Q4 2023 Minto Apartment Real Estate Investment Trust Earnings Call

Lara: Good morning. My name is Lara, and I'll be your conference coordinator today. At this time, I would like to welcome everyone to the Minto Apt REIT 2023 4th Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.

Good morning, My name is Laura and I'll be your conference coordinator today at this time I would like to welcome everyone to the mental apartment REIT, China Chinese fee first.

Quarter financial results conference call.

All lines have been placed on mute to prevent any background noise after it.

Lara: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star, then the number 2. 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.

Just because your marks there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.

If you would like to withdraw your question. Please press Star then the number two.

Before we begin I want to remind listeners that statements 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.

Lara: Please refer to the cautionary statements and forward-linking information in the REIT's news release in its MD&A, dated March 6, 2024, for more information. During the call, management will also reference certain non-IFRS financial 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.

Please refer to the cautionary statements on forward looking information and the read the news release and MD&A dated March six 2024 for more information.

During the call management will also reference certain non <unk> financial 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 ifr S.

Jonathan Li: Please see the REITs MD&A for additional information regarding non-IFRS financial measures, including reconciliations to the newest IFRS measures. Thank you. Mr. Li, you may begin your conference. Thank you, operator, and good morning everyone.

Please see the weeds MD&A for additional information regarding non <unk> financial measures, including the constellations didn't use to ifr assessors.

Mr. Lee you May begin your conference.

Thank you operator, and good morning, everyone I'm, Jonathan Lee President and Chief Executive Officer of Indo apartment REIT with me on the call as Eddie Food, our Chief Financial Officer, and Paul Barron, Our senior Vice President of operations.

Jonathan Li: I'm Jonathan Li, President and Chief Executive Officer of Minto Apt REIT. On the call with me is Eddie Fu, our Chief Financial Officer, and Paul Baron, our Senior Vice President of Operations. I'll begin the call by discussing some highlights from the 2023 fiscal year, followed by the fourth quarter specifically. Eddie will review our financial results and liquidity, and I will conclude with our property development pipeline and business outlook. After that, we will be pleased to answer your questions.

I'll begin the call by discussing some highlights from the 2023 fiscal year, followed by the fourth quarter specifically.

And he will review, our financial results and liquidity and I will conclude with our property development pipeline and business outlook. After that we will be pleased to answer your questions.

Jonathan Li: Our improved financial performance in 2023 is due to strong operational execution supported by rental market fundamentals, as well as our disciplined capital allocation that resulted in a significant reduction in our variable rate debt. We achieved strong double-digit NOI growth and converted it into growth in FFO and AFFO per unit, despite carrying a large amount of expensive variable rate debt earlier in the year. Importantly, our cash flow growth improved sequentially in every quarter this year, which positions our balance sheet to provide flexibility entering 2024. As the chart on this slide shows, we generated year-over-year growth in all of our key financial metrics.

Our improved financial performance in 2023 is due to strong operational execution supported by rental market fundamentals as well as our disciplined capital allocation that resulted in a significant reduction in our variable rate debt.

We achieved strong double digit NOI growth and converted it into growth in <unk> and <unk> per unit, despite carrying a large amount of expensive variable rate debt earlier in the year.

Importantly, our cash flow growth improved sequentially in every quarter, this year, which positions our balance sheet to provide flexibility in spring 2024.

As the chart on this slide shows we generated year over year growth in all of our key financial metrics.

Jonathan Li: In addition, during 2023, we advanced attractive development projects in our pipeline, we increased cash distributions for the fifth consecutive year, and we scored highly in the 2023 GRSB assessment. Turning to slide four, strengthening our balance sheet was a key priority for us in 2023 and continues to be one in 2024. We refinanced eight mortgages, generating incremental proceeds and conserving capital by waiving on five ROFOs and one purchase option and postponing construction of a major intensification project at High Park Village. In addition, we're very pleased with the execution of our capital recycling program. We have sold a total of five non-core properties for total proceeds of $128 million, which represents 5% of our total asset value. All of the net proceeds from the asset sales were used to repay our expensive variable rate debt.

In addition, during 2023, we advanced attractive development projects in our pipeline, we increased cash distributions for the fifth consecutive year and we scored highly in the 2023 Graysby assessment.

Turning to slide four strengthening our balance sheet was a key priority for us in 2023 and continues to be one and 2024.

We refinanced eight mortgages generating incremental proceeds and conserve capital by waiving on five ROFO, then one purchase option and postponing construction of a major and Densification projects at high Park village.

In addition, we're very pleased with the execution of our capital recycling program. We have sold a total of five non core properties for total proceeds of $128 million, which represents 5% of our total asset value.

All of the net proceeds from the asset sales were used to repay our expensive variable rate debt.

Jonathan Li: On January 31st, 2024, we received repayment of the CDL on Fifth and Bank, and we are also exploring upper refinancing opportunities for three additional properties. Upon completion, these efforts will reduce our variable rate debt exposure to a low single-digit percentage of total debt, positioning us well for 2024. Moving to slide five, we had very strong fourth-quarter results. Average monthly rent grew 8.4%, and unfurnished suite revenue grew by 7.3% compared to Q4 last year. We achieved a gain on lease of 16.1%, and our gain to lease potential was 17.1%. Annualized turnover was 20.3% in line with historical norms, allowing us to capture significant embedded rent in those... Normalized operating expenses increased by 2% due to a mild winter and a drop in natural gas rates.

On January 31, 2024, we received repayment of the CDL on fifth third bank and we are also exploring upper refinancing opportunities for three additional properties. Upon completion. These efforts will reduce our variable rate debt exposure to low single digit percentage of total debt positioning us well for 2024.

Sure.

Moving to slide five we had very strong fourth quarter results.

Average monthly rent grew eight 4% and unfinished suite revenue grew by seven 3% compared to Q4 last year.

We achieved gain on lease up 16, 1% and our game Chiles potential was 17, 1% Andy.

Annualized turnover was 23% in line with historical norms, allowing us to capture significant embedded rent in those suites.

Normalized operating expenses increased by 2% due to a mild winter and a drop in natural gas rates.

Jonathan Li: This led to a normalized NOI increase of 9% compared to Q4 2022 and a normalized NOI margin increase of 150 basis points. Normalized FFO and AFFO per unit increased by approximately 21% and 26%, respectively, reflecting our successful efforts to moderate interest cost growth in addition to our strong operational execution. The normalized AFFO payout ratio was 60%, a reduction of over 1,300 basis points compared to Q4 2022.

This led to a normalized NOI increase of 9% compared to Q4, 2022, and a normalized NOI margin increase of 150 basis points.

Normalized <unk> per unit increased by approximately 21% and 26% respectively, reflecting our successful efforts to moderate interest cost growth. In addition to our strong operational execution.

The normalized <unk> payout ratio was 60% a reduction of over 3500 basis points compared to Q4 2022.

Edward Fu: You can see a summary of our key operating results on page 6, and I'll now turn to Eddie Fu to discuss our results in greater detail, starting on slide 7.

You can see a summary of our key operating results on page six and I will.

Now turn to Eddie food to discuss our results in greater detail starting on slide seven Eddie.

Edward Fu: Thank you, John. This chart highlights the REIT's continued growth in average monthly rent and strong quarterly gain-on-lease performance. Gain on lease has exceeded 16% in five consecutive quarters, and we have captured consistently strong gain on lease in the slower winter leasing season. Moving to slide 8. We signed 335 new leases in the fourth quarter. The average monthly rent on new leases increased 16.1% to $2,182 per suite, with double-digit gains realized in all markets.

Thank you John This chart highlights the rates continued growth in average monthly rent and strong quarterly data on lease performance.

<unk> has exceeded 16% in five consecutive quarters, and we have captured consistently strong gain on lease and the slower winter leasing season.

Moving to slide eight.

We signed 335, new leases in the fourth quarter. The average monthly rent on new leases increased 16, 1% to $2182 per suite with double digit gains realized in all markets.

Edward Fu: The embedded gain-to-lease potential at year-end remains strong at 17.1%, representing $23.8 million of annualized incremental revenue growth. The gain-to-lease potential was slightly lower compared to 17.7% at the end of the 3rd quarter as growth in market rents slowed during the winter months, as is typical. Moving to slide 9, annualized suite turnover for the same property portfolio was 20.3%. This was in line with traditional seasonal levels after lower than normal turnover in the first half of the year. Turnover was particularly high in Calgary due to the availability of affordable homes in Calgary and tenant departures arising from the loss of promotions granted in the past. Ottawa's turnover was relatively stable. Turnover in Montreal was slightly above CISO norms as market rates are some of the most affordable in major Canadian urban centers.

The embedded gain to lease potential at year end remains strong at 17, 1%, representing $23 8 million of annualized incremental revenue growth.

The gain to lease potential was slightly lower compared to 17, 7% at the end of the third quarter as growth in market rents slowed during the winter months as is typical.

Moving to slide nine annualized suite turnover for the same property portfolio was 23%.

This was in line with traditional seasonal levels after a lower than normal turnover in the first half of the year.

Turnover was particularly with the heightened Calgary due to the availability of affordable homes in Calgary and tenant departures are rising from the loss of promotions granted in the past.

Auto was turnover was relatively stable.

Turnover of Montreal was slightly above seasonal norms as market rates are some of the most affordable of major Canadian urban centers.

Edward Fu: And in Toronto, turnover was reduced in our rent-controlled buildings as tenants opted to stay in place due to the high market rent. We maintained consistent closing occupancy in the quarter as move-ins kept pace with move-outs. And we expect turnover to slow in 2024 as the gap between sitting rents and market rents continues to rise. On slide 10, we provide an update on our Furnished Suite portfolio. The entertainment industry strikes were resolved in the fall of 2023, but demand is still stabilizing at York. In Ottawa, government activity remains below historic norms, and so we saw fewer contract extensions at 185.

And in Toronto turnover was reduced in our rent control buildings as tenants opted to stay in place due to high market rents.

We maintained consistent closing occupancy in the quarter as move ins kept pace with move outs.

And we expect turnover to slow in 2024 as the gap between sitting rents and market rents continues to rise.

On slide 10, we provide an update on our furnished suites portfolio. The entertainment industry strikes were resolved in the fall of 2023, but demand is still stabilizing at yorkville.

And auto government activity remains below historic norms, and so we saw fewer contract extensions at 185.

Edward Fu: We continue to convert some of these suites into our unfurnished portfolio, completing 10 conversions in 2023. As we enter peak leasing season during the summer, we're hopeful there will be a return to historical occupancy levels in our Furnace. Moving to slide 11, normalized operating expenses for the same property portfolio increased 2% compared to Q4 last year. However, this represented reduced expense growth compared to recent quarters. Normalized property and operating costs increased 1.9% due to higher salaries and wages, partially offset by lower repairs and maintenance costs due to mild winter weather. Property taxes increased 9.1% because of changes in assessed values in Montreal and increased rates in Ottawa and Toronto.

We continued to convert some of these suites into our unfinished portfolio completing 10 conversions in 2023.

As we enter peak leasing season during the summer we're hopeful there will be a return to historical occupancy levels in our furnished suites.

Yeah.

Moving to slide 11 normalized operating expenses for the same property portfolio increased 2% compared to Q4 last year.

This represented reduce expense growth compared to recent quarters.

Normalized property operating costs increased one 9% due to higher salary and wages, partially offset by lower repairs and maintenance costs due to mild winter weather.

Property taxes increased nine 1% because of changes in assessed values of Montreal and increase rates in Ottawa and Toronto.

Utility costs declined five 6% due to a large drop in natural gas rates combined with reduced usage.

Edward Fu: Utility costs declined 5.6% due to a large drop in natural gas rates combined with reduced use. Moving to suite repositioning on slide 12, we repositioned 18 suites in the fourth quarter, which generated an ROI of 11.8%. For the full year, we repositioned 116 suites and generated an average ROI of 9.9%. We expect to reposition 50 to 90 suites this year, which is lower than previous years due to limited vacancy, slower turnover, and the opportunity cost to take suites offline and renovate them. Turning to slide 13, you will find our key depth statistics. As you can see in this chart, we have a balanced maturity schedule for our term debt. Maturities represent less than 9% of total debt in each of the next six years, and more than 40% does not start to come due until 2030.

Moving to suite repositioning on slide 12, we repositioned <unk> suites in the fourth quarter, which generated an ROI of 11, 8%.

Full year, we repositioned 116 suites and generated an average ROI of nine 9%.

We expect to reposition 50 to 90 suites, this year, which is lower than previous years due to limited vacancy slower turnover and the opportunity cost to take suites offline and renovate them.

Turning to slide 13, you will find our key debt statistics.

As you can see in this chart, we have a balanced maturity schedule for our term debt.

Maturities represent less than 9% of total debt and each of the next six years.

And more than 40% does not start to come due until 2030.

As of the 2023 year end the weighted average term to maturity on our term debt was $5 eight years with a weighted average interest rate of three 4%.

Edward Fu: As of the 2023 year-end, the weighted average term to maturity on our term debt was 5.8 years, with a weighted average interest rate of 3.4%. Thanks to the significant reduction in our exposure to variable rate debt. 88% of year-end debt was fixed rate, and 75% was CMHC insured. Total liquidity was approximately $98 million at year-end, and debt-to-gross book value was 42.8%.

Yes.

Thanks to the significant reduction in our exposure to variable rate debt, 88% of year end debt was fixed rate and 75% with CMC insured.

Total liquidity was approximately $98 million at year end and debt to gross book value was 42, 8%.

I'll now turn it back over to John to wrap up thanks, Eddie moving to slide 14, we continue to have a robust pipeline of opportunities from a combination of on balance sheet and densification as well as acquisition opportunities through our strategic relationship with the Minto group.

These opportunities represent over 4500 units, which will help contribute to increasing housing supply.

Jonathan Li: I'll now turn it back over to John to wrap up. Thanks, Eddie. Moving to slide 14, we continue to have a robust pipeline of opportunities from a combination of on-balance sheet intensifications as well as acquisition opportunities through our strategic relationship with the Minto Group. These opportunities represent over 1,400 units, which will help contribute to increasing housing supply. You can find updated information and photos on slides 15 and 16.

You can find updated information and photos on slides 15 and 16.

I will conclude with our business outlook on slide 17.

The fundamentals underpinning our sector continue to be strong.

Canada has a housing shortage and an affordability issue for which there are no quick fixes very simply our population is growing faster than the number of homes that we can build especially in the <unk> core urban markets and we believe this trend will continue throughout 2024 and beyond.

Our high quality urban portfolio was well positioned to capitalize on the positive industry fundamentals and the disciplined capital allocation decisions. We have made have positioned us well heading into 2024.

Jonathan Li: I'll conclude with our business outlook on slide 17. The fundamentals underpinning our sector continue to be strong. Canada has a housing shortage and an affordability issue for which there are no quick fixes.

Going forward, we will continue to manage our business prudently and focus on growing <unk> per unit exploring attractive refinancing opportunities.

Jonathan Li: Very simply, our population is growing faster than the number of homes that we can build, especially in the REIT's core urban markets, and we believe this trend will continue throughout 2024 and beyond. Our high-quality urban portfolio is well-positioned to capitalize on the positive industry fundamentals, and the disciplined capital allocation decisions we have made have positioned us well heading into 2024. Going forward, we will continue to manage our business prudently and focus on growing FFO and AFFO per unit, exploring attractive refinancing opportunities, and making Disciplined Capital Allocation Decisions.

Disciplined capital allocation decisions, reducing our credit facility balance where possible and critically assessing growth opportunities in our pipeline.

We are confident that by executing on this strategy, we will drive strong returns for unitholders operator, Please open the line for questions.

Thank you, Sir ladies and gentlemen, you will now begin the question and answer session. So do you have a question. Please press star followed by the number one on your Touchtone phone you will hear today from that's all in junior request to Derisk the declines on the promoting conference. Please press star one.

By the number Q, if you're using a speaker phone. Please lift your handset before pressing any keys.

Our first question comes from the line of Jonathan <unk> from TD Cowen. Please go ahead.

Lara: Reducing our credit facility balance where possible and critically assessing growth opportunities in our pipeline. We are confident that by executing on this strategy, we will drive strong returns for unit holders. Operator, please open the line for questions. Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your touchtone phone.

Good morning.

First question just on the suite repositioning program.

You guys are looking to slow that down. This year is that is that a function of the turnover slowing or just given how strong. The market is are the incremental returns on on repositioning not justify not justifying doing as many.

Hey, Jonathan it's John here, Thanks for the question.

Yes look it's a continuation of everything we've seen one theres less white space in our portfolio. So.

Lara: You will hear a three-tone prompt acknowledging your request. To de-rich the declines in the polling process, please press a star followed by the number. If you're using a speakerphone, please lift your handset before pressing the button.

So thats number one number two the opportunity cost of taking something down for three months.

Jonathan Li: Our first question comes from the line of Jonathan Kelcher from TD Cowen. Please go ahead. Thanks, good morning. First question: just on the suite repositioning program, you guys are looking to slow that down this year. Is that a function of the turnover slowing, or just given how strong the market is, are the incremental returns on repositioning not justifying it? Hey Jonathan, it's John here. Thanks for the question. Yeah, look, it's a continuation of everything we've seen.

Very high now compared to what it was before.

It's much fat is much better economically for us to do a turn in a few days or a week and get someone in there right away and I think the 50 to 90.

We've.

Kind of estimated for 2024.

Our are definitely units that we think are going to need turns and so those are the ones, where it's been in there for tender 10 or more years.

We need to invest the money into that.

To get it up to standard to rent it out at a market rate.

Jonathan Li: One, there's less white space in our portfolio. So yeah, so that's number one. Number two, the opportunity cost of taking something down for three months is very high now compared to what it was before. It's much better economically for us to do a turn in a few days or a week and get someone in there right away. And I think the 50 to 90 that we've kind of estimated for 2024 are definitely units that we think are going to need turns. And so those are the ones where a tenant's been in there for 10 or more years, and we need to invest some money into that unit to get it up to standard, to rent it out.

Okay and then so then the how should we think about per unit.

<unk> costs for that are the capex.

Geared towards that.

It's similar to before right like we're anywhere like 50 Grand 85 brand depending on the market in this week.

Okay, and then just on your furnished suites you.

You took 10 of them are converted 10 of them this quarter.

Are you at a level now where.

The 178 is a number we can think about or are you going to continue to move those keep moving those moving that number lower.

Look I think we're trying to be nimble here I think we are dipping our toe in the water in terms of what we think is better and we're kind of experiment a little bit so.

Jonathan Li: Okay, and then, so then how should we think about per unit? I mean, it's similar to before, right? We're anywhere from 50 grand to 85 grand, depending on the market. Okay, and then just on your furnished suite, you took 10 of them, or you converted 10 of them this quarter. Are you at a level now where? 178 is a number we can think about, or are you going to continue to...? www.kenshasaric.com Look, I think we're trying to be nimble here.

I think yes.

I don't think youre going to see a sea change, but I think we're really trying to figure out.

The economics and really the long term benefits of potentially converting some of these to be unfairness.

Predictability of Gaslog I think is important to us, but we are at we are balancing yield management and as you can see the rent performance in that portfolio is that kind of.

We exceeded even our own expectations, despite even a tick down in occupancy. So so you can see the power of that.

But we are trying to optimize it.

You'll see us kind of tweak it around the edges going forward.

Okay fair enough and just.

Jonathan Li: I think we are dipping our toe in the water in terms of what we think is better, and we're kind of experimenting. So, um, I think. I don't think you're going to see a sea change, but I think we're really trying to figure out the economics and really the long-term benefits of potentially converting some of these to be unfurnished.

And I'm guessing that in Ottawa.

2024 ends up being an election year that would be less government activity.

<unk> fiber is that is that fair to think of it that way.

Hey, Jonathan It's Paul speaking.

Prior year elections, we've actually seen a bit of an uptick in activity and we'll see what happens this time around but Sam.

Jonathan Li: Predictability of cashflow, I think is important to us, but we are balancing, you know, yield management. And, as you can see.

Could be it could be optimistic in that situation and we're going to come in a bit of a low base right.

Paul Baron: The rent performance in that portfolio has kind of exceeded even our own expectations despite a kickdown in occupancy. So, you can see the power of that, but we are trying to optimize it. I think you'll see us kind of tweak it around. Okay, fair enough. And just, and I'm guessing that in Ottawa... 2024 ends up being an election year, that would be less government activity yet. 185 or is that not fair to think of it that way? Hey Jonathan, it's Paul speaking.

Yes.

So it's kind of any any any change will probably be a little.

Little bit upside, but we're not banking on it but that's kind of how we're thinking about it.

Thanks, Oliver I'll turn it back.

Thank you.

Our next question comes from the line of Kyle Stanley from Davidson. Please go ahead.

Thanks, Good morning, guys.

Two quick ones for me on the Alberta portfolio I mean, you touched on the decline in occupancy and higher turnover, but just wondering if you could elaborate a bit more on kind of the.

What happened there during the quarter and then would it be specific to one building or kind of broadly across your asset base there.

How do you see the lease up evolving through the year do you look at it as a bit of a tailwind.

Paul Baron: You know, in prior-year elections, we've actually seen a bit of an uptick in activity. We'll see what happens this time, could be, could be. And we're kind of coming off a bit of a low base, right? Yep. So it's kind of any, any, any change or problem. A little bit. We're not banking on it. Scott Howard.

Yeah, Hey, Alex Barron speaking, so really a timing issue there so in Calgary and kind of mixed across all buildings in the market.

Residents at affordable alternatives. Some promotion was running off we also pushed through pretty strong renewal rates in the quarter.

Lara: Okay, thanks. I'll turn it back. Thank you. Our next question comes from the line of Kyle Stanley from Digitons. Please go ahead.

What I can say in the early part of 2024, we've really snapped back so a bit of.

That bit of a checkmark.

Occupancy in that market to start the year off so more of a timing issue than anything.

Kyle Stanley: Thanks. Morning, guys. Just two quick ones for me.

Okay.

Paul Baron: On the Alberta portfolio, I mean, you touched on the decline in occupancy and higher turnover, but I was just wondering if you could elaborate a bit more on kind of the, you know, what happened there during the quarter? And then, you know, was it specific to one building or kind of broadly across your asset base there? How do you see the lease up evolving through the year? Do you look at it as a bit of a tailwind? Yeah, hey Kyle, it's Paul Baron speaking. So it's really just a timing issue there.

Okay. Perfect. So you would probably expect to see occupancy trend back towards maybe where it was I think within that kind of mid 99% range, but maybe just a little closer to that that through the year.

That's correct.

Perfect and then just the last one.

Just on the <unk> vacancy where would the rents have been versus market or I guess put it another way do you expect to achieve an uplift on.

Re leasing you know once the spaces leased up.

Yeah. So they were very much at markets they've been in this space for 20 years at Kyle. So it was somewhat designed for them. So we're optimistic that we will be able to achieve replacement rents at the same level as two securities.

Paul Baron: So in Calgary, kind of mixed across all buildings in the market. Residents had affordable alternatives. Some promotion was running off. We also pushed through pretty strong renewal rates in the quarter. What I can say is that in the early part of 2024, we've really snapped back, so a bit of a bit of a checkmark in occupancy in that market to start the year off. So more of a timing issue.

Where we anticipate the release will likely take around six months. So optimistic that we will have a resident in there for this fall.

Okay.

Perfect. Thanks, very much I'll turn it back.

Paul Baron: Okay, perfect. So you would probably expect to see oxygenity trend back towards maybe where it was, I know, I think it was in the kind of mid 99% range, but maybe just a little closer to that through the year. And then just the last one, just on the Pusateri vacancy, where would the rent have been versus the market, or I guess, put another way, do you expect to achieve an uplift on releasing the space, you know, once the space is kind of leased up? Yeah, so they were very much in the market. So they've been in this space for 20 years, Kyle, so it was somewhat designed for them.

Thank you.

Ladies and gentlemen, just a reminder, so do you have a question. Please press star followed by the number one.

We have our next question coming from the line of Jamie Shen from RBC capital markets. Please.

Please go ahead.

Ah. Thanks, So we're three months into the year, maybe if you could comment on what you're seeing in terms of market rent trends I know you touched on the Calgary interest in occupancy overall.

So far.

Sure thing Hey, Jamie.

Yeah.

Thank you.

We saw the whole market saw a little bit of a pullback in rents kind of December and January.

Paul Baron: So we're optimistic that we will be able to achieve replacement rents at the same level as Pusateri's, where we anticipate the release will likely take around six months. So we're optimistic that we'll have a resident there, and then that's it. Okay. Perfect. Thanks very much.

And I think even internally as a management team and as we shared with many investors. It was like look we don't know if its structural or this is just.

January.

So we are we have been really keeping a close eye on our key lead metrics in our just our lease up in January and February.

Lara: I will turn it back. Thank you. Ladies and gentlemen, just a reminder, should you have a question, please press star followed by the number 1 on your touchstone phone.

We're I guess, what we can say is we're quite pleased with the performance through the end of January and also through February.

February was quite.

Quite strong.

Unnamed: We have our next question coming from the line of Jamie Shan from RBC. Thanks, so we're going to the year. Comment on what you thought of the video.

From a leasing perspective.

So that's encouraging to us.

And then I think you also we might also get some benefits from just I think it's been the warmest January and February I think.

Unnamed: Thank you for watching. Sure thing. Hey, hi, Jimmy.

Jonathan Li: You know, I think that the whole market saw a little bit of a pullback in rent in December and January. And I think even internally as a management team, and as we shared with many investors, it was like, look, we don't know if this is structural or this is just January. And so we've been really keeping a close eye on our key lead metrics and our just our lease up in January and February, and you know, we're I guess what we can say is we're quite pleased with the performance through the end of January and also through February was quite strong from a leafing perspective. And so that's encouraging to us. And then I think you also, we might also get some benefits from just, I think it's been the warmest January and February, I think, for as long as I can remember.

As for as long as I can remember.

And so obviously from from a snow clearing perspective and from a natural gas usage cost and all that I think thats going to be.

Pretty favorable at least through January February and the first week of March.

Okay.

Okay, and then on turnover rate what would be your expectation for 'twenty four.

I think we're thinking about it in the terms of like I don't know 17, 19% type thing on average over the year.

Like slightly lower than where we are for where we ended for the.

2024.

Secondly, the way to research.

Okay.

And then maybe just loss.

You talked about passing up on a stabilized deal.

Maybe could you provide a bit of color on kind of what that opportunity looks like in <unk>.

Lee with what's happened with that deal.

Alright, we're steel you're referring to Jamie. This is a this is a deal from Minto private yeah.

Jonathan Li: And so, you know, obviously, from a snow-clearing perspective... From a natural gas usage cost and all that, I think that's going to be, you know, pretty favorable, at least through January, February, and the first, and then on turnover rate. I think we're thinking about it in terms of like, I don't know, 17 to 19% type thing on average over the year, like slightly lower than where we are for Um, and then maybe just last... Passing up on a stabilized, Sorry, which deal are you referring to, Jimmy? This is, uh, this was, uh, the offi- That was just the back.

Right, our first opportunity to buy a stabilized asset.

That was just a bank.

Oh that was that's the one you're referring to.

Yes.

There was an additional one.

I mean look there was one called I think Sherwood that didnt really fit what they really wanted to buy it.

It didn't fit the quality and the location.

But the one that I referenced in the opening remarks today I see gotcha okay.

Alright, thank you.

Thanks.

Our next question comes from the line of Matt Mcconnell from National Bank Financial. Please go ahead.

Hey, guys.

Just looking at your gain to lease versus the achieved spread on turnover.

Most of your peers I think there's a bit of a positive variance between the mark to market and what they are achieving because the lease duration.

Jonathan Li: Oh, that was- that's the one you were- Yeah, I thought that was in addition. I mean, look, there was one called I think Sherwood that didn't really fit what the REIT wanted to buy. They didn't fit the quality and the location, but the one that I referenced in the opening remarks did that. OK. Thank you. Our next question comes from the line of Matt Kornack from National Bank Financial, please go ahead. Hey guys, just just looking at your gain to lease versus the achieved spread on turnover. Most of your peers, I think there's there's a bit of a positive variance between the mark to market and what they're achieving because of the lease duration of the tenants that are coming to maturity is like, In your sense, are you being conservative in the gain to lease or are you getting turnover kind of in a broad spectrum of the tenants in the portfolio? Hey, Matt.

Tenants that are coming to maturity.

In your sense are you being conservative in the gain to lease or or are you getting turnover kind of in a broad spectrum.

The tenants in the portfolio.

Hey, Matt.

I think our reporting of Boe.

The embedded rents in our achievement on gain to lease have been very consistent over makes sense the idea.

Thank you.

It makes sense for those two numbers for us to converge because if your.

If were accurate in estimating our embedded rent well guess, what our gain to lease should be in and around that same percentage.

So the fact that $1 16, and 117 makes some sense to us.

And I think in our portfolio in particular with 14% unregulated.

Jonathan Li: Look, I think our reporting of both embedded rents and our achievement on gain-to-lease has been very consistent over the past, and I did. It makes sense for those two numbers for us to converge because if we're accurate in estimating our embedded rent, well, guess what? Our gain-to-lease should be in and around that same, and so the fact that 116 and 117 make some sense to us, and I think in our portfolio, in particular, with, you know, 14% unregulated, there's even more reason for it to converge a little bit. And so I don't think we're being conservative. I think we're being accurate, you know, at the end of the day, you can think about this in percentage terms, but don't forget, our percentage is on an 1850 rent. So from a dollar perspective, it's actually very close to 30% on a 1250 rent or something lower. So from a dollar perspective, you're getting the most bang for your buck.

Again, that's even more reason for it to converge a little bit and so I don't think were being.

Conservative I think we're being accurate.

And.

At the end of the day.

You can think about this in percentage terms, but don't forget our percentages on an $18 50 range. So from a dollar perspective, it's actually very close to 30% on a 12 50 rents or something lower so from a dollar perspective youre getting the bank to the box and I think if you think about our kind of business and our platform.

Because we're so small which from a capital markets perspective, as a disadvantage, but because we are so small.

We can generate a lot of also because all everything that we do.

Really moves the needle.

From an operational perspective from an asset sale perspective from any perspective for us one of the advantages and one that again the alpha that we can deliver as that.

Anything we do does move the needle and looked that can help us and it could hurt us, but right now it seems to be helping us.

Jonathan Li: And I think if you think about our kind of business and our platform. Because we're so small, which from a capital markets perspective is a disadvantage. But because we're so small... We can generate a lot of alpha because everything that we do really moves the needle.

Okay makes sense and then I guess.

Similar like the Toronto spread was a little lower this quarter, but the expiring rent was 2800 bucks.

You can only push those higher rents a certain amount but the.

Jonathan Li: From an operational perspective, from an asset sale perspective, from any perspective. For us, one of the advantages and one, again, the alpha that we can deliver is that, We anything we do does move the needle and I mean look that can help us and it can hurt us But right now it seems to be helping And then I guess it's similar like the the Toronto spread was a little lower than, quarter, but the expiring rent was $2,800, so I'd assume... You can only push those higher rents a certain amount, but the like, I guess you'd see a convergence to the 20 plus percent gain to lead, and the Toronto Portfolio. Yeah, that is one market where it kind of does make sense for it to start growing, right, a little bit in terms of that gap because, It's so expensive, so we are seeing a lot more people. Turnover in Toronto is a lot lower. We're somewhat fortunate. In the.

I guess you'd see a convergence the 20 plus percent gain to lease in the Toronto portfolio.

The composition, yes.

That is one market, where it kind of does makes sense for it to start growing a little bit in terms of that gap because.

It's so expensive. So we are seeing a lot more people they turn over it's around is a lot lower.

We're somewhat fortunate.

In this market.

Because our Toronto portfolio as you know.

Which is kind of the lowest turnover market or one of the lowest turnover markets in Canada.

Two of our project in Toronto or active development sites.

Leslie York Mills and rich grow.

So that in and of itself is kind of.

Temporarily increasing the turnover I would say in those properties because no one likes to live on an active development site.

So in a market like this where we can backfill I think it's a bit of an advantage and it's probably one of the reasons why our turnover is slightly higher than what we expected.

Jonathan Li: Because our Toronto portfolio, as you know, which is kind of the lowest turnover market or one of the lowest turnover markets in Canada. Two of our projects in Toronto are under active development, in Leslie York Mills and Rich Grove. So that in and of itself is kind of temporarily increasing the turnover, say in those properties because no one likes to live in an active development site. So in a market like this where we can backfill, I think it's a bit of an advantage and probably one of the reasons why our turnover is slightly higher. Yeah, it makes sense.

Okay makes sense and then just on capital allocation.

<unk> completed the Ottawa sale.

The $30 million back from the loan receivable from NPI.

Is there is there anything incremental to that that we should expect.

Balance of 2024 or.

And again about deployment of capital going forward as well.

Good morning, Matt it's sitting here.

Yes, we've talked about some of our refinancing opportunities in 2024, and we are still pursuing on three of our Ottawa properties that have upward finance potential of 55 to 65 million.

Jonathan Li: And then just on capital allocation. Please, and again about the deployment of capital going forward as well, what I'm about to study here.

Those refinances are in progress and we are hoping to fundamentals over the next couple of months.

With the.

Proceeds from fits and bank of $30 million, plus a sale of transferring bolt on Tanglewood.

Jonathan Li: Yeah, and we've talked about some of our refinancing opportunities in 2024. And, you know, we're still pursuing three of our Ottawa properties that have upward financing potential of 55 to 65 million. Those refinancings are in progress, and we're hoping to fund them, you know, with the proceeds from Fifth and Bank at $30 million, plus a sale of Chester and Bolha in Tanglewood at $68 million. We've significantly reduced our revolver balance, year-round. And if we can close on this upward refining, you know, that could potentially take our revolver down to nil over the next two months, so we're extremely happy with that. That reduces our exposure and continues to give us some options. And that's all that's what this is all about.

Of $68 million.

<unk> significantly reduced our revolver balance subsequent to year end.

If we can close on these upward refinancing that could potentially take our revolver down to nil over the next two months. So we're extremely happy with that reduces our exposure.

Could you just give us some optionality going forward.

And Thats all Thats. What this is all about right now I'd like to answer your second question around going forward like we've been doing everything we can.

Get our balance sheet in a position where at least.

We might have some flexibility going forward right, we may or may not do anything we like being pretty.

We're having a very zero balance on our revolver.

As you know we are we do.

The CDL opportunities in Vancouver.

Jonathan Li: Right, Matt, to answer your second question about going forward, like, we've been doing everything we can to get our balance sheet in a position where at least we might have some flexibility going forward. We may or may not do anything. We like being pretty, or having a very low balance on our revolver.

Towards the end of the year.

But if we just do nothing between now and then I think Thats a good thing for our business and I think unless something drastic changes in the market youre not going to see us go and be aggressive on third party acquisitions, I think youre going to see us.

Focus on some of the Capex and development that we have in front of us between in 2024, and also we think really hard and critically about potentially.

Jonathan Li: As you know, we do have these CDL opportunities in Vancouver, although towards the end of the year. But if we just do nothing between now and then, I think that's a good thing for our business. And I think unless something drastic changes in the market, you're not going to see us go and be aggressive on third-party acquisitions. I think you're going to see us, you know, focus on some of the CapEx and development that we have in front of us between now and 2024, and also think really hard and critically about, potentially, finding the stuff on the West Coast later. Yeah, it makes sense.

The stuff on the West Coast later in the year.

Yes makes sense.

We have seen in your earnings growth.

Turning the corner on that front and pretty impressive numbers. So congrats on the quarter guys. Thanks. Thank you.

Thank you there are no further questions at this time I'd now like to turn the call back over to Mr. <unk> for final closing comments.

Thanks, Laura and thanks, everyone for your time, we really appreciate it and we'll talk to you guys.

In Q1 take care.

Thank you, Sir ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask Richard Please disconnect your lines have a lovely day.

Matt Kornack: And I mean, we've seen in your earnings growth that you turned a corner on that front and had pretty impressive numbers. So congrats on the quarter, guys. Thank you. Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Li for final closing. Thanks, Lara, and thanks, everyone, for your time. We really appreciate it, and we'll talk to you guys in Q1. Take care. Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day, www.youtube.com.uk; Thank you for watching and please comment down below! www.microsoft.com.ca www.thebusinessprofessor.com www.microsoft.com.au

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