The country's largest publicly traded apartment landlord faced flat rent growth per unit in the third quarter despite a rising rental market as Canadian Apartment Properties REIT saw increasing costs from inflation.
The Toronto-based real estate investment trust, which has almost 60,000 units across Canada, said net operating income and funds from operations were affected by higher maintenance costs, increases in utilities and higher realty taxes. The REIT also has a stake in publicly traded European Residential REIT, which operates in The Netherlands.
"We believe such inflationary cost pressures will continue to impact our results over the next few quarters," said Mark Kenney, president and CEO of the REIT, during a conference call with analysts Wednesday.
For the period that ended Sept. 30, same property net average monthly rent rose to $1,351 from $1,314 a year earlier.
"We are exploring a number of ways to mitigate inflationary pressures," said Kenney, adding the REIT will look into fixing natural gas costs, but it also wants to submeter more of its Canadian portfolio, with residents now responsible for hydro costs in about 65% of suites.
CAPREIT sees a disconnect between the value of its shares and the value of its holdings and plans to continue to dip into the market to buy back its units. The REIT spent $202 million over the first nine months of the year to buy back its own units.
"We believe these purchases are another way of enhancing long-term value for our unitholders," said Kenney on the call.
Jenny Ma, an analyst with BMO Capital Markets, called the same property results "muted" compared to some of the REIT's peers.
"Operating momentum is building with the Canadian residential portfolio, as evidenced by a continuing upward trend in turnover leasing spreads," Ma wrote in a note to investors.
Halifax-based Killam REIT also reported third-quarter earnings for the period that ended Sept. 30 and said its net income for the quarter dropped to $3.6 million from $46.6 million a year earlier. The drop was largely because of a $41.3 million fair value adjustment on investment properties.
"The fundamentals are strong in our core markets," said Philip Fraser, president and chief executive of Killam, on a call with analysts Wednesday. Fraser said the REIT would increase its guidance for growth in net operating income to above 4% for 2022 compared to the original 2% to 3%.
The REIT has taken a pause on acquisitions because of the interest rate environment, Fraser said.
"We believe now is not the time to be aggressive on the acquisition front," said Fraser.
The rental market continues to gain momentum as interest rates push many Canadians out of homeownership. Rentals.ca reported last month that average rent reached $2,043, a 15.4% increase from a year ago.
Despite the rising rent picture, CBRE said in a third-quarter report the national average series for all multifamily categories rose marginally by 10 basis points to 4.39%, matching the yields seen in the sector from three years ago.
"Multifamily sector cap rates rose for the second consecutive quarter. However, yield movements were much more muted relative to the other asset classes," said the real estate company in a report.
Ottawa-based Minto Apartment REIT also reported earnings and recorded a fair value loss on investment properties of $18.7 million, compared to a gain of $34.7 million in the third quarter of 2021.
"Our results were supported by growing demand for urban rental housing," said Michael Waters, chief executive of the REIT, in a call with analysts Wednesdays. "This was easily our best quarter since the onset of the pandemic."