Killam Apartment REIT Q1 2023 Earnings Call
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Following the presentation, we will conduct a question and answer session. If at any time. During this call you need assistance. Please press star zero for the operator.
This call is being recorded on Thursday may four 2023, I would now like to turn the conference over to Mr. Philip <unk>, President and CEO . Please go ahead.
Thank you good morning, and thank you for joining killing the apartment Reits first quarter 2023 conference call.
I am here today with Robert Richardson, Executive Vice President Dale Noseworthy, Chief Financial Officer.
And Erinn, Cleveland Senior Vice President of Finance.
Slides to accompany today's call are available on the Investor Relations section of our website under events and presentations.
I will now ask Aaron to read our cautionary statements. Thank.
Thank you Philip.
<unk> may contain forward looking statements with respect to kellum apartment REIT and its operation strategy financial performance conditions are otherwise.
The actual results and performance of Killam discussed here today could differ materially from those expressed or implied by such statements such statements involve numerous inherent risks and uncertainties and although killer management believes that the expectations reflected in the forward looking statements are reasonable there can be no assurance that the future results level of activity performance or achievements will occur as anticipated.
For further information about the inherent risks and uncertainties in respect of forward looking statements. Please refer to Kevin of most recent annual information form and other securities regulatory filings found online on Cedar all forward looking statements made today speak only as of the date, which this presentation refers and kill them does not intend to update or revise any such statements unless.
Otherwise required by applicable Securities law.
Thank you Eric.
We are very pleased with our strong financial and operating results for the first quarter of 2023.
Kill them delivered <unk> <unk> per unit of <unk> 25.
In the quarter, a four 2% increase from the 24.
Per unit in Q1 2022.
We achieved six 3% same property NOI growth across the portfolio.
Which included $6 one same property NOI growth in our apartment portfolio.
One 3% same property NOI growth and our manufactured home community portfolio.
11, 8% same property NOI growth for our commercial properties.
Despite the recent pressure in the capital markets multifamily fundamentals in Canada.
Have been the strongest we have ever seen in our 21 year history.
During the quarter kilometer <unk> 98, 6% same property apartment occupancy compared to $97 eight in Q1 2020 to 80 basis point improvement.
We are optimistic of the opportunities ahead, and we will remain focused on growing our portfolio our cash flow.
And the underlying value of our assets.
Dale will take us through the financial results.
Followed by Robert who will discuss our operating results and the electrification of our portfolio.
I will conclude with an update on the current and recent developments.
And our capital allocation strategy.
I will now hand, it over to Dale.
Thanks Bill.
Highlights of calendar Q1 financial performance can be found on slide five <unk> solid earnings growth in Q1, resulting in net income of $84 million.
Compared to $60 million in Q1 2022.
Yes.
This increase is attributable to earnings growth from our same property portfolio lease up of our development and increased fair value gains strong NOI growth.
As shown on slide six growth in revenue was the main driver of <unk> six 3% NOI growth in Q1.
A 60 basis point increase in same property apartment occupancy and a 4% increase in apartment rental rates in the quarter highlights the strong demand for apartment units across the country.
Ancillary revenue, including parking laundry and storage was also up nicely in the quarter.
Market rents are moving up steadily and we are seeing strong rental increases on unit turn slide seven provides more details on the rental increases we are achieving on a quarterly basis.
The chart on the top right of slide seven clearly shows the growing mark to market spreads, we're achieving on unit turn.
With 14, 3% rent growth for tenants, who moved in during Q1, the highest in <unk> history.
Weighted average great.
On Q1 turns at renewal combined with combined with three 8% down slightly from Q4 2022.
This reduction is strictly based on the percentage of renewals versus turns in the quarter as highlighted on page 17 of the MD&A only 12, 3% of the 5800 units with Q1 lease expiry turns with new tenants moving in compared to an expectation of 18% to 20% turns for the year. This is due.
Timing of more lease renewals being weighted to January one this.
This weighting is expected to reverse in the remaining quarters.
Our other business segments continued to contribute positively to our overall performance as shown on slide eight.
Our MHC portfolio recorded three 2% revenue growth for the quarter and our commercial portfolio generated nine 1% topline growth.
So on 383000 square foot royalty crossing previously known as Charles Town Mall was a standout in Q1 with revenue up 18% from Q1 last year and net operating income up 35%.
John has been highlighting the increased leasing activity and royalty crossing for the last two years, we're pleased to see the investment in the property and the operating platform translate into strong revenue and earnings growth.
Expense management remains a priority.
Total same property operating expenses were up four 1% in Q1 as shown on slide nine.
Selling general operating costs were up five 8% in line with our expectations for the quarter.
<unk> the current inflationary environment natural gas costs were up 18, 4% driving an eight 9% increase in utility and fuel expense.
Based on market prices of natural gas heading into this past winter and the forward fixing of contracts by our gas distributor in Nova Scotia, we are expecting sharp price increases in Q1, although up from Q1 last year pricing surprised us on the positive side as the mild winter in Nova Scotia resulted in both lower consumption and lower market rate.
It's been expected.
I am pleased to report the currently for both April and May 2023, natural gas rates are lower than April and May last year, both in Nova Scotia, and new process. This is something we haven't seen in a while.
Property taxes are down two 9% in Q1, driven by a reduction in mill rates in Nova Scotia, and expected tax subsidies and cei.
Overall, we achieved six 3% same property NOI growth and revise our target for the year.
We're now forecasting same property NOI to exceed 5% compared to our original target of 3% to 5%. This change reflects both higher rental rates and lower natural gas costs and property taxes.
We're pleased to have strengthened the balance sheet in Q1 with that as a percentage of total assets of 44, 6% down 70 basis points from year end as shown on slide 10.
This reflects a $55 million reduction in our variable rate debt in the quarter looked.
Looking ahead additional refinancings and dispositions are expected to continue to create capital flexibility to further reduce the outstanding balance on our credit facility.
Slide 11 includes average apartment mortgage rates by year versus prevailing CMA to the insured mortgage rates are mortgage maturities are strategically staggered to avoid over exposure in any one year.
<unk> has $220 million of mortgage maturities during the remainder of 2023 with an average interest rate of 297%.
Mortgage refinancing program has remained consistent throughout the volatility of the last year with strong support from our lenders and with the continued ability to finance on renewal.
We expect this positive refinancing environment to continue.
I will now turn the call over to Robert who will discuss our electrification initiatives in more detail.
Thank you Dale and good morning, everyone.
Moving our portfolio's energy efficiency is a priority on kellum. The two primary goal of being the reduction of energy consumption to help mitigate or even better fully offset commodity price increases while simultaneously, making a material impact on lowering carbon footprint.
Management expects to invest a minimum of $8 million in energy related projects in 2023 to help achieve our ESG targets and moderate rising operating costs, such as royalty taxes water for insurance and hydrocarbon doctors.
It is simply a matter of time before kilns carbon emissions will be governed by more stringent and costly building an energy code to better manage these escalating costs now and into the future as Killen continues to grow its portfolio. We believe electrification of building operating systems is key to achieving lower carbon intensity as.
As a developer.
We have the ability to incorporate <unk> technology in the apartment buildings and let me see communities, we own and construct creating additional unit whole unit holder value. For example comes to 128 suite property in Mississauga K shown on slide 12 uses of geothermal heating and cooling system with this.
Technology, we are targeting a 32% reduction in energy use and 47% less emissions when compare to a typical building heated exclusively with natural gas.
<unk> 169 unit 666 development in Kitchener, Ontario shown on Slide 13 opened attendance. This spring and takes electrification one step further to generate a portion of the electricity consumed with rooftop solar panels. These PV panels combined with the geothermal system for heating and cooling.
But fair to water heat pump to generate hot water should see civic 66 deliver a 52% reduction in energy use and produce 67% fewer emissions compared to natural gas heat at buildings.
Yes.
Yet despite the obvious obvious global benefits of these green technologies, we still face many challenges in the permitting process.
139 unit Carrick, our development underway in Waterloo, which is highlighted on slide 14 has the potential to be completely electric.
Challenges with city permits however have restricted the use of geothermal in the area with that in mind, we determined our next best option was to use variable refrigerant flow and air to air heat pumps for heating and cooling and supplement these systems with parana heat pumps to recover heat from the billings wastewater.
Due to an unfortunate and interpretation of the plumbing code by the city the Parana heat pumps were prohibited.
Daunted and cognizant of the tremendous need for innovative electric solutions, our team ultimately obtained approvals or specialized air to air heat pump to heat the building top water incentive to product system.
So despite the roadblocks obtaining municipal approvals, we are proud to advise that the carrier will become first fully electrified development in Ontario.
Another example of our electrification efforts is killing newest development, the governor and Halifax, which is profiled on slide 15.
This development is unique in that it's a relatively small containing 12 luxury suites and two commercial units. So provided the opportunity to test new technologies to increase its energy efficiency and help future proof their development.
Sweetser heated and air conditioned by individual heat pumps.
Dedicated condensers and mounted on the roof and connected to each suite electric panel having.
<unk> installed separate water meters for each suite in earlier development tells us that residents are notably more diligent and their consumption of resources when build directly for the cost.
Wifi connected thermostats can be program to the residents schedules and adjusted remotely in order to save energy. Additionally, every parking stall as wire to accept level to EV Chargers.
These are just a few examples of the impressive progress our development team is making to reduce carbon intensity lower operating cost and hedge against future carbon pricing all leading to carbon neutrality.
We are determined to integrate energy saving technologies as we develop our apartment and MHC portfolios.
Later this month till 2022, ESG report will be published and we invite you to visit <unk> web site to see the complete report I will now hand, you back to sell up to provide an update on development and disposition activity.
Thank you Robert.
A lot has changed in the last 12 months, we still have an inverted yield curve, where the bank of Canada 10 year bond yield is less than the five year bond yield. In addition, the key interest rates from the bank of Canada has increased six times in the last 12 months currently sitting at four 7%.
During this period.
We reduced our activity acquisition activity because of rising interest rates and focused on improving our liquidity and capital flexibility.
Future acquisitions will always be an important component of <unk> growth strategy. However, we still believe now is not the time to be aggressive on the acquisition front.
During the last five months Killam has focused on identifying assets and exploring accretive disposition opportunities.
Excuse me to achieve.
To achieve the strategic target of recycling $100 million of noncore assets to date we.
We have announced two dispositions noted on slide 16, totaling $42 $8 million with net proceeds of $27 1 million.
In addition, we have two additional transactions that we have agreed to sell totaling $39 2 million with net proceeds of $20 million.
With a total of approximately 82 million confirmed and an additional $100 million of dispositions under contract or at various stages of due diligence. We are confident that we will exceed our target of $100 million.
<unk> focus on dispositions is driven by a desire to recycle capital.
Excuse me again increased geographical diversification and reducing our variable rate debt exposure.
During the quarter, we increased our commitment to providing long term affordable housing to our tenants.
This was achieved by arranging to MLR select CMA sea financings with a 40% long term affordable component.
New mortgages were placed on lakefront apartments shown on slide 17 in Parkers tree departments and Durbin.
Committing 240 of the 600 units to long term affordable rents.
Last year, we completed three developments, which we have talked about on previous conference calls these.
These three new developments shown on slide 18 are now at least.
It is only the aluminum that is waiting for the seeming to see underwriting process to be completed before long term that replaces the floating rate construction loan.
Slides 20 to 22 show renderings progress photos and key financial information on the Governor <unk> Civic 66.
We are expecting our occupancy permit for the governor by the end of May which will allow other firsthand.
June 1st <unk> 66.
<unk> received a partial occupancy permit with floors two to eight open and we expect the full occupancy permit by the first week of June .
Which will allow us to replace the construction loan at this time with a permanent 10 year, assuming see insured mortgage.
Slide 23 shows the update an update on the construction of the carrier and slide 24 shows progress photos of the second phase of Nolan Hill in Calgary.
To conclude we are very pleased with our Q1 performance.
I would like to thank our employees for their hard work and dedication.
We are optimistic for the future and we will continue to execute on our priorities and create value for all of our unitholders.
Thank you.
We'll now open up the call for questions.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.
Who are using a speakerphone please lift the handset before pressing any keith.
Our next question comes from Mark Rothschild Canaccord. Please go ahead.
Thanks, and good morning, everyone.
First starting on the guidance, which is which is approved.
For the rent growth.
I understand that part of the reason for the higher guidance is stronger rent growth.
What changed in the past couple of months that you Werent aware of earlier in the year. When you last reported or is it just.
Having a quarter under your belt being cautious maybe youre just less conservative.
Earlier in the year, because obviously there are things going for a while just wanted to stand what trends maybe have changed.
So I think market rents are moving up I think that that's one thing that even when we would have originally target for the year.
As we're seeing it across the country market rents are moving up and we're working with our teams our leasing agents are doing fantastic job in capturing that increase and so I think its too its two factors one we're capturing more but those market rents continue to move up.
Okay, great and thanks, Phil maybe on the on the development you guys have been developing for a number of years.
Quite a few newer buildings in our portfolio.
Based on the rise in development costs as well as France going up how are your development yields changing and does this alter at all the rising cost.
Also at all your plans for future development in the near term while you continue to continue at this steady pace.
Okay. So let's break down the question Theres about three parts right I think.
<unk>.
Two or three.
First one is really guess construction costs are rising, but so are the rental rates that you are able to achieve and even on a pro forma when you actually start the construction of the project.
Basically it's now two five to almost three years to fully develop it and get it open if it's a fairly large build.
Building, so with that you kind of know that even your pro forma when you start is going to be higher by the time you start to Lisa <unk>.
The yield itself, depending on is still around that five but you are still looking at and even where the cost of debt is basically.
Today on our permanent financing point of view is there is a 100 and maybe it might even be 150 by the time you finished your.
Your construction leverage that is going to be more expensive today, because it's running around six five.
Any new project that we undertake we basically would think that within a year year and a half interest rates are going to start to come down a bit because the first year to year and a half youre not.
It's your own equity it's your land before you really start to see the cost of construction and how it accumulates.
It might be a little bit more but overall there is value and I think it's the other comment is is that the country needs new supply. So we're going to have to figure this out.
Okay. That's helpful. Thanks, so much.
Thank you next question comes from Jonathan Kellner at Cowen. Please go ahead.
Thanks, Good morning.
Just going back to the just going back to the NOI.
I think.
First of all the property tax decreases you've got new Brunswick and <unk>.
We could expect you guys to benefit from those for the full year.
Yes.
Okay. So youre through Q1 on utilities and it looks like natural gas prices are lower in April and May which is good how do you think is that correct.
I just want to clarify something on the property tax Bill if you look back last year one in Q2.
Again, the reductions that we've seen in new Brunswick, we would have had higher property tax in Q1 and Q2, because we got more information in Q2. So looking forward I think that what we have for same property is reasonable for property tax we may see that move a little bit with the assessments get finalized for the may increase a little bit.
Did we saw a reduction this quarter I think that we don't expect to see that much of a reduction every quarter. So just to clarify.
Year over year Q1, Q1 is a decent run rate there should be a decent run rate with a little bit.
But I.
Just wanted to clarify that from Q1 and Q2 last year.
Sorry to cut you off okay.
And the next one is like how do you think expense growth trends for <unk>.
Just basically operating expenses.
Yes, we would expect.
To continue to see some increases, but we're not going to see the kind of the same level of increase that we saw this past quarter, primarily because of those energy cost. We know Q1 is the biggest.
Yes.
So I think.
We'll see those moderate a little bit overall that silky.
Okay.
<unk> okay.
Yes.
Okay.
Helpful and Phil.
First time, you guys are really doing.
Any sort of dispositions.
What's the process or what criteria are you looking at when you're deciding which properties to sell.
Yes.
Good question.
And I'll be a little bit back because otherwise that would be sort of tipping my head on from some of the stuff that we're looking to sort of sell and don't have under contract or it might be under contract, but essentially really it's if there is a number of criteria that we're looking at.
I mean, one of them would obviously be size.
So the smaller buildings that we have owned for a number of years as you've grown the portfolio. Each building takes its own sort of time in terms of the accounting base.
Basically looking at the budget on a yearly basis looking at the capital.
Program for those assets. So there is the rationale that the smaller assets probably.
Should be looked at from a disposition point of view right across the board.
And then obviously there's geographical considerations.
And then the other part of it to be.
<unk> basic.
In terms of the.
We talked a lot about the rising cost.
Of new construction there.
There is a parallel to the rising cost for repair of the existing assets.
And sometimes depending on the size.
The best decisions might be.
It's better to sell now and sort of put that capital because of the cost today on the smaller buildings.
I'd add to that Jeff.
Some cases, its the regulatory regimes that are in place and how they look at the rental stock and control the increase the ability to increase and move rents.
So thats a driver in some cases.
Okay.
That's helpful I'll turn it back thanks.
Thank you. Your next question comes from Mario Sorry at Scotia Bank. Please go ahead.
Alright, Thank you and good morning.
Just sticking.
Sticking to the capital recycling theme I think.
So as you mentioned the $88 million kind of.
Now another 100 billion potentially under due diligence.
To close to 200 billion.
How do you feel about the redeployment of those proceeds.
Today I saw you bought back the stock.
In Q2.
How do you think about paying down debt versus becoming more active on the unit buyback if you will.
To execute on these exclusion.
First priority.
As paid downloads sort of the variable rate debt the higher interest rate debt.
And then from there it's a balancing act of in terms of growth.
Whether it's looking at new developments or as we have surplus cash looking at the IV.
In that order.
Got it and can you.
Maybe deal remind us about what the total.
Dollar value of variable rate debt you have in place today.
All our value so.
On the credit facility of $60 million today, yes, not from Q1, but Q on that today and then we've got the construction facility, which we're replacing with hygiene first.
Majority by June into July the majority of that construction.
Right that will be gone as well.
Got it okay.
Then.
Given the commentary on maybe looking to sell some of the smaller building, which presumably you're going for longer.
Is there the ability to sell what you want to sell without having to do a special distributions.
Yes.
Okay.
And then last one.
Okay.
And then just last question on the capital recycling.
<unk> and <unk>.
It looks like that'll be completed in early 2004.
When do you expect the required conditions to be satisfied to acquire the building and based on current market rents.
What would your Unlevered return beyond the $65 million.
The first part is that the sort of the schedule right now in terms of the first quarter of 2024.
Like a lot of construction it probably will slip.
A few months.
So then we kind of maybe looking at maybe the middle of next year for that.
I think the yield is going to be very attractive.
When we announced it on that because it's been a fixed price for.
For the last year and a half.
It's going to be plus five for sure.
Okay.
And then just turning over to on the operational side.
I think in your MD&A you noted that you expect tenant turnover to be sub 20% in 'twenty, three and you highlight kind of the geographies without would represent the low and the high.
High end of that range that makes up the 20%.
Well I think the low I mean, Ontario is what we've seen in the past for the low.
And but we are we have seen how boxes coming down.
I would say every market is coming down so.
But.
Ontario has been low and we expect that to continue to be the low.
And then on the high presumably either Alberta or.
Is that fair.
I think Thats fair, Alberta, Alberta more transient.
Okay.
And then the.
Quote, 20% Mark to market in the MD&A can you remind us of how much capex per suite is required to achieve that 20% or simply.
It comes and they get them on average do you think you can increase it by 20%.
When we talk 'twenty I'd say, it's pretty safe to say, we could be selling a lot of capital. While we are looking with capital deployment that number increases.
Oliver 30, I would say and even that plenty of those.
Numbers are moving quickly as we've already talked about so I think that that's even a conservative number on a mark to market.
Nomura Mario So what's happening also is the investments in new units and some what we're seeing now we've been doing this long enough. We're turning more of a unit that we had renovated two or three years ago and it really requires a minimal investment and you are still seeing the ability to move rents to market. So we are benefiting from that but we're looking at that closely property.
Of that property and region by region to say.
With the market increases when does it make sense to do the repositioning and when not so where we're looking at that on a regular basis.
Got it Okay, and then I guess, the the difference between the 20% and the 14 that you achieved in Q4 is that just a mix thing or is that seasonality.
I think it's a mix and it.
Every month, we are seeing that number increase so it's working with the team to recognize the opportunity and we're seeing that continue to grow as we've shown in our disclosure. So it's that it's making sure we can capture the America ramp.
Got it Okay last one from me in terms of heating costs in Halifax is it too early to gauge how much lower.
Cost and expected to be in Q1 24.
Quarter, and when can we get out.
Got it.
That's the big question, because what we know is those mild temperatures in Nova Scotia, and the whole eastern closed.
The U S and Europe contributed so.
Should we have a cold winter next winter and in the warranty claim is still going on.
Yeah.
Unfortunately, I don't think we can bank on lower cost market rates next winter.
So it's too early to say the reality is it's too far out.
Fast.
We will have more line of sight on that as we come through the fall of this year, yes.
A good place to be now because I think some of the floor with the forward curve.
The contracts that are being purchased by our distributor we're expecting that they are able to lock in some rates lower year over year, it's always that last.
Variable exposure that can make a big difference.
But.
We don't expect the same kind of increase as we've seen in the last two years.
Understood. Okay. Thank you.
Thank you next question comes from cost Hendi I think Jordan. Please go ahead.
Thanks, Good morning, everyone. So it sounds like one of your operations at royalty crossing in Charles town are going very well just like an update on kind of your plans with the property moving forward in future leasing an iron ore development upside there.
We have about 70060 thousand feet that's available to lease. So we're working on getting that done we can add a little more space in the building we have a couple of larger tenants that would like to.
Has that premises we have a couple of existing tenants that want to expand so we're able to accommodate them.
It's moving along nicely.
A couple of our brands, we'd love to get in we're trying to attract them and hopefully we can get a few of those once everybody once but we have some conversations back and forth. These days and we're optimistic that we can see some.
Tier one retailers showing up.
Okay, Great and then just going back to the dispositions for a second have you seen so have you seen any.
Changes in the buyer universe for the assets Youre looking to sell since we spoke last after fourth quarter or I guess in other words are you seeing any different parties come to the table for acquisitions that we've seen the market open up at all or is that still.
Pretty scarce at this point.
Well again, I think theres, a lot of what I would call medium to small investors.
It would be local in nature and they are very interested in acquiring.
Assets from Us I mean.
I get at least two to five inquiries do you have anything in this market for sale.
Okay, Okay great.
And then just two quick ones, one kind of modeling so would <unk> be a good run rate for the balance of the year.
Yes, it would.
Perfect and then just the last one I noticed Aurora was moved out of the development is expected to start this year. Just wondering if you can elaborate on that a little bit.
Well I'd tell you. It's one of those things from a phasing point of view I mean, we've been doing a lot of capital work on the building in front of it.
And if anything it's almost like again as we decided to go on the other side of the Street, we would do that first because it's almost like the the effect on the tenants that are basically have been under renovation of the building and we almost want to give them a break.
Okay.
Fair enough I got it okay. That's it for me I'll turn it back thank you.
Okay. Thank you.
Thank you next question comes from Mike Magee at BMO capital markets. Please go ahead.
Hi, good morning, everybody. Thanks.
Quick admission I was actually trying to remove myself, but now that I got.
That's right on the line of Rollouts.
I'd just be interesting to me is just your focus on electrification.
Which.
Without insulting anyone else I think complementing new Youre ahead of your peers on that.
With the success that you had recently and I guess the.
Roadblocks that youre running into with the municipalities.
How.
Feasible as the VR in terms of your future projects is this sort of a path forward in.
What is the cost versus the <unk>.
And that's it looked like on the initial yields I get the long term store I'm, just trying to get a sense of if.
It's a penalty in the short term thank.
Thank you.
The yield on the Vrs, something between 5% and 7%, but it will just improve as we go forward with the increased cost of utility right.
So.
Commodities like natural gas.
No.
We want to continue to do that and I find it interesting that I'm a big fan of geothermal you can't do it everywhere, but the VR app is really.
Actually a viable substitute to abandon actually doing the geothermal strictly.
Strictly one to one and and have that as your main source with a backup being an electric boiler.
It's looking promising and especially in products like Ontario, where.
95% of the energy is green because theres so much photonic.
As part of it Joe.
That's where we are.
Okay, and then just with respect to you I mean, obviously nat gas boilers and everything is.
We know what the lifespans are those things as they are.
How good is your confidence just in terms of the long term.
Resilience I guess is the term or just how long these things will last and any potential maintenance problems going forward capital.
So it's actually a great question over the years, we've been at this a while now and some things we haven't felt didn't last very long, but in this case this technology on the heat pumps.
<unk> been around a very long time and the big question is Dan.
How how coal can it get before the heat pumps, not effective and I used to give you that it was at five degrees than it was 10 degrees like negative now it's up to 25% to 30. So it is better for a longer time. So you don't even have to worry about it as much and personally I've had heat pumps in my house now for over 10 years.
And they are incredibly durable and we really don't have an issue with them and we've been building with them for some time. So I'm optimistic now there are some brands are better than others, frankly, and we tend to invest upfront, but I think that I'm not overly concerned with that being a major issue.
That's great color. Thanks, very much have a good day.
Thank you next question comes from Jamie Shen at RBC capital markets. Please go ahead.
Thanks, So just on the financing side.
<unk> see the debris at premiums.
You talked about tightening their underwriting I wonder if you provide any color there in terms of how that is or is not impacting you.
Well I think a lot of that takes effect June one.
Mid June mid June so where we've really.
If anything if you call ups. They may see they would tell you that they are very very busy with a lot of people getting in the applications before that date.
So what is it going to look like after that.
I mean, our thought process is that yes, its going to cost more and you're just going to be.
Basically planning your sort of renewals or first time on a on a file a little bit longer with them because.
Understandable that there there's a lot of people looking for.
Basically the insurance for these mortgages.
And how are the tightening their underwriting.
However, the timing varies.
Attending.
Oh.
I don't know that I've seen any color on that I mean, a lot of times it would be but again, if youre not looking for Max 80%, 90%, if you're looking for some amount less than that it really won't affect us too much.
Okay.
And then the other question I had just was on the cap rates on the asset sale. This done so far are you able to provide.
With the cap rates are.
I don't think we've.
I mean, the Halifax, one was very low fours.
And.
The <unk>.
Our answer norms.
Was high threes.
Okay.
Perfect. Thank you.
Thank you.
Thank you next question comes from Matt <unk> of National Bank Financial. Please go ahead.
Good morning.
Just as you go through the process of disposing of assets.
Your longer term goal.
Bill to have more geographic diversification newer assets or have your thoughts on kind of what's the ideal portfolio would be changed at this point.
I mean, we still want more geographical diversification.
But getting a lot of the stuff is that if we do we don't have a lot of assets that we'd be willing to sell in Ontario, <unk> sold the bulk of it over this period of time we.
We will be Atlantic, Canada, and again I think that.
When you look at it.
Even the age profile of what we own which a lot of it is relatively.
On the newer side I think every year theres going to be opportunities to look at assets that we would consider non core and disposal in the future. This will be an ongoing process for I'm sure as long as kill them is going to be around.
Okay, no that makes sense and then.
Just with regards to the changes in the cap.
On renewal rent increases in Nova Scotia, Historically, you guys have had kind of internal rent control to some extent.
But do you see.
Our move in terms of what renewal rent increases potentially would be.
And is that cap, even attainable or would you want to obtain it at this point.
So the provincial government and Nova Scotia has.
Total assets were looking at a 5%.
Tap in 2024, and 2025 with what they are they're giving guidance on.
CFA finalize it at that but it looks very optimistic.
Okay, and then I don't think in the past, you've probably a push rents that much in Nova Scotia, but.
I guess the market has also changed substantially over the last several years.
Yes, just any thoughts as to I think what you have to consider is that the last two years, it's been capped at 2% when inflation is running 7% to 8%. So it's a bit of a catch up I think thats fair.
And that's why we're seeing bigger numbers for the next couple of years and they've also published.
The increase of level on the manufactured home community side of our business for next year and its five eight.
Okay.
That's a fair point with regards to inflation versus rent growth over the.
The last couple of years, Okay. Thanks, Ed.
Thank you and the next question comes from George One at Raymond James. Please go ahead.
Good morning, everyone. Just one question for me.
As you go through lease up with some of your newer assets in core urban markets are you seeing any tenant resistance to higher rents from an affordability perspective.
Well again, the newer properties that we have they would be at the upper limit of the market.
I think it's safe to say that the people that are seriously looking at the unit to rent.
They're not in that sort of.
Sort of employment or income level, where they would look at it and say it's an affordable.
I think another way to look at it as well.
I mean, that's on the door development, but even on our older properties, where we're renovating the units there is such demand and they're prepared to pay a fair bit a fair bit higher rent because theyre looking for modern amenities and upgraded units. So there is capacity in the marketplace certainly for these products for the updated.
Housing.
The other way to look at it.
The way you look.
See what's been sort of published the average rent is at <unk>.
<unk> $2000 in every major market in Canada.
We still have our average rent is 3500 $4 across 19500 units.
So basically we are not affordable alternatives, but our average rent is way less than.
The current asking risks in every market that we're in.
So from a value proposition.
Two people, making minimum wage call it $15 can afford to pay based on <unk> number using 30% of the income when you taken annually.
$150 they would.
We ended the 30%.
So.
What's being offered is a tremendous value in terms of pricing these days.
Fantastic. Thanks, Paul the colour, guys I'll turn it back thanks.
Yes.
Thank you next question comes from Sevan turnover Cormack Securities. Please go ahead.
Good morning, everyone.
Sorry, if this question has already been asked because I just given the bottleneck.
In terms of higher lease coming up and develop was obviously struggling with PD Lone and then construction debt.
What do you think that is something that will probably see on what assets come into the market and I don't know if conditions aren't a priority.
Do you think thats something that.
Change your view on that strategy.
So you are asking is because of the higher construction.
Cost.
To build there might be other developers willing to sell.
For us just yet.
Yes, I think I don't think it does.
Sorry.
I don't see a lot or is it really any stress in the market, especially with the local developers that.
We're aware of whether they are in Atlantic, Canada or other markets.
People are building it because they want to own these assets long term the merchant builders are a little bit in a different category and there are already actively talking to both their projects well before they even go into the ground.
But I mean, the real fundamental.
Issues as collectively we have to build more apartments in this country.
The five rates combined and even a couple of the private REIT, we own such a small percentage of the marketplace that there is a big big world behind us and they are willing to sort of grow.
We're going to be a big part of the growth.
And all of our markets in terms of adding new supply to the country.
Thanks, a lot of pellicle, although inbox.
Thank you. Your next question comes from Gaurav Mehta at capital markets. Please go ahead.
Thank you and good morning, everyone. Just one quick question from my end.
We noticed the uptick in <unk> this quarter and I'm just wondering if the if there is an <unk> payout ratio that you're targeting for 2023.
We don't have an <unk> payout ratio of that alright.
All right on target.
Policy for the board.
To say that it's looked at on a regular basis by the board.
Okay. Thank you very much I'll turn it back to the operator.
Thank you. Thank you.
Thank you there are no further questions at this time you May proceed.
Just to say, thank you very much for participating today and we look forward to.
Being back here at the end of Q2 in August .
To take all your questions. Thank you.
Thank you.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.