Focused on Quality
2023 Annual Report
2
2023 Annual Report “...we’re upgrading the quality
of our portfolio and platform
to grow earnings per unit,
as opposed to growing suite
count...”
1
Focused on Quality THE
LANCASTER
2022
Built
48
Suites
$22.5M
Purchase Price
Profile
Canadian Apartment Properties REIT (CAPREIT) is Canada’s largest
publicly traded provider of quality rental housing. As of December 31,
2023, CAPREIT owned approximately 64,300 residential apartment
suites, townhomes and manufactured home community (MHC) sites
well-located across Canada and the Netherlands.
2
2023 Annual Report 2023 Highlights & Objectives
HIGHLIGHTS
OBJECTIVES
• Sustained high and stable occupancies, with
• Maintain a focus on maximizing occupancy and
99% of residential suites in Canada occupied on
December 31, 2023
responsibly growing Occupied AMR in accordance
with local conditions in each of CAPREIT’s markets
• Upgrade the quality and diversification of the
property portfolio through repositioning and capital
recycling initiatives to grow earnings and cash
flow potential
• Invest capital and adopt leading edge technologies
and solutions to enhance environmental and
operational efficiencies, risk management and to help
ensure life safety and satisfaction of residents
• Maintain strong financial management and a
conservative and well-balanced capital structure to
increase FFO per unit (formerly known as “NFFO
per unit”), NAV per unit and provide long-term, stable
and growing cash distributions for Unitholders
• Grew same property Occupied AMR by 6.2% to $1,509
across the Canadian residential portfolio as of year end
• Held NOI margin strong at 65.3% for the year ended
December 31, 2023 on a same property basis
• Sold 2,955 non-core suites and sites in Canada
for over $400 million in aggregate gross proceeds,
representing a premium to IFRS fair value
• Redeployed approximately $300 million into the
purchase of newly constructed rental properties
containing a total of 631 high-quality suites
• Invested $101 million in the Normal Course Issuer
Bid (NCIB) program to repurchase units at significant
discounts to NAV, crystallizing that value for Unitholders
• Fortified financial position with over $550 million
in new and refinanced mortgage principal in Canada
• Achieved meaningful progress on development
program, celebrating its first disposition of excess
density following the end-to-end entitlement process
• Proactively contributed to Canada’s housing supply
and affordability solutions
Note: Please refer to Management’s Discussion & Analysis (MD&A) for detail and explanation of defined terms.
Disclosed purchase prices for 2023 acquisitions exclude transaction costs and other accounting adjustments.
3
Focused on Quality 2023 Selected Financial Highlights
Selected Financial Highlights
As at
December 31, 2023
December 31, 2022
Total Portfolio Performance and Other Measures
Number of suites and sites(1)
Investment properties fair value(2) (000s)
Occupied AMR(1)
Canadian Residential Portfolio(3)
The Netherlands Portfolio
Occupancy(1)
Canadian Residential Portfolio(3)
The Netherlands Portfolio
Total Portfolio(4)
Excludes commercial suites.
Investment properties exclude assets held for sale, as applicable.
(1)
(2)
(3) Excludes MHC sites.
(4)
Includes MHC sites.
Financial Performance
Operating revenues (000s)
NOI (000s)
NOI margin
Same property NOI (000s)
Same property NOI margin
Net income (loss) (000s)
FFO per unit – diluted (formerly
known as “NFFO per unit – diluted”)(1)
Distributions per unit
FFO payout ratio (formerly known as
“NFFO payout ratio”)(1)
$
$
€
64,260
16,532,096
1,516
1,063
98.8%
98.5%
98.2%
$
$
€
66,586
17,153,709
1,401
992
98.9%
98.4%
98.3%
Three months ended
December 31
Year ended
December 31
2023
2022
2023
2022
$
$
$
$
$
$
272,195
176,711
64.9%
167,898
64.7%
9,212
0.602
0.363
60.4%
$
$
$
$
$
$
256,915
164,500
64.0%
155,628
64.5%
155,523
0.580
0.363
62.4%
$
$
$
$
$
$
1,065,317
692,786
65.0%
659,657
65.3%
(411,574)
2.396
1.450
60.5%
$
$
$
$
$
$
1,007,268
650,409
64.6%
614,621
65.0%
13,637
2.328
1.450
62.1%
(1)
These measures are not defined by IFRS, do not have standard meanings and may not be comparable with other industries or companies (see “Non-IFRS Measures” in Section I of
CAPREIT’s MD&A in CAPREIT’s 2023 Annual Report). For a reconciliation to IFRS, see “Non-IFRS Measures” in Section IV of CAPREIT’s MD&A in CAPREIT’s 2023 Annual Report).
As at
December 31, 2023
December 31, 2022
Financing Metrics and Liquidity
Total debt to gross book value(1)
Weighted average mortgage effective interest rate(2)
Weighted average mortgage term (years)(2)
Debt service coverage (times)(1)(3)
Interest coverage (times)(1)(3)
Cash and cash equivalents (000s)
Available liquidity – Acquisition and Operating Facility (000s)
Capital
Unitholders’ equity (000s)
Net asset value(1) (000s)
Total number of units – diluted (000s)
Net asset value per unit – diluted(1)
41.6%
2.80%
4.9
1.8x
3.3x
29,528
340,059
9,278,595
9,212,594
169,868
54.23
$
$
$
$
$
39.4%
2.61%
5.4
1.9x
3.7x
47,303
333,416
10,003,695
9,954,566
171,599
58.01
$
$
$
$
$
(1)
This measure is not defined by IFRS, does not have standard meaning and may not be comparable with other industries or companies (see “Non-IFRS Measures” in Section I of
CAPREIT’s MD&A in CAPREIT’s 2023 Annual Report). For a reconciliation to IFRS, see “Non-IFRS Measures” in Section IV of CAPREIT’s MD&A in CAPREIT’s 2023 Annual Report).
(2) Excludes liabilities related to assets held for sale, as applicable.
(3) Based on the trailing four quarters.
4
2023 Annual Report
EAGLE
POINTE
2021
Built
143
Suites
$61.0M
Purchase Price
Parque on Park
5
Focused on Quality PARQUE
ON PARK
2022
Built
93
Suites
$53.7M
Purchase Price
6
2023 Annual Report Strong & Diversified
Portfolio
Canada
57,374
Total Suites & Sites
98.8%
Residential Apartment
Occupancy
$1,516
Residential Apartment
Occupied AMR
In Canada, our focus is on the modernization of our portfolio. We are actively recycling our
assets, and enhancing the average age, geographic exposure, and overall quality of our
Canadian properties. We are investing to improve the living experience of our residents, the
operational and environmental performance of our buildings, and the strength of our earnings,
to ultimately drive value for all our stakeholders now, and in the future.
Province
% Portfolio
Suites or Sites
% Occupancy Occupied AMR
British Columbia
Alberta
Saskatchewan
Ontario
Québec
Nova Scotia
Prince Edward Island
MHC
16%
3%
<1%
52%
17%
6%
1%
5%
6,207
2,209
234
99.0%
$ 1,677
99.1%
$ 1,368
96.2%
$ 1,235
22,432
99.2%
$ 1,621
10,394
3,340
424
12,134
97.6%
$ 1,236
99.3%
$
1,513
100%
$ 1,262
96.1%
$ 439
Note: Portfolio allocation by fair value as at December 31, 2023.
Netherlands
6,886
Total Suites
98.5%
€1,063
Residential Occupancy
Residential Occupied AMR
Portfolio
7
Focused on Quality Julian Schonfeldt
Chief Investment Officer
Jodi Lieberman
Chief People, Culture & Brand Officer
Mark Kenney
President & Chief Executive Officer
Roman Brailovski
Executive Vice President, Operations
Stephen Co
Chief Financial Officer
Report to
Unitholders
At CAPREIT, we are proud to have accumulated one of the largest
portfolios of residential rental properties in Canada. Since 1997,
we’ve been steadily increasing its size and scale – until now. We’ve
re-envisioned what it means to be Canada’s largest publicly traded
provider of quality rental housing, and today we’re focusing on
the quality, instead of the quantity. In step with this strategic pivot,
we’re thrilled to present the progress we’ve made and the value
we’ve created in 2023, and we’re excited to continue upgrading
our portfolio, our people, and our returns to Unitholders in the
years to come.
8
2023 Annual Report Stephen Co
Chief Financial Officer
Report to Unitholders
Strengthening our
operational performance
2023 marks another year of strong operational
performance for CAPREIT. Although we’ve shrunk the
size of our portfolio by over 2,000 suites and sites this
year through repositioning initiatives, our total operating
revenues increased by 5.8% to $1.1 billion for the year
ended December 31, 2023. This increase in revenue
was the result of market-driven growth in our Canadian
residential Occupied AMR, which was up 6.2% to $1,509
on a same property basis as of December 31, 2023. We
achieved this while continuing to hold our occupancies
as high as possible, an approach we’ve historically
always taken, even throughout the pandemic. In line
with that, we’re proud to report that our Canadian
residential portfolio was 99% occupied on December 31,
2023, consistent with the 99% occupancy we reported
on December 31, 2022.
We’re pleased with the 6.5% increase in total portfolio
NOI, to $692.8 million for the year ended December 31,
2023, up from $650.4 million recorded in 2022. Our
total portfolio NOI margin expanded by 40 basis points
to 65.0% in 2023, while our same property NOI margin
increased from 65.0% in 2022 to 65.3% for the current
year. In addition to strong rental revenue growth, our
margin expansion demonstrates the effectiveness of
our many cost-mitigating measures, which remained
a key focus for us in 2023. In fact, to further highlight
this, our growing margins are inclusive of elevated
repairs and maintenance (R&M) costs associated with
our capital allocation strategy. This year, excluding
our environmental initiatives, we started scaling back
on non-essential, value-adding capital expenditure,
and correspondingly increased our work on R&M, in
response to the tight Canadian rental market in which
we’re currently operating. This increases our property
operating costs as compared to 2022, which adversely
affects our margins; however, it lowers our overall
capital expenditure and positively impacts our long-term
cash returns. We’re looking forward to seeing the merits
of this property management strategy trickle through to
our future financial results.
KEY METRICS
Operating Revenue
($000s)
,
8
6
2
7
0
0
,
1
7
3
1
,
3
3
9
,
7
1
3
5
6
0
,
1
,
3
4
6
2
8
8
,
0
8
7
0
8
7
NOI
($000s)
,
6
8
7
2
9
6
,
9
0
4
0
5
6
,
3
9
9
9
0
6
1
7
1
,
8
7
5
0
5
1
,
8
0
5
FFO(1)
($000s)
8
5
9
8
8
3
,
1
2
1
,
9
3
3
4
9
1
,
2
0
4
,
7
7
9
6
0
4
2
6
6
7
0
4
,
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
2019
2020
2021
2022
2023
(1) Formerly known as “NFFO”.
9
Focused on Quality Growing
earnings per unit
Our FFO (formerly known as NFFO) was up by 0.2% to
$407.7 million for the year ended December 31, 2023.
This was predominantly attributable to our strong
operational results combined with lower trust expenses,
net of non-routine reorganization costs, partially offset
by higher interest expenses. Accretive purchases
made under our NCIB program in early 2023 further
magnified our FFO growth on a per unit basis, with our
weighted average number of diluted units decreasing
by 2.7% versus the comparative year. Accordingly, FFO
per diluted unit rose from $2.328 in 2022, to $2.396 in
2023, representing an increase of 2.9%. We maintained
our annual rate of distribution steady at $1.45 per unit,
and our FFO payout ratio was 60.5% for the year ended
December 31, 2023.
FFO(1) per Unit – Inception to 2023
$2.5 –
$2.0 –
$1.5 –
$1.0 –
$0.5 –
$0.0 –
“Our value-creation
strategy is working,
and we’ll continue
recycling our capital
to enhance returns
for our Unitholders...”
FFO per Unit ($)
FFO Payout Ratio (%)
– 120%
– 100%
– 80%
– 60%
– 40%
– 20%
– 0%
’98
’99
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
’1 1
’12
’13
’14
’15
’16
’17
’18
’19
’20
’21
’22
’23
(1) Formerly known as “NFFO”.
10
2023 Annual Report HOLYROOD
SQUARE
2021
Built
89
Suites
$27.2M
Purchase Price
Parque on Park
11
Focused on Quality Focusing on our
financial position
Our financial position remained robust in 2023, as we were
intently focused on proactively managing our leverage
and liquidity. At year end, we had up to $340 million in
available capacity on our Acquisition and Operating Facility,
in addition to $1.5 billion in Canadian investment properties
unencumbered by mortgages. Our total debt to gross book
value ratio is carefully monitored and was kept conservative
at 41.6% as of December 31, 2023.
We also reinforced our well-staggered mortgage portfolio
this year, having completed $552.5 million in new or
refinanced mortgage principal in Canada, which includes
$172.2 million in favourable net top-up financing. Our
Canadian portfolio continues to carry a low weighted
average mortgage effective interest rate of 2.95% at
year end, as we fix 100% of our mortgage interest costs.
This prudent approach to debt management is largely
concentrated on the minimization of volatility and renewal
risk, a tactic from which we’ve been benefiting given the
high interest rate headwinds of recent years. With one
of the longest weighted average terms to maturity in our
peer universe, at 5.4 years as of December 31, 2023, our
Canadian mortgage portfolio is optimally set up to continue
supporting our strategic endeavours going forward.
12
2023 Annual Report Report to Unitholders
LOTUS
POINT
2019
Built
52
Suites
$20.4M
Purchase Price
13
Focused on Quality HUB
PLACE
2023
Built
114
Suites
$68.0M
Purchase Price
14
2023 Annual Report Refreshing our capital
and strategy
CAPREIT’s strategy has always been centred on
the creation of value for our Unitholders, but we’ve
changed the way in which we’re doing that. We’re now
operating in a new age for the Canadian real estate
industry, and we’ve established a new and improved
iteration of our strategy to align with that. Today, our
objectives revolve around the modernization of our
portfolio, and they’re predicated on the recycling of our
capital, in order to create value. We’ve been disposing
of our older, non-core properties, which is providing
a lucrative source of funding for us to reallocate into
strategically aligned alternatives. We made solid
progress on this program in 2023, and achieved our
annual target with the sale of 2,955 non-strategic suites
and sites in Canada for gross proceeds of over $400
million, representing a premium to their IFRS fair value.
We’ve also been building a vigorous development
program, and this constitutes another increasingly
important component of our overarching divestiture
strategy. After many years of acquisitive growth,
CAPREIT has accumulated a broad Canadian portfolio,
and that came with a sizeable amount of excess density
potential. Our development team has been working
hard on the identification and entitlement of this under-
utilized land, which we can then sell to developers
shovel-ready, enabling them to do what they do best.
The program celebrated its first disposition in the first
quarter of 2023, in which we effectively crystallized the
potential development profit upfront, without having
to take on any of the development or lease-up risk.
Importantly, this transaction opened the door to the
construction of new residential accommodation needed
in the growing community. With Canada experiencing
one of the worst housing crises in its history, we are
proud to be positively contributing to the supply
solution in this way, while remaining true to our core
competencies. We’re excited to continue making
progress on this innovative development strategy, and
surface the substantial value embedded throughout
our portfolio.
“We have a reinvigorated
strategy and team, focused on
optimizing our properties and
operational efficiencies...”
Our disposition programs are producing capital for
redeployment, and we’re reinvesting the majority of
the net proceeds into on-strategy acquisitions, given
our focus on upgrading the quality of our portfolio. In
2023, we purchased approximately $300 million in
recently constructed, purpose-built rental properties,
representing an aggregate 631 new residential suites
located in Canada’s fastest growing and most attractive
markets. In addition, we spent $101 million on our
value-enhancing NCIB program this year, to repurchase
and cancel approximately 2.2 million units at a weighted
average price of $46.53 per unit, representing a steep
discount to net asset value. We’ve balanced these
accretive strategic programs alongside the benefits
of paying down higher interest debt, and capitalized
on all of these opportunities in tandem to ultimately
maximize value for our Unitholders, as we’ve been
doing to date. Since inception, Unitholders have
received a total return, including monthly cash
distributions, of 2,044% as of December 31, 2023, or
12% compounded annually – a testament to the
nature of our business, the robustness of our platform,
and our dynamic strategy and team.
15
Focused on Quality Modernizing
our portfolio
Our acquisition and disposition initiatives together have
the strategic objective of modernizing and optimizing
the performance of our portfolio. As we’re selling certain
older-vintage properties which we’ve identified as non-
core, we’re purchasing new build rental apartments that
are located in highly coveted Canadian cities where
immigration is greatest, and housing is needed most,
driving strong long-term market fundamentals. Not only
are we acquiring these newly constructed properties
at a discount to what it would cost to build today, but
they also have higher returns, lower capital investment
requirements, superior energy-efficiency and overall,
they strengthen the risk-return profile of our portfolio.
Through this repositioning program, we’re diversifying
our tenant base, and enhancing the average age,
geographic exposure, and quality of our properties, as
well as the quality of our earnings. We’re happy to see
that these on-strategy assets now represent 12% of
our Canadian apartment portfolio, and we’re excited to
continue increasing that allocation in the years ahead.
“We’re excited to be
repositioning our portfolio
toward high-quality, recently
constructed rental apartment
properties in Canada…”
The rejuvenation of our rental portfolio also entails the
enhancement of its energy performance, and we’ve been
ramping up our capital expenditure on energy-efficiency
initiatives. In 2023, we invested a total of $30.7 million on
energy-saving and water efficiency projects in Canada,
which is up almost 50% from the $20.7 million we spent
in 2022. Furthermore, the percentage of our Canadian
tenants who pay their electricity charges directly, through
sub-metering or direct metering, has also increased to
69% as of December 31, 2023. This increase correlates
to a decrease in utility costs for CAPREIT, as well as
lower consumption by tenants, in turn reducing the
environmental footprint of our portfolio.
1974
Built
73
Suites
$12.6M
Sale Price
2023 Disposition
1977
Built
180
Suites
$32.5M
Sale Price
1978
Built
263
Suites
$53.9M
Sale Price
2023 Disposition
2023 Disposition
1975
Built
180
Suites
$27.8M
Sale Price
16
2023 Annual Report Report to Unitholders
THE
LINCOLN
2022
Built
92
Suites
$51.0M
Parque on Park
Purchase Price
Repositioning Our Canadian Apartment Portfolio:
Buying and Selling to Upgrade Quality
1%
December 31,
2017
$783
$681
$356
$501
$304
$152
-$141
-$0
-$31
-$143
12%
December 31,
2023
99%
2018
2019
2020
2021
2022
2023
88%
-$346
-$408
Aquisitions ($M)
Dispositions ($M)
Value Add
New Build
Note: Acquisitions in 2023 exclude transaction costs and other accounting adjustments.
17
Focused on Quality Report to Unitholders
Becoming
a better
place to
live, work
and invest
population in Canada projected to continue growing
at unprecedented rates, we know how increasingly
important it is to preserve affordability and promote the
development of new residential homes for Canadians.
Environmental, social and governance (ESG)
performance will also remain a major focus for us, and
we encourage you to review our latest ESG report to
learn about the meaningful strides we’re making on our
ESG priorities.
In summary, we’re very pleased with the progress
we’ve made this year on the execution of our strategy,
and we want to thank all of our stakeholders for their
ongoing support. Moving ahead, we’re excited to
continue optimizing on all three pillars of our business:
to be the best place to live, the best place to work, and
the best place to invest.
The new edition of the CAPREIT strategy revolves
around getting better, instead of getting bigger, and
we did just that in 2023. We accomplished a lot, and
we’re becoming a better place to live, work and invest.
At CAPREIT, we’re focused on upgrading the quality
of our portfolio, enhancing the living experience of
our residents, improving the communities in which
we operate, and ultimately increasing returns for
our Unitholders. Internally, we’re also optimizing our
people, technology, and organizational structure
to ensure alignment with our renewed strategy for
success now, and in the future.
Going forward, we will continue to focus on executing
on our refined strategy, and our vision for value
creation – for our residents, our people, and our
Unitholders. We also recognize the role we play as
a core provider of high-quality, safe, and affordable
rental housing in Canada, and we’re prioritizing our
commitment to contributing to the alleviation of the
housing affordability and supply crisis. To that end,
we’re continuing to work with our peers through the
Canadian Rental Housing Providers for Affordable
Housing initiative, and its website, ForAffordable.ca,
to help with the solutions to the crisis. With the
Mark Kenney
President and Chief Executive Officer
18
2023 Annual Report
Financial
Reporting
19
Focused on Quality Financial Reporting
Table of Contents
Management’s Discussion and Analysis
Consolidated Annual Financial Statements
SECTION I: OVERVIEW AND DISCLAIMER
Basis of Presentation
Forward-Looking Disclaimer
Non-IFRS Measures
Overview
Property Portfolio
Objectives and Business Strategy
SECTION II: PORTFOLIO OVERVIEW
Summary of Q4 and Year-End 2023 Results of Operations
Key Performance Indicators
Performance Measures
SECTION III: OPERATIONAL AND FINANCIAL RESULTS
Occupied Average Monthly Rents and Occupancy
Results of Operations
NOI by Region
Same Property NOI by Region
Net Income (Loss) and Other Comprehensive Income (Loss)
SECTION IV: INVESTMENT PROPERTIES
Investment Properties
Acquisitions of Investment Properties
Dispositions of Investment Properties and Assets Held for Sale
Property Capital Investments
Development
SECTION V: CAPITAL STRUCTURE AND FINANCIAL CONDITION
Capital Structure
Liquidity and Financial Condition
Unitholder Taxation
SECTION VI: UNIT CALCULATIONS, DISTRIBUTIONS,
NON-IFRS MEASURES AND OTHER INFORMATION
Unit Calculations and Distributions
Non-IFRS Measures
Other Information
SECTION VII: COMPLIANCE AND GOVERNANCE
DISCLOSURES, RISKS AND UNCERTAINTIES
Accounting Policies and Critical Accounting Estimates,
Assumptions and Judgments
Controls and Procedures
Risks and Uncertainties
Related Party Transactions
Commitments and Contingencies
Subsequent Events
21
21
22
22
24
25
26
27
28
29
34
39
41
43
48
49
50
51
53
54
55
60
61
63
70
72
73
73
86
87
87
Management’s Responsibility for the Consolidated Annual
Financial Statements
Independent Auditor’s Report
Consolidated Balance Sheets
Consolidated Statements of Net Income (Loss)
and Comprehensive Income (Loss)
Consolidated Statements of Unitholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Annual Financial Statements
Note 1 Organization of the Trust
Note 2 Summary of Material Accounting Policies
Note 3 Critical Accounting Estimates, Assumptions
and Judgments
Note 4
Investment Properties
Note 5 Acquisitions of Investment Properties
Note 6
Dispositions of Investment Properties and
Assets Held for Sale
Note 7
Assets Held for Sale and Liabilities Related
to Assets Held for Sale
Note 8 Derivative Financial Instruments
Note 9 Other Assets
Note 10 Debt
Note 11 ERES Units Held by Non-Controlling Unitholders
Note 12 Income Taxes
Note 13 Unit-based Compensation Financial Liabilities
Note 14 Other Liabilities
Note 15 Accounts Payable and Accrued Liabilities
Note 16 Exchangeable LP Units
Note 17 Unitholders’ Equity
Note 18 Distributions on Trust Units
Note 19 Revenue from Contracts with Customers
Note 20 Other Income
Note 21 Interest Expense on Debt and Other Financing Costs
Note 22 Fair Value Adjustments of Financial Instruments
Note 23 Net Loss on Transactions and Other Activities
Note 24 Joint Arrangements
Note 25 Supplemental Cash Flow Information
Note 26 Related Party Transactions
Note 27 Segmented Information
Note 28 Commitments
Note 29 Contingencies
Note 30 Fair Value of Financial Instruments and
Investment Properties and Risk Management
Note 31 Capital Management
Note 32 Reclassification of Comparative Financial Statements
Note 33 Subsequent Events
88
89
97
98
99
100
101
101
101
111
112
116
118
119
120
121
122
124
125
126
128
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20
2023 Annual ReportManagement’s Discussion and Analysis
Management’s Discussion and Analysis
SECTION I: OVERVIEW AND DISCLAIMER
Basis of Presentation
The following Management’s Discussion and Analysis (“MD&A”) of Canadian Apartment Properties Real Estate
Investment Trust’s (“CAPREIT”) results of operations and financial condition for the three months and year ended
December 31, 2023, dated February 22, 2024, should be read in conjunction with CAPREIT’s consolidated annual
financial statements for the year ended December 31, 2023. CAPREIT and its subsidiaries are collectively referred to as
“CAPREIT” in the MD&A. The results reported in CAPREIT’s MD&A are on a consolidated basis including the full results
of any subsidiaries. Information contained on CAPREIT’s website or in other documents referred to in this MD&A is not
incorporated by reference into, and should not be considered part of, this MD&A unless expressly stated otherwise.
Additional information about CAPREIT, including the most recently filed Annual Information Form (“AIF”), is available on
SEDAR+ at www.sedarplus.ca.
Forward-Looking Disclaimer
Certain statements contained, or contained in documents incorporated by reference, in this MD&A constitute forward-
looking information within the meaning of applicable 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, occupancy rates, rental rates, productivity, projected costs, capital
investments, development and development opportunities, 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, disposition and capital investment strategies
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”, “would”, “should”, “could”, “likely”, “expect”, “plan”, “anticipate”, “believe”,
“intend”, “estimate”, “forecast”, “predict”, “potential”, “project”, “budget”, “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 and Dutch economies will generally experience growth, which, however, may be adversely impacted
by the global economy, inflation and increasing interest rates, potential health crises and their direct or indirect impacts
on the business of CAPREIT, including CAPREIT’s ability to enforce leases, perform capital expenditure work, increase
rents and apply for above guideline increases (“AGIs”), obtain financings at favourable interest rates; that Canada
Mortgage and Housing Corporation (“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 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 on renewals will grow;
that rental rates on turnovers will grow; that the difference between in-place and market-based rents will be reduced
upon such turnovers and renewals; 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 MD&A are based on assumptions and information that is currently available to management, which are subject
to change, management believes these statements have been prepared on a reasonable basis, reflecting CAPREIT’s
best estimates and judgements. However, there can be no assurance actual results, terms or timing will be consistent
with these forward-looking statements, and 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’s 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: rent control and residential tenancy regulations, general economic
conditions, privacy, cyber security and data governance risks, availability and cost of debt, acquisitions, dispositions
and property development, valuation risk, liquidity and price volatility of units of CAPREIT (“Trust Units”), catastrophic
21
Focused on QualityManagement’s Discussion and Analysis events, climate change, taxation-related risks, energy costs, environmental matters, vendor management and third-
party service providers, operating risk, talent management and human resources shortages, public health crises, other
regulatory compliance risks, litigation risk, CAPREIT’s investment in European Residential Real Estate Investment Trust
(“ERES”), potential conflicts of interest, investment restrictions, lack of diversification of investment assets, geographic
concentration, illiquidity of real property, capital investments, leasing risk, dependence on key personnel, adequacy
of insurance and captive insurance, competition for residents, controls over disclosures and financial reporting, the
nature of Trust Units, dilution, distributions and foreign operation and currency risks. There can be no assurance that
the expectations of CAPREIT’s management will prove to be correct. For a detailed discussion of risk factors, refer
to Risks and Uncertainties in Section VII of this MD&A. Subject to applicable law, CAPREIT does not undertake any
obligation to publicly update or revise any forward-looking information.
Non-IFRS Measures
CAPREIT prepares and releases unaudited condensed consolidated interim financial statements and audited
consolidated annual financial statements in accordance with International Financial Reporting Standards (“IFRS”).
In this MD&A, earnings releases, investor presentations and investor conference calls, CAPREIT discloses measures
not recognized under IFRS which do not have standard meanings prescribed by IFRS. These include Funds From
Operations (“FFO”), Adjusted Cash Flow from Operations (“ACFO”), Adjusted Cash Generated from Operating Activities,
Net Asset Value (“NAV”), Total Debt, Gross Book Value and Adjusted Earnings Before Interest, Tax, Depreciation,
Amortization and Fair Value (“Adjusted EBITDAFV”) (the “Non-IFRS Financial Measures”), as well as diluted FFO per
unit, diluted NAV per unit, FFO payout ratio, ACFO payout ratio, Ratio of Total Debt to Gross Book Value, Debt Service
Coverage Ratio and Interest Coverage Ratio (the “Non-IFRS Ratios” and together with the Non-IFRS Financial Measures,
the “Non-IFRS Measures”). Since these measures and related per unit amounts are not recognized under IFRS, they
may not be comparable to similar measures reported by other issuers. CAPREIT presents Non-IFRS Measures because
management believes Non-IFRS Measures are relevant measures utilized by our investors to evaluate the ability
of CAPREIT to earn revenue and to evaluate its performance, financial condition and cash flows. These Non-IFRS
Measures have been assessed for compliance with National Instrument 52-112 and a reconciliation of these Non-IFRS
Measures to the comparable IFRS measures, along with further definitions and discussion, is provided in Section VI
under Non-IFRS Measures. The Non-IFRS Measures should not be construed as alternatives to net income (loss)
or cash flows from operating activities determined in accordance with IFRS as indicators of CAPREIT’s performance or
the sustainability of our distributions.
CAPREIT undertook a comprehensive review of MD&A disclosures and, starting with the first quarter of 2023, streamlined
disclosures to focus on measures and metrics that management believes are the most relevant. Accordingly, CAPREIT
is no longer disclosing Net Trust Expenses, Ratio of Total Debt to Gross Historical Cost and Ratio of Total Debt to Total
Capitalization. In this MD&A, CAPREIT relabelled Normalized Funds From Operations (“NFFO”) to FFO (formerly known
as “NFFO”) and as such, introduced a modified definition of FFO which is identical to the prior definition of NFFO.
As a result, CAPREIT will no longer refer to NFFO throughout the MD&A. Refer to the discussion in Section VI under
Non-IFRS Measures – Funds From Operations for further information.
Overview
CAPREIT is Canada’s largest publicly-traded provider of quality rental housing. CAPREIT owns approximately 64,300
residential apartment suites, townhomes and manufactured home community (“MHC”) sites well-located across Canada
and the Netherlands as of December 31, 2023.
CAPREIT’s concentration on the residential real estate market is aimed at solid year-over-year income growth in a
portfolio with stable occupancy. In addition, CAPREIT mitigates risk through demographic diversification by operating
properties across the affordable, mid-tier and luxury sectors, as well as through geographic diversification.
CAPREIT was established under the laws of the Province of Ontario by a Declaration of Trust (the “DOT”), dated
February 3, 1997, as most recently amended and restated on June 1, 2022.
22
2023 Annual ReportManagement’s Discussion and Analysis The following charts show the portfolio allocation by type and by region based on the fair value of CAPREIT’s investment
properties as at December 31, 2023. For a detailed discussion of CAPREIT’s investment properties, refer to Section IV
under Investment Properties.
Property Allocation by Type
MHC – 4.2%
Property Allocation by Region
(Excluding MHC)
SK – 0.2%
PEI – 0.5%
QC – 15.2%
ON – 45.9%
BC – 14.3%
Apartments
and
townhomes
– 95.8%
NS – 5.6%
AB – 2.8%
The
Netherlands –
15.5%
23
Focused on QualityManagement’s Discussion and Analysis Property Portfolio
Types of Property Interests
CAPREIT’s investments in its property portfolio reflect different forms of property interests, including: Fee Simple
Interests – Apartments and Townhomes, Operating Leasehold Interests, Land Leasehold Interests and Fee Simple
Interests – MHC Sites.
Portfolio Diversification
CAPREIT’s property portfolio continues to be diversified by geography and balanced among asset types. Management’s
long-term goal is to further enhance the geographic diversification, high quality and defensive nature of its portfolio
through acquisitions and dispositions.
Portfolio by Geography
As at
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Area
Victoria and Other British Columbia
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
MHC Sites
Total MHC sites
Total Canadian portfolio
Europe
The Netherlands portfolio
Total portfolio
December 31, 2023
December 31, 2022
Number of Suites
and Sites
%(1)
Number of Suites
and Sites
17,139
3,808
1,485
22,432
7,695
2,699
10,394
4,042
2,165
6,207
3,340
1,512
697
2,209
424
234
45,240
12,134
57,374
6,886
64,260
26.7
5.9
2.3
34.9
12.0
4.2
16.2
6.3
3.4
9.7
5.2
2.2
1.1
3.3
0.7
0.4
70.4
18.9
89.3
10.7
100.0
17,139
3,808
2,492
23,439
8,682
2,777
11,459
3,743
2,117
5,860
3,288
1,775
608
2,383
637
234
47,300
12,386
59,686
6,900
66,586
%(1)
25.7
5.7
3.7
35.1
13.0
4.2
17.2
5.6
3.2
8.8
4.9
2.7
0.9
3.6
1.0
0.4
71.0
18.6
89.6
10.4
100.0
(1) Represents percentage of the portfolio by number of suites and sites.
While maintaining a strong and strategic presence in Ontario’s vibrant residential market, CAPREIT continues to focus
on diversifying its portfolio by increasing its allocation in high-growth Canadian markets with strong fundamentals.
CAPREIT considers investment opportunities that meet its investment criteria, which includes geographical diversification
and the mitigation of risks arising from potential downturns in any specific markets.
2424
2023 Annual ReportManagement’s Discussion and Analysis Objectives and Business Strategy
CAPREIT’s objectives are to:
• maintain a focus on maximizing occupancy and responsibly growing occupied average monthly rent (“Occupied
AMR”) in accordance with local conditions in each of its markets;
• upgrade the quality and diversification of the property portfolio through repositioning and capital recycling initiatives
to grow earnings and cash flow potential;
• invest capital and adopt leading edge technologies and solutions to enhance environmental and operational
efficiencies, risk management and to help ensure life safety and satisfaction of residents; and
• maintain strong financial management and a conservative and well-balanced capital structure to increase FFO per
unit (formerly known as “NFFO per unit”), NAV per unit and provide long-term, stable and growing cash distributions
for holders of Trust Units (“Unitholders”).
To meet its objectives, CAPREIT has established the following strategies:
Customer Service – CAPREIT recognizes that it is in a “people business” and strives to be recognized as the landlord
of choice in all of its chosen markets by providing its residents with a safe, secure and comfortable living environment. It
takes a hands-on approach to managing its properties, stressing open and frequent communications to ensure residents’
needs are met efficiently and effectively, thereby maintaining a high occupancy level. Numerous initiatives, such as
newsletters, special events, resident committees and others, are aimed at building a true sense of community at its
properties. CAPREIT’s strong sales and marketing team continues to execute innovative and highly effective strategies
to help attract and retain residents and adapt to changing conditions in specific markets. In addition, CAPREIT’s lease
administration system improves control of rent-setting by suite, increasing resident service and enhancing the overall
profile of its resident base. These initiatives are further enhanced by CAPREIT’s strong information technology platform.
Cost Management – While ensuring the needs of its residents are met, CAPREIT also carefully monitors operating
costs to ensure it is delivering services to residents both efficiently and cost-effectively. CAPREIT strives to capture
potential economies of scale and cost synergies generated by the size and geographic allocation of its property
portfolio. CAPREIT’s enterprise-wide procurement system streamlines and centralizes purchasing controls, policies and
procedures and is realizing reduced costs through competitive sourcing contracts, improved pricing and enhanced
operating efficiencies.
Upgrading the Portfolio – CAPREIT aims to continuously improve the quality of its portfolio and earnings through
accretive acquisitions of newly constructed Canadian apartment properties, and dispositions of certain older and
non-core properties, in accordance with its strategic criteria. This includes enhancing the portfolio’s geographic
exposure by increasing its concentration in targeted, attractive, high-growth Canadian regions with strong long-term
market fundamentals. CAPREIT’s repositioning program aims to increase net operating income (“NOI”), reduce risk
and diversify its resident base. Where possible, CAPREIT also seeks to uncover development value through entitling
and selling its excess density. The funds from its non-core divestitures will primarily be used to acquire additional,
new build properties that are in line with CAPREIT’s current strategy, to pay down existing debt or to crystallize value
through its normal course issuer bid (“NCIB”) program, depending on market conditions and the most accretive avenue
for capital deployment. Management believes the continued reinvestment of capital is a fundamental component of
its value-creation strategy, and demonstrates its ability to maximize and manage the earnings and cash flow potential
of its property portfolio.
Capital Investments – CAPREIT is committed to improving its operating performance by investing capital in projects
that will sustain or enhance the portfolio’s rental income-generating potential. CAPREIT continues to invest in innovative
technology solutions that enhance productivity as well as environment-friendly, energy-saving and water efficiency
initiatives that improve NOI while reducing the portfolio’s environmental footprint. CAPREIT completes a review of its
portfolio and revises its long-term capital investment plan on an annual basis, which allows management to ensure
capital investments extend the useful economic life of CAPREIT’s properties, enhance life safety, maximize earnings
and improve the long-term cash flow potential of its portfolio.
2525
Focused on QualityManagement’s Discussion and Analysis Environmental, Social and Governance (“ESG”) – CAPREIT continues to review and refine its multi-year ESG strategy
and roadmap, which are aligned with CAPREIT’s corporate vision of being “the Best Place to Live, Work, and Invest”.
CAPREIT’s overarching commitments include ensuring that its buildings and services meet the highest standards
possible, fostering a culture where diversity, equity and inclusion are foundational; and ultimately integrating ESG
into all aspects of CAPREIT’s business and throughout all levels of its organization, supported by strong corporate
governance, and standardized and comprehensive ESG disclosures. These commitments allow CAPREIT to better
demonstrate its environmental responsibility, attract and retain the best people in the business in which it operates,
build strong relationships with its residents and the communities in which they live, adopt best practice programs in
corporate governance, monitor its progress on ESG priorities, and maintain open and transparent communication with
its investors and other stakeholders. In line with CAPREIT’s ongoing goals relating to ESG performance, management
continues to support submission to the Global Real Estate Sustainability Benchmark (“GRESB”), the results of which will
inform future cycles of improvement and the evolution of CAPREIT’s ESG strategy going forward. CAPREIT has also
aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”), which will be
incorporated in its 2023 ESG Report that will be issued in mid-2024.
Financial Management – CAPREIT takes a conservative approach and strives to manage its exposure to interest rate
volatility by proactively managing its mortgage debt portfolio to fix and, where possible, reduce average interest rates,
effectively manage the average term to maturity and stagger maturity dates. In addition, CAPREIT strives to maintain
a conservative overall liquidity position and achieve a balance in its overall capital resource requirements between
debt and equity.
SECTION II: PORTFOLIO OVERVIEW
Summary of Q4 and Year-End 2023 Results of Operations
Strategic Initiatives Update
• CAPREIT continues to invest in strategic opportunities that are accretive. For the three months ended December 31,
2023, CAPREIT acquired two properties with 162 suites in British Columbia for a total acquisition cost of $91.2 million.
For the year ended December 31, 2023, CAPREIT acquired seven properties with 631 suites primarily in British
Columbia for a total acquisition cost of $299.4 million.
• For the three months ended December 31, 2023, CAPREIT disposed of 372 suites which were comprised of three
non-core properties located in Canada and ten single residential suites located in the Netherlands, for $69.6 million
(excluding transaction costs and other adjustments). For the year ended December 31, 2023, CAPREIT disposed
of 2,969 suites and sites for $424.1 million (excluding transaction costs and other adjustments) worth of non-core
property dispositions.
• CAPREIT did not purchase any Trust Units for cancellation during the three months ended December 31, 2023. During
the year ended December 31, 2023, CAPREIT purchased and cancelled approximately 2.2 million Trust Units under
the NCIB program, at a weighted average purchase price of $46.53 per Trust Unit, for a total cost of $100.9 million.
• Pursuant to CAPREIT’s strategy to upgrade the quality and diversification of the property portfolio through repositioning
and capital recycling initiatives to grow earnings and cash flow potential, CAPREIT achieved its goal of disposing
between $400 million and $500 million of non-core Canadian properties in 2023. CAPREIT is currently targeting the
disposition of over $400 million of non-core Canadian properties in 2024.
Operating Results
• Same property Occupied AMR for the Canadian residential portfolio as at December 31, 2023 increased to $1,509,
up 6.2% compared to December 31, 2022, while same property occupancy for the Canadian residential portfolio
remained relatively stable at 98.8%.
• Same property NOI increased by 7.9% and 7.3%, respectively, for the three months and year ended December 31,
2023 compared to the same periods last year. Additionally, same property NOI margin increased to 64.7%, up 0.2%,
for the three months ended December 31, 2023 and increased to 65.3%, up 0.3%, for the year ended December 31,
2023 compared to the same periods last year.
26
2023 Annual ReportManagement’s Discussion and Analysis • Diluted FFO per unit (formerly known as “diluted NFFO per unit”) increased by 3.8% and 2.9%, respectively, for
the three months and year ended December 31, 2023 compared to the same periods last year, primarily due to
contributions from acquisitions, same property operational growth and lower trust expense, net of non-routine
reorganization costs, partially offset by dispositions and higher interest expense on credit facilities payable and
mortgages payable, supplemented by accretive NCIB purchases.
Balance Sheet Highlights
• CAPREIT’s financial position remains strong with $340.1 million of available capacity on its Canadian Acquisition and
Operating Facility.
• In 2023, CAPREIT completed mortgage financings of $552.5 million for the Canadian portfolio. To date, CAPREIT
completed consolidated mortgage financings of $662.3 million. The mortgages refinanced have a weighted average
term to maturity of 6.8 years and a weighted average interest rate of 4.41%.
• For the three months and year ended December 31, 2023, CAPREIT recorded a fair value loss on investment properties
(including assets held for sale) of $111.4 million and $914.6 million, respectively, primarily driven by capitalization rate
(“cap rate”) expansion in both the Canadian and Netherlands portfolio, as a reflection of the market conditions.
The overall carrying value of investment properties (excluding assets held for sale) as at December 31, 2023 was
$16.5 billion compared to $17.2 billion as at December 31, 2022.
• Diluted NAV per unit as at December 31, 2023 decreased to $54.23 from $58.01 as at December 31, 2022, primarily
due to fair value losses recognized in investment properties, partially offset by the effects of accretive purchases of
Trust Units for cancellation through the NCIB program.
Key Performance Indicators
To assist management and investors in monitoring and evaluating CAPREIT’s achievement of its objectives, CAPREIT
has defined a number of key operating and performance indicators (“KPIs”) to measure the success of its operating
and financial strategies.
Occupancy – Through a focused, hands-on approach, CAPREIT strives to achieve occupancies at or greater than
market conditions in each of the geographic regions where it operates.
Occupied AMR – Through its active property management strategies, lease administration system and proactive
capital investment programs, CAPREIT strives to achieve increasing Occupied AMR in accordance with local market
conditions and rent control legislation, as applicable. Management believes same property Occupied AMR will continue
to gradually increase, providing the basis for sustainable year-over-year increases in revenue.
NOI and Same Property NOI – NOI and same property NOI are widely used operating performance indicators in the
real estate industry. NOI is presented in CAPREIT’s consolidated statements of net income (loss) and comprehensive
income (loss). Same property NOI is based on the operating performance of properties fully owned by CAPREIT in
the current and prior year comparative periods, excluding properties that are classified as assets held for sale as at
period-end. NOI and same property NOI may not, however, be comparable to similar measures presented by other
real estate investment trusts or companies.
FFO per unit (formerly known as “NFFO per unit”) – CAPREIT is focused on achieving steady increases in this
metric. Management believes this measure is indicative of CAPREIT’s overall operating performance. For greater clarity,
CAPREIT has relabelled NFFO per unit to simply FFO per unit throughout this MD&A. Refer to the discussion in Section
VI under Non-IFRS Measures – Funds From Operations for further information.
FFO Payout Ratio (formerly known as “NFFO Payout Ratio”) – This ratio is meant to monitor the FFO that is retained
at CAPREIT to potentially fund investment opportunities, capital initiatives or repay indebtedness, after factoring in
distributions, and is not meant to be a measure of the sustainability of CAPREIT’s distributions. Although CAPREIT
intends to continue to sustain and grow distributions, the actual amount of distributions in respect of the CAPREIT units
will depend upon numerous factors including, but not limited to, the amount of debt refinancings, capital expenditures
and other factors that may be beyond the control of CAPREIT.
27
Focused on QualityManagement’s Discussion and Analysis Leverage Ratios and Terms – CAPREIT takes a proactive approach with its mortgage portfolio, striving to manage
interest expense volatility risk by fixing the lowest possible average interest rates for long-term mortgages, while
mitigating refinancing risk by prudently managing the portfolio’s average term to maturity and staggering the
maturity dates. For this purpose, CAPREIT strives to ensure its overall leverage ratios and interest and debt service
coverage ratios are maintained at a sustainable level. CAPREIT focuses on maintaining capital adequacy by complying
with investment and debt restrictions in its DOT and the financial covenants in its credit and mortgage agreements.
CAPREIT’s credit agreements consist of a revolving acquisition and operating facility, which includes Euro Interbank
Offered Rate (“EURIBOR”), Term Secured Overnight Financing Rate (“SOFR”) and Canadian dollar borrowings (“Acquisition
and Operating Facility”), and the ERES revolving credit facility (“ERES Credit Facility”) (collectively, the “Credit Facilities”),
as described under Liquidity and Financial Condition in Section V.
NAV per unit – Management believes that this measure reflects the residual value of CAPREIT to its Unitholders on
an ongoing basis and is therefore used by management to evaluate the net asset value attributable to Unitholders,
and changes thereon based on the execution of CAPREIT’s strategy.
Performance Measures
The following tables present an overview of certain IFRS and Non-IFRS Measures of CAPREIT as at December 31,
2023 and December 31, 2022 and for the three months and years ended December 31, 2023 and December 31,
2022. Management believes these measures are useful in assessing CAPREIT’s operating and financial performance
in relation to its objectives and business strategy.
As at
Total Portfolio Performance and Other Measures
Number of suites and sites(1)
Investment properties fair value(2) (000s)
Occupied AMR(1)
Canadian Residential Portfolio(3)
The Netherlands Portfolio
Occupancy(1)
Canadian Residential Portfolio(3)
The Netherlands Portfolio
Total Portfolio(4)
(1) Excludes commercial suites.
(2)
Investment properties exclude assets held for sale, as applicable.
(3) Excludes MHC sites.
(4)
Includes MHC sites.
December 31, 2023
December 31, 2022
64,260
66,586
$ 16,532,096
$ 17,153,709
$
€
1,516
1,063
$
€
98.8%
98.5%
98.2%
1,401
992
98.9%
98.4%
98.3%
Financial Performance
Operating revenues (000s)
NOI (000s)
NOI margin
Same property NOI (000s)
Same property NOI margin
Net income (loss) (000s)
FFO per unit – diluted (formerly known
as “NFFO per unit – diluted”)(1)
Distributions per unit
FFO payout ratio (formerly known
as “NFFO payout ratio”)(1)
Three Months Ended December 31,
Year Ended December 31,
2023
2022
2023
2022
$
$
$
$
$
$
272,195
176,711
64.9%
167,898
64.7%
9,212
0.602
0.363
$
$
$
$
$
$
256,915
164,500
64.0%
155,628
64.5%
155,523
0.580
0.363
$ 1,065,317
692,786
$
65.0%
659,657
65.3%
(411,574)
2.396
1.450
$
$
$
$
$
$
$
$
$
$
60.4%
62.4%
60.5%
1,007,268
650,409
64.6%
614,621
65.0%
13,637
2.328
1.450
62.1%
(1)
These measures are not defined by IFRS, do not have standard meanings and may not be comparable with other industries or companies
(see Section I – Non-IFRS Measures). For a reconciliation to IFRS, see Section VI – Non-IFRS Measures.
28
2023 Annual ReportManagement’s Discussion and Analysis
As at
Financing Metrics and Liquidity
Total debt to gross book value(1)
Weighted average mortgage effective interest rate(2)
Weighted average mortgage term (years)(2)
Debt service coverage (times)(1)(3)
Interest coverage (times)(1)(3)
Cash and cash equivalents (000s)
Available liquidity – Acquisition and Operating Facility (000s)
Capital
Unitholders’ equity (000s)
Net asset value(1) (000s)
Total number of units – diluted (000s)
Net asset value per unit – diluted(1)
December 31, 2023
December 31, 2022
41.6%
2.80%
4.9
1.8x
3.3x
39.4%
2.61%
5.4
1.9x
3.7x
$
$
29,528
340,059
$
$
47,303
333,416
$ 9,278,595
$ 9,212,594
169,868
$
54.23
$
$ 10,003,695
$
9,954,566
171,599
58.01
(1)
This measure is not defined by IFRS, does not have standard meaning and may not be comparable with other industries or companies
(see Section I – Non-IFRS Measures). For a reconciliation to IFRS, see Section VI – Non-IFRS Measures.
(2) Excludes liabilities related to assets held for sale, as applicable.
(3) Based on the trailing four quarters.
SECTION III: OPERATIONAL AND FINANCIAL RESULTS
Occupied Average Monthly Rents and Occupancy
Occupied AMR is defined as actual residential rents divided by the total number of occupied suites or sites in the
property, and does not include revenues from parking, laundry or other sources. Same property Occupied AMR and
occupancy include all properties held as at December 31, 2022, but exclude properties disposed of or held for sale
as at December 31, 2023.
Net AMR is defined as actual residential rents divided by the total number of suites or sites in the property, and does
not include revenues from parking, laundry or other sources. Therefore, fluctuations in Net AMR are due to changes
in residential rents, changes in occupancy levels or a combination of both. Management considers Occupied AMR to
be a better measure of actual residential rents earned from tenants and is no longer disclosing Net AMR.
29
Focused on QualityManagement’s Discussion and Analysis
Occupied AMR and Occupancy by Geography
As at December 31,
2023
2022
2023
2022
Total Portfolio
Same Property
Occupied
AMR
Occ. %
Occupied
AMR
Occ. %
Occupied
AMR
Occ. %
Occupied
AMR
Occ. %
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Area
Victoria and Other
British Columbia
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
MHC Sites
Total MHC sites
Total Canadian portfolio
Europe
The Netherlands portfolio
Total portfolio
$ 1,691
1,240
1,782
$ 1,621
$ 1,227
1,260
$ 1,236
99.2
98.8
99.7
99.2
97.4
98.0
97.6
$ 1,594
1,154
1,516
$ 1,515
99.4
98.9
100.0
99.4
$ 1,691
1,240
1,738
$ 1,617
$ 1,155
1,197
$ 1,165
97.8
98.4
97.9
$ 1,227
1,289
$ 1,242
99.2
98.8
99.9
99.2
97.4
97.8
97.5
$ 1,594
1,154
99.4
98.9
1,655
100.0
$ 1,523
99.4
$ 1,181
1,239
$ 1,195
$ 1,716
99.4
$ 1,554
99.3
$ 1,660
99.5
$ 1,554
1,601
$ 1,677
98.2
99.0
1,496
$ 1,533
98.9
99.1
1,583
$ 1,633
98.1
99.0
1,493
$ 1,533
97.6
98.2
97.7
99.3
98.8
99.1
$ 1,513
99.3
$ 1,402
98.3
$ 1,506
99.3
$ 1,402
98.3
$ 1,353
1,401
$ 1,368
99.6
98.0
99.1
$ 1,175
1,294
$ 1,205
99.9
97.5
99.3
$ 1,353
1,389
$ 1,363
99.6
98.4
99.2
$ 1,173
1,294
$ 1,207
99.9
97.5
99.2
$ 1,262
100.0
$ 1,131
99.7
$ 1,262
100.0
$ 1,262
99.5
$ 1,235
$ 1,516
96.2
98.8
$ 1,087
$ 1,401
99.6
98.9
$ 1,235
$ 1,509
96.2
98.8
$ 1,087
$ 1,421
$ 439
$ 1,293
96.1
98.2
$ 425
$ 1,202
95.6
98.2
$ 439
$ 1,284
96.1
98.2
$ 426
$ 1,213
€ 1,063
€ 992
98.5
98.2
€ 1,063
98.4
98.3
98.5
98.2
€ 992
99.6
98.9
95.5
98.2
98.4
98.2
The rate of growth in total portfolio Occupied AMR has been primarily driven by (i) new acquisitions completed over
the past 12 months and (ii) same property operational growth. The rate of growth in same property Occupied AMR
has been primarily due to (i) rental increases on turnover in the rental markets of most provinces across the Canadian
portfolio and (ii) rental increases on renewals.
The weighted average gross rent per square foot for total Canadian residential suites was approximately $1.80 as at
December 31, 2023, increased from $1.70 as at December 31, 2022.
30
2023 Annual ReportManagement’s Discussion and Analysis
Annual Rental Guidelines as per Rental Board
The table below presents the annual rental guideline increases in CAPREIT’s largest Canadian provinces of operations
under rent control legislation impacting lease renewals, if applicable.
Ontario
British Columbia
2024(1)
2.5%
3.5%
2023(2)
2.5%
2.0%
2022
1.2%
1.5%
(1)
(2)
Ontario and British Columbia have capped the rental guideline increases at 2.5% and 3.5%, respectively, below current rates of inflation. Without the
cap, the rental guideline increases would have been calculated to be 5.9% and 5.6%, respectively, based on the average Ontario and British Columbia
Consumer Price Indices at the time of announcement of the 2024 annual rental guidelines.
Ontario and British Columbia have capped the rental guideline increases at 2.5% and 2.0%, respectively, below current rates of inflation. Without the
cap, the rental guideline increases would have been calculated to be 5.3% and 5.4%, respectively, based on the Ontario and British Columbia Consumer
Price Indices at the time of announcement of the 2023 annual rental guidelines.
CAPREIT’s strategy is focused on upgrading portfolio quality through accretive acquisitions of newly built properties,
alongside selected non-core or opportunistic dispositions. As a result, AGIs and additional rental increases (“ARIs”) do
not constitute an integral part of CAPREIT’s strategy, with applications only active for selected suites and sites meeting
certain criteria.
Suite Turnovers and Lease Renewals – Total Portfolio
The tables below summarize the changes in the monthly rent due to suite turnovers and lease renewals compared
to the prior year.
Canadian Portfolio
For the Three Months Ended December 31,
2023
2022
Suite turnovers
Lease renewals
Weighted average of turnovers and renewals
Change in
Monthly Rent
Turnovers and
Renewals(1)
Change in
Monthly Rent
Turnovers and
Renewals(1)
%
29.9
3.2
8.5
%
2.9
11.6
%
24.3
1.7
7.1
%
3.4
10.8
(1)
Percentage of suites turned over or renewed during the period based on the total weighted average number of residential suites (excluding co-ownerships
and MHC sites) held during the period.
For the Year Ended December 31,
2023
2022
Suite turnovers
Lease renewals
Weighted average of turnovers and renewals
Change in
Monthly Rent
Turnovers and
Renewals(1)
Change in
Monthly Rent
Turnovers and
Renewals(1)
%
27.7
2.7
5.8
%
12.9
90.1
%
14.5
1.4
3.4
%
16.4
89.7
(1)
Percentage of suites turned over or renewed during the year based on the total weighted average number of residential suites (excluding co-ownerships
and MHC sites) held during the year.
31
Focused on QualityManagement’s Discussion and Analysis
Change in monthly rent on suite turnovers continues to remain strong while lease renewals remain stable due to rent
controls in certain provinces. The following graph illustrates the change in monthly rent on turnovers and renewals,
as well as Occupied AMR (excluding co-ownerships and MHC sites), for the trailing eight quarters.
Change in Monthly Rent and Occupied AMR
The Netherlands Portfolio
For the Three Months Ended December 31,
Suite turnovers
Lease renewals
Weighted average of turnovers and renewals
2023
2022
Change in
Monthly Rent
Turnovers and
Renewals(1)
Change in
Monthly Rent
Turnovers and
Renewals(1)
%
20.3
–
20.3
%
3.4
–
%
23.1
–
23.1
%
3.9
–
(1)
Percentage of suites turned over or renewed during the period based on the total weighted average number of Dutch residential suites held
during the period.
For the Year Ended December 31,
2023
2022
Suite turnovers
Lease renewals
Weighted average of turnovers and renewals
Change in
Monthly Rent
Turnovers and
Renewals(1)
Change in
Monthly Rent
Turnovers and
Renewals(1)
%
20.4
4.0
6.1
%
13.8
96.6
%
21.4
3.2
5.4
%
12.4
91.1
(1) Percentage of suites turned over or renewed during the year based on the total weighted average number of Dutch residential suites held during the year.
For rent renewal increases due to indexation beginning on July 1, 2023, ERES served tenant notices to 6,659 suites,
representing 97% of the residential portfolio, across which the average rental increase due to indexation and household
income adjustment is 4.0%. In the prior year period, ERES served tenant notices to 6,499 suites, representing
96% of the residential portfolio, across which the average rental increase due to indexation and household income
adjustment is 3.0%.
32
2023 Annual ReportManagement’s Discussion and Analysis Change in monthly rent on suite turnovers continues to remain strong while lease renewals show moderate increases
during the annual renewal month. The following graph illustrates the change in monthly rent on turnovers and renewals,
as well as Occupied AMR, for the trailing eight quarters.
Change in Monthly Rent and Occupied AMR
Tenant Inducements and Expected Credit Losses
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
New tenant inducements granted – residential
New tenant inducements granted – commercial
Total new tenant inducements granted
Tenant inducements amortized
Expected credit losses
(1) As a percentage of total operating revenues.
2023
%(1)
2022
%(1)
$
$
$
$
273
441
714
410
1,377
$
$
$
$
495
215
710
644
2,176
$
$
$
$
0.3
0.8
0.2
0.5
2023
797
576
1,373
1,923
4,983
%(1)
0.2
0.5
$
$
$
$
2022
1,458
349
1,807
4,471
6,653
%(1)
0.4
0.7
33
Focused on QualityManagement’s Discussion and Analysis
Results of Operations
The table below summarizes revenue from investment properties by region for the three months and years ended
December 31, 2023 and December 31, 2022. Revenue is composed of residential, commercial and ancillary revenue.
Total Operating Revenues by Geography
Three Months Ended December 31,
Year Ended December 31,
2023
2022
2023
2022
Revenue
%
Revenue
%
Revenue
%
Revenue
%
$
92,601
14,422
8,130
$ 115,153
34.0 $
5.3
3.0
86,934
13,425
33.7 $ 362,645
56,241
34.0 $ 348,200
52,941
5.2
3.5
5.3
3.0
9,043
42.3 $ 109,402
32,115
42.4 $ 451,001
35,855
42.3 $ 436,996
$
31,528
11,304
$
42,832
11.6 $
4.1
15.7 $
33,214
10,712
43,926
12.9 $ 128,069
43,802
17.1 $ 171,871
4.2
12.0 $ 124,902
41,926
16.1 $ 166,828
4.1
34.5
5.3
3.6
43.4
12.4
4.2
16.6
$
21,036
7.7 $
18,151
7.1 $
79,047
7.4 $
71,602
7.1
10,830
$
31,866
4.0
11.7 $
10,226
28,377
4.0
42,207
11.1 $ 121,254
4.0
40,266
11.4 $ 111,868
4.0
11.1
$
16,082
5.9 $
14,564
5.7 $
61,868
5.8 $
56,982
5.7
$
7,929
3,153
$
11,082
2.9 $
1.2
4.1 $
7,583
2,456
10,039
3.0 $
1.0
4.0 $
31,565
11,734
43,299
3.0 $
1.1
4.1 $
29,080
8,730
37,810
2.9
0.9
3.8
$
1,639
0.6 $
2,158
0.8 $
7,731
0.7 $
8,639
0.9
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Area
Victoria and Other
British Columbia
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
$ 219,517
$
863
0.3 $
768
80.6 $ 209,234
0.3 $
3,252
81.4 $ 860,276
0.3 $
2,968
80.7 $ 822,091
MHC Sites
Total MHC sites
Total Canadian portfolio(1)
Europe
The Netherlands(2)
Other Europe(3)
Total Portfolio
$
16,474
$ 235,991
6.1 $
15,897
86.7 $ 225,131
6.2 $
65,406
87.6 $ 925,682
6.2 $
63,008
86.9 $ 885,099
$
33,304
2,900
12.2 $
1.1
13.3 $
29,249
2,535
36,204
31,784
$
$ 272,195 100.0 $ 256,915
1.0
11.4 $ 128,207
11,428
12.4 $ 139,635
12.0 $ 112,093
10,076
13.1 $ 122,169
100.0 $ 1,065,317 100.0 $ 1,007,268
1.1
0.3
81.8
6.1
87.9
11.1
1.0
12.1
100.0
(1)
(2)
Includes revenues for Canadian commercial properties of $6,126 and $6,264 for the three months ended December 31, 2023 and December 31, 2022,
respectively, and $23,592 and $23,760 for the years ended December 31, 2023 and December 31, 2022, respectively.
In € thousands, €22,737 and €21,108 for the three months ended December 31, 2023 and December 31, 2022, respectively. In € thousands, €87,853 and
€81,898 for the years ended December 31, 2023 and December 31, 2022, respectively.
(3) Comprised of ERES’s revenues for the commercial properties located in Germany and Belgium. In € thousands, €1,980 and €1,824 for the three months
ended December 31, 2023 and December 31, 2022, respectively. In € thousands, €7,831 and €7,354 for the years ended December 31, 2023 and
December 31, 2022, respectively.
34
2023 Annual ReportManagement’s Discussion and Analysis
Estimated Net Rental Revenue Run-Rate
Estimated net rental revenue run-rate (net of historical vacancy loss and tenant inducement amortization) is based on
Net AMRs in place for CAPREIT’s residential suites and sites and commercial leases. Pursuant to CAPREIT’s strategy
to upgrade the quality and diversification of the property portfolio through repositioning and capital recycling initiatives
to grow earnings and cash flow potential, as well as uncertainty about the timing of such transactions, CAPREIT is no
longer disclosing estimated net rental revenue run-rate.
Net Operating Income
Management believes NOI is a key indicator of operating performance for CAPREIT and in the real estate industry in
general. CAPREIT’s NOI includes all rental revenues and other related ancillary income generated at the property level,
less: (i) related direct costs such as realty taxes, utilities, repairs and maintenance (“R&M”) costs, on-site wages and
salaries, insurance costs and expected credit losses; and (ii) an appropriate allocation of corporate overhead costs.
It may not, however, be comparable to similar measures presented by other real estate investment trusts or companies.
Management believes same property NOI is a key indicator of operating performance of properties fully owned by
CAPREIT in the current and prior year comparative periods. Same properties for the three months and year ended
December 31, 2023 are defined as all properties owned by CAPREIT continuously since December 31, 2021, and
therefore do not take into account the impact on performance of acquisitions or dispositions completed during 2023
and 2022, or properties that are classified as held for sale as at December 31, 2023. Same property NOI is calculated
in accordance with the accounting policies used to prepare total NOI presented in the consolidated statements of net
income (loss) and comprehensive income (loss). As at December 31, 2023 and December 31, 2022, same property
suites and sites represented 96.2% and 92.8%, respectively, of total suites and sites.
CAPREIT’s investment properties primarily consist of apartment suites but include a number of townhomes in Canada
and the Netherlands which generally have higher NOI margins than apartment suites.
($ Thousands)
Total NOI
Same Property NOI(1)
For the Three Months Ended December 31,
2023
2022
%(2)
2023
2022
%(2)
Operating revenues
Net rental revenues
Other(3)
Total operating revenues
Operating Expenses
Realty taxes
Utilities
Other(4)
Total operating expenses(5)
NOI
NOI margin
$ 257,175
15,020
$ 272,195
$ 243,552
13,363
$ 256,915
5.6
12.4
5.9
$ 245,157
14,242
$ 259,399
$ 228,611
12,554
$ 241,165
$
(23,933)
(19,569)
(51,982)
(95,484)
$
$ 176,711
64.9%
$
(23,397)
(20,355)
(48,663)
$
(92,415)
$ 164,500
64.0%
2.3
(3.9)
6.8
3.3
7.4
$
(22,796)
(19,084)
(49,621)
(91,501)
$
$ 167,898
64.7%
$
(22,019)
(19,159)
(44,359)
$
(85,537)
$ 155,628
64.5%
7.2
13.4
7.6
3.5
(0.4)
11.9
7.0
7.9
(1)
Same property results exclude performance of acquisitions or dispositions completed during 2023 and 2022, or properties that are classified as held for
sale as at December 31, 2023. For the three months ended December 31, 2023, NOI contributions from acquisitions or dispositions completed during 2023
and 2022, or properties that are classified as held for sale as at December 31, 2023, were $8,813 (for the three months ended December 31, 2022 – $8,872).
(2)
Represents the year-over-year percentage change.
(3) Comprises ancillary income such as parking, laundry and antenna revenue.
(4) Comprises R&M, wages, insurance, advertising, legal costs and expected credit losses.
(5)
Total operating expenses, on a constant currency basis, increased by approximately 2.9% and 6.5%, respectively, for the total and same property portfolio
compared to the same periods last year.
35
Focused on QualityManagement’s Discussion and Analysis
($ Thousands)
Total NOI
Same Property NOI(1)
For the Year Ended December 31,
2023
2022
%(2)
2023
2022
%(2)
Operating Revenues
Net rental revenues
Other(3)
Total operating revenues
Operating Expenses
Realty taxes
Utilities
Other(4)
Total operating expenses(5)
NOI
NOI margin
$ 1,008,909
56,408
$ 1,065,317
$ 954,598
52,670
$ 1,007,268
5.7
7.1
5.8
$ 957,200
53,390
$ 1,010,590
$ 896,093
49,612
$ 945,705
$
(96,408)
(77,365)
(198,758)
$ (372,531)
$ 692,786
65.0%
$
(93,912)
(77,565)
(185,382)
$
(356,859)
$ 650,409
64.6%
2.7
(0.3)
7.2
4.4
6.5
$
(90,940)
(74,473)
(185,520)
$ (350,933)
$ 659,657
65.3%
$
(87,910)
(72,604)
(170,570)
$
(331,084)
$ 614,621
65.0%
6.8
7.6
6.9
3.4
2.6
8.8
6.0
7.3
(1)
Same property results exclude performance of acquisitions or dispositions completed during 2023 and 2022, or properties that are classified as held for
sale as at December 31, 2023. For the year ended December 31, 2023, NOI contributions from acquisitions or dispositions completed during 2023 and
2022, or properties that are classified as held for sale as at December 31, 2023, were $33,129 (for the year ended December 31, 2022 – $35,788).
(2)
Represents the year-over-year percentage change.
(3) Comprises ancillary income such as parking, laundry and antenna revenue.
(4) Comprises R&M, wages, insurance, advertising, legal costs and expected credit losses.
(5)
Total operating expenses, on a constant currency basis, increased by approximately 3.9% and 5.5%, respectively, for the total and same property portfolio
compared to the same periods last year.
Operating Revenues
For the three months ended December 31, 2023, same property operating revenues increased by $18.2 million, primarily
driven by increases in monthly rents on turnovers and renewals. Total operating revenues increased by $15.3 million
during the same period, due to $18.3 million of operational growth, primarily on the same property operating portfolio
and to a lesser extent on assets held for sale as at December 31, 2023 and a $3.7 million increase from acquisitions,
partially offset by $6.7 million lower revenues due to dispositions.
For the year ended December 31, 2023, same property operating revenues increased by $64.9 million, primarily driven
by increases in monthly rents on turnovers and renewals. Total operating revenues increased by $58.0 million during
the same period, due to $65.1 million of operational growth, primarily on the same property operating portfolio and to
a lesser extent on assets held for sale as at December 31, 2023 and a $16.8 million increase from acquisitions, partially
offset by $23.9 million lower revenues due to dispositions.
36
2023 Annual ReportManagement’s Discussion and Analysis
Operating Expenses
Realty Taxes
For the three months and year ended December 31, 2023, realty taxes for both the total and same property portfolios
increased compared to the same periods in the prior year, primarily due to increases in realty tax rates in Ontario.
Utilities
CAPREIT’s utility costs can be highly variable from year to year depending on energy consumption and rates.
The tables below provide CAPREIT’s utility costs by type for the three months and years ended December 31, 2023
and December 31, 2022.
($ Thousands)
Total Utilities
Same Property Utilities(1)
For the Three Months Ended December 31,
Electricity
Natural gas
Water
Total
$
2023
6,396
5,672
7,501
2022
%(2)
$
6,364
0.5
$
6,562
(13.6)
7,429
1.0
2023
6,207
5,495
7,382
2022
%(2)
$
5,813
6.8
6,129
(10.3)
7,217
2.3
$
19,569
$
20,355
(3.9)
$
19,084
$
19,159
(0.4)
(1)
Same property results exclude performance of acquisitions or dispositions completed during 2023 and 2022, or properties that are classified as held for
sale as at December 31, 2023. For the three months ended December 31, 2023, total utility costs from acquisitions or dispositions completed during 2023
and 2022, or properties that are classified as held for sale as at December 31, 2023, were $485 (for the three months ended December 31, 2022 – $1,196).
(2) Represents the year-over-year percentage change.
($ Thousands)
For the Year Ended December 31,
Electricity
Natural gas
Water
Total
2023
25,229
21,266
30,870
77,365
$
$
Total Utilities
$
2022
25,623
22,353
%(2)
(1.5)
(4.9)
29,589
4.3
$
77,565
(0.3)
Same Property Utilities(1)
2023
23,870
20,256
30,347
74,473
$
$
2022
%(2)
$
23,596
1.2
20,613
(1.7)
28,395
72,604
6.9
2.6
$
(1)
Same property results exclude performance of acquisitions or dispositions completed during 2023 and 2022, or properties that are classified as held for
sale as at December 31, 2023. For the year ended December 31, 2023, total utility costs from acquisitions or dispositions completed during 2023 and
2022, or properties that are classified as held for sale as at December 31, 2023, were $2,892 (for the year ended December 31, 2022 – $4,961).
(2) Represents the year-over-year percentage change.
37
Focused on QualityManagement’s Discussion and Analysis
As at December 31, 2023, Canadian tenants who pay their electricity charges directly, through sub-metering or direct
metering, represented 69% of the total 57,374 suites and sites in Canada. Additional suites and sites have sub-metering
or direct metering in place, for which the cost of electricity is currently borne by CAPREIT and will be assumed by new
tenants upon turnover. CAPREIT will continue to evaluate implementing sub-metering in the remaining suites and sites.
Sub-metering lowers utility consumption, resulting in a smaller environmental impact, lower operating expenses and
lower inflation exposure.
In an effort to protect against rising natural gas rates, CAPREIT has fixed the price of natural gas and transport for a portion
of its estimated requirements until 2025. The cost of natural gas rates is comprised of commodity, transport, delivery
and carbon taxes. For 2024, the commodity prices have been fixed on 66.9% of CAPREIT’s estimated requirements,
and transport costs have also been fixed on 62.4% of CAPREIT’s estimated requirements. Some volatility on the overall
natural gas costs is still expected on the remaining costs with unfixed prices.
For more information on CAPREIT’s energy management, and water and waste management efforts, see the Building
Operations section of the 2022 ESG Report.
As at December 31, 2023, Dutch tenants who pay their utility charges directly represented 100% of the total
6,886 suites in the Netherlands.
Other Operating Expenses
For the three months and year ended December 31, 2023, other operating expenses for the same property portfolio
increased compared to the same periods last year, primarily due to higher R&M costs and higher insurance costs.
The higher R&M costs in both periods are due to general inflationary pressures, as well as higher maintenance costs
that correspond with a reduction in suite and common area capital improvements, reflecting CAPREIT’s strategic
reallocation of capital in response to the tight rental market in Canada.
For the three months and year ended December 31, 2023, other operating expenses for the total portfolio increased
for the same reasons described above. Additionally, for the year ended December 31, 2023, other operating expenses
increased for the total portfolio due to certain required maintenance costs for the operation of CAPREIT’s septic
systems at primarily two MHC properties, one of which was disposed of on March 1, 2023 while the other was disposed
of on June 30, 2023.
38
2023 Annual ReportManagement’s Discussion and Analysis NOI by Region
The following tables summarize the total portfolio NOI and NOI margins by region for the three months and years
ended December 31, 2023 and December 31, 2022:
2023
2022
Increase
(Decrease)
NOI
Change
(%)
NOI
Margin
(%)
NOI
NOI %(1)
For the Three Months
Ended December 31,
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Area
Victoria and Other
British Columbia
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
MHC sites
MHC sites(2)
Total Canadian portfolio
Europe
The Netherlands(3)
Other Europe(4)
Total Europe portfolio
Total portfolio
NOI
NOI %(1)
58,686
8,646
33.2
4.9
5,562
3.1
72,894
41.2
18,454
10.4
6,821
3.9
25,275
14.3
NOI
Margin
(%)
63.4
60.0
68.4
63.3
58.5
60.3
59.0
14,995
8.5
71.3
7,703
4.4
22,698
12.9
71.1
71.2
9,671
5.5
60.1
4,409
2.5
1,819
1.0
6,228
3.5
55.6
57.7
56.2
1,000
0.6
61.0
423
0.2
138,189
78.2
9,957
148,146
5.6
83.8
26,243
14.9
2,322
28,565
1.3
16.2
176,711
100.0
49.0
63.0
60.4
62.8
78.8
80.1
78.9
64.9
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
56,102 34.1
5.1
8,341
5,925
3.6
70,368 42.8
19,396 11.8
6,495
3.9
25,891 15.7
64.5
62.1
65.5
64.3
58.4
60.6
58.9
4.6
3.7
(6.1)
3.6
(4.9)
5.0
(2.4)
12,580
7.6
69.3
19.2
7,393
4.5
19,973 12.1
72.3
70.4
4.2
13.6
8,455
5.1
58.1
14.4
3,939
2.4
1,117
0.7
5,056
3.1
51.9
45.5
50.4
11.9
62.8
23.2
1,074
0.7
49.8
(6.9)
388
0.2
131,205 79.7
50.5
62.7
8,986
5.5
140,191 85.2
56.5
62.3
22,218 13.5
2,091
1.3
24,309 14.8
164,500 100.0
76.0
82.5
76.5
64.0
9.0
5.3
10.8
5.7
18.1
11.0
17.5
7.4
(1)
(2)
(3)
(4)
Represents percentage of the portfolio by NOI.
Included in the three months ended December 31, 2023 is $(66) of required interim maintenance costs for the operation and remediation of CAPREIT’s
septic tanks (for the three months ended December 31, 2022 – $(815)). Excluding these interim maintenance costs, NOI margins at MHC sites for the
three months ended December 31, 2023 would have been 60.8% (December 31, 2022 – 61.7%).
In € thousands, NOI of €17,918 and NOI margin of 78.8% for the three months ended December 31, 2023 compared to NOI of €16,040 and NOI margin
of 76.0% for the three months ended December 31, 2022.
Comprised of NOI for the commercial properties located in Germany and Belgium. In € thousands, NOI of €1,587 and NOI margin of 80.2% for the three
months ended December 31, 2023 compared to NOI of €1,506 and NOI margin of 82.6% for the three months ended December 31, 2022.
39
Focused on QualityManagement’s Discussion and Analysis
For the Year Ended
December 31,
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Area
Victoria and Other
British Columbia
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
MHC Sites
MHC sites(2)
Total Canadian portfolio
Europe
The Netherlands(3)
Other Europe(4)
Total Europe portfolio
Total portfolio
2023
2022
NOI
NOI %(1)
232,556 33.6
34,577 5.0
22,217 3.2
289,350 41.8
75,626 10.9
26,588 3.8
102,214 14.7
NOI
Margin
(%)
64.1
61.5
69.2
64.2
59.1
60.7
59.5
55,909 8.1
70.7
30,114 4.3
86,023 12.4
71.3
70.9
37,386 5.4
60.4
17,426 2.5
6,666 1.0
24,092 3.5
55.2
56.8
55.6
3,982 0.6
51.5
1,626 0.2
544,673 78.6
38,465 5.6
583,138 84.2
100,335 14.5
9,313 1.3
109,648 15.8
692,786 100.0
50.0
63.3
58.8
63.0
78.3
81.5
78.5
65.0
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Increase
(Decrease)
NOI
Change
(%)
NOI
Margin
(%)
NOI
NOI %(1)
223,880 34.5
5.1
32,998
23,621
3.6
280,499 43.2
72,701 11.2
25,533
3.9
98,234 15.1
64.3
62.3
65.9
64.2
58.2
60.9
58.9
51,003
7.8
71.2
29,218
4.5
80,221 12.3
72.6
71.7
3.9
4.8
(5.9)
3.2
4.0
4.1
4.1
9.6
3.1
7.2
33,393
5.1
58.6
12.0
15,610
4,585
20,195
2.4
0.7
3.1
53.7
52.5
53.4
11.6
45.4
19.3
4,251
0.7
49.2
(6.3)
1,556
0.2
518,349 79.7
37,641
5.8
555,990 85.5
86,097 13.2
8,322
1.3
94,419 14.5
650,409 100.0
52.4
63.1
59.7
62.8
76.8
82.6
77.3
64.6
4.5
5.1
2.2
4.9
16.5
11.9
16.1
6.5
(1)
(2)
(3)
(4)
Represents percentage of the portfolio by NOI.
Included in the year ended December 31, 2023 is $(2,154) of required maintenance costs for the operation and remediation of CAPREIT’s septic tanks
at primarily two MHC properties, one of which was disposed of on March 1, 2023 while the other was disposed of on June 30, 2023 (for the year ended
December 31, 2022 – $(1,960)). Excluding these interim maintenance costs, NOI margins at MHC sites for the year ended December 31, 2023 would
have been 62.1% (December 31, 2022 – 62.9%).
In € thousands, NOI of €68,748 and NOI margin of 78.3% for the year ended December 31, 2023 compared to NOI of €62,905 and NOI margin of 76.8%
for the year ended December 31, 2022.
Comprised of NOI for the commercial properties located in Germany and Belgium. In € thousands, NOI of €6,383 and NOI margin of 81.5% for the year
ended December 31, 2023 compared to NOI of €6,075 and NOI margin of 82.6% for the year ended December 31, 2022.
40
2023 Annual ReportManagement’s Discussion and Analysis
Same Property NOI by Region
Same property NOI by region includes all properties held continuously since December 31, 2021, and therefore does
not take into account the impact on performance of acquisitions or dispositions completed during 2023 and 2022, or
properties that are disposed of or classified as held for sale as at December 31, 2023. Same property NOI is calculated
in accordance with the accounting policies used to prepare total NOI presented in the consolidated statements of
net income (loss) and comprehensive income (loss). The following tables summarize the same property NOI and NOI
margins by region for the three months and years ended December 31, 2023 and December 31, 2022:
For the Three Months
Ended December 31,
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Area
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
same property
MHC sites
MHC sites
Total Canadian same property
Europe
The Netherlands(1)
Other Europe(2)
Total Europe same property
Total same property(3)
Same property suites and sites
2023
2022
Same Property
NOI
NOI
Margin
(%)
Same Property
NOI
NOI
Margin
(%)
Increase
(Decrease)
NOI
Change
(%)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
58,673
8,646
4,375
71,694
15,604
6,373
21,977
13,809
7,120
20,929
9,475
4,138
1,338
5,476
973
423
130,947
9,739
140,686
24,890
2,322
27,212
167,898
61,820
63.4
60.0
67.4
63.2
57.4
60.6
58.3
70.6
71.0
70.7
60.1
55.4
57.7
56.0
60.5
49.0
62.7
60.3
62.5
78.9
80.1
79.0
64.7
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
56,096
8,341
4,251
68,688
14,934
5,980
20,914
12,580
6,896
19,476
64.5
62.1
68.7
64.5
57.9
60.8
58.7
69.3
72.1
70.3
8,455
58.1
3,337
1,006
4,343
50.3
48.0
49.8
858
54.2
388
123,122
9,220
132,342
21,195
2,091
23,286
155,628
61,820
50.5
63.0
60.4
62.8
76.2
82.5
76.7
64.5
4.6
3.7
2.9
4.4
4.5
6.6
5.1
9.8
3.2
7.5
12.1
24.0
33.0
26.1
13.4
9.0
6.4
5.6
6.3
17.4
11.0
16.9
7.9
(1)
(2)
(3)
In € thousands, NOI of €16,989 and NOI margin of 78.9% for the three months ended December 31, 2023 compared to NOI of €15,293 and NOI margin
of 76.2% for the three months ended December 31, 2022.
In € thousands, NOI of €1,587 and NOI margin of 80.2% for the three months ended December 31, 2023 compared to NOI of €1,506 and NOI margin of
82.6% for the three months ended December 31, 2022.
Same property results exclude performance of acquisitions or dispositions completed during 2023 and 2022, or properties that are classified as held for
sale as at December 31, 2023. For the three months ended December 31, 2023, NOI contributions from acquisitions or dispositions completed during 2023
and 2022, or properties that are classified as held for sale as at December 31, 2023, were $8,813 (for the three months ended December 31, 2022 – $8,872).
41
Focused on QualityManagement’s Discussion and Analysis
For the Year
Ended December 31,
($ Thousands)
Residential Suites
Ontario
Greater Toronto Area
London / Kitchener / Waterloo
Ottawa
Québec
Greater Montréal Region
Québec City
British Columbia
Greater Vancouver Area
Victoria
Nova Scotia
Halifax
Alberta
Calgary
Edmonton
Prince Edward Island
Charlottetown
Saskatchewan
Regina
Total Canadian residential suites
same property
MHC Sites
MHC sites
Total Canadian same property
Europe
The Netherlands(1)
Other Europe(2)
Total Europe same property
Total same property(3)
Same property suites and sites
2023
2022
Same Property
NOI
NOI
Margin
(%)
Same Property
NOI
NOI
Margin
(%)
Increase
(Decrease)
NOI
Change
(%)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
232,536
34,577
17,785
284,898
62,981
24,613
87,594
53,392
27,997
81,389
36,873
15,244
5,060
20,304
3,477
1,626
516,161
38,886
555,047
95,297
9,313
104,610
659,657
61,820
64.1
61.5
69.0
64.1
59.4
61.0
59.8
70.4
71.2
70.7
60.3
54.3
56.7
54.8
54.1
50.0
63.4
61.2
63.2
78.4
81.5
78.6
65.3
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
219,858
32,998
17,041
269,897
58,337
23,599
81,936
51,006
27,378
78,384
64.4
62.3
69.7
64.5
58.0
61.2
58.9
71.2
72.4
71.6
33,393
58.6
13,246
4,257
17,503
52.1
52.5
52.2
3,339
52.6
1,556
486,008
37,551
523,559
82,740
8,322
91,062
614,621
61,820
52.4
63.4
61.8
63.2
76.8
82.6
77.3
65.0
5.8
4.8
4.4
5.6
8.0
4.3
6.9
4.7
2.3
3.8
10.4
15.1
18.9
16.0
4.1
4.5
6.2
3.6
6.0
15.2
11.9
14.9
7.3
(1)
(2)
(3)
In € thousands, NOI of €65,297 and NOI margin of 78.4% for the year ended December 31, 2023 compared to NOI of €60,417 and NOI margin of 76.7%
for the year ended December 31, 2022.
In € thousands, NOI of €6,383 and NOI margin of 81.5% for the year ended December 31, 2023 compared to NOI of €6,075 and NOI margin of 82.6% for
the year ended December 31, 2022.
Same property results exclude performance of acquisitions or dispositions completed during 2023 and 2022, or properties that are classified as held for
sale as at December 31, 2023. For the year ended December 31, 2023, NOI contributions from acquisitions or dispositions completed during 2023 and
2022, or properties that are classified as held for sale as at December 31, 2023, were $33,129 (for the year ended December 31, 2022 – $35,788).
Same property NOI for the three months ended December 31, 2023 increased by 7.9% compared to the prior year
comparative period, with the Canadian residential suites and the European portfolio same property NOI increasing by
6.4% and 16.9%, respectively, compared to the same quarter last year.
Same Property NOI for the year ended December 31, 2023 increased by 7.3% compared to the prior year comparative
period, with the Canadian residential suites and the European portfolio same property NOI increasing year-over-year
by 6.2% and 14.9%, respectively.
The increases in those regions were mainly driven by increases in monthly rents on turnovers and renewals, partially
offset by higher operating expenses.
42
2023 Annual ReportManagement’s Discussion and Analysis
Net Income (Loss) and Other Comprehensive Income (Loss)
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
2023
2022
2023
2022
Operating revenues
Revenue from investment properties
Operating expenses
Realty taxes
Property operating costs
Total operating expenses
Net operating income
Other income
Trust expenses
Unit-based compensation amortization expense
Financing-related costs:
Interest expense on debt and other financing costs
Interest expense on Exchangeable LP Units
Net gain (loss) on derecognition of debt
Total financing-related costs, net
Fair value adjustments of investment properties
and assets held for sale
Fair value adjustments of financial instruments
Gain (loss) on non-controlling interest
Gain (loss) on foreign currency translation
Net loss on transactions and other activities
Net income (loss) before income taxes
Current income tax expense
Deferred income tax recovery
Total current income tax expense and deferred
income tax recovery, net
Net income (loss)
Other comprehensive income, including items
that may be reclassified subsequently to
net income (loss)
$
272,195
$
256,915
$ 1,065,317
$
1,007,268
(23,933)
(71,551)
(95,484)
176,711
1,148
(15,796)
(1,639)
(55,226)
(597)
(56)
(55,879)
(111,381)
(3,494)
8,959
2,345
(3,809)
(2,835)
(3,221)
15,268
12,047
9,212
$
(23,397)
(69,018)
(92,415)
164,500
1,362
(13,176)
(1,766)
(45,513)
(609)
–
(46,122)
74,461
(44,434)
(8,982)
723
(1,664)
124,902
(1,443)
32,064
(96,408)
(276,123)
(372,531)
692,786
13,644
(62,373)
(7,816)
(211,664)
(2,382)
3,251
(210,795)
(914,585)
(34,373)
45,209
4,161
(13,911)
(488,053)
(8,889)
85,368
30,621
76,479
$
155,523
$
(411,574)
$
(93,912)
(262,947)
(356,859)
650,409
16,521
(57,965)
(7,256)
(180,434)
(2,435)
1,766
(181,103)
(468,327)
(7,440)
104,822
(21,000)
(25,058)
3,603
(4,843)
14,877
10,034
13,637
Gain on foreign currency translation, net of taxes
$
21,265
$
110,690
$
12,569
$
8,536
Amortization of losses from accumulated other
comprehensive loss to interest and other
financing costs
Gain on investments held at fair value through
other comprehensive income
Reversal of cumulative loss on foreign currency
translation due to loss of significant influence
over IRES
Other comprehensive income
Comprehensive income (loss)
Other Income
273
501
–
22,039
31,251
$
$
67
–
–
341
421
–
$
$
110,757
266,280
$
$
13,331
(398,243)
$
$
1,361
–
7,627
17,524
31,161
Other income comprises investment income, interest income from VTB mortgages receivable, profit from sale of MHC
home inventory, net profit from investment in associate and other miscellaneous income. Other income also includes
asset and property management, and transition service fees earned from foreign investments. Other income earned
is not necessarily of a recurring nature and may vary year-over-year depending on factors such as dividends declared
on investment, sales volume of MHC home inventory and level of services provided to foreign investment.
43
Focused on QualityManagement’s Discussion and Analysis
The table below summarizes other income for the three months and years ended December 31, 2023 and
December 31, 2022:
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
Investment income(1)
Interest income from vendor takeback (“VTB”)
mortgages receivable
Profit from sale of MHC home inventory(2)
Interest and other income(3)
Asset and property management fees, and
transition service fees(4)
Net profit from investment in associate(5)
Total
$
$
2023
235
464
174
275
–
–
$
2022
542
272
199
349
–
–
$
2023
8,862
1,278
1,036
2,468
–
–
2022
9,112
1,971
1,531
1,008
2,252
647
$
1,148
$
1,362
$
13,644
$
16,521
(1)
For the three months and year ended December 31, 2023, investment income includes $nil and $7,628, respectively, of semi-annual dividends from Irish
Residential Properties REIT plc (“IRES”) (for the three months and year ended December 31, 2022 – $nil and $7,297). Prior to January 31, 2022, dividends
from IRES were deducted from the carrying value of the investment in associate instead of being included in investment income.
(2) For the three months and year ended December 31, 2023, profit from sale of MHC home inventory consists of income from sale of MHC home inventory
of $1,015 and $4,820, respectively (three months and year ended December 31, 2022 – $1,325 and $5,127), offset by cost of sales of $(841) and $(3,784),
respectively, for the three months and year ended December 31, 2023 (three months and year ended December 31, 2022 – $(1,126) and $(3,596)).
(3)
(4)
(5)
For the three months and year ended December 31, 2023, interest and other income include $nil and $1,500, respectively, of non-refundable deposits
that were recorded in net income (loss) on a property disposition that did not close.
For the three months and year ended December 31, 2022, the amount included transition service fees totalling $nil and $1,407, respectively, based on the
Investment Management Agreement with IRES, which terminated on January 31, 2022.
Net profit from investment in associate represented CAPREIT’s share of IRES’s earnings, investment property fair value change and foreign exchange
effects thereon during the period when CAPREIT exercised significant influence over IRES. Subsequent to January 31, 2022, CAPREIT no longer
exercises significant influence over IRES and, as a result, its investment in IRES no longer qualifies as an investment in associate.
Trust Expenses
Trust expenses include costs directly attributable to head office, such as salaries and benefits, trustee fees, professional
fees for audit, tax, legal and advisory services, trustees’ and officers’ insurance premiums, providing property and
asset management services, and other general and administrative expenses, net of amounts allocated to property
operating expenses for properties owned by CAPREIT. Trust expenses include costs related to the generation of asset
management and services fees to ERES (a related party to CAPREIT). In 2022, trust expenses also included costs
related to the generation of asset and property management and transition service fees to IRES (a related party to
CAPREIT up to January 31, 2022, with transition services period ended April 28, 2022).
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
Trust Expenses(1)
Operating Revenues
Trust Expenses as % of Operating Revenues(2)
2023
(15,796)
272,195
$
$
2022
(13,176)
256,915
2023
$
(62,373)
$ 1,065,317
$
$
5.8%
5.1%
5.9%
2022
(57,965)
1,007,268
5.8%
(1)
Includes $(4,900) and $(10,995), respectively, for the three months and year ended December 31, 2023, relating to reorganization costs (three months
and year ended December 31, 2022 – $(418) and $(5,692), respectively).
(2) Trust expenses as a percentage of operating revenues is calculated using trust expenses divided by operating revenues.
Trust expenses increased to $15.8 million and $62.4 million, respectively, for the three months and year ended
December 31, 2023, compared to $13.2 million and $58.0 million, respectively, for the three months and year ended
December 31, 2022. The increases were primarily as a result of higher salaries and benefits, partially offset by lower
legal, audit and compliance fees. For the three months and year ended December 31, 2023, salaries and benefits
included non-routine reorganization costs of $4.9 million and $11.0 million, respectively, reflecting an internal optimization
of the organizational structure to align with CAPREIT’s current business strategy and operating environment. For the
three months and year ended December 31, 2022, trust expenses included non-routine items of $0.7 million and
$6.3 million, respectively, related to reorganization costs and costs related to transactions that were not completed.
Excluding non-routine items, trust expenses as percentage of operating revenue were 4.0% and 4.8%, respectively,
for the three months and year ended December 31, 2023 (three months and year ended December 31, 2022 – 4.9%
and 5.1%, respectively).
44
2023 Annual ReportManagement’s Discussion and Analysis
Unit-based Compensation Amortization Expense
Units are issuable pursuant to CAPREIT’s unit-based compensation plans, namely the Employee Unit Purchase Plan
(“EUPP”), the Deferred Unit Plan (“DUP”) and the Restricted Unit Rights Plan (“RUR Plan”). ERES units are issuable
pursuant to ERES’s unit options plan (“ERES UOP”) and ERES’s Restricted Unit Rights Plan (“ERES RUR Plan”). As at
December 31, 2023 and December 31, 2022, the number of outstanding ERES RUR units was nil.
The table below summarizes the unit-based amortization expense for each plan for the three months and years ended
December 31, 2023 and December 31, 2022:
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
DUP
RUR Plan(1)
EUPP
ERES UOP(2)
Unit-based compensation amortization expense
$
$
2023
(292)
(1,197)
(126)
(24)
2022
(278)
(1,217)
(119)
(152)
$
$
2023
(1,174)
(5,964)
(551)
(127)
2022
(1,121)
(5,361)
(514)
(260)
$
(1,639)
$
(1,766)
$
(7,816)
$
(7,256)
(1)
Includes $nil and $(679) for the three months and year ended December 31, 2023, relating to accelerated vesting of previously granted RUR units
(three months and year ended December 31, 2022 – $nil and $(976), respectively).
(2) Includes $nil and $(86), respectively, for the three months and year ended December 31, 2023, relating to accelerated vesting of previously granted
ERES UOP units (three months and year ended December 31, 2022 – $nil).
Financing-related Costs
Interest expense on debt and other financing costs for the three months and year ended December 31, 2023 increased
by $9.7 million and $31.2 million, respectively, compared to the three months and year ended December 31, 2022,
primarily due to higher average debt balances and higher interest rates on variable rate credit facilities and on mortgage
financing and refinancing activities.
Interest expense on debt and other financing costs include amortization of CMHC premiums. Amortization of CMHC
premiums may be subject to a certain degree of fluctuation from period to period as a result of CMHC premium
write-offs which occur upon the refinancing of a mortgage, as well as accelerated CMHC amortization expense for
mortgages that management intends to fully refinance or discharge within the year, excluding property dispositions.
These write-offs and accelerated CMHC amortization expense may fluctuate depending on the timing and amount of
mortgages coming due. For further details, please refer to Liquidity and Financial Condition in Section V.
Interest expense on Exchangeable LP Units represents distributions paid and payable on Exchangeable LP Units
outstanding. For the three months and year ended December 31, 2023, interest expense on Exchangeable LP Units
decreased marginally compared to the same periods last year due to the conversion of 32,004 Exchangeable LP Units
into Trust Units during the first quarter of 2023.
For the three months ended December 31, 2023, net loss on derecognition of debt related to mortgage settlement
costs attributed to dispositions totalled $0.1 million. For the year ended December 31, 2023, net gain on derecognition
of debt totalled $3.3 million and comprises $4.9 million of fair value gain on mortgages assumed by purchaser upon
dispositions of CAPREIT’s share of the three remaining properties under joint arrangement in Ottawa, Ontario and one
property in Québec, partially offset by $1.6 million of mortgage settlement costs related to dispositions.
Fair Value Adjustments of Investment Properties and Assets Held for Sale
For the three months ended December 31, 2023, CAPREIT recorded a fair value loss on investment properties and
assets held for sale of $111.4 million, primarily driven by the Canadian portfolio, with a $59.7 million fair value loss
recorded during the quarter due to weighted average cap rate expansion, partially offset by higher future expected
NOI. The Netherlands portfolio had a fair value loss of $51.6 million for the three months ended December 31, 2023,
primarily driven by weighted average cap rate expansion.
45
Focused on QualityManagement’s Discussion and Analysis
For the year ended December 31, 2023, CAPREIT recorded a fair value loss on investment properties and assets held
for sale of $914.6 million, primarily driven by the Canadian portfolio, with a $579.0 million fair value loss recorded during
the period due to weighted average cap rate expansion, mainly driven by the Greater Toronto Area, partially offset
by higher future expected NOI. The Netherlands portfolio had a fair value loss of $335.6 million for the year ended
December 31, 2023, primarily driven by weighted average cap rate expansion.
Fair Value Adjustments of Financial Instruments
Fair value adjustments of financial instruments comprise fair value adjustments of Exchangeable LP Units, investments,
derivative financial instruments and unit-based compensation.
Fair value adjustments of Exchangeable LP Units and unit-based compensation may vary significantly year-over-year
depending on the unit price of CAPREIT. Fair value adjustments of investments may vary significantly year-over-year
depending on the unit price of the respective investments. Fair value adjustments of derivative financial instruments
may vary significantly year-over-year depending on foreign exchange rates and the yield curve.
The table below summarizes the fair value adjustments of financial instruments for the three months and years ended
December 31, 2023 and December 31, 2022:
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
Fair value adjustments of Exchangeable LP units
Fair value adjustments of investments
Fair value adjustments of derivative
financial instruments
Unit-based compensation remeasurement gain (loss)
Fair value adjustments of financial instruments
Gain (Loss) on Non-Controlling Interest
2023
(6,126)
26,119
(22,090)
(1,397)
(3,494)
$
$
$
2022
(975)
(3,261)
(40,214)
16
2023
$
(10,293)
$
1,130
(24,767)
(443)
$
(44,434)
$
(34,373)
$
2022
29,016
(101,261)
54,135
10,670
(7,440)
For the three months and year ended December 31, 2023, CAPREIT recorded a gain of $9.0 million and gain of
$45.2 million, respectively on ERES units held by non-controlling unitholders. This includes interest expense to
ERES non-controlling unitholders of $3.6 million and $14.1 million, respectively, for the three months and year ended
December 31, 2023. The remaining change relates to the mark-to-market gain of $12.5 million and gain of $59.3 million,
respectively, due to fluctuations in ERES’s unit redemption price as defined in the ERES DOT for the three months and
year ended December 31, 2023.
Gain (Loss) on Foreign Currency Translation
CAPREIT’s functional currency is the Canadian dollar and the functional currency of certain foreign subsidiaries
is the euro. CAPREIT is exposed to gains or losses on foreign currency translations due to the execution of its
foreign currency and interest rate risk management strategies. CAPREIT has foreign currency cash, borrowings and
cross-currency interest rate swap arrangements denominated in either US dollars or euros. Similarly, ERES has foreign
currency cash, borrowings and cross-currency interest rate swap arrangements, as well as certain other transactions,
denominated in either US dollars or Canadian dollars. The gains or losses on foreign currency translations may vary
significantly year-over-year depending on the value of the Canadian dollar relative to the US dollar and euro.
For the three months and year ended December 31, 2023, CAPREIT recorded a gain on foreign currency translation
of $2.3 million and $4.2 million, respectively, primarily due to CAPREIT’s US dollar borrowings and movements in the
US dollar relative to the Canadian dollar during the periods (for more information, see Section VI – Other Information).
For the three months and year ended December 31, 2022, CAPREIT recorded a gain on foreign currency translation
of $0.7 million and a loss of $21.0 million, respectively, primarily due to $7.6 million of foreign currency loss reclassified
from accumulated other comprehensive loss due to the loss of significant influence over IRES on January 31, 2022.
46
2023 Annual ReportManagement’s Discussion and Analysis
Net Loss on Transactions and Other Activities
The table below summarizes the loss on transactions and other activities for the three months and years ended
December 31, 2023 and December 31, 2022:
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
2023
$
(2,780)
$
Gain (loss) on dispositions
Amortization of property, plant and equipment
(“PP&E”) and right-of-use asset
Goodwill impairment loss
Fair value gain on transfer of other assets
to investment properties
Other(1)
Total
(1) Relates to costs associated with the strategic review of ERES.
(1,507)
–
1,934
(1,456)
(3,809)
$
2022
85
(1,749)
–
–
–
2023
$
(5,330)
$
(6,206)
–
1,934
(4,309)
2022
(3,318)
(7,462)
(14,278)
–
–
$
(1,664)
$
(13,911)
$
(25,058)
Current Income Tax Expense and Deferred Income Tax Recovery
Current income tax expense is primarily attributed to CAPREIT’s European portfolio where CAPREIT operates through
foreign legal entities that may be taxable in local jurisdictions. Current income tax expense for the three months and
year ended December 31, 2023 increased by $4.7 million and $4.0 million, respectively, primarily driven by growth
in NOI from CAPREIT’s European portfolio, sale of individual suites in the Netherlands, increase in tax rates in the
Netherlands, as well as exhaustion of tax losses and tax depreciation.
Deferred income tax recovery is primarily attributed to CAPREIT’s European portfolio and will vary significantly year-over
year depending on the fair value of the European investment properties relative to the respective tax cost base. For the
three months and year ended December 31, 2023, deferred income tax recovery was $15.3 million and $85.4 million,
respectively, mainly due to the net fair value losses recorded on CAPREIT’s European investment properties in both
periods. For the three months and year ended December 31, 2022, deferred income tax recovery was $32.1 million
and $14.9 million, respectively, mainly due to the net fair value losses recorded on CAPREIT’s European investment
properties in both periods.
Other Comprehensive Income
Other comprehensive income comprises unrealized gain on foreign currency translation on CAPREIT’s foreign
subsidiaries, amortization of losses to interest expense and other financing costs, and gain on certain investments.
The gains or losses on foreign currency translations may vary significantly year-over-year depending on the value of
the Canadian dollar relative to the euro and the US dollar.
For the year ended December 31, 2022, $7.6 million of the cumulative loss on foreign currency translation was reversed
into the consolidated statements of income and comprehensive income, due to the loss of significant influence over
IRES on January 31, 2022.
47
Focused on QualityManagement’s Discussion and Analysis
SECTION IV: INVESTMENT PROPERTIES
Investment Properties
Investment property is defined as property held to earn rental income or for capital appreciation, or both. Investment
property is recognized initially at cost. Subsequent to initial recognition, all investment property is measured using the
fair value model, whereby changes in fair value are recognized for each reporting period in net income.
CAPREIT appraises some of its Canadian investment properties using valuations prepared by its internal valuation team
using generally the same process and methodology as its external appraiser. CAPREIT’s objective is to have a portion
of its Canadian investment properties appraised externally every year, on a rotational basis. The partial internalization of
valuations for the Canadian portfolio builds synergies within the various CAPREIT sub-functions including Investments
and Development functions.
External valuations for the Canadian portfolio, where obtained, are performed at year-end with quarterly updates
provided on capitalization rates. Capitalization rates used by the appraisers are based on recently closed transactions
for similar properties and other current market indicators for similar properties. CAPREIT obtains external valuations for
a cross-section of investment properties that represent different geographical locations across the Canadian portfolio.
For internal valuations, the appraisal methodologies used are consistent with the practices employed by the external
appraiser. The fair values of all of CAPREIT’s European residential portfolio are determined by qualified external
appraisers on a quarterly basis. The qualified external appraisers hold recognized relevant professional qualifications
and have recent experience in the location and category of the respective properties.
A summary of the fair values of CAPREIT’s investment properties and changes, along with key market assumptions, is
presented in the following table. For the year ended December 31, 2023, there was a $622 million decrease in overall
carrying value primarily due to fair value losses and transfers to assets held for sale, partially offset by net acquisitions,
property capital investments and foreign currency translation.
Investment Properties by Geography
Dec. 31,
2022
Carrying Value Change Due To
Dec. 31,
2023
Dec. 31,
2023
Dec. 31,
2022
($ Millions)
Fair Value
Net
Acquisitions(1)
Property
Capital
Invest ments(2)
Fair Value
Adjustments
Foreign
Exchange
Translation
and Other
Greater Toronto Area
$ 6,417
$
–
$ 110 $
(640)
$
Other Ontario
Québec
British Columbia
Nova Scotia
Alberta
Prince Edward Island
Saskatchewan
Subtotal
MHC
Europe
Total
1,325
2,610
1,948
801
461
98
31
57
(180)
196
21
26
(10)
–
25
43
22
21
10
5
1
(29)
(19)
105
40
6
(3)
1
$ 13,691
$
110
$ 237 $
(539)
$
713
2,750
(9)
(7)
19
29
(38)
(336)
$ 17,154
$
94
$ 285 $
(913)
$
–
–
–
–
–
–
–
–
–
–
23
23
Net
Transfers(3)
Fair Value
Cap Rates(4) Cap Rates(4)
$
–
–
(46)
(12)
–
(54)
(15)
–
$
(127)
16
–
$
(111)
$ 5,887 4.09% 3.49%
1,378 4.43% 4.11%
2,408 4.40% 4.12%
2,259 4.08% 3.96%
883 4.68% 4.50%
449 5.03% 4.63%
75 5.42% 5.39%
33 5.78% 5.23%
$ 13,372 4.26% 3.86%
701 6.05% 5.93%
2,459 4.62% 3.88%
$ 16,532 4.37% 3.93%
(1)
(2)
(3)
(4)
Includes $299.4 million of acquisitions, offset by $205.6 million of dispositions during the year ended December 31, 2023. Excludes the disposition
of investment properties that were previously classified as assets held for sale. Refer to the Acquisitions and Dispositions section below for
further information.
Represents property capital investments and capitalized direct leasing costs during the year ended December 31, 2023.
Includes $127.2 million transferred to assets held for sale and $16.5 million transferred from other assets during the year ended December 31, 2023.
Weighted average capitalization rates excluding implied capitalization rates on operating and land leasehold interests. See note 4 to the accompanying
consolidated annual financial statements for further valuation assumption details, including discount rates as at December 31, 2023 for operating and
land leasehold interests. Capitalization rates for Europe represent the implied capitalization rates for these properties.
48
2023 Annual ReportManagement’s Discussion and Analysis
Current regulatory and macroeconomic developments, including the interest rate and inflationary environment, have
impacted overall market activity, resulting in limited reliable market metrics, such as capitalization rates. As such, the
fair values of CAPREIT’s investment properties are subject to significant change, and such changes may be material.
Management is applying, to the greatest extent practicable, prudence and sound judgment in its basis for fair valuing
its investment properties in the current unpredictable environment.
Acquisitions of Investment Properties
The table below summarizes the investment property acquisitions during the year ended December 31, 2023, which
have contributed to the operating results as from their respective acquisition dates.
Acquisitions of Investment Properties Completed During the Year Ended December 31, 2023
($ Thousands)
Acquisition Date
February 27, 2023
April 12, 2023
May 16, 2023
June 1, 2023
June 22, 2023
November 27, 2023
December 19, 2023
Total
2022 Acquisition Financing(6)
Suite
or Site
Count
Region
143 Ottawa, ON
89
Edmonton, AB
Langley, BC
93
52 Dartmouth, NS
Langley, BC
92
Esquimalt, BC
48
114 Vancouver, BC
631
Total
Acquisition
Costs
$ 56,627(3)
25,780(4)
53,910(5)
20,821(5)
51,115(5)
22,616(5)
68,579(5)
Assumed
Mortgages
Payable
Subsequent
Acquisition
Financing
Stated
Interest Rate
(%)(1)
Term to
Maturity
(Years)(2)
$
39,064 $
18,763
–
–
–
–
–
–
–
31,353
12,280
38,394
–
–
3.25
2.59
4.94
4.94
4.81
–
–
9.50
8.58
10.00
10.00
10.00
–
–
$ 299,448
$
57,827 $
82,027
$
28,119
4.39
5.56
(1)
(2)
(3)
(4)
(5)
(6)
Weighted average stated interest rate on assumed mortgage funding and subsequent acquisition financing as applicable.
Weighted average term to maturity on assumed mortgage funding and subsequent acquisition financing as applicable.
The acquisition was funded from cash and cash equivalents, the assumption of an existing mortgage and a VTB mortgage payable. Repayment of the
five-year VTB mortgage payable may be waived, subject to certain conditions. The VTB mortgage payable carries an interest rate of 4.125% per annum.
The acquisition was funded from cash and cash equivalents or from the Acquisition and Operating Facility, and the assumption of an existing mortgage.
The acquisition was funded from cash and cash equivalents or from the Acquisition and Operating Facility.
Acquisition financing of $28,119 during the year end December 31, 2023 relates to properties acquired in 2022 and includes $15,641 of acquisition
financing relating to an ERES property acquired in 2022.
There were no acquisitions completed in the Netherlands during the year ended December 31, 2023.
49
Focused on QualityManagement’s Discussion and Analysis
Dispositions of Investment Properties and Assets Held for Sale
The table below summarizes the dispositions of investment properties and assets held for sale completed during the
year ended December 31, 2023.
Dispositions of Investment Properties and Assets Held for Sale Completed During the Year Ended
December 31, 2023
($ Thousands)
Disposition Date
January 25, 2023(2)
March 1, 2023(3)
March 6, 2023(4)
April 6, 2023(5)
May 11, 2023
May 16, 2023
June 5, 2023
June 8, 2023
June 30, 2023(3)
July 17, 2023(5)
August 15, 2023
August 15, 2023
August 21, 2023
August 22, 2023
August 28, 2023(5)
August 30, 2023
September 29, 2023(5)
November 8, 2023
November 9, 2023
November 30, 2023
November 2023(6)
December 2023(6)
Total
Suite
or Site
Count
Region
1,150 Ottawa, ON
46 Wingham, ON
– Montréal, QC
1
180
The Netherlands
Longueuil, QC
60 Charlottetown, PEI
Longueuil, QC
162
393 Montréal, QC
217 Windsor, ON
1
The Netherlands
111 Charlottetown, PEI
73 Montréal, QC
12 Charlottetown, PEI
180 Montréal, QC
The Netherlands
1
9 Charlottetown, PEI
1
The Netherlands
263 Calgary, AB
78 Québec City, QC
21 Charlottetown, PEI
2
8
The Netherlands
The Netherlands
Fair Value of
Investment
Properties
and Assets
Held for Sale
Fair Value
Adjustments on
Mortgages
Assumed by
Purchasers
Fair Value of
Mortgages
Assumed by
Purchasers(1)
Sale Price
$ 136,250
$ 132,342
$
3,908 $
34,798
250
17,250
588
27,787
9,400
25,000
68,900
8,250
564
11,963
12,600
1,300
32,500
529
950
393
53,880
8,640
1,650
1,047
4,382
250
17,250
588
27,787
9,400
24,048
68,900
8,250
564
11,963
12,600
1,300
32,500
529
950
393
53,880
8,640
1,650
1,047
4,382
–
–
–
–
–
952
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,490
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,969
$ 424,073
$ 419,213
$
4,860 $
40,288
(1)
(2)
(3)
Relates to mortgages payable with a total principal amount of $45,148 assumed by the purchasers upon dispositions. The amount shown is net of
$4,860 fair value adjustment on mortgages assumed by the purchasers. The weighted average stated interest rate on mortgages assumed by the
purchasers was 2.28%.
CAPREIT disposed of its 50% interest in 1,150 apartment suites. These properties under joint arrangement were classified as assets held for sale as at
December 31, 2022.
These two MHC properties were the primary drivers of the required interim maintenance costs for the operation and remediation of septic tanks. Refer to
NOI by Region in Section III for further information.
(4) Represents disposition of parking lot site adjacent to an existing multi-residential building owned by CAPREIT.
(5)
(6)
Represents disposition of a single residential suite.
Represents disposition of multiple single residential suites in several properties.
50
2023 Annual ReportManagement’s Discussion and Analysis
Property Capital Investments
Discretionary and Non-Discretionary Property Capital Investments
Management does not differentiate between maintenance and value-enhancing property capital investments.
Maintenance property capital investments are generally not clearly identifiable, nor do they have a common definition,
and would require significant judgment to classify property capital investments as maintenance or value-enhancing
capital investments. In addition, there is no generally accepted definition of maintenance capital investments in the
Canadian real estate industry. Management has decided to classify property capital investments into two categories:
discretionary and non-discretionary. Management is of the view that this classification, while still requiring a degree of
professional judgment, provides a better measure of economic cash flows.
Non-Discretionary Property Capital Investments are those investments management believes are essential for the safety
of residents and to ensure the structural integrity of the properties. These investments may enhance the property’s
operating effectiveness, including its profitability, through increases in revenues or reductions in costs over the long
term. Included in non-discretionary capital expenditures are items such as building improvements, including items such
as roof, structural, balcony, sidewalks, windows, brick, electrical, MHC infrastructure investments, and life and safety.
Management uses its professional judgment to include other capital expenditure categories that could impact the
safety of residents. These Non-Discretionary Property Capital Investments are in addition to regular R&M costs, which
have been in the range of $900 to $1,400 per suite and site annually over the past five years and are expensed to
NOI. The recent increase in regular R&M costs per residential suite is due to general inflationary pressures, as well as
higher maintenance costs that correspond with a reduction in suite and common area capital improvements, reflecting
CAPREIT’s strategic reallocation of capital in response to the tight rental market in Canada.
Discretionary Property Capital Investments are capital expenditures made to the property that are not essential to the
operation of the business in the short term. These investments may enhance the property’s operating effectiveness,
including its profitability, through increases in revenues or reductions in costs over the long term. Included in discretionary
capital expenditures are items such as suite and common area improvements, energy-saving and water efficiency
initiatives, equipment, boilers, elevators and risers.
Property Capital Investments by Category
CAPREIT capitalizes all capital investments related to the improvement of its properties. These investments
have the objective of growing future NOI, increasing property value over the long term, ensuring life safety and
safeguarding of assets.
An important component of CAPREIT’s property capital investment strategy is to make accretive acquisitions
of value-add properties and improve their operating performance by investing annually while maintaining a
focus on capital preservation. This ensures sustainable growth to continually improve the portfolio’s future rental
income-generating potential.
Energy-saving and water efficiency initiatives and suite and common area improvement costs generally tend to increase
NOI more quickly compared to other capital investment categories. A breakdown of property capital investments
(excluding development costs) is summarized by category on the next page for the years ended December 31, 2023
and December 31, 2022.
51
Focused on QualityManagement’s Discussion and Analysis Year Ended December 31, 2023
($ Thousands)
Non-discretionary property capital investments:
Building improvements
MHC infrastructural
Life and safety
Discretionary property capital investments:
Suite improvements
Common area
Energy-saving and water efficiency initiatives
Equipment
Elevators and risers
MHC improvements
Other
Total
Year Ended December 31, 2022
($ Thousands)
Canadian
Portfolio
Actual
The Netherlands
Portfolio
Actual
Total Portfolio
Total Actual
% of Actual
$
53,921
$
2,527
$
56,448
$
$
6,453
2,369
62,743
80,580
47,607
30,685
12,687
8,824
3,526
1,116
$
$
–
574
3,101
18,835
2,077
3,440
94
1,077
–
85
$
$
6,453
2,943
65,844
99,415
49,684
34,125
12,781
9,901
3,526
1,201
$
$
185,025
247,768
$
$
25,608
28,709
$
$
210,633
276,477
20.4
2.3
1.1
23.8
36.0
18.0
12.3
4.6
3.6
1.3
0.4
76.2
100.0
Canadian
Portfolio
Actual
The Netherlands
Portfolio
Actual
Total Portfolio
Total Actual
% of Actual
Non-discretionary property capital investments:
Building improvements
$
62,136
MHC infrastructural
Life and safety
Discretionary property capital investments:
Suite improvements
Common area
Energy-saving and water efficiency initiatives
Equipment
Elevators and risers
MHC improvements
Other
Total
$
$
6,291
2,128
70,555
97,963
60,819
20,738
15,521
6,587
1,633
1,320
$
$
$
2,964
$
65,100
–
1,259
4,223
20,547
2,697
3,217
506
1,608
–
8
$
$
6,291
3,387
74,778
118,510
63,516
23,955
16,027
8,195
1,633
1,328
$
$
204,581
275,136
$
$
28,583
32,806
$
$
233,164
307,942
21.1
2.0
1.1
24.2
38.6
20.6
7.8
5.2
2.7
0.5
0.4
75.8
100.0
During the year ended December 31, 2023, CAPREIT invested $65.8 million of non-discretionary property capital
investments compared to a non-discretionary budget of $80.1 million. Lower actual non-discretionary property capital
investments in 2023 were primarily due to 2023 dispositions and projects delayed to 2024.
Discretionary spending on a year-over-year basis decreased by $22.5 million, primarily due to shift in overall strategy
by reducing the scope of spending on suite and common area improvements, partially offset by higher spending on
energy-savings and water efficiency initiatives. The decline year-over-year was also attributed to dispositions in 2023.
Actual costs incurred may vary from period to period depending on the nature and timing of capital expenditures.
Discretionary property capital investments are not essential to the operation of the business in the short term.
In addition, projects are impacted by variable costs, supply chain issues and inflationary pressures, which affect financial
viability and total return. Accordingly, CAPREIT is not providing budgeted property capital investments and future
investments in building improvements due to the variable nature of costs depending on internal and external factors.
52
2023 Annual ReportManagement’s Discussion and Analysis
Development
Development Program
The development program remains a component of CAPREIT’s strategy by unlocking value embedded within the
portfolio’s existing assets, while contributing to increasing the supply of new homes in Canada. CAPREIT’s strategy
to unlock embedded value encompasses a combination of different approaches, including: (i) entitlement and/or
rezoning of greenfield land or underutilized land, to be subsequently severed and sold to a developer; (ii) disposition of
properties with significant development value to developers at premium pricing; and (iii) development/redevelopment
of a property, under a structure that is compatible with CAPREIT’s strategic objectives.
Over the long term, CAPREIT’s portfolio has intensification and redevelopment potential, subject to market conditions,
cost of construction and other factors. CAPREIT regularly re-evaluates its assets for highest and best use where the
value may be realized through rental or condominium development or sale of a property.
Entitlement/Rezoning Programs
Entitlement applications are submitted based on gross floor area (“GFA”). As at December 31, 2023, CAPREIT has
submitted approximately 2.7 million of incremental GFA, and 0.2 million of rental replacement GFA under the current
strategy. Of particular note, CAPREIT has partnered with development managers in undertaking the entitlement and
severance or subdivision process to develop its underutilized land in certain high-growth and major transit station
areas located in the Greater Toronto Area. Planning applications have been submitted for the proposed new residential
buildings, which, subject to municipal approval, will help to address the increased demand for high-rise residential
intensification in these neighbourhoods.
The table below summarizes the current entitlement applications submitted as at December 31, 2023.
(Thousands of GFA)
Applications
33 Davisville
141 Davisville
5 & 15 Tangreen(1)
Total Submitted Applications
Total Dispositions
Location
Toronto, ON
Toronto, ON
Toronto, ON
Submitted Entitlement Applications
Incremental
Rental
Replacement
328
261
2,072
2,661
(280)
–
–
202
202
–
Current Application Status
Approved by Council(2)
Approved by Council(2)
Under Municipal Review
Total
328
261
2,274
2,863
(280)
(1)
Application includes 202 square feet of estimated rental replacement GFA relating to the existing 5 Tangreen building, to be demolished and replaced
as contemplated in the submitted application.
(2) Council decision will be considered final and binding following an appeal period (anticipated in the first half of 2024).
33 Davisville
This is a proposed development of a 41-storey infill residential building and public park amenity space, located
within 200 metres of Davisville Subway Station in Toronto. The submitted Official Plan Amendment (“OPA”) and
Zoning By-law Amendment (“ZBA”) were unanimously approved at Community Council and City Council in the first
quarter of 2024.
141 Davisville
This is a proposed development of a 33-storey infill residential building, located within 500 metres of Davisville Subway
Station in Toronto. The submitted ZBA was unanimously approved at Community Council and City Council in the first
quarter of 2024.
5 & 15 Tangreen
This is a proposed multi-phase development of mixed-use buildings, with heights ranging from 25 to 55 storeys. The
development site is located in close proximity to the future extension of the Yonge Street North subway line in Toronto.
The proposed plan represents a complete community of more than 3,000 residential units, along with a new park, retail
space and public roads. The land entitlement process is ongoing, with approval anticipated in 2025-2026.
53
Focused on QualityManagement’s Discussion and Analysis
Disposition of Underutilized Land
On March 6, 2023, CAPREIT disposed of a parking lot site located in Montréal, Québec for $17.3 million (excluding
disposition costs) to a developer. The underutilized land is located adjacent to an existing multi-residential building
owned by CAPREIT. The site plan was approved by local planning authorities, the land was severed and building permits
were issued following CAPREIT’s undertaking of the end-to-end entitlement process, which provided for approximately
0.3 million square feet of buildable GFA.
SECTION V: CAPITAL STRUCTURE AND FINANCIAL CONDITION
Capital Structure
In the short term, CAPREIT utilizes the Credit Facilities, where necessary, to finance its property capital investments,
which may include acquisitions. In the long term, equity issuances, mortgage financings and refinancings, including
top-ups, are put in place to finance the cumulative investments in the property portfolio and ensure the sources
of financing better reflect the long-term useful lives of the underlying investments.
As at December 31, 2023, CAPREIT is in compliance with all the investment and debt restrictions and financial covenants
contained in the DOT, Credit Facilities and mortgage financing agreements. The total capital managed by CAPREIT and
the results of compliance with some of the key covenants and liquidity metrics are summarized in the following table:
($ Thousands)
As at
Unitholders’ equity
Exchangeable LP Units
Mortgages payable – non-current
Mortgages payable – current
Liabilities related to assets held for sale
Credit facilities payable
Total capital
As at
Total debt to gross book value(1)(2)
Mortgage debt to gross book value(1)(2)
December 31, 2023
December 31, 2022
$ 9,278,595
$ 10,003,695
80,383
6,002,617
651,371
23,706
405,133
71,668
5,963,820
613,277
38,116
388,975
$ 16,441,805
$ 17,079,551
Threshold
December 31, 2023
December 31, 2022
Maximum 62.50%
41.6%
39.2%
39.4%
37.2%
(1)
These measures are not defined by IFRS, do not have standard meanings and may not be comparable with other industries or companies
(see Section I – Non-IFRS Measures). For a reconciliation to IFRS, see Section VI – Non-IFRS Measures.
(2)
Includes liabilities related to assets held for sale, as applicable.
For the 12 Months Ended
Debt service coverage ratio (times)(1)(2)
Interest coverage ratio (times)(1)(2)
FFO payout ratio (formerly known as “NFFO payout ratio”)(1)(2)
Minimum 1.40
Minimum 1.65
Maximum 100%
December 31, 2023
December 31, 2022
1.8x
3.3x
60.5%
1.9x
3.7x
62.1%
(1)
These measures are not defined by IFRS, do not have standard meanings and may not be comparable with other industries or companies
(see Section I – Non-IFRS Measures). For a reconciliation to IFRS, see Section VI – Non-IFRS Measures.
(2)
For the trailing 12 months ended.
54
2023 Annual ReportManagement’s Discussion and Analysis
Liquidity and Financial Condition
Liquidity and Capital Resources
Management believes there is adequate overall liquidity to fund property capital investment commitments to provide
for future growth in the business. CAPREIT finances these commitments through: (i) cash and cash equivalents on
hand; (ii) the Acquisition and Operating Facility; (iii) mortgage debt secured by its investment properties; and (iv) equity.
Management’s assessment of CAPREIT’s liquidity position continues to be stable for the foreseeable future based on
its evaluation of capital resources, as summarized below:
i)
ii)
CAPREIT’s business continues to be stable and is expected to generate sufficient ACFO on an annual basis to fund
the current level of distributions; and
CAPREIT’s Canadian borrowing capacity as at December 31, 2023 remains strong with $340.1 million available
on its Acquisition and Operating Facility including an accordion option to increase the credit facility limit of up
to $200 million.
As at December 31, 2023, CAPREIT has approximately $1.5 billion of investment properties and assets held for sale,
as applicable, that are unencumbered by mortgages. Of these investment properties and assets held for sale, as
applicable, approximately $1.2 billion are Canadian investment properties which secure the Acquisition and Operating
Facility. Included in these Canadian investment properties and assets held for sale, as applicable, that secure the
Acquisition and Operating Facility are $268.0 million that also carry a negative pledge against the ERES Credit Facility.
The working capital deficiency, as presented on CAPREIT’s consolidated balance sheets as at December 31, 2023, and
defined as current assets less current liabilities, is funded through the Credit Facilities and refinancing of mortgages as
they mature. Management conducts a liquidity forecast on a regular basis, which includes refinancing of mortgages,
property capital investments, potential acquisitions and potential dispositions, to monitor the available capacity.
CAPREIT’s credit facilities consist of the $600 million Acquisition and Operating Facility, which can be borrowed in
US dollars (“USD”), euros or Canadian dollars, as well as the €125 million ERES Credit Facility. On January 24, 2023,
ERES amended and renewed its existing revolving credit facility with two Canadian chartered banks and the addition
of another Canadian chartered bank, providing up to €125 million for a three-year period ending on January 26, 2026,
as well as an accordion feature to increase the limit a further €25 million upon satisfaction of conditions set out in the
agreement and the consent of applicable lenders. This amendment also replaced the USD London Inter-bank Offered
Rate (“LIBOR”) with the Term SOFR as a benchmark interest rate. The Acquisition and Operating Facility matures on
December 19, 2025. A subsidiary of CAPREIT also provides a guarantee on the ERES Credit Facility.
The tables below summarize the amounts available and drawn under the respective credit facilities as at December 31,
2023 and December 31, 2022:
($ Thousands)
As at December 31, 2023
Maximum borrowing capacity
USD borrowings
Euro borrowings
Less: Total borrowings
Less: Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps
Acquisition and
Operating Facility
$
$
600,000
(255,509)(1)
–
$
(255,509)
(4,432)
$
340,059
6.48%(2)
ERES Credit
Facility
182,828
–
(150,651)(3)
(150,651)
–
32,177
5.23%
$
$
$
$
$
$
Total
782,828
(255,509)
(150,651)
$
(406,160)
(4,432)
$
372,236
6.01%
(1)
(2)
(3)
As at December 31, 2023, CAPREIT has USD borrowings totalling US$192,812 that bear interest at the Term SOFR plus a margin of 1.45%, excluding
the impact of cross-currency interest rate swaps.
As at December 31, 2023, excluding the impact of cross-currency interest rate swaps, the weighted average interest rate on the Acquisition and
Operating Facility is 6.75%. For details on the swaps, refer to note 8 to the accompanying consolidated annual financial statements.
As at December 31, 2023, ERES has euro borrowings totalling EUR €103,000 that bear interest at the EURIBOR plus a margin of 1.35% per annum.
55
Focused on QualityManagement’s Discussion and Analysis
($ Thousands)
As at December 31, 2022
Maximum borrowing capacity
Less: USD borrowings
Less: Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps
Acquisition and
Operating Facility
$
$
$
600,000
(259,211)(1)
(7,373)
333,416
5.56%(2)
ERES Credit
Facility
144,982
(129,764)(3)
–
15,218
3.06%(4)
$
$
$
$
$
$
Total
744,982
(388,975)
(7,373)
348,634
4.73%
(1)
(2)
(3)
(4)
As at December 31, 2022, CAPREIT has USD borrowings totalling US$191,365 that bear interest at the USD LIBOR rate plus a margin of 1.35% per annum,
excluding the impact of cross-currency interest rate swaps.
As at December 31, 2022, excluding the impact of cross-currency interest rate swaps, the weighted average interest rate on the Acquisition and
Operating Facility is 6.00%. For details on the swaps, refer to note 8 to the accompanying consolidated annual financial statements.
As at December 31, 2022, ERES has USD borrowings totalling US$95,800 that bear interest at the USD LIBOR rate plus a margin of 1.35% per annum.
As at December 31, 2022, excluding the impact of cross-currency interest rate swaps, the weighted average interest rate on the ERES Credit Facility
is 5.74%. For details on the swaps, refer to note 8 to the accompanying consolidated annual financial statements.
Mortgages Payable
The table below summarizes the type of mortgages payable (excluding liabilities related to assets held for sale, as
applicable) included in CAPREIT’s capital structure and the overall interest rates and terms to maturity as at December 31,
2023 and December 31, 2022:
As at
Percentage of CMHC-insured mortgages(1)
Percentage of fixed-rate mortgages(2)
Weighted average mortgage effective interest rate(3)
Weighted average mortgage stated interest rate
Weighted average mortgage term to maturity (years)(4)
(1) Excludes mortgages on MHC sites and European financings.
December 31, 2023
December 31, 2022
98.5%
99.2%
2.80%
2.59%
4.9
98.3%
98.8%
2.61%
2.43%
5.4
(2)
(3)
(4)
Taking into consideration interest rate swaps where hedge accounting is not being applied, 100% of mortgages are subject to fixed rates.
Excludes one-to-six-month short-term extensions.
Weighted average mortgage interest rate includes deferred financing costs, fair value adjustments and prepaid CMHC premiums on an effective
interest rate basis.
The mortgages on the Canadian and European properties have a weighted average term to maturity of 5.4 years and 2.9 years, respectively
as at December 31, 2023 (December 31, 2022 – 5.8 years and 3.4 years, respectively).
CAPREIT is in compliance with all of its CMHC and lender requirements for the years ended December 31, 2023 and
December 31, 2022.
56
2023 Annual ReportManagement’s Discussion and Analysis
The following table presents financings, weighted average interest rates obtained and mortgage top-ups closed in
2023. This table excludes mortgages assumed by CAPREIT upon acquisition of investment properties and mortgages
assumed by the purchaser upon disposition of investment properties.
($ Thousands)
The Canadian Portfolio
First Quarter
$
Second Quarter
Third Quarter
Fourth Quarter
Acquisitions
Original
Mortgage
Amount
34,326
107,838
131,584
106,581
–
Weighted
Average
Original Stated
Interest Rate(1)
2.87% $
3.16%
3.31%
3.36%
–
New
Mortgage
Amount(2)
8,045
145,517
120,449
184,068
94,425
Total and Weighted Average
$
380,329
3.24% $
552,504
The ERES Portfolio
Refinancings
Acquisitions
$
86,097
0.97% $
–
–
94,133
15,641
Total and Weighted Average
$
86,097
0.97% $
109,774
Weighted
Average
New Stated
Interest Rate(3)
Weighted
Average Term on
New Mortgages
(Years)
Net Top-Up
Financing
(Repayment)
Amount(4)
4.28%
3.78%
3.93%
4.88%
4.77%
4.36%
4.66%
4.66%
4.66%
5.0 $
(26,281)
6.1
5.3
7.8
9.3
37,679
(11,135)
77,487
94,425
7.0 $
172,175
6.0 $
6.0
6.0 $
8,036
15,641
23,677
Grand Total and
Weighted Average
$
466,426
2.82% $
662,278
4.41%
6.8 $
195,852
(1) Excludes one-to-six-month short-term extension rates.
(2) Excludes mortgage rate buy down cost of $4,388.
(3) Excludes prepaid CMHC premiums, deferred financing costs and the impact of hedging.
(4)
Includes $191,718 of mortgage discharges not refinanced. This includes $3,257 repaid on the disposition of a property which was previously classified as a
liability related to assets held for sale.
During the year ended December 31, 2023, CAPREIT completed $552.5 million in mortgage financings for the Canadian
portfolio compared to an estimated range between $600 million and $650 million, which was based on the property
portfolio as at September 30, 2023 and which assumed that there would be no future acquisitions and dispositions, as
disclosed in the MD&A for the three and nine months ended September 30, 2023. Lower Canadian mortgage financing
was primarily due to property dispositions that closed subsequent to September 30, 2023, and therefore decreased
mortgage financing needs during the fourth quarter of 2023.
As a strategy, CAPREIT leverages CMHC insurance to get access to stable financing at lower interest rates than
would be available with conventional mortgage financing or other forms of debt. The premiums associated with the
initial mortgage financing along with any additional premiums on future expected mortgage renewals or refinancing
are analyzed to ensure the all-in cost of CMHC financing continues to be CAPREIT’s most cost-effective form of debt.
CMHC premiums are amortized over the amortization period of the underlying mortgage loans when incurred.
If CAPREIT fully refinances or discharges an existing mortgage, any unamortized prepaid CMHC premiums and fees
associated with the existing mortgages on that property will be written off in the period in which full refinancing or
discharge occurs. CAPREIT accelerates the amortization for prepaid CMHC premiums for mortgages that management
intends to fully refinance within the year, from the date the decision is made to refinance to the date the mortgage
is due to be refinanced. Therefore, accelerated CMHC amortization expense is typically higher during the first half
of the year compared to the second half of the year. During the three months and year ended December 31, 2023,
CMHC amortization expense including net write-offs of CMHC premiums on refinancing or discharge of mortgages
amounted to $1.9 million and $12.3 million, respectively, excluding CMHC write-offs relating to dispositions. The table
below summarizes the CMHC amortization expense, including write-offs except those relating to dispositions, for the
trailing eight quarters.
($ Thousands)
Amortization of CMHC
premiums and fees
Q4 23
Q3 23
Q2 23
Q1 23
Q4 22
Q3 22
Q2 22
Q1 22
$
(1,919) $
(2,657)
$
(3,643)
$
(4,056)
$
(2,841)
$
(2,388)
$
(3,441)
$
(3,784)
57
Focused on QualityManagement’s Discussion and Analysis
CMHC amortization expense, including write-offs except those relating to dispositions, for 2024 is expected to be in
the range of $10.0 million to $11.0 million, depending on refinancing activity.
Estimated top-up mortgage financing potential is based on annualized NOI of the underlying properties. Pursuant
to CAPREIT’s strategy to upgrade the quality and diversification of the property portfolio through repositioning and
capital recycling initiatives to grow earnings and cash flow potential, as well as uncertainty about the timing of such
transactions, CAPREIT is no longer disclosing the annualized NOI for properties with mortgages maturing over the next
five years and beyond.
The breakdown of CAPREIT’s Canadian dollar-denominated future principal repayments, including mortgage maturities,
and effective weighted average interest rates as at December 31, 2023 is as follows:
As at December 31, 2023
($ Thousands)
Period
2024
2025
2026
2027
2028
2029 and onwards
Principal
Amortization
Mortgage
Maturities
Mortgage
Balance
$
147,307
$
397,282
$
544,589
138,625
119,046
97,229
84,684
208,243
439,391
490,551
557,251
627,663
578,016
609,597
654,480
712,347
2,206,382
2,414,625
% of Total
Mortgage
Balance
9.9
10.5
11.1
11.9
12.9
43.7
Interest
Rate (%)(1)
2.88
2.54
2.53
3.25
3.44
2.91
$
795,134
$ 4,718,520
$ 5,513,654
100.0%
2.95%
Deferred financing costs, fair value adjustments
and prepaid CMHC premiums, net
Liabilities related to assets held for sale
Total
Weighted average term
to maturity (years)
$
(135,915)
(23,706)
$ 5,354,033
5.4
(1)
Effective weighted average interest rates for maturing mortgages only. It includes the amortization of deferred financing costs, prepaid CMHC premiums
and fair value adjustments. It excludes one-to-six-month short-term extension rates.
The breakdown for ERES of future principal repayments, including mortgage maturities, and effective weighted average
interest rates as at December 31, 2023 is as follows:
As at December 31, 2023
($ Thousands)
Period
2024
2025
2026
2027
2028
2029
Deferred financing costs
Total
Weighted average term
to maturity
Principal
Amortization
Mortgage
Maturities
Mortgage
Balance ($)
Mortgage
Balance (€)(2)
$
2,598
$
115,683
$
118,281
€
80,869
417
–
–
–
–
332,031
274,696
293,767
172,589
111,890
332,448
274,696
293,767
172,589
111,890
227,301
187,811
200,850
118,000
76,500
% of Total
Mortgage
Balance
9.1
25.5
21.1
22.5
13.2
8.6
Interest
Rate (%)(1)
1.39
1.87
1.47
1.38
3.29
4.75
$
3,015
$ 1,300,656
$ 1,303,671
€
891,331
100.0%
2.07%
$
(3,716)
$ 1,299,955
2.9
(1) Effective weighted average interest rates for maturing mortgages only. It includes the amortization of deferred financing costs.
(2)
Included in mortgages payable are non-amortizing mortgages from ERES.
58
2023 Annual ReportManagement’s Discussion and Analysis
Derivative Financial Instruments in Canada
($ Thousands)
As at
Cross-currency interest rate swaps(1)
Weighted average interest rate on swaps – paying leg
Weighted average interest rate on swaps – receiving leg
Weighted average remaining term to maturity on swaps (years)
December 31, 2023
December 31, 2022
$
927,149
$
919,935
2.76%
3.56%
0.8
2.14%
3.35%
1.3
(1)
As at December 31, 2023, euro equivalent of €442,358 (December 31, 2022 – €442,358), USD equivalent of US$192,812 (December 31, 2022 –
US$191,563) and excludes ERES cross-currency interest rate swaps.
The swaps have been staggered between one to three years to take advantage of the past prevailing low rates, with
a current weighted average swap term of 0.8 years as at December 31, 2023.
Unitholders’ Equity, Exchangeable LP Units and Units Awarded under Unit-based Compensation Plans
Unitholders’ Equity represents the issued and outstanding Trust Units, and excludes the Exchangeable LP Units and
any units issued in connection with unit-based incentive plans. For the purposes of the table below, Exchangeable LP
Units and units issued in connection with unit-based incentive plans are treated as equity as they have claims similar
or identical to those of the Trust Units.
Units outstanding as at December 31, 2023 and December 31, 2022 are as follows:
(Thousands of units)
As at
Trust Units
Deferred units
RUR Plan units
Exchangeable LP Units
Total number of units outstanding – diluted
Ownership by trustees, officers and other senior management
Normal Course Issuer Bid
December 31, 2023
December 31, 2022
167,614
169,404
134
473
1,647
169,868
0.5%
121
395
1,679
171,599
0.3%
In March 2022, CAPREIT received the TSX’s acceptance of its notice of intention to proceed with an NCIB. Pursuant
to the notice, CAPREIT may purchase up to 17,067,144 of its Trust Units, representing approximately 10% of the public
float of its Trust Units at the time of TSX approval, during the 12-month period commencing March 24, 2022 and ending
March 23, 2023. Under the NCIB, other than purchases made under the block purchase exemption, CAPREIT may
purchase up to 91,823 Trust Units on the TSX during any trading day, which represents approximately 25% of 367,292
Trust Units, being the average daily trading volume on the TSX for the most recently completed six calendar months
prior to the TSX’s acceptance of the notice of intention to proceed with an NCIB. Any Trust Units purchased under the
NCIB will be cancelled.
In March 2023, CAPREIT received the TSX’s acceptance of its notice of intention to proceed with an NCIB, following
expiry of the previous NCIB on March 23, 2023. Pursuant to the notice, CAPREIT may purchase up to 16,901,348 of
its Trust Units, representing approximately 10% of the public float of its Trust Units at the time of TSX approval, during
the 12-month period commencing March 24, 2023 and ending March 23, 2024. Under the NCIB, other than purchases
made under the block purchase exemption, CAPREIT may purchase up to 100,017 Trust Units on the TSX during any
trading day, which represents approximately 25% of 400,069 Trust Units, being the average daily trading volume on
the TSX for the most recently completed six calendar months prior to the TSX’s acceptance of the notice of intention
to proceed with an NCIB. Any Trust Units purchased under the NCIB will be cancelled.
59
Focused on QualityManagement’s Discussion and Analysis
The tables below summarize the NCIB activity for the years ended December 31, 2023 and December 31, 2022, based
on the settlement date of purchases.
For the Year Ended December 31, 2023
Beginning Limit
First Quarter 2023(1)
Second Quarter 2023
Third Quarter 2023
Fourth Quarter 2023
Total
Weighted Average
Purchase Price
per Trust Unit
Total Cost of Trust
Units Purchased
and Cancelled
($ Thousands)
Number of Trust
Units Purchased
and Cancelled
Renewed NCIB
Remaining Limit(1)
16,901,348
$
46.43
47.59
–
–
$
91,502
9,405
1,970,904
16,527,597
197,617
16,329,980
–
–
–
–
16,329,980
16,329,980
$
46.53
$
100,907
2,168,521
16,329,980
(1)
1,597,153 Trust Units were purchased and cancelled under the former NCIB and 373,751 Trust Units were purchased and cancelled under the current NCIB.
For the Year Ended December 31, 2022
Beginning Limit
First Quarter 2022
Second Quarter 2022
Third Quarter 2022
Fourth Quarter 2022
Total
Weighted Average
Purchase Price
per Trust Unit
Total Cost of Trust
Units Purchased
and Cancelled
($ Thousands)
Number of Trust
Units Purchased
and Cancelled
$
$
–
$
–
67,050
134,742
35,980
$
237,772
47.83
45.18
42.38
45.44
–
1,401,764
2,982,460
848,938
5,233,162
Remaining Limit
17,067,144
17,067,144
15,665,380
12,682,920
11,833,982
11,833,982
Unitholder Taxation
Portions of the distributions received by taxable Canadian Unitholders are characterized as other income, capital gain
income, or return of capital. While return of capital is not immediately taxable, it reduces the tax cost of Trust Units,
and thus will increase future gain for Unitholders on the sale of the Trust Units. The deferral rate is the portion of
distributions treated as return of capital.
On December 15, 2023, CAPREIT declared a special non-cash distribution of $0.49 per Trust Unit (December 15,
2022 – $0.36 per Trust Unit), payable in Trust Units on December 29, 2023 (December 30, 2022) to Unitholders of
record on December 29, 2023 (December 30, 2022) (the “Special Distribution”). The Special Distribution was made to
distribute to Unitholders a portion of the capital gain realized by CAPREIT from transactions completed during the year
ended December 31, 2023 (year ended December 31, 2022). Refer to Section VI – Unit Calculations and Distributions
for further information.
60
2023 Annual ReportManagement’s Discussion and Analysis
SECTION VI: UNIT CALCULATIONS, DISTRIBUTIONS, NON-IFRS MEASURES
AND OTHER INFORMATION
Unit Calculations and Distributions
As a result of CAPREIT being an open-ended mutual fund trust, Unitholders are entitled to redeem their Trust Units
in accordance with the conditions specified in the DOT. The impact of this redemption feature causes CAPREIT’s
Trust Units to be treated as financial liabilities under IFRS. Consequently, all per unit calculations are considered
Non-IFRS Measures.
The following tables summarize the number of units used in calculating Non-IFRS Measures on a per unit basis:
Outstanding Number of Units
(Thousands)
As at
Trust Units
Exchangeable LP Units(2)
Units under the DUP(3)
Basic number of units
Plus:
Unit rights under the RUR Plan(3)
Diluted number of units
(1) Represents percentage of total diluted units.
December 31,
2023
167,614
1,647
134
169,395
%(1)
98.6
1.0
0.1
99.7
December 31,
2022
169,404
1,679
121
171,204
%(1)
98.7
1.0
0.1
99.8
473
169,868
0.3
100.0
395
171,599
0.2
100.0
(2) See note 16 to the accompanying consolidated annual financial statements for details on Exchangeable LP Units.
(3)
See notes 13 and 17 to the accompanying consolidated annual financial statements for details of CAPREIT’s unit-based compensation plans.
Weighted Average Number of Units
(Thousands)
Three Months Ended December 31,
Year Ended December 31,
Trust Units
Exchangeable LP Units(1)
Units under the DUP(2)
Basic number of units
Plus:
Unit rights under the RUR Plan(2)
Diluted number of units
2023
2022
2023
167,579
1,647
128
169,354
170,208
1,679
121
172,008
167,856
1,649
121
169,626
2022
172,538
1,679
153
174,370
474
169,828
393
172,401
491
170,117
446
174,816
(1) See note 16 to the accompanying consolidated annual financial statements for details on Exchangeable LP Units.
(2) See notes 13 and 17 to the accompanying consolidated annual financial statements for details of CAPREIT’s unit-based compensation plans.
DRIP and Net Distributions Paid
($ Thousands)
Distributions declared on Trust Units
Distributions declared on Exchangeable LP Units
Distributions declared on awards outstanding
under unit-based compensation plans(1)
Total distributions declared
Less:
Distributions declared on Trust Units reinvested
Distributions declared on unit awards reinvested(1)
Net distributions paid in cash(2)
Percentage of distributions reinvested
Three Months Ended December 31,
Year Ended December 31,
2023
2022
2023
2022
$ 60,857
$
61,608
$ 243,282
$ 249,540
597
218
609
159
2,382
870
2,435
847
$ 61,672
$
62,376
$ 246,534
$ 252,822
$
(2,890)
$
(1,173)
$
(9,241)
$
(42,178)
(218)
$ 58,564
$
(159)
61,044
(870)
$ 236,423
(847)
$ 209,797
5.0%
2.1%
4.1%
17.0%
(1)
(2)
Comprises non-cash distributions related to the DUP and the RUR Plan (see notes 13 and 17 to CAPREIT’s accompanying consolidated annual financial
statements for a discussion of these plans).
Based on distributions declared during the respective periods.
61
Focused on QualityManagement’s Discussion and Analysis
Under CAPREIT’s DRIP, a participant may purchase additional units with the cash distributions paid on the eligible units,
registered in the participant’s name or held in a participant’s account maintained pursuant to the DRIP. Exchangeable
LP Units are not eligible for the DRIP.
On May 19, 2022, CAPREIT approved changes to its DRIP to permit the suspension of the issuance of bonus Trust
Units to participants. Consequently, commencing with the June 2022 distribution, participants in the DRIP as of the
record date of June 30, 2022 will receive units at a price equal to the weighted average trading price of Trust Units
on the TSX for the five trading days immediately preceding each distribution date, without any bonus Trust Units being
issued. The total consideration for units issued represents the amount of cash distributions reinvested in additional
units. Subsequently, the percentage of distributions reinvested significantly decreased.
Special Non-Cash Distribution in Trust Units and Consolidation of Trust Units
On December 15, 2023, CAPREIT declared a Special Distribution of $0.49 per Trust Unit (December 15, 2022 – $0.36
per Trust Unit), payable in Trust Units on December 29, 2023 (December 30, 2022) to Unitholders of record on
December 29, 2023 (December 30, 2022). The Special Distribution was made to distribute to Unitholders a portion
of the capital gain realized by CAPREIT from transactions completed during the year ended December 31, 2023 (year
ended December 31, 2022).
On December 29, 2023, 1,683,012 Trust Units (December 30, 2022 – 1,428,904 Trust Units) were issued at a price of
$48.80 per Trust Unit (December 30, 2022 – $42.68 per Trust Unit), for an aggregate value of $82.1 million (December 31,
2022 – $60.1 million). Immediately following the issuance of these Trust Units, the Trust Units were consolidated such
that each Unitholder held the same number of Trust Units after the consolidation of the Trust Units as each Unitholder
held prior to the Special Distribution. The table in the DRIP and Net Distributions Paid section above excludes the
Special Distribution.
Adjusted Cash Generated from Operating Activities and Net Income (Loss) Compared
to Total Distributions Declared
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table quantifies cash
generated from operating activities net of interest expense included in cash flow from financing activities for the three
months and years ended December 31, 2023 and December 31, 2022:
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
Cash generated from operating activities
$
172,175
$
170,433
$
615,919
$
598,027
2023
2022
2023
2022
Adjustments:
Interest paid on mortgages and credit facilities
(47,822)
(41,151)
(184,586)
(155,780)
Adjusted Cash Generated from Operating Activities
$
124,353
$
129,282
$
431,333
$
442,247
Adjusted Cash Generated from Operating Activities is not defined by IFRS, does not have standard meanings and may
not be comparable with other industries or companies.
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the
differences between Adjusted Cash Generated from Operating Activities and total distributions declared, in accordance
with the guidelines, for the three months and years ended December 31, 2023 and December 31, 2022:
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
Adjusted Cash Generated from Operating Activities
$
124,353
$
129,282
$
431,333
$
Total distributions declared
61,672
62,376
246,534
2023
2022
2023
2022
442,247
252,822
Excess of Adjusted Cash Generated from Operating
Activities over total distributions declared
$
62,681
$
66,906
$
184,799
$
189,425
62
2023 Annual ReportManagement’s Discussion and Analysis
For the three months and year ended December 31, 2023, CAPREIT’s Adjusted Cash Generated from Operating
Activities exceeded distributions declared by $62.7 million and $184.8 million, respectively (for the three months and
year ended December 31, 2022 – $66.9 million and $189.4 million, respectively). As per OSC Staff Notice 51-724,
if distributions are in excess of Adjusted Cash Generated from Operating Activities, then it represents a return of capital,
rather than a return on capital, since they represent cash payments in excess of cash generated from CAPREIT’s
continuing operations during the period. Management believes, should it occur, that there is adequate overall liquidity
to fund excess distributions over Adjusted Cash Generated from Operating Activities on an annual basis through cash
and cash equivalents on hand and, if necessary, the Acquisition and Operating Facility.
As required by National Policy 41-201, “Income Trusts and Other Indirect Offerings”, the following table outlines the
differences between net income (loss) and total distributions declared, in accordance with the guidelines, for the three
months and years ended December 31, 2023 and December 31, 2022:
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
Net income (loss)
Total distributions declared
Excess (shortfall) of net income (loss) over total
distributions declared
$
2023
9,212
61,672
2022
2023
$
155,523
$
(411,574)
$
62,376
246,534
2022
13,637
252,822
$
(52,460)
$
93,147
$
(658,108)
$
(239,185)
CAPREIT does not use net income (loss) as a basis for distributions as it includes non-cash items such as fair value
change in investment properties, fair value change in investments, remeasurement of unit-based compensation
liabilities and fair value change in derivative financial instruments, which are not reflective of CAPREIT’s ability to make
distributions. Amounts retained in excess of the declared distributions are used for mortgage principal repayments and
capital expenditure requirements.
Non-IFRS Measures
Funds From Operations (formerly known as “Normalized Funds From Operations”)
In this MD&A, CAPREIT relabelled NFFO to FFO (formerly known as “NFFO”) and as such, introduced a modified
definition of FFO, as described below. The comparative periods have been restated to reflect the introduction of this
modified definition of FFO. In addition to the adjustments made to the previous definition of FFO (the “Former FFO”),
the modified definition of FFO (formerly known as “NFFO”) also excludes the effects of certain items that are not
indicative of CAPREIT’s long-term operating performance, as described below, and as a result is identical to the prior
definition of “NFFO”.
FFO (formerly known as “NFFO”) is a measure of operating performance based on the funds generated by the business
before reinvestment or provision for other capital needs. Management considers FFO (formerly known as “NFFO”) to
be an important measure of CAPREIT’s operating performance. Fair value adjustments, gains or losses on dispositions,
and other non-cash items do not necessarily provide an accurate picture of CAPREIT’s past or recurring operating
performance. FFO (formerly known as “NFFO”) as presented is in accordance with the recommendations of the Real
Property Association of Canada (“REALPAC”), with the exception of (i) the adjustment for gains or losses on fair value
through profit or loss (“FVTPL”) marketable securities, (ii) the adjustment for amortization of PP&E and right-of-use
asset, and (iii) the exclusion of the effects of certain items that are not indicative of CAPREIT’s long-term operating
performance. These items include reorganization, senior management termination and retirement costs, costs relating
to transactions that were not completed, net loss (gain) on derecognition of debt, mortgage prepayment costs, and
amortization of losses on certain hedging instruments previously settled and paid. It may not, however, be comparable
to similar measures presented by other real estate investment trusts or companies in similar or different industries.
As it is an operating performance metric, no adjustment is made to FFO (formerly known as “NFFO”) for capital
expenditures. For further information on CAPREIT’s total property capital investments, please refer to Property Capital
Investments in Section IV. See discussions under Foreign Currency Information in Section VI for additional information
on hedging instruments currently in place. FFO (formerly known as “NFFO”) is not a measure of the sustainability
of distributions.
63
Focused on QualityManagement’s Discussion and Analysis
A reconciliation of net income (loss) to FFO (formerly known as “NFFO”) is as follows for the three months and years
ended December 31, 2023 and December 31, 2022:
($ Thousands, except per unit amounts)
Three Months Ended December 31,
Year Ended December 31,
Net income (loss)
Adjustments:
Fair value adjustments of investment properties
and assets held for sale
Fair value adjustments of financial instruments
Interest expense on Exchangeable LP Units
Loss (gain) on non-controlling interest
Net FFO impact attributable to ERES units held
by non-controlling unitholders(1)
Deferred income tax recovery
Loss (gain) on foreign currency translation
Net loss on transactions and other activities(2)
Lease principal repayments
2023
9,212
$
2022
2023
$
155,523
$
(411,574)
$
111,381
3,494
597
(8,959)
(4,689)
(15,268)
(2,345)
3,809
(308)
(74,461)
44,434
609
8,982
(4,459)
(32,064)
(856)
1,756
(286)
914,585
34,373
2,382
(45,209)
(18,992)
(85,368)
(4,161)
13,911
(1,190)
2022
13,637
468,327
7,440
2,435
(104,822)
(18,026)
(14,877)
20,775
25,058
(1,007)
Former FFO
$
96,924
$
99,178
$
398,757
$
398,940
Reorganization, senior management termination
and retirement costs(3)
Amortization of losses from accumulated other
comprehensive loss to interest and other
financing costs
Net loss (gain) on derecognition of debt(4)
Mortgage prepayment cost
Costs relating to transactions that were
not completed
FFO (formerly known as “NFFO”)(5)
Weighted average number of units (000s) – diluted
FFO per unit – diluted (formerly known as
“NFFO per unit – diluted”)(5)
Total distributions declared
FFO payout ratio (formerly known as
“NFFO payout ratio”)(5)
4,900
418
11,760
6,668
273
56
–
–
$
102,153
169,828
$
$
0.602
61,672
$
$
$
67
–
–
259
99,922
172,401
0.580
62,376
341
(3,251)
55
–
$
407,662
170,117
$
$
2.396
246,534
$
$
$
1,361
(1,766)
1,354
420
406,977
174,816
2.328
252,822
60.4%
62.4%
60.5%
62.1%
(1)
(2)
(3)
The adjustment is based on applying the 35% weighted average ownership held by ERES non-controlling unitholders (December 31, 2022 – 34%).
Primarily includes loss on dispositions, amortization of PP&E and right-of-use asset and impairment of goodwill.
For the three months and year ended December 31, 2023, includes $nil and $765, respectively, of accelerated vesting of previously granted unit-based
compensation (three months and year ended December 31, 2022 – $nil and $976, respectively).
(4) Refer to note 6 of the accompanying consolidated annual financial statements for further information.
(5)
Formerly known as “NFFO”, “NFFO per unit – diluted”, and “NFFO payout ratio”. FFO payout ratio is calculated using total distributions declared during
the period divided by FFO.
FFO (formerly known as “NFFO”) may be subject to a certain degree of fluctuation from period to period as a result of
CMHC premium write-offs which occur upon the refinancing of a mortgage, as well as accelerated CMHC amortization
expense for mortgages that management intends to fully refinance or discharge within the year, excluding property
dispositions. These write-offs and accelerated CMHC amortization expense are not added back to FFO (formerly
known as “NFFO”) and as a result, may cause fluctuation depending on the timing and amount of mortgages coming
due. For further details, please refer to Liquidity and Financial Condition in Section V.
FFO (formerly known as “NFFO”) for the three months and year December 31, 2023 increased by 2.2% and 0.2%,
respectively, compared to the same period last year, primarily due to contributions from acquisitions and same property
operational growth and lower trust expense, net of non-routine reorganization costs, partially offset by dispositions and
higher interest expense on credit facilities payable and mortgages payable.
64
2023 Annual ReportManagement’s Discussion and Analysis
Contributing to FFO (formerly known as “NFFO”) are fees earned from ERES on the portion of ERES units held by
non-controlling unitholders totalling $1.3 million and $5.2 million, respectively, for the three months and year ended
December 31, 2023 compared to $1.2 million and $5.1 million, respectively, for the three months and year ended
December 31, 2022. These fees comprise asset management fees, property management fees, acquisition fees,
service fees and interest income earned on promissory note from ERES. Refer to the Related Party Transactions section
for further details.
For the three months ended December 31, 2023, diluted FFO per unit increased by 3.8% compared to the same period
last year, primarily due to contributions from acquisitions, same property operational growth and lower trust expense,
net of non-routine reorganization costs, partially offset by dispositions and higher interest expense on credit facilities
payable and mortgages payable, supplemented by accretive NCIB purchases.
For the year ended December 31, 2023, diluted FFO per unit increased by 2.9% compared to the same period last
year, primarily due to the same reasons described above and $1.5 million of non-refundable deposits received on
a property disposition that did not close. This was partially offset by $2.2 million of required maintenance costs on
CAPREIT’s septic systems, primarily at two MHC properties, which were both sold in 2023. In addition, there were
higher interest rates on larger debt balances and elevated CMHC amortization expense of future refinancings that are
strategically beneficial to CAPREIT.
Comparing total distributions declared to FFO (formerly known as “NFFO”), the FFO payout ratio (formerly known as
“NFFO payout ratio”) for the three months and year ended December 31, 2023 improved by 2.0% and 1.6%, respectively,
compared to the same period last year, due to decrease in total distributions declared on fewer outstanding Trust Units
from NCIB activity.
Adjusted Cash Flows From Operations and Distributions Declared
ACFO is a measure of economic cash flow based on the operating cash flows generated by the business, adjusted to
deduct items such as interest expense, non-discretionary capital expenditure reserve as described below, capitalized
leasing costs and amortization of other financing costs, partially offset by investment income. ACFO as calculated
by CAPREIT is in accordance with the most recent corresponding definition recommended by REALPAC, with the
exception of the adjustment for investment income. Management considers ACFO to be an important economic and
sustainable cash flow measure of CAPREIT’s operating performance. It may not, however, be comparable to similar
measures presented by other real estate investment trusts or companies in similar or different industries.
There may be periods when actual distributions declared exceed ACFO due to seasonal fluctuations in certain periods,
regional market volatility, or from year to year based on the timing of property capital investments and the impact of
acquisitions. Excess distributions (shortfalls) are funded by cash and cash equivalents and, if necessary, the Acquisition
and Operating Facility.
65
Focused on QualityManagement’s Discussion and Analysis The following table reconciles cash generated from operating activities to ACFO for the three months and years ended
December 31, 2023 and December 31, 2022:
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
Cash generated from operating activities
$
172,175
$
170,433
$
615,919
$
598,027
2023
2022
2023
2022
Adjustments:
Interest paid on mortgages payable and credit
facilities payable
Non-discretionary property capital expenditure
reserve(1)
Capitalized leasing costs(2)
Amortization of other financing costs(3)
Investment income received(4)
Net ACFO impact attributed to ERES units
held by non-controlling unitholders(5)
Lease payments
ACFO
Total distributions declared
Excess ACFO over distributions declared
ACFO payout ratio(6)
(47,822)
(41,151)
(184,586)
(155,780)
(17,699)
(1,082)
(3,795)
700
(4,972)
(1,575)
95,930
61,672
34,258
64.3%
$
$
$
(20,313)
(873)
(3,704)
891
(3,845)
(1,566)
99,872
62,376
37,496
62.5%
$
$
$
(71,572)
(2,714)
(20,548)
9,981
(15,452)
(6,268)
324,760
246,534
78,226
75.9%
$
$
$
(81,294)
(2,279)
(17,469)
10,185
(18,011)
(6,228)
327,151
252,822
74,329
77.3%
$
$
$
(1)
Non-discretionary property capital expenditure reserve for the three months and years ended December 31, 2023 and December 31, 2022 is determined
based on historical spending and management’s best estimate of expected annual non-discretionary property capital expenditure requirements per suite
and site, divided by four for the quarter, and multiplied by the weighted average number of residential suites and sites during the period. The annual
non-discretionary property capital expenditure reserve per suite and site for 2023 and 2022 is $1,101 and $1,231, respectively. The full year weighted
average number of residential suites and sites for the years ended December 31, 2023 and 2022 are 64,990 and 66,029, respectively. For a reconciliation
of actual non-discretionary property capital investments incurred during the period to reserve, see the next table.
(2)
Comprises tenant inducements and direct leasing costs.
(3) Includes amortization and write-offs of deferred financing costs, CMHC premiums, deferred loan costs and fair value adjustments.
(4)
(5)
(6)
Investment income received for the three months and year ended December 31, 2023 includes $nil and $7,628 of semi-annual dividends from IRES
(three months and year ended December 31, 2022 – $nil and $7,297, respectively).
For the three months and year ended December 31, 2023, the adjustment is based on applying the 35% weighted average ownership held by ERES
non-controlling unitholders (December 31, 2022 – 34%).
ACFO payout ratio is calculated using total distributions declared during the period divided by ACFO.
The table below reconciles actual non-discretionary capital investments to the reserve for the three months and years
ended December 31, 2023 and December 31, 2022:
Reconciliation of Actual to Non-Discretionary Property Capital Reserve
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
Actual non-discretionary capital investments
Non-discretionary capital expenditure reserve(1)
Difference
2023
19,685
17,699
1,986
$
$
2022
31,472
20,313
11,159
$
$
2023
65,844
71,572
(5,728)
$
$
$
$
2022
74,778
81,294
(6,516)
(1) Non-discretionary capital expenditure reserve is used in the determination of ACFO, for the purpose of comparing to distributions declared.
For the three months and year ended December 31, 2023, CAPREIT’s actual non-discretionary capital investments of
$19.7 million and $65.8 million, respectively, were higher than the non-discretionary capital reserve by approximately
$2.0 million for the three months ended due to changes in the timing of structural work projects over the year, and
lower than the non-discretionary capital reserve by approximately $5.7 million for the year ended, mainly due to projects
deferred to 2024 as well as dispositions during 2023.
For the three months and year ended December 31, 2022, CAPREIT’s actual non-discretionary capital investments of
$31.5 million and $74.8 million, respectively, were higher than the non-discretionary capital reserve by approximately
$11.2 million for the three months ended due to changes in changes in the timing of structural work projects over the
year, and lower than the non-discretionary capital reserve by approximately $6.5 million for the year ended, mainly
due to projects deferred to 2023 as well as dispositions during 2022.
66
2023 Annual ReportManagement’s Discussion and Analysis
CAPREIT’s capital investment programs are affected by scheduling of projects, and professional judgment is used by
management to determine the timing of property capital investments. Therefore, actual and capital investments reserve
may differ during the applicable periods. Management continues to monitor the rollout of the capital expenditure plan
in an effort to continuously improve the accuracy of its capital expenditure reserve.
Significant non-discretionary property capital investment programs are usually completed within three to five years.
Actual completion of such projects may differ from the estimated timelines as they are longer term in nature and
professional judgment is applied to estimate completion dates.
The following table presents the actual 2023 and 2022 non-discretionary property capital investments per suite and site:
($ Thousands)
Non-discretionary property capital investments
Weighted average number of suites and sites
Non-discretionary property capital investments per suite and site
2023 Actual
2022 Actual
$
$
65,844
64,990
1,013
$
$
74,778
66,029
1,133
The decrease in non-discretionary property capital investments per suite and site is in line with CAPREIT’s strategy to
upgrade the quality and diversification of the property portfolio through repositioning and capital recycling initiatives
to grow earnings and cash flow potential. Newer, on-strategy acquisitions require fewer capital investments than older,
non-core properties.
Total Debt and Total Debt Ratios
Management uses Total Debt, Total Debt to Gross Book Value ratio and Mortgage debt to Gross Book Value as
indicators in assessing if the debt level maintained is sufficient to meet cash flow requirements and for evaluating
the need to raise funds for further expansion. These Non-IFRS Measures may not, however, be comparable to similar
measures presented by other real estate investment trusts or companies in similar or different industries.
A reconciliation of Total Debt and Gross Book Value is as follows as at December 31, 2023 and December 31, 2022:
($ Thousands)
As at
Mortgages payable – non-current
Mortgages payable – current
Liabilities related to assets held for sale
Total mortgages payable
Credit facilities payable – non-current
Total Debt
Total Assets
Add: Total accumulated amortization and depreciation
Gross Book Value(1)
Ratio of Total Debt to Gross Book Value
Ratio of Total Mortgages Payable to Gross Book Value
(1)
Gross Book Value (“GBV”) is defined by CAPREIT’s DOT.
December 31, 2023
December 31, 2022
$ 6,002,617
$
5,963,820
651,371
23,706
6,677,694
405,133
613,277
38,116
6,615,213
388,975
$ 7,082,827
$
7,004,188
$ 16,968,640
$ 17,741,888
45,217
42,100
$ 17,013,857
$ 17,783,988
41.6%
39.2%
39.4%
37.2%
Adjusted Earnings Before Interest, Taxes, Depreciation, Amortization and Fair Value Adjustments
Adjusted EBITDAFV is calculated as prescribed in CAPREIT’s Acquisition and Operating Facility agreement for the
purpose of determining the Debt Service Coverage Ratio and Interest Coverage Ratio, and is defined as net income
attributable to Unitholders, reversing, where applicable, interest expense; income taxes; depreciation and amortization;
gain or loss attributable to dispositions; non-cash gain or loss resulting from the remeasurement of assets or liabilities;
other non-cash amounts included in net income; gain or loss on the repurchase or redemption of securities; foreign
exchange gain or loss; and any other extraordinary, non-recurring or unusual items as permitted under CAPREIT’s
Acquisition and Operating Facility agreement. Management believes Adjusted EBITDAFV is useful in assessing
CAPREIT’s operating performance, excluding any non-cash items and other extraordinary factors, and its ability to
service debt, finance capital expenditures and provide for distributions to its Unitholders. This Non-IFRS Measure may
not, however, be comparable to similar measures presented by other real estate investment trusts or companies in
similar or different industries.
67
Focused on QualityManagement’s Discussion and Analysis
A reconciliation of net income (loss) to Adjusted EBITDAFV is as follows for the years ended December 31, 2023
and December 31, 2022:
($ Thousands)
For the years ended
Net income (loss)
Adjustments:
Interest and other financing costs
Interest on Exchangeable LP Units
Total current income tax expense and deferred income tax recovery, net
Amortization of PP&E and right-of-use asset
Unit-based compensation amortization expense
EUPP unit-based compensation expense
Fair value adjustments of investment properties and assets held for sale
Fair value adjustments of financial instruments
Net gain on derecognition of debt
Gain on non-controlling interest
Loss (gain) on foreign currency translation
Net loss on dispositions and other
Goodwill impairment loss
Adjusted EBITDAFV
Debt Service Coverage Ratio
December 31, 2023
December 31, 2022
$
(411,574)
$
13,637
211,664
2,382
(76,479)
6,206
7,816
(551)
914,585
34,373
(3,251)
(45,209)
(4,161)
7,705
–
180,434
2,435
(10,034)
7,462
7,256
(514)
468,327
7,440
(1,766)
(104,822)
21,000
3,318
14,278
$
643,506
$
608,451
The Debt Service Coverage Ratio is defined as Adjusted EBITDAFV divided by the sum of interest expense (including
interest on mortgages payable and credit facilities payable and excluding interest with respect to leases, holders
of Exchangeable LP Units, and amortization of CMHC premiums and fees on mortgages payable) and all regularly
scheduled mortgage principal repayments. The Debt Service Coverage Ratio is calculated as prescribed in the
Acquisition and Operating Facility agreement, and is based on the trailing 12 months ended. Management believes the
Debt Service Coverage Ratio is useful in determining CAPREIT’s ability to service the interest and mortgage principal
requirements of its outstanding debt. This Non-IFRS Measure may not, however, be comparable to similar measures
presented by other real estate investment trusts or companies in similar or different industries.
($ Thousands)
For the years ended
Contractual interest on mortgages payable(1)
Amortization of deferred financing costs, fair value adjustments and OCI hedge interest
on mortgages payable(1)
Contractual interest on credit facilities payable
Amortization of deferred financing costs on credit facilities payable
Mortgage principal repayments
Debt service payments
Adjusted EBITDAFV
Debt Service Coverage Ratio (times)
(1)
Includes liabilities related to assets held for sale.
December 31, 2023
December 31, 2022
$
161,178
$
150,320
6,157
26,074
902
158,803
353,114
643,506
1.8x
$
$
4,147
7,677
615
162,048
324,807
608,451
1.9x
$
$
68
2023 Annual ReportManagement’s Discussion and Analysis
Interest Coverage Ratio
The Interest Coverage Ratio is defined as Adjusted EBITDAFV divided by interest expense (including interest on
mortgages payable and credit facilities payable and excluding interest with respect to leases, holders of Exchangeable
LP Units, and amortization of CMHC premiums and fees on mortgages payable). The Interest Coverage Ratio is
calculated as prescribed in the Acquisition and Operating Facility agreement, and is based on the trailing 12 months
ended. Management believes the Interest Coverage Ratio is useful in determining CAPREIT’s ability to service the
interest requirements of its outstanding debt. This Non-IFRS Measure may not, however, be comparable to similar
measures presented by other real estate investment trusts or companies in similar or different industries.
($ Thousands)
For the years ended
Contractual interest on mortgages payable(1)
Amortization of deferred financing costs, fair value adjustments and OCI hedge interest
on mortgages payable(1)
Contractual interest on credit facilities payable
Amortization of deferred financing costs on credit facilities payable
Interest Expense
Adjusted EBITDAFV
Interest coverage ratio (times)
(1)
Includes liabilities related to assets held for sale.
Net Asset Value
December 31, 2023
December 31, 2022
$
161,178
$
150,320
6,157
26,074
902
194,311
643,506
3.3x
$
$
4,147
7,677
615
162,759
608,451
3.7x
$
$
NAV represents total Unitholders’ equity per CAPREIT’s consolidated balance sheets, adjusted to include or exclude
certain amounts in order to provide what management considers to be a key measure of the intrinsic value of CAPREIT
on an ongoing basis. Management believes that this measure reflects the residual value of CAPREIT to its Unitholders
on an ongoing basis and is therefore used by management on both an aggregate and per unit basis to evaluate the
net asset value attributable to Unitholders, and changes thereon based on the execution of CAPREIT’s strategy. While
NAV is calculated based on items included in the consolidated financial statements or supporting notes, NAV itself is
not a standardized financial measure under IFRS and may not be comparable to similarly termed financial measures
disclosed by other real estate investment trusts or companies in similar or different industries.
69
Focused on QualityManagement’s Discussion and Analysis
A reconciliation of Unitholders’ equity to NAV is as follows as at December 31, 2023 and December 31, 2022:
($ Thousands, except per unit amounts)
As at
Unitholders’ equity
Adjustments:
Exchangeable LP Units
Unit-based compensation financial liabilities excluding ERES’s unit options plan
Deferred income tax liability
Deferred income tax asset
Derivative assets – non-current
Derivative assets – current
Derivative liabilities – current
Adjustment to ERES non-controlling interest(1)
NAV
Diluted number of units
NAV per unit – diluted
December 31, 2023
December 31, 2022
$ 9,278,595
$ 10,003,695
80,383
23,150
49,481
(19,523)
(35,619)
(10,851)
7,001
(160,023)
71,668
17,455
120,524
(6,173)
(62,599)
–
10,625
(200,629)
$ 9,212,594
$
9,954,566
169,868
$
54.23
$
171,599
58.01
(1)
CAPREIT accounts for the non-controlling interest in ERES as a liability, measured at the redemption amount, as defined by the ERES DOT, of ERES’s
units not owned by CAPREIT. The adjustment is made so that the non-controlling interest in ERES is measured at ERES’s disclosed NAV, rather than
the redemption amount. The table below summarizes the calculation of adjustment to ERES non-controlling interest as at December 31, 2023 and
December 31, 2022:
($ Thousands)
As at
ERES’s NAV
Ownership by ERES non-controlling interest
Closing foreign exchange rate
Impact to NAV due to ERES’s non-controlling unitholders
Less: ERES units held by non-controlling unitholders
Adjustment to ERES non-controlling interest
Other Information
Selected Consolidated Quarterly Information
December 31, 2023
December 31, 2022
€
676,956
€
899,166
35%
1.46262
346,545
186,522
160,023
$
$
$
$
$
$
34%
1.44982
443,228
242,599
200,629
Q4 23
Q3 23
Q2 23
Q1 23
Q4 22
Q3 22
Q2 22
Q1 22
Canadian residential
Occupied AMR(1)(2)
1,516 $
The Netherlands Occupied AMR(2) € 1,063 €
Operating revenues (000s)
$
1,490 $
1,460
1,053 €
1,009
$ 272,195 $ 268,377 $ 263,798
$ 176,711 $ 178,432 $ 173,785
$
€
1,428 $
1,401 $
1,387 $
1,371 $
1,356
1,002 €
992 €
983 €
952 €
949
$ 260,947 $ 256,915 $ 252,032 $ 251,693 $ 246,628
$ 163,858 $ 164,500 $ 166,644 $ 166,093 $ 153,172
NOI (000s)
NOI Margin
Net income (loss) (000s)
FFO (000s)(3)(4)
FFO per unit – diluted(3)(5)
FFO payout ratio(3)(6)
64.9%
66.5%
65.9%
62.8%
64.0%
66.1%
66.0%
62.1%
9,212 $ (357,542)
$ 39,983
$
$ 102,153 $ 108,280 $ 100,076
0.590
$
0.638 $
$ (103,227)
$ 155,523 $ 63,159 $ (250,354)
$ 45,309
$ 97,153 $ 99,922 $ 106,562 $ 102,871 $ 97,622
$
0.567 $
0.580 $
0.610 $
0.583 $
0.555
56.8%
61.5%
63.6%
62.4%
59.1%
61.9%
65.3%
0.602 $
60.4%
Total debt to gross book value(2)(3)
41.6%
41.4%
40.4%
40.1%
39.4%
39.4%
38.8%
37.6%
NAV per unit – diluted(2)(3)
Weighted average number
of units (000s) – diluted
(1) Excludes MHC sites.
(2) As at period end.
$
54.23 $
54.36 $
57.08
$
57.47 $
58.01 $
56.44 $
56.66 $
59.43
169,828 169,727 169,664
171,266 172,401 174,588 176,322 175,994
(3)
Non-IFRS Measures are reconciled with IFRS reported amounts in the respective quarterly SEDAR+ filings. These measures are not defined by IFRS, do
not have standard meanings and may not be comparable with other industries or companies (see Section I – Non-IFRS Measures).
(4) Formerly known as “NFFO”.
(5) Formerly known as “NFFO per unit – diluted”.
(6) Formerly known as “NFFO payout ratio”.
70
2023 Annual ReportManagement’s Discussion and Analysis
CAPREIT’s operations are affected by seasonal cycles, and operating performance in one quarter may not be indicative
of operating performance in any other quarter of the year. The first and fourth quarters of each year are typically more
subject to increased energy consumption in the winter months. There may be periods where actual distributions
declared may exceed cash generated from (utilized in) operating activities after factoring interest paid, primarily due
to seasonal fluctuations. These seasonal or short-term fluctuations are funded, if necessary, with the Acquisition
and Operating Facility. CAPREIT determines its annual distributions and the annual distribution rate by, among other
considerations, its assessment of ACFO (a Non-IFRS Measure). As such, CAPREIT believes the cash distributions are
not an economic return of capital, but a distribution of adjusted cash flow from operating activities.
Selected Consolidated Financial Information
The following table presents a summary of selected financial information for the fiscal years indicated:
($ Thousands, except per Unit amounts)
Year Ended December 31,
Income Statement
Operating revenues
Net income (loss)
Distributions
Distributions declared on Trust Units(1)
Distributions per Trust Unit
Balance Sheet
Investment properties(2)
Total assets
Mortgages payable(3)
Credit facilities payable
Total non-current financial liabilities(4)
2023
2022
2021
$ 1,065,317
(411,574)
$
$
$
243,282
1.450
$
$
$
$
1,007,268
13,637
249,540
1.450
$
$
$
$
933,137
1,392,795
243,348
1.409
$ 16,532,096
$ 16,968,640
$ 6,653,988
$
$ 6,605,342
405,133
$ 17,153,709
$ 17,101,919
$ 17,741,888
$ 17,712,973
$
$
$
6,577,097
388,975
6,603,200
$
$
$
6,100,065
310,866
6,139,595
(1)
(2)
(3)
(4)
Distributions declared exclude the special non-cash distributions. Refer to note 17 of the accompanying consolidated annual financial statements for
further information.
Investment properties exclude $45,850 of assets held for sale as at December 31, 2023 (December 31, 2022 – $132,342, December 31, 2021 – $nil).
Mortgages payable exclude $23,706 of liabilities related to assets held for sale as at December 31, 2023 (December 31, 2022 – $38,116,
December 31, 2021 – $nil).
Consist of non-current mortgages payable, credit facilities payable, ERES units held by non-controlling unitholders, non-current unit-based compensation
financial liabilities and non-current derivative liabilities.
CAPREIT’s year-over-year changes in operating revenues and net income (loss) were primarily driven by operational
growth and contributions from property acquisitions, partially offset by property dispositions. In addition, net income
(loss), investment properties and total assets were impacted by the year-over-year changes in the fair values of
investment properties. Distributions per Trust Unit increased in August 2021, resulting in an increase in distributions
declared on Trust Units from 2021 to 2022. Distributions declared on Trust Units decreased from 2022 to 2023 as
a result of CAPREIT’s purchase of Trust Units in 2022 and 2023 under the NCIB program. Year-over-year increases
in mortgages payable and credit facilities payable were due to the timing of property acquisitions and dispositions,
as well as financing needs. Furthermore, fluctuations in total non-current financial liabilities were impacted by fair
value changes relating to ERES units held by non-controlling unitholders and non-current unit-based compensation
financial liabilities. Refer to the various sections of this MD&A for further information on CAPREIT’s key financial and
operational performance.
Foreign Currency Information
CAPREIT’s functional currency is the Canadian dollar and the functional currency of certain foreign subsidiaries is
the euro. CAPREIT is exposed to gain or loss on foreign currency translation due to its holdings of European assets
and liabilities through its investment in IRES, its ERES subsidiary and euro-denominated cash and borrowings held by
CAPREIT. Further, as part of CAPREIT’s foreign currency and interest rate management strategies, CAPREIT has cash,
borrowings and cross-currency interest rate swap arrangements denominated in US dollars.
71
Focused on QualityManagement’s Discussion and Analysis
Based on CAPREIT’s accounting policies, CAPREIT converted its euro and US dollar-denominated balances and
transactions as at and for the respective periods using the rates shown in the table below:
As at
Canadian dollar per euro (closing rate at period end)
Canadian dollar per US dollar (closing rate at period end)
December 31, 2023
December 31, 2022
$
1.46262
$
1.32517
1.44982
1.35454
Canadian dollar per euro (average rate
during the period)
Canadian dollar per US dollar (average rate
during the period)
European Foreign Exchange Exposure
Three Months Ended December 31,
Year Ended December 31,
2023
2022
2023
2022
$
1.46450
$
1.38611
$
1.45940
$
1.37022
1.36087
1.35771
1.34951
1.30166
The majority of CAPREIT’s foreign currency transactions are denominated in euros. Between December 31, 2022 and
December 31, 2023, the euro strengthened against the Canadian dollar from a closing price of $1.44982 per euro to
$1.46262 per euro.
The following table summarizes CAPREIT’s net foreign investments exposure and its associated derivative financial
instruments related to the euro as at December 31, 2023 and December 31, 2022. CAPREIT uses derivative financial
instruments to minimize its exposure to fluctuations in foreign exchange rates.
(€ Thousands)
As at
ERES assets
Investment in IRES
CAPREIT’s euro cash
Total foreign assets
ERES liabilities excluding intercompany transactions
Total foreign liabilities
Net foreign equity(1)
Cross-currency swaps(2)
Net European foreign exchange exposure
Net European foreign exchange exposure – excluding non-controlling interest
December 31, 2023
December 31, 2022
€ 1,722,684
€
1,939,206
110,777
493
111,088
1,317
€ 1,833,954
€
2,051,611
€ 1,040,968
€ 1,040,968
€
792,986
442,358
350,628
112,028
€
€
€
€
€
€
€
1,062,562
1,062,562
989,049
442,358
546,691
248,632
(1)
As at December 31, 2023, net foreign equity includes €681,716 (December 31, 2022 – €876,644) relating to ERES in which CAPREIT has a 65%
(December 31, 2022 – 66%) interest.
(2)
Excludes cross-currency swaps denominated in US dollars.
SECTION VII: COMPLIANCE AND GOVERNANCE DISCLOSURES,
RISKS AND UNCERTAINTIES
Accounting Policies and Critical Accounting Estimates, Assumptions and Judgments
Summary of Material Accounting Policies
A summary of material accounting policies can be found in note 2 to CAPREIT’s consolidated annual financial statements
for the year ended December 31, 2023.
Critical Accounting Estimates, Assumptions and Judgments
A summary of critical accounting estimates, assumptions and judgments can be found in note 3 to CAPREIT’s consolidated
annual financial statements for the year ended December 31, 2023.
72
2023 Annual ReportManagement’s Discussion and Analysis
Controls and Procedures
Disclosure Controls and Procedures
CAPREIT’s disclosure controls and procedures are designed to provide reasonable assurance that information required
to be disclosed is recorded, processed, summarized and reported within the time periods specified under Canadian
securities laws, and include controls and procedures designed to ensure information is accumulated and communicated
to management, including the executive officers, to allow timely decisions regarding required disclosures.
As at December 31, 2023, CAPREIT’s executive officers, with the assistance of management, evaluated the effectiveness
of the disclosure controls and procedures in accordance with the rules adopted by the Canadian Securities Administrators
under National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings, and based on that
evaluation concluded that the design and operation of the disclosure controls and procedures were effective as at
December 31, 2023.
Management has designed an adequate and appropriate control framework for the fair value assessment processes
to ensure reported values accurately reflect market conditions. For the fair value assessment process of investment
properties, unit-based compensation and other financial instruments measured at fair value, these controls include
a comprehensive review of the assumptions and estimates, including those used by the independent appraisers or
third parties on an annual basis, as well as multiple levels of reviews of such key assumptions and data within CAPREIT
by management on an interim and annual basis.
Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial
statements for external purposes in accordance with IFRS. As at December 31, 2023, CAPREIT’s executive officers,
with the assistance of management, assessed the effectiveness of the internal controls over financial reporting using
the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (“COSO”) in 2013 and, based on that assessment, determined that the internal controls
over financial reporting were designed and operating effectively as at December 31, 2023.
CAPREIT did not make any changes to the design of internal controls over financial reporting in 2023 that have
materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.
Risks and Uncertainties
There are certain risks inherent in an investment in the Trust Units and in the activities of CAPREIT. The following is a
description of the principal risks in CAPREIT’s business, defined as either those that could have a significant impact
on CAPREIT if they were to occur or those that are significant to CAPREIT’s day-to-day operations. Investors should
carefully consider these risks before investing in CAPREIT Trust Units.
Rent Control and Residential Tenancy Regulations
Multi-unit residential rental properties are subject to rent control legislation in most provinces in Canada. Each province
in which CAPREIT operates maintains distinct regulations with respect to tenants’ and landlords’ rights and obligations.
The legislation in various degrees imposes restrictions on the ability of a landlord to increase rents above an annually
prescribed guideline or requires the landlord to give tenants sufficient notice prior to an increase in rent, or restricts
the frequency of rent increases permitted during the year. The annual rent increase guidelines as per applicable
legislation attempt to link the annual rent increases to some measure of the change in the cost of living index over the
previous year. The legislation also, in most cases, provides for a mechanism to ensure rents can be increased above
the guideline increases in extraordinary circumstances. As a result of rent controls, CAPREIT may incur property capital
investments in the future that will not be fully recoverable from rents charged to tenants.
In the Netherlands, rental properties where their maximum starting rent (based on the number of points attributed
to that rental property) is lower than the government prescribed rent control threshold (which is indexed to account
for annual inflation) are subject to rent control. The permissible amount of annual rent increases is limited for
rent-controlled apartments.
73
Focused on QualityManagement’s Discussion and Analysis The lack of availability of affordable housing and related housing policy and regulations is continuing to increase in
prominence as a topic of concern at the various levels of government. Accordingly, through different approaches,
governments may enact policy, or amend legislation in a manner that may have a material adverse effect on the ability
of CAPREIT to grow or maintain the historical level of cash flow from its properties. In addition, laws and regulations
providing for compliance with various housing matters involving tenant evictions, work orders, health and safety issues
or fire and maintenance standards, etc., may become more stringent in the future. CAPREIT may incur increased
operating costs and capital investments as part of its compliance with any such additional government legislation and
regulations relating to housing matters, which may have an adverse effect on NOI and cash flow.
General Economic Conditions
All real property investments are subject to elements of risk. The real value of real property and any improvements
thereto depend on the credit and financial stability of residents and the vacancy rates of such properties. CAPREIT
is affected by changes in general economic conditions (such as the availability and cost of financing, inflation,
unemployment), local real estate markets (such as an oversupply of space or a reduction in demand for real estate in
the area), government regulations, changing demographics, competition from other available rental premises, including
new developments, and various other factors. As the properties generate revenue through rental payments made by
residents, the inability of residents to pay rent may impact the rent receivables CAPREIT anticipates to receive on its
properties. The current rate of inflation and increases in interest rates may adversely affect consumer spending and
debt levels, and as a result, CAPREIT’s financial performance (including, but not limited to, in connection with potential
increases in tenant activism related to the foregoing). If, as a result of the foregoing, a significant number of residents
are unable to meet their obligations under their leases or if a significant amount of available space in the properties
becomes vacant and cannot be leased on economically favourable lease terms, cash available for distribution may
be adversely affected. In addition, there is no guarantee that rental rates on renewals of existing rental agreements
with residents, or market rents for available suites, will grow at levels similar to increasing rates of inflation, which may
cause growth of operating expenditures to outpace growth in revenues.
Rising interest rates may cause a decrease in the value of rental properties and could also have a material adverse
effect on CAPREIT’s ability to sell any of its properties. In addition, increasing interest rates could put competitive
pressure on the levels of distributions paid by CAPREIT to Unitholders, increasing the level of competition for capital
faced by CAPREIT, which could have a material adverse effect on the trading price of the applicable Trust Units.
Changes in borrowing rates will also affect CAPREIT’s costs of borrowing. CAPREIT’s financial condition and results
of operations would be adversely affected if it were unable to obtain adequate financing or cost-effective financing.
The global economy may face increasing uncertainty due to trade protectionism, rising interest rates, disputes,
international conflict and other political and economic events around the world, which could potentially impact
international and domestic supply chains, Canadian trade, and the Canadian and global economy at large. This could
have an impact on employment in the markets in which CAPREIT operates and in turn have an adverse effect on
CAPREIT. In addition, CAPREIT’s operating costs could increase further due to inflationary pressures, equipment
limitations or other input cost escalations. CAPREIT’s inability to control these costs could have an adverse effect on
CAPREIT’s operating results and cash flows.
Privacy, Cyber Security and Data Governance Risks
CAPREIT may be vulnerable to privacy and cyber security incidents given its reliance on processing personal and
business confidential information using information technology systems. Additionally, CAPREIT’s hybrid working policy
may elevate cyber security risk related to processing such personal and business confidential information. Third-party
vendors, such as cloud host providers and software and application providers and consultants, may also expose
CAPREIT to cyber security or privacy incidents.
As technology continues to become more sophisticated and complex, governments are responding with stricter
legislation, requiring higher levels of data protection. In Canada, CAPREIT is subject to federal and provincial privacy,
anti-spam, and data protection laws. In Europe, CAPREIT and its Dutch subsidiaries are required to comply with the
General Data Protection Regulation (“GDPR”) passed by the European Union (“EU”). Under the GDPR, CAPREIT and its
subsidiaries are classified as either data processors, sub-processors or controllers, based on their function with regards
to processing of personal data in the EU. Controllers and sub-processors may share liability, to varying degrees, in the
event of a breach. Non-compliance with either of the Canadian or European laws would also expose CAPREIT and/or its
subsidiaries to numerous risks, including the risk of incurring penalties from regulators, as well as reputational damage.
74
2023 Annual ReportManagement’s Discussion and Analysis A cyber security and/or privacy incident can lead to: (a) unauthorized access to or disclosure of business confidential
and personal information, belonging to CAPREIT and its residents, employees or vendors, (b) identity theft, fraudulent
activities and direct losses to stakeholders, including residents and employees, (c) destruction or corruption of data
affecting timeliness or accuracy of financial reporting, (d) lost revenues, (e) disruption to operations, including delays
in processing rental applications and rent payments, (f) time and attention required by management to investigate and
respond to a cyber security incident, (g) remediation costs, including to restore or recover lost data, (h) litigation, fines and
liabilities, including third-party liabilities, for failure to comply with applicable privacy and data protection laws or contractual
obligations, (i) regulatory investigations, ( j) increased insurance premiums and (k) reputational damage to CAPREIT.
CAPREIT has implemented processes, procedures and controls to help mitigate these risks, including monitoring and
testing, maintenance of protective systems and contingency plans, to protect and prevent unauthorized access of
personal and business confidential information and to reduce the likelihood of disruptions to its information technology
systems. However, these measures, as well as increased awareness of risks of a cyber-incident, do not guarantee that
CAPREIT and its stakeholders will not be negatively impacted by such an incident.
Additionally, CAPREIT depends on relevant and reliable information to operate its business. As the volume of data
being generated and reported continues to increase, data accuracy, quality and governance may be increasingly
relevant to prompt and effective decision-making. Failure by CAPREIT to gather, analyze, validate and leverage data
in a timely manner may adversely affect its decision-making and ability to execute its strategy, which may impact its
financial performance.
Availability and Cost of Debt
A portion of CAPREIT’s cash flow is devoted to servicing its debt, and there can be no assurance that CAPREIT will
continue to generate sufficient cash flow from operations to meet required interest and principal payments. CAPREIT
has and will continue to have substantial outstanding consolidated indebtedness, comprised mainly of property
mortgages and indebtedness under its Credit Facilities. A subsidiary of CAPREIT provides a guarantee and carries a
negative pledge of an unencumbered property pool relating to the ERES Credit Facility. CAPREIT is subject to the risks
associated with debt financing, including the risk that CAPREIT may be unable to make interest or principal payments or
meet loan covenants, the risk that defaults under a loan could result in cross-defaults or other lender rights or remedies
under other loans, and the risk that existing indebtedness may not be able to be refinanced or that the terms of such
refinancing may not be as favourable as the terms of existing indebtedness or expectations of future interest rates.
In such circumstances, CAPREIT could be required to seek renegotiation of such payments or obtain additional equity,
debt or other financing and its ability to make property capital investments and distributions to Unitholders could be
adversely affected.
CAPREIT (excluding ERES) currently has access to the government-backed mortgage insurance program through the
National Housing Act, which is administered by CMHC. There can be no guarantee that the provisions of the mortgage
insurance program will not be changed in the future so as to make the costs of obtaining mortgage insurance prohibitive
or restrict access to the insurance program. To the extent that any financing requiring CMHC consent or approval
is not obtained or that such consent or approval is only available on unfavourable terms, CAPREIT may be required to
finance a conventional mortgage which may be less favourable to CAPREIT than a CMHC-insured mortgage.
CAPREIT’s Credit Facilities are at floating interest rates and, accordingly, changes in short-term borrowing rates will
affect CAPREIT’s costs of borrowing. CAPREIT’s financial condition and results of operations would be adversely
affected if it were unable to obtain financing or cost-effective financing. As at the date hereof, it is difficult to forecast
the future state of the commercial loan market. If, because of CAPREIT’s level of indebtedness, the level of cash flows,
lenders’ perceptions of CAPREIT’s creditworthiness or other reasons, management is unable to renew, replace or
extend the Credit Facilities on acceptable terms, or to arrange for alternative financing, CAPREIT may be required to
take measures to conserve cash or make alternative credit arrangements or, if such financing is available on acceptable
terms, or at all. Such measures could include deferring property capital investments, dispositions of one or more
properties on unfavourable terms, reducing or eliminating future cash distributions or other discretionary uses of cash,
or other more severe actions. Also, disruptions in the credit markets and uncertainty in the economy could adversely
affect the banks that currently provide the Credit Facilities, could cause the banks or a bank to elect not to participate
in any new credit facilities sought, or could cause other banks that are not currently participants in the Credit Facilities
to be unwilling or unable to participate in any such new facility.
75
Focused on QualityManagement’s Discussion and Analysis Furthermore, given the relatively small size of the Canadian marketplace, there are a limited number of lenders from
which CAPREIT can reasonably expect to borrow, and the number of lenders currently participating in the CMHC-insured
mortgage market is even smaller. Consequently, it is possible that financing which CAPREIT may require in order to
grow and expand its operations in Canada, upon the expiry of the term of existing financing, or the refinancing of any
particular property owned by CAPREIT or otherwise, may not be available or may not be available on favourable terms.
Acquisitions, Dispositions and Property Development
CAPREIT’s external growth prospects will depend in large part on identifying suitable acquisition opportunities that meet
CAPREIT’s investment criteria and satisfy its rigorous due diligence process. In addition, external growth prospects will
be affected by purchase price, ability to obtain adequate financing or financing on reasonable terms, consummating
acquisitions (including obtaining necessary consents) and effectively integrating and operating the acquired properties.
Acquired properties may not meet financial or operational expectations due to unexpected costs associated with
acquiring the property, as well as the general investment risks inherent in any real estate investment or acquisition,
including future refinancing risks. Acquired properties may also be subject to unexpected or undisclosed liabilities
which could have a material adverse impact on the operations and financial results of CAPREIT. Representations and
warranties given by third parties to CAPREIT by way of contract or otherwise may not adequately protect against these
liabilities and any recourse against third parties may be limited by the financial capacity of such third parties. Moreover,
newly acquired properties may require significant management attention or property capital investments that would
otherwise be allocated to other properties. If CAPREIT is unable to manage its growth and integrate its acquisitions
effectively, its business, operating results and financial condition could be adversely affected.
CAPREIT competes for suitable real property investments with various other parties (both Canadian and foreign) that
are seeking, or which may seek in the future, real property investments similar to those desired by CAPREIT. Some
of these investors may have greater financial resources than those of CAPREIT, or operate without the investment or
operating restrictions of CAPREIT or according to more flexible conditions. An increase in the availability of investment
funds and/or an increase in interest in real property investments may tend to increase competition for real property
investments, thereby increasing purchase prices and reducing the yield on them.
CAPREIT regularly considers and undertakes strategic property dispositions in order to recycle its capital and improve
its portfolio composition, with the goal of improving the risk and return profile of its cash flows. Failure to execute on
dispositions may inhibit CAPREIT’s ability to fund other strategic priorities. Additionally, failure to receive appropriate
pricing on dispositions may adversely impact CAPREIT’s ability to redeploy the capital and replace the disposition
cash flows. Failure to dispose of certain assets not aligned with CAPREIT’s investment criteria may adversely affect its
operations and financial performance.
Consistent with CAPREIT’s past practices and in the normal course of business, CAPREIT is engaged in discussions
with respect to possible acquisitions of new properties and dispositions of existing properties in its portfolio. However,
there can be no assurance that these discussions or agreements will result in acquisitions or dispositions, or, if they
do, what the final terms or timing of such acquisitions or dispositions would be. CAPREIT expects to continue current
discussions and actively pursue other acquisition, investment and disposition opportunities.
CAPREIT, from time to time, engages in development, redevelopment and major renovation activities with respect to
certain properties. It is subject to certain risks, including the availability and timely receipt of zoning, occupancy, land
use and other regulatory and governmental approvals. This could result in substantial unanticipated delays or costs and
could negatively impact the financial performance of CAPREIT. Additionally, CAPREIT, from time to time, seeks entitlements
from underutilized lands. Failure to successfully obtain entitlements, or a detrimental impact on the end value of the site
(through lower land values, for example) could result in wasted expenditures related to the entitlement process.
CAPREIT may, in the future, co-invest in property acquisitions or development initiatives through joint ventures or other
joint equity structures. In any such joint venture, CAPREIT may not be in a position to exercise sole decision-making
authority regarding the properties owned through joint ventures. Investments in joint ventures may, under certain
circumstances, involve additional risks which would not have otherwise been present if CAPREIT had pursued these
opportunities on its own.
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2023 Annual ReportManagement’s Discussion and Analysis Valuation Risk
CAPREIT conducts a valuation assessment of its properties on a quarterly basis. As property values fluctuate over
time in response to market factors, or as underlying assumptions and inputs to the valuation model change, the fair
value of CAPREIT’s portfolio could change materially. Any changes in the value of CAPREIT’s properties may impact
Unitholder value. While CAPREIT is responsible for the reasonableness of the assumptions and for the accuracy of the
inputs into the property valuation model, market assumptions applied for appraisals and valuation purposes do not
necessarily reflect CAPREIT’s specific history or experience and the conditions for realizing the fair values through a
sale may change or may not be realized.
Liquidity and Unit Price Volatility
CAPREIT is an unincorporated “open-ended” investment trust and its Trust Units are listed on the TSX. There can be
no assurance that an active trading market in the Trust Units will be sustained.
A publicly traded real estate investment trust will not necessarily trade at values determined solely by reference to the
underlying value of its real estate assets. The prices at which Trust Units will trade cannot be predicted. The market
price of the Trust Units could be subject to significant fluctuations in response to variations in quarterly operating results,
distributions and other factors beyond the control of CAPREIT. One of the factors that may influence the market price
of the Trust Units is the annual yield on the Trust Units. Accordingly, an increase in market interest rates may lead
investors of Trust Units to demand a higher annual yield, which could adversely affect the market price of the Trust
Units. In addition, the securities markets have experienced significant price and volume fluctuations from time to time
in recent years that often have been unrelated or disproportionate to the operating performance of particular issuers.
These broad fluctuations may adversely affect the market price of the Trust Units. Accordingly, the Trust Units may
trade at a premium or a discount to the value of CAPREIT’s underlying assets.
In addition, changes in CAPREIT’s creditworthiness or perceived creditworthiness may affect the market price or value
and/or liquidity of the Trust Units.
The DOT imposes various restrictions on Unitholders. Non-residents and non-Canadian partnerships are prohibited
from beneficially and collectively owning more than 49% of the outstanding Trust Units on a non-diluted or diluted
basis. These restrictions may limit, or inhibit the exercise of, the rights of certain non-resident persons and partnerships
to acquire Trust Units, to continue to hold Trust Units, or to initiate and complete take-over bids in respect of the Trust
Units. As a result, these restrictions may limit the demand for Trust Units from certain Unitholders and other investors,
and thereby adversely affect the liquidity and market value of the Trust Units.
Catastrophic Events
CAPREIT’s properties may be impacted by acts of nature, such as climate-related events, and global events beyond
CAPREIT’s control. Depending on their severity, these events could cause threats to the safety of CAPREIT’s residents,
significant damage to CAPREIT’s properties and interruptions to CAPREIT’s normal operations. There may be adverse
impacts to CAPREIT’s business if there is instability, disruption or destruction in a significant geographic region,
regardless of cause, including war, terrorism, riots, civil insurrection or social unrest, and natural or man-made disasters,
including famine, floods, hurricanes, fires, earthquakes, storms or disease as well as ineffective contingency planning
for these types of events. CAPREIT may be required to incur significant unanticipated costs to manage the impact of
these events. Management of the impact of a catastrophic event would also result in time and effort being diverted from
CAPREIT’s day-to-day operations. There is also a possibility that CAPREIT’s ability to generate revenues from properties
in impacted countries or regions could be significantly impaired. The increased costs, time, effort and potential revenue
loss could be more significant if multiple properties or operating regions are impacted by catastrophic events within
a relatively short time frame.
Climate Change
Climate change presents a multi-faceted risk for CAPREIT considering its investment in and management of real estate
assets in multiple geographical territories. Climate-related risks refer to the potential for climate change to create adverse
consequences for human or ecological systems, including impacts on people, livelihoods, health and well-being, economic,
social and cultural assets and investments, infrastructure, services provision, ecosystems and species. Following the
framework from the TCFD, CAPREIT separates its climate change-related risks into two categories: (i) risks related to the
physical impacts of climate change and (ii) risks related to the transition to a lower-carbon economy.
77
Focused on QualityManagement’s Discussion and Analysis An increase in the frequency and magnitude of climate-related risks such as floods, fires, windstorms and ice storms
in certain locales can lead to a surge in capital expenditure, repairs and maintenance and interruptions to business
operations. Ongoing operating expenses such as energy costs can potentially be impacted more by extreme weather,
and anticipation of more frequent and severe weather events may have an adverse effect on insurance premiums.
Investment properties located in areas with higher climate-related vulnerabilities could experience negative pressure
on their valuations. CAPREIT has reviewed certain of its markets of operations across Canada and floods, heat waves,
wildfires, extreme winds, heat stress, winter weather conditions/fluctuations, water stress, diseases, and related events
have been identified to be of significant risk (in varying orders of relevance) in both the medium term (e.g., up to or
around the year 2050) and long term (e.g., up to or around the year 2080) in such markets.
In addition, transitioning to a low-carbon economy will drive extensive regulatory market and technology changes
to address mitigation and adaptation requirements related to climate change. CAPREIT’s approach to meet these
challenges will also have an impact on its reputation. Regulatory changes may include those related to carbon pricing,
a shift to low emission energy sources, the adoption of energy efficiency measures and technology, and changes to
building codes to allow for climate resiliency and mitigation. Market changes may include adjustments in the goods
and services purchased by CAPREIT as well as shifts in the preferences of occupants. Technology is moving towards
more climate-friendly options including renewable energy, battery storage and energy efficiency equipment. CAPREIT’s
reputation is important to all stakeholders and will be impacted by CAPREIT’s demonstrated understanding of climate-
related financial risk and its plan to manage (mitigate or adapt to) these risks.
Lenders, investors, and regulators are increasingly viewing climate change as an important issue that requires greater
consideration. A lack of investment strategy and operational management plan concerning climate change may have
an adverse effect on CAPREIT’s ability to raise funds via debt and/or equity markets, as well as related investment
returns and sentiment.
CAPREIT maintains a comprehensive insurance program that considers the impacts of weather-related events by
providing coverage for property damage and business interruption.
The table below summarizes the climate-related risks and their potential impacts on CAPREIT’s business.
CATEGORY
PHYSICAL RISKS
Acute and Chronic
TRANSITION RISKS
Regulatory
RISKS
IMPACT
• increase in the frequency and magnitude of
climate-related risks such as floods, fires,
windstorms and ice storms
• increase in the duration and magnitude of
chronic climate-related risks such as heat stress,
winter weather, water stress, freeze-thaw cycles
and disease
• rising capital expenditures, repairs and maintenance
expenses
• interruptions to asset operations
• safety threats to residents and employees
• rising operating costs (e.g., energy prices)
• rising insurance premiums
• growing negative impacts on valuations and/or
financial performance
• carbon pricing and related uncertainty
• emergence of climate-related disclosure
• uncertainty in planning and budgeting processes
• unforeseen expenses for equipment upgrade
requirements
and replacement
• mandatory adoption of energy efficiency or carbon
• risks from non-compliance including litigation
reduction measures and/or limits
• changes to building codes to adapt to climate
resiliency and mitigation
and stakeholder pressure
Market
• adjustments in goods and services purchased by
CAPREIT
• loss of asset market/customer appeal
• supply chain disruption or unintended
• changes in the requirements/preferences of
partner changes
occupants
Technology
• transition to renewable sources of energy, battery
• increase in expenses and capital investment
storage and energy efficiency equipment
Reputational
• reputational impacts from lack of proper investment
strategy and operational management plan
(i.e., absence of performance/reduction targets)
to address climate change
• increase in scrutiny from investors and stakeholders
• negative impact on CAPREIT’s ability to raise funds
via debt and/or equity, as well as related investment
returns and sentiment
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2023 Annual ReportManagement’s Discussion and Analysis Taxation-Related Risks
CAPREIT currently qualifies as a mutual fund trust for Canadian income tax purposes. It is the current policy of CAPREIT
to distribute all of its taxable income to Unitholders and it is therefore generally not subject to tax on such amount. In
order to maintain its current mutual fund trust status, CAPREIT is required to comply with specific restrictions regarding
its activities and the investments held by it. If CAPREIT were to cease to qualify as a “mutual fund trust”, the income tax
considerations would be materially and adversely different in certain respects and there may be adverse income tax
consequences for certain of CAPREIT’s Unitholders, including non-resident persons and trusts governed by registered
retirement savings plans, registered disability savings plans, deferred profit-sharing plans, registered retirement income
funds, tax-free savings accounts and registered education savings plans (“designated savings plans”), which acquired
an interest in CAPREIT directly or indirectly from another Unitholder.
If CAPREIT ceases to qualify as a “mutual fund trust” or “registered investment” under the Tax Act and Trust Units cease
to be listed on a designated stock exchange, Trust Units will cease to be qualified investments for trusts governed
by designated savings plans. CAPREIT will endeavour to ensure Trust Units continue to be qualified investments for
trusts governed by the designated savings plans; however, there can be no assurance that this will be so. The Tax Act
imposes penalties for the acquisition or holding of non-qualified investments by such trusts. Unitholders should consult
their own tax advisors in this regard, including as to whether Trust Units are “prohibited investments” for registered
retirement savings plans, registered retirement income funds, registered disability savings plans, registered education
savings plans, or tax-free savings accounts.
There are rules under the Tax Act (the “SIFT Rules”) that apply to specified investment flow-through trusts or partnerships
(“SIFTs”), and their beneficiaries or partners. Under the SIFT Rules, certain distributions will not be deductible in computing
the SIFT’s taxable income and the SIFT will be subject to tax on such distributions at a rate that is substantially
equivalent to the general tax rate applicable to Canadian corporations. The SIFT Rules do not apply to certain real
estate investment trusts that satisfy a number of technical tests relating to the nature of the revenue and investments
of the trust for the particular taxation year (the “REIT Exemption”). Although CAPREIT expects to qualify for the REIT
Exemption throughout 2024 and in future years, there can be no assurance that CAPREIT will not be subject to the
SIFT Rules. If the SIFT Rules apply, the impact to Unitholders will depend in part on the status of the Unitholder and,
in part on the amount of income distributed which would not be deductible by CAPREIT in computing its income in a
particular year, and on what portions of CAPREIT’s distributions constitute “non-portfolio earnings”, other than income
and returns of capital. To the extent that CAPREIT does not qualify for the REIT Exemption, CAPREIT will consider
alternative measures, including restructuring, assuming that these measures are in the best interests of its Unitholders,
to qualify for the REIT Exemption in the following year.
There can be no assurance that Canadian federal income tax laws, including in respect of the treatment of mutual fund
trusts or the REIT Exemption, will not be changed in a manner that adversely affects CAPREIT or its Unitholders. Certain
proposed amendments to the Income Tax Act (Canada) (“Tax Act”) that are expected to apply to CAPREIT would have
the effect of denying the deductibility of net interest and financing expenses in certain circumstances. The proposed
amendments have not been enacted as at the date of this MD&A. Furthermore, the judicial interpretation of Canadian
federal income tax laws or the administrative and assessing practices and policies of the Canada Revenue Agency
(“CRA”) or the Minister of Finance (Canada) could change in a manner that adversely affects CAPREIT, its affiliates or
the Unitholders. In addition, the Tax Act may impose additional withholding or other taxes on distributions made by
CAPREIT to Unitholders that are non-residents and these taxes and any reduction thereof under a tax treaty between
Canada and a foreign jurisdiction may change from time to time. There is also a risk that the tax laws and treaties of the
foreign jurisdictions where CAPREIT operates may change in the future. Any such changes could adversely affect the
taxes payable, including withholding taxes, the effective tax rate in those jurisdictions and the portion of distributions
which would be income for Canadian income tax purposes. Any such changes may have a material adverse effect on
Unitholders’ returns.
CAPREIT has foreign subsidiaries in a number of countries with varying statutory rates of taxation. Judgment is required
in the estimation of income taxes and deferred income tax assets and liabilities in each of CAPREIT’s operating
jurisdictions. Income taxes may be paid where activities carried on by the foreign subsidiaries are considered to be
taxable in those countries.
79
Focused on QualityManagement’s Discussion and Analysis CAPREIT has foreign subsidiaries that are subject to the tax laws of foreign jurisdictions. Distributions from those
foreign subsidiaries may be subject to withholding tax, which may increase the overall taxes payable by CAPREIT and its
subsidiaries, and reduce the amount of cash available for distribution to Unitholders. For Canadian income tax purposes,
any such foreign withholding tax incurred by CAPREIT will either reduce CAPREIT’s foreign income or be allocated
to CAPREIT Unitholders and such Unitholders may be entitled to claim a foreign tax credit in respect of such taxes.
In addition, there is a risk that the tax laws and treaties of the foreign jurisdictions may change in the future. Any such
changes could adversely affect the taxes payable, including withholding taxes, the effective tax rate in the jurisdictions
in which the foreign subsidiaries operate and the portion of distributions which would be income for Canadian income
tax purposes. Any such changes may have a material adverse effect on Unitholders’ returns.
Energy Costs
As a significant part of CAPREIT’s operating expenses is attributable to energy and energy-related charges and fees,
fluctuations in the price of energy and any related charges and fees (including transportation costs, commodity taxes
and recent increases, and anticipated future increases, in federal and provincial carbon taxes and other forms of carbon
pricing) can have a material impact on the performance of CAPREIT, its ability to pay distributions and the value of its
Trust Units. The impact of such fluctuations could be exacerbated if such energy costs cannot be hedged.
From time to time, CAPREIT may enter into agreements to pay fixed prices on all or certain of its energy requirements
(principally natural gas and electricity in certain markets) to offset the risk of rising expenditures resulting from the
increase in the prices of these energy commodities; however, if the prices of these energy commodities decline beyond
the levels set in these agreements, CAPREIT will not benefit from such declines in energy prices and will be required
to pay the higher price for such energy supplies in accordance with these agreements.
Environmental Matters
Environmental and ecological legislation and policies have become increasingly important, and generally more
restrictive, in recent years. Under various laws, CAPREIT could be liable for the costs of removal or remediation of
certain hazardous or toxic substances released on its properties including in connection with CAPREIT’s acquisition,
development, disposition or financing of properties. The failure to monitor, remove or remediate any such substances,
if any, may adversely affect CAPREIT’s ability to sell its real estate, or to borrow using such real estate as collateral, and
could potentially also result in regulatory enforcement proceedings and/or private claims against CAPREIT. Although
CAPREIT is not aware of any material non-compliance with environmental laws nor is it aware of any material pending
or threatened investigations or actions by environmental regulatory authorities in connection with any of its properties,
or any material pending or threatened claims relating to environmental conditions at its properties, no assurance can
be given that environmental laws will not result in significant liability to CAPREIT in the future or otherwise adversely
affect CAPREIT’s business, financial condition or results of operations.
Environmental laws and regulations can change rapidly and CAPREIT may become subject to more stringent
environmental laws and regulations in the future. Compliance with more stringent environmental laws and regulations
could have a material adverse effect on CAPREIT’s business, financial condition or results of operations.
CAPREIT has formal policies and procedures to review and monitor environmental exposure. CAPREIT has made, and
will continue to make, the necessary capital expenditures for compliance with environmental laws and regulations.
Vendor Management and Third-Party Service Providers
CAPREIT relies on third-party vendors to provide, among other things, important operational and technology-related
services. If CAPREIT does not carry out effective and efficient vendor and procurement management processes
(e.g., due diligence, competitive selection processes, contract management, vendor performance evaluation), it may
result in receiving suboptimal services, which may have an operational, financial and reputational impact on CAPREIT.
Additionally, CAPREIT may not always be able to negotiate or renegotiate contracts with terms, services levels and
rates that are in CAPREIT’s best interest. If CAPREIT was required to transition from one vendor to another vendor, in
some circumstances, it could subject CAPREIT to operational and service delays and inefficiencies until alternative
vendors are sourced and the transition is complete.
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2023 Annual ReportManagement’s Discussion and Analysis Operating Risk
CAPREIT is subject to general business risks and to risks inherent in the multi-residential rental property industry and in
the ownership of real property. These risks include fluctuations in occupancy levels, the inability to achieve economic
rents (including anticipated increases in rent), controlling bad debt exposure, rent control regulations, increases in labour
costs and other operating costs including property taxes and the costs of utilities, as well as possible future changes
in labour relations, competition from other landlords or the oversupply of rental accommodations, the imposition of
increased taxes or new taxes and capital investment requirements.
Talent Management and Human Resource Shortages
CAPREIT relies on qualified staff to manage its buildings, service residents, and provide back-office support. Any
failure to effectively attract and retain talented and experienced employees and to establish adequate succession
planning and retention strategies could result in a lack of requisite knowledge, skill and experience. This could erode
CAPREIT’s competitive position or result in increased costs and competition for, or high turnover of, employees. Any of
the foregoing could negatively affect CAPREIT’s ability to operate its business and execute its strategies, which in turn,
could adversely affect its reputation, operations or financial performance. A shortage of available, qualified employees
may impact CAPREIT’s service delivery and the overall resident experience and lead to upward pressure on wages.
Furthermore, maintaining internal pay equity will likely become increasingly challenging given higher salaries for new
hires, nationwide talent shortages and inflationary pressures.
Public Health Crises
Public health crises relating to any virus, flu, epidemic, pandemic or any other similar disease or illness (each a “Health
Crisis”), could adversely impact CAPREIT, including through: a general or acute decline in economic activity in the
countries and regions in which CAPREIT’s properties and investments are located; increased unemployment, reduced
immigration, closure of college and university campuses, household consolidation (young adults moving back in with
their parents), supply shortages, temporary service disruptions due to illness, CAPREIT or government-imposed isolation
programs and restrictions on the movement of personnel, and other mobility restrictions and quarantine measures;
increased government regulation, inability to access governmental programs or processes on a timely basis, efficacy
of governmental relief efforts; and the quarantine or contamination of one or more of CAPREIT’s properties. Contagion
in a property or market in which CAPREIT operates could negatively impact its occupancy, reputation or attractiveness
of that market. Furthermore, increased government regulation relating to a Health Crisis could result in legislation or
regulations that may restrict CAPREIT’s ability to enforce material provisions under its leases among other potential
adverse impacts. All of these occurrences may have a material adverse effect on the business, cash flows, financial
condition and results of operations of CAPREIT, including, but not limited to: the ability to implement rent increases;
rent collection and receivables; vacancy levels; mortgage renewals and refinancings on attractive terms; submission
and processing of various applications and approvals; deferral of certain capital expenditures and R&M expenditures;
valuation of investment properties; and CAPREIT’s ability to meet its debt covenants.
Other Regulatory Compliance Risks
CAPREIT is subject to a wide variety of laws and regulations across all jurisdictions, and faces risks associated with
legal and regulatory changes and litigation. If CAPREIT or its advisors fail to monitor and become aware of changes in
applicable laws and regulations or if CAPREIT fails to comply with these changes in an appropriate and timely manner, it
could result in fines and penalties, litigation or other significant costs, as well as significant time and effort to remediate
any violations. Additionally, such violations could result in reputational damage to CAPREIT both from an operating and
an investment perspective.
Litigation Risk
In the normal course of CAPREIT’s operations, whether directly or indirectly, it may become involved in, named as
a party to or the subject of, various legal proceedings, including regulatory proceedings, tax proceedings and legal
actions relating to personal injuries, property damage, property taxes, land rights, the environment and contract disputes.
The outcome with respect to outstanding, pending or future proceedings cannot be predicted with certainty and may
be determined in a manner adverse to CAPREIT and as a result, could have a material adverse effect on CAPREIT’s
assets, liabilities, business, financial condition and results of operations. Even if CAPREIT were to prevail in such legal
proceeding, the proceedings could be costly and time-consuming and may divert the attention of management and
key personnel from CAPREIT’s business operations, which could have a material adverse effect on the business, cash
flows, financial condition and results of operations and ability to make distributions to Unitholders.
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Focused on QualityManagement’s Discussion and Analysis CAPREIT’s Investment in ERES
CAPREIT currently holds a 65% interest in ERES, assuming the exchange of all outstanding ERES Class B LP Units for
ERES Units, through its beneficial ownership of, or the control or direction over, more than 142 million ERES Class B LP
Units and 10.2 million ERES Units. For further details, please see Related Party Transactions in Section VI. The trading
price of ERES units may be volatile, and subject to fluctuations due to market conditions and other factors, which are
often unrelated to operating results or underlying asset values and which are beyond CAPREIT’s control. Fluctuations
in the market price and valuations of CAPREIT’s holdings in ERES may affect the price of the Trust Units.
Potential Conflicts of Interest
CAPREIT may be subject to various conflicts of interest because certain of the trustees and officers of CAPREIT are
engaged in a wide range of real estate and other business activities. CAPREIT may become involved in transactions
which conflict with the interests of the foregoing.
The trustees may from time to time deal with persons, firms, institutions or corporations with which CAPREIT may be
dealing, or which may be seeking investments similar to those desired by CAPREIT. The interests of these persons
could conflict with those of CAPREIT. In addition, from time to time these persons may be competing with CAPREIT for
available investment opportunities.
Certain trustees of CAPREIT are also trustees of ERES, and certain CAPREIT employees are officers of ERES, which
may give rise to conflicts of interest with their roles at CAPREIT and ERES. The ERES declaration of trust provides that
certain matters which have the potential to give rise to a conflict of interest between ERES and CAPREIT or with any
related party of CAPREIT, must be approved by a majority of the non-restricted ERES trustees, in addition to a majority
of the ERES trustees generally.
CAPREIT’s DOT contains “conflicts of interest” provisions requiring trustees to disclose material interests in material
contracts and transactions and to refrain from voting thereon. CAPREIT’s Code of Business Ethics and Conduct also
contains “conflicts of interest” provisions requiring trustees and officers who become aware of a conflict of interest (or
a potential conflict) to disclose any such conflicts of interest (or potential conflicts) to the Governance and Nominating
Committee.
Investment Restrictions
CAPREIT has been structured and operates in adherence to the investment restrictions and operating policies set out
in its DOT and as applicable under tax laws relating to real estate investment trusts (also see Taxation-Related Risks
in this section). These policies cover such matters as the type and location of properties that CAPREIT can acquire,
the maximum leverage allowed, environmental matters and investment restrictions. Pursuant to the DOT, CAPREIT’s
overall leverage is limited to 70% of its reported gross book value, unless a majority of trustees, at their discretion,
determine that the maximum amount of indebtedness shall be based on the appraised value of the real properties
of CAPREIT. In addition, pursuant to the Acquisition and Operating Facility agreement, CAPREIT’s overall leverage is
limited to 62.5% of its reported gross book value. Fluctuations in the fair value of CAPREIT’s properties could impact
CAPREIT’s compliance with its DOT and debt covenants.
Lack of Diversification of Investment Assets
By specializing in a particular type of real estate, CAPREIT is exposed to adverse effects on that segment of the real
estate market and does not benefit from a broader diversification of its portfolio by property class.
Geographic Concentration
The portfolio is currently weighted with 41.5% of the overall portfolio (by number of suites and sites) in Ontario
(26.7% in the Greater Toronto Area). Accordingly, CAPREIT’s market value of its properties and its performance are
particularly sensitive to economic conditions in, and regulatory changes affecting, Ontario and, in particular, the
Greater Toronto Area.
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2023 Annual ReportManagement’s Discussion and Analysis Adverse changes in the economic condition or regulatory environment of this market may have a material adverse
effect on CAPREIT’s business, cash flows, financial condition and results of operations and its ability to make
distributions to Unitholders.
Illiquidity of Real Property
Real property investments are relatively illiquid. This illiquidity will tend to limit the ability of CAPREIT to respond to
changing economic or investment conditions. If CAPREIT were required to quickly liquidate assets, there is a risk the
proceeds realized from such a sale would be less than the carrying value of the assets or less than what could be
expected to be realized under normal circumstances.
Capital Investments
For prudent management of its property portfolio, CAPREIT makes significant property capital investments
throughout the period of ownership of its properties (for example, to upgrade and maintain building structure,
balconies, parking garages, electrical and mechanical systems). See the Property Capital Investments section for
details. CAPREIT has prepared building condition reports and has committed to a multi-year property capital
investment plan. CAPREIT must continuously monitor its properties to ensure appropriate and timely capital repairs
and replacements are carried out in accordance with its property capital investment programs. CAPREIT requires
sufficient capital to carry out its planned property capital investment and repair and refurbishment programs to
upgrade its properties, especially at older properties, or it risks being exposed to operating business risks arising from
structural failure, electrical or mechanical breakdowns, fire or water damage, etc., which may result in significant loss
of earnings to CAPREIT. A significant increase in capital investment requirements, or difficulty in securing financing or
the availability of financing on reasonable terms, could adversely impact the cash available to CAPREIT and its ability
to make distributions to Unitholders.
Leasing Risk
CAPREIT’s investment properties generate income through rental payments made by residents. Residential tenant
leases are relatively short, exposing CAPREIT to market rental-rate volatility. Upon the expiry of any lease, there can
be no assurance that such lease will be renewed or the resident replaced. The terms of any subsequent lease may
be less favourable to CAPREIT than the existing lease. Renewal rates may be subject to restrictions on increases to
the then current rent (see Rent Control and Residential Tenancy Regulations in this section). As well, unlike commercial
leases, which are generally “net” leases and allow a landlord to recover expenditures, residential leases are generally
“gross” leases (with the exception of sub-metering of certain utilities at some properties) under which the landlord is
not able to pass on costs to residents. As such, there can be no guarantees that operating margins will continue to
be maintained or increased, especially in an environment of flat or declining rents and/or increasing costs. Moreover,
there is no assurance that occupancy levels achieved to date at the properties will continue to be achieved and/or that
occupancy levels expected in the future will be achieved. Any one, or a combination, of these factors may adversely
impact the cash available to CAPREIT and its ability to make distributions to Unitholders.
Dependence on Key Personnel
The success of CAPREIT depends to a significant extent on the efforts and abilities of its executive officers and other
members of management, as well as its ability to attract and retain qualified personnel to manage existing operations
and future growth.
The loss of any executive officers or other key employees could lead to material disruption to the business.
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Focused on QualityManagement’s Discussion and Analysis Adequacy of Insurance and Captive Insurance
It is CAPREIT’s policy to maintain a comprehensive insurance program to cover property and general liabilities, such
as fire, flood, terrorism, injury or death, rental loss and environmental impacts, with limits and deductibles as deemed
appropriate based on the nature of the risk, historical experience and industry standards. However, there are some
types of losses, including those of a catastrophic nature, that are generally uninsurable or not economically feasible to
insure, or which may be subject to insurance coverage limitations, such as large deductibles, co-payments or limitations
in policy language. There can be no assurance that insurance coverage will continue to be available on commercially
acceptable terms.
CAPREIT’s captive insurance program was created to reduce CAPREIT’s overall insurance costs through the operation of
a wholly-owned subsidiary, which reinsures the first $10 million per claim under CAPREIT’s property insurance program
and the first $2 million per claim under CAPREIT’s general liability insurance program. CAPREIT’s aggregate liability
for claims made on an annual basis under the reinsurance agreement is limited to $25 million. Captive insurance risk
is the exposure to financial loss resulting from a wholly-owned subsidiary reinsuring certain risks related to CAPREIT.
Competition for Residents
The real estate business is competitive. Numerous other developers, managers and owners of properties compete
with CAPREIT in seeking residents. Competition for residents also comes from opportunities for individual home
ownership, including condominiums. The existence of competing developers, managers and owners, and competition
for CAPREIT’s residents, could have an adverse effect on CAPREIT’s ability to lease suites in its properties and on the
rents charged, and may increase leasing and marketing costs and refurbishing costs necessary to lease and re-lease
suites, all of which could adversely affect CAPREIT’s revenues and, consequently, its ability to meet its obligations and
pay distributions. In addition, any increase in the supply of available rental accommodation in the markets in which
CAPREIT operates or may operate could have an adverse effect on CAPREIT.
Controls over Disclosures and Financial Reporting
CAPREIT maintains information systems, procedures and controls over financial reporting. As a result of the inherent
limitations in all control systems, there cannot be complete assurance that the objectives of the control system will be
met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues, including instances
of fraud, if any, will be detected or prevented. These inherent limitations include, without limitation, the possibility
that management’s assumptions and judgments may ultimately prove to be incorrect under varying conditions and
circumstances, and the impact of isolated errors.
In addition, controls may be circumvented by the unauthorized acts of individuals, by collusion of two or more people
or by management override. The design of any system of controls is also based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential conditions. Additionally, the inability to recruit and retain key personnel may impact the ability
for controls to operate effectively.
Nature of CAPREIT Trust Units
CAPREIT’s Unitholders do not have all of the statutory rights normally associated with ownership of shares of a company
including, for example, the right to bring “oppression” or “derivative” actions against CAPREIT. The Trust Units are not
“deposits” within the meaning of the Canada Deposit Insurance Corporation Act (the “CDIC Act”) and are not insured
under the provisions of the CDIC Act or any other legislation. Furthermore, CAPREIT is not a trust company and,
accordingly, it is not registered under any trust and loan company legislation as it does not carry on or intend to carry
on the business of a trust company. In addition, although CAPREIT is intended to qualify as a “mutual fund trust” as
defined by the Tax Act, CAPREIT is not a “mutual fund” as defined by applicable securities legislation.
84
2023 Annual ReportManagement’s Discussion and Analysis Dilution
Subject to applicable laws, CAPREIT is authorized to issue an unlimited number of Trust Units and 25,840,600 Preferred
Units, and on such terms and conditions determined by the Board of Trustees, without Unitholders’ approval. Unitholders
have no pre-emptive right in connection with any further issuance. The Board of Trustees has the discretion to issue
additional units in other circumstances, pursuant to CAPREIT’s various incentive plans, subject to limits imposed by
the TSX. Any issuance of additional units may have a dilutive effect on the holders of units. Furthermore, timing
differences may occur between the issuance of additional units and the time such proceeds may be used to invest in
new properties. Depending on the duration of such timing difference, this may be dilutive.
Distributions
Cash distributions are not guaranteed. Distributions on the Trust Units are established by the Board of Trustees and
are subject to change at the discretion of the Board of Trustees. While CAPREIT has historically made monthly cash
distributions to Unitholders, the actual amount of distributions paid in respect of the Trust Units will depend upon
numerous factors, all of which are susceptible to a number of risks and other factors beyond the control of CAPREIT.
The market value of the Trust Units will deteriorate if CAPREIT is unable to meet its distribution targets in the future,
and that deterioration could be significant. In addition, the composition of the cash distributions for tax purposes may
change over time and could affect the after-tax return for Unitholders that are subject to Canadian income tax.
Foreign Operations and Currency Risks
In connection with CAPREIT’s investment in IRES and its investment in and management of ERES, the Irish and Dutch
real estate markets differ from the Canadian environment and CAPREIT’s experience and expertise in managing
Canadian properties may not apply perfectly to a foreign operation. Additionally, these foreign markets may differ from
Canadian markets with respect to laws and regulations, economic conditions and market norms. Operating success
in these foreign markets will depend on CAPREIT’s ability to recognize these differences and adapt its business
model accordingly. CAPREIT’s growth in foreign jurisdictions also requires management oversight and resources that
may have been otherwise focused on its Canadian properties. Additionally, it is possible that CAPREIT’s subsidiaries
and involvement in foreign operations will expose CAPREIT to foreign currency risk, as CAPREIT’s functional and
presentation currency is the Canadian dollar, while the functional currency of CAPREIT’s foreign operations and its
investment in ERES and IRES is the euro. CAPREIT’s exposure to currency exchange risk could increase if the proportion
of net investments or income from investment properties located in Europe relative to Canada increases as a result of
future property acquisitions or investments in Europe.
Additionally, CAPREIT enters into cross-currency interest rate swap or interest rate swap arrangements from time to
time to manage CAPREIT’s currency risk on its European investments and to manage its interest rate exposures on
certain financing arrangements. The fluctuations in the euro against the Canadian dollar and change in interest rates
could have a material adverse effect on the fair value of these financial instruments.
85
Focused on QualityManagement’s Discussion and Analysis Related Party Transactions
A summary of related party transactions can be found in note 26 to CAPREIT’s consolidated annual financial statements
for the year ended December 31, 2023. Transactions with ERES are described below.
Asset Management Agreement
CAPREIT entered into a management agreement with ERES pursuant to which CAPREIT acts as the asset manager to
ERES, except for the commercial properties (the “Asset Management Agreement”). CAPREIT provides, among other
things, strategic, advisory, asset management, project management, construction management and administrative
services necessary to ERES.
The Asset Management Agreement provides for a broad range of asset management services for the following fees:
a)
b)
c)
d)
An annual asset management fee in the amount of 0.35% of the historical purchase price of ERES’s properties,
excluding the commercial properties, plus HST/VAT;
An acquisition fee in the amount of (i) 1.0% of the purchase price paid by ERES or one or more of its subsidiaries
for the purchase of a residential or commercial real property of ERES located in Europe, on the first €100 million
of such properties acquired in each fiscal year, (ii) 0.75% of the purchase price paid by ERES or one or more of
its subsidiaries for the purchase of such a property, on the next €100 million of such properties acquired in each
fiscal year, and (iii) 0.50% of the purchase price paid by ERES or one or more of its subsidiaries for the purchase
of such a property, on properties in excess of €200 million acquired in each fiscal year, plus VAT;
A capital expenditure fee equal to 5.0% of all hard construction costs incurred on each capital project (other than in
respect of the commercial properties) with costs in excess of €1 million, excluding work done on behalf of tenants
or any maintenance expenditures, plus VAT; and
A financing fee equal to 0.25% of the debt and equity of all financing or refinancing transactions completed for
ERES or any of its subsidiaries, which is intended to cover the actual expenses incurred by CAPREIT in supplying
services to ERES relating to financing transactions. To the extent that the financing fees paid by ERES exceed the
actual amount of such expenses, CAPREIT will reimburse ERES for the difference. To the extent that the financing
fees charged by CAPREIT are less than the actual amount of such expenses, ERES will pay the difference as an
additional financing fee amount.
Property Management Agreement
CAPREIT entered into a property management agreement with ERES pursuant to which CAPREIT acts as the property
manager to ERES for residential properties and receives 3.5% of residential Effective Gross Income for its services.
Services Agreement
CAPREIT has entered into a services agreement with ERES pursuant to which CAPREIT provides ERES with certain
administrative services, including financial, information technology, internal audit and other support services, as may
be reasonably required from time to time. CAPREIT provides these services to ERES on a cost recovery basis.
Pipeline Agreement
CAPREIT entered into a pipeline agreement with ERES (the “Pipeline Agreement”), most recently extended on March 24,
2023, pursuant to which, for the period ending March 29, 2025, CAPREIT makes up to $241.3 million (€165.0 million)
(the “Total Commitment”) available to acquire properties that comply with ERES’s investment policy, do not contravene
the investment policy of CAPREIT and which ERES wishes to purchase but is unable to do so (a “Suitable Property
Investment”). Once any part of the Total Commitment has been repaid, that part of the Total Commitment will be
available for reuse under the terms of the Pipeline Agreement.
If ERES wishes to acquire a Suitable Property Investment and is unable to do so, ERES is entitled to request CAPREIT
to acquire, subject to certain approvals, such Suitable Property Investment on the terms specified by ERES.
Subject to the terms of the Pipeline Agreement, CAPREIT has the right to require ERES to acquire a Pipeline Property
(the “Pipeline Put Option”) and ERES has the right to require CAPREIT to sell the Pipeline Property to ERES (the “Pipeline
Call Option”) at a price stipulated in the Pipeline Agreement.
86
2023 Annual ReportManagement’s Discussion and Analysis The Pipeline Agreement provides for an acquisition fee to CAPREIT in the amount of 1.0% of the purchase price
of (i) a Pipeline Property (as defined in the Pipeline Agreement) or (ii) an Other Suitable Property (as defined in the
Pipeline Agreement).
There were no acquisitions made pursuant to the Pipeline Agreement during the years ended December 31, 2023
and December 31, 2022.
Promissory Notes
On October 28, 2021, as an alternative to the Pipeline Agreement, the CAPREIT Board of Trustees approved the
provision of up to $241.3 million (€165.0 million) in funding to ERES via promissory note arrangements, carrying an
interest rate as agreed upon by CAPREIT and ERES on drawn amounts, for terms of up to six months, with the ability
to fully repay prior to maturity, without penalty, and extend beyond, if required.
There were no new promissory notes issued to CAPREIT during the year ended December 31, 2023, and as at
December 31, 2023, there were no promissory notes outstanding to CAPREIT. Promissory notes issued during the year
ended December 31, 2022 are summarized in the table below.
Issuance Date
January 26, 2022
March 28, 2022
April 27, 2022
October 27, 2022
€
Principal (€)
19,000
48,450
25,650
25,650
Interest Rate
per Annum
1.30%
1.30%
1.50%
3.70%
Maturity Date
Repayment Date
July 26, 2022
September 28, 2022
June 14, 2022
June 14, 2022
October 27, 2022
October 27, 2022
April 27, 2023
April 27, 2023
Promissory notes from ERES to CAPREIT are eliminated upon consolidation in the consolidated annual financial statements.
Summary of Fees and Income Earned from ERES
The table below summarizes fees charged to and interest income earned from ERES for the three months and years
ended December 31, 2023 and December 31, 2022:
($ Thousands)
Three Months Ended December 31,
Year Ended December 31,
Asset management fees
Acquisition fees
Property management fees
Service fees
Interest income earned from promissory note
$
$
2023
2,233
–
1,301
188
–
2022
2,050
–
1,132
82
272
$
$
2023
8,629
–
5,009
771
443
2022
7,984
1,215
4,337
663
822
Total
$
3,722
$
3,536
$
14,852
$
15,021
Any fees or interest charged by CAPREIT to ERES are eliminated upon consolidation in the consolidated annual
financial statements.
Commitments and Contingencies
A summary of commitments and contingencies can be found in notes 28 and 29 to CAPREIT’s consolidated annual
financial statements for the year ended December 31, 2023.
Subsequent Events
A summary of subsequent events can be found in note 33 to CAPREIT’s consolidated annual financial statements for
the year ended December 31, 2023.
87
Focused on QualityManagement’s Discussion and Analysis
Management’s Responsibility for the Consolidated Annual Financial Statements
Management’s Responsibility
for the Consolidated Annual
Financial Statements
The accompanying consolidated annual financial statements and information included in this Annual Report have been
prepared by the management of CAPREIT in accordance with International Financial Reporting Standards, and include
amounts based on management’s informed judgments and estimates. Management is responsible for the integrity and
objectivity of these consolidated annual financial statements. The financial information presented elsewhere in this
Annual Report is consistent with that in the consolidated annual financial statements in all material respects.
To assist management in the discharge of these responsibilities, management has established the necessary internal
controls, based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in 2013. These internal controls are designed to
ensure that CAPREIT’s financial records are reliable for preparing financial statements; other financial information and
transactions are properly authorized and recorded; and assets are safeguarded.
As at December 31, 2023, CAPREIT’s President and Chief Executive Officer and Chief Financial Officer evaluated, or
caused an evaluation under their direct supervision, of the design and operating effectiveness of CAPREIT’s internal
controls over financial reporting (as defined in National Instrument 52-109, Certification of Disclosure in Issuers’ Annual
and Interim Filings) and, based on that evaluation, determined that CAPREIT’s internal controls over financial reporting
were appropriately designed and operating effectively.
Ernst & Young LLP, the independent auditor appointed by the Unitholders, have audited the consolidated annual
financial statements in accordance with Canadian generally accepted auditing standards to enable them to express to
the Unitholders their opinion on the consolidated annual financial statements. Their report as auditor is set forth below.
The consolidated annual financial statements have been further reviewed and approved by the Board of Trustees on
the recommendation of the Audit Committee. This committee meets regularly with management and the auditor, which
have full and free access to the Audit Committee.
/s/Mark Kenney
/s/Stephen Co
Mark Kenney
President and Chief
Executive Officer
Toronto, Ontario
February 22, 2024
Stephen Co
Chief Financial Officer
88 2023 Annual Report
Independent auditor’s report
To the Unitholders of
Canadian Apartment Properties Real Estate Investment Trust
Opinion
We have audited the consolidated financial statements of Canadian Apartment Properties Real Estate
Investment Trust and its subsidiaries [the “Trust”], which comprise the consolidated balance sheet as at
December 31, 2023, and the consolidated statement of net income (loss) and comprehensive income (loss),
consolidated statement of unitholders’ equity and consolidated statement of cash flows for the year then ended,
and notes to the consolidated financial statements, including material accounting policy information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Trust as at December 31, 2023, and its consolidated financial performance
and its consolidated cash flows for the years then ended in accordance with International Financial Reporting
Standards [“IFRSs”].
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report. We are independent of the Trust in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of matter – restated comparative information
We draw attention to note 32 to the financial statements, which explains that certain comparative information for
the year ended December 31, 2022, has been restated. Our opinion is not modified in respect of this matter.
The financial statements for the year ended December 31, 2022, excluding the adjustments that were applied to
restate certain comparative information were audited by another auditor who expressed an unmodified opinion on
those financial statements on February 22, 2023.
As part of our audit of the financial statements for the year ended December 31, 2023, we also audited the
adjustments applied to restate certain comparative information presented. In our opinion, such adjustments are
appropriate and have been properly applied.
Other than with respect to the adjustments that were applied to restate certain comparative information, we were
not engaged to audit, review, or apply any procedures to the financial statements for the year ended December 31,
2022. Accordingly, we do not express an opinion or any other form of assurance on those financial statements
taken as a whole.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of
the consolidated financial statements of the current period. These matters were addressed in the context of the
audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do
not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed
the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report, including in relation to this matter. Accordingly, our audit included the
performance of procedures designed to respond to our assessment of the risks of material misstatement of the
consolidated financial statements. The results of our audit procedures, including the procedures performed to
address the matter below, provide the basis for our audit opinion on the accompanying consolidated financial
statements.
The Trust’s investment property portfolio has a fair
value of $16,532 million, which represents 97% of total
assets as at December 31, 2023.
The Trust’s portfolio consists of Canadian and
European properties, with the European interests held
through the Trust’s 65% interest in European
Residential Real Estate Investment Trust. Fee Simple
Interests – Apartments and Townhomes and Fee
Simple Interests – Manufactured Home Community
[“MHC”) Sites comprise $16,177 million, representing
98% of the total investment property held by the Trust.
As at December 31, 2023, CAPREIT had approximately
34% by fair value and 34% by number of properties of
its Canadian investment properties appraised by a
qualified external appraiser. The Trust obtains external
appraisals for a cross-section of investment properties
that represent different geographical locations across
Canada. The remaining 66% of the Canadian portfolio
was appraised by the Trust’s internal valuations team,
consisting of individuals with specialized industry
experience in real estate valuations. The fair values of
all of Trust’s European portfolio are determined by
qualified external appraisers.
With the assistance of our real estate valuation
specialists, we obtained an understanding of the
valuation process, evaluated the appropriateness of the
underlying valuation methodology, and performed the
following audit procedures, among others:
We assessed the competence, capability, and
objectivity of management’s internal valuations team,
and any third-party appraisers engaged, by considering
the qualifications and expertise of the individuals
involved in the preparation and review of the valuations.
We selected a sample of properties where either the
fair value change from prior year or significant
assumptions fell outside our expectations, based on our
understanding of the geographical real estate market
for the specific asset type. For this sample of
investment properties, we evaluated the significant
assumptions by comparison to the expected real estate
market benchmark range for similar assets and
tenancies, in similar locations. We also considered
whether there were any additional asset-specific
characteristics that may impact the significant
assumptions utilized and that these were appropriately
considered in the overall assessment of fair value. We
performed a look-back analysis to assess the accuracy
of management’s historical fair value estimates through
comparison to transactions to acquire and dispose of
interests in investment properties completed by the
Trust during the year.
We evaluated the Trust’s related accounting policies
and disclosures in the consolidated financial statements
to assess appropriateness and conformity with IFRS.
For Fee Simple Interests – Apartments and
Townhomes and Fee Simple Interests - MHC Sites
within the Canadian portfolio, the Trust utilizes the
direct income capitalization [“DC”] method. Under the
DC method, capitalization rates are applied to
normalized net operating income [“NOI”] representing
market-based NOI assumptions. The most significant
assumption is the capitalization rate for each property.
For Fee Simple Interests within the European portfolio,
the Trust utilizes both the discounted cash flow [“DCF”]
method and the DC method. Under the DCF method,
discount rates are applied to the forecasted cash flows
reflecting market-based NOI assumptions. The most
significant assumptions are the stabilized cash flows,
the discount rate applied over the term of the cash
flows, and the capitalization rate used to determine the
terminal value of the investment properties.
Notes 2d), 3i) and 4 of the consolidated financial
statements describe the accounting policy for the
Trust’s investment properties; the critical accounting
estimates, assumptions, and judgements in relation to
the valuation of investment properties; and describe the
valuation methods used and the key assumptions.
Additionally, note 4 summarizes the sensitivity of the
fair value of investment properties to a change in
capitalization rates and a change in normalized NOI.
The valuation of the Trust’s investment property
portfolio is a key audit matter given the inherently
subjective nature of significant assumptions including
capitalization rates, discount rates, normalized NOI and
stabilized cash flows. These assumptions are
influenced by property-specific characteristics including
location, type and quality of the properties and tenancy
agreements.
Other information
Management is responsible for the other information. The other information comprises:
Management’s Discussion and Analysis
The information, other than the consolidated financial statements and our auditor’s report thereon, in the
Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information, and in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion & Analysis and the Annual Report prior to the date of this auditor’s report
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated financial
statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements
in accordance with IFRSs, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the consolidated financial statements, management is responsible for assessing the Trust’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Trust or to cease operations, or
has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trust’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Trust’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Trust’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Trust to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Trust to express an opinion on the consolidated financial statements. We are responsible
for the direction, supervision and performance of the group audit. We remain solely responsible for our audit
opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of
most significance in the audit of the consolidated financial statements of the current period and are therefore the
key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Mark Vrooman.
Toronto, Canada
February 22, 2024
Chartered Professional Accountants
Licensed Public Accountants
Independent auditor’s report
To the Unitholders of Canadian Apartment Properties Real Estate Investment Trust
Our opinion
In our opinion, the accompanying consolidated comparative information, before the effects of the
adjustments to retrospectively reflect the rearrangement or combination of certain figures to conform to
the current year presentation described in Note 32 as well as the impacts of the amendments to IAS 1 as
described in Note 2(r), present fairly, in all material respects, the financial position of Canadian Apartment
Properties Real Estate Investment Trust and its subsidiaries (together, the Trust) as at December 31,
2022, and its financial performance and its cash flows for the year then ended in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board
(IFRS).
What we have audited
The Trust’s consolidated comparative information, before the effects of the adjustments to retrospectively
reflect the rearrangement or combination of certain figures to conform to the current year presentation
described in Note 32 as well as the impacts of the amendments to IAS 1 as described in Note 2(r),
comprises:
the consolidated balance sheet as at December 31, 2022;
the consolidated statement of income and comprehensive income for the year then ended;
the consolidated statement of unitholders’ equity for the year then ended;
the consolidated statement of cash flows for the year then ended; and
the notes to the consolidated comparative information, which include significant accounting policies
and other explanatory information.
The consolidated comparative information before the effects of the adjustments to retrospectively reflect
the rearrangement or combination of certain figures to conform to the current year presentation described
in Note 32 as well as the impacts of the amendments to IAS 1 as described in Note 2(r) is not presented
herein.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively
reflect the rearrangement or combination of certain figures to conform to the current year presentation
described in Note 32 as well as the impacts of the amendments to IAS 1 as described in Note 2(r) and
accordingly, we do not express an opinion or any other form of assurance about whether such
adjustments are appropriate and have been properly applied. Those adjustments were audited by other
auditors.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2500, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215, ca_toronto_18_york_fax@pwc.com
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated comparative information section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Trust in accordance with the ethical requirements that are relevant to our audit
of the consolidated comparative information in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
Responsibilities of management and those charged with governance for the
consolidated comparative information
Management is responsible for the preparation and fair presentation of the consolidated comparative
information in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated comparative information that is free from material
misstatement, whether due to fraud or error.
In preparing the consolidated comparative information, management is responsible for assessing the
Trust’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless management either intends to liquidate the Trust
or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Trust’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated comparative
information
Our objectives are to obtain reasonable assurance about whether the consolidated comparative
information as a whole is free from material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of this consolidated comparative information.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated comparative information,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Trust’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Trust’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the consolidated comparative information or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Trust to cease to
continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated comparative information,
including the disclosures, and whether the consolidated comparative information represents the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Trust to express an opinion on the consolidated comparative information.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence and, where applicable, related
safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Derek Hatoum.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
February 22, 2023
Consolidated Annual Financial Statements
Consolidated Balance Sheets
(In thousands of Canadian dollars)
As at
Non-current assets
Investment properties
Investments held at fair value through profit or loss
Derivative assets
Deferred income tax asset
Other assets
Total non-current assets
Current assets
Cash and cash equivalents
Amounts receivable
Derivative assets
Other assets
Assets held for sale
Total current assets
Total assets
Non-current liabilities
Debt
ERES units held by non-controlling unitholders
Deferred income tax liability
Unit-based compensation financial liabilities
Other liabilities
Total non-current liabilities
Current liabilities
Debt
Accounts payable and accrued liabilities
Exchangeable LP Units
Unit-based compensation financial liabilities
Derivative liabilities
Other liabilities
Liabilities related to assets held for sale
Total current liabilities
Total liabilities
Unitholders’ equity
Unit capital
Retained earnings
Accumulated other comprehensive loss
Total unitholders’ equity
Total liabilities and unitholders’ equity
(1) Restated; see note 32.
See accompanying notes to the consolidated annual financial statements.
Note
December 31, 2023
December 31, 2022(1)
4
8
12
9
8
9
7
10
11
12
13
14
10
15
16
13
8
14
7
$ 16,532,096
$ 17,153,709
162,472
35,619
19,523
29,542
196,364
62,599
6,173
73,455
16,779,252
17,492,300
29,528
16,526
10,851
86,633
45,850
189,388
47,303
15,907
–
54,036
132,342
249,588
$ 16,968,640
$ 17,741,888
$ 6,407,750
$
6,352,795
186,522
49,481
11,070
46,837
242,599
120,524
7,806
47,460
6,701,660
6,771,184
651,371
105,717
80,383
12,353
7,001
107,854
23,706
988,385
613,277
121,551
71,668
10,451
10,625
101,321
38,116
967,009
$ 7,690,045
$
7,738,193
17
$ 4,227,156
$
4,183,171
5,063,981
(12,542)
5,846,397
(25,873)
$ 9,278,595
$ 16,968,640
$ 10,003,695
$ 17,741,888
Focused on Quality
97
Consolidated Annual Financial Statements
Consolidated Statements of Net Income
(Loss) and Comprehensive Income (Loss)
(In thousands of Canadian dollars)
For the Year Ended December 31,
Operating revenues
Revenue from investment properties
Operating expenses
Realty taxes
Property operating costs
Total operating expenses
Net operating income
Other income
Trust expenses
Unit-based compensation amortization expense
Financing-related costs:
Interest expense on debt and other financing costs
Interest expense on Exchangeable LP Units
Net gain on derecognition of debt
Total financing-related costs, net
Fair value adjustments of investment properties and assets held for sale
Fair value adjustments of financial instruments
Gain on non-controlling interest
Gain (loss) on foreign currency translation
Net loss on transactions and other activities
Net income (loss) before income taxes
Current income tax expense
Deferred income tax recovery
Total current income tax expense and deferred income tax recovery, net
Note
2023
2022(1)
19
$ 1,065,317
$
1,007,268
(96,408)
(276,123)
(372,531)
692,786
13,644
(62,373)
(7,816)
(211,664)
(2,382)
3,251
(210,795)
(914,585)
(34,373)
45,209
4,161
(13,911)
(488,053)
(8,889)
85,368
76,479
20
21
4, 7
22
11
23
12
(93,912)
(262,947)
(356,859)
650,409
16,521
(57,965)
(7,256)
(180,434)
(2,435)
1,766
(181,103)
(468,327)
(7,440)
104,822
(21,000)
(25,058)
3,603
(4,843)
14,877
10,034
13,637
Net income (loss)
$
(411,574)
$
Other comprehensive income, including items that may be reclassified
subsequently to net income (loss)
Gain on foreign currency translation, net of taxes
Amortization of losses from accumulated other comprehensive loss to interest and
other financing costs
Gain on investments held at fair value through other comprehensive income
Reversal of cumulative loss on foreign currency translation due to loss of significant
influence over IRES
Other comprehensive income
Comprehensive income (loss)
(1) Restated; see note 32.
See accompanying notes to the consolidated annual financial statements.
$
12,569
$
8,536
341
421
–
$
$
13,331
(398,243)
$
$
1,361
–
7,627
17,524
31,161
98 2023 Annual Report
Consolidated Annual Financial Statements
Consolidated Statements
of Unitholders’ Equity
(In thousands of Canadian dollars, except number of Trust Units)
Unitholders’ equity, January 1, 2023
169,404,469 $ 4,183,171 $ 5,846,397 $
(25,873) $ 10,003,695
Note
Number of
Trust Units
Unit Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Unit capital
Distribution Reinvestment Plan
Deferred Unit Plan
Restricted Unit Rights Plan
Employee Unit Purchase Plan
Exchangeable LP Units exchanged
Issuance of Trust Units pursuant to special
non-cash distribution
Cancellation of Trust Units under NCIB
and other
Net loss and other comprehensive income
Net loss
Other comprehensive income
Distributions on Trust Units
Distributions declared and paid
Distributions payable
Consolidation of Trust Units issued
197,130
9,431
13
13
17
16
12,654
68,496
68,060
32,004
622
3,160
3,294
1,578
17 1,683,012
82,131
–
–
–
–
–
–
–
–
–
–
–
9,431
622
3,160
3,294
1,578
–
82,131
17 (2,168,521)
(56,231)
(45,429)
–
(101,660)
–
–
–
–
18
18
–
–
(411,574)
–
(411,574)
–
13,331
13,331
–
–
(223,029)
(20,253)
–
–
(223,029)
(20,253)
pursuant to special non-cash distribution
17 (1,683,012)
–
(82,131)
–
(82,131)
Unitholders’ equity, December 31, 2023
167,614,292 $ 4,227,156 $ 5,063,981 $
(12,542) $ 9,278,595
Note
Number of
Trust Units
Unit Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Unitholders’ equity, January 1, 2022
173,406,406 $ 4,194,093 $ 6,249,190 $
(43,397)
$ 10,399,886
Unit capital
Distribution Reinvestment Plan
Deferred Unit Plan
Restricted Unit Rights Plan
Employee Unit Purchase Plan
Issuance of Trust Units pursuant to special
non-cash distribution
865,001
42,178
13
13
17
100,493
200,363
65,368
4,845
9,852
3,085
17
1,428,904
60,986
–
–
–
–
–
Cancellation of Trust Units under NCIB
17
(5,233,162)
(131,868)
(105,904)
–
–
–
–
–
–
42,178
4,845
9,852
3,085
60,986
(237,772)
Net income and other comprehensive income
Net income
Other comprehensive income
Distributions on Trust Units
Distributions declared and paid
Distributions payable
Consolidation of Trust Units issued pursuant
to special non-cash distribution
–
–
–
–
18
18
–
–
13,637
–
–
17,524
13,637
17,524
–
–
(229,071)
(20,469)
–
–
(229,071)
(20,469)
17
(1,428,904)
–
(60,986)
–
(60,986)
Unitholders’ equity, December 31, 2022
169,404,469 $ 4,183,171 $ 5,846,397 $
(25,873)
$ 10,003,695
See accompanying notes to the consolidated annual financial statements.
Focused on Quality
99
Consolidated Statements of Cash Flows
Consolidated Annual Financial Statements
(In thousands of Canadian dollars)
For the Year Ended December 31,
Cash provided by (used in):
Operating activities
Net income (loss)
Items related to operating activities not affecting cash:
Fair value adjustments of investment properties and assets held for sale
Fair value adjustments of financial instruments
Mark-to-market gain on ERES units held by non-controlling unitholders
Unit-based compensation amortization expense
Other adjustments
Dividend and interest income related to investing activities
Items related to financing activities
Changes in non-cash operating assets and liabilities
Cash provided by operating activities
Investing activities
Capital investments
Acquisitions, deposits and transaction costs of investment properties
Acquisition of investments
Disposition of investment properties and assets held for sale
(net of assumed mortgages and transaction costs)
Disposition of investments
Proceeds from settlement of VTB mortgage receivable
Investment and interest income received
Change in restricted funds
Cash used in investing activities
Financing activities
Borrowings
Principal repayments
Lump-sum repayments
Financing costs and CMHC premiums paid
Deposits related to financing activities
Interest paid on mortgages and credit facilities
Purchase and cancellation of Trust Units
Proceeds on issuance of Trust Units, net of issuance costs
Distributions paid to Unitholders
Interest paid to ERES non-controlling unitholders
Interest paid to Exchangeable LP unitholders
Lease payments
Cash used in financing activities
Changes in cash and cash equivalents during the year
Gain on foreign currency translation
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
(1) Restated; see note 32.
See accompanying notes to the consolidated annual financial statements.
100 2023 Annual Report
Note
2023
2022(1)
$
(411,574)
$
13,637
4, 7
22
11
25
25
25
25
5
6
10
7, 10
7, 10
10
17
25
25
914,585
34,373
(59,342)
7,816
(81,251)
(9,981)
224,928
(3,635)
615,919
(307,831)
(242,365)
(12,619)
373,676
41,791
–
9,981
(1,102)
(138,469)
770,080
(158,803)
(550,164)
(18,615)
(1,386)
(184,586)
(100,907)
2,744
(234,067)
(10,868)
(2,388)
(6,268)
(495,228)
(17,778)
3
47,303
29,528
$
468,327
7,440
(117,740)
7,256
30,440
(10,185)
194,021
4,831
598,027
(336,467)
(539,561)
(18,867)
306,949
5,246
68,190
10,185
1,351
(502,974)
1,394,016
(162,048)
(718,895)
(28,059)
(56)
(156,266)
(237,772)
2,745
(207,846)
(9,274)
(2,641)
(6,228)
(132,324)
(37,271)
11,163
73,411
47,303
$
Notes to Consolidated Annual
Financial Statements
December 31, 2023
(All amounts in thousands of Canadian dollars, except unit and per unit amounts, or unless otherwise stated)
1. Organization of the Trust
Canadian Apartment Properties Real Estate Investment Trust (“CAPREIT”) owns and manages interests in multi-unit
residential rental properties, including apartments, townhomes and manufactured home community (“MHC”) sites,
principally located in and near major urban centres across Canada. CAPREIT’s net assets and operating results are
substantially derived from income-producing real estate located in Canada, where it is also domiciled, and in Europe.
CAPREIT converted from a closed-ended mutual fund trust to an open-ended mutual fund trust on January 8, 2008,
and is governed under the laws of the Province of Ontario by a declaration of trust (“DOT”) dated February 3, 1997, as
amended and restated on June 1, 2022. CAPREIT commenced active operations on February 4, 1997 when it acquired
an initial portfolio of properties. CAPREIT became a reporting issuer on May 21, 1997 pursuant to an initial public offering
prospectus of its units (“Trust Units”) dated May 12, 1997.
CAPREIT Limited Partnership (“CAPLP”), a subsidiary of CAPREIT established under the laws of the Province of Manitoba
pursuant to a limited partnership agreement dated June 26, 2007, and as amended and restated on June 22, 2020,
owns directly or indirectly the beneficial interest of all its investment properties, along with the related mortgages and
all the debt obligations of CAPREIT.
As at December 31, 2023, CAPREIT directly and indirectly holds a 65% (December 31, 2022 – 66%) ownership of
publicly traded European Residential Real Estate Investment Trust (“ERES”), which operates primarily in the Netherlands,
with the remaining 35% (December 31, 2022 – 34%) held by non-controlling unitholders. CAPREIT owns publicly traded
units of ERES (“ERES units”) and Class B Limited Partnership units (“ERES Class B LP Units”) of ERES Limited Partnership
(“ERES LP”), a subsidiary of ERES. ERES Class B LP Units are exchangeable, on a one-for-one basis, for ERES units at
the option of the holder, and have economic and voting rights through special voting units of ERES that are equivalent,
in all material respects, to ERES units.
CAPREIT is listed on the Toronto Stock Exchange (“TSX”) under the trading symbol “CAR.UN” and its registered address
is 11 Church Street, Suite 401, Toronto, Ontario, Canada M5E 1W1.
2. Summary of Material Accounting Policies
a) Statement of Compliance
CAPREIT has prepared these consolidated annual financial statements in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the
preparation of consolidated annual financial statements. These policies have been consistently applied to all years
presented, unless stated otherwise.
These consolidated annual financial statements were approved by CAPREIT’s Board of Trustees on February 22, 2024.
b) Basis of Presentation
These consolidated annual financial statements have been prepared on a going concern basis, presented in Canadian
dollars, which is also CAPREIT’s functional currency, and have been prepared on a historical cost basis except for:
investment properties and certain financial instruments, which are stated at fair value;
certain unit-based compensation accounts, which are stated at fair value;
i)
ii)
iii) ERES units held by non-controlling unitholders, which are stated at fair value; and
iv) Class B limited partnership units of CAPLP (“Exchangeable LP Units”), which are stated at fair value.
101
Focused on QualityNotes to Consolidated Annual Financial Statements In these consolidated annual financial statements, all amounts are presented in thousands of Canadian dollars, except
unit and per unit amounts, or unless otherwise stated.
c) Principles of Consolidation
These consolidated annual financial statements comprise the assets and liabilities of all subsidiaries and the results
of all subsidiaries for the financial period. CAPREIT and its subsidiaries are collectively referred to as “CAPREIT” in
these consolidated annual financial statements. Subsidiaries are all entities over which CAPREIT has control. CAPREIT
controls an entity when CAPREIT is exposed to, or has rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date control commences and deconsolidated from the date control ceases.
Where CAPREIT consolidates a subsidiary in which it does not have 100% ownership and where the non-controlling
interest contains an option or a redemption feature, the non-controlling interest is classified as a financial liability.
On consolidation of subsidiaries, CAPREIT eliminates in full intragroup assets and liabilities, equity, income, expenses
and cash flows relating to transactions between entities of the group. International Accounting Standard 12, Income
Taxes (“IAS 12”), applies to temporary differences that arise from the elimination of profits and losses resulting in
intragroup transactions.
d) Investment Properties
CAPREIT considers its income properties to be investment properties under IAS 40, Investment Property (“IAS 40”), and
has chosen the fair value model to account for investment properties in its consolidated annual financial statements.
Fair value represents the amount at which the properties could be exchanged between a knowledgeable and willing
buyer and a knowledgeable and willing seller in an arm’s length transaction at the date of valuation.
CAPREIT’s investment properties have been valued on a highest and best use basis at each quarter-end and do not
include any portfolio premium that may be associated with economies of scale from owning a large portfolio or the
consolidation value from having compiled a large portfolio of properties over a long period of time, often through
individual property acquisitions. When considering highest and best use, CAPREIT takes into account the use of the
asset that is physically possible, legally permissible and financially feasible.
Investment properties comprise investment interests held in land and buildings (including integral equipment) held for
the purpose of producing rental income, capital appreciation or both. CAPREIT’s investments in its property portfolio
reflect different forms of property interests, including: (i) Fee Simple Interests – Apartments and Townhomes, (ii) Operating
Leasehold Interests, (iii) Land Leasehold Interests and (iv) Fee Simple Interests – Manufactured Home Community Sites.
These four forms of property interests meet the definition of investment property and are classified and accounted for
as such. All investment properties are recorded at cost, including transaction costs, at their respective acquisition dates
and are subsequently stated at fair value at each consolidated balance sheet date, with any gain or loss arising from
a change in fair value recognized within the consolidated statements of net income (loss) and comprehensive income
(loss) for the period. For Operating Leasehold Interests, all of which are held under prepaid operating leases, CAPREIT
measures all such interests at fair value, including the fair value of options to purchase, and these are accounted for and
presented as investment properties. Capital expenditures are added to the carrying amount of investment properties
to the extent it is probable that future economic benefits associated with the expenditure will flow to CAPREIT and the
expenditure can be measured reliably.
The fair value of CAPREIT’s investment properties is determined at each consolidated balance sheet date by either
experienced internal or external independent appraisers, depending on the size and geography of each property.
Where increases or decreases are warranted, the carrying values of CAPREIT’s investment properties are adjusted.
See notes 3 and 4 for a detailed discussion of the significant assumptions, estimates and valuation methods used.
Investment properties, including investment properties held for sale, are derecognized when they have been disposed
of. The difference between the disposal proceeds, net of transaction costs, and the carrying amount of the asset is
recognized in net income (loss) in the period of derecognition.
102
2023 Annual ReportNotes to Consolidated Annual Financial Statements e) Investment Property Acquisitions
At the time of acquisition of an investment property or a portfolio of investment properties, CAPREIT evaluates whether
the acquisition is a business combination or an asset acquisition. IFRS 3, Business Combinations (“IFRS 3”), is only
applicable if it is considered that a business has been acquired. A business, according to IFRS 3, is defined as an
integrated set of activities and assets that are capable of being conducted and managed for the purpose of providing
goods or services to customers, generating investment income (such as dividends or interest) or generating other
income from ordinary activities.
When determining whether the acquisition of an investment property or a portfolio of investment properties is a
business combination or an asset acquisition, CAPREIT applies judgment when determining whether an integrated set
of activities is acquired in addition to the property or portfolio of properties. Activities can include whether employees
were assumed in the acquisition or an operating platform was acquired. Under IFRS 3, CAPREIT has the option to
assess whether substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group
of similar assets. If such a concentration exists, the transaction is not viewed as an acquisition of a business and no
further assessment of the business combination guidance is required. The optional concentration test will be applied
on a case-by-case basis.
The acquisition method of accounting is used for acquisitions meeting the definition of a business combination.
The consideration transferred in a business combination is measured at fair value, which is calculated as the sum
of the acquisition date fair values of the assets transferred to the acquirer and the liabilities assumed by the acquirer.
For each business combination, CAPREIT measures the non-controlling interest in the acquiree at fair value if
the acquiree is a real estate investment trust (“REIT”) or at the proportionate share of the acquiree’s identifiable
net assets if the acquiree is a corporation. Any transaction costs incurred with respect to the business combination
are expensed in the period incurred.
When an acquisition does not represent a business as defined under IFRS 3, CAPREIT classifies these properties or
portfolio of properties as an asset acquisition. Identifiable assets acquired and liabilities assumed in an asset acquisition
are measured initially at their fair values at the acquisition date. Acquisition-related transaction costs are capitalized
to the property.
f) Presentation of Non-current Assets Classified as Held for Sale
Investment properties are reclassified to available for sale when CAPREIT has committed to a plan to sell the asset,
is actively marketing the sale at a reasonable price in relation to its estimated fair value and a sale is highly probable
of being completed within one year in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued
Operations (“IFRS 5”). CAPREIT presents non-current assets classified as held for sale and their associated liabilities
separately from other assets and liabilities on the consolidated balance sheets and in the notes beginning from the
period in which they were first classified as “held for sale” and the sale is highly probable. The sale of one or a group
of investment properties by CAPREIT will generally be presented as current assets held for sale and not discontinued
operations. If a group of assets held for sale is considered to meet the definition of a discontinued operation, then
income or expense recognized in the consolidated statements of net income (loss) and comprehensive income (loss)
relating to that group of assets is presented separately from continuing operations. A discontinued operation is a
component of operations that represents a separate major line of business or geographic area of operations that has
been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale.
g) Financial Instruments
Financial assets and financial liabilities
Under IFRS 9, Financial Instruments (“IFRS 9”), financial assets and financial liabilities are initially recognized at
fair value and are subsequently accounted for based on the purpose for which the financial instruments were
acquired or issued, their characteristics and CAPREIT’s designation of such instruments. The standards require
that all financial assets and financial liabilities be classified as fair value through profit or loss (“FVTPL”), fair
value through other comprehensive income (“FVOCI”), or amortized cost. Amortized cost is determined using the
effective interest method.
103
Focused on QualityNotes to Consolidated Annual Financial Statements At each reporting date, financial assets measured at amortized cost are assessed for impairment under an expected
credit loss (“ECL”) approach. CAPREIT applies the simplified approach, which uses lifetime ECLs, for amounts receivable,
which consist primarily of tenant receivables. CAPREIT monitors its collection rate on a monthly basis and ensures that
all past due amounts are provided for. CAPREIT measures the ECL allowance of its vendor takeback (“VTB”) mortgage
receivable at an amount equal to the 12-month ECL at initial recognition as well as if there has been no significant
increase in credit risk of the VTB mortgage receivable since initial recognition. CAPREIT will increase the ECL allowance
of the VTB mortgage receivable to an amount equal to the lifetime ECL if there has been a significant increase in credit
risk of the VTB mortgage receivable since initial recognition.
Classification of financial instruments
The following table summarizes the type and measurement CAPREIT has applied to each of its significant categories
of financial instruments:
Type
Financial assets
Cash and cash equivalents
Restricted funds
Amounts receivable
VTB mortgage receivable
Investments
Derivative financial assets
Financial liabilities
Mortgages payable
Credit facilities payable
Accounts payable and accrued liabilities
Other liabilities
Exchangeable LP Units
ERES units held by non-controlling unitholders
Derivative financial liabilities
Measurement base
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL or FVOCI
FVTPL(1)
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL(1)
(1)
Derivatives not designated as a hedging relationship are measured at fair value with changes recognized directly through the consolidated statements
of net income (loss) and comprehensive income (loss) within net income (loss).
Cash and cash equivalents and restricted funds
Cash and cash equivalents include cash and short-term investments with an original maturity of three months or less.
Restricted funds do not meet the definition of cash and cash equivalents and are included in other current assets on
the consolidated balance sheets. Interest earned or accrued on these financial assets is included in other income.
Amounts receivable
Such receivables arise when CAPREIT provides services to a third party, such as a tenant, and are included in current
assets. Any receivables with maturities more than 12 months after the consolidated balance sheet date are classified
as non-current assets. Other receivables are accounted for at amortized cost.
VTB mortgage receivable
A VTB mortgage receivable typically arises when CAPREIT disposes of investment properties and provides the
purchaser with a loan. The VTB mortgage receivable is a financial asset under IFRS 9 and is measured initially at fair
value and subsequently at amortized cost. VTB mortgages receivable are included in non-current assets, except for
those with maturities within 12 months after the consolidated balance sheet date, which are classified as current assets.
104
2023 Annual ReportNotes to Consolidated Annual Financial Statements Investments
Financial instruments in this category are recognized initially and subsequently at fair value. Gains and losses
arising from changes in fair value are recognized in net income (loss) or other comprehensive income within
the consolidated statements of net income (loss) and comprehensive income (loss) in the period in which they arise.
Financial assets at FVTPL and FVOCI are classified as current, except for the portion expected to be realized or paid
more than 12 months after the consolidated balance sheet date, which is classified as non-current.
Investments that are held within a held to collect and sell business model, where the contractual terms give rise to
cash flows that are solely payments of principal and interest, are measured at FVOCI. Equity investments and all other
investments not designated as FVOCI are measured at FVTPL.
Derivative financial assets and financial liabilities
Derivative financial assets and financial liabilities are initially recognized at fair value on the date a derivative contract is
entered into and subsequently remeasured at fair value. The method of recognizing the resulting gain or loss depends
on whether the derivative financial assets or financial liabilities are designated as a hedging instrument and, if so, the
nature of the item being hedged.
Derivatives not designated as hedging relationships are measured at fair value with changes recognized directly
through the consolidated statements of net income (loss) and comprehensive income (loss) within net income (loss).
Financial liabilities
Mortgages payable, credit facilities payable, accounts payable and accrued liabilities, and other liabilities are recorded
initially at fair value and subsequently at amortized cost. All other financial liabilities are recorded at fair value.
Transaction costs related to financial instruments
Transaction costs related to financial assets and financial liabilities classified as FVTPL are expensed as incurred.
Transaction costs related to financial assets and financial liabilities measured at amortized cost are netted against the
carrying value of the financial asset or financial liability and amortized over the expected life of the financial instrument
using the effective interest method.
h) Mortgages Payable and Credit Facilities Payable
Mortgages payable are recognized at amortized cost using the effective interest rate method. Under the effective
interest rate method, any transaction fees, costs and discounts directly related to the mortgage are initially netted
against mortgages payable and amortized over the expected term of the mortgages within interest and other financing
costs in the consolidated statements of net income (loss) and comprehensive income (loss). Mortgage maturities
and repayments due more than 12 months after the consolidated balance sheet date are classified as non-current.
Credit facilities payable are recognized at amortized cost and the related financing costs are netted against credit
facilities payable and amortized over the term of the revolving credit facility within interest and other financing costs
in the consolidated statements of net income (loss) and comprehensive income (loss).
Fees and insurance premiums paid to Canada Mortgage and Housing Corporation (“CMHC”) are netted against
mortgages payable. They are amortized over the amortization period of the underlying mortgages when incurred
(initial amortization period is typically between 25 and 35 years), and amortization expenses are included in interest
and other financing costs in the consolidated statements of net income (loss) and comprehensive income (loss). If
CAPREIT fully refinances an existing mortgage, any unamortized prepaid CMHC premiums and fees associated with
the existing mortgages on that property will be written off through interest and other financing costs in the period in
which full refinancing occurs. CAPREIT accelerates the amortization for prepaid CMHC premiums for mortgages that
management intends to fully refinance within the next year, from the date the decision is made to refinance to the
date the mortgage is due to be refinanced. Any premium credits received upon refinancing will be capitalized and
amortized over the new amortization period. Similarly, if CAPREIT discharges an existing mortgage, any unamortized
prepaid CMHC premiums and fees associated with that mortgage will be written off in the period in which the discharge
occurs. If CAPREIT renews a mortgage, CAPREIT will continue to amortize the existing prepaid CMHC premiums and
fees associated with the existing mortgage over the remaining amortization period.
105
Focused on QualityNotes to Consolidated Annual Financial Statements i) ERES Units Held by Non-Controlling Unitholders
ERES units are redeemable at the option of the holder and therefore are considered puttable instruments that meet
the definition of a financial liability under IAS 32, Financial Instruments: Presentation (“IAS 32”). Although IAS 32 allows
ERES to classify these units as equity on its own balance sheet, this exception is not available to CAPREIT, and therefore
the non-controlling interest that these ERES units represent is classified as a liability on the consolidated balance
sheet and is measured at fair value based on the redemption price as defined in the ERES DOT, with changes in the
fair value recorded as fair value adjustment on non-controlling interest in the consolidated statements of net income
(loss) and comprehensive income (loss). The mark-to-market adjustments arise from the changes in ERES’s redemption
price, where an increase in ERES’s redemption price would result in a mark-to-market loss, and a decrease in ERES’s
redemption price would result in a mark-to-market gain.
j) Exchangeable LP Units
Issued and outstanding Exchangeable LP Units are exchangeable on demand for Trust Units. As the Trust Units are
redeemable at the holder’s option, the Exchangeable LP Units are classified as current liabilities. The distributions on
the Exchangeable LP Units are recognized in the consolidated statements of net income (loss) and comprehensive
income (loss) as interest expense under IFRS and the interest payable at the reporting date is reported under accounts
payable and accrued liabilities on the consolidated balance sheets. These Exchangeable LP Units are remeasured at
each reporting date at fair value, as they are considered to be puttable instruments under IAS 32, with changes in the
fair value recognized as fair value adjustments of Exchangeable LP Units within net income (loss) in the consolidated
statements of net income (loss) and comprehensive income (loss).
k) Trust Units
By virtue of CAPREIT being an open-ended mutual fund trust, holders of Trust Units (“Unitholders”) are entitled to redeem
their Trust Units at any time, at prices determined and payable in accordance with the conditions specified in the DOT.
As a result, under IFRS, Trust Units are defined as financial liabilities; however, for the purposes of financial statement
classification and presentation, the Trust Units may be presented as equity instruments under IAS 32.
To be presented as equity, a puttable instrument must meet all of the following conditions:
it must entitle the holder to a pro rata share of the entity’s net assets in the event of the entity’s liquidation;
it must be in the class of instruments that is subordinate to all other classes of instruments;
i.
ii.
iii. all financial instruments in the class in ii. must have identical features;
iv. other than the redemption feature, there can be no other contractual obligations that meet the definition of a liability;
v.
and
the total expected cash flows attributable to the instrument over the life of the instrument are based substantially
on the profit or loss, the change in the recognized net assets or the change in the fair value of the recognized and
unrecognized net assets of the entity over the life of the instrument.
Trust Units meet the puttable instrument exemption under IAS 32 and are therefore presented as equity. For the
purposes of presenting earnings on a per unit basis as well as for unit-based compensation plans, CAPREIT’s Trust
Units are not treated as equity instruments, and accordingly, earnings per unit have not been presented.
Trust Units are initially recognized at fair value and the related transaction costs are recognized directly in the
consolidated statements of unitholders’ equity as a reduction to equity.
106
2023 Annual ReportNotes to Consolidated Annual Financial Statements l) Unit-based Compensation and Incentive Plans
Unit-based compensation benefits are provided to officers, trustees and certain employees and are intended to
facilitate long-term ownership of Trust Units and provide additional incentives by increasing the participants’ interest,
as owners, in CAPREIT. Unit-based compensation liabilities are classified as current, except for the portion expected
to be realized or paid beyond 12 months of the consolidated balance sheet date.
CAPREIT accounts for its unit-based compensation plans using the fair value-based method, under which
compensation expense is recognized over the vesting period. The key drivers of the recognition and measurement
of compensation expense are summarized as follows:
Incentive Plan(1)
DUP
RUR Plan
ERES UOP
Type
Rights
Rights
Options
Vesting Period
Type of Amortization
Distributions Applied To
Mark-to-Market Until
Grant date
3 years(2)
3 years(3)
Immediate
Straight-line
Graded
Additional units
Additional units
N/A
Settled
Settled
Exercised
(1) For definitions of these plans, refer to note 13.
(2) Vesting fully on the third grant anniversary date.
(3) Vesting one-third on each grant anniversary date.
m) Consolidated Statements of Cash Flows
Cash and cash equivalents consist of cash on hand, balances with banks and investments in money market
instruments with an original term to maturity of 90 days or less at purchase. Investing and financing activities that
do not require the use of cash or cash equivalents are excluded from the consolidated statements of cash flows
and are disclosed separately in the notes to the consolidated annual financial statements.
IFRS permits the classification of interest paid as either cash used in operating activities or as cash used in financing
activities. CAPREIT has applied its judgment and concluded that debt financing is an integral part of its capital structure
in providing leveraged returns to Unitholders, and not directly associated with its principal revenue-producing activities.
Accordingly, CAPREIT has classified interest paid as cash used in financing activities in CAPREIT’s consolidated
statements of cash flows.
n) Leases
IFRS 16, Leases (“IFRS 16”), sets out the principles for the recognition, measurement, presentation and disclosure
of leases for both the lessee and the lessor. From a lessee point of view, leases impacted by IFRS 16 encompass
CAPREIT’s four land leases in Alberta and British Columbia, an air rights lease and leased office space. These leases
are recorded as right-of-use assets with corresponding lease liabilities derived by discounting the future payments
of each lease by the rate implicit in the lease, where determinable, or the incremental borrowing rate specific to the
lease. These right-of-use assets related to land and air rights leases meet the definition of investment property under
IAS 40; therefore, the fair value model is applied to these assets. Interest expense on the lease liabilities and fair value
gain (loss) on the right-of-use assets are recorded through CAPREIT’s consolidated statements of net income (loss)
and comprehensive income (loss).
These land and air rights lease payments are calculated based upon a specified minimum payment, and, at several
intervals throughout the lease term, are recalculated based upon land values on a specified date. CAPREIT measures
lease liabilities at the present value of lease payments to be made over the lease term. These lease liabilities are
determined based on future fixed and in-substance fixed payments, and exclude any variable payments. Variable
payments are calculated based on certain variables such as a percentage of revenues and net operating income, and
are recognized as an expense in the period in which the event or condition that triggers the payment occurs.
Right-of-use assets not meeting the definition of investment property are measured at cost less any accumulated
amortization and are included within other assets. Such right-of-use assets are amortized over the shorter of the asset’s
useful life and the lease term on a straight-line basis.
For other leases of low-value assets or short-term leases that end within 12 months of the commencement date and
have no renewal or purchase option, CAPREIT has elected to apply the recognition exemptions specified in IFRS 16,
allowing CAPREIT to continue to expense the lease payments in the period in which they are incurred.
107
Focused on QualityNotes to Consolidated Annual Financial Statements o) Revenue Recognition
Under IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), revenue is recognized using a uniform, five-step
model. The five steps are as follows:
identify the contract(s) with the customer;
1.
2. identify the performance obligations;
3. determine the transaction price;
4. allocate the transaction price to the performance obligations; and
5. recognize revenue as the performance obligations are satisfied.
Common area maintenance recoveries, except for insurance and realty tax recoveries, and service charges, are
considered non-lease components and are within the scope of IFRS 15. They are recognized over time, as they
represent a series of services that are substantially the same and have the same pattern of transfer to tenants.
Revenue from investment properties, except for insurance and realty tax recoveries, is within the scope of IFRS 16
and is recognized using the straight-line method, whereby the total amount of revenue from investment properties
to be received from all leases is accounted for on a straight-line basis over the term of the related leases. The
difference between the revenue from investment properties recognized and the amounts contractually due under
the lease agreements is recorded as straight-line rent receivable, which is included as a component of other
non-current assets on the consolidated balance sheets. Revenue from investment properties also includes a non-lease
component earned from tenants, which is within the scope of IFRS 15.
p) Income Taxes
CAPREIT is taxed as a mutual fund trust for income tax purposes and intends, at the discretion of the Board of Trustees,
to distribute its income for income tax purposes each year to Unitholders to such an extent that it would not be liable
for income tax under Part I of the Income Tax Act (Canada) (“Tax Act”). Accordingly, no provision for current income
taxes payable is required, with the exception of income earned by subsidiaries that reside in foreign jurisdictions, as
discussed below. For a comprehensive discussion of CAPREIT’s liability for tax purposes, see note 12.
CAPREIT and its subsidiaries satisfied certain conditions available to REITs (the “REIT Exemption”) under amendments to
the Tax Act intended to permit a corporate income tax rate of nil as long as the specified conditions continue to be met.
CAPREIT has foreign operating subsidiaries in a number of countries with varying statutory rates of taxation. Judgment
is required in the estimation of income taxes and deferred income tax assets and liabilities in each of CAPREIT’s
operating jurisdictions. Income taxes may be paid where activities carried on by the foreign subsidiaries are considered
to be taxable in those countries.
108
2023 Annual ReportNotes to Consolidated Annual Financial Statements Deferred income tax relating to foreign subsidiaries is recognized, using the asset and liability method, on temporary
differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated
annual financial statements. Deferred income tax is determined using tax rates and laws that have been enacted or
substantively enacted by the consolidated balance sheet date, and are expected to apply when the related deferred
income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized
only to the extent that it is probable that future taxable profit will be available against which the temporary differences
can be utilized. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that
sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Any
such reduction is reversed to the extent that it becomes probable that sufficient taxable profit will be available.
q) Foreign Currency Translation
The consolidated annual financial statements are presented in Canadian dollars, which is the functional currency
of CAPREIT.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the
dates of the transactions. At the end of each reporting period, monetary assets and liabilities denominated in foreign
currencies are translated into the functional currency using the prevailing rate of exchange at the consolidated
balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions, and from
the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies,
are recognized in the consolidated statements of net income (loss) and comprehensive income (loss). Non-monetary
items that are measured at their historical cost in a foreign currency are translated using the exchange rates at the
dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value is determined. Foreign exchange gains and losses are presented
in the consolidated statements of net income (loss) and comprehensive income (loss) within either net income (loss)
or other comprehensive income.
In determining the functional currency of CAPREIT’s foreign subsidiaries, CAPREIT considers factors such as
(i) the currency that mainly influences sale prices for goods and services and the country whose competitive forces
and regulations mainly determine the sale prices of those goods and services and (ii) the currency that mainly influences
labour, material and other costs of providing goods and services. The functional currency for CAPREIT’s European
subsidiaries is the euro.
The results and financial position of all the subsidiaries that have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
i.
ii.
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the
balance sheet;
income and expenses for each statement of income (loss) and comprehensive income (loss) presented are translated
at average exchange rates for the period; and
iii. all resulting exchange differences are recognized in other comprehensive income.
On consolidation, exchange differences arising from the translation of the net investment in foreign operations,
and of borrowings and other currency instruments designated as hedges of such investments, are recorded in
other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that
were recorded in equity are recognized in the consolidated statements of net income (loss) and comprehensive
income (loss).
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of
assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated
at the spot rate of exchange at the reporting date.
109
Focused on QualityNotes to Consolidated Annual Financial Statements r) Impact of Accounting Standards Effective January 1, 2023 on CAPREIT’s Consolidated Annual
Financial Statements
Amendments to IAS 1, Presentation of Financial Statements (“IAS 1”) and IFRS Practice Statement 2,
Making Materiality Judgements (“IFRS Practice Statement 2”)
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 in which it provides guidance and
examples to help entities apply materiality judgments to accounting policy disclosures. The amendments require the
disclosure of material accounting policy information rather than disclosing significant accounting policies and provide
guidance on how entities apply the concept of materiality in making decisions about accounting policy disclosures.
Since the amendments to IFRS Practice Statement 2 provide non-mandatory guidance, an effective date for these
amendments is not necessary. CAPREIT adopted these amendments on January 1, 2023 and revised its accounting
policy disclosures accordingly.
IFRS 17, Insurance Contracts (“IFRS 17”)
The IASB issued IFRS 17 in May 2017, which replaces IFRS 4, Insurance Contracts (“IFRS 4”) and is applied
retrospectively. IFRS 17 establishes more uniform principles for the recognition, measurement, presentation
and disclosure of insurance contracts. In June 2020, the IASB issued an amendment to IFRS 17, which includes
an amendment to defer the effective date of the standard to annual periods beginning on or after January 1, 2023.
CAPREIT adopted IFRS 17 on January 1, 2023 and determined that there is no impact on transition in the current or
future reporting periods based on the current arrangements in place.
s) Future Accounting Changes
Amendments to IAS 1 – Classification of Liabilities as Current or Non-current
The IASB issued “Classification of Liabilities as Current or Non-current (Amendments to IAS 1)” in January 2020,
affecting the presentation of liabilities in the consolidated balance sheet. The narrow-scope amendments to IAS 1
clarify that liabilities are classified as either current or non-current, depending on the rights that exist at the end of
the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date.
The amendments also clarify what IAS 1 means when it refers to the “settlement” of a liability. The amendments
must be applied retrospectively in accordance with the normal requirements of IAS 8, Accounting Policies, Changes
in Accounting Estimates and Errors (“IAS 8”). In October 2022, the IASB issued amendments to the requirements
for classification of debt with covenants. The amendments modify the new requirements to apply only to covenants
with which an entity is required to comply and that may impact the classification of a liability as current or non-
current. In addition, the amendments require disclosure of information about such covenants and related liabilities in
the notes to enable users of financial statements to understand the risk of non-current liabilities with covenants becoming
repayable within 12 months. Both amendments will be effective for annual periods beginning on or after January 1,
2024 and will be applied retrospectively in accordance with IAS 8. The amendments have not been early adopted by
CAPREIT. CAPREIT has assessed the potential impact of the amendments and expects to reclassify ERES units held by
non-controlling unitholders from non-current liabilities to current liabilities upon adoption of the amendments.
110
2023 Annual ReportNotes to Consolidated Annual Financial Statements 3. Critical Accounting Estimates, Assumptions and Judgments
The preparation of consolidated annual financial statements in accordance with IFRS requires the use of estimates,
assumptions and judgments that in some cases relate to matters that are inherently uncertain, and which affect the
amounts reported in the consolidated annual financial statements and accompanying notes. Areas of such estimation,
use of assumptions and judgments include, but are not limited to: valuation of investment properties, remeasurement
at fair value of financial instruments, valuation of accounts receivable, capitalization of costs, accounting accruals,
the amortization of certain assets, accounting for deferred income taxes and determining whether an acquisition is a
business combination or an asset acquisition. Changes to estimates and assumptions may affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated annual
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates under different assumptions and conditions.
The estimates or judgments deemed to be more significant, due to subjectivity and the potential risk of causing a
significant adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.
i) Valuation of Investment Properties
Investment properties are measured at fair value as at the consolidated balance sheet dates. Any changes in fair
value are included within net income (loss) in the consolidated statements of net income (loss) and comprehensive
income (loss). Fair value is determined in accordance with recognized valuation techniques. The techniques used
comprise both the direct income capitalization (“DC”) and the discounted cash flow (“DCF”) methods, and include
estimating, among other things (all considered Level 3 inputs), normalized net operating income (“NOI”), capitalization
rates, terminal capitalization rates, discount rates and other future cash flows applicable to investment properties. Fair
values for investment properties are classified as Level 3 in the fair value hierarchy, as disclosed in note 30.
The valuation of investment properties is subject to significant judgments, estimates and assumptions about market
conditions in effect as at the consolidated balance sheet date. See note 4 for a detailed discussion of valuation methods
and the significant assumptions and estimates used.
ii) Valuation of Financial Instruments
The fair value of derivative assets and liabilities is based on assumptions that involve significant estimates. The basis of
valuation for CAPREIT’s derivatives is set out in note 30. The fair values of derivatives reported may differ significantly
from the amounts they are ultimately settled for if there is volatility between the valuation date and settlement date.
iii) Business Combination
At CAPREIT, accounting for business combinations under IFRS 3 generally applies when it acquires an investment
property or a portfolio of investment properties directly or indirectly through purchase of shares of another entity.
IFRS 3 defines a business as an integrated set of activities and assets that is capable of being conducted and managed
for the purpose of providing goods or services to customers, generating investment income (such as dividends or
interest) or generating other income from ordinary activities.
A business generally consists of inputs, processes applied to those inputs and resulting outputs that are, or will be, used
to generate revenues. In the absence of such criteria, a group of assets is deemed to have been acquired. If goodwill is
present in a transferred set of activities and assets, the transferred set is presumed to be a business. CAPREIT applies
judgment in determining whether property acquisitions qualify as a business combination in accordance with IFRS 3
or as an asset acquisition.
When determining whether the acquisition of an investment property or a portfolio of investment properties is a
business combination or an asset acquisition, CAPREIT applies judgment when considering the following:
1. whether the investment property or properties are capable of producing outputs;
2. whether the market participant could produce outputs if missing elements exist;
3. whether employees were assumed in the acquisition; and
4. whether an operating platform has been acquired.
111
Focused on QualityNotes to Consolidated Annual Financial Statements As outlined in note 2, CAPREIT has the option to assess whether substantially all of the fair value of the gross assets
acquired is concentrated in a single asset or group of similar assets under IFRS 3. If such a concentration exists, the
transaction is not viewed as an acquisition of a business and no further assessment of the business combination
guidance is required. The optional concentration test will be applied on a case-by-case basis.
When CAPREIT acquires properties or a portfolio of properties and does not take on or assume employees or acquire
an operating platform, it classifies the acquisition as an asset acquisition.
When CAPREIT determines the acquisition is a business combination, CAPREIT considers the following when determining
the acquirer for accounting purposes:
1.
whether the former owners of the entity being acquired own the majority of the shares or units, and control
the majority of votes, in the combined entity; and
2. whether management of the combined entity is drawn predominantly from the entity whose shares or units
are acquired.
4. Investment Properties
Continuity of Investment Properties by Type
For the Year Ended December 31, 2023
Note
Balance of investment properties, beginning
of the year
Additions (deductions):
Acquisitions
Property capital investments
Capitalized direct leasing costs
Transfers from other assets
Dispositions(3)
Transfers to assets held for sale
Fair value adjustments
Gain on foreign currency translation and other
Fee Simple
and MHC
Sites
Operating
Leasehold
Interests(1)
Land
Leasehold
Interests(2)
Total
$ 16,793,110
$
101,558
$
259,041
$ 17,153,709
5
9
6
7
299,448
270,035
1,241
16,462
(205,566)
(127,155)
(894,157)
23,225
–
2,978
15
–
–
–
(7,361)
–
–
10,128
85
–
–
–
(10,991)
–
299,448
283,141
1,341
16,462
(205,566)
(127,155)
(912,509)
23,225
Balance of investment properties, end of the year
$ 16,176,643
$
97,190
$
258,263
$ 16,532,096
(1)
The fair values of operating leasehold interests include the fair values of the options to purchase the related freehold interests of $41,077 as at
December 31, 2023.
(2)
Includes right-of-use assets related to investment properties totalling $44,843.
(3) Excludes the disposition of investment properties that were previously classified as assets held for sale. Refer to notes 6 and 7 for further information.
For the Year Ended December 31, 2022
Note
Balance of investment properties, beginning
of the year
Additions (deductions):
Acquisitions
Property capital investments
Capitalized direct leasing costs
Dispositions
Transfers to assets held for sale
Fair value adjustments
Gain on foreign currency translation
Balance of investment properties, end of the year
Fee Simple
and MHC
Sites
Operating
Leasehold
Interests(1)
Land
Leasehold
Interests(2)
Total
$ 16,719,821
$
114,150
$
267,948
$ 17,101,919
5
6
7
645,605
312,712
308
(343,497)
(132,342)
(437,021)
27,524
$ 16,793,110
$
–
1,941
–
–
–
–
7,699
167
–
–
(14,533)
–
101,558
(16,773)
–
259,041
$
645,605
322,352
475
(343,497)
(132,342)
(468,327)
27,524
$ 17,153,709
(1)
The fair values of operating leasehold interests include the fair values of the options to purchase the related freehold interests of $46,068 as at
December 31, 2022.
(2)
Includes right-of-use assets related to investment properties totalling $45,467.
112
2023 Annual ReportNotes to Consolidated Annual Financial Statements
Valuation Basis
CAPREIT appraises some of its Canadian investment properties using valuations prepared by its internal valuations
team. This team consists of individuals who are knowledgeable and have specialized industry experience in real estate
valuations and report directly to a senior member of CAPREIT’s management team. The internal valuations team’s
processes and results are reviewed and approved by senior management of CAPREIT, including the President and
Chief Executive Officer and Chief Financial Officer.
As at December 31, 2023, CAPREIT had approximately 34% by fair value and 34% by number of properties of its
Canadian investment properties appraised by a qualified external appraiser (December 31, 2022 – 51% and 49%,
respectively). External valuations for the Canadian portfolio, where obtained, are performed at year-end with quarterly
updates provided on capitalization rates. Capitalization rates used by the appraisers are based on recently closed
transactions for similar properties and other current market indicators for similar properties. CAPREIT obtains external
valuations for a cross-section of investment properties that represent different geographical locations across the
Canadian portfolio. For internal valuations, the appraisal methodologies used are consistent with the practices employed
by the external appraiser. The fair values of all of CAPREIT’s European residential portfolio are determined by qualified
external appraisers on a quarterly basis. The qualified external appraisers hold recognized relevant professional
qualifications and have recent experience in the location and category of the respective properties.
Fair values for investment properties are classified as Level 3 in the fair value hierarchy, as disclosed in note 30.
Discussion of the valuation process, the valuation methodology (as discussed below), key inputs and results is
held between CAPREIT and the qualified external appraisers at least once every quarter, in line with CAPREIT’s quarterly
reporting dates.
To determine fair value, CAPREIT first considers whether it can use current prices in an active market for a similar
property in the same location and condition. CAPREIT has concluded there is insufficient market evidence on which to
base investment property valuation using this approach, and has therefore determined to use either the DC or the DCF
methods to arrive at the fair value of the investment properties. Capitalization rates and discount rates used are based
on recently closed transactions for similar properties and other current market indicators for similar properties. Sale
prices are used for properties slated for disposition or classified as held for sale per their corresponding agreement
of purchase and sale when this price represents fair value at the reporting date.
Current regulatory and macroeconomic developments, including the interest rate and inflationary environment, have
impacted overall market activity, resulting in limited reliable market metrics, such as capitalization rates. As such, the
fair values of CAPREIT’s investment properties are subject to significant change, and such changes may be material.
Investment properties have been valued using the following methods and key assumptions:
a) Fee Simple and MHC Sites
For its Canadian portfolio, CAPREIT utilizes the DC method. Under this method, capitalization rates are applied to
normalized NOI representing market-based NOI assumptions (property revenue less property operating expenses
adjusted for market-based assumptions such as long-term vacancy rates, management fees, repairs and maintenance
costs, and general and administration costs). The most significant assumption is the capitalization rate for each specific
property. The capitalization rate is based on the actual location, size and quality of the property, taking into account
any available market data at the valuation date. Generally, an increase in normalized NOI will result in an increase to
the fair value of an investment property. An increase in the capitalization rate will result in a decrease to the fair value
of an investment property. The capitalization rate magnifies the effect of a change in normalized NOI, with a lower
capitalization rate causing more change in fair value than would a higher capitalization rate.
113
Focused on QualityNotes to Consolidated Annual Financial Statements For its European portfolio, CAPREIT utilizes the DCF method and the DC method, described above. Under the DCF
method, discount rates are applied to the forecasted cash flows reflecting market-based NOI assumptions, as described
above. The most significant assumptions are the stabilized cash flows, the discount rate applied over the term of the
cash flows and the capitalization rate used to determine the terminal value of the investment properties. Generally, an
increase in forecasted cash flows will result in an increase to the fair value of an investment property. The discount rate
is generally the weighted average cost of capital that is appropriate to the cash flow risk for the investment property.
An increase in the discount rate will result in a decrease to the fair value of an investment property. The terminal
capitalization rate is generally determined with reference to recent transactions for similar investment properties.
An increase in the terminal capitalization rate will result in a decrease to the fair value of an investment property.
b) Operating Leasehold Interests
CAPREIT utilizes the DCF method. Under this method, discount rates are applied to the forecasted cash flows
reflecting market-based leasing assumptions for a specific property as well as assumptions about renewal and
new leasing activity. The most significant assumption is the discount rate applied over the initial term of the lease.
The discount rate is generally the weighted average cost of capital that is appropriate to the cash flow risk for
the investment property. Generally, an increase in forecasted cash flows will result in an increase to the fair value
of an investment property. An increase in the discount rate will result in a decrease to the fair value of an
investment property.
c) Options to Purchase the Related Operating Leasehold Interests
CAPREIT utilizes the DC method at the reversion date (the earlier of option exercise date and early buyout date)
to estimate the future value, which is then discounted to a present value. Under this method, the stabilized income
is adjusted to a projected NOI as at the end of the operating lease term and the capitalization rate is adjusted
to a “terminal capitalization rate” reflecting the incremental risk associated with future uncertainty. The value
of the option is then determined based on the difference between the estimated fair value of the property at
such date and the option buyout price, discounted back to its present value using a risk-adjusted discount rate
(the “option discount rate”).
d) Land Leasehold Interests
CAPREIT’s land leasehold interests consist of four investment properties with ground leases and one investment
property with an air rights lease with various expiry dates (subject to revisions at periodic intervals) between 2045
and 2072. One lease matures in 2045, two mature in 2068, one matures in 2070 and another matures in 2072.
Generally, each lease provides for annual rent and additional rent calculated from the results of property operations.
CAPREIT utilizes the DCF method for properties that are subject to land or air rights leases. Under this method,
discount rates are applied to the forecasted cash flows reflecting market-based leasing assumptions for that
specific property as well as assumptions about renewal and new leasing activity. The most significant assumption
is the discount rate applied over the term of the lease. Forecasted cash flows are reduced for contractual land
lease payments and the discount rates reflect uncertainty regarding the renegotiation of land lease payments during
and at the end of the term of the leases.
114
2023 Annual ReportNotes to Consolidated Annual Financial Statements A summary of the market assumptions and ranges for each type of property interest (excluding assets held for sale),
along with their fair values, is presented below as at December 31, 2023 and December 31, 2022:
As at December 31, 2023
Type of Interest
Fee simple interests – Canada
Fee simple interests – Europe(1)
MHC sites
Operating leasehold interests(2)(3)
Land leasehold interests(4)
Right-of-use assets, net of fair value change
Fair Value
Rate Type
$ 13,016,359
Capitalization rate
2,459,444
Discount rate
Terminal capitalization rate
Capitalization rate
Discount rate(5)
Discount rate(5)
700,840
97,190
213,420
44,843
Min.
3.16%
5.60%
4.10%
5.16%
7.00%
6.96%
Max.
7.63%
8.50%
9.34%
9.26%
7.25%
8.80%
Weighted
Average
4.26%
7.08%
5.32%
6.05%
7.07%
7.77%
Total investment properties
$ 16,532,096
(1)
Rates exclude one commercial property owned in Belgium, valued by a third-party appraiser using the DC method.
(2) The fair values of operating leasehold interests include the fair values of the options to purchase the related freehold interests of $41,077 as at
December 31, 2023.
(3)
For the two operating leasehold interests remaining as at December 31, 2023, the contractual weighted average remaining lease term on operating
leasehold interests is 12.4 years based on the assumption that the early purchase option is not exercised. As at December 31, 2023, if the purchase
option is exercised at the earliest allowable date, the weighted average remaining lease term on the two operating leasehold interests is 2.4 years.
(4)
The fair values of the land leasehold interests reflect the estimated air rights or land lease payments over the term of the leases.
(5) Represents the discount rate used to determine the fair value of operating leasehold and land leasehold interests using the DCF method.
Normalized NOI growth for operating leasehold interests of 3.0% has been assumed as at December 31, 2023.
As at December 31, 2022
Type of Interest
Fee simple interests(1)
MHC sites
Operating leasehold interests(2)(3)
Land leasehold interests(4)
Right-of-use assets, net of fair value change
Fair Value
Rate Type
$ 16,080,390
Capitalization rate
712,720
101,558
213,574
45,467
Capitalization rate
Discount rate(5)
Discount rate(5)
Min.
2.90%
5.10%
5.75%
6.59%
Max.
11.02%
8.58%
6.00%
8.17%
Weighted
Average
3.84%
5.93%
5.83%
7.19%
Total investment properties
$ 17,153,709
(1)
(2)
(3)
The fee simple interests include $2,750,358 of CAPREIT’s European portfolio with an implied capitalization rate of 3.88%, which were valued using the
DCF method at a weighted average discount rate of 5.60% and a terminal capitalization rate of 4.43%.
The fair values of operating leasehold interests include the fair values of the options to purchase the related freehold interests of $46,068 as at
December 31, 2022.
For the two operating leasehold interests remaining as at December 31, 2022, the contractual weighted average remaining lease term on operating
leasehold interests is 13.4 years based on the assumption that the early purchase option is not exercised. As at December 31, 2022, if the purchase
option is exercised at the earliest allowable date, the weighted average remaining lease term on the two operating leasehold interests is 3.4 years.
(4) The fair values of the land leasehold interests reflect the estimated air rights or land lease payments over the term of the leases.
(5) Represents the discount rate used to determine the fair value of operating leasehold and land leasehold interests using the DCF method.
Normalized NOI growth for operating leasehold interests of 3.0% has been assumed as at December 31, 2022.
115
Focused on QualityNotes to Consolidated Annual Financial Statements
The table below summarizes the impact of changes in the capitalization rate on the fair value of CAPREIT’s investment
properties as at December 31, 2023:
As at December 31, 2023
Change in Capitalization Rate(1)
(0.50)%
(0.25)%
+0.25%
+0.50%
Change in Fair
Value of Investment
Properties
$ 2,163,520
1,014,023
(901,412)
(1,708,177)
(1)
For operating leasehold interests, land leasehold interests and European properties, CAPREIT applies discount rates to determine the fair value of these
properties. However, for the purposes of the above sensitivity analysis, CAPREIT has utilized the implied capitalization rates for operating leasehold
interests, land leasehold interests and European properties to determine the impact on fair value of the total portfolio.
A 1% increase in normalized NOI would result in an increase in fair value of investment properties of $164,876.
A 1% decrease in normalized NOI would result in a decrease in fair value of investment properties of $164,869.
5. Acquisitions of Investment Properties
The tables below summarize the investment property acquisitions during the years ended December 31, 2023 and
December 31, 2022, which have contributed to the operating results as from their respective acquisition dates.
Acquisitions of Investment Properties Completed During the Year Ended December 31, 2023
Acquisition Date
February 27, 2023
April 12, 2023
May 16, 2023
June 1, 2023
June 22, 2023
November 27, 2023
December 19, 2023
Total
Suite or
Site Count
Region
143
Ottawa, ON
89
93
52
92
48
114
631
Edmonton, AB
Langley, BC
Dartmouth, NS
Langley, BC
Esquimalt, BC
Vancouver, BC
Total
Acquisition
Costs
$ 56,627(3)
25,780(4)
53,910(5)
20,821(5)
51,115(5)
22,616(5)
68,579(5)
Assumed
Mortgages
Payable
Subsequent
Acquisition
Financing
Stated
Interest
Rate (%)(1)
Term to
Maturity
(Years)(2)
$ 39,064
$
18,763
–
–
–
–
–
–
–
31,353
12,280
38,394
–
–
3.25
2.59
4.94
4.94
4.81
–
–
9.50
8.58
10.00
10.00
10.00
–
–
$ 299,448
$ 57,827
$ 82,027
(1) Weighted average stated interest rate on assumed mortgage funding and subsequent acquisition financing as applicable.
(2) Weighted average term to maturity on assumed mortgage funding and subsequent acquisition financing as applicable.
(3)
The acquisition was funded from cash and cash equivalents, the assumption of an existing mortgage and a VTB mortgage payable. Repayment of the
five-year VTB mortgage payable may be waived, subject to certain conditions. The VTB mortgage payable carries an interest rate of 4.125% per annum.
(4) The acquisition was funded from cash and cash equivalents or from the Acquisition and Operating Facility, and the assumption of an existing mortgage.
(5) The acquisition was funded from cash and cash equivalents or from the Acquisition and Operating Facility.
116
2023 Annual ReportNotes to Consolidated Annual Financial Statements
Acquisitions of Investment Properties Completed During the Year Ended December 31, 2022
Acquisition Date
January 25, 2022
January 31, 2022
February 25, 2022
March 7, 2022
March 31, 2022
March 31, 2022
May 2, 2022
May 4, 2022
July 19, 2022
July 26, 2022
Total
Suite or
Site Count
Region
Kelowna, BC
$
The Netherlands
Victoria, BC
Montréal, QC
Red Deer, AB
The Netherlands
The Netherlands
Kanata, ON
Laval, QC
Edmonton, AB
Total
Acquisition
Costs
30,373(3)
27,773(4)
7,230(4)
291,202(3)
16,520(4)
65,946(4)
34,447(4)
44,209(3)
105,272(4)
22,633(4)
Assumed
Mortgages
Payable
Subsequent
Acquisition
Financing
Stated
Interest
Rate (%)(1)
Term to
Maturity
(Years)(2)
$
17,135
$
–
–
–
55,571
–
–
–
26,504
–
–
16,159
–
–
–
36,619
–
–
–
–
3.55
3.19
–
2.75
–
3.19
–
2.37
–
–
4.90
6.00
–
6.50
–
6.00
–
2.17
–
–
$ 645,605
$
99,210
$
52,778
59
45
24
514
172
201
110
112
235
65
1,537
(1) Weighted average stated interest rate on assumed mortgage funding and subsequent acquisition financing as applicable.
(2) Weighted average term to maturity on assumed mortgage funding and subsequent acquisition financing as applicable.
(3) The acquisition was funded from cash and cash equivalents or from the Acquisition and Operating Facility, and the assumption of an existing mortgage.
(4) The acquisition was funded from cash and cash equivalents or from the Acquisition and Operating Facility.
Net Disbursements on Acquisitions of Investment Properties
The net disbursements made for the acquisitions of investment properties take into consideration the fair value of the
investment properties being acquired, fair value of mortgages payable and other net assets assumed, and working
capital and other adjustments relating to transaction costs.
For the Year Ended December 31,
Acquired properties
Fair value of assumed debt
Deposit on acquisitions and other adjustments
Change in investment properties included in accounts payable and other liabilities
Net disbursements
2023
2022
$
(299,448)
$
(645,605)
57,827
3,359
(4,103)
99,500
2,404
4,140
$
(242,365)
$
(539,561)
117
Focused on QualityNotes to Consolidated Annual Financial Statements
6. Dispositions of Investment Properties and Assets Held for Sale
The tables below summarize the dispositions of investment properties and assets held for sale completed during the
years ended December 31, 2023 and December 31, 2022.
Dispositions of Investment Properties and Assets Held for Sale Completed During the Year Ended
December 31, 2023
Suite or
Site Count
Region
Sale Price
Fair Value of
Investment
Properties
and Assets
Held for Sale
Fair Value
Adjustments on
Mortgages
Assumed by
Purchasers
Fair Value of
Mortgages
Assumed by
Purchasers(1)
1,150
Ottawa, ON
$ 136,250
$ 132,342
$
3,908
$
34,798
Disposition Date
January 25, 2023(2)
March 1, 2023
March 6, 2023(3)
April 6, 2023(4)
May 11, 2023
May 16, 2023
June 5, 2023
June 8, 2023
June 30, 2023
July 17, 2023(4)
August 15, 2023
August 15, 2023
August 21, 2023
August 22, 2023
August 28, 2023(4)
August 30, 2023
September 29, 2023(4)
November 8, 2023
November 9, 2023
November 30, 2023
November 2023(5)
December 2023(5)
Total
46
–
1
180
60
162
393
217
1
111
73
12
180
1
9
1
Wingham, ON
Montréal, QC
The Netherlands
Longueuil, QC
Charlottetown, PEI
Longueuil, QC
Montréal, QC
Windsor, ON
The Netherlands
Charlottetown, PEI
Montréal, QC
Charlottetown, PEI
Montréal, QC
The Netherlands
Charlottetown, PEI
The Netherlands
250
17,250
588
27,787
9,400
25,000
68,900
8,250
564
11,963
12,600
1,300
32,500
529
950
393
250
17,250
588
27,787
9,400
24,048
68,900
8,250
564
11,963
12,600
1,300
32,500
529
950
393
263
Calgary, AB
53,880
53,880
78
21
2
8
2,969
Québec City, QC
Charlottetown, PEI
The Netherlands
The Netherlands
8,640
1,650
1,047
4,382
8,640
1,650
1,047
4,382
–
–
–
–
–
–
–
–
–
–
952
5,490
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ 424,073
$ 419,213
$
4,860
$
40,288
(1)
(2)
(3)
(4)
(5)
Relates to mortgages payable with a total principal amount of $45,148 assumed by the purchasers upon dispositions. The amount shown is net of
$4,860 fair value adjustment on mortgages assumed by the purchasers. The weighted average stated interest rate on mortgages assumed by the
purchasers was 2.28%.
CAPREIT disposed of its 50% interest in 1,150 apartment suites. These properties under joint arrangement were classified as assets held for sale as
at December 31, 2022.
Represents disposition of parking lot site adjacent to an existing multi-residential building owned by CAPREIT.
Represents disposition of a single residential suite.
Represents disposition of multiple single residential suites in several properties.
118
2023 Annual ReportNotes to Consolidated Annual Financial Statements
Dispositions of Investment Properties Completed During the Year Ended December 31, 2022
Disposition Date
April 29, 2022
June 15, 2022
June 20, 2022(2)
August 24, 2022
August 24, 2022(3)
Total
Suite or
Site Count
82
423
370
253
1
1,129
Fair Value of
Investment
Properties
Sale Price
Fair Value
Adjustments on
Mortgages
Assumed by
Purchasers
Fair Value of
Mortgages
Discharged or
Assumed by
Purchasers(1)
$
56,000
$
56,000
$
–
$
Region
Toronto, ON
Scarborough, ON
165,000
161,814
Ottawa, ON
East York, ON
The Netherlands
35,125
90,100
1,137
34,446
90,100
1,137
3,186
679
–
–
2,294
28,463
8,874
22,903
–
$ 347,362
$ 343,497
$
3,865
$
62,534
(1)
Includes mortgages payable with a total principal amount of $28,114 discharged and $38,285 assumed by the purchasers upon disposition. The amounts
shown are net of $3,865 fair value adjustments on mortgages assumed by purchasers. The weighted average stated interest rate on mortgages
discharged and assumed was 2.27%.
(2) CAPREIT disposed of its 50% interest in 370 apartment suites.
(3) Represents disposition of a single residential suite.
Net Proceeds on Dispositions of Investment Properties and Assets Held for Sale
The net proceeds received from the purchaser take into consideration the fair value of the investment properties and
assets held for sale being sold, fair value of the mortgages payable assumed by purchaser, closing costs and working
capital adjustments.
For the Year Ended December 31,
Fair value of disposed investment properties and assets held for sale
Fair value of mortgages assumed by purchasers on dispositions
Closing costs and other adjustments
Change in investment properties included in accounts payable and other liabilities
Net proceeds
2023
2022
$
419,213
$
343,497
(40,288)
(5,330)
81
(34,420)
(2,128)
–
$
373,676
$
306,949
7. Assets Held for Sale and Liabilities Related to Assets Held for Sale
As at December 31, 2023, CAPREIT classified two properties as assets held for sale totalling $45,850 along with
the associated mortgages payable as liabilities related to assets held for sale totalling $23,706. Management had
committed to a plan to sell these properties, and the sales were considered to be highly probable as at December 31,
2023. One of the properties was disposed of subsequent to December 31, 2023 as indicated in note 33.
As at December 31, 2022, CAPREIT classified its remaining three properties under joint arrangement as assets held
for sale totalling $132,342 along with the associated mortgages payable that were assumed by the purchaser as
liabilities related to assets held for sale totalling $38,116. Management had committed to a plan to sell these properties,
and the sales were considered to be highly probable as at December 31, 2022. These properties were sold during
the first quarter of 2023.
The tables below summarize the activities included in assets held for sale and liabilities related to assets held for sale
for the years ended December 31, 2023 and December 31, 2022.
Assets Held for Sale
As at
Balance, beginning of the year
Additions (deductions):
Transfers from investment properties
Property capital investments
Dispositions
Fair value adjustments
Balance, end of the year
Note
December 31, 2023
December 31, 2022
$
132,342
$
–
4
127,155
2,076
(213,647)
(2,076)
45,850
$
132,342
–
–
–
$
132,342
119
Focused on QualityNotes to Consolidated Annual Financial Statements
Liabilities Related to Assets Held for Sale
As at
Balance, beginning of the year
Additions (deductions):
Transfers from debt
Principal repayments
Lump-sum repayments
Fair value of mortgages assumed by purchaser upon disposition
of investment properties
Amortization and write-offs of deferred financing costs and prepaid
CMHC premiums, and net change in fair value and other adjustments
Balance, end of the year
8. Derivative Financial Instruments
Contracts for Which Hedge Accounting is Not Being Applied
Note
December 31, 2023
December 31, 2022
$
38,116
$
–
10
26,930
(29)
(3,257)
(34,798)
(3,256)
23,706
$
38,116
–
–
–
–
$
38,116
CAPREIT has certain derivative financial instruments in place, namely interest rate (“IR”) swaps and cross-currency interest
rate (“CCIR”) swaps. These derivative contracts, for which hedge accounting is not being applied, are summarized in
the following tables as at December 31, 2023 and December 31, 2022:
As at December 31, 2023
Type of Instrument
Notional Amount
Year of
Maturity
Weighted Average
Receiving Leg Rate
Weighted Average
Paying Leg Rate
Derivative Asset
Derivative Liability
Non-current
CCIR Swaps(1)
ERES IR Swap
ERES IR Swaps
Total
Current
CCIR Swaps(2)
CCIR Swap(3)
CCIR Swaps(4)
Total
$
€
€
247,728
25,500
156,550
$
$
316,241
107,670
US$
192,812
2025
2025
2027
2024
2024
2024
1.33%
EURIBOR
EURIBOR
0.22%
$
12,361
0.49%
(0.06)%
889
22,369
35,619
$
2.53%
4.00%
Term SOFR + 1.45%
1.53%
$
10,851
2.71%
6.48%
–
–
$
10,851
$
$
$
$
–
–
–
–
–
(499)
(6,502)
(7,001)
(1) Euro equivalent of €160,000.
(2) Euro equivalent of €208,358.
(3) Euro equivalent of €74,000.
(4) One-month CCIR swaps with Canadian dollar equivalent of $262,000.
120
2023 Annual ReportNotes to Consolidated Annual Financial Statements
As at December 31, 2022
Type of Instrument
Notional Amount
Year of
Maturity
Weighted Average
Receiving Leg Rate
Weighted Average
Paying Leg Rate
Derivative Asset
Derivative Liability
Non-current
CCIR Swaps(1)
ERES IR Swap
ERES IR Swaps
Total
Current
CCIR Swaps(2)
CCIR Swap(3)
CCIR Swap(4)
ERES CCIR Swaps(5)
Total
441,324
2024 – 2025
$
€
€
25,500
156,550
$
$
US$
US$
112,645
106,486
191,563
95,800
2025
2027
2023
2023
2023
2023
1.17%
EURIBOR
EURIBOR
0.12%
$
0.49%
(0.06)%
$
28,136
1,718
32,745
62,599
4.00%
CDOR + 1.35%
2.40%
$
1.21%
USD LIBOR + 1.35%
CDOR + 0.83%
USD LIBOR + 1.35% EURIBOR + 1.15%
$
–
–
–
–
–
$
$
$
$
–
–
–
–
(8,311)
(331)
(745)
(1,238)
(10,625)
(1) Euro equivalent of €284,818.
(2) Euro equivalent of €83,540.
(3) Euro equivalent of €74,000. This CCIR swap was settled in February 2023.
(4) One-month CCIR swap with Canadian dollar equivalent of $260,000.
(5) One-month ERES CCIR swaps with a euro equivalent of €90,300 that were settled in January 2023.
9. Other Assets
As at
Other non-current assets
Property, plant and equipment (“PP&E”)(1)
Accumulated amortization of PP&E
PP&E, net of accumulated amortization
Right-of-use assets, net of accumulated amortization(2) and other
Investments and other
VTB mortgage receivable(3)
Total
Other current assets
Prepaid expenses and other
MHC home inventory(4)
Restricted funds
Investments held at fair value through other comprehensive income
VTB mortgage receivable(3)
Total
December 31, 2023
December 31, 2022
$
56,517
$
(45,217)
11,300
4,228
14,014
–
$
29,542
$
$
17,014
6,376
10,756
5,687
46,800
86,633
52,495
(39,831)
12,664
4,923
9,068
46,800
73,455
23,797
16,207
9,654
4,378
–
$
$
$
54,036
(1) Consists of head office and regional offices’ leasehold improvements, corporate assets and information technology systems.
(2) Right-of-use assets, net of accumulated amortization of $2,879 (December 31, 2022 – $2,260).
(3)
(4)
On September 29, 2021, CAPREIT issued a $46,800 VTB mortgage receivable in connection with the disposal of an investment property. The VTB
mortgage receivable bore an annual interest rate of 2.33% and had an original maturity date of September 29, 2023. On July 18, 2023, the borrower exer-
cised its option to extend the VTB mortgage receivable by one year until September 29, 2024 at an annual interest rate of 4.00%.
During the year ended December 31, 2023, MHC home inventory with a fair value of $16,462 (year ended December 31, 2022 – $nil) was transferred
to investment properties.
121
Focused on QualityNotes to Consolidated Annual Financial Statements
10. Debt
Continuity of Total Debt
For the Year Ended December 31, 2023
Balance, beginning of the year
Add:
Borrowings
Less:
Principal repayments
Lump-sum repayments(1)
Financing costs and CMHC premiums paid
Non-cash adjustments:
Fair value of mortgages assumed upon property acquisitions
Fair value of mortgage assumed by purchaser upon property disposition(2)
Transfers to liabilities related to assets held for sale
Amortization and write-off of deferred financing costs and prepaid CMHC
premiums, and net change in fair value and other adjustments
Loss (gain) on foreign currency translation
Balance, end of the year
Less: current portion
Total non-current portion
Mortgages Payable
Credit Facilities
Payable
Total Debt
$ 6,577,097
$
388,975
$ 6,966,072
662,278
107,802
770,080
(158,774)
(463,169)
(18,226)
57,827
(5,490)
(26,930)
17,762
11,613
$ 6,653,988
651,371
$ 6,002,617
$
$
–
(83,738)
(389)
–
–
–
(638)
(6,879)
405,133
–
405,133
(158,774)
(546,907)
(18,615)
57,827
(5,490)
(26,930)
17,124
4,734
$ 7,059,121
651,371
$ 6,407,750
(1)
(2)
Includes mortgages repaid on dispositions of investment properties totalling $51,002. This excludes a mortgage repaid that was previously classified as a
liability related to assets held for sale. Refer to note 7 for further information.
Excludes mortgages assumed by purchasers classified as liabilities related to assets held for sale as at December 31, 2022 that were assumed by
purchasers on January 25, 2023. Refer to note 7 for further information.
For the Year Ended December 31, 2022
Balance, beginning of the year
Add:
Borrowings
Less:
Principal repayments
Lump-sum repayments(1)
Financing costs and CMHC premiums paid
Non-cash adjustments:
Fair value of mortgages assumed upon property acquisitions
Fair value of mortgages assumed by purchasers upon property dispositions
Transfers to liabilities related to assets held for sale
Amortization and write-off of deferred financing costs and prepaid CMHC
premiums, and net change in fair value and other adjustments
Loss on foreign currency translation
Balance, end of the year
Less: current portion
Total non-current portion
(1)
Includes mortgages repaid on dispositions of investment properties totalling $28,114.
Mortgages Payable
As at(1)
Weighted average effective interest rate
Maturity date
Investment properties pledged as security on mortgages
Investment properties not pledged as security on mortgages
(1) Excludes liabilities related to assets held for sale, as applicable.
Mortgages Payable
Credit Facilities
Payable
Total Debt
$ 6,100,065
$
310,866
$
6,410,931
1,090,638
303,378
1,394,016
(162,048)
(479,349)
(27,248)
99,500
(34,420)
(38,116)
12,991
15,084
$ 6,577,097
613,277
$ 5,963,820
$
$
–
(239,546)
–
–
–
–
–
14,277
388,975
–
(162,048)
(718,895)
(27,248)
99,500
(34,420)
(38,116)
12,991
29,361
$
6,966,072
613,277
388,975
$
6,352,795
December 31, 2023
December 31, 2022
2.80%
2024 – 2036
$ 15,021,533
$ 1,510,563
2.61%
2023 – 2036
$ 15,807,722
$
1,345,987
122
2023 Annual ReportNotes to Consolidated Annual Financial Statements
Future principal repayments as at December 31, 2023 for the years indicated are as follows:
As at December 31, 2023
Principal Amount
% of Total Principal
2024
2025
2026
2027
2028
2029 – 2036
Total principal
Less: prepaid CMHC premiums
Less: deferred financing costs
Less: fair value adjustments
Less: liabilities related to assets held for sale
Total mortgages payable
Credit Facilities Payable
9.7
13.4
13.0
13.9
13.0
37.0
100.0
$
662,870
910,464
884,293
948,247
884,936
2,526,515
6,817,325
(113,947)
(21,886)
(3,798)
(23,706)
$ 6,653,988
Acquisition and Operating Facility
On June 18, 2021, CAPREIT entered into a credit facility agreement (the “Acquisition and Operating Facility”) that can
be drawn in Canadian dollars, US dollars (“USD”) and euros up to an aggregate principal amount of all advances not
to exceed $600,000. The Acquisition and Operating Facility is secured by fixed charge debentures on certain of
CAPREIT’s properties, and floating charge debentures on most of CAPREIT’s properties. In each case, such debentures
are subordinate to the charges securing CAPREIT’s mortgage financing. The interest rate on the Acquisition and
Operating Facility is determined by interest rates on prime advances, bankers’ acceptances, Euro Interbank Offered
Rate (“EURIBOR”), US base rate and USD London Interbank Offered Rate (“LIBOR”) utilized during the year. The original
maturity date of the Acquisition and Operating Facility was June 18, 2024.
On December 19, 2022, CAPREIT amended its Acquisition and Operating Facility to extend the maturity date by 18 months
from June 18, 2024 to December 19, 2025 and to provide for, among other things, (i) the replacement of USD LIBOR
with Term Secured Overnight Financing Rate (“SOFR”) as a benchmark interest rate for CAPREIT borrowings in USD
under the credit facility agreement; and (ii) an accordion option to increase the credit facility limit of up to $200,000
upon the satisfaction of conditions set out in the credit facility agreement, including the request of CAPREIT and the
consent of the applicable lenders. The Acquisition and Operating Facility is subject to certain financial covenants,
as outlined further in note 31. The Acquisition and Operating Facility is used to fund operations, acquisitions, capital
improvements, letters of credit and working capital requirements.
ERES Credit Facility
On October 29, 2021, ERES amended and renewed its existing ERES revolving credit facility (“ERES Credit Facility”)
with the same two Canadian chartered banks, providing up to €100,000 for a three-year period ending on
October 29, 2024, which resulted in (i) combining the ERES Credit Facility and the revolving bridge credit facility
(“ERES Bridge Facility”); (ii) lower interest rates and fees; (iii) certain modifications to CAPREIT’s financial covenants; and
(iv) a negative pledge of an unencumbered property pool provided by a subsidiary of CAPREIT, such that it represents
1.50 times the facility amount of €100,000.
On January 24, 2023, ERES amended and renewed its existing revolving credit facility with two Canadian chartered
banks and the addition of another Canadian chartered bank, providing up to €125,000 for a three-year period ending
on January 26, 2026, as well as an accordion feature to increase the limit a further €25,000 upon satisfaction
of conditions set out in the agreement and the consent of applicable lenders. This amendment also replaced the
USD LIBOR with the Term SOFR as a benchmark interest rate.
Canadian investment properties and assets held for sale, as applicable, of $1,176,479 (December 31, 2022 – $1,029,260)
secure only the Acquisition and Operating Facility, of which $268,040 also carries a negative pledge against the
ERES Credit Facility (December 31, 2022 – $271,980). A subsidiary of CAPREIT also provides a guarantee on the ERES
Credit Facility.
123
Focused on QualityNotes to Consolidated Annual Financial Statements
The Acquisition and Operating Facility and ERES Credit Facility are collectively known as the “Credit Facilities”.
The tables below summarize the amounts available and drawn under the respective credit facilities as at December 31,
2023 and December 31, 2022:
As at December 31, 2023
Maximum borrowing capacity
USD borrowings
Euro borrowings
Less: Total borrowings
Less: Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps
Acquisition and
Operating Facility
$
$
600,000
(255,509)(1)
–
$
(255,509)
$
(4,432)
340,059
6.48%(2)
ERES Credit
Facility
182,828
–
(150,651)(3)
(150,651)
–
32,177
5.23%
$
$
$
$
Consolidated
Total
782,828
(255,509)
(150,651)
$
$
$
(406,160)
(4,432)
$
372,236
6.01%
(1)
(2)
As at December 31, 2023, CAPREIT has USD borrowings totalling US$192,812 that bear interest at the Term SOFR plus a margin of 1.45%, excluding the
impact of cross-currency interest rate swaps.
As at December 31, 2023, excluding the impact of cross-currency interest rate swaps, the weighted average interest rate on the Acquisition and
Operating Facility is 6.75%. For details of the swaps, refer to note 8.
(3) As at December 31, 2023, ERES has euro borrowings totalling €103,000 that bear interest at the EURIBOR plus a margin of 1.35% per annum.
As at December 31, 2022
Maximum borrowing capacity
Less: USD borrowings
Less: Letters of credit
Available borrowing capacity
Weighted average interest rate including interest rate swaps
Acquisition and
Operating Facility
$
$
$
600,000
(259,211)(1)
(7,373)
333,416
5.56%(2)
$
$
$
ERES Credit
Facility
144,982
(129,764)(3)
–
15,218
3.06%(4)
Consolidated
Total
744,982
(388,975)
(7,373)
348,634
4.73%
$
$
$
(1)
(2)
As at December 31, 2022, CAPREIT has USD borrowings totalling US$191,365 that bear interest at the USD LIBOR rate plus a margin of 1.35% per annum,
excluding the impact of cross-currency interest rate swaps.
As at December 31, 2022, excluding the impact of cross-currency interest rate swaps, the weighted average interest rate on the Acquisition and
Operating Facility is 6.00%. For details of the swaps, refer to note 8.
(3) As at December 31, 2022, ERES has USD borrowings totalling US$95,800 that bear interest at the USD LIBOR rate plus a margin of 1.35% per annum.
(4)
As at December 31, 2022, excluding the impact of cross-currency interest rate swaps, the weighted average interest rate on the ERES Credit Facility
is 5.74%. For details of the swaps, refer to note 8.
11. ERES Units Held by Non-Controlling Unitholders
The ERES units held by non-controlling unitholders are classified as equity on ERES’s consolidated balance sheets but
are classified as a liability on CAPREIT’s consolidated balance sheets. ERES units are redeemable at any time, in whole
or in part, by the unitholders. As at December 31, 2023, non-controlling unitholders hold 35% (December 31, 2022 –
34%) of total ERES units. The table below summarizes the activity of ERES units held by non-controlling unitholders for
the years ended December 31, 2023 and December 31, 2022:
For the Year Ended
Balance of ERES units held by non-controlling unitholders, beginning of the year
Mark-to-market gain on ERES units
Interest expense to ERES non-controlling unitholders
Gain on non-controlling interest
Less: Distributions paid to ERES non-controlling unitholders
Balance of ERES units held by non-controlling unitholders, end of the year
December 31, 2023
December 31, 2022
$
242,599
$
356,695
(59,342)
14,133
(45,209)
(10,868)
186,522
$
$
(117,740)
12,918
(104,822)
(9,274)
242,599
$
$
124
2023 Annual ReportNotes to Consolidated Annual Financial Statements
12. Income Taxes
CAPREIT is taxed as a “mutual fund trust” as defined under the Tax Act and continues to meet the prescribed conditions
relating to the nature of its assets and revenues in order to qualify as a REIT eligible for the REIT Exemption to
the specified investment flow-through (“SIFT”) rules. CAPREIT expects to distribute all of its taxable income to its
Unitholders; accordingly, no provision for Canadian income tax has been made. Income tax obligations relating to the
distributions from CAPREIT are with the individual Unitholders, with the exception of Canadian withholding taxes for
distributions to non-resident Unitholders.
CAPREIT has foreign operating subsidiaries in certain countries with varying statutory rates of taxation. Judgment is
required in the estimation of income taxes and deferred income tax assets and liabilities in each of CAPREIT’s foreign
operating jurisdictions. Income taxes may be paid where activities relating to the foreign subsidiaries are considered
to be taxable in those countries.
For the Year Ended December 31,
Net income (loss) before income taxes
Amounts not subject to taxation(1)
Loss in foreign subsidiary entities
Tax recovery calculated at the Dutch corporate tax rate of 25.8%
Increase (decrease) resulting from:
Effect of different tax rates in countries in which CAPREIT operates
Adjustments to deferred income taxes for the change in tax rates
Adjustment for income taxed at a different rate
Unrecognized deferred income tax assets
Provision to tax return true-up
Other adjustments
2023
$
(488,053)
$
166,862
(321,191)
82,867
(2,092)
–
443
(3,304)
(143)
(1,292)
76,479
2022
3,603
(50,346)
(46,743)
12,060
(536)
(1,772)
2,162
(914)
(871)
(95)
Total current income tax expense and deferred income tax recovery, net
$
$
10,034
(1)
Consists primarily of Canadian income including fair value adjustment of Canadian investment properties, interest on and fair value adjustments of
Exchangeable LP Units, and other adjustments.
A breakdown of current income tax expense and deferred income tax recovery is as follows:
For the Year Ended December 31,
Current income tax expense
Deferred income tax recovery
Total current income tax expense and deferred income tax recovery, net
2023
(8,889)
85,368
76,479
$
$
$
$
2022
(4,843)
14,877
10,034
The deferred income tax liability of $49,481 (December 31, 2022 – $120,524) is primarily related to the difference in the
tax and book basis of investment properties. The deferred income tax asset of $19,523 (December 31, 2022 – $6,173)
also relates to the difference in the tax and book basis of investment properties, as well as loss carry-forwards.
As at December 31, 2023, CAPREIT has total non-capital loss carry-forwards of $24,801 (December 31, 2022 – $23,238).
Of these losses, $19,002 (December 31, 2022 – $18,073) are in respect of Dutch subsidiaries which, starting on
January 1, 2022, have no expiry period but the utilization is subject to annual limits. The remaining losses of $5,799
(December 31, 2022 – $5,165) are in respect of German subsidiaries and have no expiry period but the utilization is
subject to annual limits. As at December 31, 2023, CAPREIT has not recognized a deferred income tax asset for a
deductible temporary difference of $24,208 (December 31, 2022 – $8,633) as it does not expect this difference to
reverse in the foreseeable future.
In December 2021, the Organisation for Economic Co-operation and Development (“OECD”) issued model rules for a
new global minimum tax framework (“Pillar Two”). On August 4, 2023, the Department of Finance (Canada) released
draft legislation that would be effective after 2023 to implement the Global Minimum Tax Act, imposing a 15% global
minimum tax further to the OECD’s Pillar Two guidance. While the Global Minimum Tax Act has not been substantively
enacted, CAPREIT operates in other jurisdictions (such as the Netherlands) which have enacted local minimum tax
legislation as at December 31, 2023. On May 23, 2023, the IASB issued amendments to IAS 12 introducing a temporary
mandatory exception from the recognition and disclosure of deferred taxes related to the implementation of Pillar
Two global minimum tax rules, which exception has been applied by CAPREIT. CAPREIT will continue monitoring the
progress of relevant Pillar Two legislation globally to determine the impact upon substantive enactment but at this time
does not expect to have material exposure related to these rules.
125
Focused on QualityNotes to Consolidated Annual Financial Statements
13. Unit-based Compensation Financial Liabilities
Trust Units are issuable pursuant to CAPREIT’s unit-based compensation plans, namely the Employee Unit Purchase
Plan (“EUPP”), the Deferred Unit Plan (“DUP”) and the Restricted Unit Rights Plan (“RUR Plan”). As at December 31, 2023,
the maximum number of Trust Units issuable under CAPREIT’s unit-based compensation plans is 11,500,000 Trust Units
(December 31, 2022 – 11,500,000 Trust Units). The maximum number of Trust Units available for future issuance under
these unit-based compensation plan agreements as at December 31, 2023 is 1,908,947 Trust Units (December 31,
2022 – 2,149,084 Trust Units).
ERES units are issuable pursuant to ERES’s unit options plan (“ERES UOP”) and ERES’s Restricted Unit Rights Plan (“ERES
RUR Plan”). The maximum number of unit options and ERES restricted unit rights (“ERES RURs”) that may be reserved
under the ERES’s unit-based compensation plans is 10% of the outstanding ERES units (including ERES Class B LP Units).
As at December 31, 2023, the maximum number of unit options and restricted unit rights allowable for future issuance
under ERES’s unit-based compensation plans is 18,342,182 (December 31, 2022 – 18,041,454).
The tables below summarize the activity of CAPREIT’s unit-based compensation plans (excluding EUPP) and the
ERES UOP for the years ended December 31, 2023 and December 31, 2022:
Year Ended December 31, 2023
(Number of units)
Unit rights and unit options outstanding as at
January 1, 2023
Granted or cancelled during the year
Granted
Exercised or settled in Trust Units or ERES units
Cancelled or forfeited
Distributions reinvested
Unit rights and unit options outstanding as at
December 31, 2023
ERES UOP
DUP
RUR Plan
Total CAPREIT(1)
5,157,094
121,280
394,763
516,043
–
–
(180,000)
–
21,602
(12,654)
–
3,612
140,231
(68,496)
(7,702)
14,335
161,833
(81,150)
(7,702)
17,947
4,977,094
133,840
473,131
606,971
(1)
Excludes EUPP, ERES UOP and ERES RUR Plan. During the year ended December 31, 2023, no ERES RURs were granted, forfeited, exercised or
surrendered. As at December 31, 2023, the number of outstanding ERES RURs was nil.
Year Ended December 31, 2022
(Number of units)
Unit rights and unit options outstanding as at
January 1, 2022
Granted or cancelled during the year
Granted
Exercised or settled in Trust Units or ERES units
Cancelled or forfeited
Surrendered
Distributions reinvested
Unit rights and unit options outstanding as at
December 31, 2022
ERES UOP
DUP
RUR Plan
Total CAPREIT(1)
4,699,694
196,423
479,700
676,123
760,000
(28,800)
(202,334)
(71,466)
–
20,749
(100,493)
–
–
4,601
110,047
(200,363)
(8,181)
–
13,560
130,796
(300,856)
(8,181)
–
18,161
5,157,094
121,280
394,763
516,043
(1)
Excludes EUPP, ERES UOP and ERES RUR Plan. During the year ended December 31, 2022, no ERES RURs were granted, forfeited, exercised or
surrendered. As at December 31, 2022, the number of outstanding ERES RURs was nil.
The table below summarizes the change in the total unit-based compensation financial liabilities for the years ended
December 31, 2023 and December 31, 2022, including the settlement of such liabilities through the Trust Units
and ERES units.
For the Year Ended
December 31, 2023
December 31, 2022
Total unit-based compensation financial liabilities, beginning of the year
$
18,257
$
Unit-based compensation amortization expense
Unit-based compensation remeasurement loss (gain)
Settlement of unit-based compensation awards for Trust Units and ERES units
Loss (gain) on foreign currency translation and other
7,816
443
(4,486)
1,393
36,895
7,256
(10,670)
(15,037)
(187)
Total unit-based compensation financial liabilities, end of the year
$
23,423
$
18,257
126
2023 Annual ReportNotes to Consolidated Annual Financial Statements
The table below summarizes the non-current and current unit-based compensation financial liabilities for each plan as
at December 31, 2023 and December 31, 2022:
As at
Non-current
RUR Plan
ERES UOP
Current
DUP
RUR Plan
ERES UOP
Total unit-based compensation financial liabilities
December 31, 2023
December 31, 2022
$
$
$
$
$
11,062
8
11,070
6,532
5,556
265
12,353
23,423
$
$
$
$
$
7,743
63
7,806
5,176
4,536
739
10,451
18,257
Units or Unit-based Compensation Financial Liabilities Held by Trustees, Officers and Other
Senior Management
As at December 31, 2023, 0.5% (December 31, 2022 – 0.3%) of all Trust Units outstanding and unit-based compensation
financial liabilities were held by trustees, officers and other senior management of CAPREIT.
a) DUP
Effective June 1, 2022, CAPREIT has amended and restated the DUP, such that the DUP gives the non-executive
trustees the obligation to receive 50% of their annual retainer in the form of deferred units (“Deferred Units”) and the
right to receive up to 100% of their annual retainer in the form of Deferred Units, in lieu of cash on a dollar for dollar
basis, with the balance paid in cash.
The Deferred Units earn notional distributions based on the same distributions paid on the Trust Units, and such notional
distributions are used to acquire additional Deferred Units (“Distribution Units”). The Deferred Units and additional
Distribution Units are credited to each trustee’s Deferred Unit account and are not issued to the trustee until the trustee
elects to withdraw such units. Each trustee may elect to withdraw up to 20% of the Deferred Units credited to their
Deferred Unit account only once in a five-year period. Distribution Units are issued and valued based on the volume
weighted average trading price of all Trust Units traded on the TSX for the five trading days immediately preceding
the distribution date.
The details of the units issued under the DUP are shown below:
For the Year Ended
December 31, 2023
December 31, 2022
Weighted
Average
Issue Price
Fair Value
per Unit
Number of
Units
Weighted
Average
Issue Price
Fair Value
per Unit
Outstanding, beginning
of the year
Granted
$
Distributions reinvested
Settled, cancelled or forfeited
Outstanding, end of the year
$
$
45.96
47.45
48.38
49.04
42.68
–
–
–
121,280
21,602
3,612
(12,654)
$
35.20
$
59.96
45.57
48.29
32.93
–
–
–
46.07
$
48.80
133,840
$
45.96
$
42.68
Number of
Units
196,423
20,749
4,601
(100,493)
121,280
The fair value of DUPs represents the closing price of the Trust Units on the TSX on the last trading day on which the
Trust Units traded as of the reporting date.
127
Focused on QualityNotes to Consolidated Annual Financial Statements
b) RUR Plan
The Human Resources and Compensation Committee of the Board of Trustees may award RURs, subject to the
attainment of specified performance objectives, to certain officers and key employees (collectively, the “Participants”).
The purpose of the RUR Plan is to provide its Participants with additional incentive and to further align the interests of
its Participants with Unitholders through the use of RURs which, on vesting, are exercisable for Trust Units. RUR Plan
units will be issued from treasury on settlement. The RURs vest in their entirety on the third anniversary of the grant
date. The RURs earn notional distributions in respect of each distribution paid on RURs commencing from the grant
date, and such notional distributions are used to calculate additional RURs (“Distribution RURs”), which are accrued
for the benefit of the Participants. The Distribution RURs are credited to the Participants only when the underlying
RURs on which the Distribution RURs are earned become vested. Distribution RURs are issued and valued based on
the volume weighted average trading price of all Trust Units traded on the TSX for the five trading days immediately
preceding the distribution date.
The details of the RURs granted under the RUR Plan (including the Distribution RURs) are as follows:
For the Year Ended
December 31, 2023
December 31, 2022
Outstanding, beginning
of the year
Granted
Distributions reinvested
Settled, cancelled or forfeited
Outstanding, end of the year
$
Weighted
Average
Issue Price
Fair Value
per Unit
Number of
Units
Weighted
Average
Issue Price
Fair Value
per Unit
$
49.50
$
42.68
394,763
$
44.47
$
59.96
49.16
48.49
47.85
–
–
–
140,231
14,335
(76,198)
54.76
47.94
40.61
–
–
–
49.63
$
48.80
473,131
$
49.50
$
42.68
Number of
Units
479,700
110,047
13,560
(208,544)
394,763
The fair value of RURs represents the closing price of the Trust Units on the TSX on the last trading day on which the
Trust Units traded as of the reporting date.
c) EUPP
The EUPP grants all employees the right to receive an additional amount equal to 20% of the Trust Units they acquire,
paid in the form of additional Trust Units. This additional amount is expensed as compensation on issuance of the Trust
Units. During the year ended December 31, 2023, 68,060 Trust Units (year ended December 31, 2022 – 65,368
Trust Units) were issued pursuant to the EUPP.
14. Other Liabilities
As at
Other non-current liabilities
Non-current lease liabilities
Other
Total
Other current liabilities
Security deposits
Deferred revenue and other
Mortgage interest payable
Distributions payable to Unitholders
Distributions payable to ERES non-controlling unitholders
Current tax liability
Total
128
December 31, 2023
December 31, 2022
$
$
$
46,178
659
46,837
50,388
14,963
16,769
20,253
1,018
4,463
$
$
$
47,460
–
47,460
46,775
16,554
13,776
20,469
993
2,754
$
107,854
$
101,321
2023 Annual ReportNotes to Consolidated Annual Financial Statements
15. Accounts Payable and Accrued Liabilities
As at
Accounts payable
Accrued liabilities
Total
December 31, 2023
December 31, 2022
$
$
41,705
64,012
105,717
$
$
55,313
66,238
121,551
16. Exchangeable LP Units
Exchangeable LP Units are entitled to distributions equivalent to distributions on Trust Units, and are exchangeable
for Trust Units on a one-for-one basis, at any time at the option of the holder. Exchangeable LP Units are not eligible for
the Distribution Reinvestment Plan (“DRIP”). An equivalent number of special voting units (“Special Voting Units”) were
issued at the same time as the Exchangeable LP Units. The holders of these Special Voting Units have no entitlement
to any share of or interest in the distributions or net assets of CAPREIT. Through Special Voting Units, holders of
Exchangeable LP Units are entitled to an equivalent number of votes at all meetings of Unitholders or in respect
of any written resolution of Unitholders equal to the number of Exchangeable LP Units held. The carrying value of the
Exchangeable LP Units is measured at their fair value, which is based on the closing price of the Trust Units on the
TSX. The tables below summarize the activity of the Exchangeable LP Units for the years ended December 31, 2023
and December 31, 2022:
For the Year Ended December 31,
Exchangeable LP Units issued and outstanding, beginning of the year
Exchangeable LP Units exchanged for Trust Units
Exchangeable LP Units issued and outstanding, end of the year
For the Year Ended December 31,
Balance of Exchangeable LP Units, beginning of the year
Fair value adjustments of Exchangeable LP units
Exchangeable LP Units exchanged for Trust Units
Balance of Exchangeable LP Units, end of the year
2023
1,679,190
(32,004)
1,647,186
2022
1,679,190
–
1,679,190
2023
71,668
10,293
(1,578)
80,383
$
$
2022
$
100,684
(29,016)
–
$
71,668
17. Unitholders’ Equity
All Trust Units outstanding are fully paid, have no par value and are voting Trust Units. The authorized capital of
CAPREIT consists of an unlimited number of Trust Units, an unlimited number of Special Voting Units and 25,840,600
preferred units (“Preferred Units”). As at December 31, 2023 and December 31, 2022, no Preferred Units were issued
and outstanding. Trust Units represent Unitholders’ proportionate undivided beneficial interest in CAPREIT. No Trust Unit
has any preference or priority over another. No Unitholder has or is deemed to have any right of ownership in any of
the assets of CAPREIT. Each Trust Unit confers the right to one vote at any meeting of Unitholders and to participate
pro rata in any distributions declared by CAPREIT and, in the event of termination of CAPREIT, in the net assets of
CAPREIT remaining after satisfaction of all liabilities. Units will be issued in registered form and are transferable. Issued
and outstanding units may be subdivided or consolidated from time to time by the trustees without Unitholder approval.
No certificates for fractional units will be issued and fractional units will not entitle the holders thereof to vote.
a) Distribution Reinvestment Plan
The terms of the DRIP grant participants the right to receive an additional amount equal to 5% of their monthly
distributions paid in the form of additional units. The total consideration for units issued represents the amount of
cash distributions reinvested in additional units. On May 19, 2022, CAPREIT approved changes to its DRIP to permit
the suspension of the issuance of bonus Trust Units to participants. Consequently, commencing with the June 2022
distribution, participants in the DRIP as of the record date of June 30, 2022 will receive units at a price equal to
the weighted average trading price of Trust Units on the TSX for the five trading days immediately preceding each
distribution date, without any bonus Trust Units being issued. The total consideration for units issued represents the
amount of cash distributions reinvested in additional units.
129
Focused on QualityNotes to Consolidated Annual Financial Statements
b) Employee Unit Purchase Plan
During the year ended December 31, 2023, 68,060 Trust Units (year ended December 31, 2022 – 65,368 Trust Units)
were issued pursuant to the EUPP. See note 13 for further details on the EUPP.
c) Deferred Unit Plan
During the year ended December 31, 2023, 12,654 DUP units (year ended December 31, 2022 – 100,493 DUP units)
were settled. See note 13 for further details on the DUP.
d) Restricted Unit Rights Plan
During the year ended December 31, 2023, 76,198 RUR units were settled or cancelled, out of which 68,496 RUR
units were settled for an equivalent number of Trust Units and the remaining RUR units were forfeited. During the year
ended December 31, 2022, 208,544 RUR units were settled or cancelled, out of which 200,363 RUR units were settled
for an equivalent number of Trust Units and the remaining RUR units were forfeited. See note 13 for further details on
the RUR Plan.
e) Normal Course Issuer Bid (“NCIB”)
In March 2022, CAPREIT received the TSX’s acceptance of its notice of intention to proceed with an NCIB. Pursuant
to the notice, CAPREIT may purchase up to 17,067,144 of its Trust Units, representing approximately 10% of the public
float of its Trust Units at the time of TSX approval, during the 12-month period commencing March 24, 2022 and
ending March 23, 2023. Under the NCIB, other than purchases made under the block purchase exemption, CAPREIT
may purchase up to 91,823 Trust Units on the TSX during any trading day, which represents approximately 25% of
367,292 Trust Units, being the average daily trading volume on the TSX for the most recently completed six calendar
months prior to the TSX’s acceptance of the notice of intention to proceed with an NCIB. Any Trust Units purchased
under the NCIB will be cancelled.
In March 2023, CAPREIT received the TSX’s acceptance of its notice of intention to proceed with an NCIB, following
expiry of the previous NCIB on March 23, 2023. Pursuant to the notice, CAPREIT may purchase up to 16,901,348 of
its Trust Units, representing approximately 10% of the public float of its Trust Units at the time of TSX approval, during
the 12-month period commencing March 24, 2023 and ending March 23, 2024. Under the NCIB, other than purchases
made under the block purchase exemption, CAPREIT may purchase up to 100,017 Trust Units on the TSX during any
trading day, which represents approximately 25% of 400,069 Trust Units, being the average daily trading volume on
the TSX for the most recently completed six calendar months prior to the TSX’s acceptance of the notice of intention
to proceed with an NCIB. Any Trust Units purchased under the NCIB will be cancelled.
The table below summarizes the NCIB activity for the years ended December 31, 2023 and December 31, 2022.
The excess of the purchase price over the weighted average historical Trust Unit issuance price was recorded as a
reduction to retained earnings.
For the Year Ended December 31,
Total cost (including commissions) of Trust Units purchased and cancelled under the NCIB
Number of Trust Units purchased and cancelled under the NCIB
Weighted average purchase price per Trust Unit
2023
$
$
100,907
2,168,521
46.53
2022
237,772
5,233,162
45.44
$
$
f) Special Non-cash Distribution in Trust Units and Consolidation of Trust Units
On December 15, 2023, CAPREIT declared a special non-cash distribution of $0.49 per Trust Unit (December 15, 2022 –
$0.36 per Trust Unit), payable in Trust Units on December 29, 2023 (December 30, 2022) to Unitholders of record on
December 29, 2023 (December 30, 2022) (the “Special Distribution”). The Special Distribution was made to distribute
to Unitholders a portion of the capital gain realized by CAPREIT from transactions completed during the year ended
December 31, 2023 (year ended December 31, 2022).
130
2023 Annual ReportNotes to Consolidated Annual Financial Statements
On December 29, 2023, 1,683,012 Trust Units (December 30, 2022 – 1,428,904 Trust Units) were issued at a price of
$48.80 per Trust Unit (December 30, 2022 – $42.68 per Trust Unit), for an aggregate value of $82,131 (December 30,
2022 – $60,986). Immediately following the issuance of these Trust Units, the Trust Units were consolidated such
that each Unitholder held the same number of Trust Units after the consolidation of the Trust Units as each Unitholder
held prior to the Special Distribution. As at December 29, 2023, the issuance of Trust Units pursuant to the Special
Distribution totalling $82,131 (December 30, 2022 – $60,986) was recorded to Unit Capital in accordance with IAS 32,
with a corresponding reduction to retained earnings as a result of the Special Distribution declared.
g) Base Shelf Prospectus
On May 9, 2023, CAPREIT renewed its base shelf prospectus that was set to expire in June 2023. The base shelf
prospectus is valid for a 25-month period from May 9, 2023, during which CAPREIT may offer Trust Units, subscription
receipts, debt securities, or any combination thereof. Any issue of securities under the base shelf prospectus will
require the filing of a prospectus supplement that will include specific terms of the securities being offered.
18. Distributions on Trust Units
CAPREIT paid distributions to its Unitholders in accordance with its DOT. Distributions declared by its Board of Trustees
were paid monthly, on or about the 15th day of each month. Monthly distributions, excluding the Special Distributions
on December 29, 2023 and December 30, 2022, declared to Unitholders were $0.1208 per Trust Unit ($1.45 per Trust
Unit annually) for the years ended December 31, 2023 and December 31, 2022.
For the Year Ended December 31,
Distributions declared on Trust Units(1)
Distributions per Trust Unit
2023
243,282
1.450
$
$
2022
249,540
1.450
$
$
(1) Distributions declared exclude the special non-cash distributions. Refer to note 17 for further information.
19. Revenue from Contracts with Customers
In accordance with IFRS 15, management has evaluated the lease and non-lease components of its revenue from
investment properties. Revenues under IFRS 15 consist of a non-lease component earned from tenants and miscellaneous
revenues. Miscellaneous revenues consist of cable income, certain common area maintenance recoveries, service
charges and premium service components.
For the year ended December 31, 2023, revenues under IFRS 15 were $216,475 (for the year ended December 31,
2022 – $207,144) and were included in revenue from investment properties. For the year ended December 31, 2023,
the non-lease component earned from tenants and miscellaneous revenues were $193,249 and $23,226, respectively
(for the year ended December 31, 2022 – $182,664 and $24,480, respectively).
131
Focused on QualityNotes to Consolidated Annual Financial Statements
20. Other Income
For the Year Ended December 31,
Investment income(1)
Interest income from VTB mortgages receivable
Profit from sale of MHC inventory(2)
Interest income and other
Asset and property management fees, and transition service fees(3)
Net profit from investment in associate(4)
Total
$
$
2023
8,862
1,278
1,036
2,468
–
–
2022
9,112
1,971
1,531
1,008
2,252
647
$
13,644
$
16,521
(1)
(2)
(3)
(4)
For the year ended December 31, 2023, investment income includes $7,628 of semi-annual dividends from Irish Residential Properties REIT plc (“IRES”)
(for the year ended December 31, 2022 – $7,297). Prior to January 31, 2022, dividends from IRES were deducted from the carrying value of the
investment in associate instead of being included in investment income.
For the year ended December 31, 2023, profit from sale of MHC inventory consists of income from the sale of MHC home inventory of $4,820 (for the
year ended December 31, 2022 – $5,127), offset by cost of sales of $3,784 (for the year ended December 31, 2022 – $3,596).
For the year ended December 31, 2022, the amount included transition service fees totalling $1,407, based on the Investment Management Agreement
(“IMA”) with IRES, which terminated on January 31, 2022.
Net profit from investment in associate represented CAPREIT’s share of IRES’s earnings, investment property fair value change and foreign exchange
effects thereon during the period when CAPREIT exercised significant influence over IRES. Subsequent to January 31, 2022, CAPREIT no longer
exercises significant influence over IRES and, as a result, its investment in IRES no longer qualifies as an investment in associate.
21. Interest Expense on Debt and Other Financing Costs
For the Year Ended December 31,
Contractual interest on mortgages payable(1)
Amortization of deferred financing costs, fair value adjustments and OCI hedge
interest on mortgages payable(1)
Amortization of CMHC premiums and fees on mortgages payable(1)
Contractual interest on credit facilities payable
Amortization of deferred financing costs on credit facilities payable
Interest on land and air rights lease liability
Total
(1)
Includes liabilities related to assets held for sale.
22. Fair Value Adjustments of Financial Instruments
For the Year Ended December 31,
Fair value adjustments of Exchangeable LP Units
Fair value adjustments of investments
Fair value adjustments of derivative financial instruments
Unit-based compensation remeasurement gain (loss)
Fair value adjustments of financial instruments
2023
2022
$
(161,178)
$
(150,320)
(6,157)
(12,275)
(26,074)
(902)
(5,078)
(4,147)
(12,454)
(7,677)
(615)
(5,221)
$
(211,664)
$
(180,434)
$
2023
(10,293)
1,130
(24,767)
(443)
$
$
(34,373)
$
2022
29,016
(101,261)
54,135
10,670
(7,440)
132
2023 Annual ReportNotes to Consolidated Annual Financial Statements
23. Net Loss on Transactions and Other Activities
For the Year Ended December 31,
Loss on dispositions
Amortization of PP&E and right-of-use asset
Goodwill impairment loss
Fair value gain on transfer of other assets to investment properties
Other
Total
Impairment of Goodwill
$
2023
(5,330)
(6,206)
–
1,934
(4,309)
$
2022
(3,318)
(7,462)
(14,278)
–
–
$
(13,911)
$
(25,058)
Pursuant to the reverse acquisition of European Commercial Real Estate Investment Trust (“ECREIT”) on March 29, 2019,
CAPREIT recognized the residual of the consideration transferred over the fair value of net assets acquired as goodwill
on the consolidated balance sheets at the time.
CAPREIT determined that ERES is the cash-generating unit to which goodwill is allocated. CAPREIT generally performs
its annual test for impairment of goodwill in the fourth quarter, or more frequently if there are indicators of impairment.
Similar to prior periods, CAPREIT determined that ERES’s market capitalization was an indicator of impairment as at
June 30, 2022 and, as such, performed a full impairment test.
In performing this impairment test, CAPREIT determined the recoverable amount of ERES using a market multiples-
based valuation approach under the fair value less costs of disposal method. Inputs used in the calculation, which are
classified as Level 3 in the fair value hierarchy, included ERES’s forecasted annual adjusted funds from operations and
an implied multiple thereon. Management compared the multiple to those observed for similar entities in the residential
real estate sector.
Based on the impairment test performed, CAPREIT concluded that goodwill was impaired as at June 30, 2022, and
recognized a goodwill impairment loss of $14,278 in the consolidated statements of net income (loss) and comprehensive
income (loss) at the time, thereby writing off the goodwill balance in full.
24. Joint Arrangements
As at December 31, 2023, CAPREIT does not have any joint arrangements (December 31, 2022 – 50% co-ownership
interest in three investment properties whose principal place of business is in Ottawa, Ontario).
On January 25, 2023, CAPREIT disposed of its 50% co-ownership interest in a joint arrangement consisting of three
investment properties in Ottawa, Ontario. Refer to notes 6 and 7 for further information.
On June 20, 2022, CAPREIT disposed of its 50% co-ownership interest in a joint arrangement consisting of two
investment properties located in Ottawa, Ontario. Refer to note 6 for further information.
25. Supplemental Cash Flow Information
a) Other Adjustments
For the Year Ended December 31,
Loss on dispositions
Amortization
Straight-line rent adjustment
Deferred income tax recovery
Net profit from investment in associate
Unrealized foreign currency loss (gain)
Fair value gain on transfer of other assets to investment properties
Reversal of cumulative loss on foreign currency translation due to loss
of significant influence over IRES
Impairment of goodwill
Other adjustments
2023
5,330
6,206
76
(85,368)
–
(5,561)
(1,934)
–
–
(81,251)
$
$
2022
3,318
7,464
(96)
(14,877)
(647)
13,373
–
7,627
14,278
30,440
$
$
133
Focused on QualityNotes to Consolidated Annual Financial Statements
b) Items Related to Financing Activities
For the Year Ended December 31,
Interest expense on debt and other financing costs
Interest expense on Exchangeable LP Units
Interest expense to ERES non-controlling unitholders
Net gain on derecognition of debt
Items related to financing activities
c) Changes in Non-cash Operating Assets and Liabilities
For the Year Ended December 31,
Prepaid expenses
Tenant inducements, direct leasing costs and other adjustments
Amounts receivable
Deposits
MHC home inventory
Accounts payable and other
Derivative financial instruments
Security deposits
Current tax liability
Changes in non-cash operating assets and liabilities
d) Capital Investments
For the Year Ended December 31,
Property capital investments (investment properties and assets held for sale)
PP&E investments
Change in capital investments included in accounts payable and other liabilities
Net disbursements
e) Issuance of Trust Units
For the Year Ended December 31,
Issuance of Trust Units
Conversion of Exchangeable LP Units to Trust Units
Settlement of unit-based compensation awards for Trust Units
Net proceeds
f) Distributions Paid to Unitholders
For the Year Ended December 31,
Distributions declared to Unitholders
Add: Distributions payable to Unitholders at beginning of the year
Less: Distributions payable to Unitholders at end of the year
Less: Distributions to participants in the CAPREIT DRIP
Cash disbursements to Unitholders
2023
2022
$
211,664
$
180,434
2,382
14,133
(3,251)
2,435
12,918
(1,766)
$
224,928
$
194,021
2023
890
(1,486)
(2,768)
(739)
2,440
4,674
(11,849)
3,504
1,699
(3,635)
$
$
$
$
2022
(1,067)
1,566
490
(4,237)
(8,069)
(6,583)
19,824
2,966
(59)
4,831
2023
2022
$
(285,217)
$
(326,507)
(4,167)
(18,447)
(7,244)
(2,716)
$
(307,831)
$
(336,467)
2023
8,808
(1,578)
(4,486)
2,744
2022
17,782
–
(15,037)
2,745
$
$
$
$
2023
2022
$
(243,282)
$
(249,540)
(20,469)
20,253
9,431
(20,953)
20,469
42,178
$
(234,067)
$
(207,846)
134
2023 Annual ReportNotes to Consolidated Annual Financial Statements
26. Related Party Transactions
a) Transactions with Key Management Personnel
Certain key management personnel participate in the RUR Plan and trustees currently participate in the DUP. Pursuant
to employee contracts, key management personnel are entitled to termination benefits that provide for payments of
up to 36 months of benefits (based on base salary, bonus and other benefits), depending on cause.
Key management personnel and trustee compensation expense included in the consolidated statements of net
income (loss) and comprehensive income (loss) comprises:
For the Year Ended December 31,
Cash compensation and short-term benefits
Unit-based compensation – amortization
Termination benefits
Unit-based compensation – fair value remeasurement
Total compensation expense
b) IRES Transactions
2023
(4,652)
(3,864)
–
(8,516)
(1,383)
(9,899)
$
$
$
$
2022
(3,942)
(3,598)
(1,849)
(9,389)
5,048
(4,341)
Included in other income for the year ended December 31, 2023 are asset management, property management and
transition service fees of $nil (year ended December 31, 2022 – $2,252). Expenses related to the asset management,
property management and transition service fees are included in trust expenses.
CAPREIT’s IMA with IRES terminated on January 31, 2022. CAPREIT provided transition services to IRES for a period
of three months from January 31, 2022 to April 28, 2022, in line with the transition services agreement between
CAPREIT and IRES. As a result of the IMA termination, CAPREIT ceased to have significant influence over IRES, and
its investment in IRES was recognized as an investment at FVTPL as at January 31, 2022. On the same date, IRES
exercised its obligation to acquire CAPREIT’s subsidiary, IRES Fund Management Limited, for €1. Due to the loss of
significant influence over IRES, $7,627 of accumulated foreign currency loss was reclassified from accumulated other
comprehensive loss to gain (loss) on foreign currency translation on the consolidated statements of net income (loss)
and comprehensive income (loss) on that date.
On January 31, 2022, upon the change in accounting treatment, the difference between the carrying value and the
fair value of the investment in associate was $8,811, which resulted in a fair value loss due to the loss of significant
influence. CAPREIT subsequently remeasures its investment in associate at fair value at each reporting period.
The fair value changes are included in fair value adjustments of financial instruments on the consolidated statements
of net income (loss) and comprehensive income (loss).
Given that IRES is no longer an associate, IRES is no longer a related party to CAPREIT since January 31, 2022.
135
Focused on QualityNotes to Consolidated Annual Financial Statements
27. Segmented Information
CAPREIT owns and operates investment properties located in Canada, the Netherlands, Germany and Belgium.
In measuring performance, CAPREIT distinguishes its operations on a geographic basis and, accordingly, has
identified two reportable segments for disclosure purposes with the following aggregation: (i) Canada and (ii) Europe.
CAPREIT’s chief operating decision-maker, determined to be the President and Chief Executive Officer of CAPREIT,
reviews operating results of the Canadian and European properties to make decisions about resources to be allocated
to the segments and to assess their performance.
For the Year Ended December 31, 2023
Selected statements of net income (loss)
and comprehensive income (loss) items
Revenue from investment properties
Operating expenses
Net operating income
Fair value adjustments of investment properties
Effective interest on mortgages payable(1)
Other
$
$
$
Canada
925,682
(342,544)
583,138
(578,989)
(152,905)
–
$
$
$
139,635
(29,987)
109,648
(335,596)
(26,705)
–
$
$
$
Net loss
$
(148,756)
$
(252,653)
$
Consolidated
Financial Statements
$
1,065,317
$
$
(372,531)
692,786
(914,585)
(179,610)
(10,165)
$
(411,574)
–
–
–
–
–
(10,165)
(10,165)
Europe
Unallocated Items
(1)
Includes liabilities related to assets held for sale.
Selected statements of net income (loss)
and comprehensive income (loss) items
Revenue from investment properties
Operating expenses
Net operating income
Fair value adjustments of investment properties
Effective interest on mortgages payable(1)
Other
Net income (loss)
(1)
Includes liabilities related to assets held for sale.
$
$
$
$
Canada
885,099
(329,109)
555,990
(355,726)
(146,540)
–
$
$
$
Europe
122,169
(27,750)
94,419
(112,601)
(20,381)
–
$
$
$
53,724
$
(38,563)
$
For the Year Ended December 31, 2022
Unallocated Items
Consolidated
Financial Statements
–
–
–
–
–
(1,524)
(1,524)
$
$
$
$
1,007,268
(356,859)
650,409
(468,327)
(166,921)
(1,524)
13,637
Selected balance sheet items
Investment properties(1)
Other
Total assets
Mortgages payable(1)
Other
Total liabilities
Canada
Europe
Unallocated Items
As at December 31, 2023
Consolidated
Financial Statements
$ 14,072,652
$
2,459,444
–
–
$ 14,072,652
$
5,354,033
$
$
2,459,444
1,299,955
$
$
$
–
$ 16,532,096
436,544
436,544
436,544
$ 16,968,640
–
$
6,653,988
–
–
1,036,057
1,036,057
$
5,354,033
$
1,299,955
$
1,036,057
$
7,690,045
(1) Excludes assets held for sale and liabilities related to assets held for sale, as applicable.
Selected balance sheet items
Investment properties(1)
Other
Total assets
Mortgages payable(1)
Other
Total liabilities
Canada
Europe
Unallocated Items
As at December 31, 2022
Consolidated
Financial Statements
$ 14,403,351
–
$ 14,403,351
$
$
5,310,268
–
5,310,268
$
$
$
$
2,750,358
–
2,750,358
1,266,829
–
1,266,829
$
$
$
$
–
$ 17,153,709
588,179
588,179
–
1,161,096
1,161,096
588,179
$ 17,741,888
$
$
6,577,097
1,161,096
7,738,193
(1) Excludes assets held for sale and liabilities related to assets held for sale, as applicable.
136
2023 Annual ReportNotes to Consolidated Annual Financial Statements
28. Commitments
Natural Gas
Through the combination of fixed and variable price contracts, CAPREIT is committed as at December 31, 2023 in
the aggregate amount of $5,789 for its natural gas and transport requirements. These commitments, which range
from one to two years, fix the price of natural gas and transport for a portion of CAPREIT’s requirements, as summarized
in the table below.
Gas Commodity
Fixed weighted average cost per GJ(1)
Total of CAPREIT’s estimated requirements
Transport
Fixed weighted average cost per GJ(1)
Total of CAPREIT’s estimated requirements
Total commitment
2024
$
2.34
$
66.9%
2025
2.26
32.0%
$
$
0.82
$
62.4%
0.79
32.0%
3,934
$
1,855
(1) Fixed weighted average cost per gigajoule (“GJ”) excludes other administrative costs.
Property-related Commitments
Commitments primarily related to improvements and other expenditures in investment properties of $74,817 are
outstanding as at December 31, 2023 (December 31, 2022 – $102,333).
29. Contingencies
CAPREIT and its subsidiaries are contingently liable under guarantees provided to certain lenders in the event of
default, and with respect to litigation and claims that arise from time to time in the ordinary course of business. Matters
relating to litigation and claims are generally covered by insurance, or have been provided for where appropriate.
30. Fair Value of Financial Instruments and Investment Properties
and Risk Management
a) Fair Value of Financial Instruments and Investment Properties
The fair value of CAPREIT’s financial assets and liabilities, except as noted below and elsewhere in the consolidated
annual financial statements, approximates their carrying amount due to the short-term and variable rate nature of
these instruments.
As at December 31, 2023, the fair value of CAPREIT’s mortgages payable, excluding liabilities related to assets held for
sale, is estimated to be $6,355,273 (December 31, 2022 – $6,096,000). The difference between the carrying amount
and the fair value of mortgages payable is due to changes in interest rates and foreign exchange rates since the dates
the individual mortgages payable were financed, and the impact of the passage of time on the primarily fixed rate
nature of CAPREIT’s mortgages payable. The fair value of the mortgages payable is based on discounted future cash
flows using rates that reflect current rates for similar financial instruments with similar durations, terms and conditions,
which are considered Level 2 inputs (as described below). As at December 31, 2023, the fair value of CAPREIT’s Credit
Facilities payable is estimated to approximate its total borrowings of $406,160 (December 31, 2022 – $388,975).
CAPREIT has classified and disclosed the fair value for each class of financial instrument based on the fair value
hierarchy in accordance with IFRS 13. The fair value hierarchy distinguishes between market value data obtained from
independent sources and CAPREIT’s own assumptions on market value. The hierarchy levels are defined below:
Level 1 – Inputs based on quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs based on factors other than quoted prices included in Level 1, which may include quoted prices for
similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than
quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals; and
137
Focused on QualityNotes to Consolidated Annual Financial Statements
Level 3 – Inputs that are unobservable for the asset or liability, and are typically based on CAPREIT’s own assumptions
as there is little, if any, related market activity.
CAPREIT’s assessment of the significance of a particular input to the fair value measurement in its entirety requires
judgment and considers factors specific to the asset or liability.
The following tables present CAPREIT’s estimates of assets and liabilities measured at fair value on a recurring basis
based on information available to management as at December 31, 2023 and December 31, 2022, and aggregated by
the level in the fair value hierarchy within which those measurements fall. These estimates are not necessarily indicative
of the amounts CAPREIT could ultimately realize.
As at December 31, 2023
Recurring measurements
Assets
Investment properties
Assets held for sale
Investments held at fair value through profit or loss
Investments held at fair value through other comprehensive income
Derivative financial assets
Liabilities
Derivative financial liabilities
ERES units held by non-controlling unitholders
Unit-based compensation financial liabilities
Exchangeable LP Units
As at December 31, 2022
Recurring measurements
Assets
Investment properties
Assets held for sale
Investments held at fair value through profit or loss
Investments held at fair value through other comprehensive income
Derivative financial assets
Liabilities
Derivative financial liabilities
ERES units held by non-controlling unitholders
Unit-based compensation financial liabilities
Exchangeable LP Units
Level 1
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
Level 2
Significant
Other
Observable
Inputs
Level 3
Significant
Unobservable
Inputs
$
$
–
–
162,472
–
–
–
–
–
–
Level 1
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
$
$
–
–
196,364
–
–
–
–
–
–
–
–
–
17,594
46,470
(7,001)
(186,522)
(23,423)
(80,383)
Level 2
Significant
Other
Observable
Inputs
–
–
–
11,911
62,599
(10,625)
(242,599)
(18,257)
(71,668)
$ 16,532,096
45,850
–
–
–
–
–
–
–
Level 3
Significant
Unobservable
Inputs
$ 17,153,709
132,342
–
–
–
–
–
–
–
Although CAPREIT has determined that the majority of the inputs used to value its derivatives fall within Level 2 of
the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as
estimates of current credit spreads, to evaluate the likelihood of default by CAPREIT. As at December 31, 2023 and
December 31, 2022, CAPREIT has assessed the significance of the impact of the credit valuation adjustments on the
overall valuation of its derivative positions and has determined that the credit valuation adjustment is not significant
to the overall valuation of the derivative. As a result, CAPREIT has determined that the derivative valuations in their
entirety should be classified as Level 2 of the fair value hierarchy. For assets and liabilities measured at fair value as
at December 31, 2023 and December 31, 2022, there were no transfers between Level 1, Level 2 and Level 3 during
the periods.
138
2023 Annual ReportNotes to Consolidated Annual Financial Statements
b) Risk Management
The main risks arising from CAPREIT’s financial instruments are interest rate, liquidity, credit, foreign currency and
price risks. CAPREIT’s approach to managing these risks is summarized as follows:
Interest Rate Risk
CAPREIT is subject to the risks associated with debt financing, including the risk that mortgages and Credit Facilities
will not be able to be refinanced on terms at least as favourable as those of the existing indebtedness. In addition,
interest on CAPREIT’s Credit Facilities is subject to floating interest rates. CAPREIT is also subject to the risks associated
with changes in interest rates or different financing arrangements from the hedging derivative assumptions, which may
cause volatility in earnings.
As at December 31, 2023, all of CAPREIT’s Credit Facilities were borrowed at floating rates, for a total amount of
$406,160 (excluding deferred financing costs). A 100 basis point increase or decrease in interest rates would decrease
or increase annualized net income (loss) and equity by $4,062. The sensitivity analysis represents the parallel interest
rate shift of the Canadian prime rate, Term SOFR and EURIBOR benchmark rates.
As at December 31, 2023, CAPREIT had a total of $512,965 in fixed rate mortgages payable that will reach the end
of their term during 2024. Assuming all these mortgages are refinanced or renewed at a 100 basis point increase
or decrease in interest rates, CAPREIT’s annualized net income (loss) and equity would decrease or increase by
$5,130, respectively.
As at December 31, 2023, a 100 basis point increase or decrease in interest rates would increase or decrease net
income (loss) and equity by $8,498 in relation to CAPREIT’s cross-currency and/or interest rate swaps. The sensitivity
analysis represents the parallel interest rate shift of the Term SOFR and EURIBOR forward rates.
CAPREIT’s objective in managing interest rate risk is to minimize the volatility of interest expenses due to fluctuations
in market interest rates. As at December 31, 2023, interest rate risk has been minimized, as 99.2% (December 31,
2022 – 98.8%) of the mortgages payable are financed at fixed interest rates, with maturities staggered over a number
of years. Taking into consideration interest rate swaps where hedge accounting has not been applied, 100.0% of the
mortgages payable are financed at synthetically fixed interest rates (December 31, 2022 – 100.0%). These figures
exclude liabilities related to assets held for sale, as applicable.
Liquidity Risk
Liquidity risk is the risk that CAPREIT may encounter difficulties in accessing capital and refinancing its financial
obligations as they come due. As at December 31, 2023, approximately 98.5% of CAPREIT’s mortgages are
CMHC-insured (excluding $1,303,671 of mortgages on ERES properties), which reduces the risk in refinancing
mortgages. CAPREIT’s overall risk for mortgage refinancings is further reduced as the unamortized mortgage insurance
premiums are transferable between approved lenders and are effective for the full amortization period of the underlying
mortgages, ranging between 25 and 40 years. To mitigate the risk associated with the refinancing of maturing debt,
CAPREIT staggers the maturity dates of its mortgage portfolio over a number of years.
In addition, CAPREIT manages its overall liquidity risk by maintaining sufficient available Credit Facilities and
unencumbered assets to fund its ongoing operational and capital commitments, distributions to Unitholders and
provide for future growth in its business. As at December 31, 2023, CAPREIT had an undrawn Acquisition and Operating
Facility in the amount of $340,059 (December 31, 2022 – $333,416), excluding borrowing capacity under the ERES
Credit Facility.
The working capital deficiency, as presented on CAPREIT’s consolidated balance sheets as at December 31, 2023, and
defined as current assets less current liabilities, is funded through the Credit Facilities and refinancing of mortgages as
they mature. Management conducts a liquidity forecast on a regular basis, which includes refinancing of mortgages,
property capital investments, potential acquisitions and potential dispositions, to monitor the available capacity.
139
Focused on QualityNotes to Consolidated Annual Financial Statements The contractual maturities and repayment obligations of CAPREIT’s financial liabilities as at December 31, 2023 are
as follows:
Mortgages payable
Credit facilities payable
Mortgage interest
Credit facilities interest(1)
Other liabilities(2)
Derivative financial liabilities
ERES units held by non-controlling
unitholders
Lease liabilities
2024
2025
2026
2027
2028
2029 onwards
$ 662,870
$ 910,464
$ 884,293
$ 948,247
$ 884,936
$ 2,526,515
–
165,925
25,261
198,608
7,001
–
1,281
255,509
151,706
24,690
150,651
133,176
561
–
–
–
–
–
–
–
–
–
111,095
86,723
197,838
–
–
–
–
–
–
–
–
–
–
–
186,522
41,058
1,374
1,473
1,437
836
(1) Based on current credit facilities payable balance outstanding and in-place interest rates as at December 31, 2023.
(2)
Related to accounts payable and accrued liabilities, security deposits, current tax liability, mortgage interest payable, distributions payable to Unitholders
and distributions payable to ERES non-controlling unitholders.
$ 1,060,946
$ 1,343,743
$ 1,170,154
$ 1,060,779
$ 972,495
$ 2,951,933
Credit Risk
Credit risk is the risk that: (i) counterparties to contractual financial obligations will default; and (ii) the possibility
that CAPREIT’s residents may experience financial difficulty and may not be able to meet their rental obligations.
CAPREIT monitors its risk exposure regarding obligations with counterparties through the regular assessment of
counterparties’ credit positions.
CAPREIT mitigates the risk of credit loss with respect to residents by evaluating the creditworthiness of new residents,
obtaining security deposits wherever permitted by legislation and geographically diversifying its portfolio.
CAPREIT monitors its collection experience on a monthly basis and ensures that a stringent policy is adopted to
provide for all past due amounts. The maximum exposure to credit risk at the reporting date is the carrying value of
the tenant receivables.
CAPREIT mitigates the risk of credit loss with respect to the borrower of the VTB mortgage receivable by ensuring
that adequate collateral has been obtained for the VTB mortgage receivable. The VTB mortgage receivable is secured
by the property that was sold to the borrower.
Foreign Currency Risk
Foreign currency risk is the financial risk exposure to unanticipated changes in the exchange rate between two
currencies. CAPREIT is exposed to foreign currency risk as CAPREIT’s functional and presentation currency is Canadian
dollars while the functional currency of ERES and CAPREIT’s subsidiaries in the Netherlands and Ireland is euros.
CAPREIT manages and mitigates the exposure to foreign currency risk on its investments in subsidiaries in the
Netherlands and Ireland with its cross-currency swaps and EURIBOR borrowings. The gain (loss) on foreign currency
translation relating to ERES and CAPREIT’s subsidiaries in the Netherlands and Ireland is recognized in other
comprehensive income. The mark-to-market on the cross-currency swaps and the foreign exchange translation on
the Term SOFR and EURIBOR borrowings are recognized in the consolidated statements of net income (loss) and
comprehensive income (loss).
Price Risk
Price risk is the risk that fluctuations in the price of investments will affect the net income (loss), other comprehensive
income, or the value of investments held at FVTPL and investments held at FVOCI. CAPREIT is exposed to price risk
from its investments. CAPREIT limits price risk by monitoring publicly available information related to its investments to
ensure risk levels are within established levels of risk tolerance.
140
2023 Annual ReportNotes to Consolidated Annual Financial Statements
31. Capital Management
CAPREIT defines capital as the aggregate of Unitholders’ equity, Exchangeable LP Units, mortgages payable, liabilities
related to assets held for sale and credit facilities payable. CAPREIT’s objectives when managing capital are to safeguard
its ability to continue to fund its distributions to Unitholders, meet its repayment obligations under its mortgages
payable and credit facilities, and ensure sufficient funds are available to meet capital commitments. Capital adequacy
is monitored against investment and debt restrictions contained in CAPREIT’s DOT and Credit Facilities.
CAPREIT’s Credit Facilities (see note 10) require compliance with certain financial covenants. In addition, borrowings
must not exceed the borrowing base, calculated at a predefined percentage of the market value of the properties.
In the short term, CAPREIT utilizes the Acquisition and Operating Facility to finance its capital investments, which may
include acquisitions. In the long term, equity issuances, mortgage financings and refinancings, including “top-ups”,
are put in place to finance the cumulative capital investments in the property portfolio and ensure that the sources of
financing better reflect the long-term useful lives of the underlying investments.
The total capital managed by CAPREIT is as follows:
As at
Unitholders’ equity
Exchangeable LP Units
Mortgages payable – non-current
Mortgages payable – current
Liabilities related to assets held for sale
Credit facilities payable
Total capital
December 31, 2023
December 31, 2022
$ 9,278,595
$ 10,003,695
80,383
6,002,617
651,371
23,706
405,133
71,668
5,963,820
613,277
38,116
388,975
$ 16,441,805
$ 17,079,551
CAPREIT’s Acquisition and Operating Facility contains the following financial covenants: (i) total debt-to-gross book
value of CAPREIT’s total assets shall be less than 62.50%; (ii) the funds from operations (“FFO”) payout ratio shall not
exceed 100% based on the trailing four quarters (FFO shall be calculated in accordance with the recommendations
of the Real Property Association of Canada (“REALPAC”) and will be subject to the adjustments disclosed in the most
recent annual report and such other adjustments as may be agreed with the lender); (iii) maintain a minimum tangible
net worth of the sum of $5,000,000 and 75% of the net cash proceeds received in connection with any issuance or
sale of equity by CAPREIT after the closing date of the Acquisition and Operating Facility; (iv) maintain a minimum debt
service coverage ratio of 1.40; and (v) maintain a minimum interest coverage ratio of 1.65. There were no changes
to the financial covenants as a result of the new amendment to the Acquisition and Operating Facility effective as
of December 19, 2022. As at December 31, 2023, CAPREIT is in compliance with its financial covenants included
in the Acquisition and Operating Facility. In addition, CAPREIT is required to comply with certain financial covenants
stipulated in its mortgage financing agreements. As at December 31, 2023, CAPREIT is in compliance with all mortgage
financing covenants.
CAPREIT’s subsidiary, ERES, is subject to various financial covenants contained in the ERES Credit Facility. ERES must
have: (i) a maximum debt-to-gross book value of 65%; (ii) a maximum debt-to-market value of the portfolio of 60%;
(iii) maintain a minimum tangible net worth of €375,000; (iv) maintain a minimum debt service coverage ratio of 1.35;
and (v) maintain a minimum interest coverage ratio of 1.50. As at December 31, 2023, ERES is in compliance with
its financial covenants included in the ERES Credit Facility. In addition, ERES is required to comply with certain financial
covenants stipulated in its mortgage financing agreements. As at December 31, 2023, ERES is in compliance with all
mortgage financing covenants.
141
Focused on QualityNotes to Consolidated Annual Financial Statements
32. Reclassification of Comparative Financial Statements
Certain 2022 comparative figures included in the consolidated balance sheets, consolidated statements of net income
(loss) and comprehensive income (loss), and consolidated statements of cash flows have been rearranged or combined
to conform with the current period presentation, with no change to total non-current and current assets, total non-current
and current liabilities, net income (loss) and comprehensive income (loss), total cash provided by operating activities,
total cash used in investing activities, and total cash used in financing activities. CAPREIT assessed the materiality
of the reclassifications and determined the impact to be immaterial to the consolidated annual financial statements.
The following tables summarize the effects of the reclassifications described above:
Balance as at
December 31, 2022
as originally reported
Balance as at
December 31, 2022
after reclassification
Adjustment
$
46,800
$
(46,800)
$
–
32,828
79,628
69,943
–
69,943
6,173
40,627
–
(15,907)
15,907
–
$ 5,963,820
$
(5,963,820)
$
388,975
–
47,460
–
6,400,255
613,277
–
137,908
46,775
20,469
17,720
836,149
(388,975)
6,352,795
(47,460)
47,460
–
(613,277)
613,277
(16,357)
(46,775)
(20,469)
83,601
–
–
6,173
73,455
79,628
54,036
15,907
69,943
–
–
6,352,795
–
47,460
6,400,255
–
613,277
121,551
–
–
101,321
836,149
Consolidated Balance Sheet
Non-current assets
Mortgages receivable
Deferred income tax asset
Other assets
Current assets
Other assets
Amounts receivable
Non-current liabilities
Mortgages payable
Bank indebtedness
Debt
Lease liabilities
Other liabilities
Current liabilities
Mortgages payable
Debt
Accounts payable and accrued liabilities
Security deposits
Distributions payable
Other liabilities
142
2023 Annual ReportNotes to Consolidated Annual Financial Statements
Consolidated Statements of Net Income (Loss)
and Comprehensive Income (Loss)
Unit-based compensation recovery
Unit-based compensation amortization expense
Fair value adjustments of Exchangeable LP Units
Fair value adjustments of investments
Gain on derivative financial instruments
Fair value adjustments of financial instruments
Loss on dispositions
Amortization of PP&E
Goodwill impairment loss
Loss on transactions and other activities
Interest and other financing costs
Interest expense on debt and other financing costs
Interest expense on Exchangeable LP Units
Mortgage fair value adjustments, net of mortgage settlement costs
on dispositions
Net gain on derecognition of debt
Total current income tax expense and deferred income tax recovery, net
Current income tax expense
Deferred income tax recovery
For the year ended
December 31, 2022
as originally reported
For the year ended
December 31, 2022
after reclassification
Adjustment
$
3,414
$
–
29,016
(101,261)
54,135
–
(3,318)
(7,462)
(14,278)
–
(182,869)
–
–
1,766
–
10,034
–
–
(210,823)
(3,414)
(7,256)
(29,016)
101,261
(54,135)
(7,440)
3,318
7,462
14,278
(25,058)
182,869
(180,434)
(2,435)
(1,766)
1,766
(10,034)
(4,843)
14,877
–
$
–
(7,256)
–
–
–
(7,440)
–
–
–
(25,058)
–
(180,434)
(2,435)
–
1,766
–
(4,843)
14,877
(210,823)
There has been no reclassification with respect to revenues from investment properties; however, note 19 contains
additional disclosure of $182,664 related to the non-lease component earned from tenants that is included within
revenue from investment properties for the year ended December 31, 2022.
143
Focused on QualityNotes to Consolidated Annual Financial Statements
Consolidated Statements of Cash Flows
Operating activities
Fair value adjustments – Exchangeable LP Units
Fair value adjustments – investments
Gain on derivative financial instruments
Fair value adjustments of financial instruments
Unit-based compensation recovery
Unit-based compensation amortization expense
Amortization
Loss on dispositions
Straight-line rent adjustment
Deferred income tax recovery
Net profit from investment in associate
Unrealized foreign currency loss
Reversal of cumulative loss on foreign currency translation
due to loss of significant influence over IRES
Impairment of goodwill
Other adjustments
Items related to investing and financing activities
Dividend and interest income related to investing activities
Items related to financing activities
Financing activities
Mortgage financings
Net borrowings on credit facilities
Borrowings
Mortgage principal repayments
Principal repayments
Mortgages repaid on maturity and disposition
Lump-sum repayments
Financing costs
CMHC premiums on mortgages payable
Financing costs and CMHC premiums paid
Deposits related to financing activities
Net cash distributions and other net interest payments
Distributions paid to Unitholders
Interest paid to ERES non-controlling unitholders
Interest paid to Exchangeable LP unitholders
For the year ended
December 31, 2022
as originally reported
For the year ended
December 31, 2022
after reclassification
Adjustment
$
(29,016)
$
29,016
$
101,261
(54,135)
–
(3,414)
–
26,293
3,318
(96)
(14,877)
(647)
13,373
7,627
14,278
–
165,007
–
–
228,972
1,090,638
63,832
–
(162,048)
–
(479,349)
–
(7,652)
(20,463)
–
–
(219,761)
–
–
–
265,197
(101,261)
54,135
7,440
3,414
7,256
(26,293)
(3,318)
96
14,877
647
(13,373)
(7,627)
(14,278)
30,440
(165,007)
(10,185)
194,021
–
(1,090,638)
(63,832)
1,394,016
162,048
(162,048)
479,349
(718,895)
7,652
20,463
(28,059)
(56)
219,761
(207,846)
(9,274)
(2,641)
–
–
–
–
7,440
–
7,256
–
–
–
–
–
–
–
–
30,440
–
(10,185)
194,021
228,972
–
–
1,394,016
–
(162,048)
–
(718,895)
–
–
(28,059)
(56)
–
(207,846)
(9,274)
(2,641)
265,197
33. Subsequent Events
The table below summarizes the disposition of an investment property completed subsequent to December 31, 2023:
Disposition Date
January 15, 2024
Suite Count
Region
32
Victoria, BC
Sale Price(1)
$
12,289
(1) Sale price excludes disposition costs and other adjustments.
On February 22, 2024, CAPREIT will file a prospectus supplement to establish an at-the-market program (“ATM Program”)
that would allow CAPREIT to issue Trust Units up to an aggregate sale price of $400,000 from treasury to the public
from time to time at prevailing market prices, directly on the TSX or on other marketplaces to the extent permitted.
144
2023 Annual ReportNotes to Consolidated Annual Financial Statements
Unitholder Information
Head Office
11 Church Street, Suite 401
Toronto, Ontario M5E 1W1
Tel: 416.861.9404
Fax: 416.861.9209
website: www.capreit.ca
Officers
Mark Kenney
President and Chief Executive Officer
Stephen Co
Chief Financial Officer
Julian Schonfeldt
Chief Investment Officer
Jodi Lieberman
Chief People, Culture and Brand Officer
Roman Brailovski
Executive Vice President, Operations
Investor Information
Analysts, Unitholders and others seeking financial data
should visit CAPREIT’s website at www.capreit.ca
or contact:
Mark Kenney
President and Chief Executive Officer
Tel: 416-861-9404
E-mail: ir@capreit.net
Registrar and Transfer Agent
Computershare Trust Company of Canada
100 University Avenue, 8th Floor
Toronto, Ontario M5J 2Y1
Tel: 1-800-663-9097
E-mail: caregistry@computershare.com
Auditor
Ernst & Young LLP
Stock Exchange Listing
Trust Units of CAPREIT are listed on the Toronto Stock
Exchange under the trading symbol “CAR.UN.”
CAPREIT.CA