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Good day, and thank you for standing by. Welcome to the Canadian Apartment Properties REIT Second Quarter 2021 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to David Mills. Please go ahead.
Good morning. Thank you, Christie. Before we begin, let me remind everyone that the following discussion may include comments that constitute forward-looking statements about expected future events and the financial and operating results of CAPREIT. Our actual results may differ materially from these forward-looking statements as such statements are subject to certain risks and uncertainties. Discussions concerning these risk factors, the forward-looking statements and the factors and assumptions on which they are based can be found in CAPREIT's regulatory filings, including our Annual Information Form and MD&A, which can be obtained at sedar.com.I'll now turn things over to Mark Kenney, President and Chief Executive Officer.
Thanks, David. Good morning, everyone, and thank you for joining us. Scott Cryer, our Chief Financial Officer, is also with me this morning. Let's get started. As shown on Slide 4, we generated another strong period of growth and strong performance in the second quarter. Revenues were up, driven by the contribution from our acquisitions, increased monthly rents and continued high occupancies. Stabilized NOI increased 2.9%, with NFFO up 5.7%, while maintaining a very strong payout ratio of 59.8%. Our growth also remains accretive to unitholders with NFFO per unit up 4.3%.Turning to Slide 5. We continue to generate the same strong performance and resiliency through the first 6 months of 2021 as we did throughout 2020. All of our key benchmarks were up over last year, including revenues, NOI and NFFO, with NFFO per unit rising 3%. It was another period of accretive growth for our unitholders. Looking ahead, we expect the balance of the year will show rising occupancies, accelerated growth and much improved operating performance as the pandemic eases, and we return to more normal markets and operations.From an operating perspective, our ability to generate solid performance in both good and bad times is clearly demonstrated by the results for our stabilized portfolio, as you can see on Slide 6. Occupancies remained strong, while net average monthly rent rose again, driven by modest pandemic-affected increases on turnovers and renewals. Our track record of organic growth also continues, with same-property NOI up a solid 2.7%, while maintaining a strong NOI margin of over 65%. We believe that we're turning a corner with the successful vaccine rollout and a return to more normal markets.Our leasing and marketing programs continue to generate a track record of solid occupancies, as you can see on Slide 7. After approximately 18 months operating under the significant restrictions due to the pandemic, our occupancy has remained highly stable. We expect occupancies will steadily improve through the balance of the year as the pandemic eases. We are already seeing an increase in the interested in-person and online potential resident visits with strong and accelerating demand for our affordable, high-quality and spacious suites. It's also important to note that we experienced very few collection issues as we work with our residents to ensure that we collect our rents as efficiently as possible. Bad debt as a percentage of total revenues remained small and manageable and generally in keeping with our normal collections track record. We see bad debt levels reducing further through rest of 2021.A key factor in our ability to generate solid results during the pandemic is the solid increase in rents on turnover that we are achieving, as shown on Slide 8. Clearly, turnovers continue to be impacted by the ability of our residents to move or personally visit our properties. However, a 4.2% increase on turnover in the Canadian portfolio is a solid result, and we expect to return to our more traditionally higher increases on turnover once vaccine rollout is complete and the pandemic eases. Also remember that last year's first quarter was not impacted by the pandemic. It's also important to note that our churn is increasing, up to 9.4% from 7.2% last year, a good sign that we will start to see more and higher mark-to-market rent increases in the quarters ahead. Renewals continue to be affected by the rent increase freezes legislated in Ontario and British Columbia. Over the last few months, we have slowly been implementing modest increases in certain other markets where possible in consultation with our residents. Looking ahead to next year, Ontario's 2022 rent guideline increase of 1.2% is good to see after no increases this year. Importantly, we'll be implementing this increase in Ontario effective January 1, capturing a full year of increased income. We hope to employ the same strategy in British Columbia once we learn the guidance -- guideline increase.As Slide 9 shows, we believe that we're starting to see recovery in our rental rates on turnover and look to be getting back to much higher levels of increases we generated through 2019 and the first quarter of 2020, prior to when the pandemic setting. As I said before, we are confident the balance of this year will see a return to more normal market fundamentals. We are already experiencing more in-person and online visits by interested residents and expect our increasing occupancy will contribute to our ability to generate stronger mark-to-market rent increases. We believe the worst of the pandemic is now behind us, and we will see recovery in our business going forward.As Slide 10 shows, we continue to increase the size and scale in our property portfolio in both Canada and the Netherlands. In 2020, we added 3,262 suites and sites for $820 million. So far this year, we've acquired 1,864 suites and sites in Canada for $377 million and another 137 suites in the Netherlands for $73 million. We're also pleased to have completed the buyout of another of our remaining [ GK ] operating leases earlier than scheduled, resulting in a 19% discount to the agreed price in the buyout. As of the end of Q2, we only have 2 operating leases remaining. Throughout most of last year and into 2021, our ability to invest in our properties was significantly curtailed by the pandemic and our focus on conserving cash. Now with the end of the pandemic in sight, we are ramping up our efforts to further enhance value and income-producing potential of our property portfolio.As you can see on Slide 11, investments in suite and common area improvements have increased this year, ensuring that our properties remain the most attractive in our markets and providing residents with safe and comfortable homes. Our investments in energy saving initiatives are reducing costs and helping us to improve our environmental footprint, a key goal of our ESG programs. And all of these key investments serve to increase NOI more quickly compared to other investment categories.Hopefully, for the last time, we are including Slide 12 in this morning's presentation, outlining the many successful initiatives that we have introduced to mitigate the impacts of the pandemic. As we've discussed over the last 5 quarters, we began early in 2020 to implement programs aimed at getting closer to our residents, communicating with them, understanding the issues facing them and helping them stay in their homes, while at the same time, collecting as much rent as possible. We believe these initiatives have provided effective and have had a positive impact on our cash flows with strong and stable rent collection. We were very pleased to see leasing activity pick up in the second quarter with a total of 4,200 leases arranged, up significantly from 2,400 in Q1. As the vaccine rollout continues, we expect to see our visits to our properties to accelerate even further in the months ahead.I'll now turn things over to Scott.
Thanks, Mark. Turning to Slide 14. You can see that we maintained our strong financial position at quarter end with a conservative debt to gross book value and continuing high liquidity. Our over $1.5 billion in Canadian unencumbered properties provide additional liquidity should it be needed. In addition, we have $250 million available through our credit facility and $120 million in cash at quarter end. In total, if we were to access all these sources of capital, we would have available liquidity of over $1.8 billion. And even if we did this, our leverage ratio would still remain a very conservative 42%. Looking at our financing through the first 6 months of the year, we locked in a very low interest rate of 2.4% on our refinancing and top-ups and extended our term to maturity. We expect we will continue to benefit from the current low interest rate environment for some time. At quarter end, over 99% of our mortgages incurred a fixed interest rate.In June, we renegotiated and closed on our new credit facility, which will now have a term of 3 years and a decreased cost of 30 basis points over the previous margin. This also provides for more flexibility over our unencumbered asset pool and a better security package for CAPREIT. We were also pleased to see another significant increase in the fair value of our Canadian property portfolio, increasing $513 million so far this year, following a $750 million increase at the end of 2020. This is excluding the impact of net acquisitions, our operating lease buyouts and foreign exchange.As you can see on Slide 15, we continue to capitalize on the current low interest rate environment, reducing interest costs in Canada and make [ spending ] the term to maturity. The ability to capture strong spreads and low interest costs in Netherland is also contributing to our lower overall interest costs and extending the term. On the recent interest, we actually just closed or committed to a conventional-based mortgage where pricing is becoming extremely competitive. So this creates an alternative to the CMHC financing program, definitely something that's a positive backdrop for the REIT.Further to our strong and flexible financial position, looking back over the last few years, you can see on Slide 16 that we have met our goal of maintaining very conservative debt and coverage ratios even through the pandemic. This conservative approach underpins the stability and resiliency of our business and the sustainability of our monthly cash distributions to unitholders. This focus on maintaining one of the strongest balance sheet in our business will continue going forward.Our mortgage portfolio remains well balanced, as shown on Slide 17. As you can see, in any given year, no more than 13% of the total mortgages come due, thereby reducing risk in a rising interest rate environment. Looking ahead, our current ability to top-up renewing mortgages through 2035 will provide further significant liquidity. You can also see that we have considerable opportunity to reduce our long-term interest cost in today's attractive interest rate environment with the current 5-year and 10-year estimated rates of approximately 1.7% and 2.2%, respectively are well below expiring mortgage rate of between 2.8% and 3.3% over the next 3 or 4 years.I'll now turn things back to Mark to wrap up.
Thanks, Scott. Looking ahead, we see a number of very positive value drivers that we are confident will generate strong and growing returns for our unitholders over both the short and long term. Turning to Slide 19, we see the 3 key drivers of unitholder value in the months and years ahead. Accretive portfolio growth will continue based on our proven and successful asset allocation strategies. We are experiencing a strong pipeline of accretive acquisition opportunities and expect to see solid growth in the quarters ahead. Importantly, the current low interest rate environment provides significant opportunities to acquire properties with strong cap rate spreads and to reduce interest costs on our refinancing initiatives. Our industry-leading balance sheet, leverage and liquidity also position us for growth going forward.We believe that we will also benefit from a number of market trends as the pandemic eases in the months ahead, including increased integration, a return to office and in-person learning, and the increased affordability alternative of our high-quality rental portfolio compared to significantly higher cost of homeownership. In addition, our ongoing investments in our properties and our operating platform are enhancing the attractiveness of our portfolio, improving efficiency, driving revenue gains and reducing costs.Let's have a quick look at each of these value drivers. We will continue to focus on our proven asset allocation strategy to accretively grow our portfolio as detailed on Slide 20. We primarily target value-add apartment properties in the mid-tier segment in very well-located suburban markets in and around Canada's 3 largest cities: Toronto, Vancouver and Montreal. We are acquiring these properties at well under 50% of replacement cost and have proven our ability to invest in them to increase value. Cash flows remain strong and highly stable due to their very affordable rental rates.Our second focus is the Canadian MHC sector. Revenues are highly stable. And with residents owning their own homes, capital requirements and maintenance needs are significantly reduced. With homeownership costs rising across the country, manufactured housing provides a real alternative as prices have not appreciated to the same extent.Our third focus is on Europe. Dividends from our ownership interests are strong and stable, while fee income for our asset and property management services continued to grow. As one of the only professionally managed operating platforms in Europe, the opportunity for enhanced value are significant. We are also capitalizing on very low European debt to finance our growth at attractive returns. Key to our growth in the coming months will be our ability to capitalize on a number of market trends as we return to pre-pandemic conditions. Demand for our quality properties will grow as integration accelerates with new Canadians seeking affordable homes in our largest urban markets. The return of international students will also contribute to increased demand. The pandemic generated what we call household consolidation as students and young people return home to save costs and be in the safety of their family. We see these young people returning to rental accommodation as offices reopen, in-class learning returns and fear of the pandemic eases.Demographics are also on our side as the growing seniors population looks to the rental market to meet their needs. Canadians over 65 forecast account for over 23% of the Canadian population by 2030. We believe our quality and well located properties offering more space on 1 floor at affordable rates will see increased demand by seniors looking to capitalize on the significant equity they have generated in their homes. We also see families looking to quality rental accommodation as a highly affordable alternative to the increasing cost of homeownership. Additionally, cash flows will increase as we prudently and responsibly increase rents where possible.Finally, our ongoing property investments, as outlined on Slide 22, are reducing costs through energy savings and other initiatives, enhancing resident safety and making our properties more attractive to meet demand from potential residents. Our technology solutions are increasing our operating efficiency and helping us meet our ESG commitment to enhanced environmental performance. All of these investments are generating strong increases in our net asset value. As Scott mentioned, we recorded a $596 million gain in the fair value of our portfolio in 2020, with another $357 million through the first 6 months of this year. With increasing demand and little new supply of rental properties, we believe the value of our asset base will only grow going forward and provide another strong driver for unitholder value over the long term.In summary, we remain very excited about our future. Our focus on the mid-tier sector meets increased demand for affordable, high-quality homes. Our predominantly suburban locations outside downtown cores and our larger-sized suites, town homes and manufactured homes are meeting the needs for renters seeking more space. We are experiencing a strong pipeline of accretive acquisition opportunities and expect to see solid performance portfolio growth in the quarters ahead. The continuing low interest rate environment provides significant opportunities to acquire properties with strong cap rate spreads to reduce interest costs on our refinancing initiatives. Our industry-leading balance sheet, leverage and liquidity position us for growth going forward. And with demographic trends and increasing integration, we are confident we will continue to drive value for our unitholders in the years ahead.In closing, I want to once again thank everyone at CAPREIT for their hard work and dedication over the last 18 months and also to our residents for their patience during these challenging times. Looking ahead, we are confident we will return to more normal market conditions and resume our 25-year track record of growth, strong operating performance and delivering enhanced value to our unitholders. Thank you for your time this morning. And we would now be pleased to take any questions that you may have.
[Operator Instructions] And your first question is from Jonathan Kelcher of TD Securities.
First question, just on the recovery, it sounds like you guys are seeing at least the beginning of it. What markets could be strongest or further ahead and what markets are -- would still be lagging?
We've seen faster-than-expected recovery in the suburban markets and also the submarkets in general. Places like Ottawa, Victoria are doing exceptionally well. The markets that are recovering, that are lagging are, I would say, core Toronto, core Montreal. And I guess, I would attribute that to a couple of things after the pandemic was felt the hardest and also the return of international students. We've seen recovery in the universities that have domestic students, places like Alberta and Nova Scotia. But where we've seen reliance on international students, it's just lagging. We would expect to see that recovery really kick in in the months ahead.
Okay. That's helpful. And then, I guess next is just switching gears a little bit on the strength of the acquisition market. It sounds like you guys are going to be active in the back half of the year. Do you guys look to fund any of that with dispositions?
Yes. I think that there is definitely bigger at CAPREIT to look at the assets that we own and we're open to recycling capital, if there are certain markets where cap rates are -- have compressed significantly. And it's our quest always create equity for our unitholders. And if we see an opportunity, then we would consider selling. I wouldn't call it a material strategy, but it would be something that we are open to a cap rate now.
Just trim at the trims and noncore. And then just lastly, Scott, for you, you -- I think you mentioned conventional mortgages competing with CMHC. What sort of rate term are we talking about? And what type of lender is doing that?
It's more like the insurance LifeCo groups that are doing it, but there are some other lenders in it. We're talking really various terms, like you can go short in 3 years, and you can -- we've been talking about 15 and 20 as well. I'm not going to say that at the slam dunk as far as being cheaper than CMHC, but it's depending on how you look at those CMHD fees over the term and the mortgage, it's highly competitive. And it's nice to know that there's that backdrop. So we'll dip our toe into that area. There's some advantages to it, especially on assets that we think have good upside, assets that are value-add that we may not want to cut a check on the CMHD fees in the first 3 to 5 years, we might focus on those assets to put conventional mortgages on.
The rate -- the all-in rates are the -- the face rate is higher, but when you consider the fees itself, they kind of economically are becoming pretty flat, in some cases, it's lower, and in some cases, it's slightly higher.
Your next question is from Matt Logan of RBC Capital Markets.
Perhaps just following up on Jonathan's question, can you talk about your leasing traffic and how your rent increases are trending so far in July and August? And maybe what your outlook is for the balance of the year?
Yes. I would say -- and you talked to us in the first quarter, which I know you did, we were predicting third quarter recovery. It started a little sooner than expected, especially in those submarkets. But as expected, things are picking up. So I wouldn't have much of a change in tone for the fourth quarter. We're definitely seeing things picking up with, like I said to Jonathan, the core Toronto, core Montreal slightly lagging.
Okay. And maybe just changing gears, a question for Scott. You recorded 13 basis points of cap rate compression in Q2. Can you tell us if this fully reflects what you're seeing in terms of real-time transactions and if there's potential for some further compression in the back half of the year?
Yes. I mean, I think we are conservative in our approach, obviously, at cap rate. And we -- like we have as many data points as possible, we really rely on our acquisitions team as well as third-party external valuators and our internal value there. So we have a lot of data points. I would say we're on the conservative side. So there could be some additional cap rate compression. I think based on transactions today, it will be interesting to see as interest or as income -- stabilized income increases, whether that will flatten out cap rates or not, but we would expect the income side to actually be more of a contributing factor moving forward. You can see this quarter and last income really was flat from a fair value point of view. So it was purely cap rate compression. So I think that dynamic will change kind of moving forward as well. But yes, we still see some upside in the portfolio.
And if we think about your investment in IRES, given the management changes, can you talk about what your plans are for that going forward?
We're very focused on helping IRES with their internalization efforts at this point. We want that team to be successful. We obviously have a significant investment in IRES that we want to see well managed. Our focus going forward would be, as we stated, our ERES platform and that ERES platform, I think, has tremendous opportunity in front of that.
And maybe last one for me. Just in terms of your dispositions, would those be more one-off in nature? Or are there markets where you think cap rate compression has perhaps [ outpaced ] fundamentals?
Yes. I would say one-off in nature. Like the obvious thing to look at is future performance when -- in the value-add performance portfolio, we look at capital investment requirement and what we think expected returns are. But there are some examples of, I'll call it, balance sheet cleanup, where we've got operating leases, ground leases, other structures that are different that we would be open to cleaning up. The other thing is just opportunistic. So we've talked about some development opportunities of our smaller buildings in Toronto, where without even entitlement, we're getting development premium on potential sale. And if we can recognize cap rates that are less than 2, we would on a one-off basis consider disposition. But I would not call this a wholesale strategy of CAPREIT. It's just an openness to capital recycling. We are the biggest in the country, and we're open to opportunity. But I wouldn't call it core strategy. I would just say it would be one-off opportunistic.
Our next question is from Joanne Chen of BMO Capital Markets.
I was just sticking to the acquisition side of things, given how competitive the market is right now. You said there's also the pipeline, but how should we think about the magnitude kind of somewhere? You did have a pretty active Q2. I just wanted to get a gauge of what we should be expecting on the back half of the year?
Yes. Great question. We continue to be very, very disciplined, like the volume of acquisition shouldn't be confused with the rigor and conservative nature that we applied to our acquisitions, like we're -- we lose a significant number of the bids that we make because we have these really rigorous hurdles for accretion. Our focus will always be on growing the equity value in CAPREIT and doing accretive acquisitions where we don't use leverage to make it happen. We model CAPREIT debt levels when we look at our acquisitions and we look at in-place income. And we're very conservative with the growth expectations. So all that being said, because we've got wide coverage on the country, we've been able to do between 500 and $1 billion a year in the last couple of years. I don't see much change to that. But when you're bidding on such a conservative way, it's hard to predict your success rate, but we've seen our deal success rate, be at 10% or more of the deals that we actually are bidding on.
And I guess for the back half of the year, how should we think about occupancy trend? I know -- obviously, it's nice to see and you mentioned that the leasing momentum has continued post quarter-end. Just wondering if you could provide some color on the occupancy side things.
Well, when the pandemic -- CAPREIT has got a legacy of maintaining very high occupancy levels. You know that. But at the beginning of the pandemic, we didn't know how long the pandemic was going to last. So we paid very close attention to occupancy. And so now, we find ourselves balancing occupancy with mark-to-market rents and the use of incentives. And it's really managing those 3 lines that matter the most, while at the same time, holding out for high-quality applicants. So I would say you could expect improvements in both incentive use, occupancy and mark-to-market rents. We're managing all 3 lines simultaneously.
And I was saying that we always view an Investor Relations meeting as -- there was a housing crisis in Canada before the pandemic and we would expect similar dynamics to exist after. So just touch up on that.
Okay. And one last for me. I'm switching gears on the financing side of things. Obviously, you guys have a very strong balance sheet and you just have to scale. I'm just wondering, long term, would there ever be a scenario where you guys could look to perhaps access the unsecured market? Or do you think the pricing differential versus what you can get with CMHC just doesn't make sense?
Yes. We -- I would say we look at that every couple of years. I don't -- we've talked about ratings. We've talked about that, how we would structure. I think we've actually put ourselves in a position from our current facility. In our unencumbered assets, we will accept to do that if we ever -- while that market really open up. But today, again, it's still -- we just have a ton of runway with CMHC in those rates. And then with conventionals actually becoming highly competitive, I would say it's unlikely we go into the unsecured at this point. But we are planning our balance sheet just to always have those options available. So that was a big improvement with our credit facility and how we've structured this year.
I would just add to that, but I think lenders, especially LifeCos, have really created an unsecured kind of market in their lending practices. They see multifamilies incredibly stable that pandemic has further emphasized how -- what a highly desirable asset classes that we have. So we're just not reliant on it. And as Scott has said, this clear movement in the conventional market is testimony to the quality of the income. Lenders see it. And so we're very uniquely served by the fact that we don't need that market, because the asset class is so incredibly strong.
[Operator Instructions] And your next question is from Brad Sturges of Raymond James.
Just to go back on your discussion about the different leasing strategies. I guess, it's fair to say within core locations, you're still using a little bit of incentive in trying to maintain occupancy well in suburban or submarkets, you can probably be a little bit more aggressive on rate at this stage.
Yes. Exactly correct. So it's a pandemic. We've been trying to make markets where markets didn't exist. Like if you have a university student focused buildings and universities are closed, you're trying to make a market, which is very difficult during the pandemic. So we're seeing that ease off. It's -- I've said to people, just talk to your neighbors and your friends and look at your own family, and the kids that are under 30 are now starting to leave home. And it just -- it's really just a temperature gauge on the area that they're going to, like is it safe. So when case counts are low, we've seen activity pick up in that under 30 market. When case counts go up, we see traffic slowdown in that under 30 market. So it's -- the primary driver is kids at home that are coming back. And the secondary driver are the foreign students. And you put those 2 things together, and you've got a hot rental market before immigration.
For the back half of the year, do you still see turnover or your churn to be elevated?
We do. We do. I think what we've said to investors directly means that the pandemic creates economic life circumstance change, good or bad. And when you have a bit of a dislocated economy, which we do right now, you get more turnover. And life circumstances change, decisions have been delayed in terms of moving. People don't generally make moving decisions during the pandemic. That's been part of our challenge. But I do see escalated turnover as predicted for the balance of 2021 and into 2022.
Last question for me. Just on the acquisition front, obviously, you have a rigorous process on completing deals. Do you actually see where you can get deals across lines still more in kind of the secondary markets like Victoria? Or could there be some opportunities in some of the suburban big city markets?
We've certainly been bidding on those suburban big city markets. Like I said, our success rate is pretty low, but our end result is pretty impressive. It's hard to say, Brad. Like we -- like I said, we model what we model. We see value where we see it. And sometimes others will pay up more. But I think you'll see a bit of a mix. It won't be like a trend where CAPREIT has moved its focus into a particular region. It's that we're covering the whole country and where we're being successful are in the markets that we see great growth potential in that others haven't focused on.
Our next question is from Matt Kornack of National Bank Financial.
Sorry to take you back to mortgage debt question. Quickly on...
Never apologize for talking this morning.
I know, Scott. This is your tension. On -- for financing costs to begin with amortization of CMHC premiums and fees, I think you noted that's not something, that it was pretty substantial, the increase. Is there anything onetime in that? And do you make any FFO adjustments for it if it was onetime?
No, we don't right now -- sorry, we don't. We did when we adjusted our policy around writing off fees when we refinance. So last year, there's a significant amount of write-off because we completed $1.4 billion in mortgages, and we actually had some more material prepayment costs last year. This quarter, again -- and actually going into next quarter, again, we have a huge refinancing program. We're looking at total mortgages, including acquisitions this year of $1.3 billion. So we're almost back to last year's unprecedented amount of financing. So those write-offs are definitely more significant in Q2, Q3. It would be the expectation, but normalized should decrease over time. And then as well, we're moving the 35-year AM mortgages, all last year and this year, we'll be doing 35-year AM, so the amortization of those premiums will decrease a little bit over time.
Okay. So would you say -- I mean, it was, what, $3.6 million for the quarter, but it looks like it's been kind of around $1 million historically. So should we say that, that delta is mostly related to the refinancing activity?
I would absolutely say that, yes.
And then maybe more on strategy, and again, back to the conventional mortgage question. Do those guys look at you as CAPREIT as being an attractive entity to lend to? So I mean there's a covenant and counterparty issue there. I'm just wondering because, obviously, some of the private guys got squeezed on CMHC and the ability to [ out finance ]. But would that LifeCo lend to a smaller private owner? Or is it just because CAPREIT is such a good credit that they're interested in providing this financing?
Yes, that's a great question. That's kind of something we've talked about with them. It is definitely asset-first mentality. They're going to provide financing at cheaper rates to the better asset in our portfolio. So that is -- the covenant will help on the margin, but it's not the driver. So I mean, we still think it does help, and that will be a slight competitive advantage, but it's actually probably good for the private markets as well, which we're okay with. That just means cap rates continue to be competitive, and our portfolio maintains its value. So yes, it's asset first, but the covenant helps on the margin for sure.
I would just -- I would add to that, that what we're seeing is the LifeCos are truly investing in apartment buildings, like Scott said, city center, they like the best and location driven, but also the fact that we're such a low leverage borrower, we think we'll have even more interesting attribute for them. So we've traditionally managed our book obviously through refinancings and acquisitions, but where we can offer opportunities of low leverage, there may be even better opportunity in those major market assets. So look, this is not a major strategic move for CAPREIT. This is just great news coming into the conventional market. I don't see an opportunity for us to significantly change the balance of our financing program out of CMHC. It's very, very important program to us, but it's just good to see, as Scott said, an alternative out there that's attractive.
Our next question is from Mario Saric of Scotia Capital.
Just wanted to come back to the relationship between occupancy and incentives. And I think, Mark, on the past call, you mentioned that didn't matter what the incentive was during the depths of the pandemic that are largely relevant. It wouldn't impact tenant behavior. How do you say -- or how sensitive are the prospective tenants in some of the less robust markets that you referred to today to incentives, like how important are incentives about the closure rates today?
Good question. I don't know that we know the answer. The reality is when there's low traffic, you're just trying to take the limited traffic that's in a market to your asset. So I don't even think it's tenant behavior, a resident applicant behavior. I think it's just trying to get attention of those very few shoppers that are out there where you're trying to make a market. I keep the easy example is, are these universities that are relying on foreign students. And if those buildings have historically targeted that market, it's hard to make a new market. So I would answer it by just saying it's all -- like I said in the beginning, we're managing all 3 lines, incentives, occupancy and mark-to-market rents, and it's all being derived out of market traffic and conversion rate. So where we see traffic and conversion rate, we make adjustments. But it is coming off. And CAPREIT out of this legacy, we don't like incentives. The goal and the expectation is that we would be out of the incentives' game completely. It's my hope by beginning of 2022. I'd be shocked if we weren't and get back to just mark-to-market rents and occupancy management.
Maybe a difficult question to answer. But just as a follow-on, your occupancy this quarter was 97.4%. How much occupancy do you think you've saved on the provision of incentives during the pandemic?
Well, Scott did some interesting math. And I think, Scott, you can correct me if I got the number wrong, but our incentives equated to approximately 1% of vacancy loss. So if we do that and you blend those 2 things together, it was an incredibly prudent investment. So CAPREIT, I believe, did an exceptional job. The team did an exceptional job of maintaining and converting traffic that was out there. And when you shave a percentage point off and you look back to how we did, I think we did remarkably well.
More of a theoretical question, I think, I guess, coming into Europe, Ireland and in the Netherlands, your kind of expertise in Canada was really touted in terms of setting up those structures, and that's gone really well, as you pointed out earlier on. Would you say there's anything that you've learnt in Europe that from an operational perspective, you can take back to Canada coming out of the pandemic to improve the overall NOI growth going forward on a structural basis?
Well, we'd love to bring back their debt. That's quite impressive. Scott, I think -- Scott, why don't you just do over there? Was it 0.9% there on…
Yes, it's under 1%. Yes, exactly.
But to answer your question, Mario, like what we know, it's not really what we can bring back to Canada. It's what's in our story. So as CAPREIT went province to province through our growth, we realize that you're just managing cultural regional differences, but the business is exactly the same. There's actually no difference in the business anywhere in the world that we're being so far. It's really just managing those cultural and regulatory differences and understanding how they function. So our thesis was by going to Europe, we were just really going to another Canadian province, and that turned out to be exactly true. So being sensitive to the cultural and regulatory end-market dynamic differences in different countries is really just moving outside of the Canadian border and doing the same thing. A lot of people forget, we had an experiment in the U.S., where we took on to manufactured home business for a period of time of management, and we proved it there too. It's bringing the CAPREIT systems and bringing the CAPREIT culture and bringing the CAPREIT management structure to these markets. We know it works. And it works best in regulated markets.
My last question, again, more of a high-level question. You probably heard the term beds and sheds thousands of times in the past 12 months in terms of very strong institutional appetite or private market appetite for multifamily, residential and industrial. We've seen kind of a big uptick in industrial transactions in North America, particularly with larger portfolios. Now there have been some of the private side in Canada. What do you think, broadly speaking, just pertaining to the cap, like what do you think broadly speaking is preventing some of the larger institutions globally from investing more in Canadian multifamily residential? Or do you think we're seeing it?
I think that at the end of the day, we -- everybody wants to talk about international appetite, but the reality is when you look at Canadian multifamily, the market has been driven primarily by Canadian pension funds on the acquisition front, like those Canadian pension funds aren't labeling themselves. They're going through a variety of different structures, but that is the true driver of cap rate compression and interest in multifamily in Canada. I think that, that appetite, which has been primarily, I guess, driven by the interest rate environment has driven a lot of private investors out, and there certainly is a wall of -- I'm going to say primarily Canadian capital to address properties coming to market.But I think at the end of the day, you need a Canadian platform that really understands Canadian multifamily to address Canadian opportunity. And again, I use that word quickly the regulation. This is a big part of it. You have to really understand how to navigate in a regulated market. And if you don't have that experience or understanding, it's not just an asset class that you can move into that's easy because there's high demand. This is a month by month, as you know Mario, business, where things can slip quickly if management isn't there. It's high, high-intensity management business. So is that the right platform? I think that's going to keep foreigners cautious.
Got it. And I guess, indirectly [ nearly ] highlights the value importance of that operating platform.
You've always recognized that.
We have no further questions at this time. I will turn the call back over to Mark Kenney for any additional or closing remarks.
As always, I'd like to thank everybody for signing today. If you have any questions, please feel free to reach out to Scott or myself. And again, thank you for your time, and have a great day.
Thank you. This does conclude today's conference call. You may now disconnect.