InterRent Real Estate Investment Trust Q1 2023 Earnings Call
Good morning, ladies and gentlemen, and welcome to the instruments Q1 2023 earnings.
Call at this time all lines are in listen 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 for the operator. This call is being recorded on Tuesday May nine 2023, I would now like to turn the conference over to Rene <unk>. Please go ahead.
Welcome everyone and thank you for joining interact with Q1 2023 earnings call. My name is Rene way and have recently joined <unk> as director of Investor Relations and sustainability, it's a pleasure being here with you today you can find the presentation to accompany today's call on the Investor Relations section of our website under events and presentations.
We're pleased to have Brad gutsy, President and CEO Cart Miller, CFO and Dave Evans seal on the line today as usual the team will present, some prepared remarks, and then we'll open it up to questions.
Before we begin I want to remind listeners that certain statements about future events made on this conference call are forward looking in nature any such information is subject to risks uncertainties and assumptions that could cause actual results to differ materially for more information. Please refer to the cautionary statements. All forward looking information in the news release and MD&A dated May nine 2023.
During the call management will also refer to certain non <unk> measures. Although they read believes these measures provide useful supplemental information about its financial performance. They are not recognized measures and do not have standardized meanings under ifr S. Please see the reef MD&A for additional information regarding the non <unk> financial measures, including reconciliations to the nearest.
Ifr's measured.
Europe .
Thanks for the day, Mr. Boeger being on our Q1 highlights as you can see on the left hand side of the slide we've been able to maintain a strong occupancy levels compared to the prior quarter and when compared to Q1 2022, we've been able to improve overall occupancy by 130 basis points to 140 basis points for a total and same property portfolios respectively.
Turning to the right hand side of the slide the strong occupancy numbers and the burn off of promotions combined with robust rent growth have resulted in strong overall operating revenue.
Out of 11, 3%.
In turn this has driven NOI growth of 12, 9% on a year over year basis does the ink containers. When we look at our same property portfolio.
Operating revenue growth was nine 8% and NOI growth was 11, 4%.
This was the third consecutive quarter with double digit NOI growth within this part of our portfolio.
Not only have we been able to grow our NOI, but were also seeing NOI margin expansion of 90 basis points for both total and same property proposals on a year over year basis.
These growth numbers are a testament to our team on the ground and our commitment to delivering unparalleled value to our residents and stakeholders.
We continue to see higher financing costs this quarter similar to the tail end of 2022.
That offset a strong revenue and NOI print.
Absence, all coming on that $18 9 million or <unk> 13 per unit and the <unk>.
Ill come in lower at $16 4 million or $11 <unk> per unit or <unk>.
Decreased marginally in total and on a per unit basis, when compared to Q1 of last year.
As a result of seasonality you would typically see these two performance measures decreased from Q4 to Q1 and are pleased to see both metrics improved marginally compared to Q4 of 2022 as a result of the continued strong operating performance.
Q1 has continued with significant volatility in the debt market.
Circle rate increases seen in 2022, and the early 2023 work their way through the economy.
Throughout this volatility we remain steadfast in our efforts to maintain a strong balance sheet, while managing our interest rate risk.
Curt will provide further insights into our balance sheet later in this call, but I'd like to take a moment 10 square our continued commitment to this objective.
Our solid financial position with debt to gross book value has remained flat compared to the prior quarter and a healthy liquidity levels.
Positioning us well to continue executing on our business model with confidence.
It gives us great pleasure to announce the successful acquisition of a 605 suite community and the city of ramp then I will provide more details about this later in the presentation. The suffices to say that we're very happy to be starting the new year with such a substantial acquisition, which was partially funded by very attractive data to one 7%.
Regina with such Great joint venture partners, such as cross point Investcorp.
Turning your attention to the average rates the fundamentals of our portfolio our sector continues to strengthen as.
As demonstrated by seven 1% growth in average monthly rent in March compared to the prior year as its essential to take note that this metric is affected by both same store rent growth as well as changes in our portfolio composition has been continuing to build a portfolio of urban core markets with higher rents such as travel and Vancouver.
Looking ahead, we anticipate a tight rental market through 2023 due to various factors, notably Canada is experiencing the imbalance in the rental market, where 11 in rental supply is paired with continuous strong immigration housing demand in 2022 cannon wealth of over 437000, new permanent residents and over 500.
50000 international students.
Those being all time records for administration in a single year.
The federal government continues to set ambitious immigration targets for 2023.
The range between 400000 to 500000 strong immigration has continued through Q1.
Welcome over 145000, new permanent revenues up 33% compared to last year.
Now, let's consider a more detailed breakout of this grille. These cherish showcased the noteworthy year over year growth in average monthly rent was observed through all regions, indicating that the fundamentals are not restricted to specific locales.
So plays the resiliency of our portfolio and validate our commitment to fostering growth and stability in all regions.
With our ongoing capital program and a strong team. We are confident that we can continue to meet the opportunity of this rides and demand across all regions.
Turning our attention towards our organic growth prospects within our current portfolio as demonstrated on the preceding slides, we had continuously fostering growth through traditional means such as annual regulated increases tap your mark to market on turnover and driving a ciliary revenues.
Hello, I would like to point out there are other areas that will drive revenue growth in the coming year.
[noise] firsthand densification efforts, most notably through the conversion of underutilized space in existing buildings to new residential suites.
One such example is the currently taking place to Montreal about the transformation of C class office space into 36 vessels until suites.
<unk> is nearing completion with leasing activity already underway and preparation piggyback traditional move in day on July <unk>.
And as such initiatives, albeit to a lesser extent underway in various stages throughout our entire portfolio.
Secondly, I'd like to highlight the growth option within our commercial portfolio.
Institutionally, we've taken the hit on occupancy during the repositioning process to transition from historically low rents per square foot on a gross leases to higher rents per square foot on a triple net basis.
At the end of March our occupancy was 75% based on the total commercial square footage we.
We have some positive momentum post quarter on this from leasing up two key locations to straw USR tenants.
Lastly, the balance have grown and will remain a key part of their <unk> feature.
We'll get into that in more detail later in the presentation. This quarter, we leave the slate in Ottawa from development into income producing properties for Q1 and I wanted to highlight how pleased we are with the leasing momentum through the hard to lease winter months with the property quickly approaching 50% of oxy and ran to the strong summer rental season.
The completion of this project in lease up will help drive revenue and NOI growth throughout the remainder of 2023.
We are confident that our capabilities define and drive supplementary revenues will help sustain the momentum of NOI growth throughout 2023.
Dave over to you to take us through some of the operating highlights.
Thanks, Brad as Brad previously mentioned, our overall occupancy remained steady at 96, 8% for March unchanged from December and 130 basis point improvement when compared to March of 2022 looks.
Looking at the reposition portfolio, we have seen a slight dip of 20 basis points and our occupancy compared to December but is up by 20 basis points compared to March 2022.
Historically, we see a seasonality effect in occupancy that shrinks. It modestly between Q4 and Q1 and are pleased to see it stay steady between the quarters, which is a testament to how tight the rental market is currently.
On this front, we've been seeing turnover in the mid 20%, however, like our peers and what we've seen in CMA Sea publications. This rate is coming in and we're anticipating it to sit in the low 20 percents for the year.
Nevertheless, with the tightening rental market and 150 basis points differential between a non reposition and reposition portfolios. We are optimistic about the potential to capture additional operating revenues within our portfolio.
Winter overall occupancy gains are factored in with a reduced utilization of promotional incentives and our strong average month growth in all regions. We have established a firm foundation for growth and stability in the coming year as.
As we review our Q1 Capex spend our maintenance capex for the quarter came in at $2 5 million, which is $244 per suite.
The total increase is partially being driven by the inclusion of 1215 suites into our reposition portfolio compared to last year, but has also been impacted by baseline effect, where our Q1 2022 maintenance Capex was historically low.
When we look at it annualized and trailing 12 months maintenance Capex.
Figures are consistent with our historical numbers and are in line with our expectations. It's important to note that when you exclude development cost sustainability of our capital spend continues to go towards not only maintaining but improving our communities.
Through our investment in our communities, we have been able to create a desirable portfolio, which will help us to favorably capture mark to market on turnover, while extending the lifespan of existing housing supply.
On the right side of the slide we take pride in presenting the value created from our ongoing repositioning program, which currently comprises of 2000 and 523 suites at various stages are non reposition portfolio currently lags to reposition portfolio in terms of occupancy and NOI margin by 150 basis points and 300.
90 basis points, respectively.
By continue with strategic investment in these communities, we can unlock their potential for value creation, yielding benefits for our residents and stakeholders in the long run.
We remain steadfast in our commitment to investing in our communities, creating a beautiful safe and high quality living environments for our residents by leveraging technology and innovation, we transform underutilized buildings that would otherwise be headed for demolition and the much needed homes better energy efficient and smart.
I'll hand, it over now to Kurt to discuss our balance sheet and sustainability efforts.
Thanks, Steve.
As you can see on slide 14, given the expansion in cap rates, we recognized in Q4 and a review of market transactions in Q1, we maintained our overall weighted average cap rate of 4.0% to 4%.
Significant growth in market rents were only partially offset by reduced turnover and increased operating costs in our fair market value model, resulting in a fair value gain of $70 2 million.
On a NAV per unit basis. This equates to 49 cents per unit.
Consistent with prior quarters, the key assumptions regarding rents turnover input cost and cap rates were reviewed with our external appraisers.
You can see that the REIT continues to be in a healthy financial position.
We had a total of $1 7 billion of outstanding mortgages at the end of March an increase of roughly 200 million compared to March of 2022, but consistent with where we ended December of 2022.
The average term to maturity at five one years is up 0.6 years on a year over year basis, and relatively unchanged from where we ended 2022.
Our weighted average interest rate increased to $3 three 8% up from three two at year end and $2 five 1% at March of 2022.
Our <unk> insured mortgages increased to 83% of our total mortgage debt, providing added protection against any liquidity risks in the market.
Lastly, the variable debt exposure sits at 4% compared to 3% at the end of the year, but he is in line with the expected exposure mentioned on our prior earnings call. It is below the 16% exposure at the end of Q1 2022.
We entered 2023 with $266 7 million of maturing mortgages and at the end of Q1, we've worked through for half of that balance.
The majority of the remaining 2023 maturities are at various stages of the review or approval process with <unk>.
With the continuing volatility in the debt markets. We have been actively monitoring interest rates and are employing forward rate locks are rate swaps when rates are attractive to mitigate further interest rate risk.
With the changes see MHC recently announced to their insurance program, including MLR select we continue to proactively manage our renewals and up financings to minimize the impact of the change in premiums in the near term.
Our debt to gross book value decreased by 30 basis points from Q4 to 38% as we continue to maintain a conservative balance sheet with our leverage remaining at historically low levels.
As you can see on slide 17, we've included some highlights from our third annual sustainability report along with our Q1 results.
We have made important strides in the environmental and climate front with the completion of our first baseline climate risk assessment and the inaugural submission of our greenhouse gas emission targets to SB Ti.
A few other highlights to include raising a record high of $1 4 million in last year's Mike became charity golf tournament and using the proceeds to support 24 local charities.
We also achieved a 10% improvement in our grasp of real estate assessment score and during our second Green Star rating.
Slide 18 presents some of our longstanding commitments around diversity equity and inclusion.
Part of this we incorporated more governance best practices, such as including ESG metrics in our executive performance equity plans.
We encourage you to read the report which is available in the sustainability section of our website and we welcome your feedback as we continue to take positive steps forward and build momentum on our sustainability journey.
I'll turn things back to Brad to walk through our capital allocation.
Thanks Kurt.
We are proud to play a afterward on bringing new supply to the market with a four ongoing projects have the potential to add an additional 3900 units of rental housing.
The slate project in Ottawa first office conversion is nearing completion with oxy, reaching the 50% Mark despite lethal up having minimal acreage in a weaker winter rental months.
Post quarter, we continue to see strong momentum as we enter the strong rental season during the summer months.
Kurt previously referred to our pile undergoing underwriting at CME HC Armani.
Among which is M O i's lack takeout financing for the slate.
We have been able to achieve the highest level rating within the program Thats going on all three criteria as LNG efficiencies accessibility and affordability.
Which provides significant benefits, including a longer amortization period, lower insurance premiums and the beneficial rate to name a few.
With the success of the transition of this late into income producing properties, our focus and development continues to grow and will remain a key part of the <unk> future.
We are proud to collaborate with exceptional partners to bring this much needed supply to market and eagerly anticipate sharing future details as we move closer to breaking ground on each of our exciting projects.
We are well aware of the factory and on interest rates through 2022, and so far in 2023 have affected many infrastructure plans across the real estate sector.
<unk> refined our estimates as we monitor the ongoing rate and economic situations congestion costs in customer demand.
Comparisons of two and four Hanover as soon expanding portfolio in the greater trauma area of Green and Red.
The community located in the city of variance I Wanna GTH flourishing suburbs and a strong amount of market was acquired in late March with two joint venture partners is located on our past.
10, the acreage of land and whats zoning approval in place for over 350000 square feet of additional density.
With a wide variety of amenities zucchini provides an excellent opportunity for the REIT to bring its best in class operating platform to rapidly growing suburban area.
The recent national equity interest in the joint venture is 10% and retain the option to increase our ownership to one third within the prior to year adapter closing.
Like our other partnerships the REIT will act as the property manager and will collect industry standard fees.
I'd like to take those last moment of the presentation to emphasize our future revenue growth potential through the intensification in account portfolio the lease up of commercial portfolio and the fact of the developments, including the lease up on the slate the long term potential of our development pipeline.
In closing I would also like to thank Renee and welcome him to our team I'm sure. Many of you will get to know her in the coming months and if you have not already.
Let's open it up for Q&A.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone, you'll hear the three tone prompt acknowledging you're requesting your questions will be sold in the order. They are received should you wish to climb from the polling process. Please press <unk>.
Followed by two if you are using a speaker phone please lift the handset before pressing any keith.
First question comes from Brad Sturges with Raymond James. Please go ahead.
Hi, good morning.
Just on the on the value add opportunities.
He spoke to particularly the unit buildout.
Yeah.
Some of the opportunities I just I'm just curious what the total size of the.
Opportunity to add.
[noise] suite, two underutilized space right now across the portfolio.
This is the operator I'm unable to hear you.
You got me now.
Sorry.
Can you can you hear me now sorry, we seem to be having technical difficulties on our end.
Yes, we can hear.
Okay, great. Thanks for the question Brad.
As far as the unit build out as you know, we historically have always kind of taken a look at aerospace you try to have somewhat of a creative vision.
Look at an opportunity in.
And look for the repositioning so we're constantly looking at that.
Our portfolio and see what we can do with what others might think in that space.
To be quite honestly had come up with.
Quite quite.
Potential number of additional units that we can hopefully be in the market.
We're at different stages of work on different municipalities that too Jeff.
Permitting on that but it can it can add up to meaningful number we can add up to anywhere call. It half half for centex and Thats, what bow if all of them were brought to market.
Okay.
Is there.
When youre looking at the analysis of these opportunities is there a specific return or yield you look to achieve.
Before you execute on this or is it just youre looking at the opportunity where there's there's no real income from that space and Thats, probably the best use of space to convert to suites.
I think its more the ladder it because if it's not going to be revenue enhancing and other ways. So much will enrich the amenity programming.
The community I think we will always choose to be kind of a part of the solution and bringing additional supply of new homes into a very tight.
Housing market. So I'd say you have them the day it has to make obviously your estimate.
Economic sense to feasibility.
You can be assured that from a return threshold there wouldn't be any different than how we would look at it.
Bringing on Greenfield.
What the SKU costs would be on that excluding obviously the land and the other costs associated with that development. So really it's just your higher costs. So.
Not too often where does not make sense as long as you can.
The layout.
Is sufficient that it makes sense to justify your pro forma.
Thanks, Tom.
Just last question from me just on the fleet.
Congrats on getting fairly quick lease up so far just how are the rents.
Trending compared to the pro forma and then im assuming youre still expecting to be stabilized by the.
The end of September .
Yes, we've been really happy with the traffic.
I'm really excited for this for.
For this community to be honest, we've had our own challenges just dealing with it.
Extraction activity, that's being ongoing outside of the slate so.
Always.
Always presents a challenge I think at the end of the.
Today.
The activity that is ongoing outside of the slate will benefit our overall residence longer term, which so I think a lot of people can see through that.
So that said given kind of the challenges from that construction or Brian I think to be leased up where we are we're really excited about it.
I do feel that we will be able to.
Meet our original schedule kind of being leased up through the normal course of the summer months and we are meeting our pro forma so whilst there has been a little bit about cost creep.
Our pro forma rents.
Set that <unk> been able to obtain the development deal that we.
Average underwritten.
Okay. That's great. Thanks for the color I'll turn it back.
Thanks, Brad.
Your next question comes from Mike <unk> with BMO capital markets. Please go ahead.
Thanks for taking my questions.
Questions Good morning, everybody.
On them.
Mike Mike.
Hey, there my first question is.
You guys. Dave you gave good commentary and declining turnover in sub 20% for sure I don't think anybody would be.
Surprise by the directionality there but.
If we think about your 7% <unk> growth just given what you guys are seeing.
Currently in the market and probably an expectation of that not slowing if not.
Maybe it's even increasing.
What should we be thinking about for <unk> growth as we as we progressed over the next sort of 12 to 18 months.
Well I don't think it's any secret.
Obviously, the the demand side of the equation far outstrips, the supply side, and that's putting pressure on rents and as said not just within their own portfolio I think that's industry wide and it's not.
I think.
Across all provinces across all nodes.
Each different cities so unfortunately.
Got it figured out.
Hey, guys, how we can deliver more suppliers so that we can.
Leave it a little bit of the pressure on the rent growth.
It's really going to be a factor of immigration of the immigration continues at the pace. It is.
Not that this is going to help that supply.
Equilibrium demand supply because it can be lumpy, but even of the immigration that's being quoted were still not back to the historical norm as far as.
The amount of new resident net to Canada, we're at about 40% and I'm looking over at <unk> technologies, that's pretty well, but I think historically, we've been close to 70% of the immigration is net new to Canada.
So that just didn't put even further supply on a very tight market. So I can't emphasize this enough.
Yes.
I can't emphasize this enough we need as an industry generally.
Deliver more supply in and work with all three levels of government to get it there so that.
We can bring in this pressure on rents.
That said.
Youll see rents well abating anytime soon.
I will let you.
Yeah.
Where do you think it can go.
Unfortunately, I don't see a relief valve in the near term.
Got it so I don't want to put words in your mouth, but no reason to believe that your current level of MRO growth well.
Tempur from here and if anything theres potentially some upward pressure on it over the next little while.
I think Thats, a fair comment Mike.
Okay.
Awesome. Thanks.
Just curious I mean theres been some changes as you've noted with the.
With the fees for CMA sea ensured financing and if I think if I read correctly your recall correctly there also.
Getting maybe a little bit more stringent with their underwriting standards you did a lot of.
I mean, I guess youre getting and ahead of the activity with the stuff that you did this quarter.
But given I'm curious to know.
If there is a difference between.
Sort of what seem HC underwrites with respect to our loan to value.
Our loan to value on the properties that Youre doing recently and how that compares to your carrying values and drive for us.
Thanks, Mike It's Kurt here.
There hasnt really been a difference on the underwriting that we've seen over the last little while in regards to their policy back over the last couple of years, they've got a little better if you will on the cap rates and recognizing what was going on in the market.
So we think these changes will influence that from my understanding.
Just might be a little more careful about which markets. They are encouraging new supply because they want to make sure. They are encouraging new supply in markets that need it and not markets that already have higher vacancy rates.
I don't see a change on the underwriting typically CNBC is still very conservative.
Taxpayer, we all foot the bill if theyre not so happy that they are in some ways are in many ways.
Typically I would say over time.
What they would call 75% loan to value on a mortgage would be somewhere between 60, and 65% loan to value. If you compare that to our FMT model or an external appraisal.
That's helpful. Thanks, Kurt.
Last question for me before I turn it back just I think you noted that there was a significant swap it rolled off this quarter are there any other swaps.
In place currently.
When you look at your fixed rate debt being at 96%.
Yes, there is not a lot left and we have a very small one left.
Okay.
Thats sitting out there I'm sorry, it's not swap it just floating very small floating left.
This was the only major one that was sitting out there.
Our plans is probably it'll be around Q3, depending on what happens with CME because I understand that there is a lot of people submitting applications right now.
Just in regards to the increase in rates.
Hoping to get that one rolled into CMA sea by Q3.
Could that drift into Q4, depending on their timing yes.
But we got the mechanisms in place if we see the rates come down before then and we have some line of sight to when it will fund that.
That we could lock early.
And if you lock that down, whereas your where is your variable rate exposure.
After that pro forma.
Once that one's locked away assuming no other acquisitions that go into that bucket.
Sub 1%.
John .
Great.
Very much turn it back.
Thanks, Mike.
Your next question comes from Kyle Stanley with Deutsche Bank. Please go ahead.
Thanks, Good morning, everyone and Kyle.
So I just wanted to clarify Dave I think in your commentary about turnover did you say low 20% turnover is where do you expect or sub 20% just wanted a clarification there.
Yes.
No in the low 20%.
Okay, perfect Thats, what I thought.
Just as we enter the seasonally stronger leasing period.
Are you seeing anything that surprises you the demand stronger or weaker than maybe expected by geography are you seeing the ability for your tenants to absorb higher rents may be different from expectations or just I guess as we get into that stronger period is there anything that has surprised you thus far.
Not really I think one good sign that things are seem to be back to normal.
In the traditional student market, so that seems to be following a regular flow, but I think.
It's sort of following the regular things that happen from year to year quarter to quarter I think what we're seeing now is won't be expecting.
Okay perfect.
On.
And then breakthrough.
Sorry, Cai at Leviathan I might add to that is as we know we had a lot of vacancy.
And going into <unk>.
The decline in leasing months previous year. So we will have a higher turn.
Hopefully, we will have a higher turn.
Towards the later.
Part of the year more so than normal.
Okay great.
Yes, I understand what it means we're not worried good morning, I wanted to clarify.
The amount of demand, we're not worried about that I just wanted to clarify that typically a lot of.
It would have more traditional turns coming at us in the next couple of months versus towards the later part of Q3, but given the nature of what Covid impacted the timing of your leasing is going to a couple of cycles to get back to fully normal type of cycle.
Right got it okay. Thank you for that.
On your same property Opex I mean, it's still a little bit elevated this quarter I think up seven 4% I'm just wondering how do you see that trending do you see some tailwind from lower Nat gas and things like that are pushing through as we advance through the year or just what are your thoughts there.
Okay.
We do.
The heating degree days were down its assumption was down but the price you still got the prices up we do expect.
From some of the work that we mentioned on the previous call that we have a little better visibility of some of the pricing.
The commodity so we are confident that from that aspect that that will come in and we will continue to benefit from some tailwind.
Going forward I would.
I'd also say, we probably had a little more.
Costs in this quarter on a relative year over year basis.
Versus previous I would say last year, maybe add a little bit more timing issue between Q4 of 2021 in Q1 of 2022.
So that I think will start to smooth out a little as well so I think the wind is.
Is that are back now and might get to go out and it's like high probably not but.
As shown in the right direction.
Okay perfect. Good to hear and then just the last one for me could you just walk us through how the REIT expects to potentially scale its ownership interest in the the cross point best quarter JV overtime.
Well it's.
And then we're really.
We're really thrilled.
We completed that transaction and be in that city, Nebraska, and we were there once before and it was extremely hard market to get scale and since we couldnt get scale biomarker reaction dispose of one of our communities. This is a while back.
So we're really thrilled to be back in it because it is a great outcome.
No.
And we love.
We love the site because of the intensification opportunities at all and we love doing that.
That's fine.
Thus far and to be honest are great partners.
<unk> given us the ability to have an optionality.
<unk> allows us to be even put down minimal equity manage it and continue to invest in our operating platform.
And when our cost of capital our lives will be able to buy up our ownership interests to where we would want to be in a more normal situation when our equity capital.
Appropriately reflects the interest of value.
All of our companies. So that's the thought behind it we would love to do more deals like that we're very fortunate that we do have such good partners do in touch points and vascular Joe I think.
The Doctor, we self serving but I think what they get automated.
Get access to our operating platform and a team.
Very much in line and very focused on creating value for all stakeholders.
I think we will look to continue to do that well.
We don't want to do is put all their eggs in one basket. So it's very important that we continue to kind of make sure that we have capacity to be able to execute on the other opportunity that the coastal strong about.
And then last but not least specifically on that acquisition I mean, the debt profile is a great example.
That's been able to go in and create value from day one.
Right. Okay perfect. Thanks for the color that's it for me I'll turn it back.
Oh, sorry, Kyle I'm talking Brad I apologize call.
No no problem.
Your next question comes from Jonathan <unk> with TD Cowen. Please go ahead.
Thanks, Good morning.
Just going back to the operating costs.
<unk> utilities were there any onetime or weather related items and there.
Meanwhile.
So in Q1 of this year, if there was any onetime operating costs.
Yes.
No I think Brian touched on earlier I think it's more a relation to the compare with Q1 last year.
It was a little bit light if you look Q1.
Yes.
Having issues with Scott going into Q4.
Or like sort of before the year started that often gets done in Q1, we got ahead of it and got it done in Q4. So I think it's more a matter of Q1 was a little bit light last year.
Q1 of this year is is it good is a good number.
Okay, and then for Matt.
Brian .
Sure.
Okay.
Brad talked about like sort of the wind at your back so would it be fair to say you would think.
Your overall revenue growth.
Good.
Operating cash flow throughout the early a little volume.
Alright.
Yes, yes, that's fair.
Fair to say for sure Jonathan Theres, one clarification, I don't want to make to us.
As everybody knows me I can get a little overzealous in I think you got a little bit lost in the.
And the title four I mentioned NOI growth of three consecutive quarters, it's really too.
And second quarter.
And Q4, I believe was high single digits for the full year.
It was double digits, but I just wanted to point that out for everybody.
Yes.
Clarify that point, but yes, it's fair to say Jonathan.
Revenue growth should outstrip.
For the remainder of this year.
Okay, and then secondly, you talked a little bit about.
Commercial vacancy and the potential opportunity there and the two lease ups you did.
Post the quarter.
How big like what is your vacancy the commercial portfolio and how big of an opportunity is that.
Okay.
I'm not going to get into the specifics, but on the margin and all of these things.
Alright, I think there is still an opportunity of call it 25%.
The lease up on that commercial space.
It could contribute on the commercial side Jonathan.
Call it half.
That's helpful.
Yeah.
Okay.
Got it.
Is it for me I'll turn it back thanks.
Okay.
Your next question comes from Jimmy Chen with RBC capital markets. Please go ahead.
Thanks, David.
The Brampton hi on the Brent than asset.
What does the going in cap rate look like.
Hi.
We're not we're not going to disclose that.
We've got it we've got a partner you can with the debt being where it is you can be assured that.
This is the accretive going in one day.
Hey, Juan.
I will say, we're very happy with it and I will say it meets our traditional thresholds.
The increase it.
Once you get to a stabilization of call it over 100 basis points.
Right.
Presumably there's a decent amount of mark to market opportunity on that on that asset.
That'd be correct.
And be pretty consistent to what you're seeing across your portfolio.
That's correct.
I'd also say, we've taken a very conservative approach on the underwriting because as we all know.
Turnover is coming covenants.
Especially for core areas.
Yeah, and so that's what we're trying to get at I mean, this dynamic of <unk>.
Flowing turnover rate, but higher turnover rent growth.
So maybe using this as an example, if you can like.
It seems to me that those would be the two big variables in underwriting an asset to come up with a value today.
So how are you how are you and how do you think the market thinking about sort of the interplay between those two variables.
Alright.
Yes. It is.
Good.
Specific to us solve for sure and then in the abdomen.
<unk>.
Today's been aimed to be zero Graham.
On your turnover.
Good.
Let's back up the one thing we can do I think we can do pretty well is nowhere in market and be able to.
Price our rents accordingly to the fundamentals of that node.
And and the competitive.
Competitive positioning of where we want to take that product within the competitive positioning so I do feel pretty comfortable when we underwrite when we do our market analysis approach so for us that's less of a.
Yeah.
A look or a forecast per se.
Turnover I don't have as much visibility to obviously I mean, we will look at the historical rent rolls and whatnot and we will look at.
Different disclosure on what's in the marketplace and if we're lucky enough to have.
On manage our own communities within the same competitive node then obviously, we can draw upon that.
To make some more informed decision.
When you lack those different pieces of information then you err on the side of conservatism and what you will at least what we typically will do and there's a lot of times it hurts us and takes us out of the running on a lot of the competitive beds is we will air on <unk>.
Service side, and we will cut it will.
We'll cut or turnover assumption by as much as two to 400 basis points.
Hurt overall.
Long term IRR, but it is what it is right so right.
That's how we approach Jimmy I don't know if that answers your question.
That makes sense and so maybe just to use maybe to get a sense of the numbers.
Days you'd be using for as an example, this brampton asset.
Turnover rate assumption would be in the 15% range or would it be 10 or would it be.
I'm not going to give it.
But maybe maybe not.
Enrolled.
It's very market specific.
Not even margin no it didn't.
Any specifics yet.
It's very very different markets that are still Barry is there a university of Zurich colleges or a hospital cross from it.
Is the demographic profile a lot of international students as there are a lot of young professionals that are single and I haven't met a life partner, yet where they've decided to move out and move in together is it like theres a lot of different dynamics now granted tends to be more.
A pretty strong immigration.
Market. So some that you might differ statistically data has shown that newcomers to Canada will settle in one area with five or six years before branch level. So.
Overall market you might infer that there might be lower turnover in the market.
But it is really asset specific.
Right, Okay. Thanks for that.
And then just very quickly accounting wise on the sleep.
Fleet asset he was transferred into income producing but I'm a little confused as to so there was really no NOI relating to that asset in the quarter.
Or how do we how does that work again proved a little yeah. It was it was pretty minor the NOI related to that asset.
I need <unk> approximately.
Because the leases the lease up through the quarter and you got a lot of operating costs that.
Our full cost where rents are not full rents because you are still leasing up so pretty minimal contribution to NOI in the quarter, but just given where we were at with basically a few finishing touches.
At the end of the quarter plus the give any on the roof and some of the outside work that where we're holding on because the city is still ripping up the street.
There is no use doing that just yet.
All right.
The main 11 floors of occupancy are all pretty much ready to go.
Given where we were at it just made sense to move it from copper.
Properties under development income producing.
And with our lease up and the strong lease up that we've seen through the queue being close to 50% at Keybanc.
It sort of checked all the boxes from an accounting perspective to move it from.
Be kept producing.
Okay.
Thanks, guys.
Thanks, Jamie Thanks, Jamie.
Your next question comes from Matt Mccormack with <unk>.
National Bank financial please go ahead.
Hey, guys.
Just with regards to new versus value add versus development.
Youre deploying capital into each of these buckets.
Do you have a sense as to which you prefer it at this point or do the risk reward profiles kind of make all three entertaining to you going forward.
Well I think without a doubt from a risk reward potential the.
The reposition and just continuing to.
Tim Vas.
Into our own repositioning program.
Program currently.
The highest risk adjusted returns, but obviously you're at the.
Yes, victimize should the natural cadence of turnover in that aspect, but I think that when you do all day long when it comes to capital allocation.
Would say as.
As we go forward, we'll continue to look at <unk>.
New build and buy new.
For multiple reasons.
I think it makes sense, but we will continue to look at the value add has served us well, we built up the expertise over the last 20 years in this organization.
And it's something that I think we do.
Good job.
It is down.
Balancing.
Launching the app by the U S.
I don't think this should come as a shock I think we have said.
Okay.
The last 12 months that you will continue to see us play more and more in the knee.
And you will see that now.
Good news from a development side is cost start to look like they might be subsided and in some cases, they might be decrease in the level and rents have continued gone the other way I understand that interest rates have increased.
At a record pace of accelerated over six times.
Very short burst, but rents continue to increase.
Hopefully I think seeing close to the peak I'm not going to call the top where I wouldn't be on this call would be trading fixed income somewhat.
I think we're somewhere near the peak or we've seen the peak.
So I think there is some good news on the horizon on the Newbuild tried it.
And the ones that I do know this country needs to deliver new supply. We have this this this is not.
When what we just we have to do it so we're going to have to find ways with the three levels of government.
I know ourselves I know our peers are going to be play a big role in helping to provide that in the supplier lease side.
Syed and purchased some of that new supply operated.
Final banner, which I think all stakeholders will be on the winning side up.
So you will see gradually more capital allocated.
To the to the Greenfield, but thats not to say that you won't see us continue.
To explore and execute on opportunities that are value add that fit within our core regions and meet our investment criteria.
Okay no. Thank you and then on an.
Some of the repositioning projects that may have been put on hold during the pandemic.
Is the rent environment at a point, where youre willing to put that capital to work and then I know you guys have access to capital, but some of your.
Private smaller peers may not so do you think that this type of environment may actually see a degradation in the quality of your competition to some extent because they're not investing in their assets to keep them up.
Yes, there is.
One question on the ladder I do believe that Matt I do believe it is.
Kevin it's getting to a point is going to be very hard for the private landlord to buckle down that curve.
A big part of the puzzle for them and it is the financing and so you may see in the way things are changing.
Additional.
Premiums seem matrices come in with all of that.
Kurt come in and add some color but.
I would very much say that.
The competitive landscape is changing and it's changing pretty fast.
But the one thing that.
It's scary as capital for everyone right now at least amazingly price capital.
One known as <unk>, a lot of product that needs to be reinvested it right and not only do we need to deliver new supply.
There is a big need for the interaction of the world in some of our peers of the world that do do to be positioned to continue to reinvest.
Just making sense.
We have long term capital and the short term opportunity.
Sure.
And match it up but I would say that it does definitely feel like there's going to continue to be a thorn.
Market and illness.
On the private side.
Navy unload where there is definitely a willingness on the private side to transact for the chantry of that filing.
The air ticket environment, I don't know Kurt if you want to add something to that I agree I mean, if you think about the equity takeover rules that <unk> introduced a couple of years ago do you think about the rates. They are doing now and you think about the announcement that they just made about being sort of if you will if you read between the lines more selective or more conservative or more of a risk base.
<unk> approach to looking at someone who's maybe tend to take on a little more leverage or whatever you could see I agree you could see that tightening up or the smaller private owners, who may be on the buildings are too because all those things will eat into their ability to operate it that way that used to operate and so I think you could see more of that come to market. As a result, I would say this is Matt.
I think if you're an equity buyer right now.
Or here.
High net worth.
Family Office.
It's a great time to be there because this.
This is a great asset class to kind of hedge.
Sure inflation bet.
And preservation of capital.
And I think those so definitely.
Well welcome and Lucky.
To be fair.
I think the majority of the buyers in this space has been the leader private buyer, which is accurate.
Okay, No that absolutely makes sense and then last one for me with regards to <unk> growth.
You've.
Almost mark to your debt to market.
Still a little bit below where interest rates are today, but but getting closer so I mean, obviously year over year the.
Figures are impacted by that but.
As we look to 2020 for it I would assume given the same property NOI growth that you are putting up and expect to continue to put up an interest rate stabilizing.
Your hope is to get back to pretty robust earnings growth in 2024 and beyond.
I would say Matt.
You're bang on.
We've had the headwinds of the higher financing costs.
The majority of that is now being absorbed.
The most part.
So I do I do look forward to.
All else being equal, meaning we continued to pose strong operational results and there's no reason to believe that we want.
We are we should see a return to the.
The year over year.
I think doesn't come more notes.
As you enter into the second.
Sure no that makes sense thanks, guys.
Yeah.
Your next question comes from Gaurav Mehta with <unk> capital markets. Please go ahead.
Thank you and good morning, everyone.
Just from an insurance viewpoint.
Are you seeing any distressed opportunities that could potentially put into the portfolio across any of your market.
We're not we're not seeing distress opportunities to say I think what you will see us there might be some examples where.
If you looked at new development and whatnot.
And third the voluntary and condos and whatnot.
How much of that on the go.
Now I'll be willing to talk but there has been nothing that has really come to us from a duress Scott.
Yeah.
Okay great.
Just one last one from me.
We saw the decrease in administrative costs this quarter compared to the last.
Whats driving that and would that be a fair run rate for the year ahead.
Sorry, I just missed first of all a bit something about disclosure.
Now the decrease in administrative costs.
Quarter on quarter, I'm, just asking what's driving that and what would be a fair run rate for the overhead.
I think if you go back I think when we publish Q4, we were saying expect to be around four in a quarter to four and a half on a quarterly basis.
It was a little light in Q1, some of that is timing issues, given where we're at now and looking sort of ahead, we're probably at the low end of that range should probably four in a quarter more than four and a half.
And you'd be you'd be at a good run rate.
Okay, great. Thank you for the color gentlemen, I'll turn it back to the operator.
There are no further questions at this time. Please proceed.
Okay.
Okay.
Okay.
Okay great.
Thanks, everybody.
Hello.
Sorry about that.
Alright, no problem just like to thank everybody for their participation on the call and thank you very much and we look forward to talking to all of you again.
Next quarter, but in the meantime, like always if there is any further questions or any further color, we're always more than happy to jump on the call.
Thanks again.
Great.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.
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