Q4 2022 InterRent Real Estate Investment Trust Earnings Call

Speaker 1: It p three.

Speaker 2: Good morning ladies and gentlemen and welcome to the Interrent Read Q4 earnings conference call. At this time online they are listening only mode. Following the presentation we will conduct a question and answer session. If at any time during this call you require immediate assistance please press star zero for the operator.

Speaker 2: This call is being recorded on Tuesday, March 7, 2023. I would like to turn the conference over to Craig Stewart, VP Finance. Please go ahead, sir.

Speaker 3: Good morning and welcome everyone. Thank you for joining Interrent Reefs Q4 2022 earnings call. You can find the presentation to accompany today's call on the investor relation section of our website under events and presentations. We're pleased to have Brad Cutsie, President and CEO Kurt Miller, CFO and Dave Nevin, C-O-O on the line today.

Speaker 3: As usual, the team will present some prepared remarks and then we'll open it up to discussions.

Speaker 3: 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 on certain fees and assumptions that could cause actual results to differ materially. For more information, please refer to the cautionary statements on forward looking information in the REAPS News Release and MDNA dated March 7, 2023.

Speaker 3: During the call, management will also refer to certain non-IFRS measures. Although the REIT believes these measures provide useful supplemental information about its financial performance, they are not recognized measures and do not have standardized meanings under IFRS.

Speaker 3: Please see the REIT's MDNA for additional information regarding non-IFRS financial measures, including reconciliation to the nearest IFRS measures. Now over to you, Brett. Thanks, Craig. Let's start by reviewing the highlights of our fourth quarter. And thrilled to announce that the POSSIBOC is a commentary from our last call regarding the National Capital Region in the Greater Montreal area. It is so kind.

Speaker 3: The strong results have put us in a better position in last year as we entered the harder to rent winter months of Q1 2023. The doctorate levels are we have not seen since well before the pandemic.

Speaker 3: Looking ahead, we anticipated tape markets built in 2023 due to various factors, such as strong immigration targets and limited rental supply. We are confident that our team can continue to meet the opportunity of rising demand across all regions.

Speaker 3: We remain optimistic about the future and our ability to maintain our pre-pandemic equity levels.

Speaker 3: Thanks to the strong demand we've seen, coupled with our tempered use of promotions throughout 2022, we are thrilled to report a $1.3 million reduction in vacancy and rebate compared to Q4 of last year. This translates to a 310 base points reduction in vacancy and rebase as a percentage of gross rental income for Q4 year-over-year.

Speaker 3: On a 12-month basis, our vaccine rebates have reduced by an impressive 4.8 million. This improvement supports our position and maintaining the phase value of our rents during

Speaker 3: Our past success stories demonstrate that the typically takes 18 months to start to see the financial impact of a strong acquisition period.

Speaker 3: We understand the value of patience and perseverance in achieving long-term success.

Speaker 3: Thanks to our record break in acquisition numbers in 2021, our strain targeted growth in 2022 and our strong opportunity figures. We are pleased to share that our total operating revenues have increased by 13.1% to 56.9 million to the quarter and 16.9% to 216.4 million for the year end.

Speaker 3: potential embedded in our portfolio.

Speaker 3: Our growth number to our testament to our team on the ground and the commitment to delivering unparalleled value to our clients and stakeholders.

Speaker 3: Despite the challenging economic environment and rate environment, we have remained steadfast in our efforts to maintain a strong balance sheet while managing our interest rate risks.

Speaker 3: Kurt will provide further insight into our balance sheet later in this call. But I'd like to take a moment to underscore our continued commitment to the subjective.

Speaker 3: We've been able to maintain our liquidity levels, which in turn positions us well to continue executing on a business model with confidence.

Speaker 3: As you can see in the bottom right portion of the slide, a strong revenue and NLI prints were unfortunately offset by increased firemands and costs resulting from an interest rate headwinds as well as increased mortgage debt compared to Q4 of 2021.

Speaker 3: This led to a decrease in FFO and AFFO both in the total column and on a per unit basis when comparing two for of last year.

Speaker 3: Despite this challenging quarter, I'm pleased to report that our FFO for the full year grew by 5.6 percent overall and 4.3 percent on a per unit basis and our FFO for the full year grew by 3.8 percent overall and 2.4 percent on a per unit basis. This demonstrates our ability to navigate the current economic climate effectively.

Speaker 3: by delivering value to your stakeholders.

Speaker 3: In light of a robust same property performance, this quarter and fiscal year, we would like to highlight our same property in the Y-trends.

Speaker 3: Our revenue growth has consistently surpassed expense growth, except during the peak of COVID pandemic in 2020 when the occupancy numbers were nobally impacted.

Speaker 3: Nevertheless, it's worth noting and it's quite visible that the current inflationary environment has impacted our operating expenses.

Speaker 3: Despite these challenges, a 2022 financial figures continue to illustrate our ability to maintain positive and wide growth in spite of these headwinds.

Speaker 3: I've shown that all expenses have experienced the same levels of inflationary pressures.

Speaker 3: We continue to focus on investment in software and systems, improvement in our process, implementing robust team training programs and strategic capital expenditures.

Speaker 3: We remain confident that our proven track record of top line growth makes sure of the cushion against prevailing the stationary pressures and that we will be able to sustain the historical positive trend in N.Y. throughout 2023.

Speaker 3: We are pleased to report that the fundamentals of our portfolio and sector continue to strengthen, as evidenced by 7.1% growth in average monthly rent in December compared to the previous year.

Speaker 3: It is important to note however that this figure is influenced by the changes in the mix of our portfolio as we have increased our exposure to higher rent markets like Toronto and Vancouver.

Speaker 3: The changes in the mix are significant factors to considering and interpreting the growth figures.

Speaker 3: We anticipate that a tight rental market currently predicted for 2023 will allow us to see continued strong AMR growth within our portfolio.

Speaker 3: The significant year-over-year growth in average monthly rents across all regions in December is a positive indication that the strength and fundamentals are not limited to specific areas.

Speaker 3: This demonstrates the robustness of our portfolio and the affirmed agreement to achieve and grow is to build a across all regions.

Speaker 3: Dave, over to you to take us through some of the operating hallets.

Speaker 3: to you to take us through some of the operating highlights. Thanks, Brad.

Speaker 4: As Brad previously mentioned, our overall occupancy reached 96.8% at the end of the year, representing a 120 basis point improvement compared to December 2021.

Speaker 4: This occupancy level marks the strongest going into a new year that we have experienced in over five years.

Speaker 4: Turning our attention to our reposition portfolio, we are pleased to report a 60 basis point year-over-year increase in occupancy for December 2022. This brings our occupancy to a level that is comparable to pre-pandemic levels to the end of 2022. When these figures get taken into account with our reduced utilization of promotional and...

Speaker 4: in the coming year. As we review our 2022 capex spend, our maintenance capex for the year came in at $1,069 per suite.

Speaker 4: A figure consistent with our previously reported quarterly amounts.

Speaker 4: It is important to note that when you explore development costs, approximately 90% of our capital spend goes towards not only maintaining but improving our communities.

Speaker 4: On the right side of our slide, we are proud to showcase the excellent value of creation from our ongoing repositioning program, which remains a key priority for us. By strategically investing in these suites, we can unlock value creation potential that will benefit our residents and our stakeholders for years to come. As a responsible member of the housing community, we remain committed to investing in our communities to create beautiful, safe, and high-quality living environments for our residents.

Speaker 4: Our repositioning program has enabled us to maintain a well-managed portfolio that not only extends the lifespan of existing housing supply, but also positions us favourably to navigate any fluctuations in the market.

Speaker 4: I'll hand it over now to the Curt to discuss our balance sheet and sustainability efforts.

Speaker 4: Thanks Dave. Consistent with last quarter, we conducted a review of key assumptions regarding rents, turnover, input costs, and cap rates with our external appraisers.

Speaker 4: As in previous years, for Q4, we also have our external appraiser complete a portfolio-wide valuation. Resulting from this review, we have made the decision to tweak some input costs and turnover rate assumptions, as well as selective cap rates for various properties and markets.

Speaker 4: The cap rate change bringing our weighted average cap rate for the portfolio to 4.04%.

Speaker 4: The combination of these adjustments has resulted in an overall fair value loss for the year of 8.3 million. Of note, we have increased our cap rate by 18 basis points since the end of 2021 and 22 basis points since Q1 of 2022.

Speaker 4: You can see that the rate continues to be in a financially healthy position. As of December 31st, our debt to gross book value increased to 38.3 percent, representing an increase of 90 basis points quarter over quarter.

Speaker 4: However, it is important to also note that despite this increase, we maintain a conservative balance sheet and our leverage levels remain historically low for the reap, providing the continued flexibility to navigate uncertain times and make strategic capital allocation decisions.

Speaker 4: As for our mortgages, we had a total of 1.7 billion outstanding at the end of December , with an average term to maturity of 5.2 years. This represents an increase from the previous year end, where the average term to maturity was 3.6 years.

Speaker 4: Our weighted average interest rate also increased to 3.22%, which is within the expected range that we had previously mentioned during our Q3 earnings call.

Speaker 4: Our CMHC insured mortgages increased 82% of our mortgage portfolio, providing added protection against liquidity risk in the market. The variable rate exposure was reduced to 5% at the end of the year and we expect to continue to maintain it in this 4-6% range.

Speaker 5: Going into 2023, we had 266.7 million of mortgages maturing.

Speaker 5: much of which mature in the second half of the year.

Speaker 5: We have already renewed a handful of 2023 maturities and continue working on the remaining balances as we smooth out our debt ladder and balance out the amount of debt we have maturing in any given year.

Speaker 5: 2022 was marked by an unprecedented level of volatility in the interest rate market, and it appears that these fluctuations will continue through 2023.

Speaker 5: With currently the 5 and 10 year CMHC rates sitting in the low to mid 4 range.

Speaker 5: Whereas three weeks ago, they were in the 3.65 to 3.85 range.

Speaker 5: Turning now to slide 16, this year we continue to engage with several investor associations and also added external advisors to our discussions as we continue to make positive steps forward on our sustainability journey.

Speaker 5: We are proud of the insights that we have gained and the work we have done around climate change, climate disclosure, and diversity in the workplace training, as well as the support we have provided for many community-focused organizations.

Speaker 5: Dave touched on our capital reinvestment earlier in the call, but it is worth mentioning that from a sustainability standpoint, by reinvesting in our portfolio, we extend the benefit of the embodied carbon in existing structures as we invest in extending their useful life and improving their energy efficiency.

Speaker 5: We know there is still much work to do and we look forward to sharing our 2022 progress as well as our commitments for the future with you as part of our 2022 Sustainability Report later to this spring.

Speaker 5: I'll turn things back to Brad to walk through our capital allocation.

Speaker 3: Thanks, Kurt. We remain committed to addressing the ongoing housing and portability issues in Canada. Apparently, we believe that increasing the housing supplies is one of the key solutions.

Speaker 3: To that end, we are proud to play an actor role in bringing a new supply to the market with over 35 under units of rental housing and various stages of development. The slave projects in Ottawa are first office conversion projects, near-and-completion, and we have received oxidative permits up to the eleventh floor of the property.

Speaker 3: Despite the challenging seasonal conditions of a lease-up during winter, we have successfully marketed the property and we are delighted to welcome residents starting in October of 2022.

Speaker 3: The anticipated substantial completion of the project occurred in late Q1 2023.

Speaker 3: This project creates capacity while demonstrating our commitment to sustainability. As the slate near completion, our focus on development has grown and will remain a key part of the reach future. We are proud to collaborate with exceptional partners to bring this much new supply to market and eagerly anticipate sharing further details as we move closer to breaking ground on each of our exciting projects.

Speaker 3: It is important about the platuring interest rates through 2022 and so far in 2023 have affected the expected yield ranges for these fratures.

Speaker 3: While we continue to refine our estimates as we monitor the ongoing rate in economic situations, we want to be transparent and communicate our current expectations.

Speaker 3: Demand in late 2022 was abnormally strong for the time of the year, and we saw many trends continuing around return to office, return informed students, and the percent of new immigrants that are net new in country returning to historical norms. No one has been immune to inflationary pressures, but we are keeping a close eye on both our offering and GNA costs. We have continued to be extremely vigilant and ending on Margaret's ladder, and I'm pleased with the progress we have made in the second half of the year. I'd like to thank all of you for your continued support, and we look forward to seeing you in person in the near future. Let's open it up for Q&A. Thank you sir. Ladies and gentlemen, if you would like to ask a question.

Speaker 2: please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by two. And if you're using your speakerphone, we ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions. And your first question will be from Fred Blondo at Laurentian Bank Securities. Please go ahead.

Speaker 6: Thank you and good morning. One quick question for me looking at the GMM market.

Speaker 6: I was wondering if you currently see or expect continuing improvements in 2023 and more specifically in terms of Brasar You currently what do you currently see on the ground Over there and and you have like a carved-out strategy for Brasar to we should view this market in the context of your overall GME strategy. Thank you

Speaker 3: Good morning, Fred. Thanks for the question. As you can see, there's some pretty robust growth in our GMA market. As we alluded to on the previous conference call, we thought we liked the traffic that we were seeing and that it continued.

Speaker 3: Now you're seeing that prove out in the results. We're very happy with the so sure purchase on the preserves.

Speaker 3: Quite honestly, I think the market will continue to strengthen the Montreal. I think it's still, it lagged the recovery of some of our other regions, but as you've seen, it's kind of caught up. So this upcoming kind of lease and cycle will be very telling when it comes to the foreign students if they continue to return at the same pace. Some of the issues that we have wired.

Speaker 3: There's nothing to believe that that won't be the case, Fred. So as you're very well aware, the foreign student is one of the bigger drivers of incremental demand on the margins in Montreal. So we're very hopeful that we'll continue to capture our share of that, specifically in the urban regions of Montreal.

Speaker 3: which makes up about 70% of our portfolio. But for preserves specifically, I think we'll carry on with the way we looked at it through our underwriting and there'll be more young professionals. I think that's driving our demand there.

Speaker 6: No, that makes sense, but I guess my real question is whether you see growth opportunities in Brussels or yourself or you just see Brussels as part of your overall GMA strategy.

Speaker 7: as??? Ho else with the

Speaker 3: There's lots happening in Brossard is who I'm asking. Yeah, no fair enough. I think to be quite honest with the immigration targets where they're federally, I think Montreal as a whole is going to continue to benefit from the supply disequilibrium in all of America.

Speaker 3: targeting the precinct not necessarily. I think when it comes to the greater material area, we're looking at any opportunities from the ground up. So the very nature that our portfolio is.

Speaker 3: So urban and we've been able to consolidate and bring our exposure to that market up to where it is Has allowed us to look out into other nodes within Montreal like Bussard and like I said We're quite happy with what we've seen so far with Bussard. So yes, we would look at it's the right opportunity to present it itself

Speaker 3: but we're not just zeroed in on BERSERK. I hope that answers your question. Yes, 100%, that makes sense. Thanks so much. That's it for me. Thank you. Next question will be from Mark Rothschild at Canaccord. Please go ahead.

Speaker 8: Thanks, good morning. Take a minute, maybe in regard to the cap rates moves for IFRS. Can you talk just a little bit about, is this based on the value of fixing assets trade or is this just the appraisers?

Speaker 8: where they think the market is or should be and how do you look at that now versus what you're seeing in the market. Thanks Mark, and good morning. It's a true killer here. So we had a lot of discussions around this because as you know there hasn't been a lot of trades in the market. We are starting to see more products come and we believe that in the next

Speaker 8: Next quarter or two, we'll see more trades that you can point to to really sort of Rebenchmark cap rates across the board.

Speaker 8: However, in discussion with our external appraisers and looking at the portfolios, looking at the data we had around prices per door and different things.

Speaker 8: We just felt that that was the right amount to bring it down selectively on certain assets.

Speaker 8: And, you know, we've talked about this with institutional investors over the last few months that you are seeing, or we believe you will see a reversion to different markets, meaning your secondary tertiary markets are going to have a little more expansion in your core. And within those individual markets, you're Class A who's going to have a little more expansion in your core.

Speaker 8: things combined into what we presented Q4. So if you look at overall for the year from Q1 which was our low on cap rates, we brought our cap rates up 22 basis points over the course of the year. So we feel we're fairly well aligned with the market at this point.

Speaker 8: Okay, great, thanks. And maybe just following up on some of your earlier comments in regard to different markets performing differently and some markets recovering, are you seeing any trends or differences in the rate of turnover and how that's moving with the rent growth in the market?

Speaker 8: Yeah, I think and Dave correct me if I'm mispeaking here so I'll ask Dave to jump in if I say anything wrong but I think what we're seeing is we like you've seen from peers like you've seen in the C.M.H.C. data that's been published. I wouldn't say that our trends are dissimilar. We do have more turnover in all of them versus what has been reported and what's out there.

Speaker 8: But the quantum of difference between them is fairly similar, meaning certain markets where we are very core, like Ottawa, Montreal, where we're very very core around this.

Speaker 8: schools in downtown, we get a little more turnover versus markets where we're maybe a little more suburban.

Speaker 8: And I think that matches up fairly well with the CMAC data when you look at it for the different months.

Speaker 2: Okay, great. Thanks so much. Next question will be from Bradsturgis at Raymond James. Please go ahead.

Speaker 9: Hi, good morning. Just on the eyebrows discussion there for a second, you obviously alluded to also changes in turnover rate assumptions. I'm curious to get a little bit more color in terms of what your expectations are for 23 and how that compared to what you realized in 22.

Speaker 8: Yeah, thanks Brad. So we typically, you know, we've had previously maybe in the 30% or not maybe we've had in the 30% terrible overall our portfolio. We've brought that in over the last year and a bit to the sort of the mid-20s. What we model is a little more conservative just to be on the safe side. So we typically will model...

Speaker 8: It's hard to say that it's come in a lot in the last year and a half. We've seen it in our portfolio. We've seen it in from what KMACs published. We've seen it from our peers that are presented. Like I said, we do tend to have more turnover just the nature of our reposition and what that is as a percentage of our portfolio. And also just the nature of being very core in certain markets.

Speaker 8: But I don't want to promise anyone that we're going to be in 25-26% turnover, but at this point, it's really unknown. Ask me in September , I'll give you a pretty good idea for the year. Yeah, and it's a scratch up to here, just to follow up on current commentaries.

Speaker 3: I mean, we, I think ourselves and appeared to get this question asked a lot. And it is the wild card when you're dealing with vintage products, such as ourselves, and when you never business model reinvesting back into communities and bringing those communities back to life. The one issue is we've been saying for a while, the market is tightening up. And...

Speaker 3: That's due to a lack of supply. And I know ourselves in a lot of other industry participants are trying really hard to deliver. It's applied to be part of that solution. That said, it is the wild card and curtain eye and the management team has been saying that turnover.

Speaker 3: will come in. It's finally has started to come in. Granted, it's not as in maybe as much as CMHC, so we're doing a little better than the CMHC, and we're not doing anything. We don't have as much turnover as we did historically. It's not to the low that we're using their fair value model, but like Kurt said, we rather be...

Speaker 3: we would rather be conservative and we just feel that there's such a supply, demand, just equilibrium that turnover is going to continue to come in.

Speaker 9: Yeah, that makes sense. Thanks for that. Just on on your development program as you're trying to

Speaker 9: continue to allocate capital there on Richmond and Churchill is

Speaker 9: What's the timing on that right now? Would that be early 24 inches of breaking ground, or where would you be in that process?

Speaker 3: Yeah, it's really going to come down, do you grab just getting the drawings to a point where we can get more cost certainly and then tend to impact it before we will break ground. We're definitely getting closer, reds are continuing to go the right way. Costs are...

Speaker 3: Obviously, up relative to three to four years ago when you'd be looking at this project, but the flip side, too, that is rents have also increased on the pace to offset. So, there essentially is still able to achieve the yields that you wanted. So, for really for us to kind of go forward on this.

Speaker 3: and break ground we want to get more cost-earning to make sure we're going to do break ground we know what we're doing with. And so that that could be closer to admit 2024 scenario.

Speaker 9: Do you have a rough budget for the project at the stage or are you still doing the analysis I don't think we've disclosed that yet. That, obviously we have a pretty good idea internally, but I don't think we have disclosed that yet.

Speaker 8: I think until we get cost certainty and we get the tender packages back, we're sort of at that 95% cost certainty. We're going to hold and make sure we got everything buckled down.

Speaker 9: Okay. Last question. Just on the the mortgages maturities for this year, Kurt, just I guess he talked about, you know, staggering the debt letter and filling in some of the gaps answers, you know, so that leaning towards a little bit more shorter term debt.

Speaker 8: on RE-FIRE right now and what type of rate would you expect? Yeah, I think we're looking at sort of filling in the ladder. As you can see in there, there's a couple of spots where we don't have a lot of maturity. 2024, 2026 being two of them. So there may be a little bit where there's properties that are still going through repositioning.

Speaker 8: six or seven years also just to sort of ladder it out a little more evenly than we have in the past. As you know, over the last 12 years we've used very much a barbell approach with our short-term debt and our reposition properties in the long-term as we've got it through the reposition phases. So I think right now the strategy is just to balance out.

Speaker 8: so that we don't have any cute maturities in any given year or any years where there's none. Right now, if you want to do one year, one year money is more expensive right now. So not drastically so, but you got to weigh that off.

Speaker 8: The CMHC numbers, the CMHC debt has come back in a little bit. If you look at the last couple of months, it's been as low as about 365.

Speaker 8: for five year money. It's been as high as about 430 or 35. Right now we're hanging around that 420.

Speaker 8: So we'll just see where it ends up. Most of our, a chunk of our debt is sort of, at the beginning of the year was January , and then the sort of, you know, roughly probably 40-ish percent of our 20-23, the Turties, and then the rest of it is sort of June , July , August , late June , July , August . So.

Speaker 2: The next few months we'll be telling to see what happens here at the interest rates. Okay, great. I'll turn it back. Thanks. Thank you. Next question will be from my question. At the BMO Capital Markets.

Speaker 7: Hi everybody, good morning. Kurt, just wanted to clarify if I heard you correctly on that. Was it 40% of this year's mortgages were January maturities? Yeah, about in that ballpark, yeah. Okay, great.

Speaker 7: Just focusing in on the capex, I guess you guys took up your area before reserve by about $100 per affected suite this year. And then I guess from a non-development capex was $90 million this year.

Speaker 7: So I guess two questions. What are you thinking on the AFO reserve heading into 2023? And then from a total cap ex excluding development, where do you think that 90 million trends in 2023?

Speaker 3: Clark County heard this begin my right we might be view uh

Speaker 3: See that trend out slightly to be to be fair Michael. I mean there was there was a lot of inflation some some claims at supply chain Issue so we might be able to see that come down a little I don't think it's gonna come down drastically But I do think on that front we might be able to see that come in a little bit

Speaker 3: Then as far as the remainder CAPEX, for modeling purposes, I would do something similar to the 90 that you saw in 2022.

Speaker 7: Okay, and then in doing something similar, is that just slightly lower turnover and continued cost inflation? Is that kind of how to think about it?

Speaker 3: There is some of that. I do think we've dealt with a lot of the inflationary pressure through the CAPEX because while there might be some inflationary pressure of some of the line items, some of it has been offset by the actual inputs of some of the materials. Right

Speaker 3: some of that would do to maybe a little bit of the Lord turret, but the overall repositioning and honoring position of the Folios has been pretty stable and we're still executing through those detailed CAPX programs.

Speaker 7: Okay, last one for me before I turn it back. Kurt, was there anything abnormal in the interest expense line this quarter?

Speaker 8: No, there wasn't anything crazy as far as

Speaker 8: big changes or whatever, there would have been a small write-off on some of the amortized deferred financing related to one of the properties that we redid. So there's about 140k into that. That would have been the only thing that was really needed.

Speaker 7: Not sort of everyday activity. Okay, perhaps after the call we could follow up on Monday. I think it's probably missing something that are just seem higher than what we would expect based on your end disclosures. Happy to test patients the after-mine. Thank you.

Speaker 2: Thanks. Next question will be from Kyle Stanley at the Jardin.

Speaker 7: Thanks, good morning guys. So it's great to see the big pickup in occupancy especially in Montreal in the fourth quarter. Just wondering how you're seeing leasing demand trend you know as we kind of approach almost the end of the first quarter here has that persisted you know with the expectation

Speaker 3: be that maybe full occupancy around these levels through the year? Thanks, Kyle. We're really happy with the trend on the leasing traffic and traffic all that, not just Montreal, so it's been quite strong in all of our four core regions.

Speaker 3: As you know, on the full year we kind of go for that 94.5% to 95% sorry 95 to 96.5% as far as for OXIE on an average for the year.

Speaker 3: Typically, you will see us in Q4 if the Leasing American and Activity cooperates with us. You'll see us go into the winter months at a high, and I think this is no different. So I think.

Speaker 3: If any indication of the call at the last four months of losing activities, any indication of 2023, I think we're back to pre-predevit levels and more normalized patterns. The one thing I would say just to...

Speaker 3: That little color too is coming into 2022. We were carrying an abnormally high amount of vacancy in those one or months coming into 2023. So it will take a while to get releases back to a ladder of work.

Speaker 3: they will expire into the prime and that's just the nature of the natural cadence of turnovers. So we will be working hard over the next couple of years to make sure some of the 12 month leases that were signed at the end of last year get rolled out and expired into maybe the strong leasing activity.

Speaker 4: ???? I think aST deadly just

Speaker 7: Okay, thanks. That's good color, especially on the kind of the cadence of the least maturities that makes sense. In the NDNA, you mentioned mild winter weather, lower natural gas pricing, as you know, potential off-ex tailwinds early in the year. Can you provide some just high level thoughts on what the outlook for off-ex inflation might be in 2023? Yeah, I'll pass it over to Kurt. I mean, obviously we've been...

Speaker 3: We've been very thankful for this mild weather. Now, not so much the person on the ski family, so I actually kind of like the cold weather in the snow. But it has been an abnormally warm Q1. Q4 was it? Actually, Q4 on the year-over-year basis was actually colder.

Speaker 8: But Q1 has kind of switched, so far it's turning in the right direction, but I'll pass it over to you Kurt if you want to add anything to that. I think it's more just on the utility side, I think on property operating costs and taxes we're not expecting things to stay flat or go backwards, but given what's happened with natural gas pricing and given the mild Q1.

Speaker 8: At this point, we could actually see utility cost things sort of continue on the trend they are now. We could actually see utility costs in live or slightly lower in 2023 than we have for 2022.

Speaker 8: That could be, given current modeling, it's only two months into the year. Given current modeling, that could be 20-ish basis points.

Speaker 8: It's hard to say how, you know, what happens with natural gas prices over the next 10 months and what happens with it.

Speaker 8: The weather this summer is a crazy, crazy hot, which means more electricity and AC is a crazy cold fall, but that's kind of where we are there. On the property tax side, we're looking at that sort of 3-4% range given the work we've done with our outside advisors on it. And then on property operating costs per se.

Speaker 8: Brad and I have been talking with this with people for a while. It's probably in that 4% to 6% range. And I think that's probably reasonable, probably more towards the higher end, the lower end of that. But in that range, I think it's still fairly reasonable. Okay, great. That's a very helpful one. This one, last one for me. I mean, a number of the apartment peers have identified this...

Speaker 7: programs as a goal for 2023. I think demand for value-add type assets has been fairly strong at least according to what they're saying. Could you just talk about opportunities you're maybe seeing on the disposition side if any? Yeah I mean our commentary is not going to change much I think from our previous commentary we've always engaged in disposing of...

Speaker 3: There's definitely interest of this asset class. The assets that we would be looking to dispose of are typically a little on the smaller side. And when not, so they tend to...

Speaker 3: be more desirable for the private buyer, which at this point, given where, and the private buyer, as we all know, tends to employ a little more leverage. So for them to remain financing is being a little more, a little trickier. So it's not that there's an interest here at these levels, it's just essentially,

Speaker 3: some of the private buyers being able to arrange financing that's conducive to their own economic situation. So as we continue to evaluate our disposition program, and if we go firm on disposition, we will announce it.

Speaker 3: the private buyers being able to arrange financing that's conducive to their own economic situation. So as we continue to evaluate a disposition program, and if we go firm on disposition, we will announce it. Okay, great, that's it from me. I'll turn it back. Thanks, guys.

Speaker 8: Thanks, Scott. Next question will be from Jonathan Keltcher at TD Cowan. Please go ahead. Thanks. Good morning. First, just turning back to the mortgage, as you said, you did 40% of the year in January . How much did you get in top-ups?

Speaker 8: and how much do you expect to get in top-ups over the balance of the year? So the something the earlier part of the year, big chunks of it was related to that bad crude report polio, which is sort of shorter term as we sort of move, start to move some of those properties into CMHC insured, which we...

Speaker 8: started to do end of last year, beginning of this year. So on those we're not actually looking for top-ups, we're just rolling them into CMHC at or around what's currently sitting on them. On the other properties we've done, there's about ten million dollars about financing in the first first couple of months, not a ton there. We weren't really looking for those to be...

Speaker 10: you're just looking at it today.

Speaker 8: We're probably looking somewhere between $75 and $100 million.

Speaker 10: Okay and then secondly, just just turning to market rents and your expectation, you noted a 30% mark-to-market. Where do you see market rents going this year? How much higher you think they go?

Speaker 3: Pa it saysch 22 ndollar question clle.

Speaker 3: I think they're going to go higher. That's for sure. I mean, we have pretty ambitious immigration targets, which I think most of Canada that truly believe in our immigration policy. So the other side of that is the housing policy. So we've got to find out ways to deliver that supply faster so that we can leave a little bit of...

Speaker 3: I could say this much with a lot of confidence, I'm pretty sure rents, the market rents are going to grow at a faster pace than where inflation is right now.

Speaker 3: And this much with a lot of confidence, I'm pretty sure the market rents are going to grow at a faster pace than where inflation is right now. But I'm pretty confident in saying.

Speaker 11: Okay, that's good color. I'll turn it back. Thanks. Thanks Jonathan. Our next question will be from Mario Saric at Scotiabank. Please go ahead.

Speaker 3: All right, thank you. Good morning. Maybe starting off on the operational side. I think Brad, you mentioned your prepared remarks that you expect a historical positive trend in NLI in 2023. Can you clarify what you're referring to? Positive trend in NLI.

Speaker 3: see that there are as far as on that line at them. So if you kind of extrapolate from there, I believe that high single digit NLI growth is reasonable and is plausible. Okay, so high single digit NLI growth is still including margin expansion.

Speaker 1: date.

Speaker 12: Yeah?

Speaker 13: Okay. Just regionally I noticed when I looked at the Q4 rents in occupancy versus Q3, so quarter of a quarter is opposed to Euroyear. It seemed like the DTHA was the softest of the regions, so occupancy fell Q4 versus Q3.

Speaker 13: and then the rent growth decelerated a little bit to 0.4%. Another is some seasonality involved, and maybe there's more seasonality in some regions than others, I don't know. But is there, maybe you can comment on what you're seeing in that region and why some of the numbers may have been a bit softer than the other regions?

Speaker 3: Well, I think they're all pretty strong to begin with, Nariel. I think that market has seen solid. Like, it's hard when you look quarter over quarter. Like, looking over year over year, I think it's similar and in line with other regions. I think it's just experienced ever since the recovery, one of the fastest to come out of the recovery. So it's been posting really strong.

Speaker 8: growth all the way through. So I wouldn't read too much into that to be honest. Well, and the other factor too is that the GCHA at the end of Q3 had very strong occupancy. So there wasn't a lot of turnover necessarily in Q3 or a lot of empty units going into.

Speaker 13: Q4, sorry, from that portfolio, right? Got it. Okay. And then just maybe associated with that, how should we think about your Ontario release renewal rates for 23? Should we see most of those increases coming to Q1 or? Okay.

Speaker 8: will they be more spread out over the year relative to what we saw in 2022? I think, I mean there's an effect on the, because of what happened with the pause that the government has been placed a couple years ago around the guideline increase. So for sitting rams that sort of all got reset to be earlier in the year.

Speaker 8: So you do see that for the ones that don't have turnover. But in regards to the turnover and the cadence on that, I think you'll see things start to return to a more normal case that we've seen in the past, given like Brad mentioned earlier, given the return of the international students.

Speaker 13: even the return of the downtown core and more and more people moving back to working back in the office. I was specifically referring to the lease renewal rate. So essentially if you increase the rent on Jan 1 of 2022, then the increase will be coming through Jan 123 this year.

Speaker 8: I think in Ontario you'll definitely see, I think it'll come in from where it was because you've had some turnover from the point where the government reset that. We've had some turnover, so it's not going to be as much into that first January this year as we had last year and the next year will get even better and the year after that will get even better. promotional end that you will find him or her in. That was the last syrups I saw.

Speaker 8: The turtle will happen not necessarily in January typically. So it will take a few years for that trend even back out. So if you go back historically, yes, it will be more January than we have historically. If you go back the last year, it should be less than last year.

Speaker 13: Okay, that makes sense. And then just on the repositioning program, I'm not sure if you can answer this, but of the 3,659 suites that are under various repositioning initiatives at the end of the year, do you have a sense of what that number would look like at the end of this year assuming no new acquisitions? Yeah, I don't have that in front of me, Mary, but maybe I can circle back with you.

Speaker 13: you buy ProJet is on the thumb. So just curious whether there's any large projects that we should be aware of that are coming to completion this year. Yeah, and typically from the point of view of what we report though we've been consistent like it sometimes takes anywhere from three to five to do it so we kind of set a cut off of four years on that.

Speaker 8: And we've been consistently applying that for the most part. I think there was one exception in the last six to seven years, and we voted that. But typically we've been applying the four years consistently across the board.

Speaker 13: Okay, and then just maybe two more on my end. From an acquisition standpoint, is there a reasonable range of net acquisitions?

Speaker 3: you're thinking about in 23. So you have some net acquisitions? Yeah, I think the acquisition market is starting to thaw, and you're starting to see a little more deals. It maybe hasn't actually translated into Inc.

Speaker 3: per se, but it does feel like the market is thawing and it looks like there might be a little more velocity happening. Similar to a previous commentary, we'll continue to look at different opportunities within the core markets. There's something that needs our best work right here.

Speaker 3: We'll likely enter into the scenario where we'll partner with our joint venture partners and use private capital to go in and take ownership interests in a project with a coal ownership type structure and hopefully we may be structure or something where it might take a little to go in and take ownership interests in a project with a coal ownership type

Speaker 3: smaller of an ownership interest and have the optionality to buy up her interest.

Speaker 3: I think until there's a little more certainty around cost of capital is a good way to approach our external opportunities. Okay, so is it fair to say that the vast majority of any acquisition activity done this year will be through the JV structure?

Speaker 13: As opposed to 100%. If they're caught to capital stage where it is, that's a fair comment. And then just lastly, not a question, but similar to Mike's question on the interest expense, if we can maybe just touch on that offline, it was up 2 million quarter over quarter on the mortgages.

Speaker 13: and I have made difficult time of getting to that $2 million quarter of court increase. So any incremental color would be helpful.

Speaker 3: Sorry Mario, it was very faint, it was hard to hear what you were saying there. He's having a difficult coming up with the extra two million quarter over quarter increment in interest costs. So if you could help him. I can help you with that, that's basically it after Mario. Thanks Rick.

Speaker 2: Thanks a lot, Mario. Next question will be from Garofmeycer at IA Capital Markets. Please go ahead.

Speaker 11: Thank you and good morning everyone. Just on the refining, I'm already front.

Speaker 14: Would you be potentially looking at a shorter term with a view that rates can be more favorable two to three years out as you look forward? And just what's all that thinking when you're thinking about, you know, term versus rate? Sorry, I got the first part, so I'll answer that and maybe I'll get some.

Speaker 8: Now, I do believe that the rates potentially will, and when you look at a tightening cycle, it's often by a loosening cycle, if you will, from the way the trend that FedEx does stuff, and the federal government can't adjust stuff, but that's not the primary driver. That will be a benefit if it happens. The primary driver is just flattening out the mortgage ladder.

Speaker 14: The second part of the question I'm not sure I heard properly. I just want to know how you're thinking through downless rate. I do believe we gave you some kind of on that, but that in addition I appreciate it. The first two words are getting garbled there. The what rate?

Speaker 14: Sorry, you know, mortgage terms or some mortgage rates, how you're thinking about balancing that out? I think it would be a deluding to that, that to your curve. I think, yeah. Really, and I do know we've always had to build the barbell strategy given the value at nature of our business models.

Speaker 14: And it has served us pretty well in the past, where we've in the near term on a mortgage ladder, we've had minimal exposure to essentially a real ladder. So I think given the nature of how volatile rates have been.

Speaker 14: over this last kind of year. We've taken the view that we're just going to smooth out the mortgage ladder. So we really want to not make any one bet on when interest rates are going to start to come down or up. So yes, that might cost us as we fill in some of the short part of the mortgage ladder.

Speaker 14: But as we fill in four or five years out of the Morgan ladder, you'll benefit from the inverted yield curve. So really the strategy right now going forward is to smooth them out that Morgan ladder and not make any one bet at any given time. Okay, great. Thank you for that. And just lastly on the increase in cap rates.

Speaker 15: Do you think there's more to come or are we probably in the data ending as far as valuation rebating that's on-set? Well, it's been a really thin, thin batch in markets and as we all know, a pretty good sub-touch job. They really look backwards looking at it. It's not because they don't have the ability to look forward. It's just really, they rely on print, right? They rely on ink. They rely on print.

Speaker 16: deals and the nature of a lot of real estate deals can take anywhere from one month to along the year to close. So really they're at the mercy of kind of looking back and see when transactions are too close. So I think there's a little bit of catch-up being played by a lot of the major appraisal firms.

Speaker 17: The fact that it feels like the sentiment towards acquisition market that there are more eyeballs looking on deals to me means there is some thawing out. So maybe there'll be a little more price discovery to happen in 2023. So time will tell if there's still room left for capric, but it does feel like to the core.

Speaker 18: The core hasn't moved off too much. It has come up a little. I would say they've come up a lot more in the non-core secondary tertiary market, probably as much as 50 basis points. And that's where you've seen a lot of movement. So you've actually seen the kind of risk return quality spectrum revert to a more...

Speaker 19: positive sloping curve where in the kind of pre-pandemic days really kind of flattened out. You weren't really achieving a risk premium for a triple A located asset versus a secondary non-core asset.

Speaker 20: Thanks. So just two questions for me. Just following up on the 30% plus mark-to-market opportunity. I wonder if you could be a bit more precise on what that number looks like. This last quarter it was 30 and I thought market would have moved a decent amount quarter to quarter. And then the second really to that is a use finding that your tenants are starting to hit some affordability issues.

Speaker 21: on some of those at least turnover to be. So on the on the market market when you think about the turnover that we got and the list on the market. To me it shows you at the market if we're still sort of north of 30 a little bit.

Speaker 22: that the market has moved in line to keep us there. So it has grown a little bit, otherwise the market market would have come back in. In regards to affordability, we do know that given our housing policy and given our immigration policy, that is becoming more and more difficult.

Speaker 23: And with the protection that's in place in most of the provinces we operate in, it's not becoming more difficult for the resident that's been in that suite for a long period of time, but it's been there already. It's more difficult for the new person, so the new immigrant coming to Canada or the person leaving their parents home for the first time. It's more difficult for them, but it's not more difficult for the city to get in the right protection place in all of our rental.

Speaker 24: All four parties are actually quite willing and wanting the same outcome. So that's a good news. I think we're all on the same page when it comes to wanting to deliver the supplies. And now we just got to kind of work through it and hope that some of that integration policy, some of those healthier targets are targeting skilled labor that we can bring in to actually help deliver some of that supply.

Speaker 25: income per household has grown at a much faster clip than the actual increases to use on period as an example. But on a list of that, nevertheless, there's a major imbalance in companies like Inter-In and some of our peers are at the forefront of helping and wanting to help deliver some of that.

Speaker 26: And last, I would just say, too, is on the Portability issue, despite what I was all understood, is all of the reads have a pretty big percentage of the portfolios that does meet the Portability definition. So that's not the thing I would just remind the listener or the reader team as well.

Speaker 27: Okay, thank you. Next question will be from Matt Kornak at National Bank Financial. Please go ahead. Just quickly, unmontory all, it was obviously a very active leasing quarter. Would you say the bulk of the 190 plus units that you least in the quarter would have been to...

Speaker 28: are centers have come in quite a lot. So it would be very minimal in that. Do you just in a situation where maybe there's a little bit of supply competing, but I think it really is a lot of then. I think it was a combination of foreign students coming back and the pent up demand working for you through the system. But I wouldn't...

Speaker 29: I wouldn't under whatever the right term, or I wouldn't under estimate the impact of my trust slowly coming back to office. I don't think it's still quite where Toronto is, but the younger professional is starting to come back downtown.

Speaker 30: And then the other phenomena I think you started to see is Airbnb, which was essentially Airbnb, there were conventional apartments, I think. I think you're starting to see the tourism pick up a little material and I think that started the, having an impact as well. So the good news I think is.

Speaker 31: All the traditional kind of rental demand is really, or the two traditional rental demand is slowly back to where it was. And then the additional supply brought on by the conversion of the Airbnb. I think some of that left the market.

Speaker 32: Sorry, nothing. We have a problem with all that. We have a problem. You can see as we talk about foreclosed bird off. Like rebates bird off in the quarter. And it's continued to come down. We are getting back or approaching a more historical sort of scriptional rebate that we sort of experienced last year year and a half.

No, that makes sense. And I would assume that we're at a point where given where occupancy is trended in the market broadly and your portfolio pricing power probably builds into the spring in that particular market. But also, could you just, there was a sequential decline in occupancy in Vancouver. I don't know if there was anything to...

they get to one of their 30 day notice in that market and it tends to be a longer season by the very nature of the weather. I don't see any...

just concerning trends on the quarter over quarter basis. I think we're happy with where the traffic has been and thrilled with that market. So keep in mind that Q3 vacancy for that market was 0.8%. So seeing it take up a little bit is not a concern.

Okay, we're over an hour so we'll turn it back. Thanks, Matt. Next question is from Dean Wilkinson at CIBC. Please go ahead.

Thanks, morning everyone. Brad, just turn into that 30%. Hey, turn into that 30% market to market and potentially growing. How are you guys looking at sort of yield maximization versus wanting to just get the thing?

Yeah, Dean, I don't think I'm going to have any changes as far as the way we approach our top line route. So that like...

As far as far as the way we go about Christ Discovery on our innovation units will continue the same process and will continue to manage our top lines the way we have historically. We tend to operate, like I said, in that kind of 90...

5.5 to 96.5 type range for the full year and we'll continue to manage towards that. And, yes, there's really no change on that.

to 96.5 type range for the full year and then we'll continue to manage towards that. And yeah, there's really no change on that. Okay, that's all ahead things.

Great, thanks Dean. Thank you. At the time we have no other questions, Registrants, please proceed with any closing comments. I'd like to thank everybody for taking the time and for the question and answer. Let's begin and get to any of your questions.

please reach out to the management group and we'll be more than happy to try to answer those for you. Otherwise have a great day and enjoy the rest of the new seasons.