Q1 2021 InterRent Real Estate Investment Trust Earnings Call
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Ladies and gentlemen, this is the operator your conferences scheduled to begin momentarily.
Until that time your lines will once again be placed on hold thank you for your patience.
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Good day, and thank you for standing by and welcome to the insurance REIT Q1, 2021 financial results conference calls for it.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone please be advised that today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Sandy Rhodes.
On everyone and thank you for joining Interrent rights Q1, 2021 earnings call. My name is Andy Rose and I recently joined Interrent as director of Investor Relations and sustainability.
Leading the call today will be Mike Mcglynn, CEO, Brad Cooke, President and current Miller CFO.
The team will present, some prepared remarks, covering the most salient points of the quarter along with an update on market conditions and then we'll be pleased to open the floor to your questions.
Before I hand things over to Mike I want to remind listeners that certain statements about future events made on this conference call are forward looking in nature.
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 news release and MD&A dated May 11, 2021 for more information.
During the call management will also refer to certain non IRA for rest measures.
On the REIT believes these measures provide useful supplemental information about its financial performance. They are not recognized measures and do not have standardized meanings under ifr us. Please.
Please see the REIT MD&A for additional information regarding non I for his financial measures, including reconciliations to the nearest I for us measures.
Mike the floor is yours.
Thank you Sandy.
It's been a key.
Crazy year.
I guess, a long 14 months feels like five years.
But I have to say that I am so proud of our team.
They've been so diligent they've been keeping our residents safe and secure healthy and they've worked so hard for all of our shareholders and all of our stakeholders for that matter. So I just have to say the team has done such a great job I am very proud of what our team has also done for our community.
Supported many great causes helped out our we used to partially supplied PPE to our I think it's three or four hospitals. We've also helped many charities. Many small businesses I think its on our numbers almost 200 small businesses as a team we've contributed over 300.
$1000 to these different endeavors.
100000 came from the REIT itself and the rest came through our executive team and many team members from.
Just so proud of what they've done we really are in it.
We want to be community partners, we realized how lucky we've been it has been again, it's been a tough long year for a lot of people and we're very very lucky for you know our positions that were in Oh I'll tell you. It's one of the I just.
I'm going to use one of the endeavors that we've done.
We have actually contributed to the one of the food banks.
And we gave them money and.
What they did is we put them in touch with one of our local restaurants.
And gave the food bank money and they would buy the food from the the restaurants. So we actually got a double I guess, a double fold lift for both of them and that's just one other endeavors. We've done so I just again like our team has done like yeoman you're on.
<unk> work on helping out on our community so on.
On the.
This is Brian.
It's not been as is.
As great as you heard we've had before and going back to <unk>, obviously going through COVID-19 and the pandemic.
But what I do see some light at.
The bottom of the I guess the crack in the door, we have stabilized our occupancy.
Everybody is again going back to the team they worked really hard in achieving and we are starting to see a little bit of modest rent growth, which we've always had along the way.
As everyone knows we've net we had a strategy and we said we would never buy occupancy. We always said other than we would not do that and and I think our strategy is going to prove out to be very successful at the end of the day.
Obviously, the next the last Q and I believe Q2, and and I think we will we'll be lucky to see here and I do believe we will see it at the end of Q3, and especially Q4 I think we're going to see that this strategy has proven to be the right strategy along the way and I'll tell you we had a lot of internal discussions and I've had people.
Saying they thought it would might have been the wrong move but.
As a team we made a collectively and we really really believe that this will be the best.
Our go forward strategy for all of our shareholders.
I want I wanted to give a little bit of a cautionary tale or cautionary point.
I know that Youre seeing that we've got high vacancy in Vancouver.
Obviously going to be just very temporary we are just in the process of rebranding those properties great properties unbelievable locations. So happy that we transacted on that on that deal with trust point.
But we are a brand rebranding them, where we're doing work on the common areas, where we're doing work in the suites and again, we want to capture the right side of the market and where we think we're going to see that starting to happen. While I know we will see it because we are starting to even get lots of calls even though we're really not in a rental mode.
Net but youll see it in Q3.
Also I would say.
Say on Ottawa.
Think Ottawa would be the right now I'm, a little a little concerned about.
Well not really a concern is probably not the right word I just don't think Ottawa may get the same.
Mediate lift here in the end of Q3 that I really see and the other in the other markets, it's still going to get a lift but I think Ottawa just because its federal government based employees and the federal government doesn't seem right now that they've got the impetus to push the people back into the offices, which is a drag on all the local businesses and the whole.
Downtown community.
I'd see it not may not be a transact fully and I and again I'm I'm going to say, it's going to be it'll be much better, but it won't trends not fully until.
Q, sorry at probably 2022 and I'm hopeful on the first Q of 2022.
And I guess I should also point out is that like how positive. It is with all the people getting vaccinations Thats really I think that's really lifting.
<unk>.
The rental the rental traffic and I think as we go through I again, I'm very confident that we're going to see some good rental numbers here for the end of Q3 of this 2021 and really going into the Q4 of 2021 and onward.
Also what's even having the school's announcing that they're going on in person classes. I think is going to be tremendous and you'll see more students going in and living in around the university's on that so which is terrific I know I have a couple of kids that are planning on moving out I think on our last call I said I had for kids at home I have got two that are very committed.
Two leaving here at this summer so.
I think thats, just everything is kind of going back into the proper in right direction, where it was before.
I'm going to go now on to just to whats going on in the investment market and acquisitions.
There's a ton of product out there it is getting a bit up where we're seeing cap rate compression.
Across the across the board and quite frankly, even not just primary markets, but the secondary and tertiary markets.
I see there is just like a wall of capital. There's so many people interested in multifamily they really see it as a safe Harbor. If you look at you know again like what our collection rates and even when we kind of talk about you know yeah, we're off a little bit on on our occupancy, but all of us could be fault. It's just a pricing game everybody could before.
But.
Where we're really seeing this as a safe harbor, obviously, everybody else sees it too.
There's people that are investing a lot of the institutional.
Players now in private equity there.
Layers there so there's a lot of people looking for multifamily. So we're going to have to stay disciplined on our approach. We will have to make sure that you know that we you know nothing veers from what we've done in the past I do see that we will end up transacting, we've transacted all the way through this pandemic.
I see that will be continuing it on as we go forward and so there will be on.
Obviously some growth in our in our in our company and in our portfolio, but we will be disciplined.
I also would like to point out too as one other things that we are <unk> been talking about too we have been talking we will be probably doing some small dispositions on those are just smaller properties by the on.
On primary basis that will sell and.
We just think it doesn't fit completely into our portfolio anymore. We will also be looking at a more jv's potentially we've been really happy with their Tvs to date, we've had two excellent partners.
Actually more than two there.
They've been great to deal with and I think what it does is it really gives us the.
A great opportunity to leverage our platform and by leveraging our platform. It really increases a lot of opportunity for our team.
It also helps our bottom line and it's great for our partners too. So it's a win all the way around so we'll be continuing on with upfront.
The last items I really want to grow overs are on our development side.
You'll you'll see that in our in.
Our MD&A that we put out.
For 73 Albert.
Great location.
158 suites for going to rebuilding there was a former office building and the construction start and the start of Q3 of 2021 were hopeful that it will finish on the end of the queue.
Q3 2022.
And again really excellent location we have.
I'll tell you the design work I have seen is fabulous and I think will do extremely well there. The next one would be 900, Albert on 900, Alberts a very large.
The opportunity for US again, we're just we're a partner in that we've got we've got great partners there too.
So.
900, Albert we're gonna be putting up approximately 241 suites plus some commercial space. We are looking at the whole <unk>.
Project, we want to make sure that we.
Get the most of this opportunity it is right at the T of the LRT here in Ottawa Fabulous Fab.
Fabulous site.
Very excited about it but we are working through what we really want to be mindful to make sure that we get the most of this opportunity.
The third project is again in Ottawa, and Richmond, and Churchill and enrichment Churchill Theres, a 180 for suites. So we'll be putting in we're hopeful to be starting that in Q1 'twenty 'twenty two.
Now I just want to point out these are all premium locations in Ottawa.
So I think at the end of the day.
Location location location always wins, the day, and we will be mindful of making.
Making sure we don't kick off too many.
Properties at any one time, but we know that these are great great opportunities. So.
We think there might be a little bit of a lag in the occupancy and Ottawa I don't see that as prolonged and by the time, we get through these buildings will be in great shape here in Ottawa. So we're very very confident about where we're going here and the last one that we've got is that a fair view on Burlington, that's a JV too.
And that property was should consist of over 2000 apartments and condos.
Hope to start that in the first half of 2022.
Again Fabulous site.
Really feel very bullish about it we're working through the city and the city has been great so far to deal with.
We're really excited about that opportunity and.
We see really good things coming there in that area. So.
I guess I just wanted some of that we're really sticking to our core strategy all the way and I think we're going to see some really good.
A really good success here at the end of this this year, so I'm going to pass this over to Brian now. Thank you.
Thanks, Mike and good morning, everyone from my side I'll take you through the operations update for Q1 before I hand, it over to Kurt to talk through our financial position.
Going to start with docs do because they know that's the topic on everybody's mind.
Then on March we're saying on an occupancy of 91, 3% for the overall portfolio.
And $92 one per cent for the same property portfolio.
As Mike mentioned, we're pleased to see that the overall oxy has stabilized for year end.
As we discussed during our Q4 call we have seen occupancy hit hardest in the urban core properties in Ottawa, and Montreal, which typically have a high proportion of students coupled with young professionals, many of whom have moved back in with their parents.
Continue to view the occupancy pressure on its temporary and for some other reasons outlined earlier around the vaccine vaccination rollout and current announcements regarding universities reopening plans, we're optimistic about seeing an uptick in occupancy for these properties in Q3 and more meaningfully into Q4 on.
So our our contactless rental process and virtual property tours seem to be getting traction or email leads were up 18% in Q1 versus the same period last year and the numbers for April saw even bigger jumped by more than 100 per center web traffic was also the island on the rise for 49% on the quarter and up 61% in April.
Peru or after approval conversion are holding steady in around the 80% range. So well find all of this to be very encourage you on as a source of future leasing demand.
We have an extensive repositioning program, which means that our occupancies likely never going to hit 98%, but were hopeful that we can gradually return to more normalized run rate and around the 95% target that we like.
Come on accustomed to over the course of 2022.
On the right side of the things, we're seeing a strategy to prioritize price over oxy bear fruit. We were pleased to reported an average rent in margin.
1325 per suite, which is up for 3% from 1270 last March this results even better when looking at our same property portfolio, where March average rent per three came in at 1328 showing growth of $4 six over last year.
On the external growth from we've added 1242 suites doing portfolios since Q1 2020.
As usual these units initially came into our non reposition portfolio on expected to contribute to driving our organic growth in the years to come on.
We worked through repositioning on upgrades overall these real all the results have contributed to reporting operating revenues of $43 1 million for the quarter, a nine 4% increase over Q1 2020.
Moving on to NOI in Q1, we generated $26 5 million of NOI on an overall portfolio leading to growth of seven 2% over Q1 2020, mainly on the back of external growth on average rent per suite improvements that I've just outlined for us.
Same property portfolio, However, NOI growth was.
Minus one eight per cent for the quarter as occupancy pressures, we highlighted continued to raise strong underlying rental world.
This resulted in slight NOI margin dip on the same property portfolio from 62, 8% in Q1 2020 to 62 five per cent for the first quarter of 2021.
For your reference so normalizing oxy to the same level last year, our same property NOI growth would've been six 5% and on.
Our NOI margin would've been 64, 3%.
Margin for the overall portfolio stood at 61, 5% in Q1 2021, reflecting the lower operational efficiencies on recent acquisitions and our non reposition portfolio.
We believe this is part of our portfolio offers a significant opportunity for the REIT to execute on its value add strategy in the years to come.
Let me now I'll turn things over to Kurt to share our financial update.
Thanks, Brad and good morning, everyone.
Mike and Brad have done a lot of the heavy lifting providing color on our Q1 results. So I'll jump straight to <unk>.
We are reporting <unk> of $16 2 million for the quarter.
Nearly 12% increase over Q1 last year.
On a weighted average unit diluted basis.
<unk> was 11 point for <unk>.
Down marginally from 11 five cents in Q1 2020.
As Brad mentioned earlier, the increased vacancy in rebates impacted our NOI and therefore <unk> nor.
Normalizing this to the same level as Q1 2020, our F O per unit growth would have been 13, 9% year over year for Q1.
Our distribution for Q1 2020 was $8 one for <unk>.
And represents a 71% <unk> payout ratio and then 80% <unk> payout ratio.
Relative to Q1 2020, the REIT has increased its distribution and 5% quarter over quarter, demonstrating our objective to provide unitholders stable and growing distributions as well as our steadfast confidence in the outlook. Despite some short term challenges.
During the quarter, we spent $174 2 million on acquisitions and invested $15 6 million into the standing portfolio, mainly for value enhancing initiatives.
For the first quarter of 2021, we recorded a fair value gain on our investment properties of $97 6 million.
Driven by the NOI improvements in our same store portfolio.
And a 10 basis point of cap rate compression relative to Q4.
Leading to a weighted average portfolio cap rate of 4.06% for Q1 of 2021.
Given the current market conditions and in discussions with our external advisers, we expert expect further cap rate compression in Q2.
The REIT is in a very healthy financial situation our.
Our debt to G. B V. At March 31 was a comfortable 32, 7% up slightly from 31.1, we reported in December following an increase in our mortgage debt from our Vancouver acquisition.
At March 31, the REIT had mortgages of $1 1 billion at an average term to maturity of four seven years and a weighted average interest rate of two point for 7%, reflecting a nine basis point reduction from year end.
73% of insurance mortgages are insured by CMA cheat, which provides for favorable interest rates given the reduction in refinancing risk for lenders.
At the end of Q1 2021, the REIT had $285 million of available liquidity, which along with its current debt to G. B V ratio of 32, 7% offers ample headroom to finance future capital programs development opportunities and acquisitions.
In closing I would also like to thank Sandy and welcome her to our team and I'm sure. Many of you will get to know her in the coming months. If you do not know her already.
At this point I'd like to pass it back over to Mike to say a few closing words. Thank.
Thank you Kurt.
No we're not.
Really happy with our results to date, we understand obviously these are challenging times. Our team has responded incredibly well I have to tell you that now that some of them are getting their shots I can see that they are really starting to get bolstered and I really believe that we're going to achieve some really great results as we go forward, we're really looking.
<unk> forward to getting back on track, we will be back on track I can see great things coming forward.
Thank you thanks.
Thanks, Mike I'll now hand, it back to the operator to open the floor to your questions.
At this time on as a reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Your first question comes from the line other Jonathan culture from TD Securities. Your line is open.
Thanks, Good morning.
Okay.
First question is.
I guess just on on auto are like you talked about it being maybe a little bit slower than other markets, but there is going to be the positive impact of <unk>.
<unk> coming back there how much of your portfolio would you say.
We'll benefit from from students coming back versus B, a little bit slower from a.
Slower return to with the government.
Hi, Jonathan on where are you.
Yeah, there's a we've got a chunk of our properties are the downtown core and then Sandy Hill that will stop for now we are seeing leasing activity right now.
I'm, just I mean, I'm, just being cautionary about Ottawa I do see that it's going to improve but I just would rather think that it's going to be I don't want people to put in it's gonna baked in like the other are the other markets, where I at least I feel the other markets looked like a little bit more on positive.
You know I guess traffic right now.
Okay, so like faster growth on the other markets and then Ottawa trailing by a quarter or two is it's kind of on.
The other thing not I, just don't Wanna, what I'd rather.
Under promise.
Les you're right and we will hopefully we'll over deliver we just don't know we don't know what not for what's going on like we're all seeing what's going on here with the with you know with vaccinations and everybody's mindset changing I can tell you I have two of my kids as I said before we'll be moving out and they'll be moving into the downtown core so.
And I know that debt and that's pretty that's pretty a lot of their friends are in a lot on like I think people are getting more and more positive. So I just the only thing is I do worry a little bit odd was not like I don't want to say paint auto as only a government town, it's really diversified now, but I do I am a little concerned with that thought.
Part of the work force that they may not come back as quickly as some other.
Segments, that's all in there.
I'd just add to that we had a little heightened make see going in Jonathan into Q for Q1.
All in the National capital region, and one other reasons and you've seen this a lot in the media is Ottawa housing market has performed quite well. So that we did lose some to homeownership and that's had a little more of a prevalent factor I would say more so in Ottawa then or.
Other at CT regions.
Yeah.
Okay. That's that's helpful and if we if we look at you said youre going to start for 73, Albert hopefully in Q3.
Do you have a.
Estimated cost for for that development.
We haven't put that out there yet.
We know that like we've done all of our work on it it will be very accretive for us.
That will be mindful of putting out potentially next Q.
Okay, and then just generally speaking on on your development program and I guess also your repositioning program.
How how impacted do you think you'll be from a construction cost inflation.
It's something that we've got to be very mindful of there's no question. We've got a we got to be careful with that and it's something that we'll be watching as we go forward on some of these new projects that we're we're looking at doing so some of them are not going to hit until I think as I said it'll be into 2022.
I have heard chatter that they think costs will come down once the supply chain. It comes back to a little bit normalized.
Nobody knows for sure.
We'll have to see that as a big so does it mean, if it if anything it looks like its offside it like.
Like the the cheapest time to own a property development site is when you haven't put a shovel on the ground right. So we know they're all we know theyre all on premium locations not concerned about it. So we have to hold off a little bit but hold off.
Okay. That's.
That's helpful I'll turn it back thanks.
Your next question comes from the line of Mike for cadence.
From a day shirt on your line is open.
Good morning, everybody.
For questions from my end just first congrats first of all on stabilizing New York Thanksgiving, It's great to see I was wondering if you can just chat.
Or give us some comments on.
You know how how your traffic changed in <unk> versus the prior several quarters and to the extent, we're a little more aggressive on incentives and one for each other.
Maybe I'll start bridal jump in I'm sure it's low.
You know, what it's a really imperfect, but its really more art than science to an extent, but we have tried to make it a lot more science based.
But what we're doing it's.
Where it is really watching on and I'll tell you.
It's almost like a bit of a push and pull we are seeing the traffic increasing I like to think it's because of.
Sure.
And I don't want to get for kudos to our marketing team our marketing team has done really amazing.
They really stepped it up over this whole process. So I'm I'd like to think that they're doing a great job and.
Identifying who are key customers are and and spending appropriately.
Well again.
It looks like things are.
I guess more positive people are getting in a lot better frame of mind.
I'll tell you.
I think we've improved a lot on our whole digital approach. That's one thing that kind of brought us worried about five years.
Probably me about 10, and but anyways.
I think that we've done some really good improvements as a company. So we're benefiting from that and you got to remember last year. When we got to about end of February man like it just like it was just on like went to zero are our traffic to and all.
And you know when we went into that way at all the way through spring. So I think people are feeling more confident and almost unfortunately like a.
A bit of a normal is.
On the life, we're living right now so.
Okay. That's helpful. Thanks.
Yeah.
Mike The only thing I'd add just I think the world is that to Mike's point is getting more encouraging in spite of vaccinations. So on.
The fact that schools are out there, saying that they want to be back on campus in class learning.
And back to Mike Anecdotally, just in his I'll call them seeing shop with us on kids wanted to move out and have some of that kind of.
Year, one year, two experience and University I think there's a lot of.
There's a lot of the pause of the optimism that things will be back to a somewhat normal we're not banking on it is somewhat normal on I think that's leading to our increased electronic traffic.
Traffic.
And as far as the rebates there they are up just slightly low centers up just slightly over Q1.
Okay. Thank you.
The Vancouver portfolio I'm, you know elevated vacancy there is you had telegraphed it just with respect to the in sweep work that you plan on executing there is this a lot of heavy lifting is it more of a light touch.
And I'm, just wondering how that might impact your your capex spend in the next couple of quarters for us.
I'm going to start I'm going to Dave <unk> Nevins is here too with our Chief operating officer, Dave spin out to Vancouver.
Numerous times and so Venlo, Dave do you want to say a couple of comments. Please yeah I would say for Vancouver.
I know, there's probably a variety because we inherited some good properties from from the previous owner. So we have a lot of good product to work with but we do have several units that we are repositioning in order to achieve top rent in the in the area. So we've been working hard at that for the last couple of months.
Yes, they're excellent progress to date has been out there.
Been out there too.
Two times for very extended stays.
But Dave has been out there about five times for five times now so it's up but it's we're really really happy with that portfolio. We think we got it on a great time, So we're really happy with that transaction.
Okay, and then last thing for me before I turn it back just on.
So it's not a precise science as you say, but you got some pretty good color on terms of how you expect occupancy to trend over the next call. It three to four quarters do you think the aim our growth picks up in lockstep with that or will it be a little bit more delayed before you get back to sort of that normal normal annualized pace that you're right.
So it'll be a little bit of a delay but it will.
And again I want every I am I want to make sure. It was crystal clear I don't expect there to be much change here in Q2, it's really like in the last I think once we get to September of this year. That's one I think we'll really see a change so I don't want anyone to be baking in anything for the next.
You really quarter or two right.
Be very clear to everybody on the market but.
But we do see we're going to get some growth yeah. We we feel actually very strong on where the market will be will be going.
Okay noted, thanks, very much and I'll turn it back.
Your next question comes from the line of Brad Sturges from Raymond James Your line is open.
Hi, good morning.
Yeah.
In terms of the the commentary about looking at some a small amount of asset sales can you provide a little extra color in terms of what the quantum of that program might look like this year is it just simply exiting some other smaller markets or would you include.
Some assets in your larger target markets.
It might be a little bit of a mixed bag, we're kind of going over it right now I just didn't want anyone to be surprised to be Frank with you. We've got some smaller price properties.
Properties in some of our core markets. We just think you know it might not be a bad time to transact on them. It just be a lot more efficient for us.
We also have all I'll tell you some non core market sort of and I'll give them, specifically Trenton, and and Elmer really performing extremely well you know, what I mean trends, especially I I'll give trenton non.
Just because I was born in Trenton, but guidance or laugh at an ear buds anyways.
<unk> done really really well like incredibly well we've been talking about.
Disposing of that asset, but we lost two or three years and anyway. So it's done amazing so.
Okay.
In terms of the cap rate compression, you're seeing or expecting to see you know can you can you.
You provide a little bit of context in terms of what your expectations are there and how that may relate to future I for us value gains that you could record over the next few quarters.
I think like in our discussions we've always been really conservative with our F&B model with our cap rates.
And our discussions with what we with with our external Appraisers and also just what we've seen in the market being active on the acquisition front.
Realistically, we could probably see another 10 basis points of cap rate compression for.
Which you know if you do the math on what's disclosed in our financials probably brings in over our over $80 million of FMT gain just from that regardless of what happens on the NOI improvement for it.
Yeah.
The last question would be on a J vs mentioned that you could be looking to enter into.
At least another one is that a function of looking at additional new markets or.
Portfolio sizes in terms of what Youre looking at for acquisition or what would be the driver of looking at another J D.
I'm gonna be crystal clear, we're not looking at any other markets right now we're sticking to these these markets. We think they are really really strong markets on no. When we get out of this though and there'll be really we think we'll see some very good growth for everybody.
It's really sometimes it could be portfolio size it could be there's could be different matters of how you go about it but we just think its really favorable and we've been.
For the state we've been very well not even very extremely happy with the way it's worked out.
Okay, Great I'll turn it back thank you.
Your next question comes from the line of Julien Chen from BMO capital markets. Your line is open.
Hi, Good morning, everyone I'm, just wondering just on the that's for Val gainers and the cap rate compression. This quarter could you maybe comment on specifically weather driven way.
All of our markets.
Granularity would be great.
Yeah, it's it was pretty even to be honest with you Joanne.
Maybe a little higher in the GTA market, and maybe trend down a little bit towards some of the other markets, but it wasn't like it was driven by only one market in particular.
We yeah, we've been pretty active on the acquisition front.
Theres been lots of deal flow in just about every market we operate in so it's a we see these cap rates, there's still being like I said earlier, it's still been pretty conservative given the deal flow that's happening in the private side.
Yeah, no for sure and maybe just on that then on the acquisition front.
With the kind of focus in terms of it make it harder right now.
Got it well or off market deals or would you be.
Interesting some of the larger portfolio sales.
Got it right now.
We've looked at.
All of them to be Frank.
What do we look at everything that comes through quite frankly, we even do work up on markets that were not in right now does so future touch points for going forward.
I mean, you got to look at each one and if you take a look at the merits of each individual property that gets marketed we we also look Oh again off market deals we spend a lot of time on that too and we intend to and those are usually tend to be easier transactions, then fully marketed deals to be Frank with you.
There's a lot less brainpower it gets lost on that stuff.
But anyway I hope that answers your question.
Oh for sure there's a lot going on out there.
Yeah.
But I guess, maybe just one more question on the occupancy front non controlled launch into it but.
It isn't that we're still kind of on this weird right now in Q2, but it would be potentially even be willing to what.
What occupancies slipped a little bit in the anticipation that you don't really in Q3 later Q3, and Q4 that will come back quite strong.
And just kind of keep going like events from where we're going to we're going to keep watching it to be Frank with you on like where we've been pretty mindful of how far we want to take it down.
And again, we'd like we don't want to sacrifice too much on that.
In the short term it is it's like it's really like you Gotta look we're looking at it I won't even tell you it's a day to day.
And everybody knows in this room I, probably look at our rental report probably every hour of less [laughter] and but so we're watching it really careful because it's it's really really important and everybody watches it.
Like Dave Dave has been very on top of it and his whole team has done a great job in balancing the whole.
How much do we let we let it slip and.
Again, we feel very positive for the like as we get into September.
But nobody has that crystal ball right.
We all wish we did but we do we do believe we're in a good spot right now.
Hi, Ben I would add is why why we wanted to.
<unk>.
Expectations for Q2, you you got it I appreciate the fact that we're still on this third locked down but all indications prior to the lockdown were very encouraging Joanne. So we're trying to trying to manage that we don't have a lot of clarity because they're there.
Has it been this third locked down and we think a lot of people have deferred their purchasing decisions to a later date, but we're also very encouraged.
Given what we've seen pre this latest locked down and what we've seen churn at that all in occasional leads to a strong back half and in its most likely going to be stronger as we get into the fall.
Grocery on immigration.
And also quite positive.
Hopefully that will continue but.
Maybe just on a broader bigger picture question.
On the regulatory side of things like you said no one has a crystal ball.
For us than anything but predictable.
But I guess just what are you thinking in terms of right now with respect to.
Yes, the potential for extension of any event free restriction.
2022, right now.
We've heard no indication of that at all.
And we're really hopeful that things again will turn back to normal once we get the vaccinations and as you know when you see everything kind of get back to normal as we get into September and you get kids going back to school on all those good things. So I think we're hoping that our mean this whatever we'd want to call. It.
The five alarm that we've got going on is going to come down significantly.
Hum.
I would add to it I think and I'm looking at I'm looking on making day when I say this but.
I think this year was the first time ever that there wasn't a rents increase imposed by the Ontario government since back control debt. So I showed you want on that is right. Okay, well that's good to hear.
Okay, well that's great. That's it for me I'll turn it back.
Your next question comes from the line on the burial shark from Scotiabank. Your line is open.
Hi, good morning.
Just a couple of questions on my end first off maybe delving into the same property occupancy expense decline from 40 basis points year over year. This quarter, you provided a bit of color in terms of what drove.
We have a 6% decline in property operating costs year over year, how sustainable.
In this environment do you think that type of year over year same property operating expenses over the next couple of quarters.
It means it's not going to be easy obviously like for me to where we keep on being we're trying to get as efficient as we can we're looking at every little area that we can to try to.
I guess be as efficient.
As we can all the way through and even our procure rhythms water procurements going for it's been going on for a long time.
Do I think it.
You can go on forever to keep coming down don't know youre going to get to a point, where it's going to stop but we were happy with our improvement and we also I would also maybe potentially and I'd have to go back and read through the numbers, we might have a little bit of elevation from our initial PPE bought and they started the year too.
And we will.
There are some things that we will be seeing two that I'm little you know as we look forward there could be some wage pressures as we until the government kind of start slowing down the programs and also a little mindful of again our insurance.
Potential pressures because it seems like every time theres anything that goes on the.
The insurance company loves to pause on this was the reason why we can increase our rates no matter what happens and it's a it's across the board even if it's not really it doesn't really affect themselves.
Got it.
I guess the Genesis has gotten the question is if I look at your year over year same property expenses Q2. They were up two eight per se on Q3 up for six Q4 up $6 20, megabits or apply for is a marked deviation from that from just.
I'm kind of curious in terms of whether I can get back to those types of year over year increases I'm, hoping not again, maybe on again I think a lot of it was attributed to the like we had some temporary wage increases to last year.
I don't expect you to see maybe.
If anything it may be just a flat or something like that but.
And we're really watching it but then again like we have pretty heavy duty PPE costs right like it was.
Pretty crazy.
Trying to keep all our residents you know feeling safe and secure along the way like it was it was our biggest spence for not just us all of R. R.
For our peers. They all went through not too yes.
Its current here Theres a lot of moving parts of that between the P. P. Between the seven day credits, we were giving for the rental where we were.
Self imposed sort of credit cycle, we had gone through helping our tenants out.
So we had pushed some of that through the Opex back in Qs two three and for also and then Theres offsets going the other way, we all know that use a lot of the utility costs are going up in insurance costs are going up. So overall I think we can actually probably do a little bit better than we did last year, just because last year had some anomalies.
But there'll be some competing pressures between those items I mentioned that also as we continue to invest in technology and our CRM platforms on other platforms. Some of that will flow through so I would expect it to not get any worse than last year.
We need to improve a little bit, but I wouldn't expect a significant.
A significant delta there.
Okay, maybe sticking with you just from yard for as cap rate.
One clarification.
The 10 basis point decline quarter over quarter.
How much of it would have related to the Q1 acquisitions.
I think that net of that and none of that would have related to the Q1 acquisitions.
In our in the Q in the first quarter, where we acquire a property.
We don't fair value it during that quarter, we bring it in at the transacted price because at that point in time that feels like the proper fair market value you just transacted on it.
And then once we get a little more knowledge around what we can do with the rents and the other pieces of the Capex and stuff that's going to go into it fully.
Once we get into the second quarter of owning it that's when we run it through our F. N B model. So none of that change would have been a result of Vancouver in Q1.
Got it so the four point on 6% this growth excludes the.
For the Vancouver.
Purchase cap rate.
Correct.
Okay, and then just maybe on the on some of the acquisitions during the quarter, specifically in Oklahoma for saga and price per doors were.
A bit higher than what we typically see.
Presumably that's that's far newer product with what's the investment thesis.
For those three assets.
I really like Triple premium location, we feel the two in Oakville like to be Frank with you are probably the two of the best.
Buildings that we purchased as far as like minimal Capex going forward in the future really just love and love the location locations on the amazing So moving bacon on whole thesis that this made a lot of sense.
And in the Mississauga, one again, great location near Goldstrike go training and again, leading the way.
We believe in what we've seen out there like we think that we're going to see more potentially more cap rate compression.
And a lot of people and not just us feel that we're gonna see.
Much better times as we get through the end of this so as far as rentals go.
Okay, so that rather than repositioning as the game plan here.
Expectation for above average for a quick from these properties come on location.
Yes, we will get that for a 100 per cent.
Okay, and then Mike.
Yes.
Mary just a probably a little more color on that like we've said this before that often our properties require heavy lifting on the repositioning, but we have a.
Certain times in the past found properties are well maintained but just maybe the marketing corridor.
Landscaping and the way it's sold.
Is a is not sort of representative of what you could do on the market and.
You can get pretty significant lifts, sometimes just out of those areas.
Okay.
Just maybe on the repositioning for Kirk.
The number of people.
Solution suites flow.
On 80 suite quarter per quarter.
The addition of a second on 28 suites for the acquisition during the quarter. So that suggests that the repositioning portfolio fell 908 suites.
During the quarter I know that the classification of these suites is more based on when you bought the suite as opposed to.
For the full completion of the repositioning initiatives. So can you maybe provide a bit more color in terms of those 900 odd suite that dropped out of repositioning from Q1, you know what what contribution the kind of work.
Why.
It's coming from both suites relative to your expectation for these people are going to war like are you done with the repositioning of those assets or is it just simply because you bought from three or four years ago.
They've been renegotiated or requests for it.
Yeah.
Yeah.
The specific numbers just for those exact suites in front of me, but I can say that typically.
Knowing what's in there generally.
There's still more upside coming out of that it takes you know we market through that cycle at the four year Mark but in this environment.
With especially with one year being COVID-19 and reduced our turnover I guess on some assets.
You're not going to get through the full extent of debt repositioning.
When your construction is done you're still going to go through a few months on that one.
And Uh huh.
A few months of sort of.
Marketing and sales work and a few cycles on that because once you finish the capex work in here all the program that you're rolling out.
You're still looking if you're doing 25 to 30 per cent turnover, you're still looking at two to three more years before you get through all that.
Yeah, I don't know a couple of properties, specifically, Mario and yeah, Theres still upside on those things its just the timing.
Issue.
It's first came on.
My last question destroyed through the disclosure change kind of combining the GTA with Hamilton this quarter.
Curious in terms of what drove the decision to kind of change that characterization and then can you clarify whether St. Catharines isn't other Ontario on the GTH a bucket.
I I think GTA is taking over all of Ontario, It seems when you drive through it.
No I'm just joking a little for Curt you want to answer that cash or I could think of it. So I mean, the change with a couple of things.
One is as we've continued to expand into other markets like those a lot of those regions existed prior to us going in even to Montreal now.
Now that we're into Vancouver, you were getting sort of a bit of a disconnect between the sizes of some other markets and others.
So we felt like sort of grouping them into our three core areas and then other provided a little more clarity around that too.
Two is it allows us to do a little better analysis in regards to these vs TMA Chi because he's now tie into the.
The cma's from CMA Chi so it allows us to do a better comparison on that basis on a on an overall for the different regions.
And then three is it just quite frankly provides a better comparison with many of our peer groups. So we try to align that to give people that have an easier time to that to see how that stacks up.
Okay and then thank Kathryn would be other on interior with Q2, St. Catharines would be other Ontario, yes.
Okay, Oh, sorry, sorry, I apologize Mary St. Catharines is included with a greater Toronto on Elephant area.
Okay. Thank you.
Your next question comes from a line of Mount Logan from RBC capital markets. Your line is open.
Thank you and good morning.
Just following up in terms of your acquisition capacity could you talk a little bit about how high you would be comfortable taking up your debt to gross book value ratio.
And if you would consider issuing equity for potential transactions at the current unit price.
But right now we're not looking at that at all.
But we are looking at but we don't have a problem with bringing up our debt a bit we built herself for these times to be Frank with you I think we've done really well on our transactions along the way we.
We are trying to be we'll always be mindful of keeping our debt.
On a controllable level, but if we hit the you know if we saw something that was pretty exciting that we could you know.
Create some value for our shareholders and if we hit the low Forty's, maybe 40, I mean, it wouldn't be the end of the world and knowing that we could probably grow out of it over a few quarters too. So we would probably we'd probably do that.
So you.
But anyway we're.
Again, we're looking for to grow, but we're not going to grow just for the sake of growing.
So up to the low 40% range and if theres a bigger deal than perhaps that's where you bring in a JV partner.
And we're going to balance it all it's not like that's not where we're ideally going to I you know what I mean, but it's something that we wouldn't be too concerned about going there. If we saw we could create value along the way.
And if we saw something that was an exciting transaction, we've always been very careful of keeping our our our debt down we've de Levered as you know over the years are quite a lot to be quite Frank with you and.
You know when we always wanted to do it just because we were always concerned about potential storms on the horizon.
We never called this storm that's for sure nobody called the COVID-19, one coming at us but.
In the short term I think we would definitely we would look at doing it.
Makes total sense to me and.
Let me change gears and think about your total capex spending for 2021 could you give us a sense for you know a general range.
Including maintenance Capex as well as the value ad spend.
Sorry.
You know on here.
The capex for <unk>, you're asking about the Capex for 2021 met yeah, yeah. So that is from here.
Yeah. The first Q was down a little bit on some of that just has to do with some of the work he'd often do whether its carpets are holly paintings and stuff like that given everything going on with the Lockdown started got delayed a little bit.
So I think we were about 200, a cue for the door per door. In Q1, we were about to $2 49 last year and my.
My expectation for the year, we'll probably have I seen around the 925 Mark.
And if we include the value add capex that would be.
Yeah.
Total total capex, probably looks to be around $70 million in totality, which would include that.
Okay, great color for this year for them for Q2 through Q4.
And last one for me just in terms of your outlook you gave some good color on the various markets and how you expect they'll perform do you have a general sense for the occupancy and how that might trend for the overall portfolio say by year end in mid 2021 'twenty two excuse me.
You could just for people that quick sorry, I apologize.
Kind of roll up your occupancy guidance for the whole portfolio. Just wondering if you could give us a sense for where we could be at year end in the middle of next year.
And you can't really predict year end I'm hopeful we're going to be we've always guided we're gonna be between three and 4% that's really what we've always been looking at because we never wanted to be I.
I guess as you say a fully baked as far as our occupancy we like to keep we kind of like to keep pushing and creating value for our shareholders on our stakeholders. So I'm hopeful that we will be there again.
Next year that would be our open I believe we will be.
I feel very strongly about it I think that the general mood out there.
Think as we're all very restless.
Lockdown conditions, I think people are getting more and more positive and they see again.
As I said would be the light under the door and I think at some point the door is gonna get opened and I think youre going to see I honestly I think it's gonna be incredible time in our and our.
Our industry for.
So that's just my.
My take on it.
So the 3% to four per se what was that vacancy on Mike.
Three or 4% vacancy sorry, if I wasn't clear I apologize.
Yeah. So basically we're at eight seven today and maybe by the Middle of next year, we get back down to a normalized level of 3% to 4%.
Yeah, I think youre going to see more rent growth too.
Okay and Matt.
And Matt just just so we're clear to that I mean, that's what we have in our MD&A and we've sort of set the people that's what we sort of look.
A REIT on our repositioned property basis, that's where we look to be.
But we do not provide guidance on that number.
I appreciate it thanks, Mike I'll turn the call back.
So I just tried to provide clarity before we jump back.
<unk> question earlier about St. Catharines apologize Mario it's actually getting other Ontario, If you look at page 31, 32 of the MD&A have given that we changed how we group properties. This Q we added some additional disclosure in the MD&A. So.
So you could actually see specifically, which properties, which suites make up each other regions.
Thank you.
Yeah.
There are no further questions I'll turn the call back for closing comments.
I would just like to say thank you for everybody for joining us today I. Appreciate I appreciate that I appreciate all the analysts.
I know, it's been a very tough time for yourselves.
Youre going to see some again I hope we were very clear on what we said that when we what we see in our horizon to get things are changing.
On a daily and hourly basis, but we feel very strongly that our program that we've we.
We talked about and debated a lot about lost.
From I guess right will append. The pandemic started is the right program to to stick to and I think we will see the.
The fruits of our labor for for everybody and I want to say, thank you again really to our team.
To Dave's team Dave's team has done a tremendous job Brad has worked extremely hard for lost while we have a.
Driven them off as our feet and so it's Kurt and the whole financial team has done amazing during this whole time Ah I can cover every every end of R. R side of our business I feel extremely.
Proud and very humbled to be a part of this team. Thank you. Thank you everybody I appreciate hope everybody has a fantastic day.
Look I look forward to great times coming forward.
That concludes today's conference call you may now disconnect.
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Okay.
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