now was up a little bit quarter-over-quarter. I the answer to it, but I just kind of wanted to highlight it, to the extent you're trading at 46 or so this morning, -- has anything changed since your buyback in Q1 that would suggest that you don't see better value in the units today than you did 3 months ago?

[Julian Schonfeldt, executive]

Yes. Thanks, Mario. I mean, we can't guide on any activity that we may or may not do. But as Mark alluded to earlier, the NCIB is definitely a very viable use of proceeds as we continue to go down our disciplined track of selling assets and price to NAV and implied cap rates are certainly very relevant metrics when we consider deploying into it as how much proceeds we raised through the dispositions.

[Mark Kenney, executive]

I can give you a little bit of a peek under the hood here. We spend a lot of time on liquidity analysis. We spent a lot of time on the benefits of new construction purchasing, and we spend a lot of time on the merit of buying back our shares. So the good news is all 3 of those categories are extremely appealing. -- and it's be disciplined on the inflow of capital through asset sales, not through the use of debt. We could easily jump in the deck here and make some accretive decisions. We're not prepared to do that. We messaged to the market. We're not going to do that, and I can reconfirm we're not going to do that. So if we are able to get fair value for our unitholders on dispositions, then we are extremely excited that we have good places to put that cash. It does vary from deal to deal. It's the price of the stock and we're fortunate to have those -- that optionality.

[Mario Scroll, analyst]

All 3 are very appealing, how would you rank the 3 today at the current unit price?

[Mark Kenney, executive]

Well, I don't know, Stephen kind of wins, I guess, on paying down debt revolver kind of expenses. Although Julian shows up with amazing deals that are under replacement costs, and I look at the stock price and go, wow, who could ever imagine buying CAPREIT at --. So it would be move between those 3 categories today.

[Mario Scroll, analyst]

Okay. That's fair. And I guess maybe one last one for me. Related to that, Julian, you mentioned on the transaction market, kind of remaining slow as people think about interest rates and visibility thereof. When you talk about rates, do you think it's visibility on the long end of the curve, or the monetary policy that is really the catalyst to get transaction volumes back up again?

[Julian Schonfeldt, executive]

Look, I think it's the long end of the curve as people are financing -- they're in CMHC mortgages for the most part and financing on the long end of the curve, but obviously, what they do on the short end of the curve can change sentiment that can impact the long end of the curve, right? So rate cuts and maybe some view on the slightly lower volume of the curve could be helpful. And another thing I'll say, Mario, is also just the volatility in the rates is the other part, right? Like when people underwrite or tie up a deal the rates start swinging unpredictably, it just brings -- it adds an element of instability in there.

[Operator]

There are currently no additional questions registered. There are no additional questions waiting at this time so I'll pass the conference back over to Mark Kenny for closing remarks.

[Mark Kenney, executive]

Thanks, operator. And I'd like to thank everybody for your time today. And if you have any further questions, please do not hesitate to contact us at any time. Thank you again, and have a great day.

[Operator]

That concludes today's conference call. Thank you for your participation. I hope you have a wonderful rest of your day.