Q2 2022 Canadian Apartment Properties Real Estate Investment Trust Earnings Call
Okay.
Good morning. Thank you for attending today's Canadian apartment properties REIT second quarter 2015 results Conference call. My name is Alexis and I will be your moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions.
If you would like to ask a question. Please press star one on your telephone keypad.
I would now like to pass the conference over to Mike.
Davidson you May proceed.
Hardly hosts but thank you operator before we begin let me remind everyone that the following discussion may include comments that constitute forward looking statements about expected future events and financial and operating results of cap rate. Our actual results may differ materially from these forward looking statements such statements are subject to certain risks.
[noise] uncertainties discussions concerning these risk factors forward looking statements and the factors and assumptions on which their base can be found in cap rates regulatory filings, including our annual information form and MD&A, which can be obtained at SEDAR I'll now turn things over to Mark <unk>, President and Chief Executive Officer.
Okay.
Thanks, David Good morning, everyone and thank you for joining us.
Stephen Ko our Chief Financial Officer is with me. This morning as is our new Chief investment Officer Julian Sean.
We are very pleased to have Julien join our team. He brings a wealth of strategic capital market and property investment experience to cap rate and we welcome him to our first Investor Conference call Welcome Julian.
Turning to slide four.
Despite some lingering issues related to the pandemic and inflationary pressure on our cost structure. We are pleased to see solid increases in our NOI and <unk> in the second quarter.
<unk> per unit was impacted by the one 7% increase in the number of units outstanding in the quarter.
Driving this improved performance was a 10% increase in revenues due to the contribution from our acquisitions.
Increased monthly rent and much stronger occupancy at 98, 2% compared to 97, 2% last year.
In May we began purchasing our trust units for cancellation under our approved normal course issuer bid at.
At the end of the second quarter, we have purchased approximately $1 4 million units.
Which has since increased to approximately $1 8 million units as of the end of July .
For an aggregate purchase price of $85 million.
We believe given that our units are trading at a significant discount to our net asset value. These purchases purchases are another way, we are enhancing long term value for our unit holders.
Turning to our six month results on slide five you can see all of our key performance benchmarks were up including revenues NOI and the N F S.
Most importantly market rent recovery is well underway.
From an operations perspective, our ability to generate solid and resilient performance through all economic cycles is clearly demonstrated by the strong consistent occupancies and growing revenues across our portfolio as you can see on slide six.
Occupancies are proved again in the second quarter, while net average monthly rents continue to increase.
Our same property NOI is being impacted by the increased costs we are experiencing.
Higher maintenance cost increases in utilities and higher Realty taxes.
We believe such inflationary cost pressures will impact our NOI over the next few quarters.
In addition, comprehensive as an experienced team that is exploring alternatives to minimize usage and exposure to operating expenditures, including hydro sub metering.
As of quarter end, approximately 64% of the 59635 suites in Canada are sub metered or direct meters.
Additional suites and sites have sub metering or direct metering in place that will be assumed by new tenants on turnover.
<unk> will continue to evaluate implementing sub metering and the remaining suites insights.
Sub metering lowers consumption, resulting in a smaller environmental impact lower operating costs and lower inflation exposure.
Similarly to protect against rising water and natural gas rates are utility teams continue to evaluate effective alternatives to mitigate our risk to rising utility costs.
Our leasing and marketing programs continue to generate increasing occupancy and average market rents as you can see on slide seven.
After two years operating under significant pandemic restrictions our occupancy continues to strengthen rising to 98, 2% in the second quarter up from Q1, and 97, 2% in last year's second quarter.
You can also see that rents for the total portfolio have risen four 4% compared to the same time last year.
Tenant incentives are continuing to decline to pre pandemic levels and we expect the majority of the amortization to be completed by the end of 2022.
We experienced a solid and positive trend in rent increases on turnover each quarter since we bottomed out at the height of the pandemic in Q1 last year as you can see on slide eight.
While turnovers were impacted by the pandemic over the last few years, we are now starting to see solid increases as we move rents closer to market.
At 10, 6% increase in turnover in the Canadian portfolio is a solid result.
And we expect to see this continue and growth through the balance of the year.
Our churn rate remains strong and are tracking at the historical trends of seasonal variations looks.
Looking ahead, we are experiencing more in person and online visits and we expect we will start to see more higher mark to market increases in the quarters ahead, moving us toward the higher levels of increases we generated prior to the pandemic.
I'll now turn things over to Julian to outline how we are repositioning and strengthening our property portfolio.
Thanks, Marc turning to slide 10, we continue to focus on increasing the quality of our portfolio through our active asset management program through 2021, and our strong acquisitions team added 3744 high quality suite insights to our portfolio focusing on our key markets. Another 1200.
Third 37 suites and sites have been acquired to date in 2022 with a further 300 suites subsequent to June 30.
Importantly, almost all of our acquisitions in 2022.
Represent new build assets in our targeted geographies.
These new additions to our portfolio are in line with cap rates strategy, rejuvenating and asset composition, and increasing our geographic diversification into desirable major markets and Canada. Additionally, we're happy to be contributing to stimulating the market for new build multifamily assets contributing to the increase of new supply.
Canada.
Looking ahead, our acquisition pipeline remains strong and we intend on leveraging our best in class acquisitions and operations platforms to generate further accretive portfolio growth in the quarters and years ahead.
In addition to acquisition cap rate is also using dispositions to advances core capital allocation strategy cap rate 18 billion asset base. As a result of 25 years of acquiring operating and enhancing multifamily properties. Some of our assets were bought decades ago with strategic criteria that no longer.
Quickly align with our current strategic objectives, making some of these assets non core many of these noncore assets continue to attract premium pricing and generate bids that are above our ifr F N b.
<unk>.
As shown in slide 11, we have been selectively executing dispositions, which have so far amounted to approximately $350 million in 2022. These strategic dispositions not only enhanced the quality of our overall portfolio, but also result in disposition gains and introduce an incredibly attractive source of capital.
To fund our capital deployment priorities, which we've previously discussed being our Newbuild acquisition MHC sites and CIB program, we're committed to increasing the quality of the portfolio and enhancing returns and unit holder value.
As you can see on slide 12, we are making real progress in repositioning our portfolio to reduce our exposure to older value add properties, while increasing our presence in newbuild properties, and MHC sites and markets, where cap rate wants to increase exposure our strategy of enhancing our portfolio quality diversify.
Our tenant base and geographical exposure decreasing our operating expense and capital expenditure exposure.
It is important in these inflationary times and ultimately enhancing our risk adjusted return profile.
With that said I'd like to thank you for your time this morning, and I will now turn things over to my partner and cap rate neutral plans CFO Steven Cohen for his financial review.
Thanks, Julian and good morning, everyone.
As you can see on slide 14, our balance sheet and financial position remains strong and flexible at quarter end with the conservative debt to gross book value and continuing high liquidity.
Our $1 $2 billion and Canadian unencumbered properties, which includes the majority of our MHC properties provides additional liquidity should it be needed.
Looking at our financings in the second quarter, we locked in interest rates of three 4% on our refinancings and extended our term to maturity we.
We expect to finance, a total of $1 1 billion in mortgages and top ups in 2022.
Importantly over 99% of our mortgage portfolio incurred a fixed interest rate protecting us from potential future interest rate increases.
In total.
If we were to access all our available sources of debt capital, we would have approximately $1 4 billion available at quarter end.
Slide 15 shows we are successfully managing our interest costs in Canada, and extending the term to maturity and in fact, our strategy to leverage 10 year seem agency insured mortgage debt has resulted in cap rates, having one of the longest terms of maturity and lowest weighted average interest rate.
Among our publicly traded peers.
This provides us with strong protection against renewal risks, given where interest rates are at today. Additionally.
Additionally, another benefit of our disposition program is lower reliance on debt.
As I mentioned over 99% of our mortgage portfolio incur the low fixed interest rate protecting us from expected future rate increases.
As of today, we have locked approximately 72% of our 2022 maturing mortgages at a three 5% interest rate.
Further to our strong flexible financial position looking back over the last few years you can see on slide 16 that we have met our goal of maintaining a very conservative.
Thanks.
Debt coverage ratios, even through the pandemic. This conservative approach underpins the stability and resiliency of our business and the sustainability of our monthly cash distributions to unit holders.
This focus on maintaining one of the strongest balance sheets in our business will continue going forward.
Our mortgage portfolio remains well balanced as shown on slide 17, as you can see in any given year no more than 40% of our total mortgages come due thereby reducing risks and the rising interest rate environment.
Looking ahead, our current ability to top up renewal mortgages through to 2036, we will provide further significant liquidity in the future.
As we expected interest rates have risen after the bank of Canada analysis for policy rate increases so far this year.
In anticipation, we moved up the refinancing opportunities for our 2022 matured mortgages from second half of the year by paying some hedge costs and prepayment penalties and we're able to achieve financing cost savings through closing one or pre locking rates for those five year and 10 year mortgages.
Their rates were two 8% and three 3% respectively lower than the current five year and 10 year estimated rates of approximately three 6% and three 7%.
I'll now turn things back to Mark to wrap up.
Thanks Steven.
Looking ahead, we continue to see a number of very positive value drivers that we are confident will generate strong and growing return for our unit holders over both the short and long term.
We will continue to focus on our proven asset allocation strategy as detailed on slide 19.
On the apartment front, we are targeting the acquisition of new build modern properties and well located markets in Canada is strongest centers.
<unk> attractive growth is strong and stable and Capex is modest.
We will we also see condo rental rates increasing significantly in major urban centers, increasing the appeal of our more affordable rental rates.
With respect to our MHC focus revenue.
And revenue growth are as robust as our apartment properties and have a very low risk profile.
With residents owning their own homes capex needs are significantly reduced Additionally, with homeownership cost rising significantly across the country cap rates large MHC portfolio provides an affordable alternative for families looking for quality residences at a truly affordable cost.
Our third focus is on our NCI program, while our unit price remains disconnected from the strong pricing we are seeing in the private markets. We will continue to crystallize the value spread and execute instant value creation for our unit holders.
Key to our growth in the coming months will be our ability to capitalize on a number of market trends.
Man for our quality.
Properties is growing as immigration accelerate with new Canadians seeking affordable homes in our largest urban markets. The return of international students is also contributing to the increased demand.
Pandemic generated what we call household consolidation as young students and young people return to home to save cost and seek safety. These young people are now moving back to rental accommodations as offices reopen and in classing in class learning returns demographics are also want.
Our side as the growing seniors population looks to the rental market to meet their needs, we believe our quality and well located properties offering more space on one floor at affordable rates, we will see increased demand by seniors looking to capitalize on the significant equity in their homes.
We also see families looking to quality rental accommodation, including our MHC properties as a highly affordable alternative to the increasing cost of homeownership.
These are an excellent solution. Additionally, cash flows will increase as we prudently and responsibly increase rents.
Finally on our ongoing property investments as outlined on slide 21, our reducing our cost and reducing our exposure to commodity prices through energy savings and other initiatives. Our technology solutions are increasing our operating efficiency enhancing.
Enhancing resident safety, and making our properties more attractive and helping us meet our ESG commitment to enhance environmental performance.
We issued our most recent ESG report on June 10.
In it you will see significant progress that we're making with our environmental social and governance performance as detailed on slide 22.
On the environmental front, our investments in energy efficiency have generated an 11% reduction in consumption and a 10% reduction in greenhouse gas emissions since 2010.
Not only our ESG programs, improving our environment environmental footprint. They are also reducing costs. Looking ahead, we remain committed to our ESG program and look forward to keeping you updated on our progress in the years ahead.
To further strengthen our operating platform, we have added significant depth and experience to our senior management team over the last few months the new members joining our team on slide 23, and other additions reinforce our one.
Billety to capitalize on opportunities in our markets.
Ensure continuing strong and resilient operating performance and build on our track record of generating long term value for our unit holders.
In summary, we remain very excited about our future our strategy of acquiring newbuild properties increases portfolio quality Diversifies, our asset base reinforces revenue growth and reduces our capex exposure.
Our focus on high demand locations and strong major markets across Canada is responding to the strong population growth and is meeting the need for more housing space. We continue to leverage our best in class acquisitions and operation teams to create value throughout our portfolio.
Our industry, leading balance sheet leverage and liquidity position provide stability and the ability to grow going forward.
With demographic trends and increasing immigration we are confident we will continue to drive value for our unit holders in the years ahead.
Thank you for your time this morning, and we would now be pleased to take any questions that you may have.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
If for any reason you would like to include a question. Please press star followed by team again to ask a question press Star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset.
Yes.
The first question.
<unk> comes from the line of Jonathan Culture with TD Securities.
You May proceed.
Thanks.
Good morning.
Morning, first first question just on the.
Mark to market.
Turnover the turnover uplifts that youre getting it looks like they're sort of trending back to 2019.
The levels do you think.
Do you get there over the course of the next couple of questions.
Orders in and really do you think the market might be stronger now than it was.
Then it was pre pandemic.
Yes, I think.
Our predictions that are coming through I think we called Q3 is the is the strong quarter.
The evidence is clear.
The ruler analogy that I've given in the past still holds true.
We're getting very very quick uptake.
And our pricing teams are obviously looking at inventory and adjusting pricing relative to inventory.
By the day.
So we're very very encouraged that it's feeling more like the first quarter of 2020.
Yes.
Okay.
That is helpful. And then just I guess.
The new slide.
William spoke to.
Just on the portfolio repositioning.
Do you have targets do you have set targets for for value add versus new build versus MHC.
No. We just remain opportunistic at the end of the day you can only buy what's in the market and you can only buy would make sense. So we're extremely conservative as you heard us say in the past Jonathan with our underwriting practice so.
It's a matter of things panning out we are not we do not have ambitions of cap REIT to grow bigger.
Ambitions of cap REIT.
A higher quality portfolio with with stronger earnings per share and if we have to do that through recycling, we're going to do that.
Okay, and where would the development fit into that.
Again, it's opportunistic buy site because every site is a little bit different but we're extremely open.
Still looking at development, providing it turns out and we're very ambitious on growing our development team and development team has now grown to the largest size in Calgary history, but at extracting value through the sale of land or the sale of assets. Once we can recognize.
Recognizing crystallized.
Ah.
Density will do that as well, but it's on a property by property basis I can tell you that we are cautious organization as we've always said in the first few projects Youll see come to market for us will probably not be the biggest projects will do in cap rates history.
We just we want to wait slowly very open to selling our land as much as we are building on it.
Okay.
Thanks for that I will turn it back.
Thank you Mr Pilcher.
The next question comes from the line of Kyle Stanley.
You May proceed.
Yes.
Thanks, Good morning, guys.
Good morning.
So you've made.
Really strong headway on the capital recycling program.
Year to date.
Just wondering do you believe there is still a decent amount of wood to chop on that front.
We'd like to chop that would all day long.
We will stay opportunistic with.
With sales.
And where we're seeing very strong pricing in some of the value add assets. The wonderful matching exercise is buying our stock on super sale.
It is an easy one to pan out. So we really are embracing the notion of high grading the portfolio.
Through either acquire.
Acquiring new assets or buying back our own stock.
Steven talked about we've got this tremendous debt ladder of low interest rate long debt and if I can buy that at significant discounts to NAV.
What you call real estate, a complete no brainer.
Okay fair enough and I mean, you mentioned the various.
Strategic uses of capital you have including the buyback.
Rotating into newer build assets and how do you make those decisions and how does that criteria shifted at all obviously.
With the stock trading at a discount to book, obviously that pushes you more into the NCI, but just wondering how you kind of balance those things.
Geographic diversification is one criteria, we do try to <unk> return on assets five years that we say 10, but really you can only count on five to be taken to account Capex type investments, we look at the maturity of the asset how long we've held it for how optimal we think it is and we look at that.
We sold a couple of one and a half caps last year to developers that just wasn't in our in our wheelhouse of expertise. So again, if I can match, a one and a half cap sale with buying back cap REIT stock in that.
Low to mid fours.
We're doing that so there's just a variety of factors you have to match that the buyers with the with the ability.
80 to deploy the capital and it'll be a real mixture, we've seen some very interesting newbuild assets.
That will have to really make the decision do we buyback our high grade stock or do we buy into high grade properties.
Not a bad problem to have.
Yes.
Agree more with that.
One more this is probably one Steven I'm just wondering if you could provide some color on the sequential decline in the other Opex line was this just seasonal or are there some other factors there.
Sorry are you, saying this sequential decline in Opex.
Yes.
Opex line.
And the other Opex line, yes.
They are basically seasonal decline.
But if you look at the normalized NOI margin going forward.
It'll be a good run rate for you to project out for the future quarters.
Okay perfect. That's it for me I'll turn it back thanks, guys.
Okay.
Thank you Mr Stanley.
The next question comes from the line of Johan Rodriguez with industrial lines. You May proceed.
Hi, everyone.
Just further on the asset sales.
Are you listing those or are they unsolicited bid.
And if you can maybe give a <unk>.
The cap rates of the stuff that you sold in China East jerk in Ottawa.
Well to me, it's always a mixture.
They were lifted the deals that we did to the buildings in Ottawa, We came to agreement with the joint venture partner to take those to market we did that.
Listed process the same thing happened in Toronto.
Cap rate wise.
We targeted.
Assets that we think again, we've maximized value, where we can recognize high to low three cap rate type transactions.
And.
We will continue to kind of plot around at that pace.
Okay.
<unk>.
But in principle, just youll have on that is our <unk> values as you heard Julian talked about we also give consideration to the government to look at and when we can exceed those values.
And achieve all the other objectives and then we've got something that we'll consider.
Sure.
And then just on the you know that.
And the new build versus value add what is the difference in IR is if you're buying today I'd like to say you're buying a new build property.
Right next to value add would be the difference in your ours.
We'll just go to cap rate and start with like value add assets are still selling and again the high twos low threes and the if youre looking at low rise suburban new build which is kind of what we've kind of targeted ourselves around youre talking.
<unk>.
Low four low fours and again another another metric that we pay very close attention to is price per foot cost in these new builds and what we've realized is that a lot of the new builds that have come to market are probably a good 20% below low replacement cost that's unheard of.
To walk into a brand new asset below replacement cost with the development risk.
Again, I think pretty smart real estate decisions.
Okay. Thanks.
I will turn it back.
Thank you Mr Rodriguez.
The next question comes from the line of Jamie Shen with RBC capital markets. You May proceed.
Thanks, Good morning, guys.
Just a follow up on Johan <unk> question on the value add versus when you're building I guess when I think about value I think about there's a lot of embedded tomorrow mark to market level to come down the road.
I guess the question is that kind of what makes it non core because yes, you may be selling them at a low cap rate today.
Maybe on a longer term I actually looks.
At the same or even higher than somebody new builds maybe talk about that and then the second question is on <unk>.
Just in terms of what's the expectation for more asset sales for this year.
Yes, I would just say that again I go back to the.
The starting point is kind of pure our number not broker number our number cap rate kind of calculations.
And again, we shift our mind too looking at what's going on in Canada, what is going on with housing what's going on with housing supply and what we see is the tide is rising on rents in all asset classes. So it's not the old game of Mark to marketing and repositioning and getting those increases.
That is still there, but for an asset that we've held for 20 years or more the reality is we've done a lot of heavy lifting. So then I look at other brand new assets in an backdrop macro environment, where rents are going up and in an environment, where in many cases, the regulatory environment is different to capture those market rents.
Even for renewables, we see opportunity and this is in a broad based large sweeping change we have to stay on this path and over time.
I think do a better job of geographical diversification and move the quality ladder in the portfolio higher.
What we started with.
Looking back a couple of years ago, I would have characterized cap res portfolio as being one of the highest quality apartment portfolios in Canada to begin with we're just going to the next level now.
Okay, and what would be your expectation for the rest of the year in terms of that.
Again, it's opportunistic if you ask me what's on our desks today in terms of.
Deals that we're looking at I'd have to check with Julian Thats, probably 6% to $700 million.
The high likelihood, we'll do zero of that so we're always underwriting a pretty robust pipeline of opportunity and I've never been confident saying exactly what we're going to do I can only kind of describe the environment, but theres a lot of a lot of deals in the marketplace.
Why.
Even with these higher interest rates.
We do think that there'll be the opportunity for yield spread.
Okay. Okay. Thanks, Scott.
Thank you Mr. Sheehan.
Next question comes from the line of Matt <unk> with National Bank Financial you May proceed.
Hey, guys I guess.
<unk> of the Jimmy's comments, there, but I.
I think from your answer.
You are essentially saying that you can achieve similar type rent growth and the new assets as some of your existing assets given the rent control regimes with lower Capex is that a is that a fair assumption I guess it would be more economically sensitive and that it's at market today, but.
Is that how we should think about the rent growth potential within these two properties.
I think Thats fair I would add I would just add that we know your markets are at rent regulatory.
Regulatory intervention does happen you are in a good spot for maintaining value.
Fair enough.
And then on.
On land value within your existing portfolio.
And how to potentially get at that and provide new supply is there an opportunity to to.
To sell the land to a partner that would develop and then buy back the asset or a portion portion of the asset on completion. If you don't necessarily want to incur the development risk or dilution associated with that or is that something youre entertained at this point.
Hey, Matt its John speaking.
We're considering all options and alternatives there.
Specifically when you mentioned about entitling the land and then selling it there and recognizing the value.
Mark that it's case by case, but if I can get 90% of the value for 10% of the working with the developer squeeze the last 10% of value and do 90% of the work and risk and take the dilution for few years.
Sure, we would consider that but.
It really is a case by case and.
In parcel of land by parcel of land, especially in an environment, where our stocks on super sale, and we could instantly deploy that small amount of.
The gain that we've given up into an even greater opportunity in buying cap REIT stock.
Okay, No that makes sense and then I guess.
Nothing in Canada is easy government wise, but our tax system isn't entirely great in terms of capital recycling, but how should we think of the ability to manage tax in this process.
Yes, so we're actually.
If you could talk about the taxes associated to these sales we are looking at how we're going to.
Manage that for our unit holders and that's something that we're going to.
Take a keen look at and have something in place hopefully by year end.
Okay. Thanks, guys.
Thank you Mr Hornack.
Next question comes from the line of Mario <unk> with Scotiabank you May proceed.
Hey, good morning.
Good morning, I wanted to start off folks.
I wanted to touch on the Iron Cross valuation.
Kind of the 400 give or $2 million decline.
Can you break that down between cap rates.
Underlying changes in forecast in Hawaii.
I'm going to let Steven take it but I'll just before I do I just wanted to reiterate.
We've had a very conservative approach of cap rate over the years of calculating.
Patients and when you do this by quarter, you have to really kind of SaaS, what's happening in the quarter with trades and really talk on the street and how things are looking and this is a process that does trade change quarter by quarter, but we felt it entirely appropriate to be as transparent and honest with.
Our investors on on being conservative on the valuation approach, but I'll, let Stephen kind of build on the actual.
NAV calculation process and how it yes. So just in terms of how we look at it on a quarterly quarter to quarter basis.
Our methadone methodology hasn't changed I mean, we have discussions various discussions with brokers with our evaluated.
And we have extensive discussions internally around values.
And as you already know there has been.
A huge volatility around interest rates inflationary pressures and also you could say theres limited buyers and sellers, but there are strong fundamentals and you see our stabilized NOI has increased.
In light of all that.
Uncertainty does exist we believe our conservatism is the right approach. So the adjustment really is more of a conservatism.
The decision and you can think of when we usually think about values evaluators are usually plus or minus 10% in terms of difference in how they look at the asset were taken into more of the lower end of the range or more conservative range point of the range actually.
That's how we looked at the value.
<unk> already pointed out stabilized NOI fundamentals are strong. So you can see that in our stabilized NOI on those assets, but if we look at if we were trying to.
Dissect the cap rate increase.
I would say part of that there was an adjustment for conservatism and a little bit is also just to ensure that we don't bring up our values to significantly. So we've adjusted through the stabilized NOI component Mario as Julian I'm, just kind of layer on there.
As Steven mentioned in our lower value there are purely accounting conservatism and they have nothing to do with actual transactional evidence in the market over over what's been a relatively quiet summer and more importantly, they have zero bearing on our price expectations for our disposition program when I'm looking at our disposition program I don't I don't even consider Q2 values my starting point is.
For Q4s.
And we have comprehensive discussions with our acquisitions team that is always active in the market and really have their finger on the pulse.
Okay. So maybe just a couple of quick follow ups from in terms of the breakdown of the $400 million between NOI and cap rates, what youre, saying is.
100% over $400 million loss is related to higher cap rates.
Not related to any impact.
Yes, the majority of it that's correct.
I mean, there is some capex in there, but yes.
Okay I'm sorry.
On the.
600 to 700 million of assets that Youre looking at for sale.
Are you able to quantify how much of a $400 million would be attributable to boats.
Yeah.
Sorry repeat that of the 400, you mean of the write down.
Yes, I'm just wondering if a disproportionate amount of the write down would be attributable to the $600 million to $700 million.
But you are looking at.
I don't have the number in my hand, but I don't I don't think like I think it would be proportionate to the portfolio I don't think theres anything to read there.
Okay.
Okay.
And then maybe just shifting gears on the operational side.
There's a lot of catch up.
Due to the pandemic I think last quarter, Mark you talked about kind of being done.
Response perspective.
Consistent in terms of the view today, you're looking at.
Good conduct.
Related catch up.
In terms of operating cost.
Yes at this point the pandemic catch up is done if we're seeing.
The pressures in R&M at this point it would be.
Inflationary pressures.
Again, we're part of the expectation for us as we have.
Put together.
Dynamic new procurement team that we didn't even talk a bit in the presentation that we hope to offset some of those inflationary pressures through better pricing.
But yes, we've got our own.
Little little signs now of inflation pandemic buildup in the volume talk that we were having in Q4 and Q1 is over.
Yes.
And then in terms of.
The same store revenue growth it is getting better.
Do you have do you have any sense.
Today what.
Of the <unk>.
Our rent to income ratio looks like in the portfolio.
Relative to where it was 12 months ago.
Given the storage market we've seen.
Extraordinarily.
Low like we still are the average renter in cap rate is putting by about 20% of their income into rent which is.
Just a jaw dropping number when you look at the markets that we're in and the whole topic of affordability.
Our candidates affordable housing solution in.
There are folks out there that are that are definitely <unk>.
Struggling but when you look at our portfolio average of 20% of income going towards rent that is just screaming.
Screaming sign of affordability in our view.
Got it and just to be clear that 20% is a rift.
Cap rates rent versus kind of disposable income and cap rates portfolio or the broader.
Broader disposable income metrics.
It helps that we do it on broader market disposable income because we use we have to dispose of the data once we have proven application for privacy reasons, we have to eliminate that information we can't hold it so what when I'm quoting those numbers, we're looking at average Canadian family income in the markets that we serve.
Alright.
When do you think it would be materially higher or lower than 20% as we looked at.
Corporate in particular.
No I think its very indicative.
Okay.
Alright, Thank you portfolios on the higher end of quality. So you would expect on that higher end quality to it.
So you slightly higher incomes.
Okay. Thanks.
Thank you Mr theory.
Next question comes from the line of Jimmy <unk> with BMO capital markets. You May proceed.
Thanks, Good morning, and congrats to Stephen and Julian on your appointment.
Thanks, Jeff I'm wondering for the six.
For the six to 700 million.
Dispositions are contemplating could you comment on the geography of these assets are they still very much concentrated in the GTA or is there opportunity to maybe.
Peel off some assets and other lower cap rate jurisdictions like BC for example.
The focus is definitely just being Ontario call. It there has been some like I said the joint venture in Ottawa.
Situation, we continue to look at a couple of assets were premium pricing is the most frothy as in the GTA.
So helping us diversify Ontario is is great. We really believe in the market by the way Jamie we don't.
We don't see the new builds in Ontario, being quite the same as some of the value adds and the GK for example.
Would say that what we are looking at is.
<unk> tried to take a long view on return.
And I would say that if there was opportunities in places like BC, where pricing is still very very strong I can't ignore this screaming supervisor that we get through our NCI V. So we would definitely have to.
Wei.
The future return horizon of assets with the unbelievable value that we're seeing in buying our own stock.
Okay great.
You kind of touch points that lead into my next question that when you look at the.
Capital recycling that you've done in some of the new acquisition.
It would appear that there is a bit of a shift in terms of your market weightings I mean, it's not that much but directionally, it's trending that way when youre thinking about buying new assets is there any goal in terms of your geographic distribution or is this really just the result of the individual investment decision.
That youre, making.
It's always a consideration, but it remains opportunistic like I said when theres assets in the market.
We have to take a keen look like I think it's just in part if we want to comment on GTA.
Talking to our construction costs $300, a foot that makes buying rental in the GTA concrete high rise pretty pretty difficult.
When we're looking at brand new construction in markets like go back and you are talking three $400 a foot brand new construction. This is pretty compelling stuff. So it's a multiple deep dive that we look at always being mindful of geographical focus.
But this is not a like I said at the beginning not a wholesale change of asset composition, we are moving in a high creating diversification.
Direction that I think youll see the trend that youre seeing continue.
So I guess.
There's no deliberate target in terms of reducing exposure to the GTA and increasing exposure to other markets. It's really just a function of.
The investment decisions that you're making them sort of on the margin.
Yes, Danny I'd, just kind of layer on to what Mark said we.
And we do have views on certain markets.
Our portfolio, which has taken over 25 years to a masseuse some overweight positions in some underweight position I'd say when we're looking at either acquisitions or dispositions, if they do help us achieve our diversification goals and we will consider them very clearly.
If they are off a little bit off strategy in that regard, we will still consider them, but I'd say just given they are slightly off strategy, we'll need a little bit better pricing to effect a transaction. So.
That kind of that's been our philosophy or our guiding principles of that.
Okay, Great and then going back to the 20% discount to.
Replacement costs that you are mentioning is that a fairly good number across different markets or is it a little bit different in the GTA saperstein and Edmonton any Quebec.
Well, that's why we haven't seen much in the GTA.
And I don't think we would find that phenomenon here the newbuild.
Really happening in Ontario, that's being held by those that are building.
We haven't seen a lot of merchant building at all in Ontario, a little bit in Ottawa, but not so much in in Toronto.
The screaming value in our view for new construction are places like you've just said like Alberta for example, where projects were conceived five seven years ago. It takes time to build finally getting to market now and low rise.
Youre seeing incredible price per foot value in my mind for new construction there.
And likewise in Quebec again these projects don't show up two weeks after as there is an idea to build an apartment building. So we're getting.
Pricing really that was locked in I think three or four years ago and when you have a.
Our high velocity inflationary market like we have right now 20% probably conservative.
Okay.
Great. Thank you very much I'll turn it back.
Thank you Jenny.
Thank you Ms mode.
There are currently no further questions registered at this time, so I will now turn the conference over to Mr. Kenny for closing remarks.
Sure.
Well, thank you very much for joining us here today.
On behalf of the management team here at <unk>. Thank you for your ongoing interest in <unk>.
Our story and if you have any additional questions.
I would urge you to reach out to myself Julian are Steven Thanks, again have a great day.
That concludes the Canadian apartment properties second quarter 2022 results conference call. Thank you for your participation you may now disconnect your lines.
Okay.