Q4 2020 InterRent Real Estate Investment Trust Earnings Call
Good morning, and welcome to the Interrent REIT fourth quarter and year end of 2020 financial results conference call and webcast after the presentation.
And we will open the call for questions and.
Instructions will be provided at that time, if you require further assistance. During this call. Please press star zero for operator assistance at any time. Please note that today's call is being recorded Monday March 15th of 2021 at 10, a M eastern daylight time.
And I'd like to turn the call over to your host for today's call Michael again Chief.
Chief Executive Officer, Brad cuts, he president and Curt Miller, Chief Financial Officer. Mr. Miller. Please go ahead.
Before we begin I want to remind listeners that certain statements about future events made on this conference call are forward looking.
That's true.
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 information and the reach of news release and MD&A dated March 15th 2021 for more information.
During the call.
And the management will also refer to certain non <unk> measures.
Although the REIT believes these measures provide useful supplemental information about its financial performance. They are not recognized measures and do not have standardized meanings and drive our S. P.
Please see the reach M D and E for additional information regarding non <unk> financial measures, including.
Call match locations to the nearest the high FRS measures.
Thank you welcome everyone and I appreciate everybody taking their time out of their day.
This was our first call that we've had I've been the CEO for 11 years I think this is maybe the 44th of the 45th Q.
Couldn't think of a better time.
Rick and half of our first call obviously, it was a bit of challenging year of 2020 and.
And I think this is the appropriate time, so first off again.
Wanted to say I'm really proud of our whole team our whole team has done a tremendous here and dealing with COVID-19 and all of the the issues.
And I'm too thin and and making sure that are all of our residents have been safe.
And they just they've been really up to the challenge.
As we know and as you've looked at our results and again it was a tough Q and it's been a tough year, we've had a bit of a pause on demand.
We know that all comes from the the lack of students out there.
Who's with foreign and the domestic immigration has also been hit the international students and we've seen a little bit of of acceleration, obviously and homeownership with interest rates are going down to record lows. Our this is all really made the you know.
The amount of demand that we've had.
Much tougher, but we what we decided to do was we wanted to hold our rents we knew by holding our rents that would be a better strategy and the long term and.
And it would provide a little bit of of bumping. This and the short term, we think we should hopefully get through this by the end of the.
The first half of the year and we'll start hopefully with the.
With the vaccines coming out and that that will be and a much stronger position for the the second half of the year and our strategy will be proved to be to be correct.
As you also know this are multifamily class has proven to be very resilient. During these times architecture.
Since our of records.
And <unk> that are I guess versus the other classes, we really haven't seen any bump and our bad debt to any anything of any magnitude and and the and the bid for our for our classes of very strong regarding deal flow we have seen.
Our collective deal flow that I've never seen and.
And my 35 years of being involved and our real estate debt.
And that we can retrieve that the two factors one of them being that the private owners are really really tired with the whole COVID-19 and fatigue and that it gets the attributed to the extra cost of PPE.
All of the extra cleaning the online applications. Some of them are not set up for online applications and the second item is a big thing that is pending is taxation on capital gains, which is a real big concern that I think of lot of people are seeing.
And is a big potential impediment to sell their properties on the future.
And Craig and we've also as we've gone forward here, we've still been working on our development deals and I'm going to highlight for current developments that we have and I want to say that there is a lot of product that we're seeing come out of the ground. It really comes down to the location and I would say our locations here are the preeminent.
So I think we're gonna be and very very good condition. As we go forward are first the joint venture, which we have with Brookfield is that the Burlington go station and and thought that at this point right now we've applied for site application, we were expecting some comments coming back from the city from our latest submission we.
Eminent backed by within few weeks here. We're currently applying for 'twenty 400 residential of suites and in the approximately 40000 square feet of commercial space.
Our next joint venture a partnership we have is at 900 Albert.
And at 900, and Albert we're continually working on our detailed design.
Should get them and working with our consultants and our partners to make sure that we have the best product that's going to stand. The test of time, we have approved site plan application right now for over 1200 apartments, and 400000 square feet of office space and 80000 square feet of retail.
And plant space, our third of project is at $4 73, Albert Street, and Ottawa here, we are gonna be.
<unk> hundred and 58 residential suites, and we're anticipating by the end of Q1 2021 that we will have our buildings permit hopefully enhance.
Retail we are expecting construction activities to begin in late 2020, the late spring 2020 one.
And our fourth and final development site is at Richmond, and Churchill, which is a fantastic location and Ottawa, It's and the heart of Westborough and here, we've we've submitted.
And our.
Our for zoning by Bylaw Amendment and site plan application, we expect to have our subsequent submissions to the city by the end of the second quarter of 2021, this side well as contemplating right now of 184 residential suites and the approximate.
<unk>, a 20000 square feet of commercial space.
So you can see on both levels that we've got some great development sites going and we're still very much looking at some deal flow and we've had some the loved and a lot of purchases and the last year and we think we should be fairly active.
<unk> and we go through here in 2020, one, especially since we built ourselves to have what I would I would considered one of the best balance sheets and the business.
I'm going to pass it over to Brian Gutsy the.
President of the company right now.
Thanks, Mike I'm, just going to start off with the little bit of and operational.
As of yet, but as you highlighted in your opening remarks, 2020 was a year like no. Other one and I hope we don't have to repeat that said I believe the multifamily asset class as Pud wise, so covenant and we beard.
It's one of the best risk adjusted returns.
Amongst real estate asset classes from and operations.
From a standpoint, we saw operating revenue for the quarter increased by $2 7 million to 241 9 million and increase of six 8% over Q4 2019 operating and revenue for the year ended 2020 increased by $14 7 million to $160 million.
The increase was mainly due.
Operations views from from $227 million worth of the property acquisitions are completed and the year, which was comprised of a total of 880 suites.
On the same property portfolio basis, our operating revenue fell at the end of the fact of the second wave of the pandemic on the quarter and decreased by half.
And to the continuity and to $34 9 million decrease of one 5% over Q4 of 2019.
The operating around revenue for the year ended 2020 increased by 3% year over year too.
Or $4 2 million to $141 million.
As of December 31, 2020 of the same property portfolio.
Has set the of.
The 8953 suites, which represent 81% of our portfolio the year over year increase and the same property operating and revenue due to a five 3% increase and average rents to 1000, and 'twenty and 54 occupancy from the same property portfolio at the end of the year.
Polio and down 430 basis points to 92, 4% from the comparable period last year as.
As Mike alluded to in his opening remarks, our effort to hold events has resulted in an increase to see.
This pandemic from the real estate viewpoint, and really has been the tale of two cities is evident and our operating results.
And our Montreal and same store of bakes. He was up year over year by 610 basis points to 14, 6% and and Ottawa same store being C was up year over year by 920 basis points to 11%.
This comes as no surprise of the majority of of Montreal, and Ottawa properties and are located in the urban core.
And what.
We peg in and around 70%.
We have felt the biggest impact of Covid and the urban core and where theres been a lack of rental demand due to the borders closing universities and college switch and the classes to online from and class young professionals and moving back home with their parents.
And the advantage of as Mike.
For prominent and low interest rates and making up the way the their foray into homeownership.
We believe the deterioration of rental demand and a temporary phenomenon and that the housing needs that existed pre COVID-19 will continue to outstrip our housing supply.
The same property NOI for the court of decreased by six 3%.
Or one 5 million to $22 4 million compared.
Compared to Q4 2019 same property NOI of the year ended December 31st 2020, but the $91 3 million and an increase of <unk> 6 million or point of seven percentage points compared to the same period last year.
NOI.
And for the year ended with $64 seven a decrease of the hunting and 60 basis points compared to 2019.
However, at the same property NOI for the year included $1 6 million of COVID-19 related operating expenses exclude.
Excluding these COVID-19 related expenses and the assuming a more normalized occupancy something similar to <unk>.
Sat and 19, our same store NOI would have grown by five 5% from.
And the full year and then the NOI margin of 66, 6%.
We have long been known and for our commitment to the reduction of energy consumption and supporting a broad of communities both through charitable contributions and type.
The name.
And 2000, and the time and and you and many of our team members and 2020, we participated in the global real estate sustainability benchmark rating.
Graduated the well known global ESG benchmarks of real estate assets, which measures the performance against sustainability benchmarks. We are pleased with our initial submission and based.
Based on the results we have.
And to make improvements around measuring and planning many of these measures and we've had in place but were not made public as well as pursuing pursuing improvements and areas that we have not yet covered internally and we anticipate sharing more information in regards to of initiatives.
On this front and the second half of 2020, one and also in 2020.
And we completed a comprehensive employee engagement survey every day.
And the engagement level of our team across all of the regions. The benchmark for comparison purposes and it was.
Companies of similar size and included over 60000 respondents and 101 companies across various industries. We were very pleased to have the participation rate of 80%.
Santa across the organization. We are also very pleased not only with the responses overall and as compared to the benchmarks across many dimensions, such as safety diversity and inclusion and work environment.
One of the most important aspects of the surveys that have provided us with critical feedback that we can use to engage our team and work together in order to.
The continue to improve and create value for all of our stakeholders.
But at least on and Mike touched on some of this in his opening comments and we truly believe we are embarking on a generational opportunity as we see a transformation and the ownership group of multifamily properties.
Historically, the SaaS class had been highly pregnant and and dominated by the private sector.
We.
And I've started to see significantly increased and deal velocity and these groups struggled to come on with terms of operating fatigue and potential changes to the tax policies and the we used to change and the teammates the underwriting.
And the next couple of years of continuing to present numerous opportunities for the REIT to execute on our value add strategy.
That's probably an appropriate time to turn.
On the call over to our CFO Curt Miller from financial review.
Thanks, Brad.
Through 2020, we've continued to invest and our technology infrastructure with a focus on sharing and collaboration tools, which we were fortunate enough to have started pre pandemic.
We continued further automation.
Nation of our leasing processes and virtual property tours.
And the second generation of both our B I and CRM platforms.
We believe that these investments and technology will help us to continue improving the service we provide to our customers as well as provide even more scalability as we continue to grow.
Our funds from operations or <unk> for the quarter increased by $241000 or one 5% and for the year increased by $6 $2 million or 10, 9%.
On a per weighted average unit diluted basis, <unk> was down 1.4 cents for the quarter.
And were 11, 1% and for the year was down $1 seven or.
And we're three 5%.
As Brad mentioned earlier, the increase and vacancy and rebates for the quarter and the year compared to 2019 impacted NOI and therefore <unk>.
This impact was approximately $2 four.
And for the quarter and $4 5 million for the year.
Covid related costs for the quarter and the year compared to 2019 impacted NOI and therefore F F O by 164000 and the quarter.
And 1.89 million for the year.
The combined.
$4 million impact from vacancy and Covid on <unk> per unit was $1 eight for the quarter and $4 seven for the year on a per weighted average unit diluted basis.
Despite these impacts for the three and 12 months ended December 31 2020 adjusted.
Cash flow from operations exceeded distributions declared by $8 8 million and $27 million respectively.
Distributions declared were 67% of <unk> and 70.
Just in case the percent of <unk> for 2020.
Over the last few years the Earth Interrent team has worked diligently and not only growing but also strengthening our balance sheet.
We commenced 2020 with $2 $7 billion and investment properties.
The acquired properties for approximately $230 million.
So a year.
Invested a further $55 million into our portfolio and recognized the fair market value gain of $70 million.
Two and the year with a portfolio valued at $3 1 billion.
Yeah.
Our debt to G. B V. At the December 31 was 31, 1%.
During the increase and value of our portfolio combined with the $230 million and net proceeds from an equity raise in June of 2020.
Has positioned the REIT well to be able to stick with its rent growth strategy, which should lead to strong NOI growth as we emerge from the pandemic.
Okay.
And real estate is a very capital intensive industry.
And the REIT works closely with its capital providers.
And planning for its future capital requirements.
The REIT had $1 billion and mortgages at December 31, and it.
Weighted average interest rate of 2.56% and the average life to.
Of five two years.
81% of insurance mortgages are insured by <unk>, which provides for favorable interest rates, given the reduction and refinancing risk for lenders.
At the end of 'twenty, and 'twenty Interrent had $344 million available liquidity.
Maturity of REIT, how do you further $370 million and unencumbered assets at year end, which remain unencumbered at this time.
Thank you very much and I'll hand, it back over to Mike, Thanks, Kurt and Brian and I. Appreciate your comments again. We are are we know we've had a really a it's been a try and year and a lot of different levels.
A lot of people I'm really again going back and I'm very proud of our team.
They've reacted and taken care of of our very valued residents.
And just everybody just the pulling together as a as one consolidated.
Consolidated group to achieve what we've achieved I.
Levels free of with a lot of a lot of conviction that the as we go forward, we've left herself and a great position.
And I think we'll it'll bear the fruit and we're hoping and in the back half of the of.
2021 and early 2020 two we'll start seeing some good results. Thank you everybody I'm gonna whole hand, you back right.
Right now to the operator, and they will be open for any questions that you may have thank you.
Certainly at this time analysts May press star one to ask a question. Please limit yourself to two questions to allow everyone an opportunity, we'll pause for a moment to compile the Q&A roster.
Mike market is with.
Dale Jr. Day your line is open.
Thanks, and maybe just before I begin just wanted to come and you guys on on moving to the the.
The conference call format, and I think it's much appreciate at least on our and so thank you for that.
They put you laughs I'm going to start with you first the.
The 21 mortgage maturities.
And that you have coming due I think it's a pretty healthy number how much of capital do you think you can you can take out of that as you refi those mortgages this year.
The.
The the mortgages, we have for 2020, one quite of bit of those are on some of the newer properties.
And that we bought and our and the repositioning phase so theres some definite upside there.
The loan to value on those is sitting in and around the low 40% range. So there's there is some of some value that can be extracted whether we do it right now or.
As you know typically in our repositioning portfolio.
So we'll we'll.
We'll wait a year to three years, depending on where it's at so we could either pull the equity out of it this year or push it out one more year into next year, depending on what's going on with the rates and know what access the capital we need at the time.
Okay and with the current thanks for that and with the composition of the unencumbered pool be somewhere.
Or would it be more of the properties that were recently acquired and schools and the repositioning of fish.
No theres actually a mix.
And there's a pretty healthy mix of both property and we've owned for a while that are fully repositioned and so.
Some of that are I'd say off the top of my head I cant give you a percentage of which but it's a pretty healthy mix of both.
Okay, great. Thank you for that.
Maybe just shifting overdue for seventy-three Albert I'm, just given that it looks like that's going to be the first thing that you guys start on could you remind us of your cost base with that property and on what the expected spend would be too.
To execute on the conversion and what type of returns you were targeting and thank you.
Yeah, Yeah, we haven't usually put that out and public I'm, Michael but I bought at around 20 million Bucks, it's and something write up of rally to be quite Frank with you. It's like almost like a mini live for that.
So we the when we've kind of looking at it and it's gonna be will have a double digit IRR and so we feel very positive about it.
And just just just to add to Mike's comment.
Thank you all of us asphalt on the cost base and I believe if my memory serves me correctly, it's in and around 24.
For the building.
Okay.
Okay.
Of course today, Okay, great I just have one more of a four I'll turn it back and.
Just you guys do a great job showing economic vacancy for the quarter as opposed to just the percentage of suites occupied so really appreciate that disclosure.
If we look at the increase and that.
And that figure over the past several quarters I think the answer is likely no. The answer I want to get a sense from you guys, how much of that would be and actual increase and vacancy versus.
On the increase in incentives and just given that we would expect the I guess that would take 12 months.
On to burn off in some instances that we should think about the.
Evolution of that line initially as we start to recover and fundamentally.
Sorry, Michael I, just want to make sure I'm clear on the question.
Are you talking about the the.
And the vacancy and rebates and the percentage that would be rebates versus.
Yes.
We haven't typically broken that out of.
I think we could maybe take that away and look and breaking it out and the future and we just we haven't broken out and this report of previous reports.
So.
So I think I'd have to come back to you on that one.
Okay.
Okay, and maybe and I guess just high level would it be.
Mostly direct vacancy as opposed to incentives would that be true.
On a on a directional basis, that's correct and I call it and obviously on the Bac has increase.
And then and I mean, I'm sure, we'll get into two of them with some other collection, but it has increase essentially and of course, great and and it's no different than what we kind of the recorded over the last couple of quarters, and we continue to see that trend.
And specifically in the urban core and the Ottawa would you.
Roughly around 70%.
And our Montreal.
Believe it or not roughly around 70% of the law that the urban core and now the good news is we're starting to see and as you saw and the disclosure documents were starting to see on a quarter over quarter basis, some are improvement and of Montreal, and look and continuing to be excited and white receive and it's still early.
Early days, but yes, it is and there's more on the direct vacancy than on the setups.
Okay, great. Thanks, that's it for me I'll turn it back.
Mario sorry with Scotiabank Your line is open.
Hi, good morning, guys.
And so.
My two question, but it's more of the focus on operations and working one day from Europe, Alright, and for our core values and.
The addition of pipeline.
And just from the on the operational side.
And how would you characterize of the quarter or relative to internal expectations, but the three to four months ago in terms of the same apartment and Hawaii.
And the erosion whatever and surprising.
And the upside or downside relative to control of expectation.
We were we were a little bit more hopeful of Mario like we really kind of be basically decided of the standard to our and hold our ground here as far as our what we were doing as far as rentals on that but.
I don't I don't think of it was anything drastic mute I guess, we're all hoping that we'd be a little bit further along the way and some of the and what's going on here, but again, we've been very we've got a lot of conviction of where we're going we really believe that it's gonna be of second half.
Of this year's situation, we're really going to look at our September as being of Tel Tel point for us and and Youll hopefully, we'll see some good results here into next year. So we really we didnt want to give away just.
Just for now and we thought it's better to be brought it out a little bit zone.
Are we happy with and no and I guess, that's partly the reason why are the were happened and this conference call you know what I'd, rather just take the calls.
To be Frank with you of course.
Got it Okay, and then maybe just as a follow up to that and.
The thing with broad the comment on the Montreal of occupancy I noted that at the wall are improving.
On the quarter.
This quarter and the leasing strategy and Montreal changed at all on Q4, and then when we broadly speaking like what are the key kind of operating leading operating indicators, but and you look at internally.
The what would explain why the Montreal on went up quarter over quarter.
We're expanding the school's remaining kind of online and the immigration of essentially.
Rather than how would you describe the improvement of Montreal.
And actually the seen some good like good traffic flow and and Montreal, and we were probably a little too are hesitant in giving away and incentives there.
So we've started giving a little bit more and in Montreal, and it's really and the core but again like we have some buildings on a right around the Concordia and Mcgill like Theres a few there the <unk>.
Very close to the the universities and they've been they've been really the ones that have been hit the most.
So we do believe with.
You know with the hopefully everything going back to normal again, we've seen a lot of positive announcements Mcgill is going back full time, we're seeing a lot of the schools of at least announcing that they're going to be 30% to 50% in person classes sort of <unk>.
Feeling a.
Much better right.
Right now and where we're heading into year to September so well.
I think that the what we've done here is proved to be the right strategy.
Got it Okay, and then maybe a question for Kurt.
And your eye from cap rate came down seven basis point.
Versus the Q3 of you also noted the expectation of continued the cap rate compression and.
It looks like most of your portfolio of externally of pre buy.
But you're on.
How much further cap rate compression do you see and the portfolio of based on the kind of extremely elevated transaction activity that youre seeing on the market today, and then how much of the and impact on the quarter over quarter change and cap rate would have the Hamilton portfolio acquisition during the quarter.
Yeah. So good question Mario.
We do this at a point in time and December 31st of all went with the and Phil We had and the appraisers had and there are and their books.
The discussions have been that they have continued to compress here and the beginning of the year and we don't provide guidance on that from discussions it looks like it could be.
Down to four or just sub for potentially as we go forward and that'll play out over Q1 and Q2 I believe is as these transactions for them up and the data is and the AR and the hands of our appraisers.
So I mean, if you look on a four cap on our current portfolio, that's going to add about 120.
225 million ton of the F N V, which means you're in and around that 85 standard smart on a per unit basis.
Got it and then the the Hamilton acquisition impact during the quarter the.
Without having the impact on the seven basis point decline quarter over quarter.
Or is it.
Yeah, no that was that was pretty negligible.
And the overall, it's just some of the markets, where we've seen a lot of activity and some of the debt.
And the Hamilton, London markets and in and around there so that it definitely did have.
And definitely did come down, but when I look at the overall portfolio of.
It was it was more or less across the board between sort of the eastern Ontario.
And the Hamilton and AG or region.
And sort of leading the pack if you will but it was it was across the board.
Okay. Thanks, guys for the time and.
And the conference call format I appreciate it.
Fred Blondell with I E capital markets. Your line is open.
Thank you and good morning.
Looking again at the occupancy it looks like you remain quite confident in terms of the mine, but is there and like.
As shown in the occupancy where you could be tempted to change your strategy.
Yes.
We're watching it really carefully read with me and it really hasn't come off a lot from the Q3.
We're kind of and we believe we are and the trough from what we're seeing we do feel that begin we're watching.
And it really closely we don't.
I think we're just going to stick to our guns and and.
Most of the way through here, but I don't see it really coming off a lot out of here, so and if and if we do see anything that that looks like it's gonna be of change you know what I mean as far as we have this gets prolonged we.
We will look at it at that point of time.
The only thing.
And to Mikes comments Fred is.
The.
And while we're not happy with with the the last couple of quarters, where we've trended on the bankruptcy. We really do believe it's COVID-19 related and it's the timing blip as far as and when does the rent to the man come back for some of the reasons.
And as we highlighted in our opening remarks.
And we've communicated over the last couple of quarters that we really not gonna have a good idea until through this leasing cycle, where the demand is and we're also very cognizant that immigration doctors can they come back.
Right off the bat why we know what's going to.
And come back it will have to get through applications, but on the flip side of that.
We have what we believe the double cohort and things like that adding to the rental the man and we also believe our any.
And he rental demand and we lost of home ownership has abated I think a lot of that's been satisfied and pulled forward.
So really the way we're approaching the September is gonna be a big month for us to kind of see where we're at because we really do I don't want to buy obviously at this point, but we have that opportunity that lies ahead of us.
Oh, that's that's totally fair and and on that.
Subject I mean, it looks like you're sticking with the singing.
And so and then Q3 Q4 this year. Despite the talks of the third way about the the pandemic.
And then make that fair to say.
Yeah, I think so for sure and I'll tell you I'll use kind of Ah Ah kind of going on and what Brad's comments I'll kind of even use my own family's situations and I have four kids that are home right now that probably wouldn't.
<unk> be at home and we love the fact that their home it's been fantastic. My wife is extremely happy, but the but all of these kids are on they're already talking about what they'd like to they liked the leave and get their own places and they wouldn't be at home and it wasn't for the situations, So and I know just talking.
And my friends. The all of these kids are really and it's not just the students. It's the young professionals. The young like a lot of the young professionals have come back home to live with their parents.
So I mean I just look at the the whole multiplier effect of where this could go and I just see that there's a lot of kids that are will.
And did the heaving getting their own apartments, even if theyre young professionals youre going to have the domestic students coming back youre kind of a double cohort I've of of of students.
Effectively go on a lot of the kids that work.
Supposedly going to University here at the start of this year of only taken part time courses they don't want to lose that experience.
And so youre going to see that domestically and hopefully we get to the point, where its international students come back and you know.
Probably it's going to be the 2020 two item.
And then the immigration so I didn't see that me and Theres a lot of things that we see as a really positive going forward and were built this thing for the long run and.
And will be you know where all of.
A fairly significant shareholders. So we think this is the best course of action for all of our shareholders and stakeholders.
Oh, that's great. Thank you and that's it for me. Thank you.
Jonathan culture with TD Securities. Your line is open.
Thanks.
Good morning.
The first question just the I guess the sort of continue on.
And on the vacancy or are you seeing and <unk>.
Man down.
And like less showing less inquiries and stuff like that or are you noticing that you lose.
Losing units the two on a on a price basis.
I think it's been pretty consistent I mean, there's a from what we've seen as far as demand and actually it's up a little bit from where it was me and and this and this Q. It seems like it's up a little bit to be Frank with you and.
And.
So where we're seeing some good things again, we're really believing that there's a lot of people that are sitting and their parents homes and for a variety of reasons that they're itching to get out and.
And I'm very lucky to have a a good lens on that on the personal lens and seeing their own my own.
Our kids and their and their friends and so we've actually found demand a little bit stronger.
So.
Okay, and when you say this Q do you mean Q1 versus Q4 like how is the strength, yes. So yeah. The star one versus Q4 yeah.
Sorry for the whole.
And at this time last year of Jonathan.
No no I know that I know that and so cute. So Q4 is hopefully the trough on on occupancy.
And it's gonna be probably fairly similar and that's just my take on it without seeing and I am and again I'm thinking it's going to be it's gonna be a little bit bumpy here of the first.
Two quarters.
And hopefully we'll see some good improvements and and Q3 again, we're really sticking to our strategy like we could easily rent of Jonathan that's just not what we wanted to we don't want to buy occupancy, we think that and the long run and that is not a good strategy.
Okay. That's the that's helpful and then.
And I guess on acquisitions, you said, it's the the the most you've seen and.
And in your career and you do you think there's enough supply coming or enough supply out there that the debt.
The cap rates might drift, a little higher or or is the demand that that strong I think demand.
This is a hugely strong there's a wall of capital out there and Theres a lot of like it's just I'm amazed at some of the players that I've seen at the table that I did not know had the capability of taking down deals. There is a wall of capital out there.
I think you've probably seen that even in the stock.
And as market Theres so many.
And just I'm amazed again by how many players of our at the table.
Okay and it wasn't at the Vancouver of deal that you guys announced the closing in April was that was that a marketed deal.
Yes, it was.
Okay. Thanks all.
Stock I'll turn it back.
Thanks, Jonathan.
Brad Sturges with Raymond James Your line is open.
Hi, guys.
And maybe just to go back to the occupancy.
And a little bit of the start off with here and just.
And just so I understand it correctly.
It sounds like perhaps of the move outs of the turnover rate that you're experiencing and in the Q1, so part of that.
Stabilized a little bit more compared to where you were at the back half of last year.
Yeah, the step where the as far as the the the turnover and it's been pretty consistent to be quite Frank with you.
I mean, it's of from year over year, and and even the quarters haven't changed really that much sequentially and as far as the the the demand we're finding a little bit more demand this quarter.
Yeah.
And and <unk>.
Maybe just on the discussion on the development side.
And maybe you're not giving specifics on specific properties Oh of projects, but do you have general tar.
Target returns that Youre looking to achieve on an unlevered yield perspective relative to what you can buy.
And the market today and and <unk>.
You.
Put more analysis of thought into.
And what the total portfolio of intensification of potential could be over time.
First off yeah, we're very mindful of our of returns that we're looking for so we're obviously trying to beat you know by I'd say of good hundred hundred and 50 basis points of what we can acquire out there so were.
And we look and double digit the IRR returns and as far as the intensification. We know we have lots of capability and our we haven't put that the paper to anybody but we've been working our way through it and these are some of the projects that we've got there the early ones and.
And there are various degrees of development obviously.
And getting through the entitlement process. We just wanted to feature of those again, they're terrific locations, we really really believe location always wins the day right now if I look at our portfolio and if I would've said.
Even on the not even the on the development, but on our assets we have got.
Beat locations all the way through Unfortunately core has been hit okay, but I think that's on a temporary relocation.
Truly 100% believe it we all believe it.
Okay, Great I'll turn it back thank you.
Matt Cornett with National Bank financial.
Your line is open hi, guys.
Sorry to beat a dead horse here, but just maybe on on the market a specific drivers.
As we come out of this what do you anticipate that maybe Montreal would move faster than the Ottawa, because it's mostly student related and then maybe if you could on.
On it and.
And I said by asset basis, and and you don't have to go into granular detail, but are you seeing severe.
The severely heightened the vacancy and knows Mcgill and Concordia athletes, but something more normal sort of outside of the University realms.
Yeah, Yeah for on the latter part of part of your question, 100%, it's more heightened and Ottawa to that's the.
The round our properties of around the universities and college of Algonquin and auto and you Carlton. So that's yeah, we've definitely been hit around the schools for sure.
And again, we really believe that with the schools opening up that we're going to see some are good some good.
Take up.
As far as those.
And he can apartments, and so we feel pretty strong about it.
Alright, and then just the I guess, so then you don't expect the different and in the Ottawa versus Montreal Repopulation.
Actually the B one thing is like we're really expecting Montreal is going to see.
A good flow of if you look at the once we get immigration opened up again, we really strongly believe of Montreal is a bit of a.
So Jim the people don't fully appreciate and I think Montreal is going to do extremely well I've just a couple of comments.
The facade to Mikes comments, Matt is on Montreal, just given the number of institutions post secondary institutions, and Montreal and gone back to what we were talking about with potentially call. It for lack of a better term of double cohort year.
I think you're already seeing some of that excitement.
And so I would not come into the marketplace and if you would talk to her bags and apartment montrealers do look for their apartments and one of the secure sooner than later so they they will entering into something a little sooner than later I was saying the Ottawa and one of the differences and the send side of the government employee base town.
And I don't think there was the same level of of variety as far of job security and the city. So that really lend itself well to anybody that thought that maybe they were gonna who purchase of home, calling and the next five years really took took advantage of the low interest rates, but we've already seen it in both regions.
<unk> already seen pretty strong housing pricing.
And and the Ottawa and we really believe and a lot of that's been pulled forward and has since been satisfied, but Kevin that and given that there's probably ottawa and as of.
A little behind Montreal, and and the core.
And.
But when are those I mean, those trends have been notable on house prices and I mean, you've seen and 20% increases and in both Ottawa and Montreal I believe.
And for housing.
Do you have a sense of.
And what portion of the turnover would have been related to people moving out or is the bigger.
And on and here ultimately sort of young professionals and moved in with their parents and the the international student component.
Yeah, and it's really a combination Matt it really is a even on our own shop I saw some younger kids that reached out the buy a home.
And there probably are they're pretty and thankful that.
Compared to the I've had even the people say to be like they've of how much money. They made by buying their AUM and the start of 2020 or and not like so anyway. So yeah, there and it's been a real combination there's been a variety of factors I would say by far Ottawa has been for home ownership just the overall.
They they'll just because of the government town and the steadiness of the of the jobs and the and not so that we put a lot more and Ottawa for homes versus Montreal on the other side.
Okay Fair enough. Thanks, guys. That's all it's all on paper and until you sell it though.
And Manish I, just add something to that because we keep.
Over on about the double cohort piece right and it's important on several fronts because it's it's not all of it it's both on the entry into the schooling right. So people that were first year September last year that ended up not moving out.
And people that are gonna be first year. This year, but it's also the the double cohort of young professionals that graduated.
The ones that graduated.
Keep talk us through the ones that are graduating this year. If you graduated last April and you probably weren't out looking for an apartment and anything you were moving back home or doing whatever so there's sort of multiple branches of that double cohort and.
And you know on the.
On the move out piece I agree, 100% with Mike and Brett and what their comments were like you think through but the fact that if you.
The weighted lull and homeownership ahead of couple of years and someone's plans because of what's going on and the market. It takes a while to save up and buy that first home and you pulled out of head people stretch a little bit for a year of two years out at least my expectation and that will create a bit of a void coming in behind it because eight of those people didn't have enough time to save up.
And you pay as you alluded to yourself the.
The 15% to 20% increase and home prices. We saw from end of 2019 day end of 2020.
And so that the 100% makes sense to me.
Yes.
Yeah.
Julian and Chen with BMO capital markets. Your line is open.
And being the hi, good morning, guys and.
Maybe just sort of thinking back on the the leasing from you know already and really starting with Q1, just wondering if you could provide some color on.
With respect to what you guys were seeing in terms of turnover and occupancy and centers.
Kind of the trend so far and Q1.
Okay.
And it Didnt hear and 100% clearly, but I think you were just asking about the trend from Q4 versus Q1, if I'm right and trial.
Yeah, Yeah, Yeah, it's been again, it's been pretty consistent we're seeing just more traffic, though right now than what we've seen before do I think that we're going to see everything.
And I'm the normal and for Q1, no do I think we'll see it in Q2, no I think we'll be Lucky again, we're looking at September of this year and that's when we think we'll get back hopefully at the normal, but we'll be watching very carefully and a lot of it is going to come down to you know how is our government dealing with the vaccinations and giving people confidence to go back.
Return and our back to school and that so we're gonna have to watch it very carefully.
And I'm sure we all have our opinions there, but oh, maybe just switching gears and I guess I'm on the didn't you mentioned in terms of the deal flow and can you maybe talk more specifically with the recent expansion into Vancouver, and what are you seeing on the balance.
And Alan kind of bid opportunities and that market.
And we've seen a lot of different opportunities and Vancouver again, it's early stages for us.
Got to the whole lot of people by being out there myself being on the ground with our team.
We are very we are very bullish on.
The Vancouver again, we're building this again as we've said for the the long run and we see there's going to be a we think is gonna be a good amount.
The amount of people that'll be coming to Vancouver here as we get through this and we also know there's a huge population of students that go to the of variety of our institutions.
And is there the and the AR and Vancouver, and so and their vacancy rate over the years of been ultra low like we're looking at 1% and for a lot of years. So we really believe there's a lot of.
You know potential and Vancouver, and where and we all of them.
And again with the technology sector, becoming more and more.
On a parent and more jobs coming to the Vancouver. So we just think there's a lot of great things about Vancouver.
But we're early stages I'm not going to say, we're not we're not putting all of our funds into Vancouver, we're watching it and being careful and mindful of the Wednesday of that.
Two of Mike's comment too and it's just too is and its alone.
The difference of and inventory, it's a little more and mid rise. So typically the the unit and you don't get the same size of fielding and net.
And Cougars, so when we have this opportunity and joint venture, whereas cross point, which are the super excited about and the capital partner.
We saw the opportunity of that we've got.
And some scale, which is extremely hard to do and Vancouver. So one of them made sense from a one off basis, but now we're going to be able to pick off and cherry pick some smaller buildings and the other markets. We're probably one of the done but it makes sense and that's market because of their clustered together and while individually they look small but from and offerings.
And some point there the clustered on the around the corners from each other.
So we're on.
And.
It would be out on debt and April was that done with cross point or.
But these these couple of yeah, we we've taken them down and they're going well the potentially will be with cross point to again these were off market, whereas that's one.
One of the things we've already started to build some relationships with people that we're getting to see.
Some properties before they come to market. So we're.
We're excited about it and where and we're really extremely we've got a great partner that knows that market very well and cross points, where we're very happy about that the partnership.
Got it okay.
Thanks, that's very helpful and I'll turn it back.
The Logan with RBC capital markets. Your line is open.
Thank you and good morning.
Yeah.
Just wanted to follow up on the on Matt's question with regards to.
How concentrated the vacancy is in your portfolio.
Could you give us a sense for like across the whole business like how many built things really have above the average vacancy that might be north of 10% and like what percentage of the portfolio might be running more of it more on the traditional 97 plus.
Per cent of occupancy bad.
It's really concentrated around our schools and in the course of.
You know I mean, that's really where it is.
And as you know day and 97 is not our typical operating.
Yeah.
Sure Mike.
What sort of like it's not a it's not a typical of the operating model, we tend to kind of be of low lower than that 97 would be on the high end of of that range to begin with right.
But suffice it to say, it's fairly concentrated in the handful of buildings in the core and around the universities and yes.
10%.
That's why we feel we got a great opportunity here as we go forward. We think we're actually we're in a good position.
We talked a lot about it and obviously a lot of it is going to be and will unfold here as we get into September.
But we feel we feel pretty good about where we're going.
So I guess, if we think about the demand profile. If you were to lower rents would there be sufficient demand that you could fill units or these buildings, where there is simply no students on campus and there is no demand no matter, what the rate or incentives are.
It would be of it would be of.
The combination and there'll be some demand.
It would be definitely not of student demand per se, but there would be some demand and again its debt that would be.
And we just think it's counterintuitive to where we want to go and.
So and again, it's fairly concentrated.
Again.
Our totally one standard that Matt.
The winter and I'd just add to that.
And as you are quite aware of we like turnover right, so and in the and those areas. We wanted to keep it with the consistent with the tenant profile that we'd been leased and two historically.
And as well right.
And in terms of turnover and perhaps the mark to market potential on the portfolio would you say that's diminished relative to where that would have been and.
I'd say November at roughly 15%.
Okay.
Yes.
And can you repeat that Matt.
Yeah.
And the Mark to market opportunity for the portfolio would you say that's diminished materially since the November when you reported Q3 results.
Some of them.
Microphone was on and it wasn't.
No it hasn't it hasn't changed significantly we've we've been looking at it consistently across sort.
In terms of.
On the property basis on the city basis, and on a regional basis, and it's been fairly consistent across the board.
And maybe the last one from me before I turn it back in terms of the NOI emergence of the business. This year do you think we get back to the 65% range. If we back of some of those COVID-19 related costs that we've.
We've seen in 2020.
I think we we do it's just a matter of whether we get there and sort of 2021 or 'twenty 'twenty two just given the timing like Mike was talking about of when that comes back you know I think if things track well with with the rollout of of the vaccines and students I think we could see the later the latter half.
Of this year like Q3, and Q4 beyond and track or in line with previous years.
And then but Q1 and Q2 I think we'll still see the impact of the increased vacancy.
And just kind of hit the run rate, we'd get back yep.
I appreciate it guys I'll turn the call back thank.
Thank you very much.
Dean Wilkinson with CIBC Your line is open.
Oh, Thanks, good morning, guys.
Mike I'm going to take from your comments that I was extremely lucky that my Kid did stay at school.
Well one of my kids didn't have an option because they were closed.
Down Unfortunately, so I.
Assuming of your kids went to somewhere like wife's friend or somewhere and there are that out and Lori and so they they go okay. Yeah. They didn't have the cat.
No.
Well I'm pretty happy to have and home actually.
It's been a it's been of great family experience that I think they've experienced now and like the move.
And from.
Happy to have and the home happy to have him lead.
And there's been a lot of talk on this call about the occupancy occupancy, but and I'd like to talk just one on on rates rental rates. I mean, you did acknowledge that the mark to market opportunity and the MBNA has kind of gone from the 25% to 20%.
The move.
How old is that 20% mark compare against what you realized on the terms or the calendar year of 2020, and do you track the duration of those tenant move outs of how long they've been there obviously the longer they've been the bigger that markets are you seeing more of a shoe.
Order term tenancy turn or a longer term and just what should we be thinking of in the three or 400 basis point backfill in terms of that mark to market capture on the releasing going into the back half of the year.
Again, it's been pretty consistent about our as far as our turnovers and that we do believe.
We've again and the back half of the year, we're going to see.
Hopefully of returned to normal and I think from them and hopefully that our of our mark to market will move up a little bit on the back half of the year, we will see how it goes on.
And what was what was 2000 twenty's a lift on on the turns can you remind me of that.
If you've got that handy.
I don't I don't think we've had disclosed the lift on turnovers before sort of I don't think we're gonna how do you weigh on last call.
[laughter] of kind of dry.
And with the remind me, but I was just part of another sort of weak enough and he and I have my second coffee, so I kind of that one.
And I was hoping it'd catch of just after the first of month alright. Thanks, guys. That's it from me.
Josh simple with Laurentian Bank your line is open.
Good morning.
Okay.
I just wanted to understand are the incentives.
And <unk> being offered and your market share.
And if you could provide color on you or the incentive policy.
We look at it on a case by case and building by building, we're probably should've, maybe did a little bit more earlier on we didn't do that we were very hopeful that we would get through this.
Quicker than we did we are and we're doing it now, but it's really case by case building by building and would be more elevated whatever we're giving would be and core buildings.
Yeah.
Right and what does.
How's the market.
And that Adi and like all the other compare.
Editors and offering a lot of incentives as compared to.
What do you all think like any any any color there.
Some of our competitors are offering more we were we were very I guess, we were watching being very mindful of that.
But yes, some of our competitors are offering.
Just a little more than what we're doing we're pretty well I think we're being very specific and being very targeted on the buildings. We're also making sure that you know we don't you don't change the the profile of the buildings.
So we've been very very careful and been very mindful of what we're doing.
How many.
The offering of free that and it's been golf and gender and real.
The markets again, its been really targeted depending on the there'll be more around the students if that me and if we can get of students right now and it could be one to two months.
And then theres, some that there's like Youre getting zero and where.
And we're pushing the rents, it's been and Iowa, and our portfolio of and so really it's a it's evidence really of huge disparity going on right now and then some of the properties that I'm shocked about how were where the demand is very strong and we're pushing rents. So we're being very targeted.
The months, Okay. That's good and maybe you could tell us little bit about your repositioning program has has that program.
Been affected by the pandemic on you continue to do what you are and what you.
Were doing before.
It's continuing on and nothing's changing.
And we're being mindful of what we're and we are continuing on with that that the whole repositioning.
I guess.
And trying to high grading the of the the properties to an extent so we're very we're continuing on and.
We're watching again, the the markets, we're gonna be mindful of what.
And we do but again, we really believe this is the right course of action for all of our shareholders. As we are as we go true ups of where we think this is the right course of action, but being mindful that some of the stuff is out of our.
Really we can't really do too much about.
What goes on with the vaccine, but we are we are very hopeful we've seen a lot of positive news, we think we're doing the right the right moves.
That's it from me thank you.
Fred Blunder with <unk> capital markets. Your line is open.
And I apologize I didn't want and need to.
On the call of I realize it's still the.
But I think the early but I was wondering if you could give us a bit more color on the how's the Vancouver portfolio, performing so far better, but more importantly out of how should we be viewing the.
The relative contribution of Vancouver, this year and next.
And again as far as.
It's I mean, it's it's a it's a smaller piece of our portfolio, it's something that hopefully over time will balance out some different areas of.
We as far as contribution and it's really early we're just going through the doing some renovations right. Now we are yes, we are really trying to do.
The little bit of upgrading on the portfolio, so you're not going to see.
Heavy rentals and right now, we're expecting and we're going to start seeing heavy like I guess more traffic and actually I'm kind of surprised because I'm hearing there is much more traffic than we thought they would be but we think we'll really see some good rentals.
And do some of them this summer.
Oh, that's great. Thank you.
Mario <unk> with Scotiabank Your line is open.
Hi, sorry, just a couple of quick other ones on my end and really focusing on your student exposure like across your entire portfolio of what's your of both gas and in terms of the.
All of the.
<unk>.
And we do.
Students, both domestic and international.
I would say, it's about 8% or so seven 8% by the end of the problem too is when I. When you look at it and it's also the young professionals to and the portfolio and that's really that's the kind of a two pronged.
And the fact, that's really where we're getting it and those are people usually want to be and of course. So you of kids that will graduate they'll stay downtown because they want to be at the bars. The restaurants of the whole debt now. Unfortunately, nobody first off you can't get into many of them depending on the zone, you're you're you're up and.
Living in.
And if you are and an area, where the bars and restaurants are open and the like they are very hesitant. So like the battle and experience is gone we believe it'll come back actually I think it's going to come back and and a much higher.
The velocity than even before personally and once we get through and I think everybody's.
Reasonably tired of sitting.
Sitting at home, so, especially the young ones watching my own kids, So I'm feeling very very bullish of where we're going to be at the end of this just just on that Tom and Mike even internally with some of our young of team members. When you engage with some of the younger and future leaders, they're sitting there and the young professionals and their use of some of them.
Or just chomping at the bit to get out and I've asked them like how are you and your friends are.
Looking at it because you kind of and the cohort the really matters in the urban core of them there and consistently I would just say at least 75% or all of saying, it's just a matter of time.
And we'll be back and we all want to live.
Works and it's just really when they have more visibility when things get back to normal so right now they're looking at this as and opportunities say below of cash and be able to fit out their place of little nicer once they do move out.
Got it and what would the would you say the your exposure to the young and working.
And the cholesterol for.
And the likelihood of prescription and comparable to the 17%.
The exposure.
I would say, yes for sure again, where the where we're getting hit us and the core so that's basically I would say definitely.
Right and then just maybe on the concentration.
Perfect.
Absolutely. It sounds like you are being hit and of course, you mentioned multiple times one of your one of your peers and noted that their vacancy and student driven buildings.
30% to 40% and the.
The portfolio or are you seeing that type of.
And here of students.
Yeah. That's helpful. We are as of the muscles and certain buildings, we are yes.
And I wouldn't be very good.
We'd all be fairly consistent.
Got it and based on your experience and Montreal.
And so you mentioned Mcgill and now.
Three of the beat expectations from in person classes and September.
Typically when with international students arrive and your buildings for a fall of school year and that starts in September and early.
And typically coming from leases.
They would arrive and August typically but I've seen some arrived later on I'll tell you, though I'm going to say like.
And everything to me this next year and.
It's like it's changed I don't think there's anything I'm Gonna go and rule by some I wouldn't agree of.
People buy rule by the day rule by the hour.
Evidence of change you've got to look at your stuff consistently.
All of the time being mindful of what's happening out there so.
Will the students arrive and you.
October and November and do the first part and the online who knows right. It's gonna be all I know is that the universities are going and there are a lot of them are have some financial duress.
We've seen that Oh and.
Play out on a one school and protect.
I believe that they're really kind of wanted to up their game and far as international students I've been hearing the same from a couple of different sources.
And we'll see how it all plays out but again I wouldn't I don't think I would go rule the robot thumb on anything right now.
I would say the good news Mario.
All the all of the different education institutions that are kind of potential demand and feet of demand to us.
Over 50% of them have come out with some kind of intention of any.
Creasing, there and class exposure, so what that translates into.
And to that well have to take a wait and see but that is definitely positive news and more visibility than we add three months ago and each of each couple of weeks more and more institutions are trying to come out with what their intentions are come the fall of program and we even seen some with the summer program. So directionally it's going.
Who knows.
Okay, and then just on that point Brad.
And the deal with it.
The three weeks ago and in terms of of expectations for full and of course.
Of course, the class have you anecdotally have you seen.
And the empowered.
And your video poker.
Starting to see a little bit of.
And we're.
And the rate was the a little bit of impact there again like usually the kids with all like lease from May to the April 30th.
Me and I think that we're seeing that this may change a little bit.
But yes, we are starting to see a little bit of impact and I'm very hopeful as we get through the spring and we're going to see lots of March.
We're starting with the positive news.
Yeah.
Okay. Thanks, guys. That's it from me.
There are no further questions at this time I'd now like to turn the call back over to Mike Mccann for closing comments.
Thank you I appreciate everybody joining us on our first call.
And of excellent questions.
From everybody and again this is obviously a very very different times very strange times. The say leased we are feeling very bullish on our strategy. We think it's the right of course of action. We think all of our shareholders will benefit from this and the and the long run.
And again.
Have a sole belief and our team our team has done a tremendous job getting through this their engagement with our residents was.
Unbelievable.
No.
Checking on him for everything from to make sure that they had groceries and he pharmaceuticals they needed.
So I really value of our whole team members and.
And as the company I think we're all going into.
Good time, we've learned a lot about ourselves and this I think we've all learned a lot of better ourselves.
On the business size, and and and personally but I feel very very.
Fortunate to be a.
Part of this of this great team. So we look forward to having some very good results as we get forward through at the end of this and of this year and of the into 2020 two and thank you again I appreciate all the analysts and their and their coverage and I and I appreciate everybody joining us on this first.
Carl Thank you very much.
This concludes the Interrent REIT fourth quarter and year end, 2020 financial results conference call and webcast. Thank you for calling you may now disconnect.
Okay.