Q3 2024 InterRent Real Estate Investment Trust Earnings Call
The
Speaker Change: Good morning, ladies and gentlemen and welcome. The Interatory 3rd Quarter earnings conference call and webcast.
Speaker Change: At this time, all lines are an innocent only mode. Following the presentation, we will conduct the questioning answer session. If at any time during this call we require immediate assistance, please press star zero party operator.
Speaker Change: I would now like to turn a conference over to Renee Wei, please go ahead.
Renee Wei: Good morning everyone. Thank you for joining Interrion Reads Q3, 2024 earnings call. My name is Renee Wei, Director of Investor Relations, Assistant Ability. You can find a presentation to accompany today's call on the investor section of our website under events and presentation.
Renee Wei: We're pleased to have Brad Cutsey present CEO, Curt Miller, CFO, and Dave Nevins CEO on the line today. As usual, the team will present some prepared remarks and then we'll open it up to questions.
Speaker Change: Before we begin I want to remind listeners
Speaker Change: Best Certain Statements about Future Events made on this conference call are for looking in nature.
Speaker Change: Any such information is subject to risk and certainties and assumptions that could cause actual results of the firm material. For more information, please refer to the cautionary statements on 4 looking information in the recent release of MDNA dated November 4, 2024.
During the call, management will also refer to certain non-IFRS measures. Although the REIT believes these measures provide useful supplemental information about its financial performance, they are not organized measures and do not have standardized meanings under IFRS.
Speaker Change: Please see the ReethMDNA for additional information regarding non-IFRS financial measures, including reconciliations to the nearest IFRS measures.
Brad: Brad, over to you.
Brad: Thanks Renee and thank you everyone for joining us today. We've had a great quarter with strong year-over-year increases in our key operating numbers translating into solid top-line growth. By leveraging a strong operating platform we've successfully converted that growth into meaningful bottom-line gains.
Brad: Over the busy summer, lease, and season, the rental market conditions remain very tight, as shown by our occupancy rate increasing by 120 basis points.
year-over-year and 20 base points quarter-over-quarter reaching 96.4% in September.
You signed 1,279 new leases during the quarter, basically matching our Q3 2023 number, which was the highest Q3 in our history.
Brad: This increase in occupancy rates is accompanied by steady growth in renter rates. Average monthly rent for a total portfolio reached $1,687 in September, showing a year-over-year growth of 7% and same-property AAMR growth of 5.6%.
Speaker Change: This growth has moderated compared to last year and remains above our 10-year average of 5.5%.
Speaker Change: We've seen strong opposite rate gains in AMR growth across all the regional markets, particularly in Montreal, where we saw same property opposite improved by 300 basis points to reach 96.3% by achieving an AMR growth of 6.4%.
Speaker Change: demonstrating strong demand for centrally located high-quality communities.
Speaker Change: Dave will share more regional details later in the call. Moving to the next slide, same property revenue increased by 7.9% in Q3.
Speaker Change: We are proud to have achieved a same-property proportionate NOI margin of 68.2%, which is close to our historical all-time high.
Speaker Change: This marks an improvement of 40 base points year-over-year. We achieve this by focusing on what we can control, resulting in lower property, operating costs, and utility costs as a percentage of revenue.
Speaker Change: Proportion of NOI for the same portfolio increased by 8.7% to reach 41.5 million.
Speaker Change: As highlighted on the right-hand side of the slide, strong AMR growth combined with interest rate tailwind on a debt stack has translated into substantial FFO and AFFO growth, driven by a 6.4% year-over-year reduction in financing costs.
Speaker Change: We focused on strategically using the proceeds from our copper recycling efforts and refinancing activities, which effectively reduced our outstanding market balances and kept our barrel rate at exposure at below 1%.
Speaker Change: with their weighted average interest rate at 3.3 percent.
Speaker Change: Compared to 3.48 last year, we were able to bring our financing costs down by 210 basis points to 22.7% of our revenue during the quarter. In Q3, we achieved a 9.7% increase in FFO, reaching $23.4 million and an 8.9% increase in FFO per unit.
Speaker Change: now sailing at 15.9 cents
Speaker Change: who delivered 20.9 million AFFO or 14.2 cents per unit, an increase of 10.3% and 9.2% respectively.
Speaker Change: Our solid financial position has continued to strengthen. Year-over-year, our debt-to-gross-worth value ratio has decreased by 10 base points to 38.5% as of September 30th.
Speaker Change: As of the end of Q3, a credit facility of $225 million remained undrawn and we had $193.4 million in unencumbered properties and approximately $295 million in available liquidity.
Speaker Change: A strong balance sheet and financial flexibilities have enabled us to explore both internal and external opportunities that will set us up for sustainable long-term growth. One such opportunity has materialized with our acquisition of a new build community in Montreal, which we'll discuss in more detail later.
Speaker Change: As we continue to carefully evaluate future opportunities, I want to reiterate our commitment to disciplined capital allocation. Our ongoing disposition program will allow us to recycle capital effectively.
Speaker Change: We have a strong track record of upholding the integrity of our balance sheet and remain the top priority going forward.
Speaker Change: Now I'll let Dave take it from here for a look at some of our operating highlights.
Dave: Thanks Brad. First off, I'd like to congratulate all of our team members for their hard work during a very busy summer leasing season.
Dave: We continue to capture embedded rental upside with a healthy trailing 12-month turnover rate of 23.8%.
Speaker Change: Move-ins kept in pace with move-outs during the quarter.
Dave: We executed 1,279 new leases during the three months
Dave: just below our all-time Q3 record of 1,293 new leases set last year. And we were able to consistently achieve additional gains on those leases on top of already high outgoing rental rates, ending the period with a strong occupancy rate of 96.4%.
Dave: Average gain on lease during the quarter was 11.4%, which translated into incremental annualized revenue gain of approximately $3 million, or 1.2%.
Dave: While we see the same headlines as everyone else on market rent growth slowing down, our own market rent performance held up well in most of our regions, showing consistent and positive growth both year-over-year and quarter-over-quarter for total portfolio.
Dave: We've seen notable strength in Ottawa and Montreal, and our communities and the GTHA are providing the most resilient and some of the aggregated data that has been reported.
Dave: Going forward, we're keeping a close eye on market demand.
Dave: We're expecting a more moderate pace of rental growth in certain markets, especially where there's a lot of new supply recently delivered and rents may have peaked. Our mark-to-market gap has come in slightly to approximately 27 percent, and the timeline for unlocking this embedded growth could be extended. However, we take comfort in the embedded value that we have, which provides a solid foundation for stable, long-term rental growth.
Dave: Occupancy and average monthly rent growth has been strong across the board. Same property occupancy was at 96.4% in September, showing improvements of 120 basis points year-over-year and 20 basis points sequentially.
Dave: Occupancy rates remain steady in the National Capital Region at a high of 97.2% and improved in all other regional markets.
Speaker Change: Activity was particularly strong in Montreal, where we saw strong leasing activity pushing occupancy rates up by 290 basis points year-over-year to 96.3% in the region.
Speaker Change: There has been a lot of investor interest in student demand in Montreal after recent federal and provincial policy changes.
Speaker Change: From year-over-year international student enrollment data and what we have seen on the ground, the impact hasn't been as significant as many have anticipated. We continue to see that colleges of lesser-known institutions are feeling the pressure, while the major universities are capturing a bigger share of total student enrollments.
Speaker Change: This trend is also emerging in other regions. Our communities with the highest student concentrations are strategically located near established universities, which are more insulated from these fluctuations.
Speaker Change: We remain focused on managing controllable costs during the quarter. Our revenue growth continues to outpace expense growth, leading to a 40 basis point year-over-year expansion of the same property NOI margin at 68.2%.
Speaker Change: just below our historical record high which was achieved in 2019.
Speaker Change: Overall, same property operating expense for the quarter increased by 6.3%, partially driven by timing of certain cost item allocations. Year-to-date operating expenses showed a more consistent 3.6% increase.
Speaker Change: Higher marketing expenses also contributed to higher property and operating costs as we invested in digital marketing to support our brand recognition and strengthen our position in a more competitive marketplace.
Speaker Change: Property tax increased by 7.8% on a per suite basis, primarily due to the impact of dispositions in the portfolio, which had lower property taxes on a per suite basis compared to our more urban portfolio.
Speaker Change: Looking ahead, we anticipate property taxes increase in 2025 to be in the 5% range.
Speaker Change: Utility costs held steady at $3.1 million for the quarter, unchanged from the same period last year. On a per suite basis, utility costs increased by 5.7%, which was due to an 8% increase in average rates and a 2% increase in usage.
Speaker Change: Our energy efficiency initiatives continue to lower our gas costs, with gas usage down by 7% year-over-year. Our hydro sub-metering program has helped reduce our electricity costs by recapturing 39.3% of the costs, for a total savings of $0.7 million for the quarter.
Speaker Change: Taking a closer look at CapEx, we've kept maintenance CapEx for repositioned suites at below $1,000 per suite on an annualized basis, in line with previous years. We continue to prioritize value-enhancing investments.
Speaker Change: which is where we allocate the majority of our spending. We're proud of how well we've maintained all of our suites.
Speaker Change: This has allowed us the flexibility to adjust and dial back our CapEx spending as needed. As you can see on the right-hand side of the slide, we've been diligent in managing our spending and so far this year we've been able to lower our per-sweep CapEx.
Speaker Change: And now I'll turn it over to Kurt to provide an update on our balance sheet.
Kurt: Thanks Dave. As we do every quarter, we reviewed our internal cap rates and property values with our acquisitions team and our external appraisers.
Kurt: Near the quarter end and into Q4, we are starting to see more deals transact, which is providing more certainty around cap rate movements.
Kurt: Based on these transactions, industry reports available at the time of quarter end, and our external appraisers review, we have adjusted cap rates in four of our regional markets.
Kurt: Due to the adjustments in the GTHA, NCR, Montreal and other Ontario markets, average cap rates for total investment properties increased by 9 basis points quarter over quarter, bringing the weighted average cap rate for the entire portfolio to 4.34%.
Speaker Change: This adjustment has offset our strong operational performance, resulting in a fair value loss of $93.5 million on a proportionate basis.
Speaker Change: We continue to monitor the transactions market closely as a decrease in interest rate seems to have resulted in an increase in market activity which will provide more support for future cap rate adjustments.
Speaker Change: Interrent continues to be in a healthy financial position. We've strategically used proceeds from our capital recycling efforts and financing activities to lower our mortgage balances and keep our variable rate exposure to less than 1% throughout the entire quarter.
Speaker Change: These activities have led to $0.9 million reduction in financing costs compared to the same quarter last year, allowing our strong performance to translate into significant FFO gains.
Speaker Change: Following the quarter, we drew on our credit facilities, increasing our total variable rate exposure to 2.3%. These funds were used for our Montreal acquisition, while more permanent MLI Select financing is being processed by CMHC.
Speaker Change: As Brad mentioned earlier, we continue to be in a position of financial strength and flexibility. Our Dispositions Program will guide our capital recycling and will continue to be disciplined in our capital allocation decisions.
Speaker Change: Moving on to slide 17.
Speaker Change: Our long-standing efforts to advance sustainability initiatives continue to bear fruit. In October, Interrent was awarded a 3 Green Star designation for the 2024 GRES Real Estate Assessment.
Speaker Change: We achieved a score of 81, an impressive 21% improvement from the previous year.
Speaker Change: This is our fourth straight year of improving our GRES score since we started in 2021.
Speaker Change: We also announced earlier in October that our entire Montreal portfolio has achieved certification under the BOMA BEST Sustainable Buildings Program.
Speaker Change: This milestone builds on our earlier achievement with the certification of our portfolios in Ontario and British Columbia under the Canadian Certified Rental Buildings Program that we did last year and earlier this year.
Speaker Change: With these efforts, we're proud to say that 100% of our multifamily communities now have building certification coverage.
Speaker Change: Last but not least, we're all very proud to share that this past September, we raised another record-breaking $1.8 million at the Mike McGann Charity Golf Tournament.
Speaker Change: Thanks to the support of our many amazing partners, all the proceeds from the event go straight to supporting the charities in our communities, making a real difference in many people's lives.
Speaker Change: To date, this event has raised nearly $10 million. We can't thank our partners enough for their support, and we're just getting started. Next year will be our 25th anniversary, so mark your calendars for September 25th, 2025. We can't wait to celebrate with you!
Speaker Change: On that note, I'll turn it over to Brad to discuss our recent strategic acquisition and provide any closing remarks.
Brad Cutsey: Thanks, Kurt. As communicated during the Q2 call, we've been exploring some attractive opportunities, and I'm excited to share that one of them has materialized this quarter. We've deployed some proceeds from our successful capital recycling program to expand our Montreal portfolio with a newly built, centrally located community.
Brad Cutsey: This transaction was closed subsequent to the quarter in mid-October.
Speaker Change: This acquisition is a 50% joint venture with a trusted partner, and we're very happy to be able to seize the rare opportunity to acquire this high-quality asset at a discount to replacement costs in a prime, irreplaceable location in downtown Montreal. We've already begun the leasing process as we work towards reaching stabilized yield.
Speaker Change: The community features 248 residential suites and approximately 70,000 square feet of commercial space that is currently in the process of being leased to a financial institution and an established national retail brand.
Speaker Change: The building was newly constructed in 2023 with rich amenities, which will allow us to leverage our leasing and operating platforms to maximize value during the five-year exemption from the rent fixation process.
Speaker Change: We're also proud of the energy efficiency, performance, and accessibility standards within this community.
Speaker Change: which is also anticipated to help us obtain preferred financing through CMHC's MLI Select Program.
Speaker Change: So far this year, we have generated net proceeds of $93.3 million from our dispositions.
Speaker Change: after closing costs and discharging mortgages.
Speaker Change: This has provided short-term funding for the acquisition, along with the temporary use of a credit facility, while we wait for long-term financing to be finalized in the months to come.
Speaker Change: We're making steady progress with the development pipeline. Construction is now underway on a second office conversion project in downtown Ottawa.
Speaker Change: In September, it was confirmed that Labretum Platz will soon be home to a new arena for the NHL Ottawa Senators. This is great news and we look forward to the upcoming development of infrastructure, transportation, and retail that will transform this downtown Ottawa area.
Speaker Change: These developments will add significant value to a number of our communities that are in close proximity to the site.
Speaker Change: The recent immigration plan has weighed on sentiment lately, with projections indicating that Canada's population will experience a slight decline over the next two years before growth resumes in 2027.
Speaker Change: Looking ahead, we may not see the significant market rent growth of recent years.
Speaker Change: But we're confident in what we have to offer.
Speaker Change: The quality of our community, the care we put into our spaces, and the experience and dedication of our team will allow us to compete in any market.
Speaker Change: We believe steady top-line growth is achievable over the next couple of years, albeit at a more moderate pace than previously guided. In this evolving market environment, we are cognizant of the importance of being prudent in our capital allocation decisions.
Speaker Change: Our recent acquisition of Montreal is an excellent example of our strategic approach. We capitalized on a unique opportunity to acquire an added discount to replacement costs in an irreplaceable location within a city we're very optimistic about.
Speaker Change: We believe this approach will help us navigate the market, aligned with the long-term objectives of growing NAB as a semester for sustainable growth. With that, let's open it up for Q&A.
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Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone.
Speaker Change: Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: Your first question is from Kyle Stanley from Daydarting. Please ask your question.
Kyle Stanley: Thanks. Morning, guys.
Kyle Stanley: Just going back to some of your commentary, you know, you did mention, you know, with the immigration policy changes, you do expect moderating rent growth and the next little bit.
Kyle Stanley: You know, as we think about where your leasing spreads trend over the next 12 to 24 months, you know, what are you thinking there and what does that imply for maybe your revenue growth outlook?
Speaker Change: Thank you for joining us. We will see you next time.
Speaker Change: Hey Kyle, thanks for the question. I'm sure you could imagine we thought we'd get this question.
Speaker Change: I'm sure it's gonna come up a bit. This is like unknown territory, right? The immigration changes being a pretty...
Speaker Change: whipsaw announcement. It was a whipsaw kind of with the increase in the targets and then a whipsaw in that direction to decrease. So there's no question there's been significant shifts in the integration policies.
Speaker Change: If all goes to plan, the policy fish will result in negative population growth, a scenario that we haven't experienced since population records started back in World War II, so there's a lot of unknowns.
Speaker Change: The broad impact of this is going to create a level of unpredictability that many of us are going to have to navigate thoughtfully through.
Speaker Change: But I guess I'll try to answer it in two ways.
Speaker Change: There's a lot of unknowns. Will the government meet these ambitious targets? Can the targets be met on schedule? What happens if there's a change in government?
Speaker Change: Even with the impact on the labor market, the capacity to build housing, supplies, right, so also in trades.
Speaker Change: are decreased, and then there's also the whole...
Speaker Change: 640,000 households per nation of the potential unwinding of that that the PBO office talks about in their report and that's essentially just a doubling up, tripling up, quadrupling up impact.
Speaker Change: How that all impacts the overall rental demand is yet to be seen, and those are kind of the things that we don't know and we're going to have to work our way through, but I think time will only tell. But the things that we do know, and the things that we're betting on here at InRent,
Speaker Change: We have a great operating platform, right? So we've been investing in our technology and our people in order to continue to deliver outperformance.
Speaker Change: We believe that the resiliency of this platform will...
Speaker Change: That will be demonstrated throughout time as we work through the different quarters and what not.
Speaker Change: as far as...
Speaker Change: as we see the impacts of what this negative population growth might be. And I think we've got to all appreciate, we've never experienced in the country negative population growth. So it's not only going to be multifamily, there's going to be a lot of industries impacted. And it's going to go back to, we really don't know if the government will remain committed to it, and we don't know what pace that this change will happen.
Speaker Change: So, thank goodness for Interrep that we've been continuing to invest in the platform through technology and through our people.
Speaker Change: I take a lot of comfort that there's going to be a lot of haves and have-nots within the industry.
Speaker Change: A rat in a tide floats all boats, but it's not necessarily goes the other way.
Speaker Change: Last but not least, I really think you've got to focus in on and the...
Speaker Change: The community rooms that I'm focusing on.
Speaker Change: the quality of our portfolio and how well located.
Speaker Change: It is, and how well located it is to existing...
Speaker Change: economic ecosystems. I think that's going to really serve us quite well going forward.
Speaker Change: I think also too is the amount of money we spend on a portfolio is being quite defensive on a relative basis. I think we're really well positioned. As you know we've always talked about
Speaker Change: We'd like to see a bigger portion of our portfolio being non-repositioned, because that's where a lot of the value-add initiatives come. But in the defense of time, we might be heading into, and again, just don't know what pace, we might continue.
Speaker Change: at the robust pace that we've been at, but if that is not the case, the majority of our portfolio is being repositioned, so there's not a lot of capex dollars going forward.
Speaker Change: I would say last but not least is we have different levers to pull if we want to get more defensive. Up to now, we've always focused on maximizing our reds.
Speaker Change: We can shift and we can take more of a...
Speaker Change: Oxy type, with all these, especially if it's markets where we are experiencing some softness due to supply being delivered.
Speaker Change: not the same level of historical rental demand, we can always choose to increase their obsolete targets. So, I know that's not going to
Speaker Change: answer you specifically, and it probably won't satisfy the majority of you on the call.
Speaker Change: But guys, we really don't know much more than that. So, I mean, we can kind of keep that answer around around it But we're gonna kind of go back to what we do know in this
Speaker Change: It's really going to be about the haves and the have-nots, and having a really strong operating platform to be able to deliver and rely on that track record, and there's a couple of levers we can pull if the markets do get a little softer.
Speaker Change: Okay, no fair enough. I appreciate the the uncertainty and the difficulty in forecasting. So thank you for that
Speaker Change: Maybe just looking at the Montreal acquisition, you know, you provided some disclosure there. Would you be able to comment on where maybe in-place occupancy is today? And, you know, you highlighted the fact that new build, it does have the five-year rent control holiday.
Speaker Change: What kind of upside do you see in the rents? Was there maybe concessions or lower rents used to get initial lease up done? Just trying to think about maybe yield expansion opportunities as we look ahead.
Speaker Change: The lucky thing about our portfolio, there's not a lot of...
Speaker Change: There's not a lot of communities with 100-plus suites, and all of our communities are in and around that level, meaning they're very well-amenitized. It's a three-minute walk from the UCAM. It's also a four-minute walk from...
Speaker Change: The Chum Super Hospital is a five minute walk from the Metro, so I can't say enough how well located this is. As far as where the lease-up, there is lease-up potential. We do have a partner in it, so I've got to be mindful of what I disclose.
Speaker Change: This is a strategic acquisition for us, and we've always said in the past on things that are strategic acquisitions.
Speaker Change: The yield expansion, we'd look anywhere kind of between
Speaker Change: So in terms of the early working post graduate status, ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... .... ... ... ... ... .... ... ...
Speaker Change: We're forecasting some pretty attractive financing on this, so from a levered IRR perspective.
Speaker Change: of a month. We've underwritten that so for us we kind of look out to a two and a half to three year period where we kind of think we can stabilize that yield and I think we think we can be north of five.
Speaker Change: on that, on that front, and I think...
Speaker Change: Just given the amenities and given our level of
Speaker Change: Our ability to deliver on programming, I think we feel pretty comfortable that we'll be able to do it. And then the last point I would make is I think there's a really small window right now for being able to buy at discounted replacement costs.
Speaker Change: And we just found ourselves in a position that just really fitted really well in as a bolt-on to our list of deployments, so we jumped at the opportunity.
Speaker Change: Okay, no, I think that makes sense. Just because you mentioned it there, Kurt, I'm not sure if you're able to provide your expectations for where the MLI select rate might come in.
Speaker Change: I mean, at this point, I expect to be probably around the $360,000 to $370,000 range, given when we're planning on financing it. I mean, could it be $375,000 or $380,000? It could be.
Speaker Change: predict right now. We're still seeing crazy volatility in the market. So, the good thing is with MLI Select, we expect this to get into level two. We're hoping to have this funded before year-end. It could drift into early January, but we're pushing hard to try and get it this year.
Speaker Change: So we expect that the financing on it will be somewhere between that $75 and $80 million.
Speaker Change: Okay, thank you for that. I'll turn it back. Thanks, guys.
Speaker Change: Thank you. Your next question is from Mark Rothschild from Kennecord. Your line is now open.
Speaker Change: Yeah, I mean, I think you quoted 27, so we're quite confident in that and we're achieving that as of today, and I think the numbers show it. I think coming in does show there's been some
Speaker Change: some called stabilization in some of the nodes in which we operate, hence why the markets dropped from 30 to 27 and we don't know where what the future brings meaning, hey
Speaker Change: depending on how this population growth impacts there could still be some softness in areas where further deliveries get, new supply gets delivered.
Speaker Change: That might come in. But that said, to your point, I think what you're making, Mark, is still remains a pretty elevated and healthy mark-to-mark again. So market rents really have to come by a lot in order for that cushion to evaporate.
Speaker Change: Okay great, thanks. Maybe just one more. You made a comment in regards to the acquisition of Montreal. You mentioned a couple of times buying below replacement costs and you said you believe that would be a very short window that you'll be able to buy below replacement costs.
Speaker Change: Maybe we could talk a little bit more about what gives you the confidence that it's going to be only a short window and that the values will be at or above replacement costs.
Speaker Change: Well, I think if you're starting today, it's going to be developing your pencil out today, it will be pencil out the performance. So, I think depending on the case specific, it's going to be...
Speaker Change: It's going to be really hard to pencil out new starts.
Speaker Change: and on that front starts having coming down right so I think as some some of the condo developers slash multi-purpose developers
Speaker Change: work through the portfolios, there's just going to be less of these opportunities.
Speaker Change: to actually convert.
Speaker Change: and be in a position to sell, right? Like, a lot of these buildings were started three, four years ago.
Speaker Change: And the reason why you're able to buy it at a decent cost is because they were started on land prices three or four years ago. Construction costs were a lot lower from a financing, from a soft cost perspective, and even from an actual hard cost perspective. So...
Speaker Change: And that will just slowly play out as some of this gets absorbed and transferred hands from the developers to the more permanent owners, so.
Speaker Change: And last but not least, I think it's construction financing comes in.
Speaker Change: you might develop into...
Speaker Change: have a mix of projects on the go, they might not find themselves in a position where they have to be optimized, let's call it the portfolio.
Speaker Change: Thank you. Thanks, folks. You're welcome. Thank you. Your next question is from Mariel Tarek from Skillshare Bank. Your line is now open.
Mariel Tarek: Good morning and thank you for taking my questions.
Mariel Tarek: You may hate me for it, but I'm just going to come back to the immigration commentary. And I'm not expecting specific numbers, but just it's essentially what you're saying, Brad, that the prior kind of top line growth of five to seven percent that you were thinking.
Speaker Change: That could be lower now but you just don't know how much lower it's going to be. Is that a fair comment?
Brad Cutsey: Yeah, I think that's a fair comment.
Speaker Change: Okay. In terms of the quarter specifically, Montreal Occupancy fell 100 basis points versus Q2, but at the same time, as you mentioned, saw the highest sequential average rent growth at 3.2%. I'm just wondering if you can kind of explain the seemingly opposing data points there.
Speaker Change: Well, I think there's been a lot of discussion around students supporting students, and I'm sure I'll...
Speaker Change: does have a lot of dominoes when it comes to students. So we did see a little slower of an August this year than we would have
Speaker Change: In the same token, we also saw demand coming from other sources that justify the rent levels in which we work. So unfortunately, as we all know, we don't have the same visibility in August.
Speaker Change: what's coming out until August. This really is a 30-day demand window.
Speaker Change: and that's what it was and so yeah you saw a little bit of a increase not see but I think the team did a really good job of trying to balance that off.
Speaker Change: with the red group that we posted, where we were able to get it in the other segments within, but you just don't have the same level of demand in other segments that you normally work in the students on it. So that could smooth out a little, Mara, as time goes.
Speaker Change: So is it a function of the units that went vacant or lower rent units, or is it a function of using quarter-end rents versus the average throughout the quarter as well in terms of?
Speaker Change: Explaining the discrepancy.
Speaker Change: Well, I think we have two regions, right? We've got the urban and then we've got Coast St. Luke, and there was some pretty strong performance, but don't get into too many specifics, coming over to Coast St. Luke.
Speaker Change: Thank you. Bye.
Speaker Change: You kind of highlighted some one-time items in Q3 and pointed to the year-to-date of being 3.6 as perhaps being a more normal run rate. That's consistent with what was discussed on the Q2 panel. Is that sterile fare common as you look out in 25? Notwithstanding property taxes expected to grow up 5%, is that 3% to 4% total OPEX growth a reasonable number to 25?
Speaker Change: We had some one-time credits in Q3 last year that just made the year-over-year look a little off. Also, it's kind of an odd situation with Slate leasing up and with the conversion we did in Montreal with that commercial space to Resi.
Speaker Change: So your same store actually isn't a hundred percent same store because we had filled out with units or units coming online on slate.
Speaker Change: So when you factor in about $115,000 Q3 last year, that was a credit to the expense.
Speaker Change: And then when you factor in the difference in units in the two, we end up being at about, or a lot closer percentage for off-cost. We end up at about 4.8% on a per suite basis.
Speaker Change: Q3 over Q3.
Speaker Change: At the higher end of what we expected, a four to five for this year, but still in the range.
Speaker Change: For next year, initially I would say yes. I think that three or four would make sense, but the big question now on the immigration side is going to be how this maybe impacts over the workforce.
Speaker Change: When you think about maintenance, when you think about cleaning, when you think about some of those roles, you could see some impact, you could see some pressure on wages there, so I think I would probably be looking at four to five for 2025 versus two to four at this point, given those.
Speaker Change: I guess we'll see as the year plays out how that tracks.
Speaker Change: Okay, thanks. That makes a lot of sense. That's my last one. So despite the $93 million dollar fair value write-down, which I appreciate the call Ron,
Speaker Change: The drivers behind it, I think your IFRS NAV is still around $17, give or take. Unit price is at $11, that equates to a 30-35% trading discount to NAV.
Speaker Change: How do you think about buying back units at an implied cap rate north of five versus buying new construction at a discounted replacement cost at a similar kind of stabilized cap rate two to three years out? And do you think that this acquisition can generate that mid-single-digit same-strand line growth structurally consistent with your existing portfolio?
Speaker Change: Yeah, I mean, we can sit here and have a healthy discussion on this for the rest of the afternoon, but...
Speaker Change: I would definitely say with where the rates are, with where our unit price is today, Trump buybacks are looking extremely attractive.
Speaker Change: in that context, right? So.
Speaker Change: All else equal, I think my backs are looking really attractive right now relative to others.
Speaker Change: Allocation decisions. Other allocation decisions are also made, though. This is a point in time, and you've got to look at what some of those other
Speaker Change: projects or capital allocation opportunities will bring over a period of time, over 3 to 5 to 7, but please don't assume this is not looking or
Speaker Change: being active on buybacks at this level. So I think it's just a fine balance, Mariela. A lot of it's going to continue to depend on our disposition program.
Speaker Change: And I think it caused a little bit of confusion last quarter when I talked about us being in that fire, and I think the context maybe came out that people thought, or extrapolated from that comment, that we were going to be
Speaker Change: significant buyers and I think I made it from the time before that I had visibility on things like M70 Renee LeVette.
Speaker Change: But when you put it in the context of what we've disposed...
Speaker Change: And that is how we have to look at this, is our capital is constrained to our disabilities program and maybe a little bit of additional leverage where we can take on
Speaker Change: Attractive financing through ACLPs and MOI select.
Speaker Change: So really, the way we will continue to look at our capital will remain thoughtful and will remain within the confines of that disposition program, but buyback will definitely be a part of those capital allocations.
Speaker Change: So, the buyback activity is somewhat predicated on disposing as opposed to increasing leverage on the margin to buyback units here.
Speaker Change: This is a Matter for a Moment.
Speaker Change: Did you say decomposition? Disposing the properties versus leverage to go at it. Yes. Yes.
Speaker Change: Okay, so contingent upon asset dispositions.
Speaker Change: And like Brad said, Marius, the overall timing that's up in the air, right? You're working on an acquisition, it can take months and months.
Speaker Change: this position can be the same so we have visibility into these a little more than the market so you may see some activity but it'll be paired with with that that kind of transaction and not as a standalone
Speaker Change: Thanks, Paul.
Speaker Change: Thank you. Your next question is from Sairam Srinivas from Walmart Securities. Your line is now open.
Sairam Srinivas: Thank you, Apreeta. Good morning, guys. Brad, could you make a comment on, you know, the rent growth ahead? As we look at the vacancy numbers right now, I guess it's somewhat coming close to your stabilized 96% occupancy levels.
Speaker Change: When we combine that with the comment on rent growth being not as much as what we've seen so far, what's your comment on the broader organic growth outlook over the next 12 months? Do you think that kind of feeds the growth to more of a single-digit level?
Speaker Change: Thanks everybody.
Speaker Change: Yeah, I mean, I've been...
Speaker Change: Sorry, are you talking portfolio-wide or I heard Vancouver, that's why I just paused for a second, I'm just looking at Kurt and Dave. Was it portfolio-wide or Vancouver specifically you're asking about? Portfolio-wide.
Speaker Change: Yeah, I mean, it's kind of back to that original comment, right? I'm not really...
Speaker Change: I'm going to put myself or the team out there. We've never seen population decrease in Canada, so I don't think it'd be responsible for us to comment on it. What I will say is, really well-located portfolio that we've spent a lot of cap-ex dollars on, and we've got the majority of the portfolio repositioned.
Speaker Change: We've proven time and time again that we can perform above industry advocates.
Speaker Change: And I think we will continue to outperform, and when I mean that I mean it's a very fragmented business. I'm not
Speaker Change: taking comments on their competitors. I think they're great and they're professional managers.
Speaker Change: This industry still has a lot of room to go, and I think a raggedy tide floated a lot of boats, and I think the ones that are have
Speaker Change: Invested in their operating platforms will show you What those investments I think those investments will pay off on a relative basis, but as far as calling the absolute level of rent growth
Speaker Change: I just really can't go there because we're going to experience this together. This is going to be fun. I'm sure we're going to have these conversations over the next...
Speaker Change: 8 quarters, and at some point in between now and those 8 quarters, we're going to get comfort that
Speaker Change: where we think how big the directional is, but I can tell you this, I'm quite confident in our team and under Dave's leadership.
Speaker Change: that we're going to perform the best we can perform and outperform on a relative basis. I know that doesn't give you guys what you want to hear, but I really don't know how we can answer it any differently.
Speaker Change: Thank you so much.
Speaker Change: Five point Brad. And maybe just, you know, going to segue into the repositioning. I know now it's about 15% of the portfolio out there. When you look at historical opportunities and returns that you're seeing on repositioning versus what's there ahead, how do you compare and contrast? Do they look equally attractive to invest capital there? Or maybe do you see that kind of tapering down? Can you give some color on that?
Speaker Change: I think we still like the repositioning opportunities. We haven't said that we're going to focus just on new bills or anything like that. For us, it's about looking at everything that's available to us in the market, whether it's a new bill that's strategic and a bolt-on to our portfolio, whether it's a repositioning opportunity where we see great upside and we can use our track record of delivering on that.
Speaker Change: And like we said in the capital recycling comment earlier, whether that's, you know, into the NCIB, we look at all of these all the time. We don't just sort of pick a path and stay on it blindly. We're constantly looking at all of them and trying to figure out.
Speaker Change: Given the long-term horizon, which is difficult, right, like you're taking, you mentioned earlier, you're taking months to negotiate a deal, the market can change a little bit, so we're going to keep doing what we think is the best investments for the long-term of the company.
Speaker Change: And it'll be dependent on what gets presented to us in the market. We're kind of agnostic. We're just looking for the best returns and the best nav creation for our unit holders.
Speaker Change: But if there's not a strategic bolt-on...
Speaker Change: close to the system portfolio where there's a lot of operating synergies and we have a lot of comfort that we can drive yields to where the implied cap rate is right now.
Speaker Change: have said different. Those existing RLCs better be really attractive because one thing we do know, and we know well,
Speaker Change: is our own communities and what they can generate. And that's really attractive, right? The other thing I would point out that might
Speaker Change: might play out, and it's not all doom and gloom scenario with this population, is turnover might start to increase. Now...
Speaker Change: What that means is, for people that have to spend money on their portfolios, that might not be great, because it might mean they've got increased capital expenditures to come to be able to maintain in a rent environment that might be more stable.
Speaker Change: But there could be some opportunities with the higher turnover, right? This could create more movement.
Speaker Change: And the other thing, and I touched on it a little, I'm not sure how many people picked up on it, but there is the impact of the doubling, tripling, quadrupling up that has definitely happened.
Speaker Change: It's more anecdotical.
Speaker Change: There's not as much written. Yes, the PBO office has put out their number of $640,000 on that, but that underlining could backfill a little too. But like I said, a lot of unknowns and how this plays out is yet to be seen.
Speaker Change: The professionally managed portfolios with a great operating team who spent money on the portfolios.
Speaker Change: Penn and Tilt will stand to do well on a relative basis.
Speaker Change: And I think that's where we get a lot of hope. Now, we've built up a level of expertise to do the value add, and that's kind of the question where you're going. We feel quite confident that the opportunities continue.
Speaker Change: We have successful on our disposition program.
Speaker Change: Back to curve point, we'll look at everything on a relative basis as we allocate that capital and we'll look out five years and we'll go with what provides us the best return, but with the price where it is right now, it's a pretty attractive opportunity.
Speaker Change: That makes a lot of sense, guys. Thank you, and bye.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is from Jonathan Coulter from TD Cowen. Your line is now open.
Jonathan Coulter: Thanks, good morning.
Jonathan Coulter: Guys, first question, just on the slowdown in your gain to lease this quarter, it was lowest that we've seen in a while, was that a function of which leases turned as much as anything? And would you expect that to sort of bounce around as we go forward?
Jonathan Coulter: Thank you very much.
Speaker Change: Yeah, you're already at that discretion, so as you've seen, it's not so much a pullback in the market, right?
Speaker Change: Can you see Lydie on the marked red eyes?
Speaker Change: It's more just, we've seen more of a trend to turnover.
Speaker Change: on people that have moved in more recently. So in other words, tenure is extending out a little bit. So that can change quarter to quarter. But at the end of the day, when you look at how much market rents have moved over the last few years,
Speaker Change: It makes sense that the mark-to-market gap stays. It makes sense that if you locked into a rent four or five years ago you're probably going to stay a little longer.
Speaker Change: You can still acquire it through time.
Speaker Change: because life events happen, people move, however the timing of when you're gonna get a tax is, you know, maybe shedding down a little bit and you're seeing that play out through the gain on lease.
Speaker Change: And I think, you know, one of the things to keep in mind is if you go back over time and over the 14 years I've been here, we don't perform consistently on rent growth, quarter after quarter after quarter.
Speaker Change: And over time, that becomes more challenging to do as you get closer, as your AMR grows compared to the marketplace, that gets harder and harder and that differential gets bigger and bigger.
Speaker Change: It's more of a matter of timing of when we can get to it, not a matter of it has disappeared.
Speaker Change: I think the other thing to keep in mind, too, Jonathan, is we do have the luxury, because we do tend to operate on a little lower occupancy target. We do have the luxury, if, if, and it's a big if, if,
Speaker Change: things start to soften because demand comes in. We do have the luxury.
Speaker Change: I'll lease them out to a higher target.
Speaker Change: and driving revenue that way. So that goes to my second question, which is,
Speaker Change: and I guess Mario started on it, but if your target had been sort of five to seven percent revenue growth and you're, that's going to slow, and you're talking OPEX of four to five percent, how should we, how should we think about, if we put that all together, how should we think about margins for next year, sort of flat to slightly up or flat to slightly down, or how should we think about that?
Speaker Change: Yeah, I think you got to run through where your assumptions are on the top line because it's all it's all gonna come off the top line So I'm gonna let you guys, you guys are smarter
Speaker Change: So we'll let you guys pick where you guys think your top line is. You can bet your bottom dollar that we are going to continue to find ways to drive efficiencies within our operating costs.
Speaker Change: And I think it's really helpful in some areas in which we can do that, but they still take a little bit of tech spend, so they're not going to be as obvious through. We've already seen some reduction.
Speaker Change: in some areas on the headcount because of investment in technology. But I do share Kirk's concern that the labor pool is going to get a lot tighter in time. It's not going to happen tomorrow, but in time it's going to get a lot tighter, and there could be some wage pressures.
Speaker Change: So, we've got it in the past, three to five, I think, from a modeling perspective.
Speaker Change: You might want to be close to the five, but it won't come evening to the year. So it's probably going to take time for it to have an impact, so maybe it's the second half.
Speaker Change: I'm not trying to be cheeky, it's just...
Speaker Change: listen we're all doing we're all going to be dealing with this together through right like but you can you can make a dollar that will be batching batches on the hatchets for sure when it comes to the operating costs
Speaker Change: So I'd be hopeful that we can maintain the margins or slight slippage.
Speaker Change: It really depends on what you assume for a top-line vendor.
Speaker Change: Yep, for sure. And then lastly, just...
Speaker Change: Your non-stabilized portfolio is obviously decreasing. What do you expect for for CapEx spend next year?
Speaker Change: on the non-stable. All else equal right and continue on the same kind of path where we are right now. We continue to see it come in. I think it's been actually coming in and I think you can continue to watch it come in as the non-reposition becomes less and less.
Speaker Change: And now, the good news.
Speaker Change: Yep. Okay. That's it for me. I'll turn it back. Thanks.
Speaker Change: Great. Thanks, Shanti.
Speaker Change: Thank you.
Speaker Change: Thank you. Your next question is from Mike Martinis from BMO Capital Markets. Your line is now open.
Mike Martinis: Thank you, Brad. I promise I won't try and goad you into giving me some NOI outlook or margin outlook for 2025. I do have a couple questions. First off, just on Richmond and Churchill, I know you guys are making progress. Demolition is complete. Does this change in immigration policy make you just want to put that on the shelf for the time being or is there still an expectation that you might actually get in the ground in the foreseeable future?
Brad Cutsey: Well, Richmond-Churchill is such an iconic location. We truly, and this is not just us talking about our own book, but we really do believe it's a generational site. While the demand forecast does
Speaker Change: cause some pause to see where things are going to go, but one side we do know there is some supply in Ottawa, elevated in 2024 and there will continue to be some in 2025, 2026.
Speaker Change: At this point, there's only, I believe, one project. They don't expect to be delivered into...
Speaker Change: 2027, and that would be the time in which we would be delivering.
Speaker Change: The other comment I would make about Richmond Churchill, Ottawa doesn't have really a combo market and
Speaker Change: While in Vancouver and Toronto we do have a condo market and it has played a variable in some of those condos that have not been sold.
Speaker Change: converting to compete in the shadowed supply of rentals. Ottawa doesn't have that same level. The only reason why I mention this is the risk and insurance site would be geared towards empty nesters. It's in the Appaloon area.
Speaker Change: of Westville, and there's some market in which we think is...
Speaker Change: It's pretty underserved. It's only up to the last little bit, but as somebody with equity and as an international, you didn't really have an opportunity to kind of be
Speaker Change: looking looking at that and and still with the leaning towards
Speaker Change: going, but as we get the pricing back,
Speaker Change: And we believe we're actually, right now, with the trade, the lease in Ottawa, there's an opportunity to really kind of sharpen and get to a point where we think we can develop to an IR and to a yield on cost that, even where we are today, makes sense. Yeah.
Speaker Change: We will constantly watch how things unfold, and we reserve the right not to change. But as we stand today, we need to continue to go with that.
Speaker Change: And like Brad mentioned, due to the timing of that, you know, you're thinking into 2027, you're getting to the end of current government announcements on immigration targets and sort of resuming normal immigration also, right? So timing could work well.
Speaker Change: depending on how it all plays out.
Speaker Change: I know we're halfway through a quarter here, and I know that your move-outs are lower in Q4 and in Q1, but has there been any noticeable shift in terms of turnover rate in Q4 or move-outs at all to this juncture versus where you would have been last year?
Speaker Change: Oh, not significantly, yeah.
Speaker Change: Okay, and then I just wanted to sort of hone in on you know You mentioned a potential if and I know it's a big if to potentially shift to a higher occupancy target if conditions warrant
Speaker Change: And I'm not suggesting that we are necessarily going back to a pandemic, but that would be a pretty stark contrast to what you guys would have done back in late 2020 and through a good part of 2021. So I'm just curious as to what the strategic thinking is that
Speaker Change: You know, I'm glad you asked it, Mike, because it's a great question. Back in COVID, we made a conscious effort not to buy oxygen.
Speaker Change: Q2 to Q4 we actually saw minimal. I think on average we saw
Speaker Change: 40 basis point drops in our listing rates between that time frame.
Speaker Change: And we took on call an extra 480 points of vacancy.
Speaker Change: It hurt, but we were all of the mindset.
Speaker Change: that we had an idea of where supply was and that it was demand.
Speaker Change: driven, right, so meaning all of a sudden the government completely shut down the rental demand pool. Everybody is locked in and not moving. We saw that as a temporary blip of a year. Now granted it lasted two years. We didn't see that. We got that wrong.
Speaker Change: By the way, for two years. Now granted, albeit small, but nevertheless it is. Now, keep in mind, over that same five-year period of when these targets are, we're kind of back to the overall average, so it smooths out.
Speaker Change: But there are pockets where maybe new supply is coming on.
Speaker Change: And if we are in an area where new supply is getting delivered at the same time that we notice...
Speaker Change: listings or needs are really coming in.
Speaker Change: We're going to take the opportunity to say, okay, maybe we will move off our rents a little.
Speaker Change: This could be in this scenario for one, two years, right? Versus before we really, when we went into it, thought it was going to be one leasing cycle. It ended up being two and a half. And that almost impacted us three cycles.
Speaker Change: Montreal, given when things open back up. So I think I think the difference is
Speaker Change: Now you've got a little bit of different demand supply fundamentals where previously the government was still tossing up five hundred thousand
Speaker Change: permanent residents, right? So it's a little bit of a different outlook.
Speaker Change: and like I think it's an important point that Brad makes too just in regards to the overall long term if you look at sort of how many people have moved in in the last two years and even if you take zero for the next two or negative
Speaker Change: on an average basis over many years.
Speaker Change: And the reason I say that, and the big if that we caveated that with is, you know, one of the things is household formation. A lot of people are quoting numbers that are old, anecdotally, and I think everyone intuitively knows that the number of people per household has gone up over the last two or three years.
Speaker Change: And the question will be, as you pull back on immigration, how much of that deferred household formation sort of goes back and trends back to a norm?
Speaker Change: and offsets the bit of the vacuum, if you will, created by the lack of integration by people moving out where they double, triple, quadrupled up or staying at home longer.
Speaker Change: and I think that's where it'll be interesting to see what we'll be watching closely is how that plays out versus immigration and depending on how that plays out then the justice would come into play.
Speaker Change: Okay, no, that makes sense. And I guess just, Brad, to summarize what you're saying, I guess the difference today from where you sit would be the demand drought, if you want to call it that, could be more protracted than what you initially thought back in 2020. And the supply picture is worse than it would have been back in 2020. Is that fair?
Speaker Change: Okay, that's it for me. I'll turn it back. Thanks guys.
Speaker Change: Thanks, bye.
Speaker Change: Thank you. Your next question is from Brad Circus from Raymond James. Your line is now open.
Brad Circus: Hey, guys. I'll keep it quick. Just a couple quick ones for me. Just to go back to potential transaction activity going forward, you know, you talked about tying dispositions to acquisitions.
Speaker Change: Is there more capital rotation you would expect?
Speaker Change: heading in the next year within the portfolio in terms of rebalancing or are you taking a little bit more of a cautious approach given maybe some of the visibility challenges in the market right now from a revenue perspective and more pens down at the moment?
Speaker Change: I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Speaker Change: No, I think it just goes back to previously, maybe the last college didn't do a good enough job.
Speaker Change: Maybe the answer was too stark. It's really why we kind of have our parameters where we're comfortable.
Speaker Change: And it really will come to where...
Speaker Change: The opportunities are on the disposition. If we can dispose of some assets that no longer meet our overall corporate thresholds and we can dispose of those and recycle them into
Speaker Change: a creative initiative like Buy Backs are a strong growth opportunity in which we think over time.
Speaker Change: Thank you.
Speaker Change: is a higher return than what we're disposing of, won't do that. But it's going to be constrained, to a big part, to the success of the disposition program.
Speaker Change: And then at some point on that, there's only so much you do want to dispose of as well, right? But right now, we've said...
Speaker Change: Last call we thought we could do 50. The numbers probably could be a little higher, but we rather set the expectations that we feel comfortable that within the time frame that we mentioned on the last call 15 million was realistic. We previously said something I agree, I think, that just
Speaker Change: Shive 100, and we've done them at IFRS to a greater.
Speaker Change: We'll continue to work that. There's not a shortage of opportunities in the marketplace. More institutions are involved. There is a larger number of deal size grew.
Speaker Change: Uh, per se, and depending on which market, uh, some, some markets saw some influence increase.
Speaker Change: in transaction volume, but the average drill size did grow, which suggests that the institution kind of come back. I think there's, the one good news right now in our space is the fact that
Speaker Change: Fundamentals are so red-hot and everybody's worried about the macro tape. The macro outside of, yes, the immigration policy, but from a fund flow perspective, has cap rates and interest rates.
Speaker Change: That's turning in our favor, and I think as you talk to different private industry participants, there's a real level of
Speaker Change: of comfort that interest rates have likely stabilized. And now, yes, assuming the volatile given the economy between the feds and what Bank of Canada is doing and whatnot. But I think there is a...
Speaker Change: consensus that rates could probably stabilize and it's allowing institutions to at least start underwriting and transact and that's good news for all of our portfolios, right?
Speaker Change: I can tell you, you cannot buy...
Speaker Change: In the marketplace right now, new or vintage, the applied cap rate of our stock is currently in line.
Speaker Change: So, that would lead, I believe, our stock has to reflect, right, if it's going to meet on the price. So,
Speaker Change: I know that's a long-winded answer, Brad, but we're short an answer.
Speaker Change: We're going to be extremely disciplined, right? And there are still things for us to be able to do the work within the confines of that $100 million that we just closed up. If we are successful in closing another $50 million,
Speaker Change: we'll work within that and we'll allocate as you see appropriate and not being buybacks.
Speaker Change: could be external and I could be continuing to develop out maybe on a business or maybe and continue to grow with 360.
Speaker Change: Okay, and maybe just to summarize that then, if you do execute it, it would be more of a leverage neutral.
Speaker Change: strategy I guess when you're reaching out. We did say we'd bring up leverage a little. We said on the last call and this call, there is a track of ACLP and MOI financing. So we would be willing to take that up into the low 40s, Brad.
Speaker Change: because it is attractive and where it takes your thoughts.
Brad Cutsey: Okay, that's helpful. I'll turn it back.
Speaker Change: Thanks, Matt.
Brad Cutsey: Thank you very much.
Speaker Change: Thank you. Your next question is from LeRob Martin from Green Street. Your line is now open.
LeRob Martin: Thank you.
Speaker Change: We're starting to see where leverage starts to come in, meaning leverage decreases? Yes.
Speaker Change: Yeah, if we...
Speaker Change: Dispose, continue to dispose. We don't see any external opportunities in which we can allocate our capital.
Speaker Change: all pay down leverage. But our variable rate is less than one, and where our share price is currently, it's a pretty attractive opportunity sitting us in the face right now.
Speaker Change: Okay, thank you for that. I'll turn it back to the operator.
Speaker Change: Thank you. Your next question is from Matt Kornack from National Bank Financial. Your line is now open.
Matt Kornack: Hey guys, just quickly on the on the population side and the impacts that we're seeing Obviously, we're kind of undoing the excesses of temporary or non non-permanent residents We're still seeing pretty good growth in permanent residents in the country we know the student side of it, but on the on the kind of temporary foreign worker side
Speaker Change: Do you know if you have many of those in your existing portfolio? Obviously, we've seen unemployment increase as some of those came into the country as well.
Speaker Change: Not maybe necessarily a huge economic impact if some of them depart if they didn't have jobs, but just wanted to get a sense.
Speaker Change: as to the impact that maybe the temporary foreign workers would have in your portfolio.
Speaker Change: Yeah, I mean, we don't disclose it, but there's another way you can skin that.
Speaker Change: You can zoom that cat, right? Like it.
Speaker Change: I think depending where they sit on their status as temporary employment workers
Speaker Change: where you are, it's going to probably dictate a larger exposure to the temporary residents than not. I think across the board everybody will have exposure to the temporary residents.
Speaker Change: Hello everyone.
Speaker Change: takeaways and kind of see the approach.
Speaker Change: to what that actually means, you know what I mean? That's a hard one not to comment.
Speaker Change: to give you a full type of
Speaker Change: It's spoken on.
Speaker Change: Yeah, you know, that's fair enough. And then I guess on the student side, with regards to kind of buying occupancy, is that an area that you're more willing to buy occupancy just because you know that they're going to be there for maybe three years maximum?
Speaker Change: Thank you.
Speaker Change: So, and again, they would have been probably some of the turnover that you're experiencing that's shorter duration as well, so lower mark to market.
Speaker Change: So that may be some of what's driving this lower turnover spread that we're seeing right now.
Speaker Change: You're going to accept buying an office where there's less left on current, meaning if there's current residents or current places where you think you can get at, that's re-capture again. Those make a lot of sense as you prioritize.
Speaker Change: But a lot of it's going to come back to, it's a demand and supply type thing. Like, the market has been tight enough up to the last little bit because of the demand of stripping the supply that we've been all, all of us have been fortunate.
Speaker Change: The tide keeps rising.
Speaker Change: Now that the tide is no longer necessarily rising, how many boats are out there?
Speaker Change: Where there is supply on a locale close to a community and it's a significant community that's delivering a significant amount of units.
Speaker Change: That's going to impact us. So you might you might look at that and say it's worth buying a little bit of oxygen here.
Speaker Change: Because a competing supply that's going to come on could really hurt until that gets absorbed. And if you think it's going to take a two-year lease up, it might be worthwhile that, hey,
Speaker Change: The fundamentals in that zone are going to be a little softer for two years there.
Speaker Change: might be willing to say, hey, OK, yeah, if we put them in, they might stay here for five, but two of those years would have been soft anyways. So really, now we're looking at trapping that equity.
Speaker Change: Once the market returns to greater than equilibrium, then we might be trapping only three years of that lower rent, if that makes sense to you.
Speaker Change: It really is going to be coupled with where the new supply has been delivered. And that is very, very location-specific.
Speaker Change: Okay, it makes sense. A very, very quick last one. This recent acquisition in Montreal, you're clearly not straying from your strategy. You're locating near University of Montreal Super Hospital and UCAM, so still going after kind of higher propensity to turn
Speaker Change: individual. I guess you still see, regardless of the immigration environment over the next little while, that that's where you want to be in terms of tenant exposure.
Speaker Change: Well, it's real estate, right? So we love that dirt. We'll bet on the operating platform all day long. Sure, it's more operating intensive when you have higher terms.
Speaker Change: But we will always bet on the team to be able to deliver the ultimate coming experience and we're going after renters by choice.
Speaker Change: So, and with the, with the market having a super hospital right there in the University of Montreal, as you know, Matt, there's
Speaker Change: the University of Montreal's
Speaker Change: Give them where the province
Speaker Change: has had it with the whole language and studying within French, being able to get tuition.
Speaker Change: a local cause, we think we could see a little bit, we're not banking on it, but we think we could see a little bit of an influx of foreign students that are French speaking.
Speaker Change: And that community could benefit greatly from that, but that alone, the hospital is literally right behind it.
Speaker Change: Those make great employment bases for our community. So it's sticking with the strategy. This demand population, I'm pretty safe to say, like I said, there's a lot of unknowns.
Speaker Change: Canada can't exist on negative population growth for a significant period of time.
Speaker Change: Right, so, and the one thing I would say about Montreal, Montreal kind of went through its elevated supply. It got its elevated supply was previous, a couple of
Speaker Change: It was 2021, when it peaked, 2021-2022, and that supply that's getting delivered now is slowly coming in.
Speaker Change: So from a supply aspect, we feel really comfortable, and then we also feel really comfortable from an affordability standpoint with the Montreal market. So we're pretty happy with it.
Speaker Change: Thanks, guys. And yeah, the government hasn't necessarily been the greatest at meeting its own targets on immigration and population growth anyway, so we'll see. Take care.
Speaker Change: Thank you for tuning in.
Speaker Change: Your words, not ours, Matt. They have no comment, but we appreciate you saying them. Thanks, Matt. Thanks, Matt.
Speaker Change: Thank you. There are no further questions at this time. Please proceed.
Speaker Change: Thank you. Yep, thanks everyone for taking the time for the Q&A and if there's any further questions please reach out to Renee, Kurt, and myself. Thank you.