Hello, and thank you for standing by, and welcome to the Canadian Apartment Properties REIT First Quarter 2021 Results Conference Call. Please Press star 0. I would now like to turn the call over to Mr. David Mills. Please go ahead.
Thank you, Michelle, and good morning, everyone. Before we begin, let me remind everyone that the following discussion may include comments that constitute forward looking statements about expected future events and the financial and operating results of CAPREIT. Our actual results may differ materially from these forward looking statements as such statements are subject to certain risks and uncertainties. Discussions concerning these risk factors, the forward statements and the factors and assumptions on which they are based can be found in CAPREIT's regulatory filings, including our annual information form and MD and A, which can be obtained at sedar.com. I'll now turn things over to Mark Kenney, President and Chief Executive Officer.
Please go ahead, sir. Thanks, David. Good morning, everyone, and thank you for joining us. Scott Cryer, our Chief Financial Officer is also with me this morning. To quickly review 2020, Despite operating for almost a full year under the COVID-nineteen pandemic, CAPREIT produced another record year of results for its unitholders.
All of our key performance benchmarks were up over the prior year. Organic growth was strong. We continue to expand our property portfolio and the ongoing strong fundamentals of the residential rental real estate sector resulted in a significant increase in the value of our asset base. Clearly, our focused and proven asset allocation strategy is working, delivering solid and stable returns for our unitholders in both good and bad times. Over the last 24 years, we have built a team, the assets and the operating platform to continue Growth and Strong Performance and we look for continued success this year and going forward.
Turning to Slide 5 and our results for the Q1 of 2021, you can see we continue to adapt very well to pandemic. We have maintained our track record of solid growth and performance. Our stability and resiliency during these challenging times is a testament to the skill and dedication of our people, the strength of our asset base and the enduring strong fundamentals of the residential rental real estate sector. For the 3 months ended March 31, 2021. We generated solid accretive growth in revenues, NOI and NFFO.
It's important to remember that it wasn't until the end of last year's Q1 that the pandemic began to affect our markets. From an operating perspective, Our ability to generate solid performance in both good times and bad is clearly demonstrated by the results for our stabilized portfolio as you can see on Slide 6. Occupancies remained strong while net average monthly rents rose again, driven by modest pandemic affected increases on turnovers and renewals. Our track record of organic growth also continues with same property NOI up a solid 2.4% driven by same property revenue growth of 1.9% while maintaining a strong NOI margin of 64.5%. Our leasing and marketing programs, despite the pandemic, continued to generate a track record of solid occupancies as Our occupancy has only declined by less than 1% since the pandemic started.
We believe This is solid performance. Having said that, we are not out of the woods yet and the 3rd wave of The pandemic continues to negatively affect our markets and our business. We don't see a return to better times until the rollout of vaccines is substantially completed and we can quickly return to our historical near full levels across the entire portfolio. We are hoping to see a return to strong growth in the later half of twenty twenty one. It is also important to note that we have experienced very few collection issues as we work with our residents to ensure We collect our rents as efficiently as possible.
Bad debt as a percentage of total revenues remains a small and manageable and generally in keeping with our normal collection track record. A key factor in our ability to generate Solid returns during the pandemic is the solid increase in rents on turnover we are achieving as shown on Slide 8. Clearly, turnovers continue to be impacted by the ability of our residents to move or personally visit our properties. Still, 3.4% increase on turnover in the Canadian portfolio is a solid result and we expect to return to our more traditionally higher increases once the vaccine rollout is substantially complete and the pandemic eases. Also remember That the higher increases in last year's Q1 reflect the fact that the pandemic had not really impacted our business through that period.
Renewals have been affected by rent increases freezes we implemented in Canada on April 1 last year to help our residents work through these challenging times. We have slowly been implementing modest rent increases in certain markets Where possible, in consultation with our residents. In the Netherlands, all these renewals occur only once a year in July. However, we expect to see another solid year of rent increases in this portfolio in 2021 with the blended increases of between 3% 4% on suites supported by strong rental uplifts on turnover. Slide 9 summarizes the many successful initiatives that we have introduced to mitigate the impacts of the pandemic.
And as you can see, these programs continue to mitigate the issues we face due to the pandemic. As we discussed over the last year, We began early in 2020 to implement programs aimed at getting closer to our residents, communicating with them, Understanding the issues that they're facing and helping them to stay in their homes while at the same time collecting as much rent as possible. Clearly, these initiatives have proven effective. Our Compassionate Care program is seeing an average of 3,500 to 4,500 calls to residents each month. We generated over 2,400 new leases in the Q1 of 2021.
This was accomplished by continuing to support much of our leasing activities online in addition to safely arranging in person viewings. To facilitate more efficient rent collections, today more than 85% of our rents are now paid electronically. These programs have a lasting and positive impact on cash flows. And as I mentioned, bad debt stood at only 0.6% of revenues as of quarter end, while over 99% of our rents have been collected. We are very proud of these achievements and remain confident that these programs will result in stable collections moving forward.
I'll now turn things over to Scott.
Thanks, Mark. Turning to Slide 11. We can see that we maintained a strong financial position at quarter end with a conservative debt to gross book value and continuing High liquidity. Our almost $1,200,000,000 in Canadian unencumbered properties provide additional liquidity should it be needed. In addition, we have $580,000,000 in liquidity available through our credit facility.
In total, If we are to access all these sources of capital, we have available liquidity of over $1,700,000,000 And even if we did this, leverage ratio would still remain a very conservative 43%. Looking at our financing in the Q1, We locked in a very low interest rate of 2.2 percent on average on our refinancing and top ups, and we expect we will continue to benefit from the current low interest rate environment for some time. At quarter end, over 99% of our mortgages incurred a fixed interest rate. We are also confident that the debt markets and financing will remain highly available for our properties given the stability and strong fundamentals of the rental residential business. As of March 31, 2021, 99% of our Canadian properties hold CMHC insured mortgages.
As you can see on Slide 12, We continue to maintain strong and flexible financial position with a reduced and conservative leverage ratio of only 35.2%, strengthened coverage ratios including an almost 4 times interest coverage and historically low interest costs on our mortgage portfolio of 2.82 percent for the Canadian portfolio with a weighted average term to maturity increasing to close to 6 years. Our mortgage portfolio remains well balanced as shown on Slide 13. Looking ahead, our current ability to top up renewing mortgages through 2,035 will provide further significant liquidity for the Future. You can also see on this graph that we have considerable opportunity to reduce our long term interest costs in today's Very Attractive Interest Rate Environment. The current 5 year and 10 year estimated rates of between 1.75 and 2.6 percent are well below expiring mortgages mortgage rates of between 2.8 and 3.3% over the next 3 or 4 years.
I'll now turn things back to Mark to wrap up.
Thanks, Scott. Looking ahead, we see a number of very positive value drivers that we are confident will generate strong and growing returns for our unit holders over the long term. In addition to portfolio growth, we continue to see very strong acquisition pipeline in our key markets. We believe value will be driven by our successful asset allocation strategy, our focus Moving back to apartments and away from home. The increasing size of the seniors population and with all of these fundamentals generating further appreciation of our asset base.
Let's have a quick look at each of these value drivers. A key factor in our success has been our focused asset allocation strategy as detailed on Slide 15. We continue to target value add apartment properties in the mid tier segment. These properties can be acquired at well under 50% of replacement Cost. We have proven our ability to invest in them to increase value and their stability is driven by the very affordable rental rates that the buildings offer.
We also like the MHC sector, a highly stable, low risk business with very strong potential to increase cash flows. Revenues are highly stable and with residents owning their own homes, capital requirements and maintenance needs are significantly reduced. MHC Properties also provide another level of diversification within our portfolio, allowing us to enter more rural and smaller markets and a residential focus on large urban regions. Additionally, with homeownership costs rising significantly across the country, MHCs provide the real alternative as prices have not appreciated to the same extent. Our European presence is also driving real value.
Dividends from our ownership interest in ERES are strong and stable, while fee income for our asset and property management services in both the Netherlands and Ireland continue to grow. As the only professionally managed operating platform in Europe, the opportunities for further growth and enhanced value are significant. We are also able to capitalize on very low cost European debt to finance our growth at attractive returns. A second key value driver is our focus on Canada's 3 largest and most vibrant rental markets, Toronto, Montreal and Vancouver. As we have noted before, our focus is on the more suburban markets rather than seeking downtown locations, properties that are attracting increased demand as families seek more space at affordable levels.
As you can see on Slide 16, in addition to offering quality rental accommodation in these high demand markets, Our rents constitute a very manageable percentage of total disposable income for our residents. Our rates between $1.50 $2 per foot are clearly affordable compared to other rental alternatives. For example, in Toronto, rents for new build and condo rentals are going for upwards of $3 to $5 per Square Foot. Quality properties, more space at affordable rents. This is the cap REIT value proposition.
Integration has always been a demand driver in our markets, but it's significantly reduced over the last year due to the pandemic and travel restrictions, as you can see on Slide 17. However, the pace is picking up and we believe this trend will accelerate in the months ahead. The number of international students in Canada has also been impacted through the pandemic. Normally numbering in and about the 650,000 number in Canada, international students have declined significantly during the pandemic. Compounding these issues is the closing of in class learning and what we call household consolidation.
Young people have returned home to live during the pandemic to manage costs and we don't see them returning to the rental market until vaccines have been fully rolled out. As I stated earlier, we don't believe we will see a return to more normal markets until the rollout of vaccines is substantially complete. We believe the demographics are also on our side as seniors increasingly look to the rental market to meet their needs. With significant equity in their homes and seeking a single floor living space as the best place to Age. Aging millennials are another strong and growing demand driver in our markets.
As you can see on Slide 18, The population of Canadians aged 65 and older continues to grow, accounting for over 23% of the population for more than 9,500,000 people by 2,030. We believe that our quality and well positioned portfolio offering more space and more affordable rates than smaller condos, we'll see an increased demand from this demographic group. Finally, we believe all of these strong market fundamentals will increase the value of our property portfolio going forward. Slide 19 details current cap rates for our owned properties in the 3 of our key markets. Over the past few months, we have seen significant compression in Comparable market cap rates for completed transactions in these cities as pension funds and others increasingly recognize the Fundamentals in the Residential Rental Sector.
For example, recent transactions in the GTA has seen stabilized cap rates as low as 3% and even lower at 2.1% for properties with development potential. Montreal has seen purchases as low as 3.6% and around 3% for properties with development potential. And Vancouver rates are as low as 2.3% and even lower for properties with development potential. We recorded a significant $600,000,000 increase in the fair value of our portfolio in 2020 and expect to see further increase in asset value going forward. With increasing demand and little new supply of rental accommodation in these and other markets, We believe the value of our property portfolio will only grow and provide another strong driver for unitholder returns over the long term.
In summary, we are very excited about our opportunities for future growth and enhanced unitholder value. Our focus on the mid tier sector meets increased demand for affordable high quality homes. Our predominantly suburban location outside downtown Coors and our larger size suites, townhomes and MHC sites are meeting the needs for renters seeking more space. We are experiencing a strong pipeline of accretive acquisition opportunities and expect to see solid portfolio growth in the quarters ahead. The continuing low interest rate environment provides significant opportunities to acquire properties with strong cap rate spreads and to reduce interest rate costs on our refinancing initiatives.
Our industry leading balance sheet, leverage and Liquidity position all add up for growth going forward. And with demographic trends and increasing immigration, We are confident we will continue to drive value for our unitholders in the years ahead. In closing, I want to thank everyone at CAPREIT for their hard work and dedication over the last 18 months and also to our residents for their patience during these challenging times. We are very proud of our results this quarter, a period when we experienced the height of the pandemic brought on by the 3rd wave. Considering that last year's Q1 was partially strong, particularly strong given the pandemic did not affect our markets until the end of March, performance this quarter has been even more exceptional.
Thank you for your attention this morning and we would now be pleased to take any questions that you may have.
Thank you. Your next your first question comes from Matt Logan from RBC Capital Markets. Your line is open.
Thank you and good morning.
Good morning, Matt.
Good morning, Matt.
As we start to get closer to a reopening, can you talk about how you expect your portfolio will And maybe if I put it
a little bit differently, do
you think the operating performance over the next 12 months will be driven by The few areas in your portfolio where you have some vacancy or if the vaccine progress and immigration will be the key drivers going forward? The integration is just the foundation for strong growth in the years to come. It's Household Consolidation that is going to be the absolute driver. So what we believe is that and there are no statistics is that there is unprecedented household consolidation of people 30 years and younger living at home during the pandemic. What I tell investors is basically mom said come home and until this thing is over and you get a vaccine.
So the thinking is we've had no change in supply during the pandemic and we've had our population has only grown. So where is everybody? Well, Overwhelmingly,
they're at
home and that is what's created weakness in the rental market. So as moms and Get comfortable that kids are safe with vaccines. You will see a very strong wave of return to the sector. And quite frankly, we had a housing crisis in Q1 of 2020. That hasn't changed.
This is kids are at home and that's where the people are. So I guess the focus really will be on how market rents move and if turnover starts
to pick up as we all get vaccinated?
Yes. And I think in the case of cap rate, we're holding in there with only 3% vacancy, which is really focused on about 10 assets. So the return of occupancy It will be very, very fast and specific to the areas where people get vaccines. And in terms of rental growth, There's no reason to believe we wouldn't return to pre pandemic levels, if not higher. The cost of housing has accelerated tremendously during pandemic.
And if anything apartments have become even more affordable. So this is the situation that we find ourselves in, Which is very unusual. It's for the most part, it's kids at home and international students that aren't here. And in CAFREIT's case, it's really restricted to about 10 assets. Agreed.
And if we think about your leasing traction year to date, Can you give us a sense for either how occupancy or leads attract on a monthly basis and if we've seen the bottom for demand? No, we're in it right now. It's absolutely correlated to case count and traffic. And when you think about it, it's just common sense. Like The 3rd way to hit us harder than the first and the second because lockdown measures and just fear of looking for an apartment during lockdown.
So as we see case counts go down, we see a direct correlation of our traffic going up. So in recent weeks, we have seen an increase in traffic as case counts have dropped off, but we found during the first and second wave traffic is 100% correlated to case counts. Makes sense to me. And maybe last question on my end. With significant transaction activity in your markets, You talked about where you're seeing some of those cap rates going sub-three percent in the GTA.
If we think about your 3.39 Cap rate in that same market. How much cap rate compression could we see over the
course of the next, say, 6 to 12 months?
There appears to be major lessons learned by investors during the pandemic in the wall of capital for multifamily that was high pre pandemic is higher today. There's more conviction around multifamily than I've ever seen. Now throughout my career, I've been saying there's more interest in multifamily than I've ever seen, but we've learned during the pandemic That wall of capital and interest in multifamily has grown even more. So, we're seeing a window here of Private Owners Selling Into Lower Cap Rates and Institutional Capital, Highly Interested in Sector. Well, I appreciate the commentary.
That's all for me. I'll turn it back. Thank you. Thanks, Matt.
And your next question will come from Jonathan Kelcher from TD Securities. Your line is open.
Thank you. Good morning. Good
morning, Jonathan.
Good morning, Jonathan.
First question, just those 10 assets, Mark, that you said have, I guess, the majority of Your Vacancy. Where would like what type of assets are those?
Student focused buildings downtown core. So, Bill, we have a couple of assets that are in very close proximity to universities. 1 on the University of Alberta campus in Edmonton and a couple in Halifax. And then when you move into, It's downtown located buildings. Wherever the pandemic has been hit the strongest is It's again that cohort of 30 under that mom and dad said come home.
And so wherever you see high case count, it's that cohort exactly that's caused weakness. It's not the seniors, it's not families, it's the cohort of under 30. So the final place we saw it was in Luxury End. So we have one brand new asset that targets that cohort downtown Toronto and it's Also been quite impaired. But again, you'll see a fast rise to demand in those markets because the unusual thing that's happened in places like Toronto and Vancouver, Montreal is that investors that owned individual units sold a lot of those units into end user hands during the pandemic.
So we believe the stats will come out, but I hold the belief that the rental universe has actually gotten smaller as private sellers that couldn't rent their Airbnb units or couldn't rent their higher priced condos sold into end user hands. Now we'll see that plays itself out. But anecdotally, this is what I'm hearing across the board. A lot of investors sold Investment Units During the Pandemic, because they had to.
So much tighter market coming out of
I think the fundamentals are going to be good for new construction. Fundamentals will be good obviously for mid tier portfolio like cap REITs.
Okay. Just on the your tenant inducements, they have ticked up for the last 2 or 3 quarters. Are you using them with more in some markets than others? And then how do you see that playing out going forward?
Well, CAPREIT has not been a tenant inducement culture in our 24 year history. We've been Chasing ghost tenants during this pandemic because traffic levels have plummeted as each wave showed up. But as the case counts Just like traffic, you can expect to see a falling off of our new tenant incentives. Now our tenant incentives we put in place, We amortized over the 1st year of
the lease. So there's going to be a bit of
a run rate, that will last, I believe, until Q1 of next year. But newly initiated incentives I expect to fall off dramatically in the Q3. We're already starting to see a reduction in use. We monitor them very, very closely, but again directly related to case count reports and directly related obviously to our traffic.
Okay. That's helpful. I'll turn it back. Thanks.
And your next question will come from Brad Sturges from Raymond James. Your line is open.
Hi, there. Just to follow on those questions,
I guess, If you see
an uptick on the leasing activity, is that the tipping point in terms of maybe willing to take on a little bit more vacancy and hold out for a better rate?
It's a great question, Brad. So throughout the pandemic, we've tried to call vaccine rollouts because when we got clarity On the pandemic coming to an end, that in my mind is the time to build vacancy to properly capture market rents. So We thought we were seeing it in the Q1 there. We thought, geez, this is going to vaccine rollouts are going to hit us and we're going to We had a couple of weeks of confusion. I now believe that we're going to be marching towards 50% vaccination sooner than later.
We're almost there. And we'll see what happens with case counts in the next few weeks. I think the next few weeks are critical. And as we see that happen, you know that rental market is going to light up. Kids are under 30s do not want to be at home.
This is not a rental trend. It's just a matter of getting vaccinated and getting back to life.
Okay. And then I guess the lockdowns had an impact on R and M costs. Do you see that essentially catching up in the back half of the year when we do open up?
Not of significance. Like our teams have been as I said, like we're so proud of the CAPREIT team. They've been working tirelessly through this pandemic. And while they can't go into units in some cases, I don't expect to be seeing a lag effect in costs.
Okay. And at this point, I guess you're seeing a very strong deal pipeline. I guess last call you talked about similar volumes to 2020 in terms of annual volume. I guess, any change in expectations here based on what you're seeing? Are you stick to your Your original comment, Terry?
Yes. Volumes are out there. It's a matter of us targeting value. And so like it's really How much capital is chasing and how aggressive the capital is going to be. So we'll stay disciplined in our accretive hurdles.
There's a lot of opportunities to underwrite. It's whether or not the aggression around pricing outpaces CAPREIT. And I'm not I'm quite confident that there's enough opportunities across the country that we will Continue to underwrite deals and be successful. You've seen our Brad, our success rate was quite low, But fortunately, we're underwriting so many deals. We tend to be able to bring in decent amounts of
growth, but not
at the expense of anything. Earnings per share is our focus at CAPREIT, not growing the number of units and the size of the portfolio.
Great. I'll turn it back. Thank you.
Thanks.
And your next question comes from Joanne Chen from BMO Capital Markets. Your line is open.
Hi, good morning. Maybe just looking on the acquisition pipeline side, in terms of kind of the opportunities that you're seeing, would these be kind of more one off deals or are you increasing opportunities with respect to larger portfolio sales?
It's a mix of both. You've got really what you have is the private sector seeing valuations at extremely high levels and then generalized fear around the future of capital gains taxes. So I think in a lot of cases, families are looking at their portfolios, big and small, and thinking it may be a time to liquidate if there's not secession in owning the portfolios for the next generation. So it's just a matter of valuations being so robust and capital being fierce. It's not unique to one particular demographic of ownership in apartments.
It's large portfolios and it's small.
Got it. Maybe just shifting back to the operation side of things with can you kind of comment on how I know
There is no sort of I wouldn't call it trends of any sort. You've got a combination of people that were going to move have moved And it's not a great time to be moving in or out during a wave of a pandemic. So I expect the trend will emerge as the 3rd wave completes. I do think there's a
lot of
pent up activity, but there's more inbound activity at this point than outbound activity. People that were going to move have had the ability to give It'll be a rapid return to market rents and vacancy shore up. Right.
And I guess just on that with respect to market rents, what are you seeing right now in terms of kind of your opportunity there for mark to market in some of your key markets right now.
We're seeing a mild increase because we're essentially At this point, comfortable with building a little more vacancy because we do see this 3rd wave subsiding. I would not call trend on that quite yet, but it's getting pretty close. But I can assure you that as this pandemic eases case count wise, again, you will see a very rapid return to mark to market rents. I think I'd said pre pandemic levels and the reason being is the population has grown in Canada and the supply has not. So like where is everybody?
Well, there's one cohort that's at home and it's the under 30s. You can talk to pretty much anybody you know that's 50 year old enough and they've got kids at home for the most part. So it's not students. It's just that cohort of age and they are not planning to stay at home with mom and dad for the next 20 years. They're ready to go.
Enough is enough. That's the belief that we hold.
But maybe just one last one for me on a bigger picture high level question with respect to Post Pandemic, hopefully soon. But kind of your with respect The overall industry on the regulatory front with respect to and some of your discussion perhaps with all the players. What are you guys thinking in terms of the potential or an extension of some of the rent freezes and caps into 2022 or is it still too early to tell at this point?
I think it's too early to tell. I think it's going to have a lot to do with unemployment. It's going to have a lot to do with pressures on how the economy is doing in general. And it's going to have a lot to do with affordability, I guess, going forward. The strongest attribute of our portfolio is that The affordability proposition has actually gotten stronger during the pandemic for CAPREIT.
Like the cost of homes, as we all know, has just skyrocketed. So the alternative housing source is quality rental. We think is in the mid tier the perfect place to be. The fundamentals are How governments react to that is different by province, but I can't provide any sort of meaningful insights on that. Right.
Your next question will come from Mario Saric from. Please go ahead.
Hi. Good morning, guys. Good morning. First question, just coming back to the acquisition pipeline. I think last quarter, Mark, you kind of highlighted enthusiasm over 200 basis point type cap rate spreads historically have been 80 to 120, let's say, within the market.
Some of the cap rates that you highlighted in GTA, Montreal, Vancouver kind of stabilized 3, Montreal 3.5, Vancouver 2.3 or so. Scott talked about the tenure being at 2.6% in terms of financing cost. How do you make that work?
Very well.
In different markets,
So you're on the edge of the double edged sword. So During the pandemic, we saw rates fall tremendously and portfolios come available and those spreads were there. As financing costs have increased, the spreads are tightened. Where does that leave CAPREIT? REIT.
It leaves us in one of 2 places. If cap rates continue to compress with interest rates The way they are, we will not be successful in growing. But what we will be phenomenally successful in is NAV appreciation. Because as we lose and the market reveals higher valuations for apartment buildings, our portfolio only grows in value. And I would suggest significant.
So if we're not able to buy, it just means the enthusiasm for apartments is extremely strong. So the second thing that we look at, it's not just the spread, it's the growth prospects of income in particular assets. So I've always used that example of 150 basis points with 5% growth. That kind of used that number. It's 200 basis points with 3% growth.
It's kind of the same proposition. And if it's 120 basis points with 9% growth. It's the same proposition. So it's all moving around that kind of idea in markets that you can call it stable and growing and that's where it becomes a little more complicated. But knowing the math on spread, it's quite easy when you buy it, knowing the growth Expertise comes into play.
So I do think it's tightened, Mario, but I think the growth potential has increased. And at a very minimum, The prospects of value creation for the cap rate asset base has never looked better.
In your opinion, is there enough potential supply coming out of the market and talking about Property as opposed to construction such that cap rates could start to reverse a little bit and start to take higher?
No. Unfortunately, the Messaging from government has been increased immigration and we all welcome that. But with a meaningful housing policy to accelerate the development of rental, I think that we're going We find ourselves in this supply constrained environment. We were there before the pandemic. The pandemic did not accelerate the development of rental.
Our population did not go down and we're calling for increased immigration numbers, unprecedented, never seen before immigration numbers going forward. So the fundamentals are just incredible and where solutions need to be sought is in the acceleration of Development for rental that just isn't happening unfortunately at this point in the markets that need it the most.
You mentioned or you highlighted some of your portfolio IFRS cap rates on the slides in the deck. Presumably those are single property cap rates, whereas some of the cap rates that you're highlighting on the private market, you include portfolio premiums Within those valuations, the public market isn't subscribing significant NAV premiums for the multifamily REIT today. In the private market, what's your estimation in terms of where portfolio premiums are going for larger transactions? I think, there's lots of
people that would like to build platforms in Canada and meet that math. So depending on the Size of the portfolio, I think it would range Mara, when you get into those portfolios that are kind of plus 1500 suites, I would say 15 basis Points to maybe a high of 25 basis points. And again, it depends on the players. So a lot of Buyers of apartments are not following the cap rate 35% leverage model. They're leveraging much higher and using shorter money.
The returns are far more interesting. So hard for me to call because people organize their capital differently and lever with different appetite. So but I think that it's fair to say anywhere between 1500 suites and 5,000 suites you see portfolio premium. When you start going over that number, you kind of shrink the pool of those that can actually Cough up the kind of money that's required because I think those premiums fall off at the over 5,000 suite portfolio range. It's hard to say.
There's not too much evidence really in the marketplace. I'm just speculating.
My last question just comes back to this quarter you omitted the kind of mark to market discussion kind of setting the pandemic uncertainty last quarter, I think it was about 20% or so. Is the omission just simply because of The magnitude of the 3rd wave or is it the indication that perhaps the mark to market was uncertain Last couple of quarters. I'm just correct, have anything changed this quarter?
Yes. I'll I'll let Scott chime in here. But at the end of the day, Mario, we started feeling a little bit embarrassed claiming that our mark to market was 20% and producing single digits. So we've got the pandemic effect going on. And so I think it's very difficult to see what market rent is when where evidence is otherwise.
So at this point, we felt it was misleading to say one thing and produce another. When people ask me what's your mark to market, I'll say look at our last quarter turnover increases and that's our mark to market. That's what we're actually achieving. So Scott, what would you add to that?
No, I think that's bang on. I mean, It's really we just felt like there's not enough market evidence today to have as much confidence in that number. I mean, we build that number up Property level, at a unit level, we involve marketing. And so we felt comfortable with that number in previous quarters. But just given the environment, there's just not a lot to say when that will change, when markets will come back.
So we didn't want We know that there's always a disconnect between what we're getting on turnover. Like if you look pre pandemic we are getting 13% to 15%. We're seeing our market rents are 20%. That's because a lot of the same units turnover until the increases aren't as much and a lot of the older leases have bigger mark to market. So we're confident with the data before with just the uncertainty of the current environment.
It didn't feel appropriate to include that guidance right now. Okay. That makes sense. Thanks for the color, as always.
Thanks. Thanks.
And your next question will come from Mike Markidis. Your line is open.
Good morning, everybody. Good morning, Mike.
Good morning.
Just on that, maybe another way to ask Mario's question. Have you guys calculated what your spreads within the last couple of
Sorry, you're saying like mark to market like the rental lift or?
The rentals, yes. Just because we're talking about
the pandemic and I'm talking about Really specific to net assets. I'm just wondering if the leasing spread over the last couple of quarters would be materially different if you ex those out
I can't say we've done that math. Yes. I don't know, Mark, if you have anything to add, but I haven't specifically done that math. It's a good idea.
I think the answer, Mike, is that those properties will return to pre pandemic levels and the rest of the portfolio will return to pre pandemic levels. Like the reality is that 80% of our portfolio There's nowhere in Canada where you haven't had some degree of slowdown in traffic and interest and nowhere in Canada We haven't had the under 30s going home. So I think not to simplify, but I think we would just go back to using Q1 2020 as a decent benchmark, and if not, and growing from there.
Okay. I think on we've been talking about the active deal market. A couple of months ago, I think you would have said it and correct me if I'm misquoting you, but on any given day, typically the underwriting to under the $250,000,000 of acquisitions and I think in late March it was $5,000,000,000 And I think the chatter up there is a pretty substantial portfolio that's been sold. So what would that stat or comparative be today? I would
say going by memory based on deals that we're underwriting. So deals that we're currently underwriting in the marketplace, I would call it a quantum of 600,000,000 of opportunity that's out there. And like I said, in the core markets, my enthusiasm around being successful is probably low. But this brings me back to the valuation increase of the cap REIT portfolio. So all that we know is that as we lose more deals, the value of the portfolio continues to surge.
For sure. Okay. And last one for me.
I don't want to be accused of tripping over the pennies and not paying attention to the dollars in terms of your occupancy and rent spread potential
We're running and we gave
guidance for this being a reasonable run rate for the rest of this year. Can you just help us understand the inflation reduction in travel and all that stuff.
Yes. I think if we look at 2019, Our top line G and A, not net of the asset management fees that we have, was about $46,000,000 and last year it was down to $43,000,000 So I think Mark and I tried Our best to communicate that. That was completely unrealistic to maintain going long term. Those kind of savings were associated with not hiring people when people left, obviously, a lot of the cost that you're talking about. So We're trying to say we hope things will get back to normal.
And if they do, it'll probably be in that $54,000,000 range. The reality is we're that's kind of our budget. We're well short of our budget as a positive right now. That's probably on the high side and it assumes a return to somewhat normal costs. But there are the acquisition costs, there's some severance There's also some costs associated with IRES management contract and kind of Trying to work through that.
So that guidance, I would say, is looking to be on the high side. But definitely, We take 2019 and then add some inflationary plus and growth cost to that. That's probably your better guidance.
Okay. Okay. Got you. And this week, there wouldn't be any pre classes from OpEx
No, not really. I mean, the only thing like some of our departments that Get capitalized to projects when we're doing big IT projects and stuff that's not happening because there's not a significant number Large projects happening right now, but nothing really between NOI at all. So the only other areas to keep an eye out for we had a new disclosure on the G and A, but we also Just around CMHC premium write off for this year, it will be another big year because we're looking to be over $1,000,000,000 in financing this year, probably even closer to $200,000,000 which is incredible from an interest rate point of view. It will be almost 50% of our mortgages, but that's going to come off with some old premium write off that just was added to disposal at all. Just make sure you turn your attention to that as well.
Oh, no, no. That's thanks for pointing at that. And just can you remind me, would you
No, not in the current year. When we did a We kind of did a cleanup last year, which we excluded, and included a lot of prepayment of mortgages as well, because We did extremely aggressive on our buy down of mortgages to be able to lever up and get to $1,400,000,000 we did last year. So those were added back just because they were so large last year, but they'll be included in FFO this year.
Got it. Okay. Thanks so much.
No problem.
Your next question comes from Matt Kornack from of Bank Financial. Your line is open.
Hi, guys. Good morning. Just a follow-up on that last point. The yield curve has Clearly steepened, but judging from your committed or completed mortgages, you're still going with 10 year financing. Just wondering, you do I guess a bit of room in 2026 and 2027 to maybe do a bit shorter term mortgage refinancing.
What are your thoughts in terms of term on mortgages at this point?
Yes, we definitely like I would say in the last 5 years. We almost did solely 10 year. We did some 12 15. Mark and I have discussed moving to some shorter term. We think Rates aren't going anywhere crazy anytime soon in our portfolio.
By doing so much last year at a 10 year, we've given ourselves some space in the short term. So we'll do Some 3s, 4s and 5s. 5s and 10s are primary just because a lot of CMBS we do work with a lot of CMBS lenders, which their pricing is usually off of 5s and 10s. So it will be majority of 5% and 10%. I'd say probably at least 30% of our portfolio will be 5 year or shorter Decoming Your Own.
If I would add to that, Matt, we've never really Been leverage focused, so tenure always made a lot of sense. However, I think what we're coming to realize is that in the value add acquisitions, you're better off with finding your money because we simply add so much value over that 5 years that there's more equity to tap into in the shorter term, where if you buy a value add property and you lock the financing in the long term, you have to second mortgage to get it Credit Equity. So I'll use our Oshawa portfolio most recent acquisition as a great example. We feel that there'll be significant value add opportunities in that portfolio and therefore you're better off with shorter financing to tap into as much low cost Equity as possible.
Yes. That absolutely makes sense. From an underwriting standpoint though, you still
We use cap REIT leverage and we use 10 year money. Then what we do beyond that is really management decision, but for the discipline of modeling, we model cap rate portfolio leverage and we model 10 year money.
And just quickly, you noted stabilized cap rates. I know that's a bit of a and you get, but is that just stabilization On occupancy, I assume you're not stabilizing rent to market at this point for those Celts, are you?
So, stabilized cap rates?
Yes, the quoted stabilized cap rates even on transaction activity, not necessarily in terms of your IFRS values.
Yes. I mean, the way we look at I mean, if you're looking at some of our disclosure, obviously stabilizes. We've held that property over 2 years, so you can see the relative cap rate compression. As far as how we stabilize our income, That's a different discussion, but I'm not sure if I'm answering your question or not.
It was more related to The acquisitions or sorry, the market transactions that Mark had noted 3 caps like the NOI for those? Right,
right.
Yes. The word stabilize probably doesn't belong there. The reality is that cap rates going in Depending on what income you're modeling, some people use broker income, some use their own, everybody uses their own. So Those going in cap rates, I was just trying to give indication of what we're seeing in the marketplace. But they do range in that kind of 3 cap range right now.
Sure. That makes sense. And last one for me. The disclosed renewal percentage, I think was sub 10%, But you didn't see any increase in vacancy. So are people signing longer than 12 month leases at this point?
Or was it a pandemic related issue in terms of the lower renewal percentage?
No, it's strictly the increased moratorium in Ontario and BC and a cap in Nova Scotia 2%. That's what's going. There's no people are not signing. We're not offering longer leases That's an incentive, which hold rents. We're no change there.
Okay, perfect. Thanks, guys.
Thank you.
This brings us to the end of our Q and A session for today. I'll turn the call back over to Mr. Kenny for closing remarks.
Well, first of all, thank you, Thank you, everybody, for your time and your attention today. And if you have any further questions, please don't hesitate to contact us at any time. Thanks again, and have a great day.
Thank you, everyone. This will conclude today's conference call. You may now disconnect.