Q4 2024 Killam Apartment REIT Earnings Call
Okay.
Speaker Change: Good morning, ladies and gentlemen, welcome to the Killen apartment real estate investment Trust fourth quarter 2024 financial results Conference call.
Speaker Change: This time all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time. During this call you required immediate assistance. Please press star zero for the operator.
This call is being recorded on Thursday February 13, 2025, I would now like to turn the conference over to fill that Fraser President and CEO. Please go ahead.
Phil Fraser: Thank you.
Speaker Change: And thank you for joining killing apartment briefs.
Speaker Change: Q4, 2024 year end financial result conference call.
Speaker Change: Here today with Robert Richardson.
Dale Noseworthy: Second as Vice President Dale Noseworthy, Chief Financial Officer, and Aaron Cleveland Senior Vice President of Finance.
Dale Noseworthy: Slides to accompany today's call are available on the Investor Relations section of our website under events and presentations.
Dale Noseworthy: I will now ask Eric to read our cautionary statement.
Dale Noseworthy: Thank you Philip.
Eric: Patients taking <unk> forward looking statements with respect to kill him a permanent basis and its operation strategies financial performance conditions or otherwise.
Eric: Actual results and performance of killing discussed here today could differ materially from those expressed or implied by such statements.
Eric: Such statements involve numerous inherent risks and uncertainties, although killer management believes that the expectations reflected in the forward looking statements are reasonable there can be no assurance that future results levels of activity performance or achievements achievements will occur as anticipated for further information about the inherent risks and uncertainties with respect to forward looking statements. Please refer it.
Eric: <unk> most recent annual information form and other securities regulatory filings found online on Cedar all forward looking statements made today speak only as of the date at which this presentation refers and kill them does not intend to update or revise any such statements unless otherwise required by applicable securities laws.
Eric: Thank you Eric.
Eric: We're very pleased with our strong financial and operating results for the fourth quarter and the year ending December 31 2024, we.
Eric: We achieved eight 4% same property NOI growth.
Eric: Across the portfolio, which included eight 5% same property NOI growth in our apartment portfolio seven 5% same property NOI growth in a manufactured home community portfolio and six 3% same property NOI growth for our commercial properties.
Eric: Kill them earned <unk> of $1 18 per unit, a two 6% increase from $1 15 per unit in 2023.
Eric: And throughout the year made very good progress on our strategic targets as shown on slide four.
Eric: We successfully completed our plan of arrangement, which simplified our organizational structure and reduced future potential corporate taxation.
Eric: Finally, we completed 10 property dispositions for gross proceeds of $59 $2 million. We are optimistic about the opportunities ahead and remain focused on our growth on growing our portfolio through developments and acquisitions growing our cash flow and increasing the underlying value of our assets.
Dale Noseworthy: I will now hand, it over to Dale.
Dale Noseworthy: Thank you Phil.
Dale Noseworthy: Key highlights to kill them tier and financial performance as presented on slide five.
Dale Noseworthy: Topline revenue increased four 7% for the total portfolio and 6.0% for our same property portfolio.
Phil Fraser: Phil mentioned in his opening remarks, we're pleased to have completed our strategic corporate restructuring transaction in Q4.
Phil Fraser: As a result of this plan of arrangement the taxable entity that existed within our corporate structure has now been removed. This resulted in a deferred tax recovery of $279 million in the quarter, which flow through net income.
Phil Fraser: This is a noncash nonrecurring accounting entry to promote the deferred tax liability from our balance sheet.
Phil Fraser: Deferred tax entry and all plan of arrangement transaction costs have been normalized for <unk> purposes.
Phil Fraser: We ended the year with that typo that dollar and 18 cents per unit, a 2.6% increase from 2023 as seen on slide six.
Phil Fraser: With the governor.
Phil Fraser: 66, and knowing hill to all fully leased we expect to see greater at that full games in the coming year. As these three developments will contribute meaningfully to our earnings.
Phil Fraser: Topline growth was key to our strong results are same property apartment portfolio achieved a weighted average 7.0% rental rate increase for the year.
Phil Fraser: This was partially offset by a 40 basis point uptick in vacancy.
Phil Fraser: We achieved 98.0% same property apartment occupancy during the year compared to 98, 4% in 2023.
Phil Fraser: Slide seven highlights the rental rate increases achieved by quarter over the last nine quarters in Q4 renewal increases remained healthy at four 4%.
Phil Fraser: And we achieved 19, 5% and rent growth for new tenants, who moved in during the quarter.
Phil Fraser: Together the weighted average rental rate increase was seven 9% in Q4.
Phil Fraser: We estimate the total mark to market opportunity for our portfolio to be approximately 15%.
Phil Fraser: This spread has decreased over the past six months as market rents have stabilized and where we have observed a softening of market rent for certain units.
Phil Fraser: Market rent trends vary between regions and rental rates.
Phil Fraser: I'm pleased to report that leasing activity remains robust and kill them anticipates continued topline growth and unit turns in the coming years.
Phil Fraser: Robert will expand on this opportunity shortly.
Phil Fraser: Slide eight shows our same property operating expenses, which increased modestly by one 7% in 2024, our most significant cost pressure property taxes increased by five 9%.
Phil Fraser: In 2024 operating expenses were offset by a 5% reduction in utility and fuel expenses.
Phil Fraser: Looking forward to 2025, we expect expenses to increase by 5% to 7%.
Phil Fraser: As with last year property taxes are expected to be a significant cost pressure also we won't have the benefit of lower natural gas costs.
Phil Fraser: With a colder winter, so far and higher natural gas commodity pricing in Ontario, and Atlantic, Canada utility and fuel expenses will be higher in 2025.
Phil Fraser: Overall same property NOI was up eight 4% in 2024.
Phil Fraser: Our Fi and annual NOI growth.
Phil Fraser: We also achieved 158 basis point improvement in our operating margin.
Phil Fraser: We expect same property NOI growth of between 4% and 7% in the year ahead, we will continue to review and adjust our forecast as operating results are announced each quarter.
Phil Fraser: Slide nine presents the average apartment mortgage rate by year compare it to the prevailing MHC insured mortgage rates, we anticipate higher interest rates on refinancing in 2025 due to the current rate on our apartment mortgages maturing this year of 2.14%. However, we do not expect an increase.
Phil Fraser: In Europe in your interest expense of the same magnitude as experienced this past year.
Phil Fraser: Looking ahead to 2026, we still foresee reduced pressure on interest rates by 2027 and beyond based on current rates and forecast refinancings may occur at lower interest rates.
Phil Fraser: We're pleased with the improvement in our debt levels with that as a percentage of total assets down to 44% the lowest debt to total assets ratio and our operating history.
Phil Fraser: In 2025, we aim to keep our debt at similar levels.
Phil Fraser: Slide 10 also highlights our debt to normalized EBITDA another key leverage metric.
Phil Fraser: Which was further improved 969 times in 2024 positioning us competitively among our Canadian peers.
Phil Fraser: We're well positioned both from a balance sheet perspective, and from an earnings growth perspective, as we start 2025, Robert will now discuss our outlook on rent growth amid current market conditions. Thank you Dale and good morning, everyone.
Robert Richardson: Leasing activity for the month of January 2025, a month with 244 unit turns delivered strong rental growth of 16% on unit turns supporting deals earlier comment that kill us apartment portfolio rents have room to move likely in the 15% range.
Robert Richardson: As mark to market opportunity as shown by region on Slide 11, Halifax in Kitchener, Waterloo, Cambridge remain two cone strongest markets with a mark to market spreads of 20% to 25%.
Robert Richardson: Slide 12 shows the result of killings analysis of the length of tenure for vacating residents over the last six years and highlights. The fact that over 50% of vacating residents had a tenure of one year or less.
Robert Richardson: Interestingly, the one year or less cohort in 2019 represented 68% of all vacating units and the same percentage for the one year or last cohort dropped to 50% by 2024. This makes sense as renewing in place is more attractive given the increase in.
Robert Richardson: Market rents since 2020, driven by a combination of more provinces imposing rental caps as well as some provinces setting grenfell caps that are grossly below inflation recovery rates for property operating costs, especially realty taxes.
Robert Richardson: But we also know is that each year approximately 60% of the vacating units come from the remaining cohorts.
Robert Richardson: Those with 10 years of two years to over six years and the rents are likely below market Killen expects to capture the mark to market spreads from these tenants, although it may not be realized all at once as this is dependent on unit type you don't location and the tenure of the vacating tenant.
Robert Richardson: Don't expect us to achieve same property revenue growth from these unit turns in the coming years, and then and for 2025, we expect 5% to 6% organic top line revenue growth.
Robert Richardson: Don't swiftly adapt to market changes based on leasing activity, we remain vigilant in monitoring market rents multifamily supply levels and population growth in our markets.
Robert Richardson: Slide 13 illustrates the percentage of apartment completions in terms of major markets for the last two years relative to their total rental universe, including condominiums offered for rent as reported by C might see in.
Robert Richardson: In 2024, new completions remained mostly in line with their historical norms across Canada, except for Calgary amongst them not surprisingly Calgary among 10 ranked number one and number two as a fee.
Robert Richardson: Fastest growing cities per capita in Canada for 2024, so a little concern on increased supply in those markets.
Robert Richardson: Given the reasonable population growth, we expect demand.
Robert Richardson: For our properties to remain steady as shown on the same slide kilns product offering remains affordable and is not overly exposed to any single price point.
Robert Richardson: With new supply in our markets coming online at rental rates well above kilns current average rank a 1400 $93 per month Columbus.
Robert Richardson: <unk> portfolio is well positioned for continued rental growth.
Robert Richardson: That said in select markets. We are seeing increased use of rental incentives. Most notable with new construction lease up. This is the case in Calgary, where kilns Northern Hill development matched competitors' incentives in that marketplace.
Robert Richardson: Initial lease up is completed these incentives tend to fall away.
Robert Richardson: Similarly, civic 66, and kitchen or use incentives to finalize its lease up to.
Robert Richardson: And we'll continue to use the rental incentives as a required required to address market forces.
Robert Richardson: So we'll continue to execute on its proven strategy that focuses on providing safe well maintained quality housing to be the housing provider of choice for our tenants.
Robert Richardson: <unk> 'twenty 'twenty four tenant survey administered by a third party provider reports and overall tenant satisfaction score of 84% above the industry average of 80%.
Robert Richardson: And 87% would recommend kill them to friends and family as well, 90% of our tenants report that they are pleased with their unit killed reviews. These results annually and uses the information to adjust its approach as needed based on the feedback received from our survey.
Robert Richardson: Monitors its portfolio continually to ensure its buildings are performing to their full potential.
Robert Richardson: Tenants are proud to call our properties their home, we prioritize value enhancing capital investments such as upgrading units and modernizing common areas to improve the tennis experience. For example in 2024 kill them upgraded a previously underutilized podium roof at it spring Garden Terrace property in Halifax Slide 14.
Robert Richardson: <unk> cases, the before and after photos of the rooftop terrace, which is now available for tenants to enjoy these projects enabled kilns portfolio to remain relevant and deliver quality housing for many years to come keeping kill them competitive in its markets.
Robert Richardson: I will now return you to Philip So he may address films capital recycling and development strategies.
Philip So: Thank you Robert.
Philip So: The 2024, we completed $59 2 million in property dispositions.
Philip So: During the fourth quarter Killen completed the disposition of three properties in Halifax, totaling 110 units for $16 $6 million with net proceeds of $9 $7 million and sold two parcels of land in <unk>.
Philip So: For a total of $3 million.
Philip So: For the year, we completed the disposition of 10 properties summarized on slide 15, totaling 338 units and three parcels of land for a combined sale price of the $59 2 million.
Philip So: With net cash proceeds of $34 2 million.
Philip So: Proceeds were used to strengthen our balance sheet and to fund ongoing development.
Philip So: The sale of these properties aligns with killam strategy to optimize value from this portfolio and to increase geographical diversification outside of Canada.
Philip So: 75% of the units sold were located in Atlantic Canada.
Philip So: Kill them invested $6 $8 million in energy initiatives during 2024, including $2 4 million in Q4.
Philip So: At the end of 2020 for our solar power production capacity was $2 seven megawatts per year, producing approximately six 4%.
Philip So: However, operationally control electricity three.
Philip So: Three of these new installations, where it went live in the last two weeks.
Philip So: We have 12, new installs a solar panel is planned for 2025.
Speaker Change: The New Brunswick, five in Ontario, and two in Halifax. These.
Speaker Change: These investments represent a total potential production capacity of one seven to eight megawatts per year.
Speaker Change: Or an additional 4% of our operationally control electricity.
Speaker Change: Developing high quality properties in our core markets as important kilns capital allocation strategy.
Speaker Change: The characters as shown on slide 17 is expected to begin to be completed by May 31 of this year with.
Speaker Change: With the first kind of smoothing in June.
Speaker Change: Construction continues at every even tie our 55 unit building Spring Garden Road in Halifax, and is expected to be completed by Q3 2026.
Speaker Change: We are ready to start construction in Calgary under 296 unit and all of your Phase III development, where we have a 10% ownership interest.
Speaker Change: Site work has started on a 128 unit.
Speaker Change: Whistler development in Waterloo, where all site and building permits have been received.
Speaker Change: If we look at the overall development budget from a year ago, subtract soft comps contingency and land cost the hard cost budget of $45 $2 million is now estimated to be 42 $155 million.
Speaker Change: Down, 7% with 64% of the fixed price contracts signed and the remaining 36% to be signed.
Speaker Change: This new price plus no HST means the cost compared to a year ago or down $7 $5 million.
Speaker Change: And Halifax, we are working on to as of right developments.
Speaker Change: 95 unit building at Victoria Gardens in Dartmouth.
Speaker Change: <unk> hundred 50 unit building better Burlington President community.
Speaker Change: All of the above developments are all in our top three markets, where we want to continue to grow our portfolio.
Speaker Change: Our disposition target for 2025, it's between 101 hundred $50 million in sales.
Speaker Change: These dispositions are in the early stages and we will have more details by the time, we released our Q1 results in May.
Speaker Change: The capital will be used to pay down our line of credit the NCI be for acquisitions in our key markets.
Speaker Change: On the acquisition front, we are increasing our level of interest and activity by tracking and touring a number of properties currently for sale in Western Canada and Ontario.
Speaker Change: Finally, we hope to start one or two developments per year. If you participate in the existing AC LP program from CNBC that reduces the overall development risks by providing below market fixed interest rate financing as a component of affordable housing and each development.
Speaker Change: To conclude we are there.
Speaker Change: Very pleased with our 2020 for performance and remain committed to investing in high quality assets and developments.
Speaker Change: To continue to execute on our overall strategy and create value for all of our unitholders I would like to thank our employees for their hard work and dedication.
Speaker Change: You.
Speaker Change: And I will now open up the call for questions.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: Should you wish to should you have a question. Please press star followed by number one on your Touchtone phone and you will hear a problem that you had has been raised should you wish to decline from the polling process. Please press the star followed by number two.
Speaker Change: And if you are using a speaker phone please lift the handset before pressing any keys.
Speaker Change: One moment. Please for your first question.
Speaker Change: Your first question comes from Jonathan Culture from TD Colin.
Jonathan Culture: Please go ahead. Thanks, good good morning.
Speaker Change: Good morning.
Speaker Change: First question just on the the Mark to market I guess, the slowdowns a combo of.
Speaker Change: A little bit lower market rents and obviously you guys are capturing rent.
Speaker Change: How do you think market rents a ball over the next year or so.
Speaker Change: Yeah, it's going to be interesting to see as we come off yeah.
Speaker Change: It's typically pretty slow season in terms of January and February and what we're already seeing it you know it's a different story in different markets and as we talk about a different rent levels. So I can tell you even know peninsula Halifax, we're getting a lot of interest and that stuff yeah.
Speaker Change: Yeah.
Speaker Change: We have the potential market rent as the busy leasing season comes up it might it might come back Newfoundland is looking really strong we're seeing acceleration there there are some other markets, where there's more supply and it's at the higher end.
Speaker Change: We feel you know those macro trends, we're looking at what we're actually leasing things that and feeling feeling pretty good about those so.
Speaker Change: I mean, they may come down a little but I generally feel as we hit the spring leasing season, I expect there'll be generally stable.
Speaker Change: That would be my expectation.
Speaker Change: Okay. That's.
Speaker Change: That's fair enough and then.
Speaker Change: You talked a little bit about incentives and said you guys were using them basically just to help on lease ups or are you starting to see a.
Speaker Change: More use of incentives outside of outside of leasing up our properties.
Speaker Change: And if so where.
Speaker Change: Yeah, we are I mean, certainly in western Canada, we would be seeing that as you know those do tend to turn on and off depending on the strength of the market. There. So those are definitely on for and we're you know we're always keeping our eye on what's happening around us in terms of remaining competitive I'd say.
Speaker Change: In Ontario, we are seeing though is more than we have historically in the past again at its unit by unit dependent or building by building I guess, some more when we're competing against new supply and you're at the higher end I think those buildings that are leasing up our offering incentives more than the older <unk>.
Speaker Change: More affordable properties in general.
Speaker Change: Oh sprinkling hearing there outside of those provinces I'd say D C a little bit too we would have those Atlantic.
Speaker Change: A few here and there, but not in any meaningful way.
Speaker Change: He is building specific.
Speaker Change: It's surprising that you could have a number of buildings in one community and one would be the property that has very requires more incentives, but the others are fine.
Speaker Change: I do find that one of the more interesting things as we look through our portfolio how isolated these incentives can be.
Speaker Change: Okay. That's helpful. And then one more just bill you talked about starting to kick tires on acquisitions.
Speaker Change: Western Canada, Ontario, what types of properties are you looking at it is it more new build or or more value add or is it.
Speaker Change: Hi, Jonathan it's not the value add it's the newer part of the market.
Speaker Change: It's the merchant builders.
Speaker Change: There's good supply opportunities in Alberta, lower mainland BC the island there.
Speaker Change: And surprisingly.
Speaker Change: A few properties in two buildings.
Speaker Change: Through southern Ontario.
Speaker Change: Okay. Thanks, I'll turn it back.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Brad Sturges from Raymond James. Please go ahead.
Brad Sturges: Hey, good morning.
Brad Sturges: Just following up on John's question, there just on the acquisition front.
Brad Sturges: Yeah.
Brad Sturges: Would you characterize the.
Speaker Change: Our acquisition program at the moment is still being more opportunistic or do you have more of a.
Brad Sturges: A soft target in terms of.
Brad Sturges: Dollar amount youre looking to spend this year on acquisitions.
Oh, it's really starting to get back to looking at opportunities as opposed to any sort of a target for sure.
Brad Sturges: Yeah and.
Brad Sturges: You highlighted Western Canada, Ontario is there anything youre looking at.
Speaker Change: Opportunity lies in all Eric Yeah.
Speaker Change: Well I think I said the last call that.
Speaker Change: Basically.
Speaker Change: Mountain is on our radar for sure.
Speaker Change: There is some nice new products being built in that marketplace and <unk>.
Speaker Change: Really the other one that we're we're kind of thinking.
Speaker Change: What we know is a strong market.
Speaker Change: We got a good position there is say John's Newfoundland.
Speaker Change: Looking at if their deal gets finalized with Quebec hydro it means a lot to the province and to the Tau and also just the sort of shift in attitude towards oil and gas that's been around for the last couple of months.
Speaker Change: That would be very positive for the.
Speaker Change: The St John's market over there.
Speaker Change: Okay.
Speaker Change: Question, just in terms of capital allocation as well.
Speaker Change: How would you think about buying.
Speaker Change: Buying back stock through the NCI do you like where would that rank.
Speaker Change: In terms of priority.
Speaker Change: Nation today.
Speaker Change: It's really is a function of our disposition program.
Speaker Change: And as I've said before we are as noted we are looking for $100 million to $150 million.
Speaker Change: As we execute on that throughout the year.
Speaker Change: And then basically.
Speaker Change: So it becomes then focused on what are we going to do with the money.
Speaker Change: And therefore, obviously that the NCI beer was up there.
Speaker Change: Right, there with any kind of an opportunity acquisition opportunity.
Speaker Change: Okay that makes sense I'll turn it back thank you.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Kyle Stanley from data Zhang. Please go ahead.
Speaker Change: Thanks, Good morning, everyone.
You mentioned, 16% turnover spreads in January and you know I know, you've given kind of top line guidance of 5% to 6% growth I'm. Just wondering is that 16% kind of a good estimate of where turnover spreads trend or is there any seasonal softness given that it's a bit slower.
Speaker Change: On the leasing front in January safe to assume I guess, the turnover spreads align with your view of where the mark to market opportunity is today.
Speaker Change: Yeah.
I think that it's pretty representative and you know we've got a mix of regular returns and repositioning in that 16. So that's why it trips up a little bit higher than the 15, when we talked about 15, mark to market, that's actually without repositioning opportunity. So I think that that that's a good indicator.
Speaker Change: It depends which units churn it was 244 units trying to Jack right. So it was I.
Speaker Change: I think that's a fairly significant pool, which gives us an indication of the market is relatively strong.
Speaker Change: Moving those rins.
Speaker Change: Capturing that mark to market.
Speaker Change: Okay. No. That's helpful. And then I think your comment there about the 244 units are turned its interesting and you mentioned I think in your disclosure and expectation of turnover stabilizing maybe in the 18% range would you say that that's kind of your view on maybe trough turnover in the portfolio and actually with <unk>.
Speaker Change: Rent market rents may be softening a bit is there a view that turnover trends a bit higher.
Speaker Change: Yeah.
Speaker Change: It's so different by market. So when you talk trough like yeah.
Got it.
Speaker Change: We may see turnover start to tick up.
Speaker Change: As you have more units that.
Speaker Change: Are not that far off the market rent.
Speaker Change: But we don't expect any significant change trending upward, but I think that's I think we have probably what.
Speaker Change: Probably melting up.
Speaker Change: Chance of moving up and down I would say, but our disclosure shows.
Speaker Change: By marketing.
Speaker Change: Hi, being out in the west which is already back up into the <unk> and then it just sort of like slides down into the Ontario, and even how opex is still relatively low but for maintaining their respective norms.
Speaker Change: Uh huh.
Speaker Change: Okay.
Speaker Change: That's very helpful.
Speaker Change: Just last one just on your Opex guidance would you say the primary driver of maybe uncertainty on where Opex ends up is definitely regarding property taxes would you have maybe a better understanding where that shakes out to come April I guess, just trying to figure out how conservative maybe that 5% to 7% range ends up being.
Speaker Change: Yeah.
Speaker Change: Yeah, it's definitely the property tax with one of them by April I'd say, it's probably more in the may timeframe that we have a better line of sight into exactly what that will look like it often depends on the mill rate and the various.
Speaker Change: Region and then the other piece is is around the gas and that consumption kind of between November and February and March.
Speaker Change: We'll have a better sense about in April.
Speaker Change: Okay perfect. Thank you very much I'll turn it back.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Thank you and your next question you have Jamie Shen from RBC capital markets. Please go ahead.
Speaker Change: Oh, Thanks, good morning, guys.
Speaker Change: In terms of your 2025 expectation of revenue growth what sort of occupancy.
Speaker Change: Portfolio. What are you are you assuming.
Speaker Change: Generally its pretty flat compare occupancy levels, yeah, yeah pretty flat overall.
Speaker Change: <unk> two layer, we would've been in 'twenty four.
Speaker Change: This is what we would be expecting and again, it's you know we're watching this closely and when we with market rents coming down. It is amazing when you got it priced right that demand. That's there so we have seen.
Speaker Change: I'm talking about a lot of leasing activity. So we do expect occupancy levels overall to be quite high.
Speaker Change: Okay. We.
Speaker Change: We did see you know kind of full market Calgary Ottawa.
Speaker Change: London, Victoria, the you know on a year over year basis, the occupancy did come down.
Speaker Change: And now I think you already talked about Calgary, but wondering kind of what's the story. There is in terms of auto Orlando in Victoria.
Speaker Change: Sorry.
Speaker Change: It's a bit hard to hear you you're asking about top line in those markets, yes, the occupancy in Ottawa landed in Victoria, we seem to have a decent amount in the quarter. Yeah, you know I think that.
Speaker Change: We're seeing activity in all of those markets.
Speaker Change: As we are adjusting to the current market. So I think that we have the opportunity to own those well and also there like if you look at your asking like the Victoria Vancouver, It's pretty small sample size so that means.
Speaker Change: You know five to.
Speaker Change: Tenants for a couple of months.
Speaker Change: You dropped it down more than what we achieved there so as a decline for the whole year.
Speaker Change: On the portfolio, which was 40 basis points.
Speaker Change: Yeah.
Speaker Change: Fair enough.
Speaker Change:
Speaker Change: Okay, and then just last one.
Speaker Change: Just a clarification on the quarter. So your mark to market portfolio wide, 15%, you turn spread still 19.5% usually we see the reverse is that was just a function of the mix.
Speaker Change: Of the units that turn in the quarter.
Speaker Change: It's also because we have when we look at the Mark to market as I mentioned that does not include a repositioning.
Speaker Change: So when we look at that that $19. Six that does include a mix of regular turns and repositioned and it's you know.
Speaker Change: Somewhere around call it 13% on regular and could be 40 to 50 on reposition so that weighted average moves it up so that's why it's higher so when we look at our regular turns it it was a little bit below the mark to market, which makes sense based on some of the units that are turning would've turned last year.
Speaker Change: Okay makes sense. Thanks.
Speaker Change: Thank you.
Speaker Change: And your next question comes from Mike Mark Kidd is from BMO capital markets. Please go ahead.
Speaker Change: Thanks, operator, good morning, everybody.
Speaker Change: Forgive me if this unfolds in the MD&A I haven't had a chance to look at it fine detail, yet, but just with falling on Jimmy's line of questioning let's see.
Speaker Change: Mark to market versus the.
Speaker Change: Versus the capture spread on turn did your repositioning program ramp materially throughout last year.
Speaker Change: I guess, it's part of that.
Speaker Change: Actually it actually came down a little bit I mean, it's still good.
Going to be part of our program on an annual basis and it really.
Speaker Change: Every we're looking opportunity by opportunity and making sure that if we're investing that capital those market rents. We can still we can sell gas.
Speaker Change: And what we're seeing is some some properties where we've done it in the past it still makes sense, Tom if you've got a new more new supply close by he.
Speaker Change: He might not be able to capture what you could have a couple of years ago with those higher market rents. So it's come down a moderating a bit.
Speaker Change: They'll continue but.
Speaker Change: Down from the peak.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: Again, it's probably isn't there, but I haven't seen so no material change in terms of your non development related capex expected in 'twenty five.
Speaker Change: It's in line yes.
Speaker Change: Yes, it's very consistent.
Speaker Change: Thanks.
Speaker Change: Just on the incentives realized that somewhat isolated.
Speaker Change: Isolated and building specific but maybe if you could just give us a little bit of <unk>.
Speaker Change: Color with respect to the quantum or type of incentives that you're seeing at the select properties you highlighted.
Speaker Change: Typically.
Speaker Change: One month.
Speaker Change: Rent free is a fairly strong inducement in most markets.
Speaker Change: We would maybe alter that a little bit and then sometimes we decrease it but thats a pretty good reps.
Speaker Change: <unk> represents.
Speaker Change: And I think also getting a bit creative two and potentially using parking and other things than just the rent for incentive as well.
Speaker Change: Okay. Thanks, and then last one for me is just I appreciate all the detail of your slide deck is great by the way really appreciate it.
Speaker Change: On Slide 13, you had the historical completions.
Speaker Change: At condo inventory as well for all of your markets.
Speaker Change: The comparison was 24 versus 23 in the 10 year average and I'm just curious if you've looked at them under construction and anticipated deliveries.
Speaker Change: In the next year or two and if you're expecting any meaningful changes either upwards or downwards versus what's shown.
Speaker Change: On slide 13 for.
Speaker Change: Any markets in particular.
Speaker Change: Yeah, I mean, we've got a slide.
Speaker Change: But I actually got in front of me I don't know if we put it out or it's been but essentially you had CMA sea data and it's the construction as a percentage of the rental universe, including condo.
Speaker Change: Across all our major market.
Speaker Change: When you look at it Halifax, Moncton, Kitchener, Waterloo, Toronto, and Ottawa Calgary Limited.
Speaker Change: They're all in about a 13 two.
Speaker Change: Basically the top tier ones or maybe a toronto calibrate around 16%. So essentially what it is saying this is that the what is coming what has started.
At the same percentage rate across the country just to clarify that when we're comparing it with condos that are.
Speaker Change: Identified for around right now is all the time.
Speaker Change: Just rental plus the condos so.
Speaker Change: When you look at that as you go let's say well okay. So the whole country is basically about the same in terms of what's coming on the fly.
Speaker Change: And the other interesting point.
Speaker Change: It was in today's.
Speaker Change: Paper was the and I'll give credit to dangerous and they're putting it out it's about the population and the immigration and essentially they're saying other than international students.
Speaker Change: We still have quite a bit of immigration.
Speaker Change: Canada, and especially the last four months.
Speaker Change: So.
Speaker Change: Look at that the country is roughly it's almost equal in terms of new supply.
Speaker Change: It's basically it's quite positive.
Speaker Change: Okay got it and just to clarify do you have that information.
Speaker Change: We do have that information on our IR site slide deck that would be on the website, where we do look at key markets.
Speaker Change: I think we can follow up.
Speaker Change: Yeah, that's great I will circle back and have to look at that thanks. So much.
Matt Carmax: Thank you next question comes from Matt Carmax from National Bank Financial. Please go ahead.
Matt Carmax: Hey, guys.
Matt Carmax: Maybe just circling back to your slide 12, and the commentary around January can you give us a sense of are you starting to see.
Matt Carmax: Our reversion more towards maybe not immediately but towards the 2019 sort of higher composition of zero to one year leases turning at this point or is it still a kind of 50 50 or older in recent leases that are turning we didn't.
Matt Carmax: Yes, Matt we didn't we didn't start that so can't speak too quickly.
Matt Carmax: What do you say I think the expectation is that you'll start to see that compensation composition change a bit.
Oh.
Matt Carmax: I wouldn't be surprised to see it start to move close like move in that direction.
Matt Carmax: In terms of more than two you're asking more than 50% of turns be kind of in that one year.
Matt Carmax: Does that make sense yeah.
Matt Carmax: <unk>.
Matt Carmax: I don't think I think it may go up a little bit, but right now we're not seeing anything to indicate that but.
Matt Carmax: Meanwhile, your market rate interest.
Speaker Change: Yeah your markets the Mark to market is still such that maybe.
Matt Carmax: It makes sense survey to place them.
Matt Carmax: And then I guess just.
Matt Carmax: On the repositioning side is you mentioned that it's come down but as the dynamics change would you see that kind of.
Matt Carmax: Going back as the potential growth for mechanism within apartments more broadly or.
Matt Carmax: Or yeah, how should we think of about that opportunity set because I know there was a period of time, where rent growth was fairly low on an organic basis, but you guys were able to access right growth through repositioning them. So.
Matt Carmax: So just interested in your thought on deploying capital into those renovations and at which point it makes sense to do more of it.
Matt Carmax: Well I think we will continue to look at it and and maybe what we will end up doing is right sizing those renovations depending on what the top end of that rent we can get so.
Matt Carmax: The way we're looking at it now is saying, what's the incremental capital we have to spend to do a repositioning over what the regular market rent would be without doing that work and making sure. The return makes sense for the spread from that but we expect to be able to achieve versus just turning it for irregular return.
Matt Carmax: We're already having those conversations and buy.
Matt Carmax: Finding ways to still do the upgrades move it higher and spend less.
Matt Carmax: And it is.
Matt Carmax: Is market by market. So we will.
Matt Carmax: Continue to look at it and I wouldn't be surprised to see it.
Matt Carmax: Come back a little bit but.
Matt Carmax: It's still going to be important part of our programs with our average rent.
Matt Carmax: Dan just shy of $500 a months theres ample opportunity opportunity to spend some money and that's the money. When you take a look at other new builds that are going to have to charge north of $2000.
Matt Carmax: A month, so that gives us the opportunity to continue to invest in our existing portfolio fill that gap.
Speaker Change: Mark to market.
Speaker Change: Okay, Alright that makes sense, just lastly on margins, particularly Q1.
Speaker Change: Do you expect that to look obviously the portfolio has changed a bit but to look more like Q1 of 2023, obviously last year, we had a very mild winter that were sitting with a foot of snow on the ground right here in Toronto, I know snow removal I think its contractual but can you give us some sense of that.
Speaker Change: How much you expect the expense to increase in Q1 for you guys.
Speaker Change: Okay.
Speaker Change: Certainly Q1 is going to we're going to feel it the most because of the cold weather I think Eric you want to comment I mean, I think it's generally in line with the guidance that we provided for expenses and in the MD&A I said kind of in that 5% to 7% range like we will see that increase in utilities in Q1 with with the colder colder weather, but what kind of expect the rest of it.
Speaker Change: In line and when you think margin I would say it would be generally in line with what we saw kind of in 2024.
Speaker Change: Okay, and Brian I guess.
Speaker Change: The portfolio is changing.
Speaker Change: Rapidly but.
Speaker Change: If you go into more hydro extra releases and.
Speaker Change: With your newer product, presumably you're less exposed to utilities to some extent.
Speaker Change: And our newer built absolutely they're all submitted.
Speaker Change: Okay. Thanks, guys.
Speaker Change: Thank you. The next question comes from Simon She Nevis Carmax.
Speaker Change: Gross Paul.
Speaker Change: Thank you operator, good morning, everybody.
Speaker Change: Good morning, looking at slide 11.
Speaker Change: The mark to market opportunity by region, mainly focusing on Halifax, Kitchener Waterloo GTE.
Speaker Change: As long as the biggest opportunities in the portfolio of that.
Speaker Change: How would you guys characterize the cadence you're at or where you are in terms of the spreads maybe not steel.
Speaker Change: Okay.
Speaker Change: Sorry, the cadence.
Speaker Change: Do you think for Halifax, specifically.
Speaker Change: Both Halifax, and Kitchener, Waterloo I'm trying to understand how that's almost pledge a mood.
Speaker Change: Look at last year.
Speaker Change: That's fair.
Speaker Change: Because I've seen inventory comment.
Speaker Change: Okay, I think that they've moved generally in line. They have they have come down but again, we've achieved some really strong rents. So when you look at that spread that is part of it so.
Speaker Change: Yes.
Speaker Change: I think in both those when you've got a building that's competing against the new supply you know those market rents have come down a bit there. Some units that are still moving up so I think it's generally in line in those.
Speaker Change: Market says.
Speaker Change: The other markets I mean, I'm thinking back a couple of quarters I believe we were above 30, just two quarters ago or one.
Speaker Change: Halifax, we're probably at 31% maybe last quarter or so.
Speaker Change: It has come down but.
Speaker Change: I'd say it.
Speaker Change: We've had this info for a couple of months. So I guess you can go back and look and we can kind of compare which which markets have moved the most to help understand that but I would say both.
Speaker Change: Both of those markets are holding up very well.
Speaker Change: And I think a lot has to do with you look at the range of assets that we have in each of those property in each of those markets. So Kitchener Waterloo, we have some wonderful new buildings and we have some older buildings that more affordable rents with formidable rents that still have a very strong mark to market and same in Halifax.
Speaker Change: I think the mark to market is an interesting number.
Speaker Change: Sure.
Speaker Change: For us it's what we're capturing so we're seeing impressive 15% capture that.
Speaker Change: And we think that Thats.
Speaker Change: Representative of what this portfolio can do.
Speaker Change: That makes sense and maybe just shifting gears on the acquisition front and maybe some color in terms of the park you're seeing on the market.
Speaker Change: When you look at these transactions what seem to be the main motivation of.
Speaker Change: Hello, It's actually you bring all these assets.
Speaker Change: Sorry could you just repeat that last little bit.
Speaker Change: So when you look at that so I think that the incoming and these acquisition and in the markets right now for the acquisitions, what seems to be the main motivation of sellers actually come into effect.
Speaker Change: Why well again, the motivation of a good part of this fall sort of.
Speaker Change: Okay.
Speaker Change: Thats available for sale is still contained within the merchant builder sort of universe. So I mean theyre not they build it.
Speaker Change: Sell it.
Speaker Change: Theyre not builders and owners and managers. So that's always been part of the market almost.
Speaker Change: Since the beginning of time in every every major market across the country. So that's.
Speaker Change: The area that you first start to look at.
Speaker Change: Okay.
Speaker Change: That's good color, thanks, I'll turn it back.
Speaker Change: Thanks, Thank you.
Speaker Change: As a reminder, if you wish to ask a question. Please press star one.
Speaker Change: Your next question comes from Dean Wilkinson from CIBC. Please go ahead.
Dean Wilkinson: Thank you and good morning, everyone.
Dean Wilkinson: There is a lot of focus on this mark to market on our 19 going to 15 going to whatever it might be.
Dean Wilkinson: I'm trying to get a sense of what that number looks like in a historical context like if I go back to you. So you know.
Dean Wilkinson: Four 5% same property NOI growth before we all knew what a pandemic was how does how does the spreads look relative to then and maybe there's a bit of an overreaction to what we're seeing here could you just comment on that.
Dean Wilkinson: Yeah, I think you're right on it's almost like trying to figure out how to sort of summarize at the end of all of these questions and the way to look at it is.
Dean Wilkinson: Pre COVID-19, we lived in a world. There was the total revenue growth was between 2% and 4% and that included all of the markets. We were in that had rent control and Youre getting your little 152% two 5% and so obviously the mark to market was the difference.
And what that was like.
Dean Wilkinson: You come through 2022 last year, the Covid years increase in population increase in cost.
Dean Wilkinson: Basically in there those couple of those years.
Dean Wilkinson: We had below.
Dean Wilkinson: The increase was due to self imposed.
Dean Wilkinson: <unk> increases for a year or so or governments doing something and everything sort of popped and also we are just trying to catch up to what would've been the trend line. So now you come out and I guess really the punch line from my point of view is that if you look at all of the right control areas what is the current <unk>.
Dean Wilkinson: While we will increase for the year and here we sit in Halifax.
Dean Wilkinson: We have a 5% increase and it follows but like 325 or three depending on the province. So that's built into what's going to be part of the increase in the revenue.
Dean Wilkinson: And essentially anyway, you look at it whether like you said, it's 10% to 15, what we're trying to do is average the ones that are basically not much of an increase because.
Dean Wilkinson: The person has been living there for a year or somebody tends to sort of move and they've been a tenant for four years five years six years and there is a very good sort of.
Dean Wilkinson: Difference in the cost because it could've been in a rent control or just the fact that they've been living there in a building. So when you combine that I mean I look at it.
Dean Wilkinson: The first month in January 30, 768 units renewed 361, the regular turns or the terms 220 that Robert mentioned before $12 two eight repositions. Its another big lift on the number of that and so youre going to see that throughout the whole mix 11 months.
Dean Wilkinson: 12 months.
Dean Wilkinson: And at the end of it.
Dean Wilkinson: Still getting the benefit of all of those increases are key the last three or four months of last year that were bigger rents. So theyre all spread out throughout the portfolio.
Dean Wilkinson: So it's positive.
Dean Wilkinson: As the only way to say it.
Speaker Change: Yeah, I mean to me it seems a little more like a mean reversion than a deterioration in leasing fundamentals.
Speaker Change: A couple of years back and yes, if we were talking about these numbers back in 2019, it would be like yeah. This is Greg. So I appreciate the color. Thanks, guys I'll hand, it back yeah. It is the mean reversion is going to take we believe two to three years to go back.
Speaker Change: That's fair.
Speaker Change: Thank you. Thanks. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I will now hand, the call over to Phillip Friedman President and CEO. Please continue.
Speaker Change: Once again, thank you very much for participating and listening today and we look forward to.
Speaker Change: Continuing this conversation in May and giving you an update on their first quarter results. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you, ladies and gentlemen, todays conference call has concluded. Thank you for your participation you may now disconnect.
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