Q4 2020 Minto Apartment Real Estate Investment Trust Earnings Call
Good morning, My name is on this and I'll be your conference operator today at this time I would like to welcome everyone to the Minto Bachmann REIT Q4, two in each one financial results conference call.
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Any such information is subject to risks uncertainties and assumptions that could cause actual results to differ materially.
Please refer to the cautionary statements on forward looking for emission in the REIT use release and MD&A dated March 11, 2021 for more information.
The call management will also refer a surgeon on I have for S financial measures. Although the REIT believes these measures provide useful supplemental information about its financial performance they.
They are not recognized measures and do not have standardized meanings under ifr ex <unk>.
We see the REIT M D. A day for additional information regarding not I F or S financial measures, including reconciliations to the nearest <unk> measures.
Mr Waters, you may begin your conference.
Yeah.
Thank you Anna and good morning, everyone on Michael Waters', Chief Executive Officer of Minto apartment REIT, Julie Moran, our Chief Financial Officer is also with me this morning.
I'll begin the call with a summary of key highlights from the fourth quarter and the full year, Julie will review, our financial and operating results in detail and then I'll discuss our business outlook. After that we'll be pleased to answer any questions.
Let's begin on slide three.
As the pandemic evolved soda trends for rental housing demands and we saw that firsthand in Q4.
When we had on seasonably higher move outs with more than 521 tenants on getting their leases.
With targeted marketing incentives and promotions, we signed more than 400, new leases, which was up 35 per cent increase over Q4, 2019, which allowed us to maintain occupancy at 95, 6%, which was a significant accomplishment in the middle on both the winter season and a pandemic.
The knock on effects of the Covid pandemic have produced an unprecedented impact on demand for urban apartment rentals.
The customary benefits of urban living short commutes easy access to entertainment and restaurants et cetera have been placed on a temporary halt we believe that Covid. However is an event, which is temporary in nature and that as the vaccination programs rollout stay at home in lockdown restrictions lift immigration resumes and on cash.
Construction of post secondary institutions restarts in the fall term.
The demand for urban apartment rentals will return.
And given this belief we decided that in the current market conditions. It was in the REIT best interest when setting lease rates.
To strike, an appropriate balance between occupancy and protecting rate, which will put the REIT in a better position when market demand picks up.
The result was that we experienced a slight decline in occupancy in the quarter, while still generating a positive gain to lease well.
The 2.1% gain was lower than in prior quarters, we had rent growth in every market except Alberta.
We could've sacrifice more on rental rate to maximize occupancy in the short term, but strategically protecting average monthly rent growth preserves net asset value.
And is it in the REIT long term best interest the resulting decrease in occupancy did result in a modest reduction in same property NOI, excluding furnished suites.
Adjusted the pricing on our furnished suite portfolio of that.
As we've described in previous calls has been disproportionately affected by COVID-19, as a result, we're driving sequentially higher occupancy and average monthly rent in these furnished suites.
I want to reiterate that we expect a strong recovery in the second half of 2021 as vaccinations increase immigration volumes recover postsecondary students return to in person learning.
And people began returning to their workplaces and life starts returning to normalcy, we fully expect to generate increased occupancy with solid rental income growth and improved demand for furnished suites. Later this year, we'll talk about that more later in the call.
As Julie will describe in more detail shortly we generated growth of three 6% and total revenue on one eight per cent growth in NOI in the fourth quarter.
We're also active in our portfolio repositioning program leasing 56 renovated suites at rates comparable to or favorable to underwriting. This program improves asset quality reduces future repair costs and drive strong growth in rental revenue.
In Q4, we also advanced an investment loan for a new development in the greater Vancouver area and their bar, thereby fulfilled the REIT strategic mandate of establishing a presence in all six of Canada's major urban markets.
Turning to slide four we set out a few highlights for the year as a whole.
Before describing financial and operating our operational results I'd like to recognize and thank all the members of the REIT team, who demonstrated their commitment and dedication every day. Their work is critical for keeping our residents' homes healthy and safe.
In 2020, the quality of our portfolio was highlighted by a two 2% increase on a F F O per unit.
Weathering the impact of Covid through the year.
On the strength of our earnings the REIT increased its annualized cash distribution by three 4%, while maintaining a conservative payout ratio of 62, 5%.
We completed the repositioning of 239 suites on the REIT net asset value per unit increased.
Eight 3% from 2019.
Recognizing that financial flexibility continues to be important in the pandemic economy, we've maintained strong liquidity.
Totaling $171 million at year end.
Representing a liquidity ratio defined as total liquidity to total debt of 20%.
And on December 9th we provided for potential increase liquidity by filing a base shelf.
Short form prospectus that qualifies the issuance of up to $800 million of trust units debt securities and subscription receipts. The prospectus is valid for 25 months.
Turning to slide five we set out a chart that shows the growth in the REIT net asset value per unit since our IPO in Q3 2018 as I'd indicated the REIT net asset value increased eight 3% during 2020, ending the year at $22.26 per unit.
We're committed to creating value for unit holders through NAV growth and steady increases in sustainable distributions I'll now invite Julie to discuss our fourth quarter financial and operating performance in greater detail Julie.
Thank you Michael.
Turning to slide six I'll start with an overview of the operating results.
On this slide we have broken out performance of the same property portfolio, both with and without furnished suites as well as the total portfolio.
As we have previously discussed the furnish sweep portfolio has been impacted severely in the short term by travel restrictions related to the pandemic I'll speak more about how we are addressing this issue in a few minutes.
We reported same property portfolio revenue, which excludes the impact of acquisitions of $23 million, excluding furnished suites in the fourth quarter and $22 $2 million, including furnished suites those numbers represent decreases of one 6% and for 0.1% respectively.
<unk> from the comparable results in Q4 last year.
The lower same property revenue, excluding furnished suites reflects lower occupancy as well as targeted incentives and leasing promotions.
As Michael discussed, we made the strategic decision to balance occupancy and rental rate growth across their portfolio.
Total revenue in the quarter increased three six per cent year over year to $39 million from $29 $9 million in Q4 of last year.
This increase was mainly attributable to the contribution from the two property acquisitions completed subsequent to September 32019, comprising a total of 528 suites as well as higher rental rates, partially offset by decreased revenue from furnished suites and lower occupancy.
Same property NOI into for 'twenty, 'twenty was $12 $7 million, excluding furnished suites, and $13 $7 million, including them.
Those figures represent decreases of one three and five 9% respectively from Q4 a year ago.
The decrease excluding furnished suites reflects the lower same property revenue I, just mentioned driven by reduced occupancy.
Same property NOI margin for the unfinished portfolio was 62, 8% an increase of 20 basis points from 62, 6% in Q4 a year ago.
With the furnished suites included same property NOI margin was 61, 5% a decline of 110 basis points from 62, 6% in Q4 2019.
Three properties Minto, Yorkville 185, lying and $1 50, roehampton comprise most of the unfavorable variance of the REIT same property NOI. The vast majority of the REIT furnished suites are located in these three core urban properties, which have been hit hardest by COVID-19.
Related border closures and business Lockdowns.
The REIT same property NOI. Excluding these three properties increased one 4% in Q4 2020 compared to Q4 2019.
Total NOI in the fourth quarter increased 1.8 per cent to $18 $9 million from $18 $6 million last year, reflecting the contribution from the property acquisitions I referenced a moment ago, partially offset by lower revenue from furnished suites.
NOI margin was 61 three per cent a decline of 100 basis points compared to 62, 3% in Q4 of last year.
<unk> was $12 million in Q4, 2020, an increase of $2 four per cent from $11.7 million last year, primarily due to the higher NOI a.
<unk> also increased two 4% in Q4 2020 to $10 $5 million from $10 $2 million last year.
This result reflected the higher F F O, partially offset by a slight increase in maintenance capital expenditure reserve due to the REIT increased suite count.
<unk> per unit increased $17.07 compared to $17.04 in Q4 of last year.
We declared cash distributions in the fourth quarter of $11 38 per unit, resulting in an E. S. S. On payout ratio of 64, 2% cash distributions were 11 cents per unit in Q for last year, resulting in an a F F on payout ratio of 63, 3%.
As a reminder, we increased our cash distributions by $3 four per cent. During 2020, the increase took effect beginning with the August distributions.
As at December 30th 'twenty 'twenty, our same property portfolio consisted of 4550 for suites with an average monthly rent of $1523 per unfinished suite and an occupancy rate of $95 one per cent.
Average monthly rent increased by $43 or two 9% compared to $1480 at the end of Q4 last year.
The total portfolio, including acquisitions consisted of 7245 suites at December 31, 2020, with an average monthly rent of $1623 per unfinished suite and an occupancy rate of 95, 6%.
Average monthly rent increased by $44 or two eight per cent compared to $1579 at the end of Q4 2019.
Occupancy at the end of Q4 last year was <unk> 98 per cent.
On slide seven you will see our revenue analysis, we breakdown on gain to lease activity in Q4, 2020, and our estimate of the gain to lease potential lift for the portfolio.
Beginning with the Upper chart, we signed 406, new leases in the fourth quarter. Following suite turnover. This was an ex exceptionally high number for Q4, which is typically a slower period for leasing due to the colder weather and holidays.
However, the second and third quarters of 2020 were unusually slow due to the pandemic completing this volume of leasing during the slower winter season was a significant accomplishment.
As you can see the average rent on new leases increased by $2 one per cent to $1584 from $1551 on expiring leases gains.
Gains were realized in every market except Alberta.
The average gain of 2.1% was lower than prior quarters, the rethought to hold trade to the greatest extent possible to preserve future rental growth potential at the expense of higher vacancy and was able to generate positive gain to lease it for.
As a result of for new leases, the REIT generated an annualized incremental revenue gain of approximately $188000.
The lower chart shows the gain to lease potential that we estimate on our portfolio as of December 31st. We believe we can generate approximately $8 million of annualized incremental revenue growth by bringing rents and 6567 suites to market levels.
The embedded potential revenue opportunity declined from approximately $12 $7 million at September 30th 2020, and $16.2 million at yearend 2019.
However, as Michael said, we expect the total gain to lease potential will increase from the second half of 2021 as the pandemic effect dissipates and market demand gains momentum.
Turning to slide eight here.
Here, we have highlighted the long term positive trend in the revenue generated by our properties.
The Upper chart shows that our quarterly gains for Liza slowed this is partially due to the higher turnover in Q4 2020 as discussed earlier.
Or and other factors to the lower growth rate, what's the average lease term of the residents that moved out.
For 2020, the average lease term of residents moving out was approximately two years, which is a full year less than the average lease term of residents moving out in Q4 2019.
Residents with shorter lease terms have expiring lease rates that are closer to market rents. When we released the suites, there's a lower gain to lease then there would be for suites with longer lease terms that have bigger gaps between sitting rent and market rent.
Regardless, we continue to generate gains in Q4, 2020, and our average monthly rent continues to increase.
On the lower chart, we have broken out our rents and sweet sciences by geography demand for smaller suites, generally 500 square feet or lives has been hit hardest during the pandemic when people are spending so much time at home.
However, our portfolio is characterized by more space for suites with an average size of 846 square feet and demand for these apartments is comparatively stronger compared to smaller ones.
Turning to slide nine I want to talk about our strategy around partner suites. As we have previously discussed we are working to adjuster finished suite inventory in response to the decline in demand, resulting from temporary border closures reduced business travel and mandatory business closures at.
At the same time, we have also been working hard to goose furnished suite revenue by targeting different users and adjusting our pricing.
On the lower chart you can see that in Q4 2020 for furnished sweep occupancy and average monthly rent both improved sequentially on.
Although full economic recovery is still several quarters away the trends in our finished suite operations are turning more positive.
The REIT will be transitioning its 43 suites are furnished suites added throw Hampton property into repositioning program and we'll be releasing these units as unfinished suites upon completion.
Test suites for it to be completed in Q4 2020, but this was delayed as design work on these units took longer than expected.
Demolition and construction work has been tendered and the rate of completion of the work will depend on the ongoing level of government restrictions.
The REIT plans to deliver reposition suites to the market and the typically stronger Q2, Q3, 2021 leasing market.
Moving to slide 10, we have provided more details on our repositioning activities.
We renovated a total of 56 suites in Q4 2020 for 37 at the REIT proportionate ownership share. The average cost per renovation was just under $39000 per suite. The average annual rental increase following the repositioning was $3512 per suite.
Generating an average return on investment of 9%, which is in line with our target for repositioning.
Repositioning at Hayden Hall, and you've got 4300 in Montreal is progressing and pre leasing is underway for suites to be delivered during Q1 2021 subsequent to quarter end eight suites have been leased at rental rates that are at or above per forma rates.
In total we have 2323 suites remaining to be renovated through our repositioning program. We expect to renovate 250 to 300 suites. This year or 200 to $2 50, other Reits proportionate share subject to availability through turnover.
Progressive the repositioning program is also dependent on new or revised government restrictions related to COVID-19.
Turning to slide 11, I'd like to provide an update on our intensification and development initiatives, which are also an important source of organic growth for the REIT.
Construction of the fifth on Bank project in Auto was Clepe neighborhood is on schedule and we are pleased with the progress being made which you can see on the photo on the lower left.
The building will be topped off in April with stabilization expected in early 2022, we have an exclusive option to purchase the 160 suite property at 95 per cent of fair market value upon stabilization.
During two for 2020, we completed a contribution agreement with the city of Toronto under which the city that will contribute funds towards construction of 100, affordable rental suites, and a new 225 suite building it rich growth.
We are on the final stages of obtaining development approvals to permit construction and also on the process of obtaining rental construction financing from C. M. H C.
Subject to finalizing customary approvals construction of this project is expected to begin in Q2 2021.
I'd Love for New York Mills, we are working through the final stages of the site plan agreement with the city to had 192 residential rental suites construction is expected to begin in 2021.
And at High Park village, we have received a favorable ruling from the local planning appeal tribunal for the rezoning of the property to allow for the addition of approximately 650, new residential rental suites. We are on the process of satisfying the city's approval conditions.
Combined these projects could add more than 1200 suite to the REIT portfolio.
Turning to slide 12 in December we made the exciting announcement that we are entering the greater Vancouver market for an investment in a development with the option to purchase a stabilized building.
We are advancing up to $11 $9 million to a joint venture between Minto properties and Darwin properties to develop phase one of Lonsdale square, a large multiphase mixed use development in north Vancouver.
<unk> is comprised of 113 rental suites over six stories and approximately 7800 square feet of retail at grade.
The financing will bear interest at 7%, which will accrue and be payable in full on the maturity of the long.
On stabilization of the property, which is expected in 2023, the REIT will have the exclusive option to purchase it at 95% of its been a pretty fair market value.
We will also have the opportunity to participate in future phases of development at Lonsdale Square, which are currently expected to include an additional 700 suites.
You can see on slide 13 that the Lonsdale square development is in an excellent north Vancouver location. It is proximity to met Netease and the central Lonsdale or area as well as numerous outdoor lifestyle activities.
The location provides easy access to downtown Vancouver through the upper levels Highway or C bus. The walk score is 79.
Slide 14 shows the project's location relative to local urban and recreation amenities, including grouse mountain the Big Cedar Trail.
Directly across the street from Lonsdale Square the city of North Vancouver has announced plans to invest $180 million to construct a new phase of the Harry Jerome Tunisia Recreation Center, which will be a significant amenity for north Vancouver, and will be a strong driver of residential demand.
Turning to slide 15, we would like to provide an update on the reads ESG plan.
Sustainability and social responsibility have always been an important part of the Minto group's culture and this expense to the REIT as well in 2020, the REIT Board of Trustees approved a new ESG framework for the REIT and the implementation of that framework is underway.
In 2021, the REIT will align its reporting with Cri and SaaS B and will participate in grasp the Royal real estate, sorry, the global real estate sustainability benchmark.
Annual reporting against ESG targets will begin in the second half of 2020 one.
Finally, I would like to review our debt financing and liquidity on slide 16, as always we are committed to maintaining a conservative leverage ratio on in a balance maturity schedule as of December 31, 2020, the weighted average term to maturity on our fixed rate debt was 581 year.
<unk> with a weighted average interest rate of 294%.
Approximately 96 per cent of our debt is fixed rate and 77% is C. M H the insured.
Our total liquidity was $177 million at yearend and depth gross book value was 36% by comparison, we had total liquidity of $111 million at the end of 2019 with a debt to G. P V of 39, 3%.
I'll now turn it back over to Michael.
Thanks Julie.
And before we close off I'd like to move to slide 13, and just to review our outlook.
Looking past the pandemic the REIT focus on high quality multifamily housing and desirable urban locations is expected to lead to long term.
Performance.
Canada has now approved for Covid vaccines, and the rollout of vaccination programs is accelerating the benefits of urban living walking to work restaurants and entertainment have all been temporarily put on hold during the COVID-19 restrictions, but they remain highly desirable fundamentals supporting our core markets.
And the housing crisis in Canada's major urban centers, which was temporarily masked by the pandemic is expected to reassert itself.
The strong underlying fundamentals that have driven long term growth in our rental markets, including immigration and the cost of housing are still present.
Accordingly, as the pandemic subsides immigration picks up in post secondary institutions returned to on campus construction, we expect the benefits of urban living to be reestablished we're expecting a strong recovery in our core core urban rental markets in the second half of 2021.
And as this plays out we expect occupancy in EMR to respond accordingly, Minto apartment REIT has the right assets and strategy for long term success, we're actively capitalizing on our organic growth opportunities and creating value from suite repositioning we have strong liquidity position, which enables us to move quickly to take advantage of emerge.
<unk> acquisition opportunities.
As evidenced by the Lonsdale and fifth in bank investments, we're capitalizing on the relationship with the Minto group to cost effectively source growth and development opportunities.
And we're meeting our obligations to our communities and stakeholders by ensuring environmental social and governance criteria are part of our business strategy. We're confident in our ability to consistently create value for unit holders through growth in NAV and cash distributions.
That concludes our presentation. This morning, Julian I would now be pleased to answer any questions you may have.
Operator, please open the line for questions.
Thank you ladies and gentlemen, we now begin the question and answer session should you have any questions. Please press star followed by one on your Touchtone phone you'll layer three don't from Nicola is on your request on your questions will be built in the order you received.
Should you wish to decline from the polling process. Please press star followed by two if you're using a speaker phone. Please lift your handset for breath in any case.
One woman for your first question.
Your first question comes from Brendon Abrams with Canaccord Brendan. Please go ahead.
Hi, good morning.
Hey, Brandon.
Maybe just focusing on on the leasing front, where more than three quarters through Q1 already just wondering if you could comment on.
Where turnover on.
Occupancy in and incentive use are trending so far this quarter.
So I think what we're looking at in Q1 is probably a continuation of the trends that we saw in Q4.
Specifically I would say that move outs.
Probably trending higher year over year, probably on order.
What we saw on Q4.
I mean with that of course, we're seeing leases signed are higher but I think the net leasing activity is probably a negative in terms of move outs exceeding leases in Q1, now Q1 is seasonally a low demand quarter being winter in most of our markets very very cheap.
<unk> from a.
Yeah on leasing and moving perspective as.
As I say, we are generating strong leases. It's just the volume of move outs is outpacing leases signed as it did in Q4.
Right.
And I guess in your opening remarks, you seem to be more.
Optimistic in terms of the.
Recovery in the second half of 2021 and your view is this predicated more on the easing of border restrictions or a return to much stronger immigration levels or.
Or is it just a reopening of the economy it in vaccinations.
Getting to a certain level or.
Would you say one has more weight to the.
Then the other in terms of.
Rental demand.
Well I think as we talked about if we look at what happened to us in Q4 as being sort of emblematic.
The the the the the Q for SP on wide story was a revenue story and it was really a.
You know debt.
Three properties three urban per.
<unk> accounted for all of the revenue drop that we had in Q4 year over year. So.
You know what what we're looking for in the second half for the year is the acceleration of some of the good news stories that we've seen.
For vaccines now approved.
The rollout of the vaccination program accelerating what we're seeing now with federal government announcing deliveries.
Vaccines that you know in the last three or four weeks have have have moved up with the with the approval of the J&J vaccine and the change in the protocol about administering first dose second dose.
So I think it starts with vaccinations, Brendan and then from there it moves to some of the other drivers that reestablish the benefits of urban living so.
We think about for sure immigration.
Because we know new Canadians settle in major markets, and and maybe Theyre not a big component of our rent roll, but they certainly drive demand for rental housing.
Students postsecondary students certainly are a big driver.
Rental demand in urban settings, and we're already starting to see signs of major Canadian post secondary institutions announcing plans for at least some portion of their fall term to.
To be held in person or in a hybrid format.
Looking for with the vaccination rollout a return to workplaces for those.
Workers, who have been working remotely.
Our return at least in part two are working in their normal work place I think will also be a key factor and so we sort of think about the inflection point being kind of late Q2, when we're hoping to see a vaccine and vaccine rollouts hit some critical mass where.
Bye.
The broader public can begin to take confidence in some of these factors then begin to return to urban settings. You know, we we do see some green shoots in the in the condo market are very early but interesting to sort of look at that just that the volume of new urban con.
Dough product for leases beginning to pick up steam so.
I mean, that's that's kind of our outlook I guess, if you could say at risk factors to it.
One thing that we do watch is on that.
The proportion of Covid case load that is derived from variance variants, which are spread more quickly.
And and maybe relatively more resistant Q2 vaccines and so that's something that we're watching carefully at it. It obviously could slow things down for us a little bit worried to materialize in a meaningful way.
Okay. That's that's very helpful. And then last question before I turn it over.
You know yourself at the at the Minto Group you have the unique I guess perspective of also having the land development in homebuilding.
On the vision just wondering.
Obviously home sales activity has been very strong in the in the suburbs and you know whether some of that's driven by the pandemic and.
Desire for more space or the low interest rate environment, just wondering if there's any insights you've gained.
From from the Homebuilding Division that you know gives you insights in terms of the apartment portfolio.
Well as you pointed out I think the the low rise wood frame ground oriented product, whether it's it's resale or new home has been just white hot in in most Canadian markets. In fact, we're even seeing strength.
In the resale market in Calgary, and Edmonton, which which we haven't seen in a very long time.
I think that points to on affordability gap.
Often think about using a toronto context for GAAP and in affordability tween for one six and 905, and you know that GAAP waxes and wanes, but with.
The debt.
The strength in suburban markets and it has been really really strong I mean, what we've seen in some other markets like Ottawa has been unprecedented in terms of the strength in the the wood frame a low rise housing on the new home side and research.
<unk>.
Ottawa for example, up kind of roughly 20% year over year, which is not.
Not very unusual for Ottawa, but we're seeing similar strength in in the GTA in other major markets I think that means that that affordability gap.
When may begin to put pressure and may in fact push.
Canadians to re look at urban settings, whether it's to rent or to buy and as I mentioned I think we're starting to see the <unk>.
Very early green shoots in the urban condo market when I look at.
On condo.
Urban condo product releases.
In activity, we're starting to see.
Projects that had been mothballed coming onto market and we're starting to see I would say very strong reception on those in the end really developers had been on the sidelines for for many months are waiting to see when things would start to turn so I those are some of the things that.
You know I think we look at in the housing crisis that existed on February 28, 2020 is still there we still have the same restrictions on new supply coming online we have if anything higher pressured on construction prices. We've recently seen lumber and OSB hit all time record highs in pricing.
But it's it's really.
In many facets of the both the materials and and labor that would drive construction costs higher.
I think that you know are there.
A bunch of those factors Brendan that are are probably suggesting.
You know timing, maybe not completely clear, but certainly a resurgence.
On the urban side.
Right. Okay. That's helpful I'll turn it over thank you.
Brendan.
Thank you we have a follow on question from Liana Chin I E capital Liane. Please go ahead.
Hi, good morning.
Daily on my first question.
On my first question is actually two.
Fold and it's just regarding your last comment on.
Construction cost right. So in terms of your repositioning program just for.
Regarding your pipeline for 2021.
So what would you expect in terms of ROI, notably in light of rising material costs and kind of along the same lines. How did do you expected.
Yield on cost on your intensification pipeline evolved over the last 12 months and what would be your expectations for today.
So maybe I'll tackle your first question.
Just I'll say, one thing renovation and new build are fundamentally a little bit different in that you're often using different trades for renovation program than you are for newbuild.
And so there is some overlap certainly liana are in things like cabinetry, millwork and other things, but in other areas.
They they are not overlapping.
You have a targeted.
And underwrite to an 8% to 15% simple on ROI on our renovation programs.
And what we've seen you know Q4 and in early stages of Q1, even that we are hitting those numbers were hitting lease rates.
Our consistent with our underwriting.
And I think that for.
From the perspective of when you look at those kind of at 9%, which is what we achieved in Q4 and you compare that to cap rates I think cap rates, if any if anything in some markets are compressing further that spread.
He is better and I think we look at repositioning program the value add capital, we're doing particularly in suite is being our single best use of capital on a risk return basis.
One day are relatively small.
On capital outlays, and and we can scale the programs accelerate them slow them down as market conditions merit, but because we have longstanding relationships with our trade we do cash.
<unk> suites, we have a very high degree of comfort on cost and of course, because were leasing renovated suites on an ongoing basis, we have high visibility and comfort on the renovated lease rate that we're going to generate when when we are able to complete the renovation program. So.
From our perspective.
On the buying power of the relationship we had for those trades the kind of work we're doing in those test suites to value engineer plan them out.
I think gives us I think comfort maybe that you wouldn't necessarily see in a newbuild context.
Because of the you know the the landscape is a little different from a supply chain perspective.
Hopefully that addresses that question.
Yeah.
Great.
Great perfect and just going back on on the first question that Brett just on your remarks on the stronger recovery that's expected on second half of the year.
I look at some other recent news well we are accelerating.
Or vaccination that for instance, there's going to be an event.
We'll return to normalcy ex.
Some experts say debt with a current rise of Covid experiments that could actually trigger a potential third wave and slow down the recovery process. I was just wondering how do you think that could affect your portfolio, but mostly like what are some of your mitigation plans.
So I touched on that.
Risk.
On a variant.
Yeah.
Fueled.
The subsequent wave in my in my outlook.
Remarks at the end of our formal presentation, it's certainly something that we're watching carefully.
And what I think it would do potentially is delay recovery.
Offsetting that of course is the pace of vaccinations, where I think it impacts us most.
B in urban locations and those three properties that we'd highlighted.
Julian highlighted in her remarks as being the major contributors to our S.
S P N O y.
A drop in Q4 I think are probably are our most valuable properties. So ironically I mean, while you may see a momentary lapse or lagging demand for urban apartment rentals those other properties, where in fact, we're seeing the strongest investment dimmed.
<unk> for the assets and we could point to a bunch of transactions.
And all of Canada's major markets, where our high rise concrete urban assets.
In fact, we're seeing we're seeing them bid up at levels that are higher than where they were pre COVID-19.
So I think that from a long term perspective.
I don't think we have any.
No concerns about that I think that the quality of the locations and the.
It's a question of when not if I guess, so could could be could be the the rise of a variance.
Delay recovery certainly I think that's that was the risk I highlighted in my outlook, but from a long term perspective, I think our portfolio is more valuable now than it was pre COVID-19 and I think debt that will continue to be the case and certainly when I look at market transactions.
And the pursuit by investment capital in multi res assets.
I could see that I don't see any diminution of that of that trend. So.
Those are the those are the sort of views I guess I would have on that.
Okay perfect well. Thank you for your insights I'll turn it back thanks.
Thanks Leann.
Thank you we have a following question from Brad Sturges with Raymond James Brett. Please go ahead.
Hi, there.
Sure.
Hey, Brad.
I guess continuing on that line of questioning.
Starting with Q2, you start to overlap some weaker comps, but assuming that.
Your expectations for correct for sort of recovery in the back half for the year, how would you compare.
Let's say that the three buildings that have been disproportionately impacted by Covid in terms of a recovery versus let's say that the relative to the portfolio are more and more of a general rent.
Rental demand recovery for for the sector.
Well I think those three urban properties are the ones that would probably see would benefit most from a recovery in urban living.
One they are very well located downtown Ottawa Yorkville young and Eglin can these are these examples those kinds of locations are the ones.
That attract.
That urban professional demographic, who I think on a on a return to urban living would look for locations like that and I think that's where we would see the highest demand.
When when that sort of recovery happens.
You know I think.
When we look at those locations.
As I said earlier I think there are the three most valuable assets in our portfolio and would be the ones that would attract the highest valuations where they marketed so.
I think most investors like us probably look right through the near term chop that we'll see in the in the market.
And look they're looking long term on at these assets and you know our entire portfolio I think it's very well located those three in particular.
Okay.
I guess just to go back to your Q1 comments about similar trend as Q4 would that be also the same in terms of the type of turnover you're experiencing at the moment is it sort of standard.
The shorter leases the new tenants.
I haven't been.
In the suites as long or is it normalized kind of back to.
A typical lease term.
No it's definitely on the shorter end of the spectrum.
Brad did those shorter shorter tenures in those tendencies of the ones that tend to be tend to be turning.
For those people are the ones, who relatively speaking are paying the highest rents.
So those are the ones that we're seeing right now so what you might see us.
A lower gain to lease than traditional perhaps higher than what you saw on Q4.
But but certainly that has an impact.
Okay.
And maybe my last question is just in terms of the renovation program.
Or suspended renovation.
For renovations in Edmonton.
What are your thoughts on what it would take too.
Presume renovations there if you continue to start to see momentum in the market or you know.
Get to a point, where you can generate the appropriate returns what that timeline could be perhaps to maybe restarting or taking another look at that renovation program at Amazon.
So we hold to that program way back in Q2 early Q2 of 2020.
And remember Edmonton Calgary, both are no rent control jurisdictions, so very easy to stop or start renova.
Renovation programs in those markets.
You just don't have that.
Yeah.
The turnover issue that you would see in a rent controlled market. So what we're looking for.
Brad is to see on 8% ROI.
And so that is.
For us I think a return to demand and pricing on a renovated suites.
And that kind of that we already have the spec the design the trades.
All figured out so it's really a function of the market rates, because we have known cost its really well and we'll see that revenue on those renovated suites.
Because of course, they are turning so so we have a pretty good sense for that and because it's not rent control do they say we can we can start it very very quickly.
Okay, Great I'll turn it back thanks.
Thanks, Brad.
Thank you. Your next question comes from Jonathan <unk> with TD, Jonathan Your line is no.
Thanks, Good morning.
Good morning, Jonathan.
First first.
Can you just remind us what the differences between suites that you've got you're holding off for repositioning and goes for enhanced churns.
Yeah, so the enhanced turns well, let's take the full repositioning there in the order of 30 to 35000.
Even 40000, depending it it varies quarter to quarter simply because of what the mix of sweet types that are being renovated in that quarter.
On the enhanced turns are you know less than 10000.
Our spend and they're really.
Again, where we're making the same.
Underwriting target here, we still want to hit that 8% to 15% ROI.
But it's a more modest spend it because the incremental dollar nominal dollar gained from our renovation is a little bit smaller so it's more modest what it what it really is as appliances flooring.
And other things that we think will add and certainly what we've seen.
Is that the the.
The enhanced turns have generated rois that have been strongly within.
Within that guideline of 8% to 15%. So we're going to continue to see those opportunities.
I think and continue to exploit them win when they when they present themselves.
Okay.
That's helpful and if you look at.
Just your the estimated market rents that you guys have out there looks like versus Q3, it was flattish in Montreal, Alberta.
For the up a little bit, which was nice to see and then Toronto and Ottawa Dell.
Like the Toronto, and Ottawa markets would it be mostly related to the three properties that you've been talking about it or is it more widespread than that.
So.
So I will say this it that view that estimate we update.
Every quarter, we obviously updated more frequently but what we publish quarterly one is a function of.
The what we know is turning and what suites are available in the buildings at the end of the quarter. So they're kind of a moment in time snapshot and they tend to be.
It's not a long term view, it's it's what we think it would be worse at that point in time. So it's definitely a snapshot at a point in time. It is as a consequent somewhat volatile and there is an underlying seasonality element, obviously Q for Q1 all else equal.
On a steady market you would tend to see some ebb and Serge.
Between Q1, Q4, and Q2 Q3.
So you tend to see a little bit of variation.
From a secular or cyclical perspective seasonality I guess, you might say and then and then it's really what's turned and what we know is turning because of the notices that we see.
And so.
If you are seeing a lot relatively larger mix of of of larger units turning versus versus smaller units that might change the the estimate as well. So it's I wish it was a simpler.
A question, we we try and be as I'll say unbiased and.
Maybe even conservative in those estimates.
But there is unfortunately, a little bit of variation just because of those underlying factors.
Okay. So it would be fair to say like if I looked at the loss.
For quarters on average that would be probably a better way to look at it then.
On a single quarter.
Yeah, I think so and I would expect all else equal to see that number maybe come up a little bit at the end of Q2.
Then where it was at the end of Q1 or Q4 certainly.
Okay and then my just very last question the furnished suites obviously.
I have a weight on you guys in terms of overall same property NOI or.
In 2020.
Do you think that turns starting in Q2 and you start to look at very easy comps I would imagine it's a.
Very rare net portfolio, where you get more revenue in Q4 than you do in.
Q2.
Yeah. That's a fair point Q4 is always probably the weakest quarter Q1, probably right behind it or kind of.
Yeah.
Those are tougher quarters, generally Q2 Q3 tend to be better.
Obviously that varies property by property and the mix, we've seen a substantial change in the mix and that's important.
With the border closures restrictions on business travel, we've seen relatively less business in our mix and relatively more transient and government and other segments, which which are just lower rate.
Businesses in that.
Which is significant I mean, and just to see the impact of furnished suites.
Q4 for Q4, if we had taken out the furnished suites from our mix, we would've seen asps on Hawaii.
Plus 2% I mean, so it's in those three properties, so it's very meaningful to us.
Now as you say because we're comparing to Q4 2019, which was a very strong quarter.
Now as we get into Q2, 'twenty 2021, you're going to see the comp now is back to something like.
Post COVID-19 outbreak in.
In 2020, and so those.
The easier comparisons will be there I think what you've seen though in our furnished suite business things really bottomed out for us in June of 2020, and if you look at it sequentially Q4 to Q3 Q3 to Q2, we've seen a gradual improvement in occupancy and rate of course.
We've been trimming inventory through that and we'll continue to trim, particularly at Roehampton, we look to see taking 43 suites out there.
And getting ourselves down to 180 190.
Kind of inventory.
So that's that's kind of our outlook I guess, you might say on the on the furniture side.
Okay. That's helpful. Thanks, I'll turn it back thanks.
Thanks, Jonathan.
Thank you.
We have a follow on question from Mike <unk> with dessert.
Please go ahead.
Alright, Thank you and good morning.
Just one for me I guess, we're seeing the activity on the deployment side with with the parent company. It's been a while since we've talked about the.
The acquisition through some other private funds I was wondering if you'd just give us an update there in terms of if there's anything that's potentially there to happen in 2021 or if that's just given the dynamic on the back burner for the for the near term. Thank you.
Thanks, Mike There is two main streams, there's the acquisition of stabilized buildings.
That are in funds and joint ventures.
Some of these assets are themselves in the construction <unk> lease up stage they have been impacted by Covid because they are in urban locations and so we're seeing delays in that.
Of course, we don't have a unilateral right to force the sale of our interest to the REIT, but certainly the experience we've had thus far with our institutional partners has been positive.
And so what we're looking for is to continue to see progress on those lease up programs completion of construction work et cetera.
That that would there is <unk>.
Certainly a couple of candidates in the pipeline, we'd love to bring sooner rather than later, but.
Obviously, we are a fiduciary for our partners our institutional partners, we need to make sure that we complete that lease up before we move those assets into the REIT. The second major stream mic very much in line with fifth third Bank Lonsdale square these would be.
Typically urban development residential development from some with a mixed use component. These would be sites that are in the minto groups condo pipeline that we think might be candidates for.
For purpose built rental and those would be deals that while respecting the limitations in the declaration of trust around development, we would look to bring forward on a basis very similar to <unk> and banker Lonsdale, where other REIT would invest capital in exchange for at a return that is.
Creatives through the development period.
And have the option to purchase the stabilized asset on stabilization at a discount to fair value.
Instantly NAV accretive once the building is stabilized it allows the REIT to benefit from the gains from development effectively taking roughly half of the development profit.
Yet not exposed to any of the typical development risks that you see when you're when you're constructing new buildings and so those are definitely very active discussions that we're having on an ongoing basis with our sponsor.
Two to see if we can bring more of those forward.
They have all sorts of other benefits of course, reducing the average portfolio age in Ontario, those assets are not subject to rent control because they're delivered post November 2018, I could go on and on so.
They take a little longer to bring forward because of the governance structures that we've put in place either non arm's length transactions with our sponsor and so they they take a little bit longer to work through the diligence process with our independent trustees, but I would look to bring hopefully at least one.
One of those forward.
In the near term.
That's very helpful. Thanks, so much for the color and congrats on the growth.
Thank you.
Thank you. Your next question comes from Matt Cormac with National Bank, Matt. Please go ahead.
Hey, guys.
Just wanted to quickly touch on the Rich Grove intensification.
100, affordable rental units.
Wanted to get a sense if.
The incentives that are being given in terms of relief on development charges and other fees like do those make the affordable housing.
Offering economic to you guys.
And what the numbers look like on that front.
Yes, so we would typically be looking for Levered IRR is on a new development such as this that would be in the mid to high teens.
And certainly the incentives that are there.
Municipal government have provided.
Both on development for those 100 affordable suites.
But also property taxes development charges.
They certainly make a meaningful impact for us.
And so we would look at those as being.
Certainly.
Very helpful in allowing the REIT to bring forward affordable rental housing to the GTA.
It's a continuation of a collaboration we've had with the city of Toronto very favorable experience, we had with the city building.
Jason Tower.
245 suite tower that we completed.
For.
Five or six years ago.
It was we did 200 for affordable.
Suites in that building.
Along with a little bit of market housing in there as well. So it's critical I think to make the math work I mentioned earlier on the call Matt the pressures, we're seeing on construction pricing.
For sure.
Yeah.
And those things are you know you don't get a discount because youre doing affordable housing I mean, these are built to a very high standard.
Well on monetized on a nice spec.
These are these are very attractive units.
They would be something that you're pleased to have a family member live in and Theyre priced at the CMA Sea market average so they're there.
We're not deep discount rents or anything of that nature, we like them because.
Obviously, there's there's high demand.
There is a discount obviously off market rents and so you're never you never waiting on on filling those suites up and we know that.
In a normal market setting you never want to be zero vacancy because then it would suggest you'd underprice. Your units in this case, we're pricing to what the CMA sea market averages and so we can be.
<unk> segment of the building can be completely full and we can do back to back leasing there is no white space. If you will there is very little.
Vacancy loss on that hundred suite of affordable segment.
They are just to remind you 25 year duration on that obligation on the affordable housing.
In exchange for those benefits property taxes and other things so.
Yeah, I mean, it's it's a it's a nice to have for sure.
And as I say.
The benefits that the city is providing more than outweigh the potential revenue loss bye bye bye pricing needs at the <unk> market average in and obviously, it's completely consistent with our ESG posture about.
Our commitment to the community and helping where we can to make housing affordable for for people in that in the GTA.
Sure.
That all makes 100% sense I.
I guess on on the flip side, when you're going to develop a market a product I mean, COVID-19 thrown us a bit of an odd case study here, but.
Higher end product is shown to be maybe a bit more susceptible to market risks. So how do you think of that in the context of the new developments that you are pursuing.
Well I'm not sure, it's higher and Matt as it is urban.
Youre doing higher and in a place like the gleam in Ottawa.
It's certainly a.
Caustic neighborhood.
It's one of the nicest residential neighborhoods in the city.
It's not super dense, it's it's not what I would call it a young urban core.
In that location also there's very very little competing.
<unk> rental.
And so with that I would say that project is going to be tremendously successful simply because of the imbalance between supply of comparable housing product and the demand which would be very high.
I think it will attract.
Very decent rent even in this COVID-19 environment, we've seen very strong level of interest even at this early stage before the building has even been topped off.
We will open a leasing office in the month of April there will be a test suite in the building in the month of April and certainly the early indications are very strong. So it would seem to belie. The thought that COVID-19 is impacting you know higher higher end.
Purpose built rentals I think it is urban urban is that is the challenge I think I could do.
More mid market in an urban setting and it would struggle.
I think its urban versus lower density markets not high end versus medium if that does that make sense.
Absolutely.
Just a very quick one for me for the.
The benefit of being an urbanite and having to deal with this on it.
A fairly frequent basis, but the jobs numbers out for February up 250000, I think on reopening shopped in the Eaton centre for the first time in I think for months.
Like how much what is the lag between these re openings and kind of demand for urban product and is it just those service type jobs or do we need to see more demand drivers in terms of people returning to office before.
You start to see the demands in the urban centers.
It's a great question I mean, we did see the unemployment rate dropped to eight 2% I think I read.
I don't know if we have any precedent I don't think we've ever seen such a violent.
Contraction of economic activity, I mean, Canada's GDP fell by more than 5% in 2020 I don't recall.
I don't think we've had that since they began keeping records in their early $60. So I think that.
Certainly this is very encouraging signs and and I think what I think there are certainly servers and workers in the food and beverage sector retail certainly a part to play but we'd also be looking at.
Travel sector accommodation hospitality.
These are major drop job drivers and I think we'd want to see some of that as well certainly though this is a good news story, it's certainly moving in the right direction, but I don't think there are any good models that we can look back on where we've seen such a steep and violent correction to job numbers in <unk>.
And see how quickly they return I certainly in my experience have not.
Got anything I could really readily compare it to it's it's certainly a steeper than the corrections that we saw on 2008 2009.
And certainly what the models that we've seen which suggested a very long and prolonged recovery the job market then.
Certainly seems to be.
More more V shaped now, but I I I don't know its a great question Matt.
And again I think we take sort of a long term view on all of this whether it takes two quarters or three quarters to see a recovery.
I think at the end of the day, what we remain focused on his strong locations great assets.
Continuing to invest in those portfolios continue to do the value add repositioning program.
The fact is that housing shortage that was their pre COVID-19 is still there that supply demand balance still there. There is I think governments are nibbling at the margins on doing things to improve supply coming online like we saw with rich growth, but I don't think that.
That it's enough and I think with construction costs.
Continuing to race ahead.
Through Covid.
Think debt the supply picture is is no better than where it was last last February so.
How quickly it will cover a good good question don't have a model to tell me don't have experienced necessary that I can point to that.
Wait, but whether it's two quarters three quarters.
Certainly I think piece of this is good news story and I think we'll we'll be back. It's a question of how quickly.
Thanks, I tend to agree and take care guys.
Thanks, Matt.
Thank you. Your next question comes from or almost so bad with Scotia Bank Ramos. Please go ahead.
Hey, Michael on jewelry good morning.
Just wanted to know more of it.
Sensors on the rent.
For you for taking a stand on buying occupancy what's going on.
If you have a strong recovery in the second half of 2021 on the back of returning international immigration.
Based on your competitive shopping.
Characterize whats your competitors are doing in terms of holding for them on rent versus occupancy and also.
What types of incentives or your competitors offering that's net.
It was not.
Thanks for.
Ronald Thank you for that question. It's a good question there.
Ah.
Perfect information here.
What.
What you see on a competitor's website.
Information you gather when you visit their leasing office and what information you may gain in a follow up conversation with a leasing agent.
We will all tend to give progressively.
Yeah.
More information around where are comparing competitive product.
Right might be so you might see one month free advertise on their website.
You might go in the leasing office and you might learn that maybe there's some other little incentives that are possible you might engage in a conversation with a leasing agent they may have a.
Our back pocket incentives they can add an extra month on onto onto that the incentives that are there. So.
It's really hard to get great information certainly what we do know is compared to.
February January February of 2020.
Incentives and promotions are certainly.
Very much more prevalent in the marketplace, what what had been really fairly focused narrowly in certainly in Alberta, but in other markets per priority narrow is now I would say broadly available and so on.
And I guess, what we've done.
I think.
I think we tried to make this very clear as we were not going to buy occupancy because we saw this as being a short term event and the unintended consequence of dropping your rate is that you are going to potentially significantly extend the length of stay.
And in a rent controlled environment, the data on which any increases will be based will be that much lower and so.
I would also just <unk>.
Draw the distinction between promotions and incentives on the one hand and rate discounting on the other and tenants are.
Rational intelligent creatures they.
Certainly appreciate an incentive promotion, but they really like a rate discount and because they they get the math they understand that the logic.
And how it works on a rent control environment.
And so you know to meaningfully move the dial to buy occupancy.
We we would've had to significantly discount rate and so what what we well we made some discounts in selected areas, but really our focus was on incentives and promotions and I think with targeted marketing.
We did achieve some pretty strong results in Q4.
So I think.
From our perspective, we look at that way very much less excited about discounting.
Base rent for sure now.
Like I say, it's hard to say specifically what our competition is doing we look at a metric called penetration. If you look at our rents relative to what we're seeing.
Advertise and what further until we can glean from shopping our competition, we have seen that relative penetration increase. So my my gut instinct is to tell you Rommel that debt, we probably have discounted and.
<unk>.
Far less than our than our competing.
The the competing property said I'd say for each of our our buildings and probably.
We probably would have matched our bean close on incentives and promotions, where we're not going to be.
Insensitive to what's happening on that front, but probably relatively low.
Less.
Likely to discount rate I hope that helps.
Yeah. It does help thank you so much for your answer.
Also regarding.
A quick quick follow up on that.
So we just wanted to know regarding your disclosed in place rent and estimated market rent. We just wanted to me it.
Includes incentive for the system and also we wanted to know how are you.
Counts for incentives offered offered so for.
For example.
Amortized over 12 months against revenue or is it thinking entirely from the quarter.
Sure.
So I'll take that romo, so on whether or not our tables are net or growth, it's a little bit of a combination of both so we're showing alberta as net rents.
Whereas the other geographies are all growth on the reason for that distinction is because you know.
The situation in Alberta has been a little longer term.
On the discounts and promos being offered there you know we don't think are short lived so we've actually shown those as NAV now for.
I'm going to say at least a year, if not more whereas for the other geographies. We believe that those discounts are going to burn off fairly quickly when the economy picks up again and demand returns. So we're not intending on on changing that table. So those items net.
In terms of your question about how we account we do amortize those over the 12 month period.
Okay that makes sense.
Thank you for that as well so if I could just put in another call. Another quick one regarding our balance sheets. We just wanted to get some color around your acquisition capacity.
So currently our liquidity sits at $170 million.
Growth bogey zone on the basis going two three per.
For 2% and we just want to know more about.
Your net debt to EBITDA. So we know it's a bit up this quarter to 11 five times EBITDA and just wanted to know like how high would you are you willing to go on the net debt to EBITDA on the bunk seats for support.
Future acquisition activity.
So it's interesting because we actually don't look at our debt to EBITDA ratio, we prefer looking at our debt service coverage ratio, we think that's a better indicator for our ability to pair obligations.
And our debt service coverage ratio was strong at one point 91. So when you think about sort of the same agency requirements. They typically ask for $1 20.
So you know I'm going to say, we're fairly comfortable and we've got a lot of room to move there. So we'd definitely be comfortable increasing our leverage I would also just add to julie's answers that we were very careful lateral on our maturities. So we take a more holistic view and not so focused on.
On the debt debt to EBITDA metric, which is not one that we.
Would would not normally have have followed.
Okay.
Okay. Thank you so much for your answers on the congrats on the quarter. Thanks.
Thanks for mill.
Okay.
Thank you.
Your next question comes from Jenny MA with BMO Jenny. Please go ahead.
Thank you good morning.
Hey, Jenny.
With regards to the move outs you gave some good drivers of that but I'm wondering in terms of the move ins was tracked higher seasonally but are there any unique drivers of that or is it really just pent up demand spilling over from Q2 Q3, I just want to get a sense. If there is any green shoots on the demand side at least domestic.
Like how people finally, without a parent's house to get their own place or just looking for more space moving from downtown suburban areas are you seeing any signs of that right now.
So again I guess, we look at the net leasing activity.
And really it would it would have been negative in those three.
Properties that we'd highlighted.
185 line.
Yorkville and row Hampton and those are.
Urban core.
Typically attracting a professional.
Renter.
And so I think debt.
We.
I think we saw certainly in the latter stages of Q3.
Those notices for move outs begin to roll in as they say in Q2, and Q3 were fairly low turnover in Q4, it suddenly popped up and I speculate that that may have been.
As the duration of the Covid crisis, really was becoming clear and.
Employers were making let's say provisions for virtual and work from home and and people were sort of getting into.
Getting into that sort of mindset of working remotely and wanting more space and the positive vaccine approval news didn't happen until very late in Q4 was in December.
Really the middle of the month of December and I think subsequent to that we only started to see the positive news on vaccines approvals and rollout are really only started to happen as we got well into Q1 I still think it's too early to say.
But I have to say there were green shoots in terms of move in trends.
There were moving for professional certainly.
Which are which are really.
I say targeted those urban locations, but I think it's still too early to say at this point journey.
Okay.
And then when you think about the turnover trends, obviously, they've been dislocated with COVID-19 in an unprecedented way, but whenever it is we get back to some sense of new normal how many quarters do you think it would take for turnover patterns to normalize.
Oh, Great question, I mean, I think we'd be looking for a couple of things I think the on campus experience at post secondary will be important and how.
How quickly do they move from a virtual to a hybrid <unk>.
Two are fully in person instruction mode. I think that's one factor I would probably look at I certainly the early signs.
From major Canadian University of Magellan UBC for example made announcements.
Early this week or late last.
On that they would be moving to at least some component of in person instruction in the fall term.
On.
I think that's one factor I think return to workplace is another factor and what form does that take and how quickly does it does it take root I mean, certainly my sense is is that that tipping point around vaccinations has probably.
Towards the end of Q2 at the earliest when we start to see.
Most Canadian adults have access to at least that first dose or if it's the case of Johnson <unk> Johnson the only dose.
And what does that mean from an employer's perspective to begin.
Inviting employees back into their workplaces, if they were if they were close if they were non essential and certainly the anecdote that I have from many employers is that they do intend to work or to return to work places and there may continue to be some else.
<unk> to flex work are virtual.
Work from home or work remote kind of mode, but certainly the benefits are.
Face to face interaction from innovation certainly from our on boarding of new employees.
Training and other things would would mitigate heavily in favor of at least some portion of the work week.
Going back to in person and what's that tipping point.
If I could can you one day a month.
In a COVID-19 world from.
From Pickering to downtown Toronto, If my employer suddenly wants me to be in the office three days, a week or for days a week.
And certainly that's what I'm hearing from a lot of employers that commute probably a lot less exciting for me and certainly the benefits of urban living as a poll I think would also be that factor. So how quickly do we see food and beverage entertainment venues.
Whether it's music musical events performance is sports.
Move to a full on.
In person.
Just happened to note that I believe it's the.
Texas Rangers announced their home opener is going to be 100% capacity in person, Texas, Texas, Ontario might be a little different Quebec, maybe a little different.
But I think some of those factors. So question of how long to see a return to normal seasonal turnover patterns I think it's going to be at least I would suspect into Q3 of this year and and that might be the earliest it might take us even into 2022.
Before we start to see kind of normal patterns begin to reassert themselves risk factor of course, which we talked about earlier in my outlook remarks is whether this wave of variants that are taking up a bigger and bigger share of new Covid cases.
Whether that could throw a wrench into the timing and delay it by a quarter or two is another question.
I appreciate that it's a it's not an easy question to answer, but that's actually a good segue into my final question, if I'm connecting the dots between your comments about holding steady.
Not by occupancy.
If we do hit a a worst case scenario, where there's a third wave.
It's really bad market conditions worsen is it fair to say that youre going to hold the line on just philosophy, because we're recognizing that the back for sure.
Sure I for hopefully be it backed off at some point.
Yeah.
Yeah, I mean, I'm, not an epidemiologist or an immunologist soy.
What I have read has been.
The efficacy of the existing vaccines against these variant and whether they would hold the spread certainly they would slow them down I'm also reading, though of course that the.
Vaccine developers and manufacturers are developing variations that are effective against these variance and so I guess, we are in a a battle.
Of vaccination cash.
<unk> been superseding the spread of Covid and its variance, but either way I think our view is very much that this is transitory or temporary.
And so.
It's not a it is an event it is not a permanent state.
Obviously, we reserve the right to change our minds as circumstances evolve, but my sense is that.
I think if we flash forward one quarter.
And we see.
Variants are continuing to accelerate and case counts continuing to move vaccinations accelerating but maybe not quite keeping pace I think we'd look ahead, a quarter or two and try and triangulate and see where we think vaccinations will catch up.
But I don't see that's running two years I see that.
Order by quarter end and certainly our view is that this is temporary and discounting right.
Mortgages on our future just to fill the buildings.
It is absolutely not.
Not within the best interest of the REIT and certainly I think what we would see is that <unk>.
Average length of stay go from something like five years to materially more which that is the risk and so we want to avoid that and I mean from our perspective.
I think we'd have to see something.
Change meaningfully in the.
Environment to get us to change that view and I, just I put that as a very remote chance at this stage.
Great. Thank you very much thanks Kenny.
Thank you, ladies and gentlemen, as a final reminder, should you have any questions. Please press star one.
There are no further questions at this time. Please proceed.
Okay. Thanks, everyone.
Everybody. Thank you.
I think that we've set a new record for the length of our call. So very thoughtful discussion and questions. Appreciate all of your interest that concludes our call. This morning. Thank you for joining us and for your interest in the REIT. We look forward to speaking with you again. After we report our Q1 results in May Thank you.
Goodbye.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask you. Please disconnect your lines.