Q4 2021 InterRent Real Estate Investment Trust Earnings Call
Welcome everyone. Thank you for joining indirect rates Q4, 2021 earnings call and happy International Women's day.
You can find the presentation to accompany today's call on the Investor Relations section of our website under events and presentations.
We're pleased today to have make began see you Brad cuts he president Stuart Miller, CFO and Dave Nothing zero on the line today.
As usual the team will present, some prepared remarks, and then we'll open it up to questions before.
Before we begin I want to remind listeners that certain statements about future events made on this conference call are forward looking in nature any such information is subject to risks uncertainties and assumptions that could cause actual results to differ materially. Please refer to the cautionary statements on forward looking information in the news release and MD&A dated March eight 2022 for more information during.
During the call management will also refer to certain non iron horse measures. Although the REIT believes these measures provide useful supplemental information about its financial performance. They are not recognized measures and do not have standardized meanings under IRS. Please.
Please see the reeds MD&A for additional information regarding non <unk> measures, including a reconciliation to the nearest I first measures.
Mike over to you.
First off I'll say, thank you to everybody for joining us and taking the time here today.
Hope everybody is doing well.
Thanks.
I can speak for myself and a lot of the people but.
Our team and hopefully all of our team.
We're starting to see a lot of things are looking a lot better a lot brighter for all of US a lot more bluer skies and hope you're all feeling the same way and I look forward to seeing many of you very soon.
Also wanted to before we get into results.
We've got a new format of our annual report.
Rudy Raphael Glenn.
Andy and Chris.
A bunch of other people did great work on it if you have a chance really.
We should take a look at it youll see the.
I guess, what we've been doing not only last year, but the last few years, but on the technology side really pushed hard into the technology side with some of the creativity of our company and some great personal stories from for everybody. So.
If you have a few more moments that would be great and lastly, I just want to say before we hit the results.
Like to say I am so proud of our team that just done great work.
<unk> really worked hard in under unbelievably challenging times.
I'm very proud of them.
Anyways.
Yes.
You'll see some they've obviously done produce some I think some pretty good results. So.
We'll go to slide seven for.
For everybody right now if you go through the deck.
Anyway.
I just wanted to kind of talk about what you know.
Things, we've kind of held fast on we really held fast on.
Keeping our rent not worrying about occupancy we actually utilize that time to upgrade more of the units we just.
Felt like that in the long run that was the better move.
So a lot of pain.
Couple of years over it.
I feel very confident its the right move.
I think we're all going to see some.
Really.
Some good things coming forward for the company.
So happy we're almost at pre pandemic.
Vacancy right now.
And also as you can see we're seeing some good.
Good movement.
On a gross.
Is that growth through our <unk> and I think we're.
We're getting back to more normalized.
Thought so I'm very I'm very encouraged by that to say the least.
So want to highlight we last year, we had a record year in acquisitions, we had we bought <unk> thousand 829 units.
We pushed into a new market being Vancouver.
Sure.
Really super happy with that market.
Was this great timing.
<unk> really happy to get our platform down there so hard to get.
Any type of scale in that market, but once you have it it just.
It seems you can just keep Bolton on as you go.
We're one of the few players that do have a platform there.
I think it's going to work out incredibly well, so where we're really extremely happy about it.
Yes, we did transactions pretty well everywhere.
Normalized footprint and.
And that's working out.
Ladies fairly well.
Still have some vacancy in our core markets.
Sorry.
Core in our markets.
But for all my Charles with the hardest we've had the hardest time.
Truly believe once integration.
And international students come back that will come back to we've seen it in Ottawa and also in Toronto in the core.
I'm surprised to Ottawa helped and as well as it has.
Specialty was really we're not seeing the amount of people that we'd like to see in our downtown core.
Save and except.
A few people that came for three or four weeks.
On a normalized way with so we're really hoping that federal government is going to get back into their offices.
I hope there is a big push on.
But I think all in all I think youre going to see numbers I'm pretty pleased with what I'm most pleased about.
I think we just kind of statutory meeting.
And I'm really pleased about what we're going to see going forward.
As I look at the financial health and I'll, let.
<unk> spend on the balance of his time on it.
You can see.
We do have a number of youre going to notice that we do have a number of mortgages coming due we are doing a lot more than <unk> now where through a bunch of them now youre going to see.
Over the near term, we're going to be up around 80%.
So you may see in just the way we go about it we obviously we go in and do some work and then after we've done.
Done to work then we use a slap on the CMA jpmorgan. So that's usually the way we always work so we will never be at 98%.
Youll see that well.
That's going to tilt up a lot.
And we've kept our and we've been very conservative again, we've kept our debt to gross book value down into that.
<unk> 36 and change range in anyway.
Very happy of where we're going in again.
And again I think that.
We're really heading in the right spot.
And also maybe I should also point out one of the things Thats not on the slide in August .
Let's say it too is that we've also during this time has really increased our bench strength.
Really kind of what kind of pulled forward a lot of.
Positional hires that maybe we would have held Austin traditionally before but we're really looking at this in the long term.
And thinking we want to bring people in and wanted to get them thinking about the way we do things.
Doing that whole education and training and also having some of the senior people I'm talking a lot of rolls all the way through the company, but a lot of senior roles, which we would have usually held office and waited to grow into those roles, we've kind of pulled some of that.
Some of those positions I guess forward and.
I think it's just so important as we look forward as the company that either see again great comment.
Really good bench strength.
Just really I'm very happy of where we're going not sooner, obviously that we're super happy with our numbers, but really excited about what we're doing as a company.
We're just getting better and better as a company.
Yes.
Please so far so anyways I'll pass it over to Dave now. Thank you. Thanks, Mike during our last call. We said, we're expecting to finish the year close to a 95% to 96% occupancy level and it's great to see that part of their overall portfolio occupancy is sitting at 95, 6% at year end and we saw improvements.
Come through all of our regions and our repositioned portfolio.
Our GTA can reposition portfolio improved 320 basis points during the quarter and is sitting at 98% fall in December . We're also happy to report that our Montreal reposition portfolio close 250 basis points of vacancy in Q4 and was back around the 95%, Mark which positions us well for the REIT.
Turn of international students in the market.
As you know we liked the vacancy R&R reposition portfolio. So that we can work through our Capex program we have.
Highlight of Vancouver last quarter, with a big occupancy improvement and we chewed through another 390 basis points this quarter to close the year at three 7% vacancy.
As a reminder, that before they all had nearly 16% vacancy when we acquired it in Q1, so to Echo Mikes comments really happy with how things are progressing in Vancouver, and proud of the team on the ground.
Looking at Slide 10 in December we posted 5% annual growth in average monthly rent, which is coming through both our reposition the non reposition portfolios. These results are a continuation of what we saw in Q3 and highlights the consistency of our strategy over time, even during the challenges of the last two years now looking at slide 11.
At the regional level, we continued to see steady year over year growth in average monthly rent across all regions in December .
The slight quarter over quarter dip in Montreal is from the inclusion of our recent acquisitions at 14, Claremont and 36 55 Papineau excluding.
Excluding those two properties, we saw sequential average monthly rent growth in Montreal.
Currently see a gap to market in excess of 20%.
Across our portfolio and we expect fundamentals to strengthen further when international students and true immigration returns.
I'll turn things over to Brad to walk through our capital spend.
Thanks, Dave and good morning, everyone turning to slide 13 on the left side of the slide you can see that our maintenance Capex has remained consistent on a per suite level for the past few years around that $951000 in there.
In 2021, the big change over 2020 with our value add Capex program.
We increased the spend on a non reposition portfolio and for our value enhancing initiatives and our repositioned portfolio for a combined total of $71 million.
That puts us back in line with the 2019 spend at $70 million after seeing a dip in 2020% to $45 million due to the initial slowdown when the pandemic first hit.
I highlight those figures because about a third of our portfolio is at various stages in our repositioning program and we see great value creation potential in the years ahead.
These properties will have to go work in the coming years, but the individuals sweet upgraded following the cadence of natural resident turnover.
Our approach is to apply our repositioning expertise to create beautiful safe and quality communities for residents to call home.
By simultaneously extending the useful life of existing housing supply.
Creating value for all.
Stakeholders.
We're excited to be fully back on track with our repositioning program and we truly believe it's a win win strategy.
All of our stakeholders.
Turning to slide 14.
21 was a record acquisition year for us with more than 1800 suites across Canada, which is a great milestone for us as a company.
We've been saying all year, it's competitive out there and theres lots of capital chasing that asset class.
I want to be clear then we aren't willing to get caught up in the frenzy at any price we have not relaxed our underwriting requirements under our internal return hurdles.
And we will continue to only pursue deals that makes sense and will create value over the long term.
Turning to slide 15, we enter Vancouver in Q1, but you can see from this slide that we're able to add scale across all core reasons during the year.
That question is key for our growth plans, because we were in possession of a scale.
To our team in 2021 that all levels of the organization to prepare us for the future.
You mentioned innovation and moving the business forward in his opening remarks and that momentum is powerball across our business, we're ready and we're operating as one team.
Turning to slide 16 on the development side, we are progressing nicely on our office or residential conversion in Ottawa for 73 Albert.
Demolition has been completed and construction is underway and on schedule with partial occupancy anticipated to start towards the end of Q3.
I want to highlight as well that long lead construction items have all been tendered and awarded in the project is approximately 80% contracted from a hard cost standpoint.
Turning to slide 17.
We continue to make progress behind the scenes on three Greenfield development projects as many of you've heard us say, Canada needs more housing supply to accommodate the influx of new immigration.
Second in the coming years.
These three projects will create nearly 4000, new residential suites in Ontario and <unk>.
<unk> is a plan that we're on the supply solution with its prime location developments.
Passing it over to Curt or what are your carbon.
Thanks, Brad.
In Q4, we recorded an $85 million fair market value gain bringing their full year total to $327 million.
The increase in fair value comes from continued strong operational performance as well as a seven basis point compression in cap rate.
We have been talking about the wall of capital interested in our sector all year.
And the private market appetite continues to be strong.
We currently sit at a weighted average portfolio cap rate of 386%.
Moving on to slide 20.
The REIT continues to be in a very healthy financial position.
Our debt to <unk> on December 31 has increased slightly to 36, 7% from 34, 4% at the end of Q3.
This is as a result of the significant acquisition activity in the quarter.
At the end of December to REIT had mortgages of $1 4 billion at an average term to maturity of three six years and a weighted average interest rate of 238%.
As you can see from the chart, we have approximately $450 million of mortgages renewing in 2022 with much of this loaded in the first half of the year.
We have been actively working on this book for some time and we expect to see our share of <unk> insured mortgages climb back to historical norms somewhere in the 80% range.
While increasing our average term to maturity to roughly six years by the end of 2022.
The current market rates were seeing for CAH C insured mortgages for a 10 year term or in the $2 95 to three 5% range.
So we expect to see our refinancings move our overall weighted average interest rate up somewhere between 15 and 20 basis points.
Of course, this will depend on rate movements between now and the time of being able to lock rates.
Although we see pressure on rates from a long term viewpoint, we should continue to benefit from a low overall cost of debt.
Historical context.
Moving on to slide 22.
You've heard us say before that we believe our responsibility extends beyond the four walls of our properties.
In Q4, we had a small window before omicron hit where things have started to open back up and we were able to gather with our stakeholders once again.
We seize the opportunity and work with our partners to organize our annual Mike Mccann Charity Golf tournament Norwalk in just four short weeks.
We had 280 fully vaccinated golfers with onsite health screening and temperature checks at registration and a revamped format to ensure social distancing.
With the help of our incredible business partners, we showed up for our community by raising a record amount of over $1 million, which has been donated back to the community.
With east border restrictions, we also welcomed several groups of investors from Europe , and the U S C. Our communities in the GTA and Montreal firsthand this fall.
We hope to see more of you in person in 2022.
Finally, we have to salute our incredible team.
We organized a volunteer campaign in November and asked our employees to take time out of a hectic year end to help our community partners across the country.
They showed up in a huge way as they always do donating more than 300 volunteer hours spending their own money to create personal care packages with a shoebox project and contributing our modes of foods the donation boxes in our community lobbies.
When we talk about moving our communities forward our team is the heart and soul behind that momentum.
Mike would you like to say a few closing words, thanks, Kurt overall again pretty solid results looks really good forming a really good <unk>.
<unk> as we go into 2022 2023.
I am excited of where we're where we're looking.
I think that one of the things I touched on before is I'm also really happy about the bench strength that.
We've added.
And to be quite Canada. It hurts the results from the short term, but we're not a short term.
Results Company, we are building this for the long run and some extremely talented people that we've added.
That's fantastic so very very pleased about it.
And as also as we go forward.
Can see that we're continually.
<unk>.
Doing all the right things and we've done a lot of this can be quite frankly naturally along the way.
Probably just didn't really go back and check the scorecard.
We should've done.
Palestine and there's other items that you know clearly we needed to get better.
So we are working on getting better on all things.
We all try to do every day.
So really happy about where we're going there and again.
Kudos to Sandy and just developing a whole sustainability piece and making sure that we're getting credit for the things that we've done and making sure that we're working on things that we've missed.
I guess also hasnt looking forward I see there is we've got a great future and a lot of different ways.
We've got.
I think almost 4000 units.
And various stages right now being completed and nobody unless you've been around detour done a tour with us realize the intensification opportunities that we have.
We really truly believe that.
Part of what we're responsible for.
Two are actually 17000 shareholders and I think that kind of blows people away. When you think about it I know we were talking about it we are actually the ultimate bond par real.
A real estate play like how many people are relying on us to make sure that we do all the right things.
And I have to say like under such assess all of our peers. They have been great and even going through this whole.
Pandemic, we've shared so much information and they've all been extremely responsible.
And how they've handled everything that we've shared all best practices and.
And Theyre, all cranking up their supply to we truly know that we need as we go forward in Canada, we are going to have record immigration numbers coming in here.
They're going to be huge and they've just announced even further increases I think five or 6% more in 2022 and 2023.
We have the whole international students that will be hopefully arriving back here as we get more normalized and we are in which is fantastic.
<unk> so.
Supply is going to be a big part of.
The equation, we want to be part of that with that answer and I know with our with my peers. We've spent a lot of time.
Trying to figure out how we can help be part of that answer so I'm looking forward to and I look forward to the opportunities for the whole the whole team here. So again looking forward to.
The future here for the rights and I wanted to say, thank you to our team our team they've done a great job in the last couple of years.
And now well open the floor to questions.
Thank you if you'd like to ask a question. Please press Star then one on your telephone keypad.
First question is from Mark Rothschild with Canaccord. Your line is open.
Thanks, and good morning, everyone.
In regard to the improvement that you guys have had really pretty strong in some markets like Montreal, but Mike you mentioned that it should get a lot better as immigration picks up are you expecting a notable improvement this year or is it something that you think might take a couple of years as immigration accelerates.
For that Montreal vacancy could come down even further.
I am very hopeful mark in that first off nice talking to you on a good day so far.
I'm very hopeful for the second half of the year will be in a much better position.
And that's what we're hoping for but like these last couple of years of business.
Z so it's pretty hard to predict and obviously the volatility on a geopolitical level is theres a lot of things out there but.
I am very variable to levels, we'll start seeing that so.
Things look relatively good right now and even just what the Canadian government is trying to their seating for their immigration numbers youre going to be record numbers here this year.
Okay, Great and then you mentioned you.
That's helpful to understand your thoughts about it and then maybe you mentioned geopolitical in regards to that as well as just general inflation.
Obviously, the revenue growth helps but do you expect to see any pressure on your margins on the cost side or the energy side. This year.
There'll be obviously, if nobody can predict 100%, we think we're in pretty good shape and a lot of different areas.
We'll be a little bit on just kind of speaking to we.
My usual unscripted itself, but.
I think on utilities.
On the gas that can be a bit of an issue still a bit were whole.
Hopefully that the taxes have been kind of property taxes kind of held.
In terms of where I think we've dealt with a lot of them reach piece, which was a big part of the issue.
But there will be there will be a little bit.
Obviously, some items that we will see some inflation on I do believe we will see some.
Some good growth in the Rins stuff et cetera.
Just to add to that America's Brad here.
I think we're going to continue to see margin expansion given that we still have room in the top line.
I just don't think it's going to be at the same pace that we've seen before on the margin expansion given the fact there.
Finally aluminum, especially in utilities.
But I think we've done a good job and capture that.
Our own internal budgets for 2020.
Okay, great. Thanks, so much.
Yeah.
Our next question is from Joanne Chen with BMO capital markets. Your line is open.
Hi, good morning, guys.
Just a quick one for me on the you did mention that your mark to market rental gap is around 20% right now could.
Could you maybe comment on what Youre seeing I guess in each of your markets and where youre seeing the largest spread.
Well right now in the probably the lowest spread is in Montreal, We're having I mean, Montreal has been the I guess the market that we've had the most trouble with the strongest market, probably Vancouver to being quite frankly has been.
We were so lucky to get into Vancouver, when we did.
Very very ecstatic about it very excited at that platform.
Continuing to see different opportunities in Vancouver, and it's pretty easy to bolt on those acquisitions.
Really happy about it but that would be the I guess, the two different spectrums I would say on with anybody.
No one is in Iowa.
Nice comments Montreal has been probably the lowest.
And.
With the highest southwestern Ontario.
Well as well and it really is going to come back down.
The professionals continue to leave that Darren statements whenever we have seen a lot.
There's still some.
Demand for the rental and then when you put on top of that the newcomers to Canada, especially international students.
Most of the universities in the urban core.
Should start to see material.
Pressure on rates.
We start to see that.
Notably we are sensitive.
John .
Interest on elasticity.
We feel pretty across the board, bringing this season.
Good uptick to be quite frankly, and Brad was ready to get on the south Western Ontario.
Credibly well.
I have been very resilient and all the way through.
Alright, thats helpful, but I and I guess that's it.
Good to see that improvement on the occupancy front as well.
Would you say the main driver of that is what you just said about people, leaving their parents' basement and then I guess.
Turning to the students.
Yes.
To be honest when we started it last year with such high basis. These numbers.
It was done in Irving for senior management team to say, the very least but I think we're pretty happy that we get them.
Biopsy in Macau.
Yes.
Stable.
We believe that the.
Decrease in the rental demand was temporary and less and we did throughout the years.
A lot of the return of the young professionals, what we didn't see the C U E.
Turning to the international students.
I think we're set up pretty well.
No thats it.
We caveat.
Zane.
But then in Ibs second half because it really can be September .
<unk> <unk> lease up for the right, but we're hopeful.
So that maybe some of that income.
For the summer.
Yes.
<unk> got a bit of a laboratory at home I have four kids.
And before us.
They all came home and one is telling me is going to so that is why the lithium what's going on.
Okay.
Well that makes sense.
Thanks.
Okay. That's really helpful and I guess, maybe just switching gears for me on I guess, obviously towards.
Really ought to be on the acquisition side, I guess kind of what Youre seeing right now in the current market and kind of your.
Target for 2022, and you know the markets, where you're seeing the most interesting opportunities right now.
Is it really going to be Vancouver.
Well, we love Vancouver, Theres No question, we really love it.
Again, we'd like all of our markets all of our markets are very strong.
So we're happy about everywhere.
I would say last year I wouldn't want anybody to pro forma out the same amount of volume as last year.
We do see we're seeing a lot of flow of deals, but we're going to be very prudent some of it will get really bids.
We are working really really hard we do have some advantages in certain markets and we're hoping that will utilize those two are.
I guess do they get the best results as far as purchasing in that so I wouldn't want you to model in the same zone.
Amounts that may be an outlier.
I guess on that front than youre seeing quite a bit of gasoline.
We are seeing on the cap rates compress just given the strong demand for rent.
Rental.
Could you maybe comment on what kind of color that youre seeing around on the cap rate side of things.
Sand down I think people are looking at multi res is a real estate driven and probably a good inflation on edge on inflation that everybody's seen thats coming.
We're lucky that we have those shorter term leases some of them anyways. So there is.
You too.
To kind of keep pace with inflation.
Whereas some of the other asset classes.
Ability so but it is a really strong market and a lot of players in it.
And.
A lot of people, but.
That we hadn't seen before arriving on the scene and so it's.
Alright, you're going to be.
You've got to be on their feet trying to find deals.
And he doesn't always lever here relationship I guess with the partners with Crescent point as well right.
Yes, we will look at probably more gpus.
Woods Cross point, we've got other partners too.
<unk> be looking at there so we're going to try to do the best we can to make sure we make the right.
<unk> auctions.
And good for shareholders.
He is.
The industry is getting institutionalized subjective thing.
Mhm.
So there'll be lots of opportunities for ourselves and for our peers and other professional managed provider loans Joanna.
On reflection point, where it's getting.
More earning us to operate.
At this level and I think internationally.
Managing urbanized organizations in a better position to be able to provide the service levels that you need.
Yes, that's wondering I don't think enough people of warehouse, John I'm, sorry, I'm going to go off the Doctor is I don't think people understand the value of our platform.
Is huge.
We have a lot more people that convalescent approaches because of the platform.
It's easier to buy but then you're going to operate it.
Alright.
An easy asset class is very very advanced very people intensive.
No for sure.
I guess with I guess still things kind of keeping active on the acquisition side, maybe if you could remind me what would your target leverage.
It kind of maintained at around the current level or.
Just given the I guess the pipeline will continue to be somewhat busy.
Yes.
It's really going to.
We don't buy going into the low forties.
And that range.
Especially as we think we can add value and kind of organically taken back down over time, we feel very good about it as we see something really compelling I guess, we would have that.
That conversation.
I don't think youll ever see us really elevated levels.
Hi, <unk>.
I don't think thats ever in our DNA those those.
Sales of about eight years ago or.
Nine years ago that'll never happen.
So we've always been very mindful of that and I think we've tried to build ourselves for the kind of shocks that we've unfortunately, they all been through here in the last several years and I'm very hopeful that we will see more of it.
Yeah.
Okay.
That's very helpful. Thank you very much I will turn it back.
Our next question is from Jonathan culture with TD Securities. Your line is open.
Good morning.
First one just on the on occupancy were you guys able to roughly hold occupancy in Q1 with a with omicron or do you see a little dip down.
Yes.
You want to go back to results.
In line, Jonathan Let me typically Q1, it does come up a little bit if you look back three.
Everything we do here in the last couple of years Q1.
Sorry vacancy goes up occupancy comes down a little bit.
I think going into Q2.
It looks like it's sort of following that trend, but it is very close to where we were for Q4, yes.
Now obviously you can see.
Yes.
Yes.
It looks like it's getting back more in line with historical.
Normal seasonality.
One might have thought.
Good.
Okay John .
Lease.
[laughter], Yeah, we can talk about goalies.
I guess, just Curt just just sticking with sticking with you that I see post post the quarter you guys did lock in $283 million or so of mortgages, what what rates for root that out and what sort of term.
So.
All longer term money. So we're looking at mostly 10 years right now there may be a little.
<unk> known that smooth out our mortgage line or as we go forward, but most of the 10 year term.
The rates on those average down to about $2 million.
Around there and it was all <unk> insurer.
Okay.
What's going on in Ukraine.
We're seeing rates actually pulled back markedly.
These nations anywhere to any other day 10 to 20 basis points from where they were.
So going into lease events.
We're doing our best to unlock more right now.
Okay.
It's hard to predict right now because the market on the bond size is up and down on a daily it's kind of like Youre kind of window at say $2 80 to three and that bodes very volatile very volatile. So I wouldn't I wouldn't model the $2 <unk> yeah. If we taken at the moment, we get within Bovis I'd be modeling more of that.
995, <unk> hundred one.
Okay.
Like the the bond yields moving but spreads basically stayed stayed the same.
Yes spreads have been.
Blown out.
And looking at the beginning of.
Colby <unk>.
Over the course of the last year they come back in line to where they were free.
We are starting to be holding in there so far.
Okay and then just last one for me your Capex got back to sort of 2019.
<unk> last year, but what do you expect for 2022, given all the acquisitions you did last year.
Okay.
I would say, it's maybe a little bit.
Larger just because of the nature of the Beast of having like a record year.
So it might be a little bit a little bit higher.
Okay. So as we work with properties.
Okay. That's it for me thanks.
Thank you Jonathan.
Our next question is from Mario <unk> with Scotiabank. Your line is open.
Hi, yes. Thank you.
I wanted to just touch on.
The potential for same store revenue growth next year.
So Q4 was really strong seven 8%.
With occupancy, presumably kind of a tailwind for you in terms of year over year growth.
Assuming the RPC holds do you think that we can achieve that type of high single digit same store revenue growth and 22 similar to what you did in Q4.
Yes, there's no question it was.
Hi.
Loan base.
Got it.
<unk>.
<unk>.
Opening remarks.
I think we are set up.
To be very robust.
Industry, but we've always kind of said in between that four to eight as possible. Obviously, we're at the high end of that range.
I think as a possible machines the foreign students come back, but I think I'd, rather than mono be little more conservative.
You kind of look at somewhere in that range.
But there is definitely a scenario that could play out where we could maintain and a big part of it and maybe industry next question I'm sure Kurt.
But.
Really the promotional discounts.
And that's where the key is E mail.
Okay.
Until then.
And we went into a new market.
Okay and then just.
In terms of the rent growth. So I didn't notice like if we just look at Q4 versus Q3 on a same property basis.
The uptick was what about a percent.
We looked at Q3 versus Q2 of this year the uptick was about 2%.
He was running at about half of what we saw in <unk>.
Q3.
Patrolling in Ottawa, who were kind of lagging a little bit versus other personal Ontario is there anything in particular from a strategic standpoint, but you did in Q4.
That would kind of decelerate the pace of growth a little bit.
I assume that would be high.
Sure.
I'm going to ask here, but I think some of it makes sense that it would be large sequential as you lease up right. So we started the year got it.
Elevated.
And then as you go to Linda lease each.
Sequential quarter seem to have an impact.
That is great.
I'm assuming that.
A big part of it I can reach anything fundamentally that would.
Be different.
Are you seeing where everything is having problems hearing some of that we're seeing in Q4 over the Q3.
Yeah.
Yes, if we just look at your same property rent those Q4 tiers. So your property rent in the Q3 increase was 1% up to increase in Q3 was 2%. So it wasn't sure it related at all to your increased occupancy quarter to quarter Q4 versus Q3, whether it's definitely has to do with that and some of the new traffic.
And typically what you would do if you go back and look at previous years.
Your highest peak demand is in Q3.
So more demand more units turning over to market more rental growth anything typically if you go back over the years, you'll actually see that Q3 years.
Is the higher.
The quarter that had the highest growth that.
It comes in after that.
Q3, and then Q2 would be number two Mario.
Got it okay.
So roughly following the seasonal.
Yes, that's very seasonal that's a good way to put it.
Yes.
Yes.
Maybe just two more on my end.
The comment on going up to 80% financing.
In the short term are you still have about a third of your portfolio.
<unk> repositioned so should we.
Does that imply that we should expect kind of an acceleration.
Repositioning of the Nam repositioned portfolio or are you changing how you think about.
Financing of the <unk>.
Our repositioning portfolio relative to historical.
Yes, that's a good question Mario and typically we look at our CVC ensure.
Our repositioned portfolio is like 90, 899% and as our non reposition that really accounts for most of the Nols GMAC insurance. So it's a great question I think what we're doing is just trying to balance out the value creation in the portfolio and what we get when we roll it into CMA seat versus the risk of interest rates going up.
So we're maybe pulling them forward.
Year versus where we might have let it go another year before we are starting to close some of those forward a little bit.
We're just trying.
Trying to be cognizant of if rates do take off, especially what we're seeing in inflation and everything else. We just want to make sure. We try to work that balancing tight rope if you will on that one.
I'm just going to be more conservative.
Okay and then my last one just maybe sticking with Kurt.
To give a rough breakdown of the fair value gain.
You mentioned some of it was because of higher to start doing some of it.
Because of the lower cap rates they have a rough breakdown of the 86 million fair value gain between the two.
Yes.
Pretty close to 50 50 is just slightly more weighted to the cap rate.
I think it's about $65 45.
It's pretty close to the 50 50 range between cap rate compression and improvements.
Okay.
Thanks, everyone.
Our next question is from Brian <unk> with Raymond James Your line is open.
Hi, guys.
Within the opening comments there Mike you talked about.
Adding more.
Talented bench strength to the organization.
I was curious to know if that was targeting a specific area or is that more broadly across the organization.
It's pretty broad to be Frank with you, but on the we've added in all of the different.
The assets.
So Andy there is part of our bench strength right. So.
So we've got part of the sustainability side, we've added on our back office side operationally like just all the way through.
The I guess, the the company and part of it. We're just trying to make sure that we can get ready for the next leg.
The growth of the company and we think it's really.
Pretty important that we get everybody ended even a little earlier than you usually would and just make sure that everybody.
Through <unk>.
Proper education training coaching all those good things really to make sure that we try to always achieve to be the best.
In our in our asset class, So we want to make sure where the.
We're doing that so.
Okay.
That translates to overhead or G&A costs, I guess, there was a little bit uptick quarter over quarter.
As a result of some of that investment how should we think about G&A as a percentage of let's say revenue for 2022 wood with 'twenty, one there'll be a good.
Kind of run rate.
What youre going to see a little bit of an uptick and I think you saw that as a kind of came through here. This quarter. So it'll be a little bit of an uptick on the again. The good thing is is that I think as we.
We thought it was important to do this on the in the short run because we are building the company for the long run and we think Youll see as we hopefully scale over the next few years that you will see a lot of that.
Mental revenue will drop to the bottom line and we won't be in I guess.
Going through the kind of like a panic mode to be trying to educate training and coach people. So it'll be a short term a little bit of a short term.
But we think it's the right move.
Alright.
Switching to your comment on intensification potential within the portfolio, obviously, you've been highlighting that for a while.
If we continue to see that.
Strengthening on the demand side, particularly with foreign immigration.
There is the potential too.
And maybe add a couple of intensification projects into the near term development pipeline.
If the economics make sense or are you pretty comfortable with where you are from our development exposure perspective right now.
Well, we're obviously very mindful of what we're doing but we are planning a more long term too.
Do feel that there is a lot of intensification, we've looked at it.
Across the board.
So we've got locked in line here over the next few years and we really do believe like again going back to <unk>.
We need supply like the country needs supply, we're going to have these record amount of immigrants and international students. All arrived here and there is no of course of action for these people for housing.
We want to be good stewards, we want to do the right things that we want to be part of that answer and we definitely want to be.
Bringing in supply, but we're going to be mindful because they can only afford to do so much at a time, but we definitely we've got a really good pipeline that's built into.
What we have so.
Okay. Thanks, a lot of questions.
Yes, Thanks, a lot I'll turn it back.
Our next question is from Mike Marketers with Desjardin. Your line is open.
Hi, everybody good morning.
First question for me is just I know, there's maybe a few isolated weak spots within the portfolio, but are you guys still using incentives.
Leasing program right now.
So are you still using what incentives.
All right I apologize.
Brian Thank you.
Yes.
Adapting other ways too.
Yes.
So on the incentives.
It's down a lot I mean, we still have some in isolated spots in Montreal, a little bit here and there, but really it's really and it's.
Really burning off all across the board so.
That is it looks like that shift of sales I mean, I think we've all went through the tough starts.
And the last couple of years will be we've decided that we thought it was the right thing to do to keep.
<unk>.
Keep our rents, where we were and we use them incentives along the way, but again.
That's fair enough.
Okay.
Okay.
Sorry, just to be clear on that though the incentives as we've discussed before it's just to make sure.
So your modeling purposes.
We see those peak in Q4, which I think is what we communicated we expect Q1 and Q4 to be very similar in Q1, a mix of 2022.
Because of these amortizing it over the life of the lease and then that will start to drop off in Q2 and come down here in Q3, and Q4, yes, Im talking more incentives.
Yes.
Yeah, no there's definitely an interplay garen thanks for the clarification.
He was trying to get to and then I guess.
You are rolling off now Youre, starting to address those leases, where you use incentives and are you getting any pushback from tenants as you try and try and get rid of those are.
Not so much.
It really depends like sometimes.
Youre going to get a little bit here and there, but really we're really believing very strongly there is going to be really good velocity in the leasing cycle. So it will all work its way through.
So we're feeling confident where we're at.
Okay, and then I guess I know you guys holding the line on rents is certainly the strategy and we've gone through a period, where your fleet.
Your occupancy.
The Mark to market gap has come down to 225, but directionally now are there regions in your portfolio or areas, where market rents are growing again or is it still.
Statements other than that there is for sure no. There is definitely some regions that are growing in.
Kind of surprised in some cases they are growing with.
Again, not having the the new immigrants and international students and just I guess I guess is deploying the kids out of their bedrooms.
Whether they be university or for both young professionals.
David.
It's definitely what's happened also you've got to remember too.
What's happened with else's the housing prices there is a whole core cohort of people that would usually be.
Moving out to buy houses.
It's out of the range. Unfortunately, I am telling you like supply is key right now we need supply we need to make sure that we're doing all the things to speed up the process.
Get more supply and it's the right thing for it I mean, obviously, we want to see for Canada, we need supply across the board.
Okay.
All good points, and then and then I guess.
With respect to the Mark to market GAAP would you expect through 2022.
Get back to that 25% barring the unforeseen.
The assessment.
I think Anthony.
In a scenario, where you just laid out where you can get to that Michael is unique maybe.
Much higher, but we don't want to be presumptuous right.
Really does come back to win two integration will match in fairness, meaning that they're not just being given.
Lucy where they are actually coming back into the country and the foreign students I think with the way the world is headed and especially with the geopolitical risks.
Canada looked like a pretty attractive place.
Prior to the pandemic and prior to unfortunately, the recent crisis in the Eastern Europe , I think Kennedy Wilson that much more desirable.
Okay.
I think we're going to see strong demand, but it will go back to what Nike navigating in the restaurant.
<unk> and other industry participants to be able to deliver new supply in the Speediest way in order to meet some of those rental demand. So.
Long answer, but really at the end of the day.
Our 20% is conservative you can you can.
Smart guys, you guys can kind of figure out where just sensitive years from there.
Okay, Great and Thats it for me thanks for that congrats.
Congrats on non shrunken round last year.
Thank you so much.
<unk> to the team.
Really.
And again, if you'd like to ask a question Thats Star one on your telephone keypad. Our next question is from Matt <unk> with National Bank Financial Your line is open.
Hey, guys. Just one quick one for me on Montreal, you've notwithstanding the comment that it's been a bit weak or you've actually seen some occupancy gains. There have you been in any cases kind of replacing some of your students.
Population with longer term tenant.
Tenants are.
Or is the remaining vacancy kind of exclusively student related at this point.
Okay.
It's mostly student and young professionals again kind of lead in their family homes.
Back in <unk>.
Again, we expect it to be much stronger Montreal like we were a big believer in Montreal over that over the medium to long term.
It seems like it's got hit a little bit more in the core.
And Trump has to be Frank.
But I think you've seen it in all the core market like all of the cores of the urban.
And the city's they've all been hit but Montreal, we've idled.
Add a little bit more levels, just because we've got a lot of bill.
Buildings are very close to the universities and just to clarify Mike's comments with the professionals and students domestic students. So.
We saw pretty good uptake and leasing earlier on last year in Montreal, and they're trying to Peter out, but it's taken a lot of pent up demand of people to Montreal.
First on the comp looked like they were coming out in a little more back to normal.
Versus Ontario, and we saw that in the leasing traffic really pick up.
A lot of the domestic materials due to kids.
This this time Trump and lease up what we didn't see Matt is on the margin with those international students for genome quite a big number.
For the islands anecdotally.
We are starting to hear of interest picking up again from international students.
Okay first of all.
So we won't have full approved until as we get further on into the leasing season.
I'll tell you July August .
Visibility of what that looks like.
Okay, so but at the end of the day, the tenant composition hasn't changed because I mean, it has a nice day.
Leave every three years.
Yeah, I think what you're getting at I think.
Versus the older floor and is not empty nesters, sorry, Matt if we kind of where we're at.
We hadn't done that one we could have made a pretty clear pretty okay.
Perfect. Thanks, Ed.
We have no further questions at this time I will turn the call back to the presenters for any closing remarks.
Well first off let's say, thank you everybody for joining us really appreciate it hope everybody is doing very well looking forward to seeing many of you over the next.
A few weeks and months.
<unk>.
Thank you again and appreciate.
Appreciate everybody following us I have a fantastic day.
See you all at Q1, which is right around the corner.
Thank you everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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