Q4 2021 Minto Apartment Real Estate Investment Trust Earnings Call
Good morning, My name is Dennis and I'll be your conference operator today at this time I would like to welcome everyone to dementia apartment REIT fourth quarter 2021 results conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. If you'd like to ask a question. During this time. She pre press Star then the number one on your telephone keypad, if you'd like to withdraw your question. Please press stifle a bite you.
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 read news release and MD&A dated March 8th 2022 for more information during the <unk>.
Management will also reference certain non <unk> financial measures. Although they are we believe these measures provide useful supplemental information about its financial performance.
They're not recognized measures and do not have any standardized meanings and there are iff's. Please see the read San DNA for additional information regarding our first financial measures, including reconciliations to the nearest <unk> fish Messrs. Thank you. Mr. Waters, you may begin your conference.
Thank you Anna and good morning, everyone I'm, Michael waters, CEO of Minto apartment, REIT and I'm joined on the call. This morning are bye.
By Julie Moran, our CFO I'll begin the call by discussing highlights from the fourth quarter and other corporate developments Julian will review, our financial and operating results in detail and I'll conclude with our business outlook. After that we'll be pleased to answer any questions you may have.
Our financial performance improved in the fourth quarter as Canadian urban rental market conditions continued to strengthen we generated solid growth in occupancy and rental rates, even as we've reduced the use of discounts and promotions we.
We entered into 444, new leases in the quarter, an increase of 9% compared to Q4 last year.
We realized an average rental gain on turnover of seven 2% significantly higher than the four 4% gain to lease we generated in the third quarter of 2021, and the 2.1% gain to lease we generated in Q4 last year.
Average monthly rent was 6800 $41 a year over year increase of one 1%.
But when you exclude the acquisition of La Hill Park, which closed on December seven 2021 average monthly rent would have been 6100 $64 a year over year increase of two 5%.
We didn't provide same property information this quarter is a hill park was only included in the results for 25 days and this wasn't considered material total portfolio and same property portfolio results were substantially the same however, starting in Q1 2022, we'll be reporting both the total portfolio in the same property portfolio.
Our average occupancy in the quarter was 95.0% the highest level. We've achieved since Q2 of 2020, which was the early stages of the pandemic and.
In comparison average occupancy was 92, 9% in Q3, 2021 and 92, 3% in Q4 2020. So I'm pleased to note that this was the third consecutive sequential quarter in which move ins exceeding move outs and occupancy improved.
Supported by these positive developments in the fourth quarter, we generated year over year growth of five 2% in net operating income and six 7% in F O per unit.
During the quarter our board of Trustees also approved a four 4% increase in monthly cash distributions. The increase took effect beginning with our November distribution payable in December . This was the third consecutive annual increase in distributions since the <unk> inception, two of which came during the pandemic.
We're determined to steadily increase unit holder distributions as F O Rice's, while also maintaining strong liquidity and a conservative balance sheet.
The fourth quarter was also a busy period from a growth standpoint.
We committed to provide our convertible development loan of up to $19 $7 million for the development of a new six story mixed use multi residential and commercial property at 8 10-K ingsway in Vancouver.
We completed the previously announced acquisition of La Hill Park in Montreal for approximately $81 million. It's a high quality 261 suite rental property located in close proximity.
Two our other Montreal locations.
We commenced construction on new buildings at the Rich Grove, unless the York Mills properties in Toronto. These will increase our suite count by a combined 417 suites.
And we completed an $87 million bought deal offering of trust units proceeds were used to assist in the funding of the acquisition of the Hill Park and our convertible development loans and also to provide financial capacity support to support future acquisitions.
Finally, we continue to make progress in our repositioning program. We completed the renovation of 113 suites during Q4 to improve asset quality.
These future repair costs and drive strong growth in rental revenue for the full year, we repositioned 367 suites.
I'm pleased that we ended 2021 on a strong note. The last two years have been characterized by volatile markets, resulting from pandemic induced changes in work and lifestyle conditions.
What we're seeing now is a steady return to more normalized market conditions, we're well positioned to generate continued improvement in financial performance and capitalize on new growth opportunities as market conditions continue to recover.
Now invite Julie Moran to discuss our fourth quarter financial and operating performance in greater detail Julie.
Thank you Michael.
Turning to slide four I'll start by reviewing the Q4 operating results, we reported revenue excluding for suites.
$3 million in Q4, 2021, an increase of four 7% compared to $29 million in Q4 of last year the.
The increase was mainly due to higher occupancy and average rent.
Total revenue, including furnished suites with $32 $4 million, an increase of four 8% compared to Q4 last year, reflecting higher rents and occupancy for both furnished and unfinished suite.
NOI, excluding furnished suites in the fourth quarter was $18.8 million or 62, 1% of revenue an increase of four 6% compared to $18 million or 62, 2% of revenue in Q4 of last year.
Total NOI, including furnished suites with $19 $9 million or 61, 5% of revenue an increase of five 2% from $18 $9 million or 61, 3% of revenue in Q4 last year.
Higher NOI in Q4, 2021 was mainly reflect mainly reflected higher revenue due to improved occupancy and rental rate, partially offset by higher property taxes and utilities expense.
At that point to for 2021 increased 10, 2% year over year to $13 $2 million compared to $12 million last year, mainly due to the positive NOI there.
Yes, Hi, Paul increased 11, 4% to $11 $7 million or 18.9 cents per unit from $10 $5 million or $17 seven per unit last year.
Higher F. A whole primarily reflected the higher <unk>, partially offset by an increase in the maintenance capital expenditure.
The REIT declared cash distributions in the fourth quarter of $11 71 per unit, resulting in a payout ratio of 63, 1%.
Cash distributions of 11 point 13, South Korea were declared in Q4 last year or something and he has had on payout ratio of 64, 2%.
As Michael noted, we increased our monthly distributions beginning with the November 2021.
At the end of 2021, our portfolio consisted of 7533 with an average monthly rent of 1000.
$41 per occupied.
Pete.
How much monthly rent increased by $18 or one 1% of cards $1623 at the end of 2020.
The average occupancy rate in Q4, 2021 increased to 19, 5% compared to 92, 3% in Q4 of last year.
Turning to slide five this chart highlights are steady quarter over quarter growth.
In our home markets.
Over the course of.
And the fourth quarter, we had 514 move that versus 420 more debt oriented.
94 net more than it.
It was the third straight quarter with positive net move it accordingly occupancy increased from approximately 91, 1% in the first quarter to 95% in the fourth quarter.
Boston, our occupancy is still lower than pre pandemic levels and represents a strong improvement in a relatively short period of time.
On slide six we have provided our revenue analysis as of the end of 2021, the Upper chart breaks down our game fleece performance in the fourth quarter, while the lower charts show our estimate of the gain potential embedded in the portfolio.
Beginning with the Upper chart as Michael noted, we signed 444, new leases in the quarter following suite childbirth.
This was a 9% improvement compared to Q4 of last year, we generated solid gains police and all of our market.
The average spread on new leases increased by seven 2% from $1652 to 1700 and.
$70. This resulted in an annualized incremental revenue gain of approximately $472000.
Turning to the gain to lease potential off the lower chart. We believe we can generate approximately $7 $9 million of annualized incremental revenue growth by bringing rents and 6991 occupying suites to market level.
We expect to realize a significant percentage of potential over the next three to five years.
By comparison, we estimate a gain to lease potential of $7 $3 million at the end of the third quarter.
Turning to slide seven the upper chart tracks, our gain to lease an average monthly rent growth unimportance basis.
Gain to lease remains highly positive with room to improve to pre pandemic level and we have generated stemming from arris.
You'll note on the upper right section of the chart that there was a slight decline in average monthly rent in Q4 2021 relative to Q3. This.
This reflected the acquisition of lessor car, which is sitting at rents that are below the portfolio average on a same property basis that excludes my whole park average monthly rents continuing to rise in the fourth quarter on.
On the lower chart, we breakout around it by geography.
2021.
Moving to slide eight I wanted to provide an update on our finished suite portfolio are furnished suites were severely impacted by the drop in business travel associated with it.
The recovery over the course of 2020 , one was impressive as market conditions improve.
The chart shows we generated substantial growth in rental rates and occupancy beginning in the second quarter.
Average monthly rents in the fourth quarter with $4070, while average occupancy exceeded 80% for the second straight quarter.
We are continuing to train the furnish Sweden inventory by concurred by converting furnished suites unfairness and leasing them out on that basis. We had a total of 203 furnished suites at the end of 2021, a decline of more than 20% from two years earlier.
On slide nine you'll find a summary of our repositioning activities, we renovated and leased a total of 113 suites in the fourth quarter or <unk> 85 at the reach proportionate ownership share the average cost per renovation of approximately $47400 per seat.
Average annual rental increase volume weakness thing was $4475 per suite, which generated a simple return on investment of nine 4%.
In total we have 2350 remaining suites to reposition after the current program. We are also exploring repositioning opportunities that two other wholly owned properties in the portfolio combined they have more than 400 suites with repositioning potential.
We expect to reposition approximately 250 to 300 suites in 2022 subjects to turnover.
On Slide 10, you can see our repositioning results for the full year, we renovated a total of 367 suites in 2021, which exceeded our expectations. This chart highlights the strong predictable returns on invested capital that we generate from repositioning.
During 2021, our average annual Unlevered return with between eight 4% and nine 4% per quarter with an overall average of nine 1% and as we've.
<unk> said before repositioning represents the best risk return of any of our investment opportunity and will continue to be a major priority for us moving forward.
Now I'll move on to our intensification and development initiatives beginning on slide 11.
<unk> T Chek aligns with the Minto group, we advancing seven different development projects with the potential to add 1678, new foods to the portfolio are 1176 seat F&B proportionate share that would bring our total SKU count to 9206.
Up 22% from the current level.
During the fourth quarter, we made an initial advance of $10 $2 million on the convertible development long Crazy eight tenths of a point of contact with Vancouver, We began demolition and site mobilization at both the restaurant and Lisbon worked on properties in Toronto, and we also obtained a construction financing for French from others.
Families used rental and construction financing.
Nope that upper seven total development six projects totaling 916 suites are now in the active development.
I'll now review individual projects in more detail when we get to the beginning with eight testing plans by 12.
As we announced on December 1st we agreed to provide a convertible loan of up to $19 $7 million to finance central properties, 85% interest in a joint venture for the development of this protest.
This is our second property development deal that the greater Vancouver area after a long square, which I'll discuss shortly.
The financing bears interest at 6% per annum and matures on August one 2024.
810, King's Quay is expected to comprise of 108 unfinished rental fleet as well as the approximately 11500 square feet of Asbury retail space.
Conceptually images on this slide gives you a good sense of what it's going to look like.
Mobilization and demolition has come out and the project is expected to be completed and stabilized from Q3 of 2024.
At that point, we'll have the option to purchase Minto property, 85% stake at a 5% discount to that appraised value.
Slide 13 shows the locations of a 10, Kingsley and Lonsdale square in Vancouver, and North Vancouver, respectively.
Spending into the greater Vancouver area has been one of our key priorities since the inception of the REIT development of these two attractive urban infill project gives us the ability to secure quality assets in Vancouver, as highly competitive rental housing market.
Moving to Lonsdale square on slide 14.
Arthur afraid of this slide shows the good progress is being made here excavation is complete and foreign work is well underway concrete has been poured at the Piedmont basement level.
Construction is expected to be completed by the second quarter of 2023 with property stabilized season in the fourth quarter of that year.
As a reminder, Lonsdale square is part of a large master plan community on a 99 year land lease with the city of North Vancouver. The building is expected to comprise of 113 rental suites and approximately 8000 square feet of retail space. So we provided financing for this project.
Through convertible development lawn and has the option to purchase this protest upon stabilization and 5% discounted then fair market value.
Yeah.
Turning to rich girl up on slide 15, as I noted construction got underway in the fourth quarter. We are taking advantage of excess plan office site to add a new rental tower with 225 suite, including 100 affordable housing suites and 200.
[laughter].
Sorry about that.
Stabilization is expected in the first quarter of 2026.
One reason this properties. It is attractive is that it is adjacent to the site of the future Martin M T station.
Which is expected to be completed by 2031.
Moving to Leslie York mouth on Slide 16, construction off the come on here in the fourth quarter with demolition and site preparation underway.
Currently the space in 2018 story tower, we are planning to get off of 192, new ground oriented rental Karen suites, as well as a host of new amenities any new underground parking garage.
The large conceptual image a whole lot to show how this will significantly transform the existing fleet.
Stabilization of this project is expected in late 2025.
Turning to slide 17, I have a brief update on the system bank redevelopment at the heart of arguments please neighborhood.
This mixed use multi residential and retail property and financed through conservative multifamily loans in front of them.
And very near completion currently 96 of the 163, two insistently and more than 50 are already occupied.
Stabilization is expected in mid 'twenty, two 2022 at which point, we will have the ability to exercise our purchase option to acquire the property at a 5% discount to incentive credits fair market value.
Finally, I'd like to review our debt financing and liquidity on slide 18. We are committed we are committed to maintaining a conservative leverage ratio and balance in our debt maturity schedule. The chart demonstrates that maturities are highly manageable through 2026 as of December 31, 2021, the weighted average.
Turning to maturity on our fixed rate debt was $4 69 years with a weighted average interest rate of 282%.
Approximately 94, 2% of our debt is fixed rate and 72% SCM agency insured.
Our total liquidity was approximately $151 million at yearend and depth gross book value was 36, 5%.
I'll now turn it back over to Michael.
Oh.
Yeah.
Michael.
Thanks Julie.
It's been only living through Covid for two years and still doing the mute thing.
I'll wrap up with our business outlook on slide 19, before we take your questions. The pandemic continue to impact us during 2021, but as you saw from our presentation. This morning, our financial and operating performance improved steadily over the course of the year as urban rental market conditions recovered.
Throughout the pandemic, we've adapted in executing our strategic plan to grow the business and build value for unit holders will continue to do so in 2022 and beyond.
It is important to remember that the long term fundamental supporting Canadian urban rental housing have not changed despite the short term disruptions caused by COVID-19, our market is supported by population growth, including high levels of immigration the rising affordability gap between owning and renting a home and constraints on new housing supply amongst.
The other factors.
We're optimistic that the market recovery will accelerate in the coming quarters driving continued growth in occupancy and rental rates by the middle of 2022, we anticipate that market dynamics will have returned to pre pandemic level.
However, COVID-19 has proven to be unpredictable and it's possible that future variants, such as omicron could disrupt the recovery in the short term.
With our strong liquidity position and conservative balance sheet. We believe we are well positioned to manage any potential market volatility.
Conclude I want to reiterate that we have the right team the right assets and the right strategy for long term success, they've served us well to date and we're confident they'll continue to do so in the months ahead.
We remain focused on four key areas to grow the REIT, firstly capitalizing on organic growth through gain to lease.
Second creating value from suite repositioning.
Third exploring attractive acquisitions and developments and force capitalizing on our relationship with the Minto group as Julie pointed out. We currently have six active development projects and we're partnering with Minto group on all of them. The Minto group is the development and construction manager on four of the projects and is developing or co developing all of them.
The projects finance with convertible development loans this underlines the value of that relationship.
By continuing to focus on these four business priorities, we're confident that we will deliver significant value to unit holders as market conditions continue to improve.
That concludes our presentation. This morning.
Julian I would now be pleased to answer any questions. You may have and please open the line for questions.
Thank you, Sir ladies and gentlemen, we now conduct the question and answer session. If you'd like to ask a question. Please press Star then the number one on your telephone keypad Who's actually withdraw your question Press Star two if you're using a speaker phone. Please lift the handset before pressing any keys.
Please for your first question. Your first question comes from Jonathan <unk> with TD Securities. Please go ahead.
Thanks, Good morning.
Hey, Jonathan.
First question just on the occupancy it came back nicely in the quarter Q1 seasonally weaker how should we expect that to trend over over the course of 2022.
Yeah. So we did see a slightly slower January .
And then things sort of returning to kind of a normal seasonal pattern. After really two years of kind of.
Disrupted seasonality.
So we're expecting.
That yeah.
The strong leasing season in Q2 and Q3.
We'll see.
A real move in occupancy.
From from where we're at now to sort of kind of what we would consider to be our kind of pre pandemic normal in the.
Hi, 90 sort of 96% 97 kind of range. So that's kind of how we're looking at it certainly the patterns that are developing thus far kind of supporting that.
Okay.
Now is it ticks up do you have do you expect that to have any impact on the mark to market. The 7% seems seems conservative to me.
And I would expect that as we get into Q2 and Q3 that we'll see that continue.
Continue to.
To strengthen.
My hope is that we'll see a return to kind of where we were pre COVID-19 , which was low single or low double digit sorry.
It's but I think that would be something that we would expect in Q2 or Q3.
Okay.
And then just lastly on the repositioning you're targeting 250 to 300.
And that's down from 367. This year is that is that just a function of your expectation of turnover in those suites.
Yeah.
Is the gating item for us on the repositioning program is turnover of renovated.
Oh, sorry on renovated suites and so.
Not always.
Predictable with with with Great precision.
What I can say is the Q1 repositioning is tracking ahead of where we were Q1 of 2021.
So that's.
Encouraging but.
But that is the limiting factor is turnover on renovated suites.
Okay. Thanks, I'll I'll turn it back.
Great. Thanks, Jonathan.
Thank you, ladies and gentlemen, as a reminder, if you have any questions. Please press star one. Your next question comes from Jimmy Chen with RBC. Please go ahead.
Okay.
Thanks, just a couple of quick one for me.
Do you how do you keep stats on rent to income ratio for your tenant base and what would that look like today.
So we.
When we're we're qualifying a prospect for a lease we would do income.
Confirmation validation.
And but there isn't an ongoing sort of income verification requirement. So we really have our best picture at.
At the time that the tenant signs that the new leaf and our internal threshold is.
Is 30% we want to see.
Income sufficient such that rents don't exceed 30% and typically what I would say is that our tenant prospects that are signing leases are are below that that level.
And comfortably so so that that's really.
The best Stat that I can offer Jamie okay.
Okay, and then maybe to Jonathan's point in terms of the market rent trends, you're seeing in the different markets that you operate in and you've seen it.
Condo Red Snapback.
Nicely.
Over the last few months and so it again, just sort of any indication of what you're seeing in terms of how.
How the market rents are trending in the market that you operate.
Yeah, so condo rents.
Certainly in Toronto.
Toronto, we're a leading indicators certainly they felt first and they felt most at the onset of the pandemic. If you remember back in in early mid 2020, certainly they have snapped back.
And what we've seen.
I mean, we sort of highlighted this really beginning in Q2, but continuing through the second half of the year and certainly in Q4 with that we've been reducing the use of discounts and promos that we've been offering.
And in that I think is generally consistent with what we're seeing broadly in the market.
You know where the strongest markets for us really had been.
In the fourth quarter were Ottawa, Toronto Toronto was.
Heavily impacted.
And and so.
With nice to see the recovery there.
I think.
We're broadly seeing.
Good strength in most of the markets.
Partly driven by.
Kind of.
Return to workplace, we saw strong a temporary.
Student.
Arrivals from an immigration perspective, we're anticipating strong arrivals from Ami immigration perspective for permanent residents.
Certainly the statistics that we saw in the latter part of 2021, where we're very.
<unk> so.
From our perspective, the other thing that we point out Jimmy is a widening gap between housing affordability.
And the and the rental option, which continues to be we think.
By far the most affordable housing options.
For Canadians.
And that gap widened even further in 2021 with just runaway property prices.
In almost every market.
Yes.
Okay.
Sorry, just one quick follow up then on the discounts.
What is roughly the amount of incentives is currently baked into the current revenue numbers.
Well.
When you say baked into the current revenue number. So are you, saying what incentives are we offering now yeah. I think if I look at the Q4 revenue I agree with what rough percentage of that would be.
Incentives.
I would say that.
We'd be in the range of about if you if you thought about it in terms of number of months rent.
It would be in the range of sort of 0.3.
If you will month's rent on average that's what we were sort of looking at.
On a weighted basis.
In sort of this the latter part of 2021 that that's what we were sort of using an.
And that's an average across the portfolio Jimmy and in many properties, where we had very limited availability there was no discounting.
And no incentives being offered in other places we were using incentives and promotions strategically so yeah.
I don't know if that helps add some color to that.
That does it okay. Thank you guys.
Thanks, Jamie.
Thank you. Your next question comes from Matthew <unk> with National Bank. Please go ahead.
Hi, guys.
Yeah.
On the furnished suites front, our occupancy was down a little bit sequentially, but obviously, we had omicron.
Can you give us a sense as to how you think that trends through kind of the first half of the year and then does it exhibit similar type of strength through the back half of the year.
Well.
Firstly this segment.
One is it is very small as a proportion of our total business just 203 suites out of more than 7000.
I know it garners a lot of attention probably out of scale with with what it represents.
It is and always has been.
More volatile segment from a occupancy perspective.
And what we saw certainly in.
Beginning in Q2, but really strongly in Q3 and Q4, we saw.
Stronger demand we are occupancy for the last two quarters, it's been over 80%.
And rents were up higher but that segment has is sort of always changing depending on business mix. It is seasonal.
I will say that.
Particularly in Toronto historically in the past our 61 Yorkville property has had a heavy entertainment segment and that tends to be quite seasonal what we've seen recently is it's become increasingly transient.
In in Ottawa are 185 line property, which is right downtown very close to Parliament traditionally had a very strong government segment.
Transient and corporate we're kind of rounding out the business mix there.
What we did see in Q1 as there was some impact due to the restrictions in January are rising from omicron that that tended to alleviate as we went as we've as we've seen in the quarter progress.
So it's really hard to say with precision kind of where Q1 or Q2 will will play out.
As I say, we continue to trim inventories there.
Our target, which we articulated last year early in early in 2021 was to sort of bring our.
Overall inventory in the furnished suites segment into the sort of low to mid 180 suites range that helps us actually provide a little bit more yield management there in that segment as well.
Fair enough and then.
Looking at the U S. Sunbelt in particular, it's a market with similar but maybe not as strong demographic trends as Canada, and then the ability to supply easier than we are here and yet rent spreads have grown in a market like Austin to plus 30%.
Do you think I mean, we were talking about getting back to pre pandemic levels on the leasing front in Canada, but is there the possibility that.
Actually things are a lot more frothy post pandemic in Canada, given again very strong demographics and limited new supply of housing.
Well, yeah, and I think I think that's it.
Yes.
Good point, Matt I mean that the the underlying fundamental dynamics in the housing market and I'm talking about for sale and for rent.
That existed pre COVID-19 .
Didn't go away just because of Covid. They may have been temporarily disguised if you will but but those underlying trends are coming back in and the first one is.
Very strong population growth driven by immigration and what we've seen.
During a COVID-19 was the federal government reiterating and really doubling down on a very expansive immigration policy setting targets well in excess of 400000 for each of the next three years.
And that would bring us to levels, we haven't seen since 1913, if you can believe that.
And and what we've seen you know.
You know from that perspective, we know that immigrants tend to rent.
Their first home in Canada that typically until they've established credit history unemployment.
They tend to cluster in major centers, where our portfolio is focused.
And.
What we do know as well is that.
These immigrants are good for the economy, they tend to be more highly educated they tend to start businesses at a higher rate.
And so these are fundamentally good things for the Canadian economy, but in the short term from a housing market perspective, or maybe even the medium term, we simply are not as an economy producing enough housing.
If you go back over 20 years of data.
Back to 2020.
2000.
What youll see if Canada on an average its producing about something like 200000, new homes of all types every year.
At the same time average household size continues to to drop lower and lower and so we need more houses per capita to house. The population growth that that that candidate is experiencing and those fundamentals that supply demand mismatch not surprisingly coming out in housing prices.
And we think we'll drive a resurgent resurgence in rents.
I think Canadian incomes will probably grow as well we've seen pressure on on wages and other things like that so I mean, we're very very bullish on this and I think that the solutions to the supply conundrum that we face are are deep and systemic and they will take years.
To fix if if they get fixed they would require coordination by multiple levels of government and what we've seen to date is that their policy actions haven't been coordinated in fact quite the opposite.
It makes sense and last one for me just on Montreal relative performance.
It was one of your stronger markets this quarter Mark to market was a little bit weaker, but I think they got disproportionately hit earlier on with Micron is there should we kind of attribute it to that or is there anything specific in the Montreal market.
That was a little bit weaker quarter.
Quebec therapy, probably had the strongest response, if you will.
I think it was the only market in the country that had curfews. So.
Certainly I think.
It probably was maybe more impacted temporarily at least.
What we've seen there as well as the amenities and most rental properties were shut down longer.
<unk>.
We've been very active on our repositioning program.
And I think what Youll see in Q1 is our newest asset the Hill Park.
We will register a bunch of repositioning as well and so that that's going to help us.
We've had higher vacancy in Montreal due to that repositioning program, which has been so aggressive.
We're very bullish on that market and.
And I think the mark to market for us in Montreal is probably skewed a little bit by the hail part because when we acquired it in December the gap between fitting rents and Unrent evaded market rents was something in the order of 20%, we think that the gain to lease for repositioning those unrent abated.
<unk> is probably 20% again so.
Think as we continue to to realize on on the turnover of Unrent abated suites in that property in particular.
I think that's going to really help us there as well so.
I think we look at it a lot of these markets.
And we're very bullish we forget that the that the compound annual growth rate in Toronto of rents pre.
Pre COVID-19 with something like eight 5% and and I think.
Like I say, we're looking for for sort of a return because I don't see the fundamental underlying changing.
Where from where it was pre COVID-19 .
No fair enough Mike.
My Associate who is sitting across from me has been trying to find a place to rent and it's been a little bit more challenging in Toronto. These days so.
Appreciate the color guys, Yeah, no great. Thanks, Matt I appreciate the questions.
Thank you. Your next question comes from Brad Sturges with Raymond James. Please go ahead.
Hi, there.
Just expanding on.
The repositioning program there the two assets you are talking about.
Exploring whether or not the program.
Maybe I missed it but what.
Are you looking at right now within the portfolio.
So the first one is.
Is it castle view Ensenada, <unk> asset and the second one is a component of our Parkwood Hills.
Portfolio.
In Ottawa.
And they're just going through our normal feasibility analysis, when you're going through the testing process right now and then whether it makes sense to do more of a full programmer yeah, correct. I mean, there's lots of opportunity in particular Parkwood Hills.
I mean you.
If you think about that asset it's a lot of them.
Low rise wood frame and we think theres opportunity there, even maybe more broadly from a redevelopment and densification, but just on the repositioning theres different unit types Theres all sorts of.
<unk> of opportunity from a repositioning perspective, and so we're really.
Spending a lot of time on that right now our asset team.
Getting into that and working through.
A bunch of different scenarios.
Okay, and then let Hill Park, obviously, you've identified the mark to market opportunity and then Theres already I guess some of the suites renovated.
You can I think.
So I'll turn it over you can probably get at that fairly quickly in terms of the the renovation or repositioning potential there.
The previous owner.
Had renovated something like 72 suites, and <unk> actually done a pretty good job in their execution.
The manager of that asset co 's year, we've retained.
On a short term basis, and we've sort of tweaked their program, but.
Really.
Adapted it.
Almost wholesale and continue to just roll straight through that so we actually had some leasing.
Of of renovated suites at <unk> Park in December we don't count those as repositioning until they actually occupy the suites. So.
Some of the tweaks that we made like Theyre spec was largely in line.
The there was a lot of good things done there. So we've made a few minor adjustments, but otherwise I think we'll just keep rolling at <unk> Park.
Got it last question just.
In terms of acquisitions right now how does the pipeline look or you know the opportunities youre seeing in the market today.
Well I think what we're seeing.
We continue to spend a lot of time in Toronto and in Montreal.
In the greater Vancouver area.
There is lots of activity a lot of what we focus on is as we've talked about in the past.
If there are acquisitions of existing assets, we're looking for assets, where there is gap to market between the sitting rent roll in and.
On renovated market rents.
We're looking for assets, where there is repositioning potential likely he'll park, where we can deploy some value add capital into amenities into suites.
We're looking for assets in particular, where theres intensification potential maybe excess real estate in the form of surface parking where we can add.
Additional density as we are doing at Leslie York Mills enriched go over where it become quite expert at that.
The fourth opportunity as development and you would've seen certainly our market entry strategy into the GBA has been a build versus buy frankly, we found the buy option in the GVA very challenging theres very little what I would call institutional grade.
Product available to purchase it doesn't trade AR.
And it's really a market characterized I would say by small.
Wood frame walk up.
Dated product that has sort of limited.
Potential at least to our our sort of.
Way of thinking so the.
The CBL deals that we saw there Lonsdale square phase one the first phase of a three phase.
Redevelopment project in the upper Lonsdale note of North Vancouver Aitken Kingsway.
The latest deal that we did which closed in late November of last year.
Which is that an infill development in the Fraser Hood area.
Which is that.
An area that's rapidly.
Transitioning.
If we could find more opportunities like that I think that would be an area that we focus on we.
Our looking at markets that I would say our.
Near to.
Some of the big six and by that I mean places like Hamilton connected.
Go trained to Toronto and its huge population center.
Markets like Victoria with its large.
Student population in proximity to the greater Vancouver area. So we think theres a huge amount of opportunity out there we're going to exploit the relationships we have with large institutional investors.
That's a that's an opportunity for us to continue to grow as well so.
Look for more of that.
Of course in 2022.
Okay, that's great I'll turn it back thank you.
Brad.
Thank you. Your next question comes from Mario <unk> with Scotiabank. Please go ahead.
Alright, Thank you and good morning.
Just maybe coming back to the repositioning.
With 250 to 322, where we've got real quick on a proportionate basis.
That include park, we're playing that Blue bar.
So so good morning, Mario It would include the Hill Park.
And on a proportionate basis, it it's sort of hard to say with precision because of course, the mix will depend on where we're seeing.
Yes.
The the Unrent evaded unit turn.
But if you think of the assets that are in that program.
Leslie York Mills.
Hi Park village these.
These are.
Two of the bigger assets, where we're we have.
Don't have a 100% stake.
Rock Hill of course.
Those are.
Three assets in aggregate have something in the order of 550 suites remaining to reposition note of the 23 hungry so.
Again, it's really going to depend on on where we see that unrent abated suite turnover.
So it's hard to say with precision Mario exactly what the effect of mix would be but if.
If you think about.
Where are we where we did.
The work in 2000.
2021, it would probably be a reasonable proxy for for modeling for 2022.
Okay.
Okay. That's helpful.
And then just.
Coming back to incentive to Jimmy's question.
I also appreciate the color on the 0.3 months sort of average.
That's correlated.
Do you have any sense in terms of.
What percentage ballpark with buildings or suites or auction are you offering incentives.
Q4 'twenty one.
Uh huh.
It's so variable.
Because we are as I said in the earlier remarks.
It really depends on buildings, where we've got white space or availability.
In many buildings, where we have limited or no availability and it really goes right down to the plan. So.
Certain plans in certain buildings, we've got zero availability, so a lot of pricing power I'm, not seeing use of discounts or incentives there.
In other cases, where we do have availability, we are applying it but really on a tactical basis based on suite type.
Other element I would say Mario is it's very seasonal.
We.
We're thinking about the end of Q1 early part of Q2 as you head into the busy leasing season when leasing demand is really strong in the months of April May June .
Do you think about the last month of Q1, Youre, probably not going to go crazy incentivizing to fill suites win.
Youre going to see strong demand.
As you get into Q2 now are.
<unk> that with say November November late late in Q4 heading into Q1, which is at a lower.
Leasing season demand typically and I think that's the pattern we've seen.
We might be more open to using incentives on a tactical basis.
Otherwise that the risk is that you could be sitting on a V.
<unk> suites for a little bit longer as you head into <unk>.
Like I say, a lower leasing seasoning in December January February March. So it is quite variable I hate to give you the non answer but it's easy.
It's hard to say precisely.
<unk>.
How that will play out in 2022 by by property by market.
Would it be fair to say that the report three would've been a bit more during the summer for 41.
I would say.
In Q1 of 2021, we saw.
Very heavy use of incentives and promotions and then where are we.
Where we really changed that in the turning point for US was may of last year.
And we really saw that use of promotions and its not just in our portfolio, but in our competing submarkets the competing properties dropped way off.
And that trend.
Certainly in the summer I say July August was probably a little bit higher than where we are now.
Were lower still than where we were at that point.
Okay.
And then switching gears just to the to the Opex.
It was essentially flat.
Year over year in Q4 with appropriate operating costs.
Retail was up a little bit but exclude.
Kirk.
I'm just curious in terms of whether there was anything unusual pardon me was the recording of expenses or <unk>.
Secondly, whether it's used.
Feel comfortable about the amount of Florida required within the portfolio.
It was up to date, notwithstanding perhaps maybe having less access into.
Two suites during the pandemic.
Yeah. So I think one of the drivers for US in Q4 was we did have some vacancies in our in our head count.
And so that would have.
Artificially depress salary and wage expense.
Yeah.
Q4 was warmer.
And so.
I would say as well.
It got cold.
In Q1.
That that might might be impacting on the utility.
<unk> expense I would say from a repairs and maintenance perspective, we're not really being held back that that wouldn't have been a factor that really played on us in Q4.
So I mean from that perspective, I think what you can see going forward is now the amenities and most properties are going to be.
Unrestricted and so there could be an operating impact.
Slightly higher cleaning costs I think we will fill some of those vacancies in the staffing side I'm.
Looking further ahead, we do think about and we've talked about this at length property taxes insurance.
Those are areas, where we've seen.
Cost growth.
I think you know.
Broadly speaking just thinking about inflation, particularly in energy.
Those are areas, where where we see risk as well so just something to be mindful of.
From an opex perspective looking into 2022.
Notwithstanding that the expectation of some opex growth next year, we think that the combination of occupancy.
Burn off of the amortization of promotion incentives granted in 2021 and higher rate.
And gain to lease and the repositioning programs, we should see revenue growth outpace the opex.
Okay. My last question is just more of a.
High level question, Michael if you had to pick one or two.
Initiatives in 'twenty two.
Really focused on a dozen entity in order it's tough.
So from your growth or capital deployment or what have you.
What would those one or two that should be this year.
To achieve them.
Consider the euro six clubs.
Yes.
You know.
We're very long term thinkers are these are long term investments.
So we're very focused on long term value growth in the portfolio and.
I would say that.
<unk>.
Adding and improving the portfolio through the convertible development loan program and acquisitions I think if if we are able to exercise the option to purchase fifth and bank. For example, if we are able to deploy our cash.
Capital on on some new.
Convertible development loan.
Investments those would be.
I think value drivers for the long term for the portfolio I think our repositioning program at a at a near term level is always an area of focus for us, it's probably the highest and best use of capital.
From a risk adjusted perspective in our portfolio.
And so I mean that for us it improves.
The attractiveness and value of our of our properties to tenants and I think.
It reduces R&M expense it drives higher revenues from our revenue rent perspective.
I mean that is at or near term tactical level will always be an area of focus for us.
We recognize that a lot of these initiatives are dilutive in the short term from an <unk> perspective capital that's developing.
For example, 192, new suites at L y M.
He is going to dilute our <unk>, but long term value creation.
Both.
At that property level, Leslie York Mills, but more broadly for the REIT portfolio I think a wave that the near term dilution impact.
Okay. Thank you.
Thanks Mario.
Thank you. Your next question comes from Mike <unk> with dish or that'll. Please go ahead.
Thanks for taking my questions.
Correct me, if I'm wrong, I think you probably say Michael that the demand for.
Assets in the market certainly has slowed down but at the same time you've mentioned.
And certainly what's been up to.
Opex and potentially with respect to regulatory married maybe didn't refer to that but we don't know what's out there in the equity markets are.
Our pricing that into some extent. So my question would be as an entity that we're as an organization when you look at existing assets in the market.
Risk premium or your underwriting parameters changed at all in the past three to six months.
You know I am.
Hi.
I think just turning let's let's talk about acquisition of stabilized buildings.
I think we.
We're careful in our underwriting.
Not just underwriting where we think Rev.
Revenues are and what we might see for rent growth and turnover perspective, but but certainly from an opex perspective, as well and I think we are.
Conscious of.
<unk>.
The inflationary impact that we're seeing.
Now in energy and other other segments that we've talked about.
I mean, we continue to run scenarios.
Through our underwritings to to really evaluate kind of how robust the returns could be if there were.
Cos shocks I I would say that we.
I don't I don't think we've changed.
The threshold underwriting return requirements, though I, just think we're probably doing a little bit more work.
From an evaluation and risk mitigation perspective in the underwriting on.
On the development side.
You know, obviously Minto group.
Outside the region.
He's very involved in the construction of residential housing in multiple markets across the country. So we have a.
I think our finger on the pulse of sort of where we're seeing trade availability and materials costs, where construction costs are headed.
Continue to be very conservative on that front.
And quite cautious in how we risk mitigate so.
Again, I don't think that we've changed the underwriting threshold requirements, but probably just doing a lot more work upfront in terms of.
Really making sure that our underwritings are as robust as they can be.
Some of these.
Potential new.
Negative negative impacts on on on returns from cost inflation inflation.
Okay. That's helpful. Thank you and then.
<unk> has.
Acquired some assets.
Where theres a instead.
Institutional partner that was there in the existing ownership structure.
So a number of rock Hill, you brought in institutional investors, though.
And you've got certainly.
Robust pipeline of near term and longer term.
Capital deployment opportunities.
Third parties, just with your relationship with Intel.
With the equity markets not necessarily cooperating have you looked at potentially bringing.
Bringing in a partner on one or two of your existing assets as a source of capital.
Yeah.
I mean, we've looked and we kept them.
Continuously look I guess at the portfolio.
And the opportunity to recycle capital.
Whether it's through sale or whether we could work with.
In institutional investors as we get our rock Hill for example.
It might be something that we see on future growth opportunities working with.
Institutional investors, particularly where we can have a managing interest.
In the investment that certainly would be a focus for us.
So it's something that we are we are looking at I mean, obviously trading at a fairly significant discount to NAV right now, it's not an appetising time to be raising.
Raising equity.
No absolutely not.
Markets can change pretty quickly. So he was a he was hoping for a better remainder of the year. Thank you very much. Thanks.
Thanks, Mike.
Thank you. Your next question comes from <unk>, Chen with BMO capital markets. Please go ahead.
Hi, Good morning, just a quick one for me.
Andi.
Well with respect to it was nice to see that on your repositioning pipeline.
M D.
Like the average costs actually went down.
Per suite, so just kind of wondering how should we be thinking about the return it's Kevin Patel.
Some inflationary cost pressures.
Target, an 8% to 15% ROI for our repositioning program I think in Q4.
Increase was at nine 4% over where we were in Q3 the spend per suite. It is highly variable Joanne as you can imagine.
The difference between a.
Three bedroom two Bath unit in a Bachelor.
Even even if youre, if youre repositioning to the same spec level the.
The overall investment in those two suites could be quite significantly different and so to some extent that <unk>.
Average investment each quarter will be somewhat variable and dependent on.
The suite mix of what was actually renovated in the quarter.
The reason that we like the repositioning program. So much as I've said in the past, it's the highest and best use of our capital on a risk adjusted basis is that we have a high degree of visibility on what the renovated market is four suites because were typically leasing those in that same building.
On a regular and continuous basis at the same time.
On the cost side, we have long relationships.
With the traits that we have and.
While we are seeing cost inflation, it's mitigated by those relationships and the buying power that we have.
Right and.
And the beauty of this program is youre really metering out capital and very small in discrete chunk.
Chunks and so.
And accelerate slowdown.
The program in.
In buildings as as needs dictate and so.
We're very very careful about that ROI threshold and what we want to achieve.
And and optimistic that as much as we're seeing cost inflation. We're also seeing.
As we talked about early in the call I think potential for market growth rate in rents that in many cases will outpace.
The rate of cost inflation, so so from our perspective.
Again, we.
I think we're able to assure ourselves of achieving that minimum ROI threshold with a high degree of assurance.
Right, Okay, and just one last quick one from me. So obviously it was great to see that pick up and you know your gain on lease potential, but I guess could you maybe comment on what you're seeing in terms of the turnover activity thus far in 2022.
The.
I think what we'll see in January well.
Well Q1, I think we're expecting a sort of as I mentioned.
Earlier January was the slower leasing months I expect that we're going to see the quarter overall will look kind of like Q1 s of past pre COVID-19 .
Tends to be a lower turnover lower leasing demand.
And that sets us up well for Q2, and Q3, where we're expecting to see I think.
Again strong.
Our leasing market conditions.
And and strong pricing power. So that's kind of how we're sort of looking at.
A return to normal seasonality.
Got it Okay. That's helpful and that's it for me. Thank you very much I'll turn it back.
Thanks Joanne.
Thank you there are no further questions. Mr. Waters you May proceed.
Thanks Dennis.
Well that concludes our call. This morning, Thank you for joining us and for your interest in Minto apartment REIT. We look forward to speaking with you all again after we report our Q1 'twenty two results.
In the spring. Thank you so much.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines have a great day.