Thank you for standing by and welcome to Canadian Apartment Properties REIT's second quarter 2020 results conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask question during session, you'll need to press star one on your telephone keypad. If you require further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, David Mills. Please go ahead, sir.
Thank you, Ian, 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. Such statements are subject to certain risks and uncertainties. Discussions concerning these risk factors, the forward-looking 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&A, which can be obtained at SEDAR. I'll now turn things over to Mark Kenney, President and Chief Executive Officer.
Thanks, David. Good morning, everyone. Thank you for joining us. Scott Cryer, our Chief Financial Officer, is also with me this morning. Clearly, we've been operating in challenging times over the last few months. With the contribution of our team and continued communications with our residents, our operating results remain strong and stable, as you will see. Throughout this pandemic, we have focused on preserving capital, maintaining a strong and flexible financial position, mitigating risk, and generating the best operating results possible. I believe we are meeting these objectives and will emerge from this period stronger than ever. Our growth over the last 12 months has had a positive impact on our second quarter results, as you can see on slide four. Revenues were up 15% over the same quarter last year, driven by the positive contribution from our acquisitions, increased monthly rents, and continuing high occupancies.
NOI rose almost 14%, with NFFO up 11%, generating a very conservative 62% NFFO payout ratio. Looking ahead, we remain confident that this solid quarterly performance will continue throughout the remainder of this year. As economies return slowly, we expect to see improved results as we build on our presence as the preferred housing provider in our chosen markets. Turning to slide five, you can see that our results for the first six months of 2020 have remained strong and stable, with solid increases in revenues, NOI, and NFFO. We are also pleased to see another period of strong 4.1% same property NOI growth. We believe this continued strong performance, despite the COVID-19 pandemic, is proof that we can generate strong and growing returns for our unitholders through both good times and bad.
For more than 22 years, we have built the team, the asset base, and the operating platform that can and will continue this track record of performance as the pandemic eases in the future. We were pleased to have completed the buyout of 11 of our 15 operating leases in the Greater Toronto Area over the last nine months for a total of approximately CAD 165 million. The details of these buyouts are shown in slide six. The transition to fee simple ownership of these properties adds material new financing capacity, meaningful net asset value accretion, and unlocks the potential for future new development opportunities. We acted on these buyout opportunities earlier than scheduled, resulting in a 29% discount to the agreed-upon price for the properties as set out in the operating leases.
As slide seven shows, we significantly enhanced the size and scale of our property portfolio in 2019, acquiring 9,241 residential suites and MHC sites for approximately CAD 1.4 billion. These acquisitions made a solid contribution to our results this year. In the first six months of 2020, we continued to grow with the purchase of another 1,724 suites for CAD 467 million, including a large 1,503-suite portfolio in Halifax, transforming CAPREIT into one of the largest owners of residential rental properties in this strong market. These acquisitions strengthen our market presence and drive economies of scale and operating synergies through our experienced and proven property management teams. From an operating perspective, we maintained our track record of solid performance in our stabilized portfolio, as you can see on slide eight.
Occupancies remained at effectively full levels in the residential portfolio of our business, while net average monthly rent rose, driven by increases on turnovers and renewals. Our track record of organic growth also continues, with same property NOI up 4.1% while maintaining a strong 64% NOI margin. We were also pleased that our NOI margins remained strong and resilient despite increased property tax, insurance, utilities, and one-time bad expenses this year. Despite the constraints placed on us by the COVID-19 pandemic, we continue to generate solid increases in rents on turnover and renewal, as shown on slide nine. Clearly, turnovers are being impacted by the ability of residents to move or personally visit our properties. Still, 10.4% increases in the Canadian portfolio and 8.9% in the Netherlands on turnover are solid results.
Renewals have been affected by the rent increase freeze that we implemented on April one to help our residents work through these challenging times. As economies begin to open, we are now beginning to implement modest rent increases in consultation with our residents. Clearly, the last few months have been extremely challenging for CAPREIT as we have adapted to the new reality of the COVID-19 pandemic. I am extremely proud of how our team has risen to the challenge and continued to run our business efficiently and effectively. I can't thank them enough for their efforts, their professionalism, and their dedication. I also want to thank our residents for working with us. These are unprecedented times for everyone, and we appreciate being able to openly consult with our residents and understand the issues that they are facing.
As we work through this pandemic, we remain highly employee and resident-centric in our business. With this focus, our objectives remain to preserve capital, maintain a strong and flexible financial position, to mitigate risk, and generate the best operating results possible in this challenging environment. Slide 11 outlines some of the operational initiatives that we are taking to ensure that we collect as much rent as possible in these challenging times. Our Compassionate Care Program continues across the country. Since March, we've been reaching out to our residents, checking in on them, and discussing any rent payment issues they may be facing. We are encouraging residents to sign up for our automatic pre-authorized online payment options, and we are advising them on government assistance programs should they be needed. In June, we began to slowly implement modest rent increases in certain markets as these economies started to open.
As before, we are sensitive to how these increases are being received and respectfully discussing these issues with residents on a selective basis. With the start of the COVID-19, we also implemented a Compassionate Care Program for certain residents facing severe economic hardship. By working with these residents and understanding their needs, we have only had to approve payment plans for less than 0.5% of our total resident base. We continue to build on technology as a base to drive our operating efficiencies and foster close ties to our residents, as detailed on slide 12. With the advent of the COVID-19, we accelerated the rollout of our resident portal, enabling our residents to more easily communicate and transact with us. Since its launch, we've been adding many new and helpful features to the portal to increase resident take-up.
For example, residents can now request a maintenance service online and set up pre-authorized rent payments also online. Other innovative features are being added that are resulting in very strong sign-up to the portal, with a 56% adoption rate to date for our residents. With face-to-face meetings being difficult, our online virtual property and suite tours have allowed potential new residents to view a property and apply remotely through our online lease system. These systems have been up and running for some time and have been particularly helpful during the pandemic. However, as the economy opens in a number of our markets, we are seeing an increase in the number of personal visits and lease applications at our properties. We continue to maintain all of our COVID-19 protocols, and this increase in personal visits will help enhance occupancies going forward. Moving to slide 13.
During this pandemic, we have characterized our business as back to basics. We are focused on collecting as much rent as possible by working with our residents, filling any vacancies, and investigating all areas where we might find operational efficiencies. Our key focus has been on rent collection. As you can see, with 98% of our June resident rents and 98% of our July residential rents collected, our efforts are working. While we continue and listen and work with our residents facing economic hardship, we are taking steps to deal with those residents who are not willing to engage with us. In this light, we are pleased that the rent tribunal boards are slowly reopening in certain markets so that we can take a more serious approach to this small number of problematic residents who do not wish to engage.
As you can see on slide 14, we've experienced very stable occupancies since the pandemic hit. We also believe that our small vacancy rate is not a reflection of the state of the overall rental market. As we emerge from this challenging time, we are confident that occupancies will increase quickly. A key issue has been the ability of potential new residents to visit properties and apply for leases. While our virtual tours have helped, it is no replacement for a personal visit. As the economy has opened in some markets, we are seeing a solid increase in in-person visits, and we expect occupancies to continue to strengthen. We also believe that our properties offer a highly affordable place to live in these uncertain times. Compared to the condo rentals and new build apartment properties, our apartments, townhomes, and MHCs rent for considerably less than other rental alternatives.
At a very low average of approximately CAD 1.10 per foot in Regina, for example, to about CAD 2 a foot in BC. This compares very favorably to the CAD 3 and CAD 5 per square foot for smaller condo rentals and new build apartment properties. Our average suite size is also much larger at approximately 800 square feet. We have well-located, well-maintained, and our properties continue to offer Canadians the best value in the rental market. I'll now turn things over to Scott.
Thanks, Mark. Turning to slide 15, you can see that we are clearly in a strong financial position at the end of the second quarter, with a conservative debt to gross book value of 36.3% and increased total liquidity available of approximately CAD 338 million. We also have CAD 771 million in Canadian unencumbered properties available to generate funds should it be needed. Looking at our financings to August 11th, we have locked in a very low weighted average interest rate of 1.9% on CAD 447 million in new financings. We expect we will continue to benefit from the current low interest rate environment for some time. At quarter end, 99.2% of our mortgages incur a fixed interest rate. We are also confident that the debt markets and financing will remain highly available for our properties, given their stability and the strong fundamentals of the rental residential business.
As of June 30th, just under 99% of our properties hold CMHC-insured mortgages. Turning to our balance sheet on slide 16, you can see that we continue to maintain a strong and flexible financial position at quarter end, with conservative leverage, strengthened coverage ratios, and a historically low interest cost on our mortgage portfolio. Again, debt to GBV was a solid 36% at quarter end, providing financial resources and flexibility to help us work through these challenging times or to act opportunistically at the right time. Our mortgage portfolio remains well-balanced, as shown on slide 17. Looking ahead, our current ability to top up renewing mortgages will provide further significant liquidity in the event this pandemic lasts longer than we hope. As of June 30th, we expect to raise between CAD 520 million and CAD 570 million in total mortgage renewals and refinancing through the balance of 2020.
We expect that the conversion of the 11 operating lease properties to fee simple ownership to date could have incremental CMHC-insured mortgage capacity of over CAD 500 million. You can also see on this graph that we have considerable opportunity to reduce our long-term interest costs in today's attractive interest rate environment. The current five-year and 10-year estimated rates of approximately 1.4 and 1.8% are well below expiring mortgage rates of between 2.5%-3.7% over the next three or four years. Overall, on the liquidity front, slide 18 demonstrates that we remain well-positioned to work our way through these challenging times. As at June 30th, we had approximately CAD 340 million in available liquidity, including CAD 125 million borrowing capacity on our acquisition or operating facility and CAD 214 million of cash and cash equivalents. Our total equity raises of CAD 1.1 billion in 2019 positioned us strongly as we entered 2020.
With our strong balance sheet and liquidity position, we are confident we have the financial resources to weather these storms and more. We remain highly opportunistic in our growth programs, and our balance sheet strength allows us to potentially capitalize on accretive acquisition opportunities should they appear. An example was our ability to buy out our operating leases at a 29% discount to the contracted price. I'll now turn things back to Mark to wrap up.
Thanks, Scott. As we all know, recent events around the globe have shed new light on issues related to diversity. I believe this is a time that we can pause and reflect on how we can do things better. At CAPREIT, our commitment to diversity has been a key component of our approach to social responsibility for many years. I am very proud of where we are at. Today, we hold an almost equal gender split between self-identified men and women. On average, women represent over 47% of our annual hires since 2017. We were also very pleased to be recognized for our programs to advance women in leadership and career development, the first Canadian residential REIT to be recognized with a Women in Governance Certification. At CAPREIT, we celebrate over 61 languages spoken among our employees, a reflection of the diverse makeup of the Canadian population.
We also have a highly multigenerational workforce, from 20-year-old millennials to people over 60. Our focus on building a diverse workforce represents the diverse nature of the stakeholders we interact with and support in all of our daily business activities. Our strong culture of diversity, inclusion, and equity is a distinct competitive advantage, enabling us to deliver innovative approaches and solutions both within and outside the organization. For more details on our diversity and other programs, please refer to our 2020 ESG report. While our progress has been significant, we know that we can always do better. We need to be more sensitive to the issues being experienced among the diverse communities in which we operate. We need to learn and educate ourselves about the issues facing diverse communities in Canada, and we are taking steps to do this.
We need to take the time to understand and reflect on the challenges they face and adapt how we operate and interact with our residents and the communities in which they live. We can always do better. We will do better. That is our commitment. In closing, we are confident that our long-term focus of making CAPREIT the best place to live, work, and invest will take us through this challenging time and emerge stronger than ever. We remain committed to building strong relationships with our residents and providing them with a safe and affordable place to live. Again, I want to thank our residents for their support over the last few months. Our team continues to capitalize on our efficient and well-tuned operating platform to deliver the best possible results. I especially want to thank our employees at CAPREIT for their hard work and commitment.
Our frontline workers have bravely faced the challenge of serving our residents, and our head office and regional office staff have worked tirelessly to keep us going strong. It is the experience of our team that is getting us through these difficult times. As the Canadian economy continues to slowly reopen, we are returning to more normal business activities and expect to see continued solid results going forward. From an investment perspective, we believe the apartment industry remains a very defensive sector, one that has proven its ability to generate strong returns in both good times and in bad. At CAPREIT, we remain very optimistic about our future. We have a highly conservative balance sheet with very low leverage, strong liquidity with numerous sources of capital, and our operating results have remained strong and stable throughout the pandemic.
For our unitholders, we are also pleased to be included in the S&P/TSX 60 Composite Index in June, a reflection of our significant growth and strong performance over the last 22 years. Thank you for your attention this morning, and we would now be pleased to take any questions that you may have.
At this time, if you would like to ask a question over the phone lines, please press star then one on your telephone keypad. We will pause for a moment while we compile the Q&A roster. Your first question comes from the line of Mark Rothschild of Canaccord. Your line is open.
Thanks. Good morning, guys.
Morning.
The rent collections have been quite strong. What's your feeling over the next few months as government help is reduced to your residents and tenants? Do you feel that there's some risk that those numbers might come down somewhat, and how do you expect to handle that?
Yeah. I would expect that as the economies open up provincially and tribunals return to normal, that there will be offsetting benefit from our ability to deal with those residents that refuse to engage with us. I think that we've been through a long period of time here now. We're seeing that reopening happening, and when we do believe that that will have a positive contribution to the rent receivable issue.
Okay, great. Thanks. You spoke quite a bit already on the call about how you're dealing with tenants that might be struggling to pay rent and as far as dealing with rent increases. In your disclosure, you wrote about starting to increase rents where appropriate. Can you maybe talk a little bit about how you are handling this on such a big portfolio? You obviously need to be systematic to some degree because you have so many buildings and so many tenants.
It's a good point, Mark. We hear it often, we also have what we feel to be the strongest possible team in the business. At the end of the day, it's all about one-on-one interaction with our residents. Being understanding, allowing those balances to be managed as people adapt to a new financial reality is really what's key to making this work out. We've got a great team. Our Compassionate Care Program is a call function that's happening out of our head office. To give an example, we're making almost 3,000 direct outreach calls on a weekly basis now to our residents. We're in extreme contact with the people that are finding challenge. It's not just about rent collection. It's about checking in to see how they are, how they're doing, and giving them reassurance.
Between the head office interaction that we've created new for this pandemic and the outreach that we've always had at the buildings, we're very much customer-to-customer managing this issue.
Okay, great. Thank you.
You're welcome.
Your next question comes from the line of Jonathan Kelcher of TD Securities. Your line is open.
Thanks. Good morning.
Good morning, Jonathan.
Sticking with Mark's question there. On the renewals, you said you started increasing in some markets in June. Is that something you're doing by city, by province? How are you defining some markets?
It's broken down in a number of different ways. It's where the provinces have restrictions, we're obviously abiding by those. CAPREIT has taken a leadership role with other large Canadian apartment companies, whether they be public and private, and decided to discretionary not serve through this pandemic. We're looking at the building needs and the needs of the residents. It's highly intensive by understanding what's happening in a building, is the building affected by the pandemic or not. To a certain extent, are residents that are being affected by the pandemic or not. Consideration is being given to those folks that are struggling to pay right now. There's no sense in serving rent increases on people that have incomes impaired. We're mindful of the issues right down to that level.
You're almost doing it by suite or by unit.
Yeah. Ultimately, it's determined where the province will allow, where the market will bear, and where the resident can handle.
Okay. Then just as, hopefully come out of this and you're able to get renewals going again, are there different rules in terms of being able to catch up on the renewals by the different provinces?
No. Essentially, where we've not served rent increases, we do not intend to go retroactively back. It's either been a suspension of the rent increase for the period served or the reset of a new increase date. We've had a pause. That pause is being lifted, and it won't have retroactive effect, but it will reestablish the process of lifting rents on renewal. Bearing in mind that it's a relatively small average of 2% or so that we're talking about here.
Right. Would you think you'd get a catch-up then in Q4?
Yes. As the increases start to take effect, they will take effect in larger numbers, obviously, because of those on-hold servicing of the rent increases. It won't follow a typical pattern. You will see a catch-up. Some markets, we had to serve the increase and just suspend charging it. Other markets, we had to not serve it at all and reset the renewal date. Where the renewal dates have been reset, yes, you will see a catch-up at a far greater pace than normal going forward, just not retroactive.
Okay. Just switching to the operating leases, looks like you have about, I think, four remaining. Do you think you get an opportunity to buy those out this year?
Yeah, we're pursuing those. We want as favorable terms as we had with the ones that we've done to date. It's something that we're open to, but only if the terms are highly favorable to CAPREIT. We've generated incredible liquidity with the ones that we've done to date. That continues to be extremely cost-effective capital. Yes, we would like to pursue, but only if we can come to terms that are as good as the ones we've done, if not better to date.
Okay. Thanks. I'll turn it back.
Thank you.
Your next question comes from the line of Mike Markidis of Desjardins. Your line is open.
Hey, good morning, everybody.
Hi.
Rent collection's very strong, and I'm not going to beat a dead horse here, but I'm just curious, I mean, 98%, how would that have compared to sort of the 2019 level? I mean, I know what your bad debt expense is, I'm just curious what the collection rate would've been or if you even tracked that before.
Yeah, it’s clearly affected by the pandemic. If you annualize our historical bad debt at a third of a percentage point, and you look at a dragging receivable today, not bad debt, it’s a dragging receivable, of 2%, there’s clearly a big difference. The real question is, as tribunals open, as the economy reestablishes, we’re accruing for just non-payment. That doesn’t mean the people are gone. They’re still in the home. If they value their homes and have the ability to pay or have the interest in working with us to repay, that money will be reversed over time. What nobody knows today is how many people will elect to leave with a balance owing, which we can still pursue. It’s obviously a greater number than what we’re historically used to seeing, but not necessarily money that doesn’t have the ability to be recovered.
Right. Okay. Understood. Just on the acquisition market, you guys got great liquidity. Just curious, I think we're all aware there's one or two significant portfolios. I suspect you're kicking the tires, but maybe more just high level. Do you sense the competition in the market has declined for assets, or has it stayed the same or gotten more intense as we pick back up here?
I think that with the pandemic, you would have obviously expected to see a catch-up of properties that weren't marketed, for obvious reasons. What we're seeing appears to be a greater than catch-up flow of acquisition opportunities. There is no question that the volumes are up. There also appears to be no question that apartments have been highly valued. There's two primary drivers. A, the resilience of the asset class has been proven out, and B, you've seen a change in the financing environment, so the yield spreads between 10-year money and cap rates are very favorable. What capital is out there for real estate appears to be highly focused on residential to date. Volumes are up. You would expect to see there's definite capital available for apartments.
We do expect to see some compression in cap rates, but during uncertain income times, that's the magic in underwriting.
Okay. Is the buying competition for assets stronger today or the same, or would you say it's come off a little bit? High-level comments.
I would say stronger, just given the fact that there's more volumes and it's not showing up in pricing.
Got it. Okay. Last one from me. I should remember this, Scott, because I know we had a discussion on it. Could you just kindly remind us on the ins and outs from a P&L perspective on the operating lease buyouts, please?
Really what it is we had the NOI before, we'll continue to have the NOI. There's no real movement from a core operating NOI point of view. Really all you have is the dilutive effect of us having prepaid these in advance of the buyout date. Having to put out that capital without incremental NOI, there will be a drag on earnings. We felt like the discount was attractive. The access to an incredible financing opportunity as well as that development piece and just simplifying the balance sheet was worth the dilution. It's really just the cost of that capital. We put out some LP units, which are effectively REIT shares, and the rest in cash. That's going to be the impact.
That's a useful refresher. Thank you guys.
Yeah. No problem.
Thank you.
Once again, if you would like to ask a question over the phone lines, please press star then one on your telephone keypad. Your next question comes from the line of Matt Kornack of National Bank. Your line is open.
Thanks. Everyone's a Mark today.
Hey, Matt.
I'm a Mark. You're a Matt.
With regards to the accounting for your rents, I don't know how you treated it, but if you served rent increases, would those be included in your AMRs, or have you stripped them out for the purpose of presentation?
For the renewals where we've deferred them, we're not recognizing those. Obviously, where the rental increases are on turnover, those become part of the AMR.
Okay.
Our policy around bad debt is after 30 days. There's a little bit of a lag effect between what we're showing on a collection basis and how it'll slowly trickle into our bad debt amount. Obviously it's about a 30-day lag. That would be the only thing to know.
Rent increases are never accounted until the actual effective date. Anything that's served in advance isn't accounted for until they actually take effect.
Okay. No, that is helpful. With regards to your portfolio, you cannot evict people at current, or at least, I guess it is changing by market. Presumably, you have invested a lot in this portfolio over the last several years, and your product may be more competitive. Would you expect that even if things continue to be a little bit weaker, that CAP's portfolio would outperform some of your peers that maybe have not invested as much, in that you would attract some of those tenants that may be leaving those properties?
Well, our experience is the ability to pay is on the high end of mid-tier and the low end of luxury. The high end of luxury tends to get affected when there's economic change, and the high end of mid-tier tends to attract the most financially stable residents. The resilience of the CAPREIT portfolio really does show up in the value-add buildings. The buildings that we've bought, it's now 50% of replacement cost permits us to charge 50% of market rents in terms of new construction. I talked about our average rents in Regina being a low of CAD 1.10 a foot, and BC, which is the higher-end market rent, close to CAD 2 in terms of existing average rents. That makes us extremely attractive offering in difficult economic times. It's still highly affordable.
You only have to do the math of taking those average rents, multiplying it by 800 sq ft, realizing that you can definitely get into that affordability index of 35% of gross income for an average Canadian household income of less than CAD 70,000. Sorry, CAD 78,000 I think it is. We're in great shape in terms of serving the needs of the market in uncertain economic times. We will be a fantastic offering as we go through this, if there's challenging economic times on the other side of this. If there's good economic times, we've proved that we're a good affordability option in terms of the cost of new construction. Either side of the equation, CAPREIT's well-positioned.
Makes sense. I guess on the balance sheet front, if anything, you're flush with capital. It doesn't sound like there are going to be any deals on multifamily assets in Canada. Just interested in your thoughts on having so much financial capacity plus the potential to help finance some of your existing mortgages at low interest rates. Are you just going to remain low leverage, or what do you anticipate doing with that excess capacity?
Well, it remains to be seen because we're barely in the second inning of this baseball game.
What we have seen is, just in the last few weeks, deal flow is definitely up in terms of offerings. That could be for a number of different reasons. If that deal flow does stay up and the buyers aren't in lockstep of taking those deals, which they appear to be today, then we'll continue to do accretive acquisitions and as many of them that makes sense for the CAPREIT portfolio. My commitment to shareholders, unitholders, has been that we'll buy acquisitions that improve the accretive profile of the CAPREIT portfolio. For deals that are in the markets that we like, that have growth, that can add to the accretive pool, CAPREIT will be there to seize those opportunities. We've got a platform to add value, so we will continue to do that. My outlook is actually quite strong.
We have to be patient and we have to be disciplined with how we deploy the capital, which we've got a great track record of doing.
Absolutely.
I think just on the mortgage portfolio, we're doing our best to get all these mortgages processed with CMHC. We're creating flexibility on when we can execute on them. At our size, we're happy to be sitting on some cash in today's environment. We'll be prudently working through those through the year and into 2021.
Okay. You may not immediately exercise on some of that financing capacity.
Yeah. We obviously balance between having some real liquidity, as opposed to perceived liquidity through top-ups. Sitting on some cash is good. The CMHC certificate lasts six months, and our lenders are usually very flexible as far as that. We'll commit some just to make sure we're catching some of the low interest rates, but we can scale that throughout the year.
Okay. Perfect. Thanks, guys.
Thank you.
Your next question comes from line of Mario Saric of Scotiabank. Your line is open.
Hi. Thank you. Good morning.
Hi Mario.
Morning.
Mark, you mentioned the tribunals are starting to open up in some of the provinces. Do you have any sense on how prepared these tribunals may be to perhaps handle a bit of an increased workload going forward, and how that impacts your leasing and rent decisions within the portfolio going forward?
Yeah. There's two parts to the equation. There's the tribunals and their ability to issue orders, and then there's the execution of those orders, which typically go through the sheriff's office. That's where the challenges are going to be. The ability to execute on a judgment will be the challenge that we're hopeful the governments are seeing. That's to be determined still. The point that I can't emphasize enough, though, is that these are people's homes, and we are not motivated at all to disturb people's homes. As long as we have payment plans in place and we can work with people, then we can stretch this out. Nobody wins by evicting people that are trying to do the right thing. I'm very hopeful. None of this business of somebody's home is lost on any of us. Our goal isn't to get evicting.
Our goal is to getting our residents back on a stable footing.
Understood. Very thank you for the color on that. Switching gears just to market rents. We're seeing a little bit of pressure at higher price points in some of your markets. Have you felt at your CAD 1.10-CAD 2, as you mentioned in Regina to Vancouver, have you seen any pressure on market rents in your buildings the past three months?
The early pressures are being obviously tested at the higher rent levels. The perfect place to be, as I said, is at the high end of mid-tier as we go into this. The current issues, and again, it's early days, but the current issues that we're seeing is in the big cities, in the core, is where the issues seem to be. Buildings that would traditionally cater to students are going to come under short-term pressure. Buildings that are in downtown locations are coming under pressure. With a lot of offices not being open and people working from home, the desire to be in the core of a big city is eased right now. I'm not calling that as a long-term trend. I don't subscribe to the end of urbanization, but I completely understand that in these circumstances, being in the core is going to be a challenge.
What we are seeing, though, is the core cannot be confused with the suburbs of the big cities. The suburbs of the big cities are actually quite strong and doing well. In general, it's luxury and core and those challenges, I think, will be relatively short-lived. It's not surprising that buildings that would traditionally cater to students are buildings that you would find in the core, because that happens to be where big Canadian universities are typically located.
Got it. From an acquisition standpoint, you mentioned fairly high volumes, and there seems to be support during the pricing. When you look at deploying capital going forward, and if we were to break down the opportunities between downtown, kind of urban core and suburbs, in your mind, has pricing changed over the long term, for the downtown core product as a result of what's happened or is it basically a shorter-term anomaly?
I don't think so. I think that the cities aren't going away, and people choose to live in cities for reasons that go beyond their office being down the street. As we get back to a more normal way of living, people will come to appreciate restaurants and theaters and parks and all the other reasons that people live in cities. I think that our outlook is not a secret. It's shared by others. On the acquisition front, the strength will be in value-add properties. Okay. In the value-add properties, you still see rents growing on turnover, whereas in new construction properties where everything's at market, you will tend to see an erosion of rent roll value, over the next six months to 12 months. It's very hard to underwrite new construction today if you have an eroding rent roll.
It's less risk when you know your going- in yield and rents are growing on turnover and that's what you see in the value-add portfolio.
Got it. Okay. No, that makes sense. Just really quickly on the lease renewal rent increases that were, I guess, deferred or frozen. I guess in some provinces, as you mentioned, they were served and essentially abated, for lack of a better word.
Yeah.
Those will presumably start kicking in sooner as opposed to later. In the other provinces where they weren't served, what's the time period involved in terms of actually seeing those rent increases come through the P&L?
It varies between 60 and 90 days. Actually, it varies across the country, 30-90 days, depending on what province you're in. If you didn't serve the increase, you're waiting between 30 and 60, depending on where you are.
Okay. My last question, just on utility costs. They were up 8.3% in Q2. On a same property basis, they were down 5.7% in Q1. Presumably higher utility costs because people are staying home. Is that all there is to it or is there anything else that kind of would explain some of the variability that we're seeing on a quarter-over-quarter basis?
No.
It's prob-
Yeah, go ahead, Scott. I'll let Scott take that.
I was just going to say, it's a combination of people being in the home, but also just weather patterns always obviously change things. Our winter versus what the spring looked like. Utility costs have moved around a little bit, but that's not the driving thing. It's definitely weather and people staying at home. At least one side, the positive side, we have our electricity. We've got over 70% sub-metered now, so that continues to help us mitigate some of the higher usage costs, for sure.
CAPREIT continues to elect to not enforce the downloading of that remaining 30%. Our approach has been to do it on turnover when somebody knows they're paying for hydro. We think that's a more fair proposition. We do have that ability to reduce rent by the amount of hydro being generated by the unit. We've just elected to be sensitive to our residents on that.
Understood. Makes sense. Okay. Thanks, guys.
Thank you.
There are no further questions over the phone lines at this time. I turn the call back over to Mr. Kenney.
Thank you again for your time and attention today. If you have any further questions, please don't hesitate to contact us at any time. Thanks again. Have a great day.
This concludes today's conference call. You may now disconnect.