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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen. Welcome to the CAPREIT Third Quarter 2018 Results Conference Call. I would now like to turn the meeting over to Mr. David Mills. Please go ahead, Mr. Mills.
Thank you, Marie. 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 our regulatory filings, including our annual information form and MD&A, which can be found at sedar.com. I'll now turn things over to David Ehrlich, President and Chief Executive Officer.
Thank you, David, and good morning, everyone, and thank you for joining us today. With me is our Chief Operating Officer, Mark Kenney; and our CFO, Scott Cryer. The third quarter of 2018 was another period in which we generated strong year-over-year and sequential quarterly growth, as you can see on Slide 4. Revenues were up 6.5% compared to last year due to the positive contribution from acquisitions and exceptional increases in net average monthly rents and high occupancies. NOI rose a solid 10.9% in the quarter due to the higher monthly rents and lower vacancies, R&M costs, wages and realty taxes as a percentage of operating revenues. NFFO rose 16.3% in the quarter, driven by acquisitions and growth in revenues. The quarter also contributed our track -- continued our track record of strong accretive growth with NFFO per unit up 9.8%. Our record performance continued to thrive through the first 9 months of 2018, as shown on Slide 5. Revenues were up just under 8% compared to last year with NOI up almost 12%. Our organic growth also continued with our same-property NOI up 7.8% for the first 9 months of the year. Our strong performance continues to be driven by our ability to generate strong increases in net average monthly rent and stable high occupancies. The acquisition of 1,110 suites in MHC sites over the last 12 months has also contributed to our growth. Additionally, the sale of 314 non-core suites over the last 12 months has further enhanced the overall quality and average age of our total portfolio, while contributing approximately $58.5 million in cash proceeds. NFFO, the main measure of our performance, rose a significant 16% for the 9 months ended September 30, driven by the growth in revenues and our continuing strong increases in stabilized NOI. We generated a strong NFFO payout ratio of 64.6% compared to 69.7% last year. All in all, it was an even stronger period for CAPREIT following our record performance in 2017. I'll now turn things over to Mark to review in more detail our continuing strong operational performance.
Thanks, David. Good morning, everyone, and thanks again for joining us today. Turning to Slide 7, you can see we are now generating solid growth in all of our target urban markets. Our record performance continues to be driven primarily by the strong demand in Ontario and British Columbia. We are also now performing very well across the entire country and in the Netherlands. We are pleased that Alberta has stabilized and is now generating some positive momentum. And in Saskatchewan, as David mentioned, we sold a non-core underperforming property in Saskatoon in August and our properties in Regina are also showing signs of stability. Our growth is clearly the result of the strong rent increases we are achieving and are continuing near-full occupancies. Average monthly rents for the stabilized apartment portfolio, residential suites rose 5.2% compared to last year, with occupancy rising to 99.2% (sic) [ 99.0% ] from 98.3% last year. Our very stable MHC properties also continue to perform well. For the total portfolio, overall rents were up 5%, with occupancy rising to 99%. Higher rent guideline increases mandated in our Ontario and BC markets have also enhanced our results. Going forward, for 2019, BC has decreased its annual rental guideline increases from 4% into 2018 to 2.5% for 2019. We continue to pursue applications in Ontario for above-guideline increases, where we've invested in major capital projects. The successful applications to date this year have generated an average of 3.62% increase in rents for those 2,915 suites and sites. Details on our applications can be found in our MD&A for the period. As you can see on Slide 8, we are seeing very positive trends in rent increases on suite turnovers. This excludes the impact of our Netherlands portfolio. For the 3 and 9 months ended September 30, 2018, we generated an impressive 11.5% and 10.7% increase in the AMRs on turnover, significantly higher than last year and in the second quarter of this year. As I stated, the continuing strong demand in our Ontario and BC markets continues to drive our overall growth. In the third quarter, 2018 monthly residential rents in Ontario increased by 20.4% on turnovers. In British Columbia, monthly rents rose by 15.4%. And in Québec, we're seeing monthly rents rise by 5.7%. And in Alberta, monthly rents rose by 6.5%. Our increases on lease renewals are also very positive with rents for the 3 and 9 months ended September 30, 2018 up 2.2% compared to the 2% and 1.9% increases last year. We are confident these positive trends will continue going forward. For the last 20 years, we have demonstrated a consistent ability to generate what we believe is industry-leading organic growth, driven by high stable occupancies, increasing revenues, managing our costs and capturing enhanced operating efficiencies, resulting from our increasing size and scale. As you can see on Slide 9, our track record of organic growth is continuing in 2018 with same-property NOI rising a very strong 7.8% through the first 9 months of the year. For the third quarter, organic growth was even stronger at 8.4%, one of the highest rates of growth that we have achieved in our over 20-year history. Going forward, we are confident we can continue to deliver stable and steady growth in the same-property NOI in the years ahead. We continue to be pleased with our performance in Dublin, as detailed on Slide 10. Since the IRES IPO over 4 years ago, we have received a total of asset and property management fees of $15.9 million to the end of 2017. To date, in 2018, the contribution continued with fees totaling $5.3 million, up 21% from last year. During the second quarter, we increased our ownership of IRES from 15.7% to 17.8% as of June 30, 2018. The increase reflects our confidence that IRES performance will remain very strong going forward. Our retained interest in IRES also continues to generate a solid stream of dividend income amounting to $16.3 million to date since IRES IPO in April 2014. Turning to Slide 11, our portfolio in the Netherlands also continues to perform well while further enhancing our geographic diversification. We currently own 2,091 suites in this strong market, and we continue to evaluate further expansion opportunities in this country. As announced in September, later this year, we anticipate closing on the purchase of an additional 535 residential suites in 12 urban centers, all situated close to existing CAPREIT properties. This acquisition will bring our total Netherlands portfolio to 2,626 well-located homes. In addition, last year, we opened our own property management office in the country, helping us better manage our costs and our ability to strategically renovate suites on turnover to generate higher monthly rents. As you saw earlier, our property management strategies are bringing real value as monthly rents in our stabilized Netherlands portfolio rose a very strong 21.7%. This can be attributed to occupancies increasing to 97.7% from 87.2% last year and a very solid 6.6% increase in occupied average monthly rents. Looking ahead, we continue to evaluate strategies to grow in the Netherlands and anticipate our efforts will generate further organic growth. I'll now turn things over to Scott for his financial review.
Thanks, Mark. Turning to our balance sheet on Slide 13, we continue to maintain a strong and flexible financial position with conservative leverage, strong coverage ratios and a historically low interest cost on our mortgage portfolio. Debt to GBV continued at an all-time low of 40.5%, putting us in a great position for future acquisitions and development. With our March $172.6 million bought deal equity offering, we had approximately $123 million available borrowing capacity on our various Canadian, U.S. and euro credit facilities as of September 30, 2018. And this strong liquidity position includes the acquisition of 498 suites and sites so far this year for $148.2 million and the sale of 264 non-core suites for cash proceeds of $52.3 million. Our mortgage portfolio remains well balanced, as shown on Slide 14. As we approach 2019, our ability to top up on renewing mortgages through 2026 will provide significant liquidity to fund our acquisition and development pipeline. For the remainder of 2018, we have 19 million in mortgages maturing with an average interest rate of 4.24%, and we expect to refinance approximately $30 million in principal repayments with new mortgages. As of September 30, 2018, 97.3% of our current Canadian mortgages are CMHC-insured, providing us with a large and diverse group of lenders willing to work with us at rates below conventional financing. It's also important to note that 100% of our mortgages are on a fixed interest rate basis, shielding us from anticipated rate increases in the future. Finally, you can see we have approximately $436 million of our properties not encumbered by mortgages as of September 30, 2018, providing further flexibility to fund our growth and investment programs going forward. CAPREIT intends to maintain the unencumbered pool with an aggregate fair value in the range of $180 million to $250 million over the long term. CAPREIT expects to have subsequent financing on acquisitions, which are currently unencumbered for $160 million. Based on the mortgage refinancing assumptions indicated on Slide 15, we could have approximately $1.7 billion in top up liquidity over the next 5 years to fund our capital investments, acquisitions and development programs. And this excludes the additional mortgage financing that would be available on these new properties. On the liquidity front, we remain well positioned to continue our growth programs, as shown on Slide 16. With the completion of our bought deal equity offering in March, our liquidity position stood at approximately $123 million at September 30, including availability on our credit facility. This strong liquidity provides us with a resource and flexibility to fund these growth initiatives, while still maintaining conservative debt ratios. I'll now turn things back to David to wrap up.
Thanks, Scott. Development remains a key component in CAPREIT's growth and value-creation strategy. As previously announced, our management team has assessed the viability of development through a highest and best use assessment and validated the potential to build well in excess of 10,000 net new apartments. A strategic plan for how this development potential will be realized over the next 10 years is continuing to be finalized for approval by our board, which includes the magnitude and the identified project pipeline. Together, our management team and the board will collaborate to decide on how best to move forward and how best to maximize value for unitholders. As previously announced, 2 infill development rezoning applications were submitted in mid- and late 2017 and have made progress as they continue to be processed with the city of Toronto's staff department. If successful, these proposed applications would add approximately 250 new suites, each of which also provide new indoor and outdoor amenities and a number of improvements to the existing buildings in site. As an additional note, a building permit has been approved to convert 52 new residential rental units within vacant commercial space at 2525 Cavendish in Montréal, Québec. Construction will commence in early 2019 with a targeted completion date of spring of 2020. In summary, we continue to remain confident in our future. We have, again, proven our ability to capitalize on continuing strong fundamentals in the apartment business throughout all economic cycles, and we continue to maintain a strong financial position with the flexibility and resources to continue our growth and sustain our monthly distributions over the long term. Thanks for your time this morning, and we will now be pleased to answer any questions you may have.
[Operator Instructions] We have a question from Jonathan Kelcher from TD Securities.
First, on the developments, in particular the Cavendish one, can you give me -- give us a little bit more color on how much you expect that to cost and the return that you're targeting?
The permit is -- has been issued. It's within the existing building. So there's no structure to build. There's no parking to build. It's a very accretive acquisition. We can leave it to say that we can build units in Québec for, in this particular circumstance, a little over 100,000 units. And that's well, well within the value of the existing building.
Okay. And what would the average rent in that existing building be now?
I would have to check, Jonathan, but around the $1,100 mark.
Okay. That can work. And then secondly, just on the 2 permits in Toronto, do you guys have any sense of the time line when you'll find out about those?
We're meeting with city staff again in December. We're -- we always remain hopeful that we'll make some progress there, but the idea is to review the application and try to move things forward. In terms of time line, I wouldn't want to speculate. The next milestone is meeting to review the application with city staff, as David mentioned.
Okay. And that's in December? And then lastly, just -- like you have 10,000 units that you want to develop over the next 10 years. How many permits do you think you'll be putting forward in the next, say, year to 18 months?
It's really hard to say at this point, Jonathan. We're, again, deciding with the board and presenting to the board the plan as to which sites to go for first, in what order, cost, the best way of doing this. So it's just a little bit early to ask. Within a few months, certainly no more than 6, we'll have that plan.
We have a question from Mario Saric from Scotiabank.
Maybe just sticking to the development theme. When you look at kind of the 2 Toronto projects today and compare kind of your thoughts on return -- potential returns on those projects today versus a year ago, given kind of rising construction costs, has rent growth kind of kept up with higher construction costs to deliver a similar type kind of expected unlevered return from these developments?
Yes, there's no question there. We tempered our mood in terms of construction cost. That being said, we will move these applications forward. Both of those sites have the added advantage of no additional parking. As David mentioned, land cost is in at 0. And they are in an extremely vibrant market. So if rental works anywhere, it should work in these circumstances. But we'll proceed to get the zoning and rerun our pro formas and give some guidance at that point. But to answer your question simply, yes, rents have continued to rise, but we have also -- are hearing about in the current environment in Toronto rises in both development costs and construction costs. Your point's well taken. We'll assess that when we get to the application phase.
And then, I guess, more broadly speaking, when you look at the major markets, is there any market today, if you have a 2-year outlook in terms of demand/supply, is there any market where you're concerned -- a bit concerned about supply growth starting to mount again within the next 2 years?
If I heard you -- it's quite quiet on the line there, Mario. But if I heard you correctly, the state of the markets that we're in across the country is very, very strong, and it's at least turning. We have 2 little buildings in Regina that continue to face some challenges. We're encouraged by what's happening in Calgary. But at this time of year, it's hard to assess the state of the market because we see a little bit of a slowdown. But in general, the development thesis for us, if I heard you correctly, remains strong in both Vancouver and Toronto and, quite frankly, in parts of Québec.
I guess, the question is, the demand fundamentals appear very strong, and we can all understand what drives kind of the demand fundamentals. But when we look at the other side of the equation kind of being supply, like is there any market that you're in today from a supply perspective, whether you're looking at development permits or whatever factors you look at internally, is there any market where you're having like increasing supply growth on the radar in terms of something potentially to deal with like within the next 2 years?
Yes. No, the closest we would come to that is Halifax. Yet the markets that we're in, in the peninsula, they are very, very strong. The development is happening outside. That being said, even in the Halifax case, supply is not keeping pace with demand. The market's not experiencing vacancies. The market is experiencing rent growth. And in that particular market, they're seeing the biggest wave of supply that they've seen in a long time. Also places like London, we're seeing continued supply. It's always been delivered there, but the demand continues to grow in London. And most notably, Montréal, you can't help but going there and seeing the level of activity in Montréal. But once again, we're seeing this deal, these effects of urbanization and continued immigration, and we're seeing everything getting taken up. So we remain confident in all of the markets. We're careful, I guess, right now, that our Regina situation -- but it's so small that it's hard to interpret.
Got it. Okay. And then just maybe shifting gears to the very impressive rent growth that you're getting on turnover. I think, Mark, you kind of cited 20% plus in Ontario, 15% plus in BC. Last quarter, you mentioned that bad debt expense was an all-time low at 0.4% of revenue. And it's very low this quarter as well, but it ticked up a little bit on a percentage basis and on an absolute dollar basis. So with those types of rent increases that you're putting through, how is that impacting tenant affordability? And the slight uptick we recorded in the bad debt expense, is that more seasonal in nature? Or can you just talk about kind of the evolving kind of affordability picture?
Yes. Our bad debt continues to outperform the mortgage market. You are going to see from time to time, when we do exceptional recoveries, those recoveries get reversed back into our bad debt number. So they'll move down at times and then return to normal. There's -- I wouldn't interpret anything at all from that slight uptick in bad debt. When you look at the quantum of the number, it's, again, industry-wide, high performance and, as it relates to bank defaults, very high performance. On the affordability front, we continue to be excited, encouraged by our rent increases, but we also know that as much as the CAPREIT portfolio serves the high end of the purpose-built market, there's condo rents that are ahead of us and homeownership that's ahead of us. And in terms of the affordability, it's intact. So we're getting strong applications, our income-to-rent levels are still in check, and it remains to be the countercyclical option in my mind should we see any sort of change in the economy. It's only going to strengthen the thesis for CAPREIT.
Okay. Nationally, do you have a rough sense in terms of what the rent-to-income ratio is for the portfolio?
It's in the high 30s.
Okay. My last question is just shifting over to the margin. I know that you increased the target range on your key performance metrics for the margin, about 200 basis points, the 52% to 54%, given the strong rent growth and kind of the operational efficiencies that you see in the portfolio today. Is 64% kind of the upper limit in terms of your outlook over the next couple of years? Or do you think that the portfolio is capable of something higher than that, especially as you kind of bring new products online over time?
We are encouraged that our mark-to-market rents within the portfolio are strong. So that opportunity should stay intact for the foreseeable future. We continue to invest in energy initiatives, which mitigates the change in our utilities volume, which is one of the big ones. We are confident that our guidance around repairs and maintenance is in check between $850 and $950 per unit. So I think you're -- what you're seeing here is just good rent growth, stable expenses and solid margins. Looking into the future, all I can say is we stand by what we've put in our MD&A and are confident with these levels.
The next question is from Mark Rothschild from Canaccord.
Maybe I'll start -- just continue on that last question from Mario. Should I infer from what you're saying that the lower R&M is sustainable even if fundamentals would -- the strength of fundamentals would slow down somewhat? Do you think this is really the pace at which you can operate? Or is it somewhat you're benefiting from this incredible strength we're seeing now in markets such as Toronto and Vancouver?
Well, I think that what we said all along is that, that R&M line is -- there's some discretionary nature in there, and we have been investing very, very heavily in our preventative maintenance projects. We're very comfortable at these levels now. There's no question it's assisted by the reduced turnover numbers. R&M is a direct correlation to the number of units that are turning over in the portfolio. We see absolutely no change to that trend either. It's slowing. People are holding their leases. We -- the portfolio's in great shape, as many of you have seen on our investor tour. So for the foreseeable future, we stand by these levels.
Okay, great. And maybe continuing on the point you just mentioned about turnover, can you talk a little bit more about the trend you're seeing in the market, such as the GTA in Vancouver? To what extent is turnover slowing? And where do you think it's going to go over the next year?
Well, it's trending down. There is an inherent floor that you hit in turnover, which is around 10%. At 10%, people are -- there's changes in life that range from marital changes to death, health, schooling changes, you name it. So there will always be that. That's always existed in the home sale market as well. So we know the floor is 10%. We're in markets, where just by being in the urban centers, people's jobs change more often. So if we were to guess -- we can't guess the future. But given what's going on right now, it has to be somewhere north of 10% to 15%, and we don't see it getting much above 20%.
Wow. Okay, great. And maybe just one last question. And it sounds like there's still a lot of influx Here. But on the development pipeline, do you have a target for what you expect to invest in development in 2019?
Yes. I mean, we've put some disclosure in the MD&A, where it's really generally soft cost. We're going to try and accelerate the planning permissions on a whole bunch of projects. So we've put kind of a total budget of about $45 million. You'll see that in our MD&A. But again, it is mostly going to be soft cost-related at this point.
The next question is from Mike Markidis from Desjardins.
Mark, just going back to those numbers on the turnover spreads that you're seeing, and if you sort of look back over the last 8 to 10 quarters, your renewal spreads on turn have done nothing but go up in a straight line sequentially each quarter. As we're now sort of rolling the first kind of year, 1.5 years of what would be outsized historically growth in that regard, do you think that it's going to start plateauing as we move over the next several quarters? Or is the market demand and the continued increase on pressure on rents enough to keep pushing that metric higher as we go forward?
You summed up a few of the elements. For starters, the reduced turnover is just continuing to preserve our mark-to-market. So with less leases coming to market, we've got more value that stays in the portfolio. That's number one. There is no change to the supply thesis at all. There is just -- it's not happening -- any sort of substantial numbers in the markets that most matter, and those are the markets that we're in. So immigration continues to stay strong. Urbanization continues to unfold. Delayed family household formation continues to be a trend, and we are the value option when it comes to housing. Just when you look at our rents, as much as we're getting wonderful increases, they're still not touching condo rents. And we've got the added advantage of location and size and what we believe is much better quality service. So I can't see much further into the future that we'll see in the next couple of quarters, but we don't see a change in trend.
Okay. Can you just refresh our memory? I mean, we're all clear on how AGIs -- or sorry, how vacancy decontrol works in Ontario and BC. But in Québec, it's always sort of a -- I consider it a black box. Maybe I haven't done enough work. But with the Régie being not a vacancy decontrol system, how are you able to push rents on turn above 5% -- at that 6% level that you mentioned?
It's a separate tutorial that I couldn't cover on this call. It is a complicated system in Québec. We'd be happy to walk you through it offline, but it's -- it depends on a lot of different factors that are happening in the building, including capital investment, including just general improvements. And there's an arbitration system. But Mike, I'm happy to talk to you about it offline.
Okay. All right. Let's do that just to make sure I'm clear. And then just finally, can you refresh my memory? The King High Line project, I think that's something you guys agreed to back in 2015. When do you expect that transaction will close?
We've had decent guidance from our partner there. We are hopeful that occupancy permits should start in January. The city -- there's been several delays that we are hopeful that our development partner there will get that in order for us starting January.
Okay. And that was a forward purchase, where the -- it was a fixed price, like it's not based on where the rents are going. Correct?
It was a fixed-price deal and an incredibly solid deal in retrospect. The rents are nowhere near what we originally pro formed it, but the fixed-cost deal remains in place.
Okay. And where would be the rents be today versus where you're performing -- pro forming back then roughly?
In memory, but I believe we pro formed it $2.30 a foot, and the last rent table average we've put out was $4.34 a foot.
Okay. And your the lease -- you were managing a lease up for that building and managing the building subsequently, correct?
That's correct.
Has any of that fee income worked its way into your fee revenue yet?
It shows up at the building level, it's a property management fee, it's not an asset management fee. That's what we brought to the table. So it's standard rates in the industry, but on the entire building.
Got it. But there's no incremental income for leasing of that prior to close? Okay. Great.
We have a question from Matt Kornack from NBF.
Just a quick question with regards to your portfolio. You've had pretty good turnover spreads for a while here. Just wondering what your view is in terms of what portion of your portfolio is currently at market. And then also, what is your anticipation in terms of the growth of market rents themselves?
Well, with -- again, with very low turnover and rising demand, our tables continue to move upward. We continue to provide in this environment despite the fact that we're not turning over as many units as we like. We continue to lift the table rents, which are the rents that we expect to get on turnover. So over the last 6 to 8 months, that's been a regular monthly exercise of increasing those table rents. And that will continue. We're pushing what we think is our value proposition into the market. And the market's taking it up. So we continue to set new highs, but we have a unique offering. And that unique offering remains, we think, from a value perspective, better than condo renting.
Yes. Overall, the 10% plus that you're seeing on turnovers in the portfolio, if you look at our total rent roll, I think the mark-to-market's in excess of that. The challenging part, budgeting going forward for us is, is it the same units that are turning, some of the ones that are sticky won't get to those for a while. So it's hard to gauge the pace of getting to that mark-to-market. But structurally, it does exist on our rent roll.
We do know that the market rent units tend to turn over with shorter-term leases, obviously, than the below-market leases. So as Scott says, it's hard to get at it.
Correct, yes. You don't leave us here 40% below market that's for sure, unless you have to. With regards to BC, the government, I guess, did a little bit of a bait and switch there. Is the turnover in that market similar to the turnover in the GTA? Or should we look at it differently?
Pretty similar, behaving exactly the same. And again, it's unfortunate, but it does suppress the mark-to-market value and the rent roll there as well. So as these guidelines happen, all it's doing is building up the turnover rents when they actually get released into the marketplace.
Yes, BC would be pretty consistent with our overall portfolio average. For the year-to-date, Ontario is really the one lagging from a total turn. It's about 12% for the 9 months. So it's probably the one that's tightest from a turnover point of view.
BC's going to look a little bit different as well going forward with our closing of Fraser Flats and the lease-up of that property. That property alone's a decent size, and we expect to see higher-than-average turnover at that property because of the market rents. And we've also closed on the Meridian building, which will also behave a little bit differently than the rest of the portfolio there.
And last question. With things as good as they seem to be in Canada, obviously, the Netherlands is a good opportunity as well, but is there product available? Or what's constraining you from being more active buying properties here?
We've been pretty active. We're very optimistic about the pipeline in the Netherlands. The value there is very compelling. There's good -- there's better deal flow, quite frankly, in the Netherlands than there is in Canada, and we'll continue to move on those good opportunities.
I thought the question was also about what the trend's about.
Trend in Canada is grinding very, very slow. Again, we're seeing the lowest CAPREITs that I've ever seen in my career transact in Toronto and Vancouver. And that -- really, quite frankly, that's got a lot to do with the fact that there's very few transactions happening in the marketplace. The deal flow in Canada in terms of acquisitions is quite slow, but the market is still very enthusiastic about multifamily.
Fair. And I'll ask it knowing full well I may not get an answer, but any thoughts on where M&A may take place in the public real estate space, given that there may be a bit of a difference in terms of cap rates between the public and the private?
Not really. I mean, we don't. I don't know anything you don't know.
We have a question from Dean Wilkinson from CIBC.
Another question on the turnovers. Is it fair to say that the grind-down and then the gap-up between market rents and your in-place is largely driven by the GTA market?
No.
No, it's not fair to say.
So it would be consistent across the portfolio more so than in any individual market?
I think the results of our rent increases that we did lately in the MD&A, you're going to see really strong results across the portfolio. Certainly, the GTA is leading the pack right now. But as we talked a bit on the call, Vancouver's strong. Montréal is very strong. The Netherlands is, again, very strong. Those are the markets that we primarily serve.
Okay. That's good color. And in terms of just the Toronto market, there's been a lot of talk of supply, and everyone who owns sort of a vacant lot or has some property says they want to build purpose-built. Do you think there is enough potential supply to come in just to even meet the market? Or is -- are we talking potentially decades before this gap closes?
I'm not sure. There's not enough supply to meet the demand. The numbers, it's just pure mathematical and we fall further and further behind.
Yes, yes. Every year, it just keeps going farther and farther back.
Clearly, not a housing policy to match our immigration policy. There's clearly not mindfulness put towards urbanization. Our 3 Canadian cities that -- the CAPREIT portfolio, primarily Vancouver, Toronto, Montréal, are all locked by water, greenbelt, and there's nowhere to go. So there's also a growing trend of not in my backyard in all 3 of those cities. So when you put 350,000 people in this country, you have young kids that want to live in the cities. You've got delayed household formation. You have all of those attributes. And the government is talking about affordability, but doing nothing meaningful. The talk is clearly there's an opportunity, but the evidence is clearly not adequate response.
And it's broad-based. I mean, you need a housing policy that goes out a long time. It's infrastructure, schools, roads, all of that. It's looking at development levies and how you're taxing these things. I mean, it's a whole bundle of things that really, really need to be addressed together. And it's hard to make progress even in any one of those areas. But all of that needs to be fixed in -- before you're going to get really a solution to this problem. And government seems to not really being able to grasp...
To grasp it or to get their head around it or do something with it, yes, yes. The trend is just -- it doesn't seem like it's going to abate.
There are no further questions registered at this time. I would like to turn back the meeting over to Mr. Ehrlich.
Thank you all again, and we appreciate your time. Any follow-up questions, just let us know at any time. And thank you, and have a great day.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.