Q1 2024 InterRent Real Estate Investment Trust Earnings Call
Good morning, ladies and gentlemen, and welcome to the Internet insurance first quarter 2024 earnings conference call. At this time all lines are in listen only mode.
During the presentation, we will conduct a question and answer session.
If at any time during this call you acquire immediate assistance. Please press star zero for the operator. This call is being recorded on Thursday may nine 2024, I would now like to turn the call Richard anyway. Please go ahead.
Yeah.
Renee Wei: Welcome everyone. Thank you for joining indirectly its Q1 2024 earnings call. My name is Rene Wei director of Investor Relations and sustainability you can find a presentation to accompany today's call on the Investor Relations section of our website under events and presentations were.
Renee Wei: We're pleased to have Brad Klutzy, President and CEO, Curt Miller, CFO and Dave Nevertheless, C O O on the line today as usual the team represent some prepared remarks, and then we'll open 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 and as 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 our recent news release and MD&A dated May nine 2000.
Renee Wei: 24 <unk>.
Renee Wei: During the call management also refer to certain non I O first measures although that he believes these measures provide useful supplemental information about its financial performance. They are not recognized measures and do not have standardized meanings under ifr US. Please see the rates MD&A for additional information regarding non I first financial measures, including reconciliation to the nearest.
Renee Wei: I first measures, but over to you.
Speaker Change: Thanks, Renee welcome everyone multifamily residential fundamentals in our markets and across Canada have remained robust underpinning our strong financial and operational results for the first quarter.
Renee Wei: Actually rates remained steady at 96, 8% for this total assay and property portfolios and in line with their strategic target for optimal occupancy levels.
Renee Wei: That said, we also stayed healthy with a seven 8% increase for the total portfolio and seven 1% from the same property portfolio.
Speaker Change: Dave will give some details about regional rent and occupancy trends later in the call.
Speaker Change: Strong rack will continue to drive positive results, we saw a seven 8% increase in same property portfolio revenue over the same quarter last year.
Speaker Change: While operating expenses expanded slightly by one 2%.
Speaker Change: This resulted in all of them, 0.7% growth in NOI for same property portfolio and a further increase in NOI margins by 230 basis points to 65, 2%.
Speaker Change: Total portfolio revenues increased seven 6% accompanied by a solid 11, 2% growth in NOI.
Speaker Change: Our strong NOI effectively offset the increase in interest costs and drove consistent bottom line growth.
Speaker Change: Oh in Q1 increased by 11, 7% to reach $21 1 million.
Speaker Change: I'm, showing a 10, 8% increase on a per unit basis, reaching $14.04.
Speaker Change: We delivered $18 5 million in the April foam or kind of a 12, 8% increase overall 11, 5% increase on a per unit basis.
Speaker Change: Reaching $12 six sets.
Speaker Change: During the quarter, we successfully executed our refinancing strategy.
Speaker Change: Disciplined capital allocation process, we have some that for clean further strengthened our balance sheet, our key debt metrics go through it.
Speaker Change: On this slide and Kurt will provide further details on our balance sheet later in the call.
Speaker Change: First they will take us through some of the operating highlights.
Kurt: Thanks, Brad.
Kurt: We're pleased to have started the year on a positive note average rent increase for the total portfolio was seven 8%.
Kurt: Driven by the execution of 461, new leases during the quarter, capturing significant gain on lease of 23%.
Kurt: Turnover rates remained consistent with last year with trailing 12 month turnover remaining at 24, 8%.
Kurt: We estimate that the average rental market cap on total portfolio remains approximately at 30% representing a substantial embedded value.
Kurt: We've seen strong occupancy across all regional markets alongside robust average market rent growth.
Kurt: They can see levels in Vancouver, or trending back to historical norms.
Kurt: As discussed in last quarter's call Vancouver experienced a temporary uptick in December vacancy due to a number of suites that we got back that required full turnovers.
Kurt: These suites have since been successfully rented out.
Kurt: However, we anticipate the need to take more suite back offline for renovations as it becomes available in the coming weeks.
Kurt: We consistently take a strategic approach to balancing short term vacancy and long term rent growth taking into account the distinct characteristics location and supply demand trends of each community.
Kurt: This approach alongside our careful leasing execution has proven to drive outsized top line growth.
Kurt: As we gear up for crucial summer leasing season, we are focused on diligently executing the strategy.
Kurt: Our operating expenses came in at $21 7 million for the quarter up one 3% year over year operating revenues grew by seven 6%.
Kurt: Operating expenses as a percentage of revenues was 35% a.
Kurt: A decrease of 210 basis points compared to the first quarter of last year.
Kurt: This was primarily driven by a 9% reduction in natural gas usage.
Kurt: Coupled with a 20% drop in natural gas rates.
Kurt: As a result cost of natural gas reduced by 28, 6% over 2023 on a per suite basis.
Kurt: These improvements are largely attributed to a proactive energy efficiency initiatives, while also benefiting from fewer heating degree days due to a mild winter.
Kurt: Property taxes for the three months increased by three 7% to $6 $8 million accounting for a 10, 9% of revenue.
Kurt: An increase of 10 basis points as a percentage of operating revenues compared to the same period last year.
Kurt: This increase was due to a combination of increased rates and changed and assessed property values.
Kurt: We continue to invest in our portfolio to drive growth and deliver sustainable returns.
Kurt: So far in 2020 for our maintenance Capex came in at under a thousand dollars per suite on an annualized basis slight.
Kurt: Slightly down from 2023 levels and consistent with their prepaid debit averages.
Kurt: As shown on the right hand side of the slide our value add program, which remains at the core of our business strategy has been significant driver of value creation for us through cost effective capital investments suites at our reposition portfolio on an average have a 100 basis points higher occupancy rate.
Kurt: Along with 170 basis point higher NOI emerges when compared to those in an odd reposition portfolio.
Kurt: As of March 31, 14% of our portfolio are at various stages and its repositioning program.
Kurt: Presenting significant potential for growth.
Speaker Change: What's that.
Speaker Change: Over to you.
Speaker Change: Thanks, Dave Slide.
Speaker Change: 14 illustrates the adjustments to the cap rates used to determine or I FRS fair value.
Speaker Change: Patients with our external appraisers cap rates for total investment property stayed flat compared to Q4.
Speaker Change: The reduction of four basis points compared to December 2023.
Speaker Change: Eights to the removal of the Montreal properties that were sold in the quarter as well as the removal of the Elmer property in Gatineau that was moved to assets held for sale.
Kurt: We continue to closely monitor market conditions to determine if further adjustments to cap rates are necessary.
Kurt: The $8 4 million and that can be gained during the quarter was driven by continued strong NOI growth.
Kurt: Pleased to have further strengthened our financial position through the successful execution of refinancing activities during the quarter.
Kurt: We are financed for CME, she insured mortgages and converted 16 conventional and variable rate mortgages to see MHC insured financings and thereby increased our CMA she exposure to 90%.
Kurt: Leveraging proceeds from our financing activities and our recent disposition.
Kurt: Prioritize repaying our more expensive variable rate debt and were able to reduce our exposure to less than 1% at the end of Q1.
Kurt: The reduction in variable rate debt has resulted in our weighted average cost of mortgage debt being reduced to 337% from three 5% and our debt to G. B be further reduced by 60 basis points compared to $37 five as compared to Q4.
Kurt: Moving to slide 17.
Kurt: We remain focused on enhancing our sustainability initiatives.
Kurt: This quarter, we invested approximately 460000 in energy projects like high efficiency boilers led lighting and building automation systems.
Kurt: With the aim to improve our natural gas electricity usage and reduce our carbon footprint.
Kurt: We also conducted energy training sessions for our operations construction and asset management teams.
Kurt: These sessions helped raise awareness and empower our teams to contribute to energy conservation efforts and each one of US has an important role to play.
Kurt: Lastly, we are finalizing our 2023 sustainability report and look forward to sharing our progress with all stakeholders. We anticipate a report to be published in the weeks to come please stay tuned.
Kurt: I'll turn things back to Brad to walk through our capital allocation.
Bradley Cutsey: Thanks, Curt we continue to make significant progress with their strategic dispositions, which are a key component of our broader capital allocation strategy.
Kurt: During the quarter with two minute to sell 497 suites of noncore properties located in the city of Gatineau, but didn't national capital region.
Bradley Cutsey: Total sale price was 92 million or about 185000 per suite slightly you've seen these assets however as values.
Kurt: Transaction is expected to close in the second quarter.
Kurt: The combined net proceeds for the dispositions along with the closing of the disposition of the greater Montreal area, which closed in February are expected to exceed our anticipated near term proceeds from dispositions.
Kurt: Originally projected at 75 million.
Kurt: And back in August 2023.
Kurt: With variable rate debt exposure already reduced to below 1%, we are now well positioned to pursue growth opportunities.
Kurt: Carefully assessing attractive external opportunities and we brought them in our estimates for organic growth prospects.
Kurt: We will be considering both along with her in CIB and we will prudently execute our capital allocation strategy continuing to drive long term NAV accretion for our stakeholders.
Kurt: As I made steady progress on our value, creating development pipeline. Our second office conversion project 360, Lori has completed investigated demolition and full demolition starting in February we have received the full site plan agreement and the building permit is anticipated to be issued in the second quarter.
Kurt: And Richard Church on the dominant Ottawa or it will go back to the feasibility study to include a geothermal heating and cooling system.
Kurt: Again, the impact of us on the overall design of cost of the projects.
Kurt: This strategic move not only positions us to qualify for potential government incentives and attractive financing opportunities, but also allows us to minimize long term operating costs and reduce greenhouse gas emissions.
Kurt: Collectively these two bottles projects totaling over 4000 skus for the potential of significantly increased both our suite count and the overall scale of our portfolio.
Kurt: We take pride in our role in addressing a critical need for housing supply through our development pipeline.
Kurt: For me watching development costs, managing the pace of each project.
Kurt: Turning to slide 22.
Kurt: And then also sort of a cap on foreign students to federal government recently, you're seeing all this attention to decrease the proportion of temporary worst in Canada from six 5% to 5% by 2027.
Kurt: By these measures if materialized main moderate cantos retro population relative in the coming years consensus syndicators snippet from supply demand gap in the housing market will likely persist.
Kurt: Slide 21 shows housing Gar Jackson for the T V. I'll see you may see for the year 2030 under various scenarios because most of them are probably already familiar with the CMA sees projection of a $3 5 million housing yeah, let's focus on the P. P O project instead.
Kurt: This report published in April taken in account together in this most recent immigration plan of course at the household formation will continue they'll piece in that housing of accretion on an annual basis.
Kurt: As a result, the P b or anticipation of projected supply gap of one 3 million units by 2030, just to return and the vacancy rates to the long term average.
Kurt: It's worth noting that seem HC approach targets, a more favorable condition of restoring housing affordability.
Kurt: The P. P O projects to address the housing gas and Felicia need to reach 436000, whereas C. M. A c's completion requirements are higher at 639000 units per year.
Kurt: This is in Stark contrast to the high number of units every completed an Ami which stands at 242000.
Kurt: At its core Canada's housing in Dallas was driven by menu supply and demand drivers.
Kurt: From a structural or cyclical from long term to short term dynamics the solution will be many complex as well, but it's the supply at a time when construction is limited until the Chaucer high possesses symmetrical in childhood and there is no easy fix.
Kurt: All of these factors will continue to support the resilient I'm talking about is in the multifamily residential space.
Kurt: We've been talking about positioning ourselves for a future where supply and demand are more balanced for a while now and I am the past tax rate, where somebody has relied on acquired communities in the market to do the rest we've always taken that had a more hands on approach and when it comes to maximizing returns.
Kurt: This approach has consistently yielded significant insurance, enabling us to fully capitalize on emerging opportunities. We've always taken a pride in being recognized as a value out there looking forward. We're unwavering in that's amendment to this strategy as a best in class value add operator.
Kurt: Our value add strategy is built on four pillars. Firstly, we continue to focus on enhancing property values through repositioning with a proven track record.
Kurt: We have successfully created significant value through renovations and upgrades and strategic positioning in the market driving that outside of revenue and NOI growth in the past decade.
Kurt: Secondly value add and extends to optimizing and improving operational processes across all aspects of how we market our communities, how we handle design procurement and property management.
Kurt: We are always looking for ways to streamline and optimize to persistence and creativity, we're able to uncover value in all types of our communities, whether they're brand new departments vintage properties. This approach allows us to enhance the profile and thereby drive sustained revenue growth.
Kurt: Yeah. It is a way of life for our teams we understand the importance of investing in our teams and empower them to foster a culture of innovation vibration and ongoing improvement.
Kurt: Finally, Todd Yeah, it's about creating positive experiences and that'll come from all stakeholders in our bachelors residents in our communities. These outcomes go hand in hand, we have transformed neighborhoods.
Kurt: Introduce Menzies and develop programming, we're proud to enrich the lives of our residents and fostered by drunk driving.
Speaker Change: With that let's open it up for Q&A.
Speaker Change: 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 number one on your Touchtone phone, you'll hear a prompt that you had has been raised.
Speaker Change: Should you wish to decline from the polling process. Please press the star followed by the number two if you are using a speaker phone handset.
Speaker Change: The handset before pressing and Keith.
Speaker Change: And your first question comes from the line of Kyle Stanley Some days Joy.
Kyle Stanley: <unk>. Please go ahead.
Kyle Stanley: Thanks, Good morning, guys.
Kyle Stanley: Wow.
Kyle Stanley: She made great progress on the disposition front. So far this year I'm just curious to know whats changed over the last several months that maybe drove you to ramp up this program.
Kyle Stanley: Yeah.
Speaker Change: Yeah, I don't think anything's changed a ton I think we just wanted to set realistic expectations as far as the disposition program.
Speaker Change: We announced that program I believe it was Q2 last year and we gave ourselves 18 months.
Speaker Change: For the program.
Speaker Change: I think we just wanted to be realistic given the fact that we realize the buy it.
Speaker Change: As part of the buyer pool or interest would likely come from private.
Speaker Change: Private investors and with that comes the expectation that they need financing conditions and at different points throughout the years, you can see our backlog, which is I think is well documented.
Speaker Change: Its just providing enough time to work through.
Speaker Change: The interested parties are financing conditions, so nothing's really changed.
Speaker Change: And here we are today in a situation, where we have a firm bill but it has not closed so I'm not gonna be able provide unfortunately for you guys too much color to more than what we've disclosed already.
Speaker Change: Okay fair enough.
Speaker Change: Just to clarify so you mentioned, obviously exceeding the 75 million net.
Speaker Change: Net proceed targets, probably by about it or what but that is $13 million to $14 million.
Speaker Change: Just wondering is that due to better pricing or did you sell an additional asset that maybe you Didnt originally plan to you.
Speaker Change: Just I guess looking for holiday that pricing really has compared to.
Speaker Change: We have a different pool.
Speaker Change: Physician program, and we'll kind of lay out as we see.
Speaker Change: And we get comfort on.
Speaker Change: Some of the negotiations, which are not all of them will just start to release some more items.
Speaker Change: In the Gulf.
Speaker Change: I think.
Speaker Change: What we've highlighted to the marketplace with a realistic goal, let's not forget the volatility that's been in the capital markets throughout the year.
Speaker Change: Let's not forget how much does.
Speaker Change: It doesn't mean a lot of.
Speaker Change: Beg stopped them goes within the market. So I think we just really wanted to give a realistic number for the investment community to me anyway model and.
Speaker Change: For us to be able to achieve that now that said do we have more behind pipe. The answer is yes, I think that that's quite probably comfortable saying that when you do another 50 million when.
Speaker Change: When we look out and we're looking at portfolio of what we think we're kind of a.
Speaker Change: Maximize relative to some of the opportunities that we're currently looking at.
Speaker Change: So I think it's fair to say you could probably model another $50 million.
Speaker Change: And the closing of that could be staggered throughout the next 18 months.
Speaker Change: Okay. Thank you for that color and maybe just one last one Dave you mentioned, obviously gaining back some of the debate and see in Vancouver. This quarter, but then went on to mention that maybe some additional suites coming offline in the coming weeks for.
Speaker Change: Seem some value add work just curious you know whats your expectation for occupancy after kind of dealing with with some of this movement in Vancouver.
Dave Nevins: Well its closing is really well I think we're doing we're doing a lot of Vancouver right. Now so traffic has really picked up and.
Dave Nevins: We've been able to close the gap. So things are things are looking good going forward.
Dave Nevins: Okay.
Speaker Change: Thank you very much I will turn it back.
Dave Nevins: Okay.
Dave Nevins: Okay.
Speaker Change: Thank you and your next question comes from the line of Mike Mike Martinez M BMO.
Mike Martinez: Thank you.
Mike Martinez: Congrats on the the Gatineau, It's L. A.
Mike Martinez: That's a pretty big transaction for a I guess, you could argue a smaller market, but anyways.
Mike Martinez: Just with respect to your execution and they've thought that maybe you can do a little bit more on the disposition side.
Mike Martinez: I think it past conversations while you don't give guidance you've mentioned that you're comfortable with where consensus is if there is there a risk perhaps now recognizing the value add longer term that potentially year over year. This year could be impacted slightly by some dilution as you continue to.
Mike Martinez: So all of these assets and redeploy.
Mike Martinez: Well.
Mike Martinez: It depends on what people are modeled into the consensus life like.
Speaker Change: I don't have the luxury of sitting and seeing each one of them there.
Speaker Change: Of your models, but we will do the best you are.
Speaker Change: Our ability to mitigate any timing dilution impact obviously.
Speaker Change: Our approach to.
Speaker Change: Opportunities are a total return approach.
Speaker Change: It's always been the driving factor for us is value creation and really that comes down to can we accretively add to the intrinsic value.
Speaker Change: All of our organization, which really kind of translates into is there any need for unit growth.
Speaker Change: So from a from a tariff will be effective.
Speaker Change: We haven't been busy or.
Speaker Change: Being lucky enough to be executing on the opportunities. It does move the short term.
Speaker Change: Cash flow.
Speaker Change: In Paas.
Speaker Change: No I don't think there's anything different I don't think Internet has changed its approach to the way we evaluate opportunities that as you know we're not somebody that just still doesn't buy cash flow streams. So there could be some there could be some near term timing.
Speaker Change: Dilution, but you have to offset that with our track record.
Speaker Change: Great.
Speaker Change: And a deeper unit growth right. So.
Speaker Change: And you can bet that we're not as significant owners of the REIT, we're not gonna do something that we believe that will.
Speaker Change: I believe that per unit track record.
Speaker Change: So you have to believe that we're pushing the allocators of capital.
Speaker Change: Hey, yes, there's going to be some dilution from the.
Speaker Change: From an income perspective, the malware, but hopefully be able to redeploy that into an opportunity that we believe it adds significant value to the region.
Speaker Change: Okay.
Speaker Change: As you know two opportunities can be worked on for.
Speaker Change: Various time periods, and particularly quite long time periods and the timing of when you cannot be closer up jeanine.
Speaker Change: Our cost of capital that makes sense to do that don't always line up but we are in a really good position in the sensor, but we have lots of them one of them.
Speaker Change: That is variable so we're in a prime position right now to be able to try to mitigate any timing impacts what they need short term.
Speaker Change: Instruments that are getting close to 5% and hopefully be able to redeploy that in a timely manner.
Speaker Change: Yeah, that's can't forget about the 5% you can earn on cash today. Okay. Thanks for that I think St. Luke's He says if I remember correctly was.
Speaker Change: You pushed rents as far as you could wood frame construction, but putting up against new supply how would you describe the disposition thesis on on Gatineau.
Speaker Change: The disposition piece on Gatineau relationship, what we've talked about for disposition fee market rents walk ups wood frame I think in that market.
Speaker Change: It's a good market, but it's a market that doesn't have a fair amount of new product that gets delivered.
Speaker Change: And what we look at it in that market is where do we concentrate our team where do we concentrate our staff it's the only.
Speaker Change: Set of properties, we had indicated in capital markets compared to what we had sort of a downtown core Ottawa.
Speaker Change: And when we analyze all those different pieces.
Speaker Change: Going forward yield versus our corporate deal. We just felt that it was a what are the right assets and what are the right timing, we still look at disposal.
Speaker Change: Hey, guys just just on the backdrop of this I don't want to get too much on this discussion given the fact, we have a close.
Speaker Change: Okay.
Speaker Change: That's where I can move on right.
Speaker Change: I'll move on high level question, how would you guys. You know we look back over the past seven eight years, Brad that you've been adding or how would you describe the acquisition I mean, I know capitals of when that capital availability is much different but how would you describe the investment opportunity set today versus historical.
Speaker Change: Periods that you've been there.
Bradley Cutsey: Well I think its classic right I think.
Speaker Change: Real estate is.
Speaker Change: The interest rate sensitive.
Speaker Change: That's a class and.
Speaker Change: It's one of those things where capital becomes tougher and there's a lot of conflict earmark on the sidelines. So it's not that there's not capital it's just not us.
Speaker Change: On the sidelines, but what that does do is create for anybody that is over.
Speaker Change: Per se that they've got to re optimize the portfolio so from that perspective.
Speaker Change: I think there's a lot of different opportunities in the marketplace for well capitalized buyers to be able to take advantage of it.
Speaker Change: And I think we're absolutely entering an era.
Speaker Change: But pretty unique because.
Speaker Change: You've got so bad and so tight that.
Speaker Change: It was really really competitive when it came to right now I think.
Speaker Change: There's enough opportunities out there for well capitalized buyers.
Speaker Change: I actually think we're quite optimistic about the future of the opportunities now that.
Speaker Change: That said, we've got to remain disciplined because we only have so much capital yes.
Speaker Change: Just from St. Louis.
Speaker Change: Position from a balance sheet perspective.
Speaker Change: And we pay down our variable rate debt, but we only have so much. So I think that's acquired internet speeds are and will continue to explore these opportunities with joint venture partners. So that we can spread our capital across more opportunities.
Speaker Change: Now with that said.
Speaker Change: Our acquired loans.
Speaker Change: So right. So do we wish our top chapel was a lot higher and closer to intrinsic value, yes, I think it could be.
Speaker Change: Great opportunity to really scale the portfolio, but we are not there and I'm going to make this clear we have known tensions of tomorrow.
Speaker Change: Tomorrow.
Speaker Change: Again, my comments were Mr stream last time.
Speaker Change: Got it.
Speaker Change: We're heading into a very optimistic and that sort of environment I still believe we are but we'll remain disciplined as ever so we'll work within the confines of.
Speaker Change: The cash that we do have to redeploy but there are interesting opportunities presenting themselves as we speak.
Speaker Change: Okay. That's helpful color, Thanks, I'll turn it back.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you and your first question comes from Ryan Gee from Macquarie Securities.
Ryan Gee: Go ahead.
Ryan Gee: Thank you Elvira good morning, guys.
Ryan Gee: Oh I'm just looking at the dispositions done so far in target assets, which might be in the pipeline ahead, Oh, that's what any kind of patterns that you guys are looking to sell or there's more opportunity.
Ryan Gee: Yep.
Ryan Gee: It really comes down to where do we think we can continue to push the rents at a pace that meets our overall portfolio. So we look at it as a little context.
Ryan Gee: The portfolio wide.
Ryan Gee: That's a M. So if if there's our five year outlook I on an IRR basis.
Ryan Gee: If we can exceed the overall portfolio IRR is the first screen that we look at that okay. Well, we're worried about out there are a lot of capital to be read to being better not typically the case for us. It typically comes down to the top line growth.
Ryan Gee: And it typically comes down to the fact that the top line.
Ryan Gee: The potential disposition doesn't meet the overall portfolio growth and kind of lead still lagging.
Ryan Gee: And that's how we approach it now we we approach and also by looking at us that is cyclical or structural in nature, why the topline growth doesn't match or exceed the portfolio than.
Ryan Gee: And then most cases structural most cases, it's either the demographic base and then around where the income levels are or what the fact that new supply has been deliberate and we believe it's going to eventually cannibalize our existing community.
Speaker Change: That makes sense and it's probably going to be a cheeky question, but are there certain markets in the portfolio, where you see that growth kind of steepening.
Ryan Gee: Mark I think it's more node wise.
Ryan Gee: Real estate with streaming local so I would not point to any one market where.
Ryan Gee: The overall market dynamics.
Ryan Gee: I mean, because that's it's more at the local level call it within two kilometers.
Ryan Gee: Yeah.
Ryan Gee: That sorry, but I am just really the candidates towards it on the noncore asset change I know nobody ever going to get into any specific dispositions, but generally can you elaborate on the operating priorities and accretive growth opportunities, which would have put too.
Ryan Gee: Yeah.
Speaker Change: I didn't hear the last part of that broke up about.
Speaker Change: Yeah, So I mean just.
Speaker Change: Maybe it's just a question around capital allocation of our dispositions.
Speaker Change: You know in terms of the opportunities you're seeing out there in music and they get a foot to the opportunities you're seeing in the market. If you could just elaborate.
Speaker Change: Hello, welcome that.
Speaker Change: Yeah. So I think it's I understand looking forward to some of the opportunities where we are.
Speaker Change: What could those be and how would we allocate as you know we would take a bottom up approach where it's very.
Speaker Change: It's very.
Speaker Change: Opportunities are specific.
Speaker Change: And then we weigh it against the risk adjusted returns of each opportunity I guess, each each each of them.
Speaker Change: But that said they come in many different forms it could be a benches philosophy that we believe meets our investment criteria.
Speaker Change: Gypsum attribute the walled off let them do it too.
Speaker Change: Two could be.
Speaker Change: You build that we think with some tweaks to the designs of the meeting.
Speaker Change: You bet it works on the floor it could be.
Speaker Change: Scenario, where it could be in between to be somewhere where it's something.
Speaker Change: Something that's been developed but not yet leased and we can then.
Speaker Change: Leverage our marketing and operating platform to do the lease up and create value for the unit holders, while taking out the delivery taken out of the development of the rest of the delivery of the product. So it really came from the lending assets and then it can also be taking a look at the NCI D. So it really will weigh each.
Speaker Change: Each one against yourself and then adjusted for that.
Speaker Change: And take the best risk adjusted return approach.
Speaker Change: So we're quite happy allowed toward larger thought were concentrated there.
Speaker Change: That makes sense, thanks, guys I'll turn it back.
Speaker Change: Great. Thanks, Chris.
Speaker Change: Thank you and your next question comes from the line of Jonathan <unk> from TD colleagues. Please go ahead.
Jonathan: Thanks, Good morning.
Jonathan: Just on the Capex your Q1, Capex was down 25% or so versus last year is that.
Jonathan: Is that a function of seasonality or is it just that you guys have done lots of acquisitions last few years and you're slowing down your repositioning capex.
Speaker Change: It's sometimes it's a combination of both Jonathan but if you're comparing year over year like Q1 over Q1, I would take out the seasonality part, but it really sometimes will depend on how much you were able to get completed before you go into the winter months.
Speaker Change: Months, Q1, Q4, and Q1 typically are the lower capex.
Speaker Change: Capex so there is seasonality within capex.
Speaker Change: Our weather related but yes, we have done a good job.
Speaker Change: Investing in our communities over the past and as the portfolio continues to mature there's less capex required.
Speaker Change: Okay. So should we think about capex being down.
Speaker Change: Year over year, assuming you don't there's no big acquisition or anything there sure.
Speaker Change: It will it should it shouldn't be down I'm reluctant to say it'd be down by 25% Jonathan.
Speaker Change: Fair enough.
Speaker Change: That's it for me I'll turn it back thanks.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you and your next question comes from the line of Brad changes from Raymond James. Please go ahead.
Speaker Change: Okay.
Bradley Cutsey: Hey, there I'm just looking at your your slide nine here just on the gain to lease realized.
Bradley Cutsey: I was curious to know.
Bradley Cutsey: The composition of the new leases signed would that be a little bit more weighted towards the <unk>.
Bradley Cutsey: The repositioning our portfolio relative to the stabilized portfolio or would that be consistent with I guess the broader mix of the portfolio.
Speaker Change: It's more consistent with the broader mix of the portfolio.
Speaker Change: We haven't seen if you look at your foreseeing trained and differences.
Speaker Change: Quarter over quarter year over year in regards to that mix and it's actually been staying very consistent over the last few years.
Speaker Change: Okay and your expectations at least in the near term would be that depending on what suites are rolling over that you would you could continue to be in that sort of low 20% range on a realized gain to lease.
Speaker Change: Yes.
Speaker Change: Given the mark to market.
Speaker Change: The.
Speaker Change: The turnover receipt, we're still sort of in that mid 20 range to <unk> 20 range. So.
Speaker Change: If that sort of stays there.
Speaker Change: We will stay in the 20% range.
Speaker Change: Questions as always stated for the last couple of years is what happens to market rents if turnover. It comes down because you get less churn to get push on market rents and where does the push pull of the two.
Speaker Change: But at this point, we'll leave it where it is we see that sort of stay around this level.
Speaker Change: Yeah.
Speaker Change: In terms of I guess, we're entering into the I guess the busier leasing season, you know what would be your expectations were.
Speaker Change: Particularly for some of the more student focused buildings in Ottawa and Montreal.
Speaker Change: From what.
Speaker Change: I guess from a demand perspective or any impact from the recent government announcements.
Speaker Change: That's what I I didn't see them in.
Speaker Change: At this stage of where we are.
Speaker Change: Sure.
Speaker Change: Very close to the optimal position.
Speaker Change: Those two regions Richard.
Speaker Change: Your allocated to students being the NCR and Montreal, We've always said, it's a little early to start.
Speaker Change: That.
Speaker Change: Specifically Montreal on the students because.
Speaker Change: Typically has been a market where foreigners come in August and start looking further.
Speaker Change: For the residents for the year in August.
Speaker Change: Taking out obviously for September.
Speaker Change: That said as of today than they were in currently feel free.
Speaker Change: The draw.
Speaker Change: John the compensation that said, there's nothing from a leasing traffic and indications.
Speaker Change: We will have a normalize.
Speaker Change: It's doing it.
Speaker Change: Activity throughout the upcoming.
Speaker Change: Key all important Q3, yes, no agree with you 100% on that.
Speaker Change: There's no indication of anything different from a year over year for sure.
Speaker Change: The students like we've talked about this a lot some of the marketing we've been doing over the winter and really with a two year sort of.
Speaker Change: Program that was put in place when you look back to four year program typically for University.
Speaker Change: If you look back and sort of go back three years ago four years ago. The number that are burning off from a student perspective that would be coming out of the program is actually lower than the cap. So.
Speaker Change: So the cap slower than what we'd see the last two years.
Speaker Change: But if you go back into that cycle, it's actually higher than what it was so not expecting a big impact from that for the last two years from now they extend it further.
Speaker Change: Right that makes sense.
Speaker Change: Thanks, a lot I'll turn it back.
Speaker Change: Thank you and as a reminder, if you wish to ask a question.
Speaker Change: <unk> Please press star one.
Speaker Change: Your next question comes from the line of Matt Cornett. Please go ahead.
Matt Cornett: Hey, guys.
Matt Cornett: As you look for a capital allocation going forward.
Matt Cornett: It is the Brampton deal that you did where you put it in a bit of capital with the joint venture Party got compensated for the platform and then have the ability to scale your position in the answer to that is that the most favored kind of structure to be buying in at this point or do you want to own the assets outright a hunter.
Matt Cornett: Per se.
Speaker Change: No I would say more of the more of the joint venture structure at this point.
Speaker Change: And then.
Speaker Change: I mean, we had an announcement a one of your peers forwarded it to us, but I think it impacts all of you.
Speaker Change: Beneficially that the government has realized that the apartment rates are an important part of providing affordable housing to the Canadian population.
Speaker Change: It can be part of the solution, how do you think about kind of the.
Speaker Change: That aspect.
Speaker Change: And growing kind of your newer asset component.
Speaker Change: And adding to new supply and I know, you're not going to build it but you do have some developments underway and youre doing conversions is that is that part of the mandate I know, it's a total return basis, but.
Speaker Change: Do you focus on it given the given any.
Speaker Change: For sure.
Speaker Change: But I too would like to applaud.
Speaker Change: The correct governments are realizing that we are part of the solution.
Speaker Change: There's been a lot of work done by anyone and our peers are behind.
Speaker Change: Behind the scenes and spending a lot of time trying to educate the different stakeholders involved.
Speaker Change: Within the housing issue and we all I think very well documented the supply.
Speaker Change: The supply relative to the demand and we need everybody at the table to be able to bring a solution to that.
Speaker Change: Sustainable and puts Cana in the right place because I don't think any of us wants to see Canada back half of the population growth, but we just wanted to you in a smart way.
Speaker Change: And the government is listening they want to be educated and I think where we're are steps in the right direction. Just theres a lot of work left to be done for sure not the monopoly overnight.
Speaker Change: The whole gap is well documented.
Speaker Change: People understand and unfortunately, it is going to be pressures within the rental market for quite some time and now but the narrative changed from supply it's going to be about how do we attract the capital in order to deliver that and how do we attract the human capital to help build.
Speaker Change: <unk> got supply. So those are the kind of the next two big phases.
Speaker Change: Now I'll have to we have to solve the puzzle for them now that that interim does have some great sites that we believe are AAA sites and some of the best sites within the markets that we operate in that or make themselves <unk> sites to develop.
Speaker Change: As our cost of capital.
Speaker Change: Improves will play a bigger role in helping deliver some of that new supply.
Speaker Change: Sure.
Speaker Change: In the meantime, though there are things, where we feel comfortable that we can go ahead with today.
Speaker Change: And we've budgeted internally that we think we.
Speaker Change: Is that an opportunity that can be quite accretive to that value.
Speaker Change: Creation, even at today's level of where our cost of capital is there one of them being.
Speaker Change: We're partnership 25% interest in 360, Laurie and we feel quite Kaufman.
Speaker Change: Comfortable on that project and we're going to continue to develop that project and we remain really excited about it so.
Speaker Change: Flip the developments.
Speaker Change: As longer term in nature, and you've got to smooth it out through our through the cycle, but we're mindful of our balance sheet and we're not going to do anything.
Speaker Change: To jeopardize the strength of our balance sheet. So we make any development decisions in the context of <unk>.
Speaker Change: Where our balance sheet is.
Speaker Change: How about that.
Speaker Change: Absolutely makes sense on an Laurie.
Laurie: There anything that you learned in the process of building this slide though.
Laurie: It's been kind of changed the way you go one about the bill or a project now that you have to give away your competitive edge, but.
Laurie: Are you finding it.
Laurie: Because that's.
Laurie: Acknowledged kind of stays and it's one of the that's one of the value creation.
Laurie: Contributors for us as an organization, but yes it does.
Laurie: Almost any project we continue to be.
Laurie: Be curious and look for new ways to enhance what we've done in the Paas and I think the slate was.
Laurie: A very successful project.
Laurie: We executed on it we love the finished product and we love words before it and I think with that though I think we've learned a couple of things that we can.
Laurie: Easily transport over to.
Laurie: 360, Lori, yet, which I think will put us in even a.
Laurie: But I'd put them when it comes to that project. So long, it's a long winded answer to what should have been a short answer yes.
Speaker Change: No. It makes sense I appreciate the color guys.
Laurie: Yeah.
Speaker Change: Thanks, a lot.
Speaker Change: Thank you and there are no further questions at this time.
Laurie: Now like to hand back over to you Rodney Lee for closing remarks. Please go ahead.
Rodney Lee: Thank you everyone for your time, if you have any additional questions. Please don't hesitate to reach out to our Investor Relations team.
Laurie: Okay.
Speaker Change: Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Speaker Change: [music].
Laurie: Okay.