Q2 2021 Canadian Apartment Properties Real Estate Investment Trust Earnings Call
Good day, and thank you for standing by welcomed.
Welcome to the Canadian apartment properties, REIT second quarter, 2021 results conference call.
At this time all participants are in a listen only mode.
After the Speakers' remarks, there will be a question and answer session.
To ask a question during this session. Please press star one on your telephone keypad.
If you require further assistance. Please press star Zero I would now like to hand, the conference over to David Mills. Please go ahead.
Good morning, Thank you Christy before we begin let me remind everyone that the following discussion may include comments that constitute forward looking statements about expected future events and the financial and operating results of country.
Actual results may differ materially from these forward looking statements as such statements are subject to certain risks and uncertainties.
Discussions concerning these risk factors or forward looking statements and the factors and assumptions on which they are base can be found in <unk> regulatory filings, including the annual information form of Amsterdam.
Have you changed that SEDAR Dot Com I will now turn things over to Mark <unk>, President and Chief Executive Officer.
Thanks, David Good morning, everyone and thank you for joining us Scott.
Scott Pryor, our Chief Financial Officer is also with me this morning.
Let's get started.
As shown on slide four we generated another strong period of growth and strong performance in the second quarter.
Revenues were up driven by the contribution from our acquisitions increased monthly rents and continued high occupancies.
Stabilized NOI increased two 9% with an F F O up five 7%.
While maintaining a very strong payout ratio was 59, 8%.
Our growth also remains accretive to unitholders with N F F O per unit up four 3%.
Okay.
Turning to slide five we continued to generate it.
<unk> strong performance and resiliency through the first six months of 2021 as we did throughout 2020.
All of our key benchmarks were up over last year.
Including revenues NOI, and then S F O b.
But then if it's low per unit rising 3%.
It was another period of accretive growth for our unit holders.
Looking ahead, we expect the balance of the year will show rising occupancies accelerated growth and much improved operating performance as the pandemic eases and we return to more normal markets and operations.
From an operating perspective, our ability to generate solid performance in both good and bad times is clearly demonstrated by the results for our stabilized portfolio as you can see on slide six.
Occupancies remained strong while net average monthly rent rose again.
Driven by modest pandemic affected increases on turnovers and renewables.
Our track record of organic growth also continued with same property NOI up a solid two 7%, while maintaining a strong NOI margin of over 65%.
We believe that we're turning a corner with a successful vaccine rollout and a return to more normal markets.
Our leasing and marketing programs continue to generate.
Track record of solid Occupancies as you can see on slide seven.
After approximately 18 months operating under the significant restrictions due to the pandemic.
Our occupancy has remained highly stable.
We expect Occupancies will steadily improve through the balance of the year as the pandemic eases.
We are already seeing an increase in the interested in person and online potential resident visits.
With strong and accelerating demand for our affordable high quality and spacious suites.
It's also important to note if we experience very few collection issues as we work with our residents to ensure that we collect our rents as efficiently as possible.
Bad debt as a percentage of total revenues remain small and manageable and.
And generally in keeping with our normal collections track record, we see bad debt levels, reducing further through the rest of 2021.
A key factor in our ability to generate solid results during the pandemic.
Its the solid increase in rents on turnover that we're achieving as shown on slide eight.
Clearly turnovers continued to be impacted by the ability of our residents to move or personally visit our properties.
However, a four 2% increase on turnover and the Canadian portfolio is a solid result.
And we expect to return to our more traditionally higher increases on turnover once vaccine rollout is complete and the pandemic eases.
Also remember that last year's first quarter was not impacted by the pandemic.
It's also important to note that our churn is increasing up to nine 4% from seven 2% last year.
Good sign that we will start to see more and higher mark to market rent increases in the quarters ahead.
Renewals continued to be affected by the rent increase freezes legislated in Ontario, and British Columbia.
Over the last few months, we have slowly been implementing modest increases in certain other markets where possible in consultation with our residents.
Looking ahead to next year on materials 2022 rent guideline increase of one 2%. It's good to see after no increases this year.
Importantly, we will be implementing this increase in Ontario effective January one capturing a full year of increased income.
We hope to employ the same strategy in British Columbia, once we learn the guidance guideline increase.
Slide nine shows we believe that we're starting to see a recovery in our rental rates on turnover.
And look to be getting back to much higher levels of increases we generated through 2019, and the first quarter of 2020 prior to when the pandemic setting.
As I said before we are confident the balance of this year, we will see a return to more normal market fundamentals.
We are already experiencing more in person and online visits by interested residents and.
And expect our increasing occupancy will contribute to our ability to generate stronger mark to market rent increases.
We believe the worst of the pandemic, it's now behind us.
And we will see recovery in our business going forward.
As slide 10 shows we continue to increase the size and scale.
In our property portfolio in both Canada and the Netherlands.
In 2020, we added 3262 suites insights for $820 million.
So far this year, we've acquired 1800, 64 suites and sites in Canada for $377 million.
And another 137 suites in the Netherlands.
$73 million.
We're also pleased to have completed the buyout of another of our remaining GTA operating leases earlier than scheduled.
Resulting in a 19% discount to the agreed price and the buyer.
As at the end of Q2, we only have two operating leases remaining.
Through most of last year and into 2021, our ability to invest in our properties was significantly curtailed by the pandemic and are focused on conserving cash.
Now with the end of the pandemic insight we are ramping up our efforts to further enhance value and income producing potential of our property portfolio.
As you can see on slide 11 investments in sweet and common area improvements have increased this year, ensuring that our properties remain the most attractive in our markets and providing residents with safe and comfortable homes.
Our investments in energy saving initiatives are reducing costs and helping us to improve our environmental footprint a key goal of our ESG programs.
And all of these key investments serve to increase NOI more quickly compared to other investment categories.
Hopefully.
Last time, we are including slide 12, and this morning's presentation outlining the many successful initiatives that we've introduced to mitigate the impacts of the pandemic.
As we've discussed over the last five quarters. We began early in 2020 to implement programs aimed at getting closer to our residents communicated with them understanding the issues facing them and helping them stay in their homes, while at the same time collecting as much rent as possible we built.
These initiatives have provided effective.
And have had a positive impact on our cash flows with strong and stable rent collection.
We were very pleased to see leasing activity pick up in the second quarter with a total of 4200 leases arranged up significantly from 2400 in Q1.
As the vaccine rollout continues we expect to see our visits to our properties to accelerate even further in the months ahead.
Now I'll turn things over to Scott.
Thanks Mark.
Turning to slide 14, you can see that we maintained our strong financial position at quarter end with a conservative debt to gross book value and continuing high liquidity.
Over one $5 billion.
<unk> Canadian unencumbered properties provide additional liquidity should it be needed.
In addition, we have $250 million available through our credit facility and $120 million in cash at quarter end.
In total if we were to access all of these sources of capital we would have available liquidity of over $1.8 billion.
And even if we did that our leverage ratio would still remain a very conservative 42%.
Looking at our financing through the first six months of the year, we locked in a very low interest rate of two 4% on a refinancing and top ups and extended our term note maturity.
We expect we will continue to benefit from the current low interest rate environment for some time.
At quarter end over 99% of our mortgages grew at a fixed interest rate.
In June we renegotiated and close on our new credit facility.
Which will now have a term of three years, and then decreased costs of 30 basis points over the previous margin.
This also provides for more flexibility over our unencumbered asset pool, and the better security package for cap rate.
We were also pleased to see another significant increase in the fair value of our Canadian property portfolio.
Increasing 500.
$13 million so far this year following a $730 million increase at the end of 2020.
This is excluding the impact of net acquisitions operating lease buyouts and foreign exchange.
As you can see on slide 15, we continue to capitalize on the current low interest rate environment.
Are you seeing interest costs.
Canada and extending the term to maturity.
The ability to capture strong spreads and low interest costs and Netherlands is also contributing to our lower overall interest cost and extending the term.
On recent interest.
We actually just closed or committed to a conventional based mortgage where pricing is becoming extremely competitive. So this creates an alternative to the teammates SEC financing program.
Clearly something that's a positive backdrop for the REIT.
Further to our strong and flexible financial position looking back over the last few years you can see on slide 16 that we have met our goal of maintaining a very conservative debt and coverage ratios even through the pandemic.
This conservative approach underpins the stability.
<unk> of our business and the sustainability of our monthly cash distributions to unit holders.
This focus on maintaining one of the strongest balance sheets in our business will continue going forward.
Our mortgage portfolio remains well balanced as shown on slide 17.
You can see in any given year no more than 13% of the total mortgages come due thereby reducing risk in a rising interest rate environment.
Looking ahead, our current ability to top up renewing mortgages through 2035 will provide further significant liquidity.
You can also see that we have considerable opportunity to reduce our long term interest cost in today's attractive interest rate environment.
With the current five year and 10 year estimated rates of approximately one 7% and 2.2% respectively.
Our well below expiring mortgage rates of between two eight and three 3% over the next three or four years I'll now turn things back to Mark to wrap up.
Thanks Scott.
Looking ahead, we see a number of very positive value drivers that we are confident will generate strong and growing returns for our unit holders over both the short and long term.
Turning to slide 19, we see the three key drivers of unit holder value in the months and years ahead.
Accretive portfolio growth will continue.
Based on our proven and successful asset allocation strategies we.
We are experiencing a strong pipeline of accretive acquisition opportunities and expect to see solid growth in the quarters ahead.
Importantly, the current low interest rate environment provides significant opportunities to acquire properties with strong cap rate spreads and to reduce interest costs on our refinancing initiatives.
Our industry, leading balance sheet leverage and liquidity also position us for growth going forward.
We believe that we will also benefit from a number of market trends as the pandemic eases in the months ahead.
Including increased immigration.
Return to office and in person learning and the increased affordability alternative of our high quality rental portfolio.
Compared to the significantly higher cost of homeownership.
In addition, our ongoing investments in our properties and our operating platform are enhancing the attractiveness of our portfolio.
Proving efficiency driving revenue gains and reducing costs.
I have a quick look at each of these value drivers.
We will continue to focus on our proven asset allocation strategy to accretively grow our portfolio as detailed on slide 20.
We primarily target value add apartment properties in the mid tier segment in very well located suburban markets in and around candidate three largest cities Toronto Vancouver and Montreal.
We are acquiring these properties at well under 50% of replacement cost and have proven our ability to invest in them to increase value.
Cash flows remained strong and highly stable due to their very affordable rental rates.
Our second focus is the Canadian MHC sector revenues are highly stable.
And with residents owning their own homes capital requirements and maintenance needs are significantly reduced with.
With home ownership costs rising across the country manufactured housing provides a real alternative as prices have not appreciated to the same extent.
Our third focus is on Europe dividends from our ownership interest our strong and stable while fee income for asset and property management services continued to grow.
It's one of the only professionally managed operating platforms in Europe, the opportunity for enhanced value are significant.
We are also capitalizing on very low European debt to finance our growth at attractive returns.
Key to our growth in the coming months will be our ability to capitalize on a number of market trends as we return to pre pandemic conditions.
<unk> for our quality properties will grow as immigration accelerates with new Canadians seeking affordable homes in our largest urban markets. The.
The return of international students will also contribute to increased demand.
The pandemic generated what we call household consolidation as students and young people return home to save costs and be in the safety of their family.
We see these young people returning to rental accommodation as offices reopen in class learning returns and the fear of the pandemic eases.
Demographics are also on our side.
The growing seniors population looks to the rental market to meet their needs.
Canadians over 65 are forecast to account for over 23% of the Canadian population by 2030.
We believe our quality and well located properties offering more space on one floor.
Affordable rates, we will see increased demand by seniors looking to capitalize on the significant equity they have generated in their homes.
We also see families looking to quality rental accommodation as a highly affordable alternative to the increasing cost of homeownership.
Additionally, cash flows will increase as we prudently and responsibly increase rents where possible.
Finally, our ongoing property investments.
Wind on slide 22.
Our.
Reducing costs through energy savings and other initiatives.
Enhancing resident safety and making our properties more attractive to meet demand from potential residents our.
Our technology solutions are increasing our operating efficiency.
In helping us meet our ESG commitment to enhanced environmental performance.
All of these investments are generating strong increases in our net asset value.
As Scott mentioned, we recorded a $596 million gain in the fair value of our portfolio in 2020 with another $357 million through the first six months of this year with.
With increasing demand and little new supply of rental properties. We believe the value of our asset base will only grow going forward and provide another strong driver for unit holder value over the long term.
In summary, we remain very excited about our future.
Our focus on the mid tier sector meet increased demand for affordable high quality homes.
Our predominantly suburban locations inside downtown cores, and our larger sized suites townhomes and manufactured homes are meeting the needs for renters seeking more space.
We are experiencing a strong pipeline of accretive acquisition opportunities and expect to see solid performance portfolio growth in the quarters ahead.
The continuing low interest rate environment provides significant opportunities to acquire properties with strong cap rate spreads to reduce interest costs on our refinancing initiatives.
Our industry, leading balance sheet leverage and liquidity position us for growth going forward.
And with demographic trends and increasing immigration. We are confident we will continue to drive value for our unit holders in the years ahead.
In closing.
Went to once again, thank everyone at cap REIT for their hard work and dedication over the last 18 months.
And also to our residents for their patience during these challenging times.
Looking ahead, we are confident we will return to more normal market conditions and resume our 25 year track record of growth strong operating performance and delivering enhanced value to our unit holders.
Thank you for your time this morning, and we would now be pleased to take any questions that you may have.
Thank you floor is now open for questions.
As a reminder to ask a question press Star then the number one on your telephone keypad.
And your first question is from Jonathan culture of TD Securities.
Thanks, Good morning, good morning.
John.
First question just on the recovery. It sounds like you guys are seeing at least the beginnings of it what markets would be strongest are further ahead in what markets are would still be lagging.
We've seen.
Faster than expected recovery.
In the suburban markets and I'll show you the Submarkets in General places like Ottawa, Victoria are doing exceptionally well.
The the markets that are recovering but are lagging or are the C Corps Toronto core Montreal.
And I guess I would attribute that to to.
So a couple of things that's where the pandemic was felt the harvest and also the return of international students.
We've seen recovery in the in the universities that have domestic students places like Alberta, and Nova Scotia.
But where we've seen reliance on international students. It's lagging we would expect to see that recovery really kick in in.
In the months ahead.
Okay.
That's helpful and then I guess.
Next just the <unk>.
In gears, a little bit on the.
Strike the acquisition market. It sounds like you guys are gonna be active in the back half of the year do you guys look to to fund any of that with the dispositions.
Yeah, I think that there is death.
Definitely vigor at cap REIT to la.
Looked at the assets.
Assets that we own and rope into recycling capital.
If there are certain markets, where cap rates are are has compressed significantly.
And I'm, sorry quest always creep.
Create equity for our unit holders and if we see an opportunity then we would we would consider selling.
I wouldn't call it a material strategy, but it would be something that we are we are open to a cap REIT now just trim up the crimson non core yes.
And then just lastly, Scott for you I think you've mentioned conventional mortgages competing with what CRH see what sort of rate and term or we were talking about it and what type of lender is doing that.
If it's more of like the insurance life co.
Groups that are doing it.
But there are some.
<unk>.
Some other lenders in it.
We're talking really various terms like you can go short and.
Three years, and we've been talking about 15 or 20 years Wow.
I'm not going to say that it's a slam dunk as far as being cheaper than C. MHC, but it's you know depending on how you look at those CMA species over the term of the mortgage it's highly competitive.
And it's nice to know that they're that backdrop. So you know, we'll we'll dip our toe into that into that area. There's some advantages to it especially on assets that we.
We think have good upside.
Assets that are value add that we may not want to kind of check on the CMA see fees in the first three to five years, we might we might focus on those assets to put conventional mortgages.
Okay.
The all in rate or the the face rate is higher but when you consider the feeds itself.
Economically.
Our are becoming pretty.
Pretty flat in some cases, you know lower and in some cases slightly higher.
Okay that is helpful. Thanks, guys I'll turn it back.
Thank you. Your next question is from Matt Logan of RBC capital markets.
Thank you and good morning.
Yeah.
Perhaps just following up on Jonathan's question could you talk about your leasing traffic and how your rent increases are trending so far in July and August.
And maybe what your outlook is for the balance of the year.
Yeah, I would say that Uh huh.
Can you talk to us in the first quarter, which I know you did we were predicting third quarter recovery.
It started a little sooner than expected, especially in those submarkets.
But.
As expected things are things are picking up so I wouldn't have much of a change.
Change in tone for the fourth quarter.
We're definitely seeing a.
Things picking up.
With like I said to Jonathan Corr, Toronto core Montreal slightly lagging.
Okay, and maybe just changing gears a question for Scott.
You recorded 13 basis points of cap rate compression in Q2 can you tell us of this fully reflects what youre seeing in terms of real time transactions and if there is potential for some further compression in the back half of the year.
Yeah, I mean I think.
We are conservative in our approach obviously.
At cap rate and we.
Look we have as many data points as possible, we really rely on our acquisitions team as well as third party.
External value add areas.
And in.
Internal value there. So we have a lot of data points I.
I would say we're on the conservative side.
So there could be some additional cap rate compression.
I think you know.
Based on transactions today, it'll be interesting to see as interest income.
Stabilized income increases whether that will flatten out cap rates or not but we would expect.
The income side to actually be more of a contributing factor moving forward you can see this quarter and lap income really what was flat from a fair value point of view. So it's purely cap rate compression. So I think that dynamic will change kind of moving forward as well, but yes, we still see some upside in the portfolio.
And if you think about your investments in IRR as given the management changes can you talk about what your plans are for that going forward.
We're very focused on helping iras with their internalization efforts at this point we want.
That team to be successful, we obviously have a significant investment in iras.
That we wanted to see.
Well managed.
Our focus going forward would be as we've stated our <unk> platform.
And that erodes platform I think has a tremendous opportunity in front of us.
And.
Maybe last one for me just in terms of your dispositions.
Would those be more one off in nature or are there markets, where you think cap rate compression is perhaps so pace fundamentals.
Yes, I would I would say the one off in nature like the.
The obvious thing to look at is our future performance win and the value outperformed portfolio, we look at capital.
Investment requirement and what we think expected returns are.
But there are some examples of I'll call it balance sheet clean up where we've got operating leases ground leases.
Other structures that that.
Are different that we would be open to cleaning up the other.
Other thing is just opportunistic so we've talked about some development opportunities of our smaller buildings in Toronto.
Where would they would even entitlement, we're getting development premium.
On potential sale and if we can recognize.
Cap rates that are less than two.
On a one off basis consider disposition.
Would not call. This a wholesale strategy cap REIT, it's just an openness to capital recycling we are the biggest.
In the country.
And we are open to two opportunity, but I wouldn't call. It core strategy I would just say it would be one off opportunistic.
Well I appreciate the color. Thanks, Scott Mark I'll turn the call back. Thank you.
Okay.
Thank you. Your next question is from Joanne Chen of BMO capital markets.
Hi, good morning.
Good morning.
Maybe just sticking to the acquisition side of things given how competitive the market is right now.
What's in your pipeline, how should we think about the magnitude of kind of somewhere.
And it did have a pretty active Q2 I just wanted to get a gauge of you know, we're certainly keeping expecting on the back half of the year.
Yes.
Question like we continue to be very very disciplined, but the volume of acquisitions shouldn't be confused with the rigor and conservative nature that we acquired through our acquisitions like <unk>.
You know, we lose a significant number of the bids that we make because we have these really rigorous.
Rigorous hurdles for accretion.
Our focus will always be on growing the equity value in cap REIT.
And doing accretive acquisitions, where we don't use leverage to make it happen like we model cap REIT debt levels. When we look at our acquisitions. When we look at in place income and we're very conservative with with the growth expectation. So all that being said.
Because we've got wide coverage on the country.
<unk> been able to do between $500 million and $1 billion a year in.
In the last couple of years I don't see much change to that but.
When you are bidding on at such a conservative way, it's hard to predict your success rate, but we've seen our our deal success rate below 10% and 10% or more of the deals that we actually are bidding on.
Alright, thank you for that.
And I guess for the back.
A couple of years.
Should we be thinking about occupancy occupancy trend and you only think it's nice to see you mentioned that the leasing momentum has continued.
Post quarter end and I'm, just wondering if you could provide some color on the occupancy side of things.
Well when the when the pandemic cap rates got a legacy of maintaining very high occupancy levels no that but.
But at the beginning of the pandemic, we didn't know how long the pandemic was going to last so we we paid very close attention to occupancy.
And so now we find ourselves balancing.
Occupancy with Mark to market rents in the use of incentives and and it's really managing those three lines that mattered. The most while at the same time holding out for high quality applicants. So.
I would say that you could expect improvements in in both incentive use occupancy and mark to market rents were managing all three lines simultaneously.
When I'm, saying that we always use in Investor Relations meeting.
There was a housing crisis in Canada before the pandemic and we would expect similar dynamics.
After so.
Just.
Touch up on that.
Okay.
And one last thing switching gears on the financing side of things, obviously, you have a view.
Strong balance sheet and no I don't.
It's not the scale I, just wondering longer term would there ever be a scenario, where you guys could look to perhaps access and secure market or do you think.
The pricing differential versus you know what you can get with CME C. Just doesn't make sense.
Yes, I would say when you look at that every couple of years.
We've talked about ratings, we've talked about that you know how we would structure I think we've actually put ourselves.
And our position from our current facility and our unencumbered asset pool et cetera to do that if we ever saw that market really open up but.
Today again, it's still we just have a ton of.
Runway with and you might see in those rates and then with conventional is actually becoming highly competitive I would say it's unlikely we go into the unsecured at this point, but but.
But we are planning our balance sheet just to always have those options available. So that was a big improvement with our credit facility and on how we structure this year.
I mean, I would just add to that that I think lenders expected life codes.
Have really created a.
Unsecured kind of market and their lending practices. They see multifamily is incredibly stable. The pandemic is further emphasized.
Now, how what a highly desirable asset classes that God. So.
We're just not reliant on it and as Scott has said this this clear movement in the conventional market is testimony.
To the quality of the income lender.
Lenders see it and so we're.
Very uniquely served by the fact that we don't need that market because the asset class is so incredibly strong.
Alright.
Okay. That's helpful.
That's it for me I will turn it back thanks Ed.
Thanks.
Thank you once again, if you would like to ask a question Press Star then the number one on your telephone keypad.
And your next question is from Brad Sturges of Raymond James.
Hi, good morning.
Morning, Brian.
Just to go back on your discussion about.
The different leasing strategies or I guess, it's fair to say within core locations, you're still using a little bit of incentive and trying to maintain occupancy well.
In the suburban Submarkets, you can probably be a little bit more aggressive on rate at this stage.
That's exactly correct.
With the pandemic, we've been trying to make markets where markets didn't exist like if you have a.
A university student focus buildings and the universities are closed you're trying to make a market.
Which is very difficult during the pandemic.
So we're seeing that that ease off.
It's I've said to people.
Just talk to your neighbors and your friends and look at your own family and the kids that are under 30 are now starting to leave home.
And it just it's really just a temperature gauge on the area that they're going to like is it safe. So when case counts are low we have seen try activity pick up in that under 30 market when case counts.
Go up we see traffic slow down in that under 30 market. So it's it's the primary drivers of kids at home that are coming back in the in the secondary driver.
The foreign students.
And you put those two things together and you've got a hot rental market before immigration.
The back half of the year do you still see turnover your churn to be elevated.
We do we do I think what we've said.
To investors directly.
Is that the pandemic creates economic life circumstance change good or bad.
And when you have a bit of a dislocated economy, which we do right now.
You get you get more turnover and life circumstances change decisions have been delayed in terms of moving people don't generally make moving decisions during a pandemic that's been part of our challenge.
But I do see escalating.
Escalated.
Turnover as predicted yeah.
For the balance of 2021 and into 2022.
Yeah.
Last question just on the acquisition front.
Obviously, you have a rigorous process.
Yeah.
Completing deals do you actually see where you can get deals across lines still more in kind of the secondary markets like Victoria or.
Could there be some opportunities in some of the suburban big city markets.
We've certainly been bidding on those suburban big city markets.
Like I said, our success rate is pretty low, but our end result is pretty impressive.
Got.
It's hard to say you Brad like we like I said, we model, what we model, we see value where we see it.
And sometimes others.
We will pay up more.
But I think you'll see a bit of a mix it won't be like a trend where.
Cap rate has moved its focus into a particular region. It's that we're covering the whole country and where were being successful.
In the markets that we are.
We see great growth potential in that that others haven't focused on.
Alright, great ill turn it back thanks a lot.
Brian.
Thank you. Your next question is from Matt Cornick hubs National Bank financial.
Good morning, guys.
Uh huh.
Sorry to take you back to our mortgage debt question.
Quickly on <unk>.
I apologize for projects.
No Scott this is your time to shine.
On an <unk> for financing costs to begin with amortization of C. MHC premiums and fees I think you noted that that's something but it was pretty substantial the increase is there anything one time in that and do you make any <unk> adjustments for it if it was onetime.
No we don't right now or I'm, sorry, we don't we did when we adjusted our policy around writing off fees when we refinance so.
Last year.
There was a significant amount of write off because we completed $1.4 billion in mortgages.
And we actually had some more material prepayment cost last year this quarter again.
And actually <unk>.
Going into next quarter.
Again, we have a huge refinancing program, we're looking at total mortgages, including acquisitions. This year of $1.3 billion. So we're almost back to last year's unprecedented though.
Amount of financing so those write offs are definitely more significant.
In Q2 Q3, it would be the expectation, but normalized should decrease over time.
And then as well, we're moving that 35 year am.
Mortgages, all last year and this year will be 35 year and so that so the amortization of those premiums will decrease a little bit over time.
Okay. So would you say I mean, it was $3.6 million for the quarter, but it looks like it's been kind of around 1 million. Historically, so should we say that that delta is mostly related to the refinancing activity.
I would absolutely say that yes, okay fair enough and then maybe more on strategy and again back to the conventional mortgage question.
Do those guys look at you as cap REIT as being an attractive entity.
<unk> two so I mean, there is a covenant in counterparty issue. There I'm just wondering because obviously some of the private guys are and got squeezed on CNBC and the ability to finance, but would add life co lend to a smaller private owner or is it just because cap rates such a good credit but they are interested in providing this one and so that's a that's a great.
Question, I mean, thats kind of something we've talked about with them. It is it is definitely asset first.
<unk>.
You know, they're going to they're going to provide financing at cheaper rates.
The better asset assets in our portfolio. So that is the covenant will help on the margin, but it's not the driver so.
We still think.
It does help them that will be a slight competitive advantage, but it's actually probably good for the private markets as well, which we're okay with that just means you know cap rates continue to be competitive.
In our portfolio maintained its value.
So.
Asset first by the Covenant helps us on the margin Fisher.
I would I would add to that that what we're seeing is the light goes are truly investing in apartment buildings like Scott said City center, they like the best and location driven but also.
The fact that we're such a low leverage for war.
We think we will have even more interesting attribute.
For them. So we've traditionally managed our book, obviously through refinancings and acquisitions, but where we can offer opportunities of low leverage there may be even better opportunity in those.
Major market assets so.
This is not a me.
Major strategic move for cap REIT. This is just great news coming out of the conventional market.
I don't see an opportunity for us to significantly change the balance of our financing program. It would see MHC, that's very very important program to us.
But it's just good to see as Scott said, an alternative out there that's attractive.
Sure no that absolutely makes sense and the fact that I'm asking about it speaks to the fact that your portfolio is pretty stable.
Take care guys.
Great Great. Thank you two things.
Thank you. Your next question is from Mario <unk> of Scotia capital.
Hi, good morning.
Just wanted to come back to the relationship between occupancy and incentives and I think mark on a past call you mentioned about the no matter what the incentive work during the depths of the pandemic.
It was largely irrelevant.
In fact kind of behavior.
How would you say or how sensitive are the prospective tenants in.
And some of the less robust markets that you referred to today to two income looks like how important or incentives to.
The closure rates today.
Good question.
We know the answer the reality is when there's.
<unk> traffic, you're just trying to take the limited traffic that's in in a market to your asset.
So I don't even think it's tenant behavior.
I'm a resident applicant behavior I think it is just trying to get attention.
Those very few shoppers that are out there.
Were you trying to make a market and I keep the easy example is are these universities that are reliant on foreign students and if those buildings have historically targeted that market, it's hard to make a new market. So.
I would answer it by just saying, it's it's all like I said in the beginning we're managing all three lines incentives.
Kopinski and mark to market rents and it's all being derived out of market traffic and conversion rate.
So where we see traffic and conversion rate.
We make adjustments.
But it is it is coming off.
And cap REIT houses legacy, we don't like incentives the goal and the expectation is that we would be out of the incentive game completely.
My hope by beginning of 2022 I'd be shocked if we werent.
And get back to just mark to market rents and occupancy management.
Maybe a difficult question to answer, but just as a follow on.
Occupancy this quarter was 97, 4%.
How much occupancy do you think you've seen on the provision of income because during the pandemic.
Well Scott did some interesting math and I think Scott you can correct me, if I've got the numbers wrong, but our incentives equated to approximately 1% of vacancy loss.
So if we do that.
And you blend those two things together it was an incredibly prudent.
Investment.
So you know cap REIT.
I believe did an exceptional job the team did an exceptional job.
Of maintaining and converting traffic that was out there.
And when you shave a percentage point off and you look back to how we did.
We did remarkably well.
That sounds really interesting.
That's good color on milk.
More of a theoretical question I think I guess coming into Europe, Ireland.
In the Netherlands.
Your expertise in Canada was really crowded in terms of setting up those structures and that's gone really well as you pointed out earlier on.
Would you would you say there was anything that you've learned in Europe, but from an operational perspective, you can pick Dr. Santana there coming out of this pandemic could.
Improve the overall.
<unk> growth going forward on a historical basis.
Well, we'd love to bring back their debt.
That's quite impressive Scot I think Scott what did you do over there.
What's the point.
9% denim, yeah, it's under 1% yeah.
One per cent.
But to answer your question Mario like what we know it's not really what we can bring back to Canada.
It's what we've learned.
And confirmed.
In our story so.
As cap REIT went province to province through our our growth.
We realize that you're just managing cultural regional differences, but the business is exactly the same there's actually no difference in the business anywhere in the world that we've seen so far it's really just managing those cultural and regulatory differences and in understanding how they function. So our thesis was by going to Europe, we were just really going to another.
Canadian Province, and in that turned out to be exactly true.
So being sensitive to the cultural and regulatory and market dynamic differences in different countries is really just moving outside of the of the Canadian border.
And doing the same thing.
But a lot of people forget we hadn't experiment in the U S, where we took on to manufactured home business for a period of time of management and we proved it there too.
It's bringing the cap REIT systems, and keep bringing the cap REIT culture, and bringing the cap REIT.
Management structure to these markets we know it works.
And it works best in regulated markets.
Okay.
The last question they got more of a high level question, you probably heard the term beds and shrubs thousands of times.
12 months in terms of very strong.
Institutional appetite or a private market out there for sure.
Multifamily residential and industrial.
Seen kind of a big uptick in industrial transactions in North America, particularly with larger portfolio. As you know there have been some of the private card and in Canada. What do you. What do you think broadly speaking pertaining just to cap like what do you think broadly speaking is preventing some of the larger institutions globally from.
Investing more in Canadian multifamily residential or what do you think we're seeing it now.
I think that.
At the end of the day.
Everybody wants to talk about international appetite, but the reality is when you look at Canadian multifamily.
The market has been driven primarily by Canadian pension funds on the acquisition front like those Canadian pension funds.
Aren't labeling themselves theyre going through a variety of different structures, but that is the true driver of cap rate compression and interest in multifamily in Canada.
I think that.
That appetite.
Which has been primarily I guess driven by the interest rate environment has driven a lot of private investors out in and Theres certainly is a wallet I'm gonna see primarily Canadian capital to two.
Address properties coming to market.
But I think at the end of the day, you need a Canadian platform that really understands Canadian multifamily.
To address Canadian.
Opportunity.
And again I use that word quickly there, but regulation. This is a big part of it you have to really understand.
How to navigate in a regulated market.
And if you don't have that experience of understanding it's not just an asset class that you can move into that's easy because there is high demand.
This is a month by month as you know Merial business.
Where things can slip quickly if if management.
Isn't there it's high high intensity management business, so within the REIT platform.
I think that's going to keep foreigners cautious.
Got it right or indirectly apparently highlights the value and importance of that operating platform.
You've always been we've always recognized that.
All right that's great. Thank you for the color.
Thank you.
Thank you.
Thank you we have no further questions at this time I will turn the call back over to Mark Kenny for any additional or closing remarks.
As always I'd like to thank everybody for their time today. If you have any questions. Please feel free to reach out to Scott or myself.
And again, thank you for your time and have a great day.
Thank you. This does conclude today's conference call you may now disconnect.