Q1 2022 Killam Apartment REIT Earnings Call
Yeah.
[music].
Good morning, ladies and gentlemen, and welcome to the Gillam apartment real estate investment Trust first quarter 2022 financial results Conference call. At this time all lines are in a listen only mode.
During the presentation, we will conduct a question and answer session, but any time. During this call you require assistance. Please press star zero for the operator. This call is being recorded on Thursday may five 2022.
I would now like to turn the conference call over to Mr. Philip Fraser, President and CEO . Please go ahead.
Thank you good morning, and thank you for joining killing the apartment Reits first quarter 2022 conference call.
I'm here today with Robert Richardson.
Executive Vice President Dale Noseworthy, Chief Financial Officer, Eric.
Eric Cleveland Senior Vice President of Finance.
And Nancy Alexander Vice President of Investor Relations and sustainability.
To accompany today's call are available on the Investor Relations section of our website.
The events and presentations I will now ask Nancy to read our cautionary statements.
Thank you Phil this presentation may contain forward looking statements with respect to kill them apartment REIT and its operation strategy financial performance conditions or otherwise the actual results and performance of talent discussed here today could differ materially from those expressed or implied by such statements such statements involve numerous inherent risks and uncertainties.
And although management believes that the expectations reflected in the forward looking statements are reasonable there can be no assurance that future results levels of activity performance or achievements will occur as anticipated for further information about the inherent risks and uncertainties in respect to forward looking statements. Please refer to <unk> most recent annual information.
For another securities regulatory filings found online on SEDAR.
All forward looking statements made today speak only as of the date, which this presentation refers and QM does not intend to update or revise such statements unless otherwise required by applicable securities law.
Thank you Nancy we are very pleased with our strong financial and operating results.
For the first quarter of 2022 that included three 1% increase.
And same property NOI growth and a four 3% increase in funds from operations. Our 2022 strategic targets are outlined on slide three and we have made good progress with all of the all of our targets.
Kill them as acquired or agreed to acquired $116 million in acquisitions year to date and 91% of these acquisitions are outside of Atlantic, Canada, supporting our targets to have greater than 35%, However, NOI generated from Ontario, and Western Canada.
Tour two of our development.
Latitude in the K are now open and the lease up is very strong.
Bill will take us through the <unk> first quarter financial results, followed by Robert who will discuss our revenue and expense initiatives for growing earnings from our existing asset base as well as the ESG update I will conclude with a recap of our acquisitions and development pipeline.
I will now hand, it over to Dale.
Thanks Bill.
Highlights of Q1 financial performance can be found on slide four kilometer <unk> solid earnings growth in Q1, resulting in net income of $65 7 million compared to $27 4 million in Q1 2021.
This increase is attributable to earnings growth from our same property portfolio acquisition completed developments and fair value gains.
<unk> per unit for Q1 2022 of 24 cents was up four 3% from Q1 last year and <unk> per unit of 20 increased five 3%.
As shown on slide 551% growth in revenue was the main driver of NOI growth in Q1.
220 basis point increase in same property apartment occupancy coupled with a three 3% increase in apartment rental rates led to the solid revenue increase.
The commercial and MH fee portfolio is also recorded strong topline growth.
Despite an flushed generic inflationary costs that increased operating expenses by eight 2% <unk> recorded a $3, 1% increase in same property NOI.
Slide six illustrates apartment revenue key performance indicators over the last five quarters. The same property rental rate increase of three 3% in Q1 2022 with similar to Q1 last year increase.
We increased rents on unit turns drove this topline growth.
As housing demand remains strong across our portfolio, we are seeing market rents continue to increase in.
In addition, with a tight rental market, we achieved same property occupancy of $98 zero percent in Q1.
In terms of incentive offerings remained below 1% of residential rent targeted specifically at our Alberta markets, where incentive offerings are commonly used excluding alberta incentive offerings as a percentage of revenue represented only three.
3% of revenue in Q1.
Total same property operating expenses increased eight 2% in Q1, please refer to slide seven the.
The increase was driven by a 21% increase in utility and fuel expenses due to higher natural gas prices across all of kilometer regions with a weighted average price increase of 39% for the quarter, coupled with increased consumption due to colder weather.
Oil and propane costs also increased significantly up 47% from Q1 2021.
As well <unk> recorded a five 5% increase in property taxes also contributing to higher than normal expense growth.
Natural gas and oil costs are most heavily weighted in Q1, and 2021, 43% of kill them as natural gas and oil costs were recorded in the first quarter.
Although gas and oil costs are expected to remain higher than 2021 for the remainder of the year. They are waiting on total expenses is not expected to be as significant during the remaining quarters.
<unk> debt maturity profile, which can be seen on slide eight includes average apartment mortgage rates by year versus prevailing five and 10 year CMA, we insured mortgage rates with.
With recent increases in bond yields current borrowing rates are above <unk> weighted average interest rates.
I am pleased to report that we refinanced maturing debt in Q1 with new interest rates below expiring rate.
However, this is not expected to continue looking forward Killen.
<unk> has $125 7 million of remaining mortgages maturing in 2022 with an average interest rate of 272%.
Financing at higher rates is expected to lead to increased interest expense. However, this increase is expected to be gradual due to the staggered nature of our maturity date.
In addition, the majority of <unk> debt is fixed with only $3 million of variable rate debt outside of our construction line.
We've been focused on reducing our debt levels for the last seven years, and we ended Q1 with that as a percentage of total assets of 43, 3% down 170 basis points from 45% at year end.
Growing our successful equity raise completed in early February we also have capital flexibility and in Q1 with approximately $155 billion of capital available through our credit facility.
I will now turn the call over to Robert who will discuss our operating results and initiatives in more detail.
Thank you Dale and good morning, everyone.
Please refer to slide 10.
King continues to expand its portfolio of coast to coast and today, we own and manage approximately 19000 apartment units.
5900, MHC sites in 39 communities and approximately 1 million square feet of commercial real estate.
We keep our employees residents commercial tenants and unitholders top of mind, when we execute <unk> long term growth strategy, specifically growing earnings from our existing portfolio acquiring accretive properties as we diversify our portfolio geographically and developing energy efficient high quality properties.
In our core markets.
Kevin has made excellent progress with each of these three growth strategies to date in 2022, despite higher energy costs and royalty tax increases.
Today, I will focus on <unk> first strategic priority growing earnings from our existing portfolio based on strong operational performance that optimizes revenues and manage its expenses.
Bill will then conclude the formal part of this call with an update on new acquisitions and developments.
Slide 11 highlights <unk> revenue growth for the quarter by property segment.
All three business segments of our portfolio performed well and showed the resiliency in Q1 'twenty to achieving five 1% overall revenue growth.
The demand for apartments remains strong with consistently high occupancy throughout the portfolio in Q1, 'twenty two kilns occupancy increased 220 basis points to 98% compared to the same quarter in.
In 2021.
MHC portfolio generated revenue growth of three 3% with higher site rents and improved ancillary revenue being the two key contributors.
The nine resort properties in the manufactured home community segment only operate may through October each year. So they do not impact Q1 revenue figures.
Finally, we are experiencing tremendous demand for the resort bookings throughout 2022 was near zero vacancy expected in Ontario, and our New Brunswick resorts are also forecasting record occupancy clearer.
Clearly Canadian it's becoming more comfortable coming together in groups.
Our 1 million square foot commercial portfolio includes three large properties plus other smaller properties located primarily in Halifax and mountain.
Together, they contributed $2 5 million or five 5% of comp NOI for Q1 'twenty two.
Brewery market is 146000 square foot retail and office property in downtown Halifax that is over 92% occupied.
Let's now in place located in Waterloo is a 300000 square foot retail and office property, having 98% occupancy.
And our largest commercial property royalty crossing is a 383000 square foot and closed mall in Charlotte town that is now 92% occupied up 400 basis points in occupancy since the summer of 2021.
Our new 4500 square foot Sephora will open next.
<unk> and we have secured a new recipe restaurants as well as.
We are building a new BMO branch on the pad.
This property has lots going forward and it's going to grow as we go forward through 2022.
The commercial segment achieved six 9% revenue growth quarter over quarter due to a higher rental rates and improved occupancy.
Our suite repositioning program is one of Killen revenue optimizing leavers for the apartment segment.
We have increased the number of repositioning each year for the last five years and expect to complete 600 suite repositioning this year to meet market demand across the portfolio.
We take pride in our property management and capital project teams have fine tuned the renovation of sweet suite, finishing processes.
This provides our residents with a high quality product that addresses demand for upgraded suites that are both functional and sustainable.
The reposition units leased quickly with residents typically committed before the work is complete.
The maximum downtime to reposition a unit is 28 days and kill them invest an average of $29 per suite.
The renovated suites or in an average 13% unlevered return on investment with.
With 150 suites Repositions in Q1 2022, we are on track to meet this year's target and expect to realize an additional $2 million in annualized revenue for the apartment portfolio.
<unk> has a long term opportunity to reposition another 5500 suites in our portfolio as they become think it's over time further.
This repositioning opportunity continues to cycle forward at the properties age.
Other essential component of our earnings growth is expense management. Please refer to slide 12 with.
With increasing costs due to inflation and taxes expense management has become even more critical.
We closely monitor and analyze our property tax bills and appeal tax assessments as necessary. Most recently to Brunswick raise assessments on Kingsport films properties by an average of 23% in 2022. The government agreed to review this increase and the final average increase is now 15%.
Kevin will appeal these higher taxes.
To help combat outsized tax increases and higher inflation, we are investing to improve economies of scale as we expand geographically.
With more units in each market, we can leverage relationships with suppliers and contractors, both regionally and in many cases nationally.
Investments to achieve energy efficiency are also a priority at killen increasingly john's commitment to sustainable practices throughout our portfolio pay dividends by lowering the consumption of fossil fuels as we utilized photovoltaic panels, and geothermal heat and air conditioning, where feasible, especially in new construction.
Traction.
Further sub metering of water usage at the suite level has proven to save approximately 25% on water costs.
Kim has a responsibility to lower its carbon footprint and expect to invest a minimum of $8 million in energy related projects in 2022 to help meet our ESG goals plus offsetting a portion of inflation impacted operating costs.
Slide 13 is.
And info graphic that encompasses the work we do to ensure our properties have a positive impact in our communities and minimize the impact on the environment.
Since 2016, <unk> invested over $33 million in energy projects that make our portfolio more resilient cost effective and use fewer non renewable natural resources.
By investing in renovation.
Sustainable solutions, such as renewable energy and property level technology, we create a better home for our residents.
We are investing in over 400 electric vehicle Chargers to meet the demands of our current residents to also prepare for the increasing use of electric vehicles in the future.
We are also pursuing building certifications that promote the best operating practices to deliver our residents industry, leading suite that promote even better health comfort and safety.
Yesterday, we published our 2021 ESG report.
ESG goals are shown on slide 14.
We have already highlighted the environmental objectives of Killen ESG strategy.
Garden, social commitments kilowatts, a civic duty to be a contributor to the affordable housing solutions.
We increased our supported an affordable housing portfolio by 108, new units to now totaled 850, representing 5% of our portfolio kill.
<unk> is an active partner with many nonprofit housing and government agencies as well as other charitable organizations in 2021, we increased our paid employee volunteer time to three days, enabling more time for our team to be directly engaged in our communities.
On the government side, we believe are supportive and inclusive workplace benefits all employees.
We commissioned a diversity and inclusion survey with an independent third party supplier the Canadian centre for diversity and inclusion to identify our employee diversification and assist kill them as we continue our equity diversity inclusion and accessibility for all journey.
The partnership with CCD has been invaluable as our expert training advice and knowledge is very helpful.
As well, we continue to report and submit our ESG data to rating agencies to ensure we are meeting expectations and continually improving.
For more information on <unk> ESG work, please visit our website at Killen REIT.
Slash ESG dot com.
To download our 2021 report slide 15 shows that in addition to our 2021 highlights report covers.
All of our material ESG topics and has detailed information on our energy management greenhouse gas emissions and climate related projects films.
Films energy consumption and greenhouse gas emissions have been externally verified and more fulsome data tables contained the pertinent information they're attached at the end of the ESG report.
I will now hand, you back to Philip to provide an update on our development and acquisitions.
Thank you Robert as stated earlier, we have started the year with $116 million to acquisitions.
On February 16th kill them completed.
The acquisition of a four unit apartment property in wholesale for $3 $5 million. This building is adjacent to other killing properties on spring Garden Road and completes the luck consolidation for the planned future development currently.
Currently as medical alerts.
On March the seventh Killen completed the acquisition of a 24 unit apartment property in Waterloo for $7 $9 million. The four building complex is located on a one two acre property and has future development potential for up to 300 units.
On March 17th kill them complete the acquisition.
So the 5000 square foot retail plaza containing three quarters of an acre located adjacent to our north field Gergen property in Waterloo, where $3 9 million.
This property combined with surplus land already owned who will provide an opportunity to build up to 150 residential units in the future.
Yes.
Slide 17 shows Craig Flower House, a 49 unit apartment property in the greater Victoria area that we purchased for $14 million or $286000 per unit on March 31.
The property is fully occupied and has an average monthly rent of $1123 per unit.
This acquisition marks a third for Killen and the greater Victoria area.
On April 29th we acquired.
671% 665 will reach street located in Guelph, Ontario for $25 million.
$21 million for the residential building and $4 million for the adjacent Lord.
<unk> Street is a 12 story 84 unit concrete building that contains a mixture of one two and three bedroom units. The average monthly rent is $218 and is currently 98% leased.
Subsequent to quarter end Killam has agreed to acquire two properties and Courtney BC for a total of $55 6 million.
These assets are shown on slide 19, and 20 the shores.
Located at $18 49, and <unk> 76, Riverside Lee contained two four story wood frame buildings.
Containing 94 units.
This new property is the mixture of one two and three bedroom units and is fully leased with an average monthly rent of $641.
The residence located at 621.
Island Boulevard continues.
One four story wood frame buildings with 56 units.
This is a new property that is a mixture of one and two bedroom units and is fully leased with an average monthly rent of $608.
We expect to close both acquisitions during the third week of May.
These acquisitions will increase <unk> portfolio, and Vancouver Island to 516 units.
What are the key areas of focus starting in 2022 was the completion and lease up of our developments are latitude, which opened up in January is now 61% leased the case, which just recently opened on April one is already 57% leased.
And the Luna opening in June is currently 11% pre leased.
We anticipate these developments to contributed $2 2 million in NOI.
2022.
Slide 22 shows the rendering of the first to complete the projects and the three remaining developments expected to be completed this year.
Previous previously mentioned two developments latitude and Kate have added an additional 232 units to our portfolio.
Overall, these five developments will add $240 million of high quality properties to our portfolio.
Slides 23 to 27 show renderings progress photos in key financial information on the lunar 168 unit development and Ottawa. The Governor of 12 unit development in downtown Halifax, and Civic 66 to 169 unit development in Kitchener.
To conclude we are very pleased with our Q1 performance given that that even by Canadian standards. It was a long and cold winter.
I would like to thank our employees for their hard work and dedication during the Q1 period.
We are optimistic for the future and we will continue to execute on our priorities and create value for all of our unit holders.
Thank you.
I will now open up the call for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone Youll hear three ton prompt acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by <unk>.
And if they're using a speaker phone please lift your handset before pressing any one.
One moment for your first question.
Your first question comes from Jonathan <unk> with TD Securities. Please go ahead.
Thanks, Good morning.
First question just on the.
Utility costs.
Roughly how much of that was related to the.
Colder.
Winter.
Versus how much was related to the to the cost increase just trying to get a sense of.
What we should think about utility costs going up for the rest of the year.
Hey, Jonathan I think.
Overall, when you look Atlantic, Canada, being a bigger piece I think the rate increase was the biggest component.
Certainly some weather about we saw.
<unk> disclosed in the MD&A, that's a pretty significant increases in the cost of not got especially in Nova Scotia year over year.
That is likely to continue.
Throughout the year, it will come down a bit after the winter for sure.
Year over year comparison, we would expect it to stay high.
Okay. So if you are if overall was north of 20 in Q1, you would expect sort of <unk>.
15 ish.
Is that the way to think about it.
I would say that's reasonable yes, it will be it's going to change a bit by month.
<unk>.
In the spring versus the summer.
Right.
I think thats reasonable place to start.
Okay.
And then just secondly on the increase in interest rates and cap rates, what have you seen any change yet in cap rates.
Maybe just remind us your thought process on an underwriting because they notice to the acquisitions our.
Cap rates that are below current CRH see rates.
To answer the question.
Obviously, we've seen the increase in the interest rates the cap rates.
Right now I would say no I mean, there is starting to be a period where.
Whereas some of these properties are being marketed where the pricing is going.
The properties that we bought I would say that they are full of upside potential in the next 12 to 24 months for sure.
And depending on even whatever the cost of the debt is for those properties.
Relatively speaking at 21% and $14 million $35 billion. It's a very very small part of our overall portfolio I just see the reason why we bought them is because they have good.
Growth potential in the years to come.
Okay and then.
More generally speaking as you would be comfortable buying at cap rates that are sort of equal to the 10 year. If you do see good growth in the assets.
Well I think the bigger question is is that again coming out of the fourth quarter.
Actively looking for product.
Executing and knowing the time lag it takes to look at a property to get it under contract and close.
Basically where we are today, what we're looking at.
Youre looking at it from an underwriting point of view and a different sort of <unk>.
Environment. So I think the questions are the question is a good question, but the overall answer is we.
We just got to wait and see what.
The next quarter or two.
Basically 180 days looks like from an acquisition point of view.
Okay. That's that's helpful I'll turn it back thanks.
Your next question comes from Jenny <unk> with BMO capital markets. Please go ahead.
Thank you good morning.
Good morning, I wanted to touch on the higher rates as it pertains to how you look at that development. When you look at the pipeline to sort of targeting 45% range, but as you look out to future project with.
But they sort of sudden and material increase in rate.
Are you thinking about moving those parameters are changing how you underwrite these projects.
How you proceed with it.
The timing maybe share some thoughts on my side.
Well I think we've actually for the 10 to 11 years that we've been building.
On our own balance sheet, we have enjoyed very low interest rates and <unk>.
So that the overall cost of that line item has been virtually like has been very very small.
Knowing that your.
Youre basically frontloaded in terms of your equity.
And you tend to get a lot of the costs at the sort of the back 20% of any development.
So I think the bigger issue right now is looking out and basically.
And where the pricing is going to the overall total development cost question.
And right now we have never seen such huge increases.
In construction cost and I'm, saying that in today's environment, not even three or four months ago.
And especially not compared to.
Two years ago. When we started the current development program for projects that we are almost completely.
As we speak so.
The interest rate is definitely one question or one issue that we have to look at but it's really the overall cost and how much everything else has increased in the last basically three months.
Okay. So I guess when you are underwriting. These then would you be looking for an even bigger buffer to guard against these risks.
If theres a bit of a philosophical change in terms of how you approach future development projects, where maybe it's too early for that.
I.
I don't think its too early I think fundamentally it's the question.
Where is pricing going in today's environment. If you start to look at a project or even if youre trying to get a real budget in today's environment.
And we really see it as a combination of a bunch of issues why pricing has really really increased and right. Now you could say that there is a underlying element of it which is the commodity which actually ends up being.
Natural gas and oil.
And will that come down over time, and I think long term. The answer is yes, so that should relieve some of these.
<unk> costs that we incur.
The other is just basically.
Some of the trades.
Taking advantage of their pricing power because of the demand is so strong for their services.
And really what's going to happen is that the construction side, which is the last thing the government wants to see is going to slow down because people like ourselves who are going to say, we've got a great project, we own the land, but maybe we can wait a year or two to see these pricing price points come down.
Okay. So maybe looking at the other side of the equation here.
Are you seeing in terms of rental rates I guess, there's a few that have come online recently.
We're getting rents that are at the higher end of your pro forma and maybe do you see any sense.
Is that higher rent could offset some of these higher construction costs as well.
We are definitely seeing that we are meeting our pro forma.
Exceeding them.
And all of our developments there is such strong demand for new product.
Okay great.
Just.
Turning to the debt maturity over 2022, and 2023 and it looks like they are about just over half that are.
Insured so when you look at the near term Jacques Du, Quebec to refinance the majority of that like a high percentage with the debt and you can comment on what is the differential that you're seeing on the all in costs for <unk> HD versus non sandwich theater at that.
I think there is going to answer that.
Okay.
I think mostly we are we are refinancing with CMA sea and we have been adding CMA sea on some that were not previously CMA.
Sure.
So that will continue throughout for the rest of 2022.
In terms of the spread.
It has come in in terms of the conventional versus CMA sea. The latest I'd heard I think we're probably at around 70 to 80 basis point differential.
We will still look to do so you may see when when we can.
Just to highlight to you on that came in in time for the second half of the year just Scott.
Most of it is we've already early actually in that first half of Q2. So most of our I'd say two thirds of our.
The remaining refinancings have already been fixed so our exposure is.
Quite limited actually beyond those for the second half of the year. So that's positive.
For us in the fall.
Tayo environment.
Okay, Great and I guess as a proportion of the non <unk>.
Insured debt like how much of that do you think will convert to <unk> within a matter of just stabilizing some of them are there other attribute that.
That didn't have Ken is there anything thats outside the required to give us a sense I think much more to do.
I think over time, it's reasonable to expect that almost all of that will be.
Sometimes when we acquire things different circumstances timing.
Or other longer term growth plans with the property may cause us not to put <unk>. So I think it's reasonable over time that at most well as long as the pricing we have that advantage.
Okay, great. Thank you very much I'll turn it back.
Thank you.
Your next question comes from Mike <unk> with Desjardin. Please go ahead.
Thanks, everyone and good morning.
Just two questions from my end first off on the property tax outlook for the rest of the year.
I know you've got.
The lower assessments and Youll continue to fight them, but obviously.
In addition to that I guess, the government announced a rebate on the provincial portion. So I'm just curious if thats. Those events are included in your Q1 expense accrual or if we can expect a little bit of relief over the next several quarters. Once you incorporate these amounts.
They're <unk>.
And they are included.
So Q1 was okay. So Q1 would be a good run rate for the rest of the year then without any appeals.
Successful appeals.
Yes.
Thank you.
Yes, Okay, and then just maybe if you guys could give us a little bit of color.
Just curious as to what Youre seeing in New Brunswick, and Nova Scotia, specifically with the temporary rent caps that have been introduced or are you seeing a material impact.
On turnover and how does that compare currently to maybe what you would have experienced.
12 to 24 months ago. Thanks.
And we're not seeing a material impact.
But there is decreasing but it's not material and its a trend thats been continuing for the last four or five years.
So we find ourselves at about 24, 25% turnover than it used to be 33.
Okay.
Okay. That's it for me thank you.
Thank you.
Your next question comes from Matt <unk> with National Bank. Please go ahead.
Hey, guys just a quick follow up on the turnover side of things was there anything.
Or would you say this quarter would be it would be impacted by omicron and just the pandemic in terms of a.
A bit lower figures and then then also maybe if you could answer that but also talk to what youre seeing in the spring leasing market so far.
In your various markets in terms of you don't have much vacancy to fill but rental rates et cetera.
I don't think COVID-19 or Amazon in particular has been a big impact.
This year so far.
I don't think it's caused people to stay in the same location.
And not in a big way anyways.
Okay.
Your second part of that question Matt.
I think we maybe we all have contributed to it but overall.
It's extremely strong the leasing and the few pockets that we had higher than what we wanted in terms of vacancy in Newfoundland.
And even Alberta.
The spring leasing has been extremely strong.
Okay.
And Ontario, as well as starting to see.
I mean, you guys didnt have much in the cities but.
Starting to see some pick up.
Strength, there as well.
Especially in Ottawa, the rest of our portfolio in Ontario has been very very strong with very like really low vacancy.
I'll call it a surprise, but it really it isn't a surprise the leasing on the new developments is going extremely well.
Okay.
And then on.
Sorry.
No I was going to add to that a little bit not as Nancy is just going to say paid ikea. So there has been accelerated a little bit of an acceleration of what we've seen in market rents across the board in the last couple of months.
Even since the quarter ended but just to remember the first quarter for us, especially.
Of the 6000 units that were renewed or turn 87% a number of renewals right.
The quarter that was really concentrated with renewals with 900 theres. So many in Ontario, and Ti. So it's a very concentrated acquire things you would see that average rent in the quarter.
But do we even out through the year.
Okay, no that makes sense and.
Courtney market.
Can you just speak to what you like about it. It's obviously the assets look like they are very high quality in the market.
What was the justification for moving there is there an opportunity to do more sort of on Vancouver Island in BC more broadly.
I'm going to I'll say, a couple of words that I will turn it over to Rob who is actually out there and toward them before we made the offer.
We look at that that island of 780000 to 800000 people, which is the size of the Brunswick.
Distance in that area between importantly in Victoria.
It's all a very livable sort of.
World in terms of lots of nice livable communities mid sized communities.
It's basically very very.
Weather-wise virtually no winter screen year round and people want to live there so from us to have basically bookings from the top to the bottom.
In between as opportunities in the future in terms of the inmates C side of our business, but also other.
Apartment markets and that fundamentally is one of the big reasons, why I'm happy to be investing.
On Vancouver Island.
The entire corridor as attractive north to south it works well.
Accordingly, comox anchored by the military base.
An excellent base for employment Theres, a lot of tech stuff going on in that area as well and the assets themselves are very well constructed attractive and their lease up times, where.
So it was commenting earlier about how quickly it is happening here.
On Vancouver Island, right now, it's even faster.
A matter of weeks, there's such demand such pent up demand for purpose built multifamily so that's great.
Okay perfect. That's great color and then last one for me just on the financing side.
There is a little bit of daylight between the five and 10 year bond yield right now and obviously there has been a pretty steep rise.
Are you inclined to go shorter in terms of financing at this point just maybe we don't believe these interest rates I don't I don't know.
Philosophy is there well again youre right because for a lot of.
A good part of the the last 90 days has been virtually 70 13 basis point spread and we don't really have anything today that we got to make that decision on but that is obviously something that we'll be looking at as well.
Through the rest of this year.
Okay. Thanks I appreciate it.
Answers.
Okay.
Your next question comes from Jimmy Chen with RBC capital markets. Please go ahead.
Thanks, So just a follow up on your.
On your investment stance.
Talk about kind of wait and see until.
To see where prices go.
But let's just say six months from now we're still in that same situation high construction costs skinny investing spread how are you are you a buyer at today's prices or do you need the prices to go lower in order to move forward.
And then maybe what do you think about buying your stock here.
Well too.
Maybe I'll answer your last question first.
If the question about buybacks.
We will continue to review, where we are relative to our niv and basically in real time to see when does that sort of makes sense and also will be reviewing the trend in the industry.
How many people are putting them in place.
The first part of your question.
Basically what I see and I could be wrong is that for well capitalized companies like yourselves and even better capitalized companies like the pension funds there.
They are still active buyers out there for very high quality product.
When you go down the food chain a bit there are a lot of merchant builders for some.
That will basically figure out that they might be a little bit off side in terms of the rising cost and even the cost of carry and <unk>.
Over the next six to 12 months as we really see the effect of these higher interest rates trickle through the economy and through projects, there's going to be opportunities.
So therefore, there is a little bit of a wait and see.
Opinion.
Basically the.
Developing from within Killam shop.
Okay.
Referring to buying.
Buying.
Buying income producing assets today as opposed to building.
Okay.
Yes.
They are one half of the equation out there for the long term owner that has no debt.
He doesn't see it that way and he can still wait.
There's a lot of product out there that has been built recently or has been bought and fairly recent times.
With a lot of leverage those are the.
Basically potential opportunities.
Yes.
Okay, and then just a quick on those looking at the expense growth across the different markets in the portfolio in the quarter.
Ottawa Kitchener Waterloo seem to be on the lower end four 5% and then the Atlantic markets.
On the expense growth in the quarter was 10% to 12% range I was wondering if it was there anything specific.
Any specific drivers for those differences.
It's all about the gas and oil.
I'd say that that debt and Newfoundland stands out this quarter because it uses electric.
While electricity so it didn't have that exposure that we would've seen much.
Bigger piece.
And Nat gas and oil.
Okay sorry.
Anti <unk> and property taxes.
All right got it okay right.
Definitely made a difference in the quarter and Atlantic versus other regions.
Okay.
Okay. Thank you.
Okay.
Ladies and gentlemen, as a reminder, if you do have any questions. Please press star one.
Your next question comes from Mario Jarrett.
With Scotiabank. Please go ahead.
Alright. Thank you, maybe just coming back to the investment philosophy.
It's been touched on a couple of times so.
Im paraphrasing, what you think maybe cap rates have dropped a little bit.
If there is a bit of pressure on merchant builder.
Et cetera.
The expectation for maybe higher cap rates going forward a function.
So we function.
The uptick in interest rates or are you seeing I would characterize as kind of uncertain.
Government policy or regulatory environment.
Leading to potentially higher equity risk premium.
But are being attached to the sector by the private side North Dakota Public Park with the private buyers that you are computing, because it's only a function of interest rates moving upwards.
A bit of uncertainty from a regulatory environment.
Driving coverage.
Sure.
I think I don't know that I agree with.
With a lot.
Of what you just said in a lot of points, but I think deploying that I'm trying to get across is that one I really.
Our belief of where cap rates are going.
I think it's a little bit too early to tell.
What I'm trying to get across is that theres some individual.
Projects.
Assets that will start to struggle and therefore.
You can take advantage of that if the owner has to sell.
It means the high quality assets are still going to demand that.
Cap rate that is currently asking for is traded on recently, especially in the larger urban centers.
There could be a little bit of a trickle down effect in some markets, but again I think is a little bit too early to tell.
The correlation between interest rates and cap rates.
The one thing that I'm not really agree with is the direct correlation that as interest rates go up youre going to basically see cap rates move in these markets and I say that because we still have a supply issue in terms of new housing in the multifamily and in this.
Single family.
I don't see that part of the equation being fixed in any short period of time.
So the pressure in demand for these assets.
We will be there.
Time around.
Okay.
Okay.
I can appreciate that historically the correlation between cap rates and interest rates must have been fairly low.
I get that point.
Okay.
I'm trying to understand the sustainability.
While our acquisition cap rates.
And the market going forward, but again.
The message again, we've communicated today.
Is that.
From a total dollar acquisition I don't really see a lot in our pipeline to finish out this year and it's a little bit too early to see what 2023 is going to bring for 2024.
Our focus is on.
Finishing up our developments looking to see if we can actually start the next one.
And basically.
Thats, all im saying in terms of where we are in terms of acquisitions and even if there are a couple that come your way that you want to.
I mean, these are 10 to $15 million to $20 million.
Four six to $4 7 billion dollar asset base.
I mean, the same thing to us.
We're not going to go out and buy a $500 million or $1 billion portfolio at a three cap.
So no I wasn't referring to what degree would you say of a broader market.
But what are your thoughts.
Again, thank you for the comment on.
Yeah.
Okay.
Just maybe one other question.
Of the.
And developments $469 million of completion.
Expected in 'twenty, two what's roughly the amount of fair value gains taken on those projects versus the total anticipated.
Good question do we have that handy.
I would say I would assume that we're probably we're probably.
About we would have probably taken about a third of the fair value.
To date.
We've been taking it over the piece, but we remain on the conservative side until it. Please step and we really have clarity in terms of the <unk>.
Stabilized NOI on that though.
Expect more to come on that.
He came to us.
Okay. Thank you.
Thank you.
Your next question comes from David Crystal with Echelon capital markets. Please go ahead.
Hey, good morning, guys.
Beyond utilities and property tax you managed to hold the expense line.
Pretty much in check.
Do you expect to be able to hold the line on expenses for the remainder of the year or you see broader pressure on it.
Where are you seeing that pressure itself.
Yeah.
I think we would expect in the latter part of the year, a slight tick up in those costs, there's pressures on contract services.
Growth across across the board.
Obviously working to manage those but we would expect a slight tick up from what we saw in Q1.
And what would be a good run rate, whether it be relative to Q1 or kind of annual growth for <unk> versus the prior year.
Yes, probably in the Florida, 4% to 5% range.
Yes.
And turning to your lifts on unit turns here.
Youre kind of hitting new highs, yet I think 85%.
In the quarter do you expect this to accelerate throughout the remainder of the year is kind of as market rents kind of outpace guideline and allowed increases in rent controlled markets.
We think it will steady it'll go stay we won't see an acceleration of it.
Okay. Thanks.
It for me I'll turn it back.
There are no further questions at this time. Please proceed.
Well I want to thank everybody for listening and participating today and we look forward to reporting.
Our second quarter results, which will be the first week of August . Thank you very much.
Okay.
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.
Okay.