Q2 2021 InterRent Real Estate Investment Trust Earnings Call
<unk> also announced the transaction post COVID-19 or for a 94 suite properties and Mississauga with a joint venture partner crush volume that offers some great synergies with our recent acquisitions down the road.
And the bottom right you can see that our balance sheets and great shape and we continue to have ample liquidity to take advantage of external growth options that may arise.
So all in all real feeling positive about Q2, and certainly about the quarters ahead.
Turning to slide 9 we use as a quick reference for portfolio composition and the core region I'd like to point out that we'll be able zone.
Our annualized and there are 4 core markets.
It just happened to be Canada's top tech.
Tech talent markets.
Turning to slide 10, we wanted to put our current activity levels and context.
No, we bucket our portfolio and to reposition suites, and those which have been acquired after January 1.2018, where.
Where we still have repositioning work to do.
As you can see by the Black line and we typically carry higher vacancy and the latter category by design, but which is why you won't see us and 98% even in normal times.
And you know we decided early on current COVID-19 not to buy occupancy and when.
We continue to believe that was the right decision.
All segments and regions of our portfolio has seen steady increases in average rents.
Also hope that this chart helps illustrate the opportunity and the non repositioned portfolio and we continue to execute on our Capex plans.
We continue to see a GAAP to America or at least 20% across our portfolio and going back to some of them might commentary at the start of the call.
We also expect to see market rents grow from here.
On that note, let me turn things back to Mike to walk through a capital strength.
Thank you Brad.
Right now is.
You can see them on slide.
And I believe it's 14, just talking about the.
And our Capex.
And our whole repositioning program and as you can see we have not stopped our repositioning program and we still got.
And quite a number of suites that were in process and we keep we keep adding to the to the amount and that we're doing.
As we see a lot of.
Yes.
Again, the take up and the and.
Rentals and the potential handle growth, we think is great and.
And.
And so we have not slowed down.
The whole Capex repositioning program you can see that we bought a number of buildings.
Very happy with where we've been adding to.
Great and again, we're just keep adding to the same areas that we've been focused on and Vancouver, just a couple of <unk>.
Tuck in statement Youll St. Catharines with St. Catharines has been great for US we've had a couple of properties. We've had there for a while and really seen some really nice uptake.
Happy to buy in Oakville, and some saga.
Also I guess.
Yes.
Further small JV with <unk>.
Cross point and.
And Mississauga and that was just we were both chasing the same property and we found out and we said we might as well just work together.
Very happy with our relationship there with.
Kevin and Elliott and the team and.
And as we go forward and see them.
And we'll still continue to be active but theres a lot of again a lot of.
Capital out there chasing and really you've got to be very nimble on the development side. We've just started and we're just in the process of starting here.
Office re fit to multifamily.
I really like where we're going on that.
I think we're going to.
See some good results there and as we've talked about from previously we're in the midst and we keep pushing through on the 900, Albert Richmond and Churchill.
Our Burlington lands and we also and I just want everyone to be and I know the people that have traveled with us before we have a number of sites that we have future.
And it's a vacation prosper.
Prospects and you may start seeing some of those coming as we complete our getting get through some of these other ones that we've been working on from a while so lots of good.
Prospects for as far as the development side and the acquisitions side.
And again driven by.
Really just deploying our capital property properly and and.
And again, we will even though we are doing development will always be I guess really.
True to ourselves and have always been.
Value add creator and and we will continue on doing that so.
And.
And I see some very very good good signs, but it is a competitive market and I think you're also seeing that and somebody on the private market.
And so actions out there and that.
I don't think they've been fully baked into not only our.
The values, but any of our peers to be frankly, and it's very competitive out there but.
Again, we have long standing relationships and I think we're on the ground and we know how to see value and create value.
At this point I'm going to pass it over to Curt and curt's going to talk about the balance sheet.
Thanks, Mike and good morning, everyone.
As we all know our investment properties make up the bulk of the value on the balance sheet not only for us, but for most real estate companies.
On slide 19, we've provided some more color regarding our weighted average cap rate by region for our investment properties.
For the second quarter of 2021, we recorded a fair value gain of $59.5 million driven.
Driven by the NOI improvement and our same property portfolio and further cap rate compression.
Overall, the cap rate has decreased 8 basis points from Q1.
This reduction is a combination of including the Vancouver portfolio and the model as well as a 3 basis point reduction in our cap rate overall across the other 4 regions relative to Q1.
We currently sit at a weighted average portfolio cap rate of 398%.
And given the current market environment and discussion with our external advisors. We believe there may be further cap rate compression and the back half of the year.
On slide 20, you can see that the REIT is and a very healthy financial position.
Our debt to GBT and the series of June was up slightly to 34, 4% owing to an increase and our mortgage debt following our Q2 acquisitions.
At the end of the quarter, the REIT head and mortgages of $1.2 billion at an average term to maturity and $3.7 years and a weighted average interest rate of 241%.
Reflecting a further 6 basis point reduction in the interest rate.
And from Q1.
2 thirds of our mortgages are insured, which provides favorable interest rates given the reduction and financing risk for lenders.
At June 30, the REIT had approximately $260 million of available liquidity, which along with its current debt to GDP ratio up 34, 4%.
Offers ample runway to finance future capital requirements.
Yes.
Before I turn things back over to Mike to wrap up and we wanted to highlight some of the work we've been doing on the ESG side of things.
The main thing to take away from slide 22.
Is that we are approaching sustainability with the same long term loans that we apply to everything we do.
This slide shows some initiatives and more fruit in Q2.
It is important to note that many of these have been worked on for over a year or 2 now.
We understand that in order to provide real sustained value our initiatives need to be well thought out and woven into the fabric of our company.
We'll have more to say during our Q3 earnings call alongside with the release of our dedicated sustainability report so I'll leave it there for today.
Mike back to you for a few closing words.
Thanks, Kurt and I appreciate your input.
And as everybody knows.
And just are you figuring out that when we do these.
Don't like that and script that kind of.
Talk off the top of my head and I'll try to keep and short because I know that in some cases might go on too long.
So first off.
Really happy with and our team our team has done really create great things and they're all getting back.
And really back to normality, and which is which is terrific, but I. Appreciate all the work that they've done, especially the people out and we feel that to keep the.
Company is going and looking out for all of our various volume residents and our shareholders.
And then David Chime and those I think now as we were.
We're all pretty happy of where things are headed and again, we're not going to say that we're really satisfied with the skus that were far off from where we'd like to be but what we do see is theres, some very encouraging signs going forward and and.
Not so much and.
Obviously, we will see some good uptake here in 2021, we believe and the back half, but we really look at what's what's coming in 2022 and.
And just with the immigration international students and.
We think we're going to just be and.
Amazing shape, great tailwind for you.
For not only us.
Multifamily and in general.
For the next couple of years and.
We also and all of that.
And as we've gone through this but we've learned a lot and we broadened our team we've got a much deeper team along the way and.
Embraced technology.
And not all of it is even fully deploy it.
And we've been spending a lot of time and Thats why I can disease. Some of the items that we're working on and beyond the analytics side and.
And some of the customer relationship.
Software that we have like we just think we're really going to put us off of them.
Amazing position us on a go forward basis.
We also know that we've essentially we've been very disciplined we've kept our balance sheet, nice and clean and where.
Lowly levered that were really <unk>.
Very.
Great Great position as we go forward, you'll see us continually to transact and we'll be mindful and what we do and we will always try and look to see how we can deploy our capital assets. So again, we really appreciate it.
And the analyst community and.
Our board and our shareholders and our value team.
And most of home and a residence too.
All the way through this and we are.
We do look forward, we see it and we have some some much better positioned going forward and we feel very positive future.
Again, not super satisfied today, that's for sure, but we just see where the where things are going in and leasing momentum that we're seeing and Alaska.
We just think it's.
Out of the out of the trough so to speak and we're starting to climb up and.
And Thats, a great science and everybody's thoughts anyway, I will stop at that point. Thank you everybody I'm going to open the floor to some questions and we'll do our best to give.
And if some answers so thank you again.
At this time, if you would like to ask a question. Please press Star then 1 on your telephone keypad.
Our first question is from Mike Marketers with day sure Dan Your line is open.
Good morning, everybody.
With respect where thanks very much for the data on the leads and that's very useful and we obviously see your occupants.
Occupancy trend.
Q2 versus Q1, just curious if the lead.
I'm wondering if you could comment on the conversion that youre seeing in July.
And we see the increase in the leads and how is the conversion from Russia.
Yes.
July's leads are obviously are higher than what they were in June.
We're seeing.
Good conversion.
Obviously it varies by community.
Not only and just the city.
We're extremely happy about what we're seeing and our conversions right now and Vancouver, and Ottawa and to be Frank with you and then.
It's kind of funny and so if you remember a couple of and 1 of those last quarter or the quarter before that I was a little more concerned about close to.
Areas, there and I said, well I wasn't really ever concerned about Vancouver to be Frank with you I was just more thinking and again pushed a little longer down the road, but it's gone.
Very well.
Okay.
And just to add to that the only observation I would add to that Mike just touched on it.
And that Montreal last quarter.
And really picked up some steam and it continues to do well as we mentioned in last quarter, but finally, it seems like Ottawa is now kind of catch and China catch up to where Montreal was and whatnot and into.
Courage and like.
Okay, great. Thank you.
With the with regards to cross point and 50.50 on the new property and Mississauga and.
Are you guys exploring lending in and the existing assets and.
Anywhere in the portfolio and to further J vs with cross point or is it a is.
Is it.
If you're really going to be on new product going forward.
Right now like we haven't had any discussions and all of our vending anything and it's on new product and.
We have had.
Discussions about other other properties and frankly do we have offered on other properties.
But we'll see how that all evolves as we go forward, but no definitely not finding anything at this moment of time.
Okay, Great and then last 1 from me before I turn it back just on 473, Albert you guys are making good progress there it sounds like the.
Projected IRR is is really healthy.
Curious if there if this is a 1 off or if you guys are seeing any other opportunities to take that on and vacant office building and reconvert due to Russia and the near term.
We have looked at some other ones and we will continue to look at anything that we think we can create value.
Pencil through.
I think right now and there is <unk>.
Such a wall of capital out there, Mike that we've got and be creative at times and seeing what can we do too.
And hopefully maybe open maneuver or put herself and a really good spot that we can create that kind of value that we're used to so.
So we will definitely look at that we'll look at anything to be quite Frank with you that makes financial sense.
Okay, great and it's good to hear all the positive.
Okay.
Yeah.
The next question is from Mark Rothschild with Canaccord. Your line is open.
Thanks, and good morning, everyone.
Clearly the tone is very positive and regards to values of assets.
Are there any thoughts to maybe sell them additional partial interest and properties or even to sell outright assets considering how hot the market is or is your view on fundamental strengthening more important.
Well I do feel that the fundamentals are going to continue to strengthen.
Saying that we've you know we've never been afraid to sell off some assets. So there could be some assets sold here over the second half of the year, we're going to analyze.
Each 1.
I don't think.
Far from saying and before that we've looked at potentially selling Trent net 1 point we've looked at.
Potentially even elmer at 1 point.
Saying that they pulled has done incredibly well and this whole.
Covid, So I guess, we got a little bit lucky.
And those 2 aspects, but me and we'll always look at it and we'll look at and.
Anything and I don't think that we're again, we're always looking to try to derive the best value for our shareholders. So we'll look at all.
All properties as we go forward.
I mean, we do feel very very positive of where the market's going and.
And.
We're going to try and it'd be.
I think youre going to see a couple of pretty good years.
Coming here and the multifamily sector and.
Saying that were positive were positive coming off a very low spot too. So I'm not going to say that we're not we are not where we would we would have been in 2019.
But we do see 2022.
I think it could be very well could be.
And the 2019.
Okay, great and on fundamentals clearly you sound positive on leasing and to what extent is that based on a return of University students and maybe international students or is it more just general trends Youre seeing.
I think it's a university students and I also think it's young.
<unk> moving back out of their parents places I think I've mentioned that I've had the same.
I'm going to use my my own home as a litmus test so that is happening.
And I think it's just.
We have not seen the full brunt of I'll tell you right now immigration and obviously I think almost all of the immigration numbers that we're seeing and we're already people that were here on the ground and that's getting baked into the current immigration numbers and really we have some international students, but not to the same extent that we've had before we're hopeful we'll see more and more.
<unk> at the end of.
At the end of August.
But I don't think that's going to be fully baked until 2022, that's just might take I don't have.
The Crystal ball, but that's just what we're seeing right now.
Okay, great. Thanks, so much.
The next question is from Jonathan and culture with TD Securities. Your line is open.
Good morning.
Just going back to.
Mikes question, Alright, I guess related.
As you said and the commentary that Youre seeing heavy traffic and some properties were above normal.
What what regions would you say are strongest for you like which regions are above normal and which ones are strongest for you right now.
Yeah.
Hey, Mike alluded to it I think for this quarter and we're seeing really strong traffic and Vancouver, and we're seeing really strong traffic here and the national capital region. I. Just wanted to also be clear, though that said. We're also we're also seeing some robust activity and to other regions as well. So it's like we've mentioned and at the risk of.
Selling and boring and Q1.
And all trends and pointing to the right direction, but I think a lot of that rental demand is domestic rental demand from the most part we are antidote and you've seen some new Canadians coming to Canada, but for the most part has been domestic so 1 way you can look at that is quite encouraging and in the sense that we are seeing people wanting to get.
Back to life as normal no different than people wanted to get and the sporting events and so and the.
Stadium people want to leave their homes with their parents and so much as they love them and they wanted to start to life and I think that is playing out and is key.
And at least I didn't come to fruition, I think Montreal and all of a head start and.
I think 2 and a little ahead of the opening up so I don't think that should really come and stuff just surprised so we're really encouraged for 2022, Jonathan because I think the domestic demand.
And that really drove an increase in traffic. So if you believe and everything you're reading and the government, Okay and off and this last week and just really the start.
Okay.
The governor and really kind of opened up 2 new colors.
2020, twos and starting to be stood up and.
And.
Tractor year and from a fundamental perspective.
Okay and then.
And then just I guess sticking with 2022 for Ontario, you get the guideline increase.
Roughly what percent of your portfolio do you think you'll be able to put that guideline increase through and on January 1.
It's all like to be we don't have everybody kind of.
Coming due and it's all against all through different months of the year a lot of it as more and the summertime.
Jonathan and that's been done more on.
I guess, we've contemplated always to do that that's the best time, and that's why we see a lot more.
A lot more leasing activity and the summertime so.
And again, it's staggered through the whole year, but do we what portion we think we'll be able to put through for the whole year.
I think 100% to be Frank with you I don't see any.
I don't see any.
<unk> at all.
Okay and then just last question for Kurt you guys have $250 million of mortgages maturing in the back half day. This year what are what are your plans on that in terms of.
Short term, how much will be short term and and how much maybe you can put longterm debt on.
Yes, thanks, Jonathan.
We look at that continuously.
Our plan as you know historically has been to stay relatively short on the repositioning portfolio and then once it's repositioned we pushed that out into longer term CMA ensured financing.
What we're seeing right now and the market is that there's actually some good competition and the long term side and.
And Theres people offering product that competes very effectively with CAH insured.
<unk>.
Similar rates you can get longer terms.
And they'll look at the properties coming in even if youre not fully repositioned yet a little differently.
It's attractive.
Lots of long term capital out there for this stuff, where we are ready to slip it in.
And we just keep watching the market and.
Where we're at with our repositioning we're happy that the rates have come back down a little bit and the last.
30, 60 days, but like I said, we keep a close eye on it and the stuff that is short term it doesn't get locked for short term. It's very open to early removal from those pools. So that we can take it and throw it into the long term if we see any movement on rates.
Okay.
Thanks, I'll turn it back.
Yeah.
The next question is from Matthew Logan with RBC capital markets. Your line is open.
Thank you and good morning.
Can you guys talk about.
Thanks could you talk a little bit about the rental incentives that are reflected in your cash flow statement, and how that increase and incentive squares off with the increase and leasing demand.
Yes, so, we obviously baked and some rental and sales incentives specific around certain I guess property.
A lot of those incentives are coming off.
And now they have.
And the good thing is they will burn right off and 2022, and we again did not want to get ourselves.
Without the value.
Accretion going down the road, so and a lot of that is that a lot of that is going is getting muted and going down.
And in terms of the improving macro environment, how should we be thinking about that economic vacancy rate over the next 2 or 3 quarters.
Sorry can you repeat that question.
And just wondering if you guys have any sense for where the committed occupancy could trend 2 and September and we're looking at it on and economic basis. If you have those big Sandy.
As you know that we never really try to get.
And we always try to push our rents and so we've never tried to really push on the.
On.
I guess, what I'm trying to get fully occupied.
I don't know if we'll get to the levels of like say, the 96%, we'll hopefully get to them and the 95 or so and that range, maybe 90, and we'll see but that might be and the back half and the last quarter. We do think it's going to be extended leasing.
A cycle and we're really mindful of what kind of the rents. We are we do believe we will be and some really like the way things are going and trending.
And then immigration and international students come fully back.
It will be very very very positive.
And the marketplace and we're being very mindful of.
Watching as far as.
Our lease rates and non stuff as we go forward.
And we roll everything up and you know how should we be thinking about potential same property NOI growth in the back half of this year.
Yeah.
And I don't think it's something that we usually like to put out there personally and I'm looking around the room and.
Well I think.
And.
And I'll answer it this way and.
And not to be not try to get too cute.
And I've done and the day you just saw.
What we posted for same store revenue growth right now, we do think we're trending and the right direction. So we do believe that's going to get stronger.
So if you assume as we do that and we continue to convert some of the repositioning and you'll get a better margin you can see where the NOI growth can go up to rate and it's.
It's not rocket science, so I don't want to peg it at it but we are encouraged that the driver of that top line and we saw a return to that growth as is and we believe that will continue and pool on that.
Maybe I'll approach it a little bit differently and say your comments with respect to 2022.
Exceeding 2019 levels.
And would that imply that same property NOI growth next year could be well into the double digit range.
Yeah.
I'm not going to say I'm, not going to answer that well into the double digit range, but there and just scenario if the.
4 and a new newcomer and are back and we see the kind of what I'm told pressures that we believe that we're going to see given that there's not enough supply out there.
There is definitely and potential for high single double digit NOI growth.
Appreciate the commentary and maybe just changing gears in terms and to your cap rate.
You mentioned that there was only a 3 basis point change if we exclude the impact of the Vancouver portfolio.
How much of what Youre seeing and the private market is baked in and you know how much further could that cap rate going over the next couple of quarters.
I'll tell you I think that.
And just we've seen recent sales things that we've been on and all of that I think there's a wall of capital I think you're there's a good possibility youll see much further.
Cap rate compression.
Yes.
And we've talked about this go ahead mark.
The big piece of that is.
The private market tends to lead the appraisal reports and everything else right. So a lot of the deals we know and see and we've.
<unk> been active on or at least taken a look at.
And I agree with Mike It looks like there's going to be further cap rate compression and we've always been a little conservative on this side and probably will trend tend to stay a little conservative on this side, but.
But everything we've seen and the market as far as activity goes and deals that are getting done and some of the stuff just isn't reported yet so it's not and the appraisal reports, but it looks like further cap rate compression is coming at us.
I appreciate the color guys I'll turn the call back and thank you.
And the next question is from Mario <unk> with Scotiabank. Your line is open.
Alright, thank you.
And maybe if we need if we go to slide 11 of your conference call presentation, where you highlight your average monthly rents.
So the repositioning and average solution and total portfolio and just maybe a couple of quick questions. There.
First on the non repeat of unbundling.
Physician sorry.
And you saw a pretty decent uptick quarter over quarter Q2 versus Q1.
And does seem like the non position and army positioned all of our portfolio.
It came down a 11%.
And a quarter or is there anything particular, that's driving that.
It seem like the trends in Ottawa.
And getting better and based on that.
Your commentary.
Yeah.
Yeah, I think I think that the trends in auto are getting better you did youre right you did see that tick up on the repositioned.
And when we look through what that's driving or whats driving that it's coming from just the timing impacts. So it's not so much the demand impact its a timing of when people moved out and turning over the suites and getting them leased back up so.
So it is temporary in nature from what we're looking at on that reposition portfolio.
Yeah.
Okay.
And you've also been and.
Pretty steadfast and trying to maintain and where possible.
Overall portfolio occupancy today, I think it was -1.5%.
As of June 30.
And your overall rent was about 40 and 39, our Q2, maybe a difficult question to answer but how much.
If you if you chose a different path and decided to try and maintain occupancy and 95% range how much lower do you.
You think quickly and 39 would have been up here from Q2.
I don't think I can give you a quick answer on that 1 but I'll tell you what I, what we've always felt a steadfast about if we did that we went basically box ourself and for our future growth and we always believed that this was temporary in nature and obviously it was.
Much longer than we all hope that this pandemic was going to go on for.
We do think that we've chosen completely right and choosing this path.
It'll we won't have box herself and and we won't have hindered our growth potential. So we look at it and saying, Okay. We've got X amount of vacancy we've got lots of growth potential in there. So we are and we.
We feel really good and especially seeing the activity that we're seeing and.
And knowing where home prices have gone Unfortunately for the younger people and I think youre going to see a lot more renters.
And the game for a longer time, so we feel very very positive that this was the right.
I guess the rate.
Way to look at it and and.
Really for the next 5 to 7 years down the road.
And that we think it's the right thing to do so temporary a little bit of a temporary pause.
And we feel very good about what we did.
Uh huh.
And I don't think I was just curious.
And we see what the impact has been and all complete and just curious to see if there's any range in terms of what you know.
And what the savings would have been up.
And so simple.
Okay.
And maybe.
Shifting shifting gears to your acquisition pipeline.
It sounds sounds fair to be active and the market I guess, if you were to characterize your ball activity and the broader bucket and let's say there was no $100 of activity and so to me here.
How how that compare to where you where you see the broader market activity today.
I think it's gone.
So if there were say whatever it was $100 of activity, it's probably maybe $141.50, now I'm just talking off the top my head, but I think youre going to see a keep moving up I think there is.
There's a lot there's more new players and the.
And the and the business and see them I'm surprised by some of the people that I've seen that have.
Looked at multifamily.
But I.
I guess, there's just a wall of <unk>.
Capital out there looking for a home and they see multifamily as being 1 of the safe havens and obviously the industrial sector has done extremely well and I, but I suppose number.
Number 2 and.
Arguably just because the nature of our lease tenure, we've probably got the most upside potential and a and a shorter term so I look at.
I think a lot of people are looking at it now and and Theres a lot more rebalancing from my understanding of different people's portfolio being more heavily weighted towards real estate, so lot of activity out there and <unk>.
A lot of I would say, it's we have to work really hard to find deals.
And then about 20 to $50.
About 40 to $50 increments.
How much of that would you say you are.
Entry.
And looking and the market and and what types of interests with those of others.
And international.
But from domestic.
I would I would say, it's maybe about.
Maybe 10 to 15, maybe even a little bit more of new entrants.
Or.
And then I think it's rest of people just feeling confidence of where the market like where the market side like not everybody bought all the way through this we were pretty positive where we're going and we're always doing this for the long run and we felt a lot of confidence and what we were doing we knew it was gonna be a temporary in nature. That's the way we put this whole.
We've always built.
The read from our for our show shareholders and.
And with lots of support from the board and.
So now we're seeing people that were I guess that we're not active for about a year year and a half are getting active again, because they are starting to see leasing traffic up.
And then about 10, 15%, but I keep hearing and new people, arriving on the scene and so.
And with many people tend to be institutional and now there might be.
Through private Reits and whatnot Mary also.
Definitely more and more capitals.
Maybe coming through some of the same platforms and.
And that's the point and I want to make is and this whole time, we truly still believe that this is a reflection point for this asset class and it is getting institutionalized and it's getting institute and slides and a much faster clip.
A lot of that's got to do with the fact that it's a lot harder to operate and the current environment and I would just went through and the good thing.
Change through some of that operating environment, Thats being tougher and the good thing for the space. It's made people reinvest into their platform and the technology virtual leasing and we're slowly closing the gap with some of the industry participants around the world and.
Most by yourself and the board and we're doing a lot of these things.
A lot sooner and I think I think what really what its force as there is an arbitrage between the private and the well organized professional operating platforms. So I do think those are going to continue to garner more and more capital.
And you're going to start and continuing to see this asset class institutional wins, which is great for us from the sense that there's more opportunities for us to look at and and bid on the ones that we think are real and good strategic fit and we can create value, but it hasn't got any easier from a price and standpoint.
Okay.
Understood Okay.
And in terms of the incremental demand I think you referenced.
And your Ontario, Garza and increase was about 22 coming through and that's.
Good to see would you attribute any of the incremental demand for greater visibility on the regulatory from.
Going forward.
I think people are I guess, we're getting a little bit more comfortable where we're all going and obviously when we are.
At this point last year I don't think there was a lot of comfort from.
Anybody of where we're going.
Really.
Happy with the vaccines that were there.
Take up here in Canada, where I think we're 1 of the leading countries and the world.
And neither of which is which is terrific.
So I just think there's just a lot more.
And positivity.
Completely out there and and I guess and also a little clear when you see you know when.
They they come out and announce that yeah. This is the guideline increase like things are returning.
We're not completely normal yet and I don't think we're going to see the full normality until 2020.2 there's still a number of people that are not back and their offices.
And we see it here and Ottawa with the federal government not back and the offices I guess theyre doing a little bit of a test case now from what I've read.
As a positive but.
I, just see like as we get and better and better and better shape.
I think that.
People are feeling.
Very comfortable and transacting and multifamily.
Got it Okay and my last question and it's more of and operational 1 I'm not sure. If you have any information and are willing to disclose it.
I mean any sense or color in terms of.
Oh, the rent to income ratio and the portfolio either and the existing portfolio were on somebody and you meet that you're converting.
Do you underwrite to in terms of a rent to income ratio.
Well, that's a lot tougher right now merial given given the situation that we're through right. So there's a lot of people that are current on their rent and they've been able to get help but maybe they are underserved. So that's that's a that's a tougher thing to kind of work through interest and go through I don't think we'd.
Have comfort and get disclosed and that number to you right now, but I do feel comfortable and it says so we've been quite pleased with where.
Collection has been aware of receivable stand so back to Mikes point.
And very stable asset class and has really stood up and our portfolio is no different.
On that front, so I think if I had it anecdotally tell you where we sit today I'd say, we'd probably mirror.
The more macro housing to income ratio looks like.
Yes, I would agree with Brian and I am encouraged by and certain areas that we've seen.
And some good.
I guess some of them.
I would say some higher income earners, and I wouldnt, usually see and our portfolio that are buying and I don't know if that and I think we're gonna see I don't know, but I think we're going to see a prolonged.
Amount of time that people will be renters.
Because of the housing costs have gone up a lot. So I really believe that and I was surprise, even just start was and Vancouver last week. They were telling me and some of the people that are.
Renting from us and.
Wow.
And they are they're making some big income there and we're seeing it and like and Ottawa, we're seeing and in different places so.
I think you are going to see that's where I talk about <unk>.
I think we go back and start factoring that and I think we're gonna be.
Fairly happy with where we are and I think we're going to start seeing some noticeable.
Downtrend.
And on where I should say, yes, downtrend on the rent to income and warrant a positive way and the amount that they're paying for rent versus their income.
Pipe articulated that properly.
And even though.
And it's interesting like I think.
It depends on that because the court to strange the structural long term outlook on the portfolio or the broader rental market.
And so.
And your about maybe correct duration gets extended a little bit coming out of this but at the end of the days or anything else and your view that coming out of this but structurally changes how you operate the business.
Going forward.
And Oh anything changed how we operate and I think that's it.
Firm, we've always been quite progressive as far as investment in the platform and.
And I think the 1 thing, though maybe Mario and some of the things that were on or to do less and to revamp and and things like that it got accelerated.
Thing is any different from a lot of other industries and a lot of different asset classes I think COVID-19 just accelerated some of the trends for sure. The 1 comment I would make.
And it was coming back to your comment treat us and Mike's comment and I think if you asked her and management group.
And we win and the dark early days, when Covid kind of hedged and we went into lockdown.
Worked extremely hard and the group, who worked extremely hard and make sure everybody was safe and our team members and our resident base were safe that is number 1 priority, but number 2 is what is going to come out of it. So we had to step back and look towards the future and.
And I think the 1 thing and this group thought for sure. It was we would actually see our lighten up on the housing affordability issue and we thought the erosion, maybe there's still keep the erosion, but it would it would decline at the rate and pace and we couldn't have been more around all of that we came out we thought there would be a discounting.
And on housing prices and whatnot and really what happened was it got accelerated because of the low interest rates and anybody that could.
And potentially things about owning a home and the next 5 years. They felt the panic that they had to do it now and I think and parents into there.
And to that you didn't want not and neither.
And a little bit of day inherently early and that really did create a real strain and we all know on the housing market and that I think will structurally change the ownership level and Canada and housing going forward, which is a big plus from rentals.
Given that we haven't had that kind of supply, but we have to add as an industry Act responsible and help encourage new supply and all 3 levels of the government and be part of the solution.
Great. Thanks, Brad.
And good luck.
The next question is from Joanne Chen with BMO capital markets. Your line is open.
Hi, good morning.
And you just saw.
And on the occupancy side with that improvement and Montreal would you attribute and wasn't that just 2 that really are reopening or is there any other drivers, whether you know and appointment or and you know the students.
And population that can that drove that improvement.
And I would attribute a lot of it just to the earlier opening youre seeing kids come back and they know they are going to have in person classes, there, which is which is great. I expect we'll still get some kind of get some more take up here and.
And I think it's going to be a little bit prolonged.
It's still like there is there is pretty good when I've been a montreal pretty good activity.
And town and I, just feel like people are being a lot more confident and.
So I would say that not all of the non everybody's back in their offices and that so I think that's gonna get keep improving along the way and.
And ill specifically we have.
And I'm really looking forward to the.
I guess immigration happening again, because the Montreal has done incredibly well once the immigration.
Opens up again, and I think it'll do really exceedingly well.
Look at the the prices per day.
And to live there versus when you go into the Toronto and Vancouver, I think it might start seeing higher a higher percentage numbers coming out of that.
Okay.
That's helpful. And then just switching gears back on and Cindy on the acquisition side of things you know how should we be thinking you know how the back half day, you will shape up given how competitive our pricing is right now and.
And within that are there certain markets that you're seeing and probably the best opportunity and.
At this point.
I think we're gonna can stay and stick to our our same markets. So we do see opportunities I think 1 thing that I think that you know.
We're very hands on so 1 of them when we start looking at our some of our competitors coming into the market I think sometimes we see things that maybe.
Just because of the years of experience and we've had and and being there that we can see some different levers that we can pull that make the certain properties make more sense and then others. So I do believe that will be continue to transact I think we'll be at a fairly and hopefully a fairly steady clip.
And to.
To be frankly, do we broadened out our a team there for acquisitions and that and we're being.
We're always trying to get anything we can off market, but.
I think I think we'll have and I think we're gonna see there'll be.
So I think it'll be probably going to throw a number out there probably potentially higher than what I'd say and 100 million herself and the back half.
And just to add 1 comment and it's either.
See if I was going to get in trouble, Joe and myself.
I'll just add to that comment.
And I know, we're talking on their name but.
Back to SaaS and classes getting institutionalized.
And there are only so many operating platforms that can execute our peers are great example day will benefit too.
But the people that have invested and their platforms that have well organized and professional platforms.
And my opinion and I believe.
My colleagues share this opinion.
We're poised to really benefit over the next 3 years of what we believed and reflection point, because there's a lot of institutions. So under allocated to the asset class and from a risk return perspective, it makes a lot of assets.
Right.
Okay, and I guess, you know on Covid.
That is that on average.
But in terms of opportunities to further grow your development pipeline and to me and thinking about that over the near term.
Sorry, I don't think I understood. The question can you just sorry, just thought of and how how crazy, though and I guess on the acquisition side and you know from where I can clean and what is the potential for you guys to try to grow I guess the development pipeline.
I think we will still grow the development pipeline, we may do some.
We may look and some things like some potentially.
Mezzanine financing for a developer and afford kind of purchase that we can convert.
And we may look at some different pieces, but we're going to be very mindful, we've got to always watch our.
Our balance sheet, we're really we're very happy where we're sitting right now and again, we were you know.
We knew that we would transact through here so.
No I think you'll see us doing more and we'll look at.
We're gonna be careful and prudent with how much development, we do and it.
And 1 time, but as I said on an earlier on the call and we do have a lot of potential for intensification and so we'll be mining that as we go forward. So and I don't think people of attributed any value to that that whole and.
Tenths of Acacia and prospects that we have I know when we brought people around and.
Tour, a few years ago people were noting it and and I don't think that the market totally appreciate some of the stuff that we have.
And that's somewhat by design because we're very much about will show you the numbers and I will like.
Well, let the analyst community and the investment community dictate what kind of values and want to ascribe to that going forward. The new developments will play a role and their playbook, because I've done and a day.
Creation of the older properties is great. We know what we're buying at a discount to replacement cost. So we can we can do that math.
The the risks and that game is the turnover rate depending on how tight the bomb and guests.
And how tight the fundamentals get where the nice thing about new developments and no longer about a turnover game, it's about being able to execute the lever and the product and hitting our pro forma rents.
So like anything you do and we think and well diversified approach to do going forward and makes a lot of sense, but at the bottom line what kind of drives this management group and board and has to create value and might not create value and day, 1 but it has to create value and a 3 to 5 year time period or it doesn't and got us excited.
Yeah.
Alright.
Okay. No that's helpful. Thanks, and I'll turn it back.
The next question is from Brad Sturges with Raymond James Your line is open.
Hi, there.
Just to follow up on the intensification discussion there.
It sounds like the plan is to add a little bit more disclosure on what that.
And densification potential could be and the portfolio today.
So what would be the rough timeline, and maybe seeing a little bit more disclosure on that from.
Yeah, maybe maybe I and my I missed [laughter] played played that Brad and we'll be doing like where I'm, just saying, we do have a lot of opportunity to mine stuff. So when you look at it it's not only just the cash basis, there is potential going going forward. So we're happy with our exposure.
Right now and are on the development side will never overweight ourselves. We will have to be you know we have to be very mindful and careful about what we do just of the nature of what the read is but I mean just.
Amos.
And I talked about it's very bad.
Understood understood and that's good and bad, sometimes probably mostly bad but doing it okay. Okay.
And maybe on slide 14, just on the Capex and repositioning program and <unk>.
Can you give a range of full and partial suite renovation costs 15 to 40 K per per door.
And if we're looking at the 3500 suite left in the program.
And I'm sure there's a range to what's being done but you know is it more weighted towards full renovations or partial renovations and.
How should we think about the remaining program from.
From a capital spend perspective.
It's a real mix bag I mean, I'll tell you some of the stuff that we transacted on like I was like they were spot on and what they did as far as their Capex program, So really little things and maybe just be replacing appliances going from white to stainless steel and maybe changing out a countertop too.
Of course, our Caesar stone countertops.
And like some of them are done very well and some of them just even if it's just like small things like a light fixtures and things of that nature and again some of them we need to go.
Full tilt on and so it really varies and it and it can even ferry and a building.
You may have somebody who started on 1 program and then whatever they decided they ran out of money to spend more or they didn't think they were going to get it or whatever reason, Oregon and the other way where they are.
They did a little bit and then they started doing more so it's got to be very specific to the suites. So it's pretty hard to kind of give you a.
Like on a hole here here's the average you know what I mean.
Yeah.
I guess the low in terms of that that range has not changed much in a low code.
And the.
6 to 9 months during COVID-19 or as a pretty consistent spend and figure that you.
And you would've seen pre COVID-19.
Sorry.
And I didn't know if you heard that it was on mute did you hear that.
Sorry can you repeat it.
So I was going to say.
And I apologize I was on mute.
I guess, we were all a little tired of here and that 1 day.
And on mute, but anyways.
So we have found that there is a bit of cost pressures on some of the.
On on some of the items definitely been.
Supply issues too as far as the like on our appliances like we've we've been backlogged on some.
You know 1 on dish.
Dishwashers and things of that nature. So.
And it's kind of it's crept a little bit for sure.
No question from 2 observations I'd like that to Mike.
1 is and and bought to me kind of hit on it obviously on the repositioning program. The majority of that and fall rentals, but to mikes point, there and sometimes when where you'll go in.
And purchase some assets and it might not be might not be purchasing with because of the unit had a pretty good renovation program and maybe they didn't the market the building well, but for the most part still the the non reconditioning purchases are typically Paul Reynolds.
And this is why I wanted to just kind of hit home. The point is on the repositioning we're getting to a point, where we own properties and longer than 5 years and then this goes and speaks to what Mike was speaking to I just want to kind of really hit the point is but in those buildings were seeing a second level, reposition and where hey at the time.
And it really good renovation program, but now we can go back and up and and stay with the times and like any real good and retailer, we got and stay with it and and they had and the curve and obviously do that when the returns meet our thresholds, but we are seeing another level of repositioning and second I would like to say too.
On the cost and regionally we've seen some differences and then there was 1 region in particular, where it tends to be little higher too.
Do a renovation program we found during Covid. It was actually a region, where we could take advantage of and actually saw some decrease and the prices and we took advantage of that so but on the whole across the board and we are seeing some.
Cost creep.
The last question from me I'm just to go back to the cap rate compression discussion.
I'm sure you're seeing some broad based and pressure on cap rates, but is there a market or region that kind of stands out as seeing a little bit more downward pressure on cap rates right now.
I'd say, it's across the board and to be frankly, they're like Guy.
I don't I don't see you know.
We're seeing it everywhere.
Okay, that's great, Thanks, and I'll turn it back.
Our final question for today is from Josh wants and thank you Paul with Laurentian Bank. Your line is open.
Good morning.
Yeah.
Good morning.
<unk>.
And just a clarification I want to.
I've heard Mike say aye.
And you said that your occupancy would be at around 95% by and the.
And second half of Q4 is that right.
No what we did say all indications from the first half of the year's pointing in a positive direction on the momentum and whatnot and we're encouraged and what we're seeing and each month, we continue to gain some momentum.
What was said is we will see if we can get back to 95 were very confident that and 2022 will shape up and we'll see more newcomers and we'll start to see a bigger and participation from immigration contribute.
That said, if we do have and extended leasing cycle, we'll see but we're saying we'd like.
And look to get there in 2022, but you never know what 2021 moving.
And we're hopeful.
And what we're hopeful we're going to get there, but we don't have a crystal ball, but we are happy of where we're getting and we've seen and I guess, we've hit the trough and we're starting to come back so as more and more opening comes about and people get back into their offices and start you know again domestically, leaving their parents' house.
See more kids going back into the.
Getting comfortable for I guess, the in person classes and even just any international student immigration and visa feel and it's gonna get better and better and better and we do feel they should be and extended leasing cycle. That's what we're expecting.
But again these are a little bit of uncharted waters. So we're not we're not 100% share will be able to tell you that.
On the next call [laughter], Okay and.
And on student leasing.
There is a what is it at this point like would you say it and whereas it was in 2019 or do you think this is it lower than that.
It's not completely there theres still a minutes not 100% there we are expecting to see more of it and they.
A little bit more of a rush here, but again, we don't have the international students to the same degree and the international students were we didn't realize how many that Ah I believe it's like 700000 international students come into Canada, a year and then when you look at where they usually situate themselves. It's in our primary markets, where we have like especially Montreal Magee.
And can cardia, we didn't realize how many international students. We have so we look at some of those markets and it's not quite there.
It's way better than last year.
And the only thing I would add it's better than last year, we're not back to 2018.2019, but the 1 day will be interesting, yes, and who knows and I'm just throwing this out as more of a comment than anything and we're not we're not budgeting.
Budgeting, and this or forecasts and us, but it will be interesting to see if the winter semester has an increase and flops new covers where they didn't couldn't get the paperwork in order for the fall semester does that translate into and increased winter semester, which is never tip.
And being strong and our markets, but like I said, we're not banking on it it's more from throwing that out there.
I'd be curious to see.
That translates into something.
Right.
And 1 last question.
Oh, you and our Florida markets.
Which 1 do you think would be the slowest to Nicola.
But from what I was seeing it wont be Vancouver.
[laughter], So I guess, we're going to see how it all plays out but the thing is it's just the the different times of reopening.
And Ottawa, we got the federal government here at play.
Montreal again like we've got we're around the the University. So we'll see how that plays out over the next 3 or 4 weeks.
It's pretty hard to kind of predict.
Predict it's really depends again, it's sometimes is property specific and so.
So it just seems like like van has got a lot of and got a lot of steam. So it's got a lot of steam now and I'm wondering where it's gonna be and.
And do down the road.
And a profitable probably have that.
And definitely will recover but until until some of the bank and some of the big head offices start mandating people back to the office you might see that lag a little just given where the pricing is for the core.
So if you're starting out and and you had a real.
Relation and they wanted to change careers and whatnot.
And you'll see a lot of people start to pick maybe the city they want to live and to where they want and where the career to be and from a housing affordability perspective, and a lovely building perspective.
And if anything I would have to I think all 4 quarters that were in and I'm going to extremely well, but I would say probably channel would be a little legs, but that said I'm talking core I'm not talking the bedroom communities.
Of the DTA.
Okay. That's good color. Thank you very much.
No further questions at this time I'll turn the call back to the presenters for any closing remarks.
Okay, and I'd like to say to everybody. Thank you very much for taking the time.
For this morning's call we appreciate everybody's.
And continued analysis and questions and we were learning from everybody here at journeys.
I guess very different times, but I am very happy to see that we are heading in the right direction. We are we have a long way to go we're not we're not there yet, but we do feel like we're doing a lot of the right things to get to where we would like to get to and I also want to thank our team. Our team has done a really good job and.
I know that I mean with that.
Their efforts, we would not be and this oh.
And I guess this position of being a little bit more positive and and just what they've done with our residents and amazing with a resident's, taking care of them and making sure that they all feel.
A healthy and safe and secure so we're really we really appreciate our whole team.
And on that note I'll I'll, thank everybody again, and hope everybody has a great rest of the day and and enjoys the rest of this summer and.
Take care, we'll be looking forward to seeing and talking to a lot of you soon thank you bye.
Okay.
Thank you. This concludes the integral and read Q2, 2020, 1 and financial results call you may now disconnect.