Q2 2021 Minto Apartment Real Estate Investment Trust Earnings Call
[music].
Good morning, My name is Edison Elvia Catharine operator today at this time I would like to welcome everyone to the meter apartment REIT second quarter 2021 results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. They are in this time simply press Star then the number one on your telephone.
Keep that you'd like to withdraw your question. Please press joyful I'd like to before we begin I want to remind listeners that certain statements about future events made on this conference call are forward looking in nature.
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 in the REIT news release and MD&A dated August 12, 2021 for more information.
During the call management will also reference certain non <unk> financial 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 under <unk>.
Please see the recent MD&A for additional information regarding non <unk> financial measures, including reconciliation to the nearest <unk> measures. Thank you. Mr. Waters, you may begin your conference.
Thank you Dennis and good morning, everyone I'm, Michael waters, CEO of Minto apartment, REIT and I'm joined this morning by our CFO Julie Maureen I'll begin the call by discussing highlights from the second quarter Julian will review, our financial and operating results in detail and then I'll wrap up with our business outlook. After that we'll be pleased to take your questions.
The market softness that we've seen since the onset of COVID-19 has clearly started to subside. We continue to execute on our strategy and results are starting to trend in the right direction. The pace of vaccinations contributed to partial economic reopening.
And Thats increased demand.
We entered into a 534, new leases in the second quarter by far the most in any quarter in the REIT history. It was a 14% increase over Q1.2021, which was also unusually strong and a 58% increase compared to Q2 last year and during the quarter. We saw leasing promotions peak in April.
And trend downward through May and June however, we still made use of focused promotions at certain locations to move inventory.
Through this we generated a strong gain to lease on leases signed in the quarter of five 9% while that was below the very strong seven 6% gain we reported in the first quarter.
Was far above the two 1% gain we reported in Q4 of 2020 <unk>.
Average monthly rent of <unk> furnished suites reached a record high of <unk> hundred $40 per month at the end of the quarter, an increase of one 9% compared to $609 at the end of Q2 last year.
We're also pleased to report that occupancy reached a low point in Q1.2021 has started to improve average occupancy of bond furnished suites was 91, 5% in the second quarter, a slight improvement from 91, 1% in the first quarter as move outs.
Were outpaced by move ins. This is the first sequential improvement in occupancy that we've recorded since the start of the pandemic.
And we view this as a positive sign that market conditions are improving as vaccinations increase and the economy opens up.
We've also made progress with our other organic growth initiatives during the quarter.
We completed the repositioning of 88 suites, which improved asset quality reduced depreciate repair costs and drive strong rental growth rates, we made progress in our development program at two projects, where the REIT has advanced convertible development loans.
In that the construction at our Lonsdale Square development, North Vancouver got underway and the rezoning of the Beechwood project in Ottawa was completed this will permit the redevelopment of the site as residential rental construction of the Beechwood project is expected to commence in Q1.2022.
Just as a reminder, the terms of the convertible development loans. The REIT advanced on these project provide interest payments during construction that are accretive to the REIT earnings and provide the REIT with an option to purchase the projects upon stabilization at a 5% discount to their then appraised fair market value.
Julie will talk more about this later in the call.
During the second quarter, we recorded a fair value gain on investment properties up $55 million, reflecting strong investment demand and pricing for multi residential rental properties.
It also reflects the elimination of a valuation reserve previously taken for COVID-19, as we see rental market conditions continuing to improve in the second half of 2021.
We continue to prioritize our liquidity position, which has served us well through the last year and a half we ended the second quarter with total liquidity of approximately $128 million, which represents a liquidity ratio of 14% defined as total liquidity divided by total debt.
And a debt to <unk> ratio of 38, 6%, we're committed to maintaining financial flexibility as we move forward in a more positive business environment.
Overall, we're confident that we're navigating effectively through this challenging period occupancy started to improve and we are delivering organic growth through gain to lease on the turnover of units and through repositioning while maintaining a strong balance sheet that positions us well to capitalize on opportunities as they arise with.
With market conditions, starting to improve and the benefits of urban living reasserting themselves.
We're looking forward to improve financial performance I'll now invite Julie Moran to discuss our second quarter financial and operating performance in greater detail Julie.
Thank you Michael.
Turning to slide four I'll begin by reviewing the Q2 operating results.
We reported revenue excluding furnished suites of $28.1 million in Q2, 2021 compared to $29.5 million last year, a decline of four 6%.
The decline was mainly due to lower occupancy and higher promotions, partially offset by higher rents achieved on new leases signed during the quarter.
The majority of the decline was due to reduced occupancy at core urban properties, where the negative impact of COVID-19 with smaller what's most pronounced.
Total revenue, including furnished suites also declined by four 6% year over year from $31.3 million in Q2 last year to $29.9 million this year.
Revenue from furnished suites declined falling demand due to COVID-19 restrictions.
NOI, excluding furnished suites was $18.2 million or 64, 7% of revenue in the second quarter compared to $18.8 million or 63, 7% of revenue in Q2.2020.
Total NOI, including furnished suites declined 5% year over year to $19 million or 63, 6% of revenue from $20 million or <unk> 63, 9% of revenue in Q2 last year.
Lower NOI in Q2, 2021 reflected lower revenue due to reduced occupancy and higher promotions.
<unk> was $11.9 million in Q2, 2021 compared to $12.7 million in Q2 last year, a decline of five 7%.
This mainly reflected the negative NOI variance.
<unk> declined six 5% year over year to $10.4 million from $11.1 million. In Q2.2020. This result reflected the lower <unk> and <unk> per unit was approximately $17 six compared to $18 eight in Q2 a year ago.
The REIT declared cash distributions in the second quarter of $11.38 per unit, resulting in an <unk> payout ratio of 64, 8%.
Cash distributions were <unk> 11 per unit in Q2 last year, resulting in an <unk> payout ratio of 58, 5%.
As of June 32021, our portfolio consisted of 7277 suites with an average monthly rent of $1640 per occupied on furnished suites.
Average monthly rent increased by $31 or one 9% compared to $1609 at the end of Q2 last year.
Average occupancy rate in Q2, 2021 was 91, 5% compared to 96, 2% in Q2.2020.
Turning to slide five.
As Michael noted in his introduction occupancy improved in the second quarter for the first time since the COVID-19 outbreak began as moving finally outpaced move outs. This slide shows move ins move outs and the net result for each of the past four quarters you can see on the chart that we had 400.
77 move ins compared to 441 move outs in Q2.2021.
<unk> net occupancy improvement for unfinished suite.
As I noted earlier average occupancy in Q2, 2021 was 91, 5% up slightly from 91, 1% in the first quarter.
This reverses the negative trend that we saw in previous quarters, and we expect improvements in occupancy to continue into the second half of the year and beyond.
On slide six you will find our updated revenue analysis, we breakdown again police activity for Q2.2021 in the Upper chart and our estimate of the gain to lease potential of the portfolio and vehicle order one.
Beginning with the Upper chart as Michael noted, we signed a record 534, new leases in the second quarter.
Leasing activity was strong in the Ottawa market were 296, new leases were signed.
We achieved positive gain to lease in all markets, including double digit growth in Montreal.
The average rent on new leases increased by five 9% over the expiring rents going from $1593.2686.
This resulted in an annualized incremental revenue gain of approximately $375000.
On the lower chart, we show the gain to lease potential that we estimate in our portfolio as of June 32021, We believe we can generate approximately $6.3 million of annualized incremental revenue growth by bringing rents and 6556 suites to market levels, we expect the total gains.
<unk> potential increase in the second half of 2021 and we expect to realize a significant portion of this potential over the next three to five years.
Turning to slide seven the upper chart tracks, our gain to lease an average monthly rent growth on a quarterly basis, we have generated positive gains lease throughout the pandemic supported by our decision to hold firm on rental rates.
However, the quarterly gains have been broadly below pre pandemic levels, we look forward to resuming strong growth its rental markets gradually returned to normal.
On the lower chart, we have broken out our rents by geography, our suites compare favorably to others in our marches on its size and rental rate basis. For example, the average size in rental rate of our Toronto suites is 804 square feet and $2.31 per square foot respectively.
That compares to 695 square feet and $3.25.
Per square foot for the average Toronto condo rental.
Moving to slide eight I wanted to provide an update on our furnished suites. As we have previously noted demand for furnished suites has been impacted by reductions in business travel and corporate relocations restrictions on nonessential travel and the closing of the Canadian border. During 2021, we have responded to.
These challenges by adjusting the furnish suite rental rates and customer mix to include more government and transit users.
The lower chart shows that this strategy is bearing some fruit we had 74, 4% occupancy in Q2.2021 up significantly on a sequential basis from 62, 5% in the first quarter and up from 64, 5% in Q2.2020.
Rental rates also increased quarter over quarter.
However, both occupancy and rental rates on furnished suites remain below pre pandemic levels. We believe the furnished suite performance will recover as the border fully reopens in business travel returns to more normal levels.
On slide nine you'll find a summary of our repositioning activities.
We renovated a total of 88 suites in Q2, 2021, or <unk> 65 at the REIT proportionate ownership share. The average cost per renovation was approximately $51000 per suite. The average annual rental increase following repositioning was $4279 per suite generating is simple REIT.
Turn on investment of eight 4%, which is in line with our target for REIT positioning.
In total we have 2369 remaining suites to repositioning our portfolio, we expect to reposition 125 to 175 suites in the second half of 2021.
That would bring the total for the year to approximately 250 to 300 suites or 200 to 250 at the REIT proportionate share.
This is consistent with our prior guidance.
Turning to slide 10, you can see how we have consistently built value three repositioning over the last four quarters. The average annual Unlevered return has been reliably in the 8% to 10% range with an average return of two 9% during the period.
We like repositioning because it delivers these predictable strong returns on invested capital.
Overall, we have renovated 252 suites over the last four quarters and at an average cost per suite of approximately $45000 generating an average annual rental increase of $4000.
Now I'd like to review, our intensification and development initiatives on slide 11.
We have six projects that are in various stages of development in which we either have current ownership stakes or options to purchase upon stabilization.
Combined these project could expand the REIT portfolio by approximately 500 suites by 2029, an increase of approximately 22% from the current level.
We are nearing the startup construction that rich growth in Toronto, where we are planning to build a new 225 suite building, including a 100 affordable suites to be subsidized by the city of Toronto.
Construction is anticipated to begin in the fourth quarter of this year subject to finalizing necessary approvals.
I'm also pleased to say that Ottawa City Council has approved the rezoning required to accommodate the Beechwood project. Upon completion of this project will comprise a building with 229 rental suites over nine stories and approximately 6000 square feet of retail at grade.
Construction is expected to start in the first quarter next year.
Turning to the fifth third bank redevelopment on Slide 12, you can see on the photo on the top right that construction continues to move along rapidly.
Project is on schedule for stabilization in early 2022 at which point, we have the option to purchase it at a 5% discount it's been appraised fair market value.
Pre leasing for fifth third bank is underway with 33 suites already conditionally pre leased the mixed use multi res and retail property will have a 163 suites.
Yes.
Turning to Lonsdale square on Slide 13 phase one construction of the North Vancouver property got underway in June of this year as you can see on the photo on the right side of this slide phase.
<unk> consists of 113 suites and approximately 7800 square feet of retail space. The property is expected to be stabilized in the fourth quarter of 2023 at which point our purchase option can be exercised.
Monster Lonsdale squares is strategically important property for the REIT, providing our first exposure to the attractive greater Vancouver rental market.
Finally, I'd like to review, our debt financing and liquidity on slide 14, since the creation of the REIT in 2018, we maintain a conservative leverage ratio and a highly balanced maturity schedule.
As of June 32021, the weighted average term to maturity on our fixed rate debt was $5.42 years with a weighted average interest rate of two 9%.
Approximately 92% of our debt is fixed rate and 73% as same ht insured lower cost debt.
Our total liquidity was $127.9 million at quarter end and debt to gross book value was 38, 6%.
I'll now turn it back over to Michael Michael.
Thanks, Julie I'll conclude by discussing our business outlook on slide 15.
The pandemic has negatively impacted our financial results, thus far in 2021, but it's not change the underlying fundamentals of our business in the slightest.
High quality multi residential rental housing and desirable urban areas in Canada has delivered outstanding returns historically, we remain confident that our focus on this segment of the market will enable minto apartment REIT to outperform over the long term.
Our business is supported by numerous factors, including Canada is expansive immigration policy.
Elastic housing supply and the increasing affordability gap between renting and owning a home looking past the pandemic. All these fundamentals will likely remain in place take.
Take immigration as an example, the federal government has increased its target for new permanent residents over the next three years to catch up on the immigration that's been delayed since the start of the pandemic due to border closures. We expect population growth of more than 500000 people per year for the next three years as a result of the government's new targets and natural growth.
That's historically high population growth last reached prior to COVID-19.
Pandemic caused the benefits of urban living to be temporarily diminished, but that's starting to change the vaccination campaign across Canada has been a tremendous success in recent months.
Enabling staged economic reopening and paving the way for rental market fundamentals to reassert themselves.
We expect demand to expand in the months ahead as government restrictions are eased employment increases immigration returns to more normal levels and in person learning resumes at post secondary institutions. Accordingly, we continue to anticipate improved financial performance towards the end of 2021 and into 2022 demand as <unk>.
Proving but we do expect occupancy to be lower than normal for the balance of the year. The threat of COVID-19 has not gone away. We continue to monitor new case rates carefully in all of our markets where.
We're entering our fourth wave and we're already seeing rising case rates this month, but given strong and growing vaccination rates in Canada. We're hopeful that we are through the worst of the pandemic and confident that urban living will continue to look more attractive to.
To sum up we remain confident that Minto apartment REIT has the right assets and strategy for long term success will continue to build unit holder value by realizing on organic growth through gains to leaf.
Creating value from suite repositioning exploring attractive acquisitions and capitalizing on our relationship with the Minto group, which has provided us with numerous exciting development opportunities in the past.
With our strong portfolio and conservative balance sheet, we're well positioned to generate strong returns for our unit holders as we execute on our strategy and the impact of the pandemic gradually subside.
<unk>.
That concludes our presentation. This morning, Julian I would now be pleased to take any questions you may have.
Operator, please open the line for questions.
Ladies and gentlemen will now begin the question and answer session should you have any questions. Please press star followed by one on your Touchtone phone.
You'll have three don't Brown acknowledging your request and your questions people in the other the receipt so.
Should you wish a decline from Nepal and practice these fresh stifle like too if you're using a speaker phone. Please lift your handset before pressing any keys one moment for your first question. Your first question comes from Jonathan calcium with TD Securities. Please go ahead.
Thanks, Good morning.
Hey, Jonathan.
It was good to see the occupancy turned positive in the quarter.
Based on what Youre seeing right now how long do you think it is until youre back pushing the 90, 596% level.
Well I think if you look at.
This is the first quarter, where we've seen move ins exceed move out.
Since the beginning of the pandemic.
And if you look at that deficit.
Moving the cumulative deficit.
That we thought Q2, Q3 Q4 Q1.
We are.
Got you.
Some some deficit to overcome.
Now with that with Q, what we've seen is the acceleration of that move ins over move outs and that trend is continuing.
From the data we've seen for July in this point in August I expect that will make a material dent in that cumulative GAAP.
Jonathan and I expect that.
We will continue to be below normal occupancy for the balance of the year.
But but I would expect that.
We will start to reach sort of normal levels.
In the early part of 2022, but I'm expecting that even even below.
Below normal sort of Occupancies, we're still gonna be reaching into the mid.
Ninety's and maybe possibly higher that will be enough that we ideally we'll see some some earnings growth.
In the in the in the last part of the year.
Okay, and then I guess, you talked about leasing promotions, peaking in April and trending lower may and June.
I'm guessing the answer is that that has continued.
August Yeah that trend continued in July and thus far in August and.
If you think about I mean, it really started to sharply dive in in in.
<unk>.
And certainly that trend continued in June.
And then and continued thus far in July and August so.
We're hopeful that that will continue.
To move we are using promo very tactically buy suite type by property.
And that and the market seems to be responding with that and broadly speaking I would say outside our portfolio looking at at our competitors in our various submarkets competing properties, it's sort of a broader trend and overall, we're seeing occupancies in the market trending up as well. So these are all very.
Encouraging signs that they speak to a return to pricing power that we haven't really seen in over a year.
Sure.
Okay.
That's very helpful. I'll turn it back thanks, Thanks, Jonathan.
Thank you. Your next question comes from Matt Logan with RBC. Please go ahead.
Thank you and good morning.
Good morning, Matt.
Michael when you talk about.
<unk> returned the pricing power that you haven't seen in the better part of the year can.
Can you give us some color on how the modest decline in the mark to market potential squares off with your use of incentives.
And maybe how the net effective.
Yes.
Mark to market might have changed over the past COVID-19.
Three to six months.
Yeah, So I mean.
How.
How we measure the potential in that.
Gain to lease chart is sort of our assessment as at that point in time. It is not a long term view of the potential rents in those apartments. It's it's the view as of that date and so it tends to be our numbers at least tend to be fairly volatile, but as you've known.
In the past, Matt when you look at our assessment of a gain.
Gain to lease potential and you look at our performance in the quarter that succeeds that we tend to track pretty closely like we are realizing at rates that are very close now are number tends to be fairly volatile. So we expect that.
You know as that.
Market.
<unk>.
Flavor continues to improve the demand conditions continued strength and pricing power continues to gather momentum that will see that gain to lease estimate the potential in the portfolio should should rise so.
It's somewhat variable based on market conditions at that point in time.
When we talk about.
The mix of promotions and incentives relative to rate and discount and so we were always sort of tweaking that too to balance I'll say growth in EMR and <unk>.
And occupancy, but but also looking at it long term NAV growth and potential in the portfolio and so what you would've seen in Q2 as a subtle change I think in that we've started to to really in the promotions and incentives that we were offering.
And tweaking some of the discount that we were offering as well because what we do know is that tenants there they're rational economic creatures they look at those.
They look at them differently, and we know that they value them differently. So we've been being very tactical and thoughtful about how we apply them always with a view to the long term. We are thinking about long term NAV per unit growth and so want to make sure. We're doing the things that are <unk>.
Going to preserve our ability to drive higher forecast NOI and improve the overall quality of the rent roll in and out and then that goes to value.
I guess, if I if I asked the question a slightly different way if I look at the sequential change in your estimate of market rent.
It would have declined by call it $80.
Your incentives declined by a similar percentage quarter over quarter.
Yes, probably more actually Matt.
So we would have would have real back the incentives by quite a bit more.
Okay. That's what I was trying to get out so really appreciate that when we think about occupancy and how that's trending in kind of July August and perhaps even into September.
Or would that stand relative to.
The Q2 levels.
So Q2 average was around 91 five.
We saw positive net move in in the quarter in Q2, I expect that number will accelerate materially in Q3 that could push us into.
Something approaching 93, possibly.
And then as we get into the into Q4 of course the benefit the full benefit of the move ins is then.
It is reflected in the in the quarter, because we have the benefit of a full quarter of that occupancy and so I would expect that that number would reach into the mid nineties.
As we get into Q4 so.
That's the that's the overall trend line and because of the you know the operational leverage I guess, you might say and our business model as you know every incremental.
Percentage point of occupancy of average occupancy.
Obviously has a big impact on NOI.
Absolutely and maybe just changing gears to your fair value marks when you look at transactions in the market today with those fair value gains include everything that maybe under contract, but perhaps hasn't closed or is there.
For further gains in the back half of the year.
Well.
<unk> been always very conservative in our reporting.
And the the.
The valuations that we're using would reflect.
Appraisals or data from appraisals appraisals are looking at comparable transactions.
That.
Would've closed in the quarter.
Or.
Historically, certainly they wouldn't contemplate <unk>.
Prospective transactions or transactions that are on contract, but have not yet been closed or have not yet been reported what I will say is anecdotally. We are seeing major trades at cap rates that are <unk>.
Lots are minus two 5%.
And even in places like Ottawa seeing cap rates implied by by transaction has not yet reported that are sub three which.
For material assets of institutional quality, we've not seen before.
Our.
Cap rate implied by our our marks what we're reporting in our statements or high threes right. So kind of 3839 something like that so.
You might look at that and said you know.
Say that there is.
No.
A material difference between private market valuations for institutional grade investment properties in major markets and what we are reflecting in our ifr S statements.
So I guess, if we think about your IRR for US statements would be similar cadence of cap rate compression likely carry into Q3 and Q4.
That's our expectation yes.
What I think we're waiting for obviously, we want to we want to tie to evidence we want to support it with appraisals of course.
And what we're looking for waiting for is for some of those transactions to begin to be reported.
And for appraisers to pick them up in their comparable transaction analysis.
That supports their praise valuations.
I appreciate the commentary Michael I'll turn the call back Thanks, Matt.
Thank you.
Next question comes from Mike maturities with dish or dying. Please go ahead.
Hi, everyone.
Q and maybe more than two but I think it's just too.
Questions for me on Alberta, I'm, just curious I mean, they maybe don't have a huge presence there.
And in the GTA or progress with SEC.
But that market seems to be like it's actually relatively outperforming the other.
Yes.
Okay.
What do you think is driving that.
Robert.
Yeah, So I mean.
It's interesting of course is the Minto group is active in the housing market. There are more broadly outside the REIT both on the new home sales side, but also in multi red.
And we have seen a resurgence in the housing market there whether it was resale new home.
Or or even rent rental.
I mean.
Oil prices are starting to come back up.
Relatively limited Covid restrictions.
Low cost office is bringing new businesses to the city.
So there are a lot of positive trends are very very low inventory of rental relative to population growth rental.
On a per capita basis is relatively small.
What you see in Ottawa, Toronto and of course, it's an unregulated market. So as things turn you you see.
Adjustments in rent relatively quickly in this quarter, what you would've seen like like last quarter is that Alberta for the for the first time.
In.
In a while has shown positive gain to lease in our portfolio. So.
I think there's a whole bunch of things that are driving that.
And so we look at it.
With some optimism.
And.
I think that.
We'll see investment activity picking up we're already seeing signs of that.
And of course, it's starting from a pretty low starting point. So those are all factors I think that.
Influence our view of Alberta in Calgary, specifically I would say.
Is your desire to invest in Alberta are stronger today than it would've been.
12 months ago.
I would say, yes, probably.
It's certainly not the prime area of focus we remain very focused on the GVA.
Toronto, Montreal, Ottawa, perhaps to a lesser extent, given we have a fairly significant presence in a long pipeline of future deals there but.
If we could find high quality urban assets in.
In Calgary and stuff that might be on the plus 15 or something of that nature of those would be those would be assets that we would we would look at seriously I mean, obviously, we would underwrite them very carefully valuation needs to be right.
But we would look at it I mean, Albert is a very small proportion of our portfolio today.
Well less than 10% by value.
But but.
Minto group more broadly has.
Has a fairly broad exposure and experience in that market.
So we'll continue to look at.
At that market as we as we evaluate it more or less continuously.
And so at the right time, if we find a good asset that checks all of our boxes.
We would we would look to move on it if we if we found something that fit our criteria.
Okay, and then just turning over to the burner Sweet businesses you guys have.
<unk> done a great job switching your mix to maintain occupancy.
No negative impact on the average rate.
With the Canadian border now open two U S travelers and soon to be open to foreign travelers have you seen an increase in leads in terms of that corporate user coming back or is it still.
Very slowly.
For example, our Minto Yorkville project.
Sure.
We're seeing for example, more movie production Entertainment.
Group business is back still.
Still transient business there.
Our 185 line project.
I think.
We're starting to see some some signs of optimism there as well.
And we always look at it.
Election, certainly there's an election in the air rumored. So those are those are helpful for our 185.
Asset as well and that's really where the bulk of our furnished suites now are concentrated in those two assets.
With Roehampton renovation program, well advance we're down to something like 15.
Furnished suites occupied in that building and our renovation program rolling there.
Now at full speed.
Some of that some of that volume that business volume will will naturally migrate over to <unk> to our Yorkville project, which which will help as well and so I'm expecting that we'll see.
A decent Q3 and the furnished suites side.
And I think Q2 certainly.
Certainly we held rate moved it a little bit and we're able to move occupancy so.
It may be that for the first time.
Furnish suite ceases to be a drag on SP NOI, but may be a contributor to positive S. P NOI growth.
That's great. Thank you all.
Thanks, so much Mike.
Thank you.
Our next question comes from Joanne Chan with BMO. Please go ahead.
Hi, good morning, everyone.
Joanne.
Wanted to follow up on the really strong leasing with the appointment of three pre leases signed this quarter congrats on that.
But maybe could you maybe comment on that performance by region and how has that.
And then post quarter.
Yeah I mean.
So I think what we what we've seen there.
Let's focus on the.
Major markets the big one obviously Ottawa.
Was our was probably our strongest.
In terms of what we're seeing from a leasing perspective.
That market is has been.
Certainly over the last several years, probably one of our strongest markets.
Housing generally and Ottawa has been has been very strong.
And.
I look at both gain to lease in the total number of leases in Ottawa and it was.
If you can see on page six of our deck.
Probably.
Probably one of our strongest and just the sheer number of leases 296 in the quarter, so more than half of what we.
What we signed.
And that kind of mirrors, the broader housing market trends in Ottawa.
Toronto.
What we're seeing overall market market wise as occupancy continues to trend up if youre looking at urban Asian or other reports youre seeing those those reported numbers go up and certainly I think the big opportunity for us.
In Q3 will be in Toronto.
That's where we are carrying a little bit of vacancy on some of our bigger assets, where where I think there's significant gain to lease potential there and so that will be key.
Montreal is showing a fairly high gain to lease you'll see that on slide six and certainly a good number of leases some of that reflects repositioning gains as we've been really advancing the repositioning that Haddon Hall of 4300 in rock Hill. So that's partly reflected in that gain to lease but.
That all that market has been decent as well so and as I say earlier in response to Mike's question.
Alberta, again second quarter running as shown REIT pause into lease.
I guess, what what is there hasn't been a change in Ottawa has always been strong but a driver.
One of the driver of the demand in that market or is it.
Okay.
I mean, what we've seen over the last several years has been.
Ottawa I think Pete.
The affordability gap certainly from the GTA, whether you're buying a home.
For sure resale or new.
We've seen a speed of Toronto buyers in that market, which we hadn't historically seen.
We've seen solid population growth in Ottawa.
Multiple two two and a half three times historical average in terms of population growth, there and and that's really.
Helping I mean there is.
Ottawa in many ways is seeing starting to see the signs of some of that.
<unk> in housing supply as well and so.
Some of those things.
I think are there and then of course ATA was economy.
A significant component of government.
In the workforce and technology and those two sectors.
Have have really.
<unk> fared very well through the pandemic and those things have certainly helped the housing market here.
Got it.
Okay.
Just switching gears I guess.
In terms of what you're seeing on the acquisition side right now are there, obviously very competitive but our.
Are you seeing profit opportunities.
One of your investment criteria at this point.
For the remainder of the year.
So very significant deal flow.
I'd say 2021 to date some of the strongest deal flow that we have seen.
And we have been very active pursuing we have.
Made it to the altar Unfortunately.
Not yet emerged.
From the church with a deal but.
We have we.
We've been when we've been in the Hunton competitive.
There is an absolute.
<unk>.
Change in the number of bidders.
And how aggressive bidders are pursuing quality assets, we're seeing.
More firm bids than we'd seen in the past, we're seeing bidders stretch aggressively in their underwriting.
And.
So we're being choosy of course, you cant Chase every deal that you would see but.
Certainly theres been too.
Late one in Ottawa and Toronto, both very high grade institutional quality assets that had repositioning potential had strong gain to lease.
Potential in the portfolio, one had very significant intensification potential and we saw those both deals multiple round auction processes large bidding pools in the first round.
<unk> bids.
Even in the first round. So these kinds of things I think speak to how competitive the market is today for quality multi res and I think that's going again back to one of the earlier questions about valuation I think youre going to see that coming out in some of the implied cap rate spiked by some of the transaction.
Prices and we're seeing huge jumps between first and second round bids I mean, historically the increment between first round and second round bids would've been single digits, two 2% to 5% now we're seeing.
Some better bidders raised their bids doubled.
Double digits kind of thing, which is a sign of how aggressive people are chasing these things so I.
I think more of our growth and this is one of the advantages that we have is is that we might see more growth through some of these convertible development loans and through straight up development.
Where are we seeing a lot of interest and opportunity there.
Those deals of course are accretive to the REIT through the development period from a <unk> perspective, and confer the REIT to REIT an option to purchase that.
Stabilized new asset.
And if it's in Ontario, not subject to rent control at a at a material discount to fair value. So it is NAV accretive on acquisitions. So we may see.
More growth.
That way as well and we tried to highlight that in our development day earlier this year and some of the disclosure we put into the MD&A.
Oh, Okay, that's very helpful.
Thanks Joanne.
Thank you. Your next question comes from Matt <unk> with National Bank. Please go ahead.
Hi, guys.
Just a quick follow up on <unk> first question, there with regards to <unk>.
They can see can you maybe speak to the dispersion within markets.
Is it across the portfolio.
Specific to certain assets and.
In certain nodes and then maybe along those lines, we saw real pan with E place pretty substantial lease up.
In the property do we need to see kind of a new purpose built rental.
And certain nodes lease up first and then something like Roehampton will follow.
Just your thoughts along those lines.
I think the I mean, what we saw is that still the urban properties that are where we're seeing most of the vacancy loss concentrated properties like 185 line.
Our Roehampton project up at Yonge and Eglinton.
Our a high park village complex in Toronto.
These are where we've seen the largest vacancy loss, but also I think the biggest potential here as we go through as we as we pass through the pandemic I think that's where we're seeing significant potential and we look at a project like a property like our Roehampton project at Yonge and Eglinton.
That renovation program is now full rolling at full steam in and over the last three weeks or so we've seen 10 leases very good take up strong ROI well in the range of 8% to 15% what we step for for our repositioning and I think that's an asset for example, but that.
<unk> had significant vacancy loss because of its urban nature and I think that.
Mere new quality, especially post Reno I think.
And the take up that we're seeing shows the potential of that I'll say outside the REIT portfolio.
Some of the the.
The Minto groups private portfolio, we're seeing.
New purpose built rental in Toronto.
It's almost like a switch turned in may or June very significant uptick in in leasing are 39 Niagara projected at AR.
At Bathurst in front, Matt we leased 60 in the last month, so that's a.
That's an asset where we'd seen.
Leasing sort of stagnate.
In the first 12 months of the pandemic and then suddenly.
Interest.
Very much renewed and that's at a young urban professional demographic I think many of them anticipating that there'll be returning to the office looking to secure rent.
Rental housing in advance of that and.
I think that theyre, putting value on amenities location, and <unk> and a new friend it finishes that you see in a in a new purpose built rental and theyre diving in so.
I think our fifth in bank project in Ottawa.
Really I think we could be 45 to 50.
Commitments.
The next several weeks so that's accelerating as we get close to occupancy as well so I'm.
I'm optimistic about about the urban settings, and and that's where I think the big gain is in our portfolio because that's where the dispersion has been in terms of vacancy it's been highly concentrated in the more urban.
Buildings, Okay that makes sense and then maybe you can speak to has it been on turnover kind of last in first out the guys that were maybe mark to marketed.
At rents that were a bit higher.
Have left and tried to find something new and maybe youre sitting on bigger mark to market gains on people who've been there for a while and just let it go there is no opportunity to leave it.
Fair statement, so that would maybe have an impact on.
Leasing spreads to some extent absolutely and we did see that in Q4 of last year. When we saw a very significant number of move outs for the first time in the pandemic and what we saw there was a very short length of stay so those where tenants who had relatively current.
Rent rates that they've negotiated in the last Ah.
Two years, and so that really impacted us.
In Q4 of last year. Since Q4 is that length of stay on tenancies that are our ending is getting longer and longer. So it's still not to where it would have been historically.
But we are seeing that in that.
Sure.
But it's it's still variable quarter to quarter and its suite by suite. So.
But.
We did see.
That length and that the trend is that length of stay on departing tenancies is getting a little bit longer so.
Will that continue to hold we'll have to see but that is the trend line.
Okay.
That's fair enough and then the last one for me and it's a bit of a technicality I may be getting this wrong.
The occupancy at the end of period versus the average occupancy I was just looking so.
Period occupancy I think was 92, 2% in Q1 and its 92.9%, but the average occupancy is 91 and a half is that because there is turnover within.
The portfolio that accounts for the GAAP between those figures or did you actually see occupancy decline and sort of the height of lockdowns in.
April I guess, and then rebound towards the end of the quarter.
I'd have to get into the math.
And I don't know if I have that handy, but so our average is basically calculate on a daily basis.
And we've really tried to move to that.
I guess two quarters ago, we added that supplemental metric the average occupancy the end of quarter is is literally.
On that last day of the quarter and so you could have move outs and move ins and.
That I mean, it's so it'll it could it could be a little bit more volatile because of that.
So I mean, I think what we think is probably a better indicator or a better.
Guide for what happened in the quarter is the average occupancy.
That end of quarter metric.
Be a better indicator of kind of what the launch the starting point would be for Q3, if that helps yes.
Then with your commentary with regards to 93% occupancy in Q3 that would be on the average so you'd be moving from 91 and a half to 93.
You got it Thats right yes.
Okay perfect. That's very helpful. Thanks, guys I appreciate it.
Hey, Thanks, Matt.
Thank you.
There are no further questions at this time Mr. Waters you May proceed.
Great.
Thank you so much.
Everybody that concludes our call. This morning, thanks for joining us and for your interest in the REIT. We look forward to speaking with you all again after we report our Q3 results in the fall so have a great day, great weekend everybody.
And we'll talk to you all soon.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask could you. Please disconnect your lines.