Good morning, ladies and gentlemen, and welcome to the CAPREIT fourth quarter and year-end 2019 results conference call. I would now like to turn the meeting over to Mr. David Mills. Please go ahead, Mr. Mills.
Thank you, Maude, and g ood 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-looking statements, and the factors and assumptions on which they are based can be found in our 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, thank you for joining us today. Scott Cryer, our Chief Financial Officer, is also on the call today. 2019 was another significant year of accomplishment for CAPREIT. We achieved record portfolio growth. We generated record operating and financial results. We delivered strong and accretive growth for our unitholders, all while maintaining one of the strongest balance sheets in our business. These accomplishments point to the continued growth and strong performance going forward. Let's look at some of our accomplishments for the year. Looking at our three operating platforms, Canada, Ireland, and the Netherlands, we see on slide four that all achieved record operating and financial performance in 2019. We continue to increase our size and scale in each market, generating solid growth in our key financial benchmarks.
Clearly, demand for quality rental accommodation remains strong in all of our chosen markets, and we believe these solid fundamentals will continue going forward. Our presence in the Netherlands continues to drive value for our unitholders, as shown on slide five. By the end of 2019, we had sold all of our Netherlands properties to ERES through our pipeline agreement, generating a stable and growing base of fee revenues from our asset and property management services. CAPREIT now owns 66% of ERES, fully aligning our interests with all ERES unitholders. For the year ended December 31st, 2019, we earned CAD 56.2 million in NOI from the properties in Europe. ERES' strong presence in the vibrant Netherlands market further diversifies our business and provides the opportunity for additional growth going forward. We also continue to be pleased with our performance in Ireland, as you can see on slide six.
Asset and property management fees for the year ended December 31st, 2019 increased more than 10% to CAD 8 million, driven by acquisitions and NAV appreciation. We expect our fee revenue will increase as IRES continues to grow its portfolio. IRES also completed a successful equity raise in 2019, through which we increased our ownership position in IRES to 18.3%. This retained interest continues to generate a solid stream of dividend income amounting to CAD 7.3 million in 2019. Turning to slide seven, CAPREIT generated record portfolio growth in 2019, further increasing the size, the scale, and diversification of our portfolio through accretive acquisitions. During the year, we acquired 9,241 residential suites and MHC sites in Canada and the Netherlands, totaling approximately CAD 1.4 billion. These acquisitions have strengthened our market presence and are driving further economies of scale and operating synergies through our experienced and proven property management teams.
We also sold 2,710 of our Netherlands suites to ERES. As of year-end, all our Netherlands properties were owned by ERES. Looking ahead, we continue to evaluate further accretive growth opportunities both in Canada and in Europe. Turning to slide eight, we've significantly expanded our presence in the manufactured home community business. We are now Canada's second-largest owner and operator of MHC properties, with the acquisition of over 5,180 sites across Canada in the first half of 2019. Our MHC portfolio now represents approximately 19% of the total portfolio by suite and site count, and 6.2% of our total NOI in 2019. We really like the MHC business. Revenues are highly stable, with residents owning their homes. Capital requirements and maintenance needs are significantly reduced. MHC properties also provide another level of diversification within our portfolio.
From a geographic standpoint, they enable us to have a presence in smaller markets we wouldn't normally enter. Finally, they allow for greater operational efficiency, as we are able to leverage the same platforms and people used across our other properties. We are also investigating the opportunity to sell manufactured homes to current and new residents in our MHC properties. This will generate further potential growth in our MHC business. Looking ahead, we believe this strong market presence will generate solid, stable, and growing returns for our unitholders over the long term. Moving to slide nine, we also continue to modernize our asset base by targeting the purchase of more modern, recently built, and brand-new properties in key growth markets. These new build properties generate better and higher rents, attract stronger residents, require much less ongoing maintenance and capital spending, and strengthen the overall long-term diversification of our portfolio.
As an example, during the year, we completed the purchase of a 1/3 interest in Kings Club in downtown Toronto. This brand-new luxury property is situated in the trendy part of Toronto, containing three residential towers, 506 suites in total. The property also contains commercial, retail, and office space. Suites range across a number of sizes, with some designed for families. Going forward, we will continue to focus our efforts on purchasing newer, recently constructed properties that further strengthen our asset base and reduce the average age of our portfolio. Turning to slide 11, you can see our proven property management programs continued to drive strong operating performance in 2019. Occupancies remained at effectively full levels in both the residential and MHC segments of our business. Net average monthly rents continued to rise, driven by solid increases on turnovers and renewals.
Our track record of organic growth also continues, with same property NOI up 4.9% for the year, with strong growth in our NOI margins. Looking ahead, we are confident this solid operating performance will continue going forward. Driving this growth is our continuing ability to increase our average monthly rents in all of our markets. As you can see on slide 11, we are seeing solid increases in monthly rents on both turnover and renewals in Canada, the Netherlands, and in our investment in IRES REIT in Ireland. Overall, the strong fundamentals and demand in all of our markets resulted in an overall 4.1% increase in our total stabilized net average monthly rents as of December 31st, 2019. Our diversification also allows us to capitalize on the attractive spreads between cap rates and interest rates in our markets, as you can see on slide 12.
The spreads in the Netherlands and IRES are particularly attractive at roughly 2.4% and 3% respectively, and w e don't believe we will see any major negative change in these spreads for the foreseeable future. Our fourth quarter results demonstrated the significant growth we are generating in our operating and financial performance, as shown on slide 13. Revenues were up over 16% over the same quarter last year, driven by the positive contribution from our acquisitions, increased monthly average rents, and continuing high occupancies. NOI rose almost 21%, with NFFO up a significant 25%. We also generated another quarter of strong organic growth, with same property NOI up 5.7%. In addition, our growth continued to be accretive, as NFFO per unit was up 11.2%, despite the 12.4% increase in the weighted average number of units outstanding, resulting from three bought deal equity offerings we completed during the year.
The significant accomplishments we achieved in 2019, combined with the continuing strong market fundamentals in the residential rental business, drove record financial performance for the year, as shown on slide 14. Revenues were up 13%, driven by the contributions from our portfolio, continuing near full occupancies, and increased monthly rents. This revenue increase generated a 15.3% increase in NOI, which in turn drove a 17.2% increase in our NFFO. Again, our growth was accretive, as NFFO per unit rose 5.7%, despite the almost 11% increase in the weighted average number of units outstanding. Looking ahead, we are confident this strong performance will continue. I'll now turn things over to Scott for his financial review.
Thanks, Mark. Turning to our balance sheet on slide 16, we continue to maintain a strong and flexible financial position with conservative leverage, strong coverage ratios, and historically low interest costs on our mortgage portfolio. Debt to GBV strengthened to 35% at year-end, providing the financial resources and flexibility to continue our track record of strong portfolio growth. If we adjusted for the proportionate consolidation of ERES and the CAD 450 million of cash on our balance sheet, our leverage is approaching under 33%. Our mortgage portfolio remains well-balanced, as shown on slide 17. Looking ahead, our ability to top up renewal mortgages through 2034 will provide significant liquidity to fund our acquisitions and development pipeline. In 2020, we have CAD 308 million in mortgages maturing, with an average interest rate of 2.7%.
Expected mortgage renewals and refinancings for 2020 are between CAD 480 million-CAD 530 million, excluding finance on acquisitions. We are looking at additional debt strategies to lower all-in financing costs, increase the weighted average term of the portfolio, and maximize top-ups. With the recent drop in GOC rates, we have seen 10-year financing costs drop back below the 2.5% range, creating a tailwind for continuing lower interest costs. Our most recent deal was at 2.07% for a seven-year term. On the liquidity front, slide 18 demonstrates that we will remain well-positioned to continue our growth programs. To fund our growth, in 2019, we completed three successful bought deal offerings, raising a total of CAD 1.1 billion in funds, including the over-allotment options. As at December 31st, 2019, we had approximately CAD 146 million available borrowing capacity on our credit facility, which bear an interest rate of 1.1% after factoring cross-currency swaps.
We have over CAD 440 million of cash in short-term investments, generating interest revenue at a rate of 1.5%. In addition, CAPREIT has investment properties with a fair value of over CAD 940 million as of December 31st that are not encumbered by mortgage. Finally, our operating lease buyouts, if successful, could provide significant top-up financing in the coming years. As you can see on slide 19, our exposure in Europe, including our investment in IRES and our proportionate share of ERES, is well hedged at 83% by European debt. We are managing European exposure by utilizing a number of different tactics with favorable impacts, including obtaining local euro third-party mortgages at very favorable interest rates, utilizing our euro acquisition and operating facility, and entering into cross-currency swaps to further hedge our euro exposure. Currently, we have over EUR 1.2 billion of euro-denominated debt after factoring in the swaps.
During 2019, due to the use of these swaps, CAPREIT realized interest rate savings by borrowing and swapping into EUR at a blended rate of 1.1%, instead of borrowing CAD at an interest rate of 3.4%, a significant financial benefit. I'll now turn things back to Mark to wrap up.
Thanks, Scott. There are also a number of long-term initiatives that we've undertaken to continue to add value across the business. On the development front, our updated pipeline includes over 8,700 rental suites that we are targeting to go into the approval process this year. These units will be primarily located in the strong markets of Toronto, Vancouver, and Quebec, where demand remains high and monthly rents support profitable investment. Over the next few years, we will be focusing on pushing multiple application submissions and seeing through the approval process at the municipal level as required. The focus on multiple application submissions with associated approval processes is designed to add significant value to these properties. Even if we do not move forward with construction all at once, these properties will be much more valuable with its new zoning provisions.
In 2019, we completed the conversion of an existing unoccupied commercial space at 2525 Cavendish Boulevard, Montreal, into a 52 rental suites, which are now fully occupied. The total project cost came in at CAD 6.9 million, which is under the estimated budget of CAD 7.5 million. In addition, we've previously shared with you our two most active applications in the GTA, 100 Wellesley and 141 Davisville in Toronto. These properties have been in approvals throughout 2019. For 100 Wellesley, the Toronto City Council, on December 18th, endorsed the settlement option. The hearing will take place in the first quarter of March 2020 at the Local Planning Appeal Tribunal. For 141 Davisville, the applications have been submitted, and we expect to receive zoning approval in July of this year.
These two applications will add over 270 new suites to be constructed on land that we currently own, adjacent or connected to existing rental buildings. We understand that investor expectations are constantly evolving, and over the years, we have observed an increasing interest in ESG disclosure within the real estate market. Slide 22 outlines our progress on implementing measurable ESG initiatives. Although CAPREIT has been applying sustainable practices for over a decade, we see value in developing an overall ESG strategy to help deliver programs and services to all of our stakeholders. It's with this in mind, an internal and dedicated ESG team was established in early 2019 to further align our operations with the corporate strategy of being the best place to live, work, and invest.
We are also happy to share that subcommittees were also formed as part of this initiative, and we have formalized an ESG policy effective 2020. In conjunction with the release of our annual report, our debut 2019 corporate ESG report provides a strong narrative around our performance disclosure. The report is made available on our website, and we welcome you to review. Looking ahead, our focus for 2020 is to prepare for inaugural submission into the Global Real Estate Sustainability Benchmark, and we look forward to sharing our results with you at the end of 2020. With our record operating and financial performance in 2019, we continue to focus on our long-term goal of making CAPREIT the best place to live, work, and invest.
To become the best place to live, we strive to enhance the lives of our residents by building strong relationships through our hands-on approach to management, a relentless focus on attracting and retaining the best residents, and the use of new and innovative technologies to deliver on our resident experience. To ensure we attract and retain the best people, we continue to use new and updated tools to help each other, and our team members stay connected and up to date on CAPREIT and industry information. As one of Canada's best employers, we continue to cultivate our talent pool and promote innovative leadership development programs to engage and help enhance their careers, while implementing state-of-the-art tools and technologies to become more efficient and promote a more collaborative working environment.
Most importantly, our ultimate goal is to enhance unitholder value. CAPREIT has been one of the best places to invest for more than 22 years. Thank you for your time this morning. We would now be pleased to take any of your questions that you may have.
Thank you. We will now take questions from the telephone lines. If you have a question and you are using a speakerphone, please lift your handset before making your selection. If you have a question, please press star one on your telephone keypad. If at any time you wish to cancel your question, please press the pound sign. Please press star one at this time if you have a question. There will be a brief pause while participants register for questions. We thank you for your patience. Our first question is from Jonathan Kelcher from TD Securities. Please go ahead.
Thanks. Good morning.
Morning, Jon.
First question, just on the gains that you guys have been getting on turnover, been pretty consistent the last six or seven quarters. Do you expect any changes in that heading into 2020?
No. There's really no change in overall trend. We're seeing very strong increases in BC, but they're moderating slightly. We're seeing increasing turnover results in places like London, Ontario, and the suburbs of the GTA. Overall, we would be indicating no change in trend.
Okay. Just secondly, I guess, switching to the developments, and I know it's still early days for you guys there. Assuming you get the approvals for Wellesley and Davisville, would you be looking to go into the ground on either one of those in 2020 or 2021?
I think, as you know, we are exercising a great deal of patience with the municipalities on this. As we get close to entitlement, we'll revise our pro formas and make decisions at that point. I still remain cautious about Toronto with the current price of development fees and hard costs. Our goal right now is to get the zoning in place. We will pro forma with updated construction costs at that point. We'll be getting better guidance though as we get closer to those approval dates.
Okay, t hanks. Scott, on the G&A in Q4, I know you called out some costs there. What's a good run rate going forward?
Yeah. I think definitely, you need to adjust for ERES. We're obviously consolidating all their corporate G&A as well as we did have some one-time costs. We've provided some guidance for ERES within the ERES from G&A, so you can look to there to adjust that. I would say generally, our run rate's pretty good this year compared to next year, just regular inflationary increases. It's probably a good basis right now.
Okay, t hanks. I'll turn it back.
Thank you. Our following question is from Mike Markidis from Desjardins. Please go ahead.
Hey, guys. Good morning.
Good morning, Mike.
Just on the, I guess this year you guys experienced a fairly significant amount of volatility on the OpEx line. The decline of 2%, or 1.9% I should say, on your stabilized portfolio this quarter, would that reflect sort of year-end true-up adjustments, or was that just a normal quarter, so to speak?
I'd say it's a normal quarter. Each quarter you'll see has its own seasonal characteristics. As you've seen, the fourth quarter is traditionally quite light, because moving activity stops pre-Christmas. It's also a matter of when we decide to take on preventative maintenance measures. We would prefer, and I know this is complicated quarter by quarter, just to take the annual run rate approach.
Sure.
Which we feel is completely intact.
Okay, t hat's helpful. Thank you. Maybe just switching the focus on the top line, sort of one of the areas we wouldn't expect to see as much volatility might be top-line revenue, I guess year-over-year, the fourth quarter showed a 3.2% versus you were trending at about 5% and 4% the last few quarters. I'm just wondering if there was something specific there to explain why that would be flowing on a year-over-year basis.
No, again, I wouldn't see seasonal adjustments. Again, we're seeing no change in trend going into 2020. The rental markets are strong across the country and in Europe. Canada's leading the charge here, obviously, and we're very comfortable. We're very comfortable with the new markets that we've gone into, that will just help the process of delivering strong increases.
The composition of growth is definitely a little different. Mark noted that BC, it's still very strong in high single-digit, low double-digit growth, but that has come back in from where we would've seen quarter-over-quarter. We're seeing additional strengthening in Montreal markets, Halifax markets, and some of the other ones that Mark was talking about outside the Greater Toronto Area.
We also, in BC, it's noteworthy that that's where we had a lot of new construction acquisition activity. The mark-to-market on those new construction assets are not the value-add mark-to-markets. That's why we go in with stronger cap rates. Just growing the modernizing portfolio aspect of our business in BC will naturally moderate increases.
Okay, t hat's helpful t hank you. I can't remember if you remind me, though. Last quarter, I think you alluded to maybe getting gap in place versus market rent estimates for your portfolio. Is that something you guys are progressing closer to now, or?
We will continue to push forward on that, yes. You'll hopefully see better disclosure from us in 2020 on those gaps. It's an ongoing question, obviously, now, given the current environment that we're in. We've always been cautious about doing it. Seeing no change in trend, it should be not difficult for us to give you some guidance on that. Give the market guidance, in general.
Okay. Last question from me before I turn it back. There's probably no specific question here, but just given the continued emphasis on affordability. I was wondering, when you do your underwriting on new leases, presumably you've got better tenants coming in. Have you been monitoring income coverage on leases in your portfolio?
Really-
Is there a general rule where you say, at a certain level of coverage, we just wouldn't approve this tenant?
I'm really thrilled you actually asked this question. Because what sets CAPREIT apart from every other REIT out there is the fact that the majority of our apartments now are at 50% of replacement cost, okay? That's put our rents, our core market rents, at 50% of new market rents. When CAPREIT's buying modernized assets, we target the CAD 2 rent market, CAD 2 to CAD 2.30 market. From an affordability point, when you look at the overall CAPREIT portfolio relative to Canadian census family income, our affordability index is about low 20%. Traditionally, in housing, you use a metric of around 35%. In the new construction market, in some of the assets we're seeing in Toronto, you're seeing upwards to 60%, 70% in some cases.
The CAPREIT portfolio, because of the nature of what it is and how we've bought the buildings and the fact that they're significantly below replacement cost, we have a very affordable MHC segment. It's highly defensive from an affordability point of view.
Just to add to that, as far as tracking the data, though, due to privacy, we don't maintain income levels of our tenants. We're not able to say specifically what our income levels are by building relative to rent. In our investor decks, we've provided general population examples around our key cities and relative rent affordability. Those are on our investor slides, but we can't maintain that data, unfortunately.
What Scott's saying is exactly correct. Just to add further clarification to that, w e look at Toronto, Vancouver, and Montreal, and as Scott said, we take the family income for those particular nodes where our buildings are located, and we match that against our actual average rents, and t hat's where you'll see an affordability scale in the 20% range. That is a very unique characteristic of CAPREIT and something to watch for when there's new construction assets being built out there. Because certainly, the affordability index on CAD 5 rents is very different than the CAPREIT portfolio.
Thank you for the color, and congrats on the strong year.
Yeah, thank you.
Thank you. Our following question is from Johann Rodrigues from Raymond James. Please go ahead.
Hi. I joined late. I might have missed this. What was the portfolio-wide turnover in 2019?
It was 19%, down from 21 last year. Probably down from 35, 10 years ago. We've definitely seen in the markets with the strongest mark-to-markets on rents, we've seen low double-digit, 10%-15% turnover. We still maintain some markets that are higher turnover, like Alberta, et cetera. Yeah, 19%.
Fall for 2020?
I would think much of the same. I would actually also add, I think the characteristic we got to point out here is that despite the fact that we're hitting lowest churn, we're delivering highest-ever revenue results. Johann, as you know, what that does, it just drives the mark-to-market even higher. As churn slows down and the market continues to drift upwards, the mark-to-market in the portfolio continues to grow. The incredible benefit of these slowing churn rates is that the runway for deliverable rent increases gets longer.
Right. That's good bridge to my next question. I know Mike asked a question, you guys were planning on disclosing in 2020, but if you were to take a stab in the dark as to what that mark-to-market would be, what's the range?
You know what? I'd rather give you the market-by-market what those are. We will undertake to get that out. I think it's important for the market to understand. You can simply look at the rent increases by region, and essentially that is the mark-to-market. There's a little bit more work to it than that, but if you want a general idea, look at the rent increases in each market, and that will be revealing to you what the mark-to-market is when you blend in old leases with new.
Definitely, we're showing 13% on turnover nationally. We think it's well in excess of 15, probably approaching more like 20, but we'll get some more detail on that.
Because it is growing.
Yeah.
How many zoning applications are you planning on submitting this year?
Well, there's 8,700 in the pipeline in total. 8,700 units.
Do you have a sense as to how many you'd be applying for zoning this year?
Those are all in progress.
Oh, they're all in progress. Okay.
Yeah. They were initiated in 2019. They're going to continue throughout 2020.
Last question. Can you just explain what was going on with the Greater Vancouver area? There was like a stabilized NOI decline there.
Yeah, I think there was definitely a little bit of impact from energy costs, was a small piece of it. Also, our staffing model changed a little bit there. Really, we were almost understaffed, and we kind of changed our regional model out there, so we saw a little bit of incremental cost as a result of that.
You also have the effect of when you buy buildings that require a lease-up, you take vacant possession, and as you go through that lease-up cycle, it starts to have an effect. It makes the results a little bit choppy from a revenue point of view, because vacancies are obviously started at 100% and then grind themselves down. Once buildings are full, you have a more stable model. Those are the buildings we're able to buy at higher cap rates. We had one in particular that we had modeled vacant possession at 4.5 cap, and it worked out to over a 5 cap because we ended up getting stronger rents than possible. There's a give and take when it comes to taking the lease-up.
I would say where we are today is probably a good representation of next year, is we wouldn't expect to have continued cost pressures.
Yeah
like we did year-over-year.
Okay, perfect. I'll turn it back. Thanks.
Thank you. Once again, please press star one at this time for any questions or comments. Our following question is from Troy MacLean from BMO Capital Markets. Please go ahead.
Good morning.
Morning, Troy.
For the large acquisition you made in Halifax, I was kind of curious, what level of market rent growth did you underwrite, and how would that compare to the kind of the previous three or four years in that market?
Well, we always model from a very conservative point of view. I believe we've modeled some NOI growth in the neighborhood of about 4%. However, we are extremely optimistic over what we think the rent increases can be there. We are very confident investing in that marketplace because it's quite, as you know, Troy, quite landlord-friendly rent increase legislation. We can ultimately determine where we want to go there with that. Properties are definitely in a value-add state, t here's one brand-new construction, well, two years old now. The rest are very much what we'd call our traditional value add. We think that we will have a strong return on our capital investment in those assets. We are the dominant landlord now on the peninsula in Halifax. There isn't a landlord with more suites in the core, walking distance to the towers, than our portfolio now has.
In 2018, we saw Montreal start to take off with mid to high single-digit turnover growth, and we started to see that same phenomenon in Halifax this year. Definitely a strong market.
Halifax has become one of the tightest markets east of Toronto.
On the 2020 CapEx budget, you're forecasting to spend less on suite improvements than you did last year. Tenant turnover is expected to stay the same. What's driving the decline? Is it just the type of investment you want to make, or are you getting better pricing on some of the improvements?
It's reduced churn is a big factor. Reduced churn, the suites that turn most frequently tend to be newer leases. The investments that are going into the real mark-to-market rents are the larger ones. It's very difficult to look at the suite program holistically when you've got all these different factors by region going on. I wouldn't read anything into it, other than the fact that that number is driven by a number of factors.
It's very hard to budget suite improvements, to be completely honest, because you don't know which suites are going to turn over. We definitely see trends by region of which types of buildings we're doing, but you don't know which units are going to turn over. Sometimes it's the same units and sometimes it's old ones. It is a bit of a guessing game, unfortunately.
There's nothing to be read by the data, though, Troy.
Yeah.
I know this is probably hard to answer, but in Toronto, for example, what's the range of value that can get added to a property when you get zoning in place for development?
Oh, that's not a bad question. We know the reference point for that would be land cost, in my mind. We know that land is trading on a per unit basis, CAD 150,000-CAD 180,000 per unit. From a condo perspective, you could use that number. From a rental perspective, it's got to be very close to CAD 150,000 a door.
As you get the approvals in place, do you expect to have a fair value gain?
That was the point we were trying to make in the presentation, is regardless of what we do with our development ambitions, once the properties are zoned, we have created the value. The value is there for someone. It will likely be us, but the value will have been created. I just want to add that on the two properties, the ones that I never stop talking about because they're taking so long, 100 Wellesley and 141 Davisville, there's the additional value add, Troy, of the underground parking spaces. Today in Toronto, it costs north of CAD 70,000 a parking space to build. In terms of a competitive advantage, we have the land cost, and we have the cost of not building parking, which we believe gives us over CAD 200,000 a unit in value to get started. Makes for very viable rental.
Oh, that's a great color. Just one more question. I was kind of curious, just on the AGI process, is it taking longer to get through because of an increased level of applications, or are things pretty much steady versus the last couple of years?
CAPREIT portfolio is in exceptional shape, so the AGI opportunities are declining as we go each year by here. Because the properties are in such good shape, you have a window of time to add up your spend, and so we're dragging that window as long as we possibly can to make optimal applications. That's got a little bit to do with it as well.
Oh, perfect. That's it for me, guys, I'll turn it back. Thank you.
Thanks, Troy.
All right.
Thank you. Our following question is from Mario Saric, from Scotiabank. Please go ahead.
Hi, good morning.
Morning, Mario.
Just maybe sticking to the operations, specifically the mark-to-market that kind of Scott highlighted, the 15%, maybe closer to 20 that we'll get a bit more information on over time. What would the estimated spend per door be to capture that ballpark? Is it 3,000, 4,000 a door?
No, it really varies. Again, this is so complicated. We'll sit down maybe even with the analyst community to help us here, but w hen we're getting 30%+ increases in rent, then you're talking a CAD 30,000 renovation. When we're getting 10% increases in rent, it all is specific to the condition of the unit. Because this is not our first year of operation, we've got 20 years of rental programs behind us. Those rental programs were doing various stages of work depending on what the market needed or the unit needed. Sometimes we're taking on a unit that has a kitchen that needs to be done and that's all. Other times, the kitchen's been done, it's just cleaning the unit.
There's not a binary calculation to say X equals X, except I will tell you that what we have are market rents in our system and existing rents that get turned over. Our staff has approval. If they can get rent over the established market rent, they do not require a budget if it gives a three-year payback. The way we gear our staff is, the unit is going to, at virtually no renovation cost, deliver the market rent. If they feel renovation could give us a three-year return, they are allowed to run that budget however they deem fit. The programs work very, very effectively that way. That's what we're doing in 2020.
Right, o kay. Maybe sticking to 2020, Mark, I appreciate your commentary on kind of looking at things on an annual basis, given timing on a quarterly basis and whatnot. Like in 2019, you did almost 5% same-store NOI growth, 64.3% margin. When you look at 2020, given the increasing strength that you're seeing in some of the suburban markets potentially offsetting a bit of moderation in Vancouver, do you think that 2020 can see similar type growth in terms of same store? Do you think that there's margin expansion potential if you're able to hit that type of growth?
Margins could move around if we buy more MHCs, and we buy more new construction assets, that'll naturally migrate our margins. We've got insurance pressures, in terms of cost. We have some realty tax pressures in terms of cost. All that being said, I would prefer to answer the question this, Mario. We're very confident the portfolio can deliver more than 4% growth.
Right. Okay. From a capital deployment standpoint, given the increasing rent, or the stronger rent growth that you're seeing in the suburbs, is the plan to potentially allocate more capital to suburban markets given your very kind of downtown core type portfolio? Is that changing over time?
I would love to be able to target acquisitions like that. Instead, we target markets, we underwrite everything that comes to market, which is limited. CAPREIT has its established markets. We consider ourselves the urbanizing apartment REIT. Markets that are going through a significant urbanization, those are the ones that we've identified. You won't see us going into any new markets. That's certainly not in the plan. You never say never, if it's not an urbanizing market, a large Canadian urbanizing market, we cover those markets completely. We model with discipline our acquisitions, if we see accretion and growth, we will bid to achieve the right results. We won't overpay, we'll cover the markets. To answer your question, I would love to find opportunities in those suburban-type locations, we'll be covering the markets that CAPREIT's currently in.
Got it, o kay. Then just shifting gears to the development pipeline. You're providing a pretty specific number at 8,790. It's a bit below the in excess of 10,000 that you were talking about previously. Can you maybe reconcile those two numbers for us?
Yeah. I'm really trying to get conser-- As I think you've also heard me say, Mario, we're seeing here at CAPREIT how long this process is. Our portfolio is in many different municipalities. We're learning as we go here that it's a very long process. I'm, in typical CAPREIT fashion, trying to be as conservative as we can possibly be with the A, the number of units that we will get zoned, and the only ones that we deem are market viable. I would stick to that. We'll continue to give guidance, but I'm really trying to message I want to give more detailed guidance on the projects that we see coming to market in the next 12 months. Looking out, I find it interesting, but it's so hard to know whether that's year two or year three.
We will be focusing our disclosures on actual activities within the calendar year in 2020. As we get closer to 2021, the same there.
Just to reconcile, that's applications going in in 2020. It doesn't mean we don't have 10,000-plus still of total opportunities. That number hasn't changed. It's more of just here's what we're actively working on today, and that we think we can execute on within the next 12 months to get applications in.
Scott's absolutely right. We do see the opportunity being bigger than that, but I'm trying to message down because it does take so long.
I see. Okay. Just on the timeline, if we look at the Cavendish disclosure, it took almost three years from date of application submission to full lease-up. That was a smaller development.
Yeah
Kind of a reasonable timeline to think about in terms of the 8,790?
Again, I'd be cautious on that. Every municipality is different, t he process is getting more regulated, i t's getting more cumbersome, i t's more demanding. Again, it's just caution, Mario. I'm trying to give a bit of a taste of what could happen, but really caution over the timelines.
Okay. That's it for me. Thanks, guys.
Thank you.
Thank you. Our following question is from Brad Sturges from IA Securities. Please go ahead.
Hi there.
Morning, Brad.
Just to follow up on that. Obviously, it's well known how slow or patient you've had to been in Toronto. Are you expecting the process to be that much different in other markets like BC or in terms of timeline or process to get the development applications approved?
I've talked to a lot of people, and I would say, generally speaking, Toronto is the most difficult place. I think CAPREIT has one of the biggest challenges because our properties are right dead center in the core of these cities where zoning is the most difficult. Even in Toronto, if I was in Scarborough, it would be easier than the Davisville and Wellesley. I'm right absolutely in centralized locations, which is the good news. The bad news is our process takes much longer because of the prime nature of the sites. When you get to places like Montreal, we actually find it's much better. Places like Pickering are just unbelievable. They're knocking down our door saying, "Let's get going." It's a very different proposition for CAPREIT because of our centralized locations. If we were in the outside regions, it would go more quickly.
We have ratepayer issues that others don't have. We have political, municipal politics that others may not have. The good news is, once we get there, it's going to be incredible.
The type of build also changes the equation. We have a Mimico site that's multi-phase development, over 2,000 units. That's obviously going to take much longer to get through, and to build out, because it'll be done in phases versus single towers that are a little bit more straightforward. Each project comes with its own specific timelines as a result of that.
Brad, we're not the only apartment REIT with this, but some others that are trying to build apartment buildings. We have the incredible advantage of we're not sitting on costly land here. Our land is paid for, and time will be our friend. Highest and best use is definitely my objective. Speed is frustrating, but it will deliver ultimate value to CAPREIT shareholders in the long run by being patient here and waiting for highest and best use.
Makes sense. Just last question, just maybe back to the turnover rate. Based on the portfolio construction or composition today, how low could turnover rate theoretically go structurally?
Structurally, you can only look at worldwide examples, and we have very different dynamics here in North America. I have not experienced many rental buildings that go below 12%. The nature of the location of our properties, we've got families, we've got young professionals. As much as they've got maybe good rental deals, they want to move on to home ownership. The changes in life are bigger in our Canadian big cities than they are in other places. Certainly not a European situation here, C anadians still aspire to home ownership, and that will always happen. I think we're near the bottom.
Okay, great. Thank you.
Yeah.
Thank you. We have no further questions registered at this time. Back to you, Mr. Kenney.
Thank you very much. We're very proud of our accomplishments at CAPREIT this year. Thank you for your time. Thank you for your attention. If you have any further questions, please don't hesitate to contact us at any time. Have a great day, and take care.
Thank you.