Q4 2020 Killam Apartment REIT Earnings Call
Okay.
Okay.
Good morning, ladies and gentlemen, and welcome to the kill them apartment real estate investment Trust Q for 2020 yearend financial results Conference call.
At this time, all lines and the listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require immediate assistance. Please press star zero for the operator also note that this call is being recorded on Thursday February 11, 2021, and I would like to turn the conference.
Over to Filip Frazier. Please go ahead.
Good morning, and thank you for joining kill them on apartment rates Q4.
And year end 2020 conference call.
I'm here today with Robert Richardson, Executive Vice President Dale Noseworthy, Chief Financial Officer.
Air and Cleveland Senior Vice President of Finance.
And Nancy Alexander Vice President of and.
That's the relations and sustainability.
Slides to accompany today's call are available on the Investor Relations section of our website under events and presentations.
I will now ask Nancy to read our cautionary statement.
This presentation may contain forward looking statements with respect to kill apartment REIT and its operations and strategy financial performance conditions and otherwise the actual results.
<unk> discussed here could differ materially from those expressed or implied by such statements such statements are qualified and the entirety like inherent risks and uncertainties surrounding forward looking statements for further information about the inherent risks and uncertainties in respect of for in respect to forward looking statements. Please refer to Carol and smoke.
Recent annual information for another security and regulatory filings found on lineup on SEDAR unless otherwise stated all forward looking statements made today speak only as of today's day, Joe has no obligation to update such statements unless required under applicable securities law, unless otherwise stated all forward looking for.
And speak only as of the date on which this presentation refers and the parties have no obligation to update such statements.
Thank you Nancy.
Despite the headwinds and uncertainties of 2020 brought us our employees rose to the challenge and we achieved two 3% same property NOI growth and 2% got debt home per unit growth.
Our strategy and commitment to the long term viability of our core markets has remained unchanged.
Increasing earnings from our existing portfolio is a key component of our strategy.
We do this and a very responsible way considering the current financial demands of our tenants communities and global environment.
Our portfolio is benefiting from the innovated innovative ways, we are growing our revenue and managing our expenses.
We are diversifying our portfolio geographically through accretive acquisitions.
With over $200 million, and acquisitions, and 2020 and $70 million year to date and 2021.
We met our targets to achieve 32% NOI outside Atlantic, Canada, and 2020, and we will continue to look for additional assets and our Ontario markets as well as Calgary and Edmonton and Victoria.
In addition, killam development pipeline continues to be a key driver of net.
Net asset value creation and.
Adding high quality properties, two kilns portfolio each year.
And 2020, Killam opens the shorefront and Charlestown.
Nolan Hill, and Calgary opened in January and Harley is coming online next month.
We have included our original 2020 strategic targets and our year and documents and measured our performance against them as shown on slide four.
We were able to achieve all targets with the exception of same property NOI growth, which was slightly lower than our 3% to 5% target.
And to Cove COVID-19.
Our targets for 2021 are also disclosed, including a sustainability targets and ensuring we invest a minimal aside.
And energy and as initiatives to assist and attaining our long term goals of reducing greenhouse gas and gas emissions and increasing renewable energy sources.
It will take us through the Killam financial results, followed by Robert who will discuss our initiatives for growing our existing asset base.
He will conclude with a recap of both acquisitions and development pipeline.
I'll now hand, it over to Dale.
Thanks Bill.
Highlights for calendar 2020 financial performance can be found on slide five.
Notwithstanding challenges this year, we achieved solid earnings growth attributes for the resiliency of our portfolio, our key markets and our team.
And 2020, Killam generated <unk> <unk> per unit of $1 up 2% from 2019, and <unk> <unk> per unit of <unk> 83 up three 7%. These gains were driven by solid earnings from our same property portfolio and incremental contributions from acquisitions and stabilized developments.
2020 continues a strong record of performance slide six recaps key financial metrics over the past five years, we're proud of our consistent and <unk> per unit growth, while also greatly increasing the size and quality of the portfolio and maintaining a conservative balance sheet.
NOI has increased steadily and <unk> per unit has grown by a compound annual growth rate of three 8%.
<unk> current <unk> payout ratio of 82% has improved from 91% five years ago, Bob distributions have increased for times during the same period.
As we continue to execute on our growth strategy.
Total assets have grown by an impressive compound annual growth rate of 17, 4% to $3 $8 billion today.
Slide seven shows our Q4 results <unk> and <unk> per unit were both flat and the corner quarter as 0.9% growth and same property NOI and earnings from acquisitions and developments were offset by an increase and the weighted average number of units outstanding following July equity raise.
Portfolio shades showed strength with same property revenues up two 2%, including a three 4% increase and apartment rents and three 8% top line growth from the MHC portfolio.
These gains were partially offset by an uptick and apartment vacancy.
Same property apartment occupancy was a healthy 96, 6% and Q4, but down 100 basis points from historically high occupancy rates in Q4 2019.
Same property operating expenses were up four 4% and the quarter, mainly due to higher compensation for on site staff increased insurance premiums and a four 4% rise and property taxes.
Annual same property portfolio results are shown on slide eight overall same property revenues were up 2%, but these gains were not consistent throughout the portfolio.
The apartment sector led with two 4% growth. This was partially offset by reduced revenues for the MHC and commercial portfolios both of which reflects the impact of COVID-19.
Delayed openings and reduced activity at our nine seasonal MHC has resulted in an overall annual revenue reduction for the MHC portfolio of 0.8%. This overshadowed the strength of Killam 30, permanent Mhc's, which generated two 7% revenue growth and the year the.
The decline and the seasonal portfolios revenue and NOI is short term, we expect earnings to be back to pre COVID-19 levels once social distancing and emergency measures are lifted.
Revenue for our commercial portfolio was down in 2020, following participation and the CCAR program.
Same property expenses were up one, 4% and 2020 slide nine breaks down operating expenses by category.
Higher general operating expenses, including increased salaries for on site staff and a four 6% rise and property taxes were partially offset by a five 9% reduction and utility and heating fuel costs overall.
Overall NOI was up two 3% for the year.
Additional details on <unk> 2020 apartment revenue results are highlighted on slide 10.
I'll keep and see declined 40 basis points overall from an all time high in 2019.
The biggest declines, we're seeing and St Johns and Ottawa St. John's is feeling economic pressure from softness and the oil sector, where a lot of water was impacted by reduced demand linked to COVID-19, and increased supply and the immediate neighborhood of our largest property and the region.
Other markets remained resilient with our three new Brunswick markets and <unk>, achieving relatively consistent occupancy levels year over year and Halifax, We recorded only a modest 50 basis point decline and annual occupancy much of which relates to student focused properties near the universities, which have historically had little to no vacancy.
Overall incentive offerings remains limited and focused primarily in Alberta, St. John's and very specific properties with occupancy challenges overall killam recorded incentives of 40 basis points of total residential rent for the year very much in line with the last two years.
As previously noted same property rental rates were up three 4%, although a slight decline from 2019 rats for trending higher by the fourth quarter of 2020, showing signs of momentum leading into 2021.
Slide 11 shows rent growth by quarter, the top growth breaks down the rent achieved on renewals and the Green line and turns the gray line as well as the total average rental rate shown on the blue bars as shown here with strong gains on turn kills mark to market opportunities remained strong.
The bottom graph on slide 11 provides additional details on rental rate growth and renewals by month for the past 24 months.
And <unk> decision to delay issuing notice of future rent increases and the months of April through July impacted rent growth for renewals and Q2 and Q3 the growth was a GAAP gain realized in the fourth quarter note that Nova Scotia renewals are currently capped at 2% during the state of the merge of emergency and the province, and Ontario and BC.
And currently have freezes and affect muting rental growth on renewals for most of 2021.
With these restrictions and most have killed rental growth and the year ahead will come from unit turns.
<unk> unit turnover remains healthy at 28, 8% and 2020, well above Canada's national average slide.
Slide 12 highlights our debt maturity profile, including average apartment and mortgage rates by year versus prevailing CMA sea insured mortgage rates.
Based on current market conditions, we expect to refinance at lower interest rates in 2021.
Continuing to reduce our weighted average interest rate.
In addition, we expect to generate net proceeds of approximately $50 million from our 2021 refinancing program.
<unk> 13 includes key balance sheet metrics, we are maintaining a conservative balance sheet and ended the year with debt as a percentage of total assets of 44, 6% well below our target of less than 47%. We also ended the year with expanded find that capital flexibility following a $40 million increase to our.
Operating line and late 2020.
Following the funding of recently announced acquisition capital flexibility remains high with acquisition capacity of $250 million, we are well positioned to execute on our growth plans for the year.
I will now turn the call over to Robert who will provide color on key operating initiatives and value delivery to our residents.
Thank you Dale and good morning, everyone before discussing our current operating initiatives and strategy I would like to begin by acknowledging that 2020 was a challenging year for many businesses and likewise for most people.
The stress created by force isolation, the fear of the unknown and the heartbreak of being separated from loved ones can be crippling and.
And yet faced with all of this on a personal level as well as their daily work caring for over 40000 residents Killam 700 employees continue to work diligently and adapt to this evolving pandemic and recognition count continues to come to compensate its frontline staff with extra pay and we respect and greater.
We appreciate the excellent care the extended to our apartment residents as well as our MHC and commercial tenants.
Despite COVID-19 rent collection has remained exceptionally strong for killam throughout 2020, Killam collected 99, 7% of all rents for the year, including growth build commercial rents. This aligns with killam historical bad debt loss, which tracks at less than 30 basis points of total revenues.
And do not expect any material change and rental defaults and 2021.
And <unk> existing portfolio portfolio totals over 17000 apartment units 5900 sites and 750000 square feet of commercial space, not including 150000 square feet of ancillary retail related to the apartment.
Jones commercial segment accounts for approximately 5% of its and if it.
Total net operating income we've worked closely with our commercial tenants under the Canadian government Secret program and recorded a $300000 reduction and commercial revenue related to this initiative. In addition, kill them separately negotiated pandemic related rental abatements with a number of commercial tenants and he's also totaled 300000.
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To deliver value to our unit holders, we have a continuous focus on growing same property net operating income slide 14 details on a number of believers kill them can use to grow income I will speak to these and the next few slides.
And late December we received the results of kilns annual tenants sort of debt conducted by our third party provider narrative research narrative tells US Killam 2020 survey had an impressive response rate of 30%.
And the overall tenant satisfaction rating of 87% is markedly better than the industry benchmark for multi residential owners. It is worth noting comes overall tenant satisfaction rating has ranged between 87% and 90% for the last eight years.
In terms of satisfaction with their apartment units killam received and 89% satisfaction rating ratings and a very positive outcome.
And our residents tell us they enjoy living out of killing properties and consider their clean and affordable housing to be good value.
And he remains a very attractive alternative when compared to homeownership, given the high cost of upkeep and maintenance taxes and insurance for single family housing.
Please refer to slide 15, Killam offers a range of housing products and each of its markets from longstanding properties, providing a clean safe housing option two newly constructed luxury buildings with modern finishes and a multitude of amenities and <unk> portfolio has a wide selection of locations unit sizes and layouts and each of its urban and suburban.
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With an average rent of $1.42 per square foot across the portfolio. This represents a remarkable value and accommodates a diverse group of residents and potential tenants.
And Canada mortgage and housing corporations and measure of housing affordability is the shelf for cost to income ratio, which sets the affordability threshold at 30% before tax and median household income when we compare <unk> rents to the 30% shelter cost to income metric and each of <unk> core markets and underscores the fact count average for.
And are well within Macy's threshold, ranging from 15% to 25% of median household income and our markets.
This housing affordability discussion is very germane, even more so.
When many Canadians are experiencing the greatest financial and mental health pressures in recent memory kill and recognize it recognizes it has a civic duty to be a contributor to the affordable housing solution not only does kill and provide very affordable living options generally, but kilometer and active partner with many nonprofit housing and government agencies.
Such as the Ywca urban housing initiatives and centers for us.
Addiction, and mental health to deliver more than 750 subsidized units and our communities.
Looking forward, we continue to pursue opportunities that provide additional affordable housing for example last month, we closed on a 233 unit Northern Hill development and Calgary.
And I participating as you may see as a rental construction finance initiative Kim was able to provide 78 units or one third of the units that Nolan Hill and rental rates that are 70% of market rates. This was possible by utilizing CME C financing for a $41 million mortgage X assessing.
10 year money at the low interest rate of $1 95 per cent.
Killam released their annual rental market housing report last week reporting on rental statistics across Canada as of October 2020.
Due primarily to restrictions on immigration stern immigration during the year vacancy rates have increased and nationally and rental rate growth has slowed.
But not all markets have been impacted to the same degree and I would like to speak briefly to the strength of killam largest market Halifax.
So you may see reported vacancy and Halifax increased 90 basis points from October 2019, So October 2020 and stood at one 9%. This was the lowest vacancy rate for cities and Canada at that time.
So you May see also noted that despite a lack of immigration and for secondary schools and moving to more online teaching the Halifax market still needs new supply.
The graphs on slide 16 compares kilns Halifax portfolio's average in place rent to the market rent for the last 14 months all on a dollar per square foot basis.
And in place rent is the average monthly rent kilns, Halifax tenants pay that month market rent as the average rent being achieved by kill them on leases to new tenants during that same month.
As can be seen with this chart new leasing is providing a healthy average 18 per square foot.
More than in place rents.
Although this delta fluctuates from month to month due to the number of new leases and unit types leased overall mark to market opportunity has remained consistent during the pandemic and a 10% to 15% mark to market opportunity exists.
Yes.
Jim has also benefit from Halifax, this market's resiliency.
160000 square foot brewery market adjacent as Alexandra residential property overlooking the Halifax Harbor.
And.
Roofing market is an and.
Iconic asset a 200 year old jewel in our city and and added over 30000 square feet of new retail and office leases this past year.
The demand for <unk>, new and newly renovated apartment units also remains strong across the portfolio and 2020 and.
And work on Killen suite repositioning program continued unabated.
We finished the year with 495 suites repositioned.
Just five less than originally budgeted as highlighted on slide 17.
Costs on average $25000 to reposition a unit, but when you earn a 30% unlevered return on investment and makes perfect sense.
And based on the Max demand for reposition suites for 2021 kill and is targeting a minimum of 550 units to be completed overall from currently has 5000 additional units that can be repositioned and this opportunity continues to cycle forward as the properties age and.
An example of a very successful repositioning program for Killen as shown on slide 18.
And this is Brian.
A 43 unit property in downtown Ottawa that was built and 1968 and has David finishes by replacing the flooring and updating the kitchens and bathrooms.
Offering for this building changed and kill in real life on average rental increases of 35% representing a 20% return on its $31000 per suite investment.
I will emphasize that kill and only undertakes repositioning as units become vacant as we are not proponents of evicting tenants to facilitate unit repositioning.
Yes.
Kim has fine tuned the process of repositioning its units over the past three years to right size. The upgrade minimized downtime for renovation work and provide our residents with the best finishes based on appeal functionality and durability.
Slide 19 shows and reposition units at Cambridge place.
And 63 unit building and Moncton, New Brunswick for you.
<unk> highlighted one of the best unit renovation of the year Award from the Canadian Federation of apartment associations in 2020.
So sweet renovations are a component of Killen and overall $70 million annual capital budget plan with important investments being made to address the building envelope and the windows Roosen cladding, keeping plants plumbing upgrades curb appeal and landscaping as well as energy projects. Please.
Please see slides 20 and 21.
And as a three year Rolling capital plan that is executed by our capital projects and operations team.
This capital investment maintains and improves the efficiency marketability and management of comes portfolio.
<unk> capital investment each year as shown on slide 21 speaks to comes a willingness to invest and revenue enhancing and expense saving initiatives that deliver excellent returns on investment keep our tenants pleased to call killam portfolio of their home.
It comes and $5 9 million energy plan for 2021 is important as we continue to focus on lowering tons utility and heating costs decreased consumption.
And pursue killam smaller carbon footprint and 2021 energy plan sorry. The 2021 energy plan consists of 94 projects from our solar panel installs to boiler upgrades that should provide <unk> with an estimated $900000 and annual operating savings and a six five year average payback.
With traditional energy efficiency projects, such as led lighting retrofits and installation of local low flow water devices nearing completion across films portfolio. We are now investing and buildings and building data analytics.
As noted on slide 22 kilns analyzing its energy data and using technology to inform how we operate our portfolio from smart metering to understanding and shaving peak electrical demand consumption, we are collecting and analyzing data with our business intelligence platform to make better decisions.
We had mentioned on Q on our Q3 call in November of our growth ESG rating participation.
We now have our results and we are very pleased to say that we have improved our initial 2019 submission by 32% or 15 points. This provides kill them with a two star designation for its 2020 submission along with a green star rating for achieving more than 50% on both performance and and our approach to managing our goals.
And as well kill and JV rating.
For the public disclosure growth sorry.
Are they performing its Chris grasp peers.
And that earned a global scoring average of fee.
We are committed to enhancing and accelerating our comprehensive ESG program and recently said quantitative targets on lower our greenhouse gas emissions as well as increase our use of renewable energy and <unk>.
Adjustments to these targets will occur with more information and time as we wish to align ourselves with the Paris climate accord and the coming years to ideally and ultimately achieve carbon neutrality I will now hand, you back to Philip to provide and update on our development and acquisition pipelines.
Thank you Robert.
On slide 20.
'twenty three summarizes killam acquisition activity for the year.
56% of the capital deployed in 2020 was and British Columbia and Ontario.
During Q4 Killam closed two acquisitions located and mountain that were announced with our Q3 2020 results in November we purchased 171 and 181 Leopold a new 107 unit wood frame property as shown on slide 24 for $17 6 million.
This property is 97% occupied with an average rent of $1 20 per square foot.
Slide 25 shows horizon and place a new seven story 162 unit property that we closed on a on November 13th 2020.
Killam has started 2021 with $71 million and acquisitions.
Slide 26 shows the 233 unit Nolan Hill development and northwest Calgary.
Kill and purchased the remaining 90% interest on January 21 for $49 5 million.
Along with <unk> original 10% interest the total cost was $54 3 million and we recorded a $1 $7 million fair value gain upon purchase.
Killam secured financing through CMA six rental construction financing initiatives.
This national housing strategy program that is delivered through CMA Sea supports rental housing projects to ink to encourage affordable new supply for middle class families across Canada.
We are offering 78 units.
At 70% of market rents.
As Rob already mentioned this aligns with our approach to help alleviate the need for affordable housing and the country.
Three building property opened in January and leasing and lease up is progressing nicely as noted on slide 28.
On February the first we purchased 23 unit building located and Moncton for $5 6 million.
As for story concrete building shown on slide 29 has a mix of one and two bedroom units that are 100% occupied and bunk and strong rental market and.
And on average a $1 43 per square foot.
And as well it is well located and the downtown core and easily absorbed into our operating platform.
With regards to development and construction activity progress nicely in 2020.
Slides 30, slide 30 shows a rendering of the six projects that are currently underway.
We will add 535 units and $240 million of high quality, new product to our portfolio over the next 18 months.
Our 78 units Shorefront development on Slide 32 received its occupancy permit on October one and tenants started to move in during Q4 2020.
Leasing activity has increased since the beginning of the year and we are currently 55% lease which we are pleased with given the backdrop of COVID-19, and its and the restrictions we're living with.
The Harley which is 24% pre leased is expected to receive its occupancy permit by February 22021, and we will be welcoming residence on March 1st.
<unk> photos are shown on slides 33 and 34.
For progress on the latitude. Please turn to slides 35, and 36, the concrete structures complete with both from a scenario internal wall framing done up to the 20th floor.
Because of the number of COVID-19 related slowdowns during the year. We now expect the project to be two to three months delay with a completion date and Q1 2022.
The K and Mississauga is progressing along.
As planned and should be completed by year and details of this development and are on slides 37 and progress shots on slide 38.
Our 169 unit development known as <unk> 66, and Kitchener started in late 2020.
We have almost completed the geo thermal for drilling and footings are starting this week.
The completion date is late 2022.
As well we have broken ground on the Governor of 12 unit luxury project in downtown and Halifax debt is adjacent and Alexander and the brewery market.
Slide 42 breaks down killam future development opportunities totaling approximately 3100 units that are in various stages of development from pre development.
This pipeline gives us great value creation for the for Killen and the coming years.
To conclude we are proud of the performance in 2020 and confident that we will continue to execute on our priorities and create value for all our unit holders during 2021. Thank.
Thank you.
I will now open up the call for questions.
Thank you Sir.
Ladies and gentlemen, if you do have a question at this time. Please press star followed by one on you touched on something you will then hear a three ton prompts acknowledging your request and sewage should you wish to withdraw your question simply press Star followed by two and we do ask that if you are using a speaker phone. Please lift the handset before pressing and Nicky.
Please go ahead and press Star one now if you have any questions.
And your first question will be from Jonathan culture at TD. Please go ahead.
Could you on mute your line Jonathan.
Sorry about that good morning.
First question good morning, Don.
Just just on your acquisition target for 2021 at a $100 million does that does that include Bohlen Bill given that we've known about that one for a while.
No it doesn't debt.
<unk>.
No and hill.
And hopefully we'll be able to exceed it but for now it's a one.
Million.
Yes.
Okay, and you've already done 70 of them right.
Yes.
Okay, and then and on and on.
Nolan Hill, 31% leased how many of those leased units or the affordable ones and could you maybe give a little color on how that program works.
I'm, assuming it's not just anybody can.
And get the affordable units.
You are correct on that so to date the majority of the leases had been at market.
And we are still finalizing the details with a couple of charities that we will.
And that they will be helping us.
Provide.
Tenants.
That would be qualifying underneath the program in terms of their income.
Okay and.
Is that program.
Something that you'd look at using for for some of your other development projects.
There is actually one that we're thinking of in New Brunswick, right now and mountain.
The other ones and Ontario, we haven't.
Currently the answer would be no to that.
Yes.
Okay and then just.
Lastly, and then.
And I'll turn it back but just on the guidance.
Like the property property tax was a pretty good jump in 'twenty and 'twenty, what's your outlook for for increases in 'twenty and 'twenty one.
And that's the big question so.
We would expect.
It may look similar to what we've seen and this past year, we'll be working hard to appeal.
And those when theyre not reasonable but.
And based on what we the information we have today, we're kind of <unk>.
Looking at a similar type increase for that.
Here, but hopefully comes in lower.
Okay. So your 2% plus same property NOI and sort of assuming Florida for 5% increase and property tax.
Yes.
Okay. Thanks, I'll turn it back.
Okay.
Thank you next question will be from Matt Logan at RBC capital markets. Please go ahead.
Thank you and good morning.
Good morning.
It's great to see the sustainability metrics as part of kill them strategic targets can you talk a little bit about what the expected ROI is on your renewable power initiatives.
And what type of investment it would take to achieve your 10% renewable renewable power targets.
The first <unk>.
Answer to your first question is we are looking at a target of 10% return.
On the existing solar panel installs that we currently have underway.
And roughly that totals about $2 $85 million. It's the 809 hundred kilowatts of power that we'll be able to produce.
And so we're looking at roughly about $200000.
Energy producer of electricity produced so that is very attractive and a lot and a lot of that is and <unk>, where we have the highest.
Right and so about 20 cents per kilowatt so.
And so it makes it pretty.
Easy to.
Prove those and then.
What's left is actually just getting it done and getting it sold and then hooked up to the grid.
The second part of your question was.
Yes, so net of Nancy.
Our longer term target right now is 10%, 15% reduction and greenhouse gas and we know that along we're not the only ones motivated davita and to reduce our greenhouse GAAP along with all of our utility providers. So we feel very conservative about being able to target that with our current approach you on LNG projects and <unk>.
Scoping and all of our buildings across the provinces to figure out.
And where is the best payback is and how we can go about becoming more renewable so both those golf more renewable as well as reducing greenhouse gas seemed fairly attainable and the way. We currently invest our capital initiatives and of course, continuing that to date.
Deeper and see if we can become a little bit more aggressive with our accounts in the coming years as everybody looks towards becoming reducing that havent footprint. I think we've also stated that.
These this current round of solar panel installs and Halifax and <unk>.
Charles town would represent about 14% of our.
Electricity consumption and bill for Halifax, and Pgi.
That's great color.
In terms of your grades B rating.
Can you talk a little bit about what drove the improvement and your 2020 results and what it would take to maybe move that up a notch next year.
And for sure so for us.
19, with our first initial submission. So there is a lot of disclosure things that had to happen between the initial year a lot of the stuff we had already been doing but just not having the.
Some of the formal structure in place.
And on the management side of that having the right procedures in place we've come a long way and making sure that it's formalized and as well as really measuring and managing our energy and water weight and why.
And water and.
And tracking that that's a big part and then to keep moving on is about for US it's about building certifications.
And the residential space that has not been as big as it has been and the commercial space. So for us they will be to continue to monitor and reduce our like for like greenhouse gas and increase our building certifications.
Excellent.
And maybe just changing gears to your renewal spreads can you tell us what the metrics were in Q4, excluding the sweet renovations.
Sorry, Matt can you say that again, please the renewal spreads on sweet turnover and Q4, excluding the renewals and excluding the suite renovation.
And just like the normal for you on sweeter.
057 percent for him.
On the for.
And that positions yet.
Yes.
And I guess, when we think about market rents and <unk>.
And to Canada.
Would it be fair to say they have been generally stable over the past few months and perhaps even moving a little bit higher.
Yes, we've been yes.
Yes.
We've seen that spread stay pretty consistent and we've been able to put those increases through so I'd say stable to increasing.
Well I appreciate all the color that's all for me I'll turn the call back. Thank you.
Great. Thanks.
Yes.
Thank you your.
Your next question will be from Brad Sturges from Raymond James. Please go ahead.
Hi, good morning.
Hi, Brad.
Maybe just starting with the guidance discussion and just two.
To talk a little bit more about your expectations for occupancy for over the course of the year.
When you are baking and that sort of over 2% same property NOI growth. What are you assuming in terms of the occupancy trend I guess first half of the year and in.
And to the back half of 2021.
So I think overall.
We think that we have some some improvement to make and occupancy overall for the year you would have seen that we've got some markets that have carried more vacancy than historically this past year with St. John's Prime example, and we're seeing that turnaround nicely with them and increased focus and some initiatives there same with <unk>.
Alberta assets.
And now we're looking at the marketing program to make sure where we're making some headway there and we've got lots of markets that are remaining very stable and you look at the Maritimes, and and Ontario, as well across most of our portfolio and Victoria.
The markets are looking strong. So we think we have an opportunity to make a little bit of and improvement in term of our occupancy year on year.
And.
The first six weeks.
That's right so the trends are moving and the right direction.
That's helpful and.
No and he'll just to go back to that what would be your timeline right now to reach occupancy stabilization and does that differ between the two types of units.
We were.
Planning that it would take roughly a year to lease up based on the sort of the overall conditions of zelle.
And the Alberta, and we're pleasantly surprised the strength of.
The leasing activity coming knowing that it's only been roughly about six weeks. So we're hoping that.
Up by roughly the beginning of the fall that will be close to almost.
Up to a 90 and 95% occupancy and that property.
Great and maybe just lastly, just to go back to the questions on acquisitions.
Is it fair to say you're within that minimum for it is that just assuming.
Predominantly more tuck in acquisitions within a link and then and Youre not assuming at this stage more material acquisition activity outside of Atlantic, Canada, or how should we think about.
That target.
I think it will.
Have to sort of again take a ticket just sort of an overview that we are still in a lockdown and COVID-19 is still with us and so the activity that we had last year was a result of really the work that we've put in the year before so we actually had visit those properties and the time it takes the leg to put them under contract to do that.
Due diligence and close they tended to fall into.
First quarter of last year, especially the assets out west and.
So with this restriction.
Almost coming up to a year that and Atlantic Canada.
Most of US at this table right here I have not travelled once and the year coming up to it. So our expectation is is that.
And maybe by third quarter, we will be able to travel freely throughout Canada, and when we do that it's going to open up more opportunities for stuff that we're looking at just by the packages that come to a desk or talking to brokers. So really what that is trying to say is that for.
For the next.
And four months five months until everybody gets there.
Vaccine shot.
We're going to be a little bit sort of handicap getting out there and looking at <unk>.
Properties.
Okay. That's quite helpful. Thanks for taking on I'll turn it back.
Thank you next question will be from Mike Martinez and these all day. Please go ahead.
Okay.
Great.
Just looking back at your slide 16, and your your in place versus market rent spreads for Halifax for good.
Thanks.
If we hadn't moved forward with a cap on alright, and temporary accomplish and say on the renewal side and on Elba.
Disclosure this year.
And should I take the slides you say that you guys and to be able to.
Of course your cash.
Yes, generally speaking up to that mark to market opportunity on renewal as well.
Yes.
Is that correct.
When we look at that that's a balance that looks at repositioning as well I think that when you look at 2019 on.
On on regular turns and Halifax, we were up 7% last year on regular turn and the Halifax market.
And then repositioning.
We added.
And we were up over 20%. So you look at that balance I mean, I think that.
Looking at that together not unreasonable I think 10% all day.
And.
Okay, So and that does factor in the capital on that yet.
It does and the way that that's measuring it it's capturing the actual lease per square foot of everything we leased and that month. So some of those have repositioned units some of them don't so it's not all repositioned. It is a it's a balanced metric so.
Yeah.
It's an indicator I don't think we would say for sure exactly that exact number but it is kind of looking at that trend over time.
And so I think that.
There's lots of upside and we've been able to achieve that in 2020, and we expect to be able to continue to do so in 2021.
And turn.
Okay, Okay and.
I guess to stay and ultimately if you didn't see any change in market rates I don't know it depends on what.
We're walking versus and you replace and all that kind of stuff but.
If you were doing sort of about 7% on new leases would you be prepared to push on renewals that hardware and it's something we're renewing tenants and just try and maybe not take everything all at once.
Well on renewals I mean, we've got are you, saying once the cap comes off yeah, I would just like to theoretically if the Capex is there I'm just trying to get a sense of where you've been overall for 400 wives.
And kind of 15% is the mark to market opportunity.
For clothes, which I totally acceptance from quest.
And then just well I think historically most of the markets.
Most of our growth is going to be coming from the turn that 2% is really when we look at our whole portfolio overall, 2% pretty close to what we've been doing overall, so I'd say, it's going to be a balance but that number is.
And.
Mike it's going to take this year and a bit of next year in terms of the economy recovering 100%. So.
Not lost on us that the people that are living and our buildings I mean that theres not going to be a lot of big rents pushed through at this time and not that there ever has been with the 20 years of the history of Killam.
Right. Okay, No that's fair comment thank you Kurt.
Just with respect to non Hill got your comments on the lease up and just confirm.
Answer is no but is there and NOI bridge on that property.
Except for slight drag I guess.
On acquisition, but.
For the NOI bridge.
Is there a income guarantee and close.
And income.
No no.
That's it for me, thanks, and congrats on a strong strong quarter on stronger.
Thank you next question will be from Mccormack and National Bank. Please go ahead.
Hi, guys good morning.
Just a quick follow up on on that line of questioning with regards to rent spreads.
Kind of held your your renewal spreads at around 2% it sounds like it's.
Essentially a self imposed rent control to some extent there.
But what would your sense be in terms of market rent growth and your markets at this point, presumably given.
Wider turnover spreads and market rents are increasing at greater than 2%.
And your thought on that spread.
Are you sort of ask when you say markets. I mean are you talking like Ontario, I mean, theres a theres a real.
I mean, the bulk of your portfolio I guess is Nova Scotia, and New Brunswick.
Rents, they're growing and obviously more than inflation, but three 4%, Ontario, we've seen significant rent growth for a period of time and the market relative to rent control levels on.
And I'm wondering.
Have you seen an acceleration and market rent growth and Atlantic Canada.
Yes.
And so you're not index.
But I would say continued to what we've been seeing and the last modest growth.
And it really now that we're measuring and this with all the leasing.
Tense on seasonality a bit too.
But I would say.
More of what we've seen over the last few years. So I don't think a huge acceleration, but I think continued modest growth.
Okay and.
With regards to your renovation program it sounds like Youre planning on expanding on that so clearly youre seeing demand for for the renovated product interested and your thoughts there is that 550 <unk>.
Suites.
Do you think you could do more than that or is that kind of the annual.
GAAP at which you'd like to operate it.
It's our projection for 'twenty, one we'd like to do more than that we probably would but there are some limitations.
And I think coming out of 2020, there were issues with delivery of suite.
Fixtures and appliances. So thats, we think theres a chance that that will also be an issue for us going through 2021, so $5 $50 and working number but if we find ourselves with the opportunity, we certainly would do more and.
And I guess in terms of the market.
So opportunity if you could do the full amount and I understand that that's not.
Possible given turnover et cetera.
But is there demand essentially for the full I think it's a couple.
A couple of thousand plus units today or is the market and not there yet and this is a reasonable figure and that context.
Market is not the limit the demand is there and if we can deliver more we could do more okay fair enough.
Dale with regards to the Opex and the Covid related costs on on.
Employment can.
Can you give a sense as to what the dollar figure is there and should we expect that 2021 there'll be similar type <unk>.
And benefits to your employees given the Covid still here at least for the first half of the year, but who knows about the second half.
So I think when we look at dollar with what we increase it's probably around seven to 800000 for the year and increased cost. So when we look at that total component some of that will carry forward because we.
And we're keeping part of that increase throughout the year, So certainly at the height and.
April May June July and that number was higher but we've kept some of that increase throughout and we will continue to do so so thanks for that.
Part of that continues but not to the full extent.
Okay Fair enough and then and then.
Our results results for Covid there'd be other costs that are impacting our results for 2020 with Seacrest for.
For our commercial tenants and for our blood drop and seasonal because of demand. So when we kind of look at all of those are some other components that.
When we get through this pandemic that.
That should those should come back.
And I think the discussion here on the Mic's ideas and we're optimistic because for protocols were in place in 2020 that we could open eventually but I think they are in place now we can open hopefully, Ontario will be the biggest place where we can start and may and have people.
10.
Two there MHC side. So we're optimistic that we can we will have a good year, there and I'll come on earlier and.
And then I think the state of emergency and the various provinces is going to be one of the triggers and one that's listed with the inoculations going forward that would also.
And we take a look at the compensation for our staff and adjust accordingly.
And looking at your residential portfolio I mean, if you look at Q4 'twenty versus Q4 and 19.
Renewal and turnover spreads were essentially the same.
So is the issue the GAAP on the residential portfolio would it be students and select markets in terms of occupancy at this point because it seems like functionally there's been almost no impact on on operations outside of a little bit of occupancy dip.
We believe that you are correct. It is primarily <unk>.
Okay fair enough.
And that hopefully, we'll see Paul hopefully.
Yes.
And we're optimistic I think most universities are staying and saying that theyre going to be open for <unk> class and person in person classes, so that would be excellent.
And when would those are international students typically do they like.
Do you think the lease in the spring or would they wait until.
Just to lease.
And I think the ones that are organized for we'll call us probably in May and May June and the ones that are organized and it's not unusual to have some show up and go and we're looking for a place and.
And it works.
And we'll find a way to come and will accommodate them sounds good thanks guys.
Thank you.
Next question will be from John Chen at BMO capital markets. Please go ahead.
Hey, good morning, maybe.
And maybe just a follow on on.
Hey, guys, maybe just a follow up on on the rent growth up to hammer it too much but you guys, obviously encouraging to see.
'twenty 'twenty one guidance.
And probably I like growth and.
The GAAP that still between in place and market rents.
And held back but maybe if you could just provide some color on.
The recent CNBC report they did note that the occupied units.
And at higher average rents compare to the banking units and most rentals loans access for US and then Phil It's Alex and North.
Could you maybe comment on what.
And that's what they're seeing and is it just a different type of asset.
So when you look at peninsula.
One thing Thats, where were seeing that student right, that's where the universities are when you look at our when we breakout our Halifax, where we're seeing an increase and vacancy. It is on peninsula. It's buildings that for years did not have a vacant unit because they were so close to the university and we've carried vacancy throughout this year.
No.
That day and the newer ones that are built on the peninsula of the rents are higher and the units are smaller and we now with Covid debt. There is people moving out to some of the larger units. So I think there's two factors that are.
Causing that and I'd say, we're seeing some of that and our portfolio when we look outside of peninsula.
Our Dartmouth assets, and Clayton Park, where we're pushing 99% $98 $5, 99% occupancy. So we have a lot of buildings that are fall.
Yes.
And the numbers are still high relative.
And really quite still high on peninsula, compared to where we were off a bit so I think that that's it.
It is a factor.
Proximity to the office and to the universities.
The story there.
Okay got it.
And maybe on just on guidance you didn't mentioned and in turn.
The unit turns.
You guys remain above the average what do you think the trend is for them and.
And when do you think it's going to remain steady.
Steady from what you saw on 2020 or you expect it to pick up.
We think and will remain steady.
We saw on 2020.
And then maybe just one last one for me with respect to the acquisition.
And in terms of from the things that you're looking at now would you still say that there's a cap rates or kind of similar to year to date.
Some of the recent transactions you've done or do you think that day.
Likelihood for credit compression.
Yeah.
I would say that there is still huge demand for all the product right across the country and if anything there is still pressure downwards on cap rates and thats kind of here and Atlantic Canada, It's here and it's.
Absolutely and Ontario, and the west.
Okay.
Okay I will tell you back there thanks guys.
Thank you.
Thank you.
Next question will be from Howard Leung, that's very tough investment. Please go ahead.
Good morning, Thank you.
I just wanted to ask about the suite and repositioned and follow up on on that.
You've expanded the program.
It.
And successful.
I guess given the.
Some of the Occupancies and rents have diverged maybe across the country.
Is that is Nova Scotia.
Should we still see the majority of those renovations being complete and Nova Scotia off because that's where your major opportunities that is or should we see some of that.
Some of that shifts and that mix.
And that.
No.
Actually it's very interesting question, because what we see is throughout the portfolio and.
And virtually every building has the ability when a unit comes vacant there is enough demand for and upgraded unit.
And its coast to coast.
Okay great.
And so we'll see so most of it will still be in Nova Scotia and then.
I mean, just for this year.
We're not saying that.
It's spread out evenly across the country.
And it is across the country.
Okay. Okay. So it's more about availability of.
When when the tenant moves out or when it's time to either be heading and what kind of weighted average of where our unit count is and yes and spread it out that way it really is being kind.
And kind of based on where the units are.
Opportunities for every market.
That's the interesting thing every building has the ability to earn more rent with a renovated unit.
And that's that's universe, and I'd say looking forward and maybe a little bit more heavily outside of Halifax, only because Halifax, and where are we kind of started with the repositioning as this past year and a half we've been rolling out and New Brunswick and other markets. We've got those.
Relationships contracts processes more underway there. So when we look at that growth from this year to next a lot of that will be outside of the health market.
Okay. That's.
That's great color. Thanks, Thanks for that.
And then just on the guidance.
I guess, there were some comments and the MD&A.
For the guidance that maybe occupancy might see a slight dip continued in 2021, but then I guess, maybe when you're thinking about the back half.
And this year.
All goes well hopefully that.
And ill come back and is that should we expect maybe I'll continue to be flat overall.
No.
I think that we think that with with improvements and the second half of the year and especially I mean this is a question on these international students timing for coming back and universities opening up should all of that stuff come together I think we have the opportunity to have some improvement and occupancy year over year, but.
Covid.
We'll see what happens on those restrictions one of the interesting realities with the universities is that summer.
Stating that they've had increase enrollment for the winter term and.
And the expectation and use that this should be increased demand for.
The semester in the fall so it'll be it'll be good for the marketplace generally.
Right right and I guess, we're still hearing to see if the schools are going to open up their classes for the fall I guess, they haven't made that decision yet.
Hello, and Atlantic, Canada, I think the trend is theyre planning for it and we'll see.
Based on what we're seeing currently.
And unless unless something goes wrong with the vaccination and and the rollout and the <unk>.
Plan definitely has to be open for you.
And in person classes and the fall semester of this year.
Yes, and that'd be that'd be good news for for all of Us.
And you're able to yes.
Thank you for a lot of businesses.
Yes for sure.
Thanks, so much for the.
For the answers and I'll pass on line.
Thank you. Thank you great. Thanks next will be yes, thank Paul and Laurentian Bank. Please go ahead.
Good morning.
Good morning, Ryan.
Just wanted to take.
And you can look at you on slide number 31.
On those numbers those figures shown are those the total costs are.
Are you planning to spend that money I don't think so but just wanted to come from.
Yes, they would be total cost.
Okay. So how much would you spend this year and.
Next year on your development budgets and how much of that would be through your construction loans and.
The restaurant.
Alright, I guess, almost and only through construction loans when we look at all of our construction.
The majority because the equities and the ground or for almost all of our projects now so from a cash flow perspective, most of that cash almost all for 2021 is coming from construction facilities well. If you go down for the list latitude is on construction financing now that the equity is and then.
And the project.
Civic 66 has a little bit more cash, but firstly we're on.
Most of their alumina all the money is in and the governor.
The budget is owning and another $2 million to $3 million.
Okay, that's good and what.
And your outlook this year.
Okay.
For development projects and.
Including the construction financing.
And so without sorry, youre looking for the net cash outflow.
Net backs and financing or ladies and.
And selection.
Net of construction financing it's minimal.
Right.
And clients.
So without knowing including including construction financing and how much will we invest this year and our new development.
So probably.
Okay.
30.
$20 million to $30 million.
And that range yet for <unk>.
$20 million to $30 million.
Okay.
Alright.
And.
MFC portfolio I was I was.
Apprised.
See the strength.
Is that anything any are you seeing any specific trend that is happening there are people, preferring MSC is on apartments.
And any color on it well.
And I think the cash.
Color as.
As we see it and.
Again overall the.
Year round parks did very well in 'twenty and 'twenty.
Talk.
On number of times around why the seasonal parks.
Had a sub per year and a lot of that has to do with the fact that we couldnt open them up and there was restrictions from the.
And the borders of tourists coming in from Quebec, and Ontario.
What we see is actually a fairly strong demand.
And for increase sort of occupancy and a number of the parks, whether there and Ontario or Atlantic Canada to the point, where for many years, we used to have some years up to 30 to almost 50 home sales per year and that is sort of trickled down to just a handful and the last couple.
And we have already.
Preorder 10 homes for Nova Scotia, and that's all we could get.
<unk> for <unk>.
The demand for that type of product is now basically a year to year and a half weight and we're looking to see if we can get.
Our commitment for the product and Ontario, which is quite hard so we see a huge increase and demand for that product and.
And we do have expansion.
And potential and a couple of our parks and Ontario that we're looking at and.
Looking to put place new homes, and a couple of them as well. So I think it's going to be a pretty interesting year for that side of our business.
Do you think it's a reflection of what is happening and the.
Overall housing market.
The way home price.
Yes, I think it's a combination of that its a combination of.
Being in the.
The COVID-19 environment for over a year.
A lot of these.
Sort of opportunities or communities are becoming more attractive for a whole segment of the population.
And I mean, if you can retire and and.
And have a nice.
Home to live in and list of well, which is just sort of north of Kitchener, Waterloo and Thats, just a fairly attractive these days.
Okay, that's good and yes, I wanted to share.
Alright.
Yes.
I was a bit light on my estimate of cash on the development. This year because it's net of the gains construction financing when we're looking at our net cash outflow real estate a bit differently and so it's probably a $60 million plus.
Theres, a lot and handling for construction.
Yes, no and that's a bit light there. So when we look at the investments we're going to be putting in on those project. It is we've got a lot happening this year.
Okay.
And.
The incentives that you're offering.
Wanted to understand what is happening and the overall market.
What your competitors do.
Are you seeing.
And I heard some and op.
People are telling me that one to two months.
And then it's being offered and you're seeing that kind of growth.
<unk>.
And so does the and golfer.
And very specific market places not generally across the board and I would say on average for any markets, where we do have and it would only be kind of a one one months.
I think downtown and Alberta is where we're seeing and amongst aggressive Atlanta that'd be it.
Right sequentially I saw you on a category the occupancy was down 150 bps I think.
Certainly.
Are you still I think.
It's looking better actually in the last six weeks is another it's another market that's showing better.
No.
Yes.
We're hopeful it's firming up our downtown Alberta assets.
And that's where we're seeing that and it's not the suburban and that's.
For downtown assets.
And is it a reflection of our goods to incentives being offered on <unk>.
Low demand that is driving that.
I think it's demand that's that that's causing that so that's one market, where we're looking closely at the incentive offerings and we have increased our incentive offerings and the for those downtown assets to be able to compete with what's going on there and the market.
That's it from me thank you.
Thank you.
And at this time, we have no further questions. Please proceed.
Yes.
Well that concludes our conference call for the fourth quarter and year end for 2020, we thank everybody for participating today and we look forward to.
Q1 results and early May.
Thank you.
Thank you, Sir ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.
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