Good morning, ladies and gentlemen. Welcome to the CAPREIT Second Quarter 2019 Results Conference Call. I would now like to turn the meeting over to David Mills. Please go ahead, Mr. Mills.
Thank you, Paul, and good morning, everyone. Before we begin, let me remind everyone that following discussion may include comments that constitute forward looking statements about 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 AIF and MD and A, which can be obtained at sedar.com. I'll now turn things over to Mark Henning, President and CEO.
Thanks, David. Good morning, everyone, and thank you for joining us today. Scott Cryer, our Chief Financial Officer is also on the call. Jumping right into things, Slide 4 provides an overview of how busy the first half of twenty nineteen has been on the acquisition front. We've significantly increased the size, scale and diversification of our portfolio with the purchase of 6,055 apartment suites and manufactured housing community sites.
Our focus has been on continuing expansion in the Netherlands and increasing our presence in the Canadian MHC business, a space we really like. I'll speak to each of these a little later. To date, in 2019, $572,200,000 we've invested in our property purchase exceeds the total for all of last year and we're continuing to evaluate further accretive growth opportunities both in Canada and Europe. With this portfolio growth and our continuing strong operating performance, we generated another strong period in Q2 as shown on Slide 5. Revenues were up for the quarter by almost 12%, driven by the positive contribution from our acquisitions, increased monthly rents and continuing high occupancies.
NOI rose a solid 13% in the quarter with NFFO up 11%. We also generated another quarter of strong organic growth with same property NOI up 4.2%. For the 3 months ended June 30, 2019, growth was accretive with NFFO per unit up 0.6% from last year to $0.58 This was despite an approximate 10% increase in the average number of units outstanding due to the January April 2019 equity raise. Slide 6 outlines our results through the 1st 6 months of 2019 with revenues up almost 10%, NOI up 12% and NFFO up almost 14%. For the 6 months ended June 30, 2019, we generated accretive growth with NFFO per unit up 3.3% to $1.32 from $0.99 last year.
Again, this was despite an approximate 6% increase in the weighted average number of units outstanding from the January April 2019 equity raise, which was dilutive due to the timing of subsequent acquisitions. The strong growth continues to be driven by our recent acquisitions, solid increases in monthly rents and continuing high occupancies. We look forward to this growth to continue. Our growth drivers continue to deliver real value to our unitholders as shown on Slide 7. Our sustained focus on business fundamentals has resulted in over 21 years of growth and success.
We look forward to this to continue going forward. Occupancies have remained strong while net average monthly rents continue to grow, up 4.3% in our stabilized residential suite portfolio and 4.1% in our stabilized MHC portfolio. We also continue to generate solid rent increases on suite renewals with increases of 2.1% on 38.5% of the Canadian portfolio. Suite turnovers rose to 14.1% on 7.9% of the Canadian portfolio, compared to 10.1% on 9.7% of the portfolio through the 1st 6 months of last year. Our track record of growth also continued with same property NOI up 4.2% for the 1st 6 months of 2019.
Was driven by strong rental increases and strengthened NOI margins. In summary, it was a strong first half of the year and we look forward to this solid performance to continue as our recent property purchases make a full contribution to our cash flows. On the international front, we continue to be pleased with the performance in Ireland as detailed on Slide 8. Through the 1st 6 months of 2019, asset and property management fees rose 7% compared to last year, driven by acquisitions and NAV appreciation. This excludes the impact of the recent equity raise and large portfolio acquisitions announced subsequent to the quarter end, which is forecasted to generate an additional $1,700,000 of asset management and property management revenues annually.
There was also a successful equity raise in Ireland, which we increased our ownership position to 18.2%. Our retained interest continues to generate a solid stream of dividend income amounting to $3,500,000 for the 6 months ended June 30, 20 19. Our presence in the Netherlands also continues to drive value for our unitholders as shown on Slide 9. As you know, in the Q1, we sold 41 of our Netherlands properties to create European Residential REIT or E RES. Through our pipeline agreement with Erez, we continue to assist in the growth of their portfolio.
At the end of May, we sold 26 properties to Erez and on June 28, another 21 properties, in total adding 1768 rental suites to the ERES portfolio. CAPREIT now owns approximately 89 percent of ERES, fully aligning our interest with ERES unitholders. Going forward, we will continue to generate a growing base of fee revenues for our asset and property management services to ERES. Our outlook remains strong with CAPREIT recently acquiring 942 residential suites located in the Netherlands, which we intend to make available to Erez. There are also various other portfolios currently under review.
I'd now like to turn things over to Scott for his financial review.
Thanks, Mark. Turning to our balance sheet on Slide 11. We continue to maintain a very strong and flexible financial position with conservative leverage, strong coverage ratios and historically low interest cost on our mortgage portfolio. Our debt to GBV strengthened again this quarter to just under 37% as at June 30, putting us in a great position for future acquisitions and development. With the acquisition completed so far this year, had approximately $225,000,000 available borrowing capacity on our credit facilities at quarter end.
As you can see on Slide 12, our exposure in Europe, including our investment in IRES is at only 5% of our portfolio on net basis. This also provides an overview of how we are managing our European exposure by utilizing a number of different tactics with favorable impacts. These include obtaining 3rd party mortgages locally in Europe at favorable interest rates, utilizing our euro acquisition and operating facility, and we've also entered into a close to €200,000,000 swap to further hedge our euro exposure while we sit on cash in Canada from our equity offering. Currently, we have over €1,000,000,000 of euro dominated debt after factoring in these swaps. Our mortgage portfolio remains well balanced as shown on Slide 13.
Looking ahead, ability to top up on renewing mortgages through 2,034 will provide significant liquidity to fund our acquisitions and development pipeline. Through the balance of 2019, we have $185,000,000 in mortgages maturing with an average interest rate of 3.29%. Expected mortgage renewals and refinancings for 2019 is between $365,000,000 to $415,000,000 excluding financings on acquisitions. With recent drops in the GOC, we have seen 10 year financing cost drop back below the 2.5% range, creating a tailwind for interest costs once again. On the liquidity front, Slide 14 demonstrates that we remain well positioned to continue our growth programs.
In January 2019, we completed a successful bought deal offering raising a total of $288,000,000 in funds including the overall allotment option. To fund further portfolio growth in the Q2 and beyond, on April 23, we completed another successful bought deal offering, raising a total of $345,000,000 in funds, including the overall allotment option. This resulted in total equity raised to date in 2019 of $633,000,000 I'll now turn things back to Mark to wrap it up.
Thanks, Scott. As we've mentioned before, everyone at CAPREIT is implementing initiatives that are focused on achieving our 3 long term goals, as shown on Slide 16. We want to make CAPREIT the best place to live, to work and invest, Enhancing the lives of our residents and building strong relationships with them will make our properties the best place to live. And we achieve this through our hands on approach to management, a relentless focus on attracting and retaining the best residents and the use of new and innovative technology. To ensure we continue to attract and retain the best people in our business, a number of initiatives are making CAPREIT the best place to work in our industry.
To do this, we have launched tools to help our staff stay connected and up to date on CAPREIT and industry information. We've developed leadership training to engage them and advance their careers. We've implemented state of the art tools and technologies allowing teams to become more efficient. By maintaining our track record of creating unitholder value, our ultimate objective, we will achieve our goal of being the best place to invest. I'll take you through some of the ways we plan to achieve this.
On Slide 17, you can see that we are directing our investing activities in areas we believe will drive the greatest value for our unitholders. Our investment in properties for ERES will continue to build our presence in the strong Netherlands market. Our focus on acquiring newer, recently constructed assets rather than older properties further strengthens our portfolio and generates more accretive returns. We significantly increased our presence in the MHC space this year, a business that we really like. We are also continuing to invest in our development programs, although at a much more prudent pace.
A key element of our ability to drive value is the recycling of our capital. By selling properties from which we believe we have maximized value and investing the proceeds in newer assets, we generate more stable and accretive returns for our unitholders. As you can see on Slide 18, during 2018, we sold 900 suites for cash proceeds of $81,900,000 We estimated that with the sale of these older non core properties, we saved about $12,600,000 in future capital spending on these properties. Turning to Slide 19, we are using the proceeds from the sale of older non core properties to purchase more modern brand new properties in key growth markets. These new build properties generate better and higher rents, attract stronger residents and require much less ongoing maintenance and capital spending and strengthen the overall long term diversification of our property portfolio.
Subsequent to year end, we bought a 19.8% interest in King's Club, in which we have currently leased up 28.5%. We anticipate our ownership percentage to increase to 33.3% by the end of the year. Going forward, we will continue to focus our efforts on purchasing primarily newer, recently constructed properties to further strengthen our asset base. As I mentioned earlier, over the last few months, we have significantly increased our presence in the manufactured home community business. As you will see on Slide 20, we have purchased 5,183 sites so far this year.
Our MHC portfolio now represents approximately 20% of the total portfolio by suites and sites and 5.3% of our NOI through the 1st 6 months of the year. We really like the MHC business for a number of reasons. For starters, the revenues are highly stable and with residents owning their own homes, capital requirements and maintenance needs are significantly reduced. They also provide another level of diversification within our portfolio. From a geographic standpoint, they help us to have a presence smaller markets we would normally not enter.
Finally, they allow us for greater operational efficiency as we are able to leverage the same platforms and people used across our other properties. Today, we can is a proud day where CAPREIT is the 2nd largest owner of manufactured home communities in Canada. Turning to our development program, Slide 21 shows that we are continuing to focus on our development and conversion programs on land and properties we own. Over the long term, we believe that we can add more than 10,000 new rental sites suites, primarily in the strong markets of Toronto and Vancouver, where demand remains high and monthly rents support profitable investment. For the current year, we anticipate that 5 to 10 applications will be submitted, primarily in the GTA and British Columbia.
We currently have 2 active applications in Toronto at 141 Davisville and 100 Wellesley. Applications were submitted in 2017 and would continue to be reviewed by city staff. In total, these two applications will add 266 new suites in new buildings to be constructed on land we own adjacent to the current buildings. At 2,525 Cavendish in Montreal, a building permit was approved at 52 new suites within the existing building using vacant commercial space. Construction has commenced and completion is targeted for early September of this year.
In summary, it was another very strong quarter for CAPREIT and we look for this growth and strong operating performance to continue through the balance of the year. We would now be pleased to take any questions that you may have.
Thank you. We will now take questions from the telephone lines. The first question is from Jonathan Kelcher from TD Securities. Please go ahead. Your line is open.
Thanks. Good morning.
Good morning, Jonathan.
The first question is on same property NOI. Maybe give us a bit more color on the higher operating costs in Western Canada, particularly Vancouver that was up 20% I think year over year?
Yes, sorry. So in BC, I mean, we are definitely seeing some higher insurance costs across the portfolio as well as realty taxes with the value appreciation. The R and M was another contributing factor, but I think as we described quarter to quarter that's always going to be bumpy. So we don't expect that to have a longer term impact, but definitely insurance and realty taxes.
Okay. So that's something that probably flows through for Q3, Q4?
Yes, definitely, we would see a little bit of a trend as far as part of it in the realty taxes side and the insurance side.
Okay. And then sticking with same property NOI, in the Netherlands, the costs were up 28% year over year and I get it supported big revenue growth, but was there any one time items in there?
Sorry, we're talking on a NOI level?
Yes, same property NOI in the Netherlands.
Sorry, I'll have to get back to you on that one. As far as one time specifically, I'm not aware. I mean, I know that the margins have definitely been moving a lot, strong top line growth and the margins have proved significantly. But as far as one time, I know quarter over quarter like Q1 to Q2, there was a change in the R and M expenses specifically.
It was
low and then increasing in the recent quarter.
There's a little bit of one time effect with the new acquisitions as they come on. There's definitely work that happens upfront. So it could be we'll get back to you, Jonathan, a little bit of movement due to that.
Okay. And then just two more for me. Scott, just on the mortgage rates, you said below 2.5%. But has there been really has there been any change in spreads? Or should we still think about it as you guys get money basically CMHC money at 100 basis points plus or minus over?
Yes. It's always a little lagging based on whether we're doing CMB. I mean, we source it three ways. 1 through the pensions, which are more GOC plus and we're kind of in that 100 basis point level. The CMB is not perfectly quarter related to GOC.
So those can move around a bit. But generally what we've seen when the rates continue to drop, yes, we saw some spread expansion where the banks kind of put a cap on the levels. But we are seeing quotes kind of well below the 2.5% all in. So I think I would say overall 100 basis points for a 10 year is a good kind of benchmark if you're forecasting.
Okay. And then just lastly on Kings Club, post quarter you bought 19.8%. Is that can maybe give a little bit of color on that? I think it's you guys are a third of that project?
Yes. We'll be a third and close that before the end of the year. But we kind of close based on when it's available for occupancy and lease up. And we would expect a based on our cost, we'd expect a pretty decent write up on the fair value of that investment in Q3 or Q4. Mark can talk about the lease up and other assets.
Yes. Just stage closing, lease up is actually going pretty well. We've had some challenge with getting clear occupancy from the city as the property became close to near completion, but we're now there and leasing activity is pretty steady and on track. Okay.
And the $360,000 a door cost that you paid, that will be what you paid for the other 10% or 12% or 13%?
Yes, it's a
fixed it was a fixed price negotiated ownership. Perfect.
Thanks. I'll turn it back. Thanks. Thank
you. The next question is from Mario Saric from Scotiabank. Please go ahead. Your line is open.
Hi. Thank you and good morning. Just maybe following up on Jonathan's question on the margin, same company NOI. Granted kind of the R and M kind of moves from quarter to quarter, it's not a great proxy the new NOI market was down both in the peaks of the year this quarter. If you're able to continue to get kind of 4% top line growth, very healthy 4% top line revenue growth, what type of margin growth can that top line growth deliver?
Sorry, it was a little bit hard to hear, but I think your question was just more on like with 4% top line growth, what does our margin look like? I think if you look at our same store, for the 6 months, it was fairly consistent year over year. So great top line growth and ultimately good NOI same store growth, but margin didn't move a ton. So I think some of the insurance pressures and realty taxes has muted a little bit of the top line growth. So but I think kind of the run rate we're at last year, I think we can at least meters still exceed that margin level.
So we should see annually a little bit of expansion as well as just the impact of the top line growth overall on NOI.
Got it. Okay.
A lot of the acquisitions are higher margins, so you definitely need to look at the same store. We're buying MHCs, we're buying newer builds as well as acquisitions in the Netherlands. They're all a higher margin basis. So although the overall margin is going up, obviously, the same store stuff is not as quick an increase as some of the new the impact of the acquisitions.
Got it. So just in summary, kind of 4% revenue growth, kind of a flat to modestly positive margin on a same store basis seems pretty reasonable? Yes, I
think that's a good starting point, yes.
Okay. And then just maybe going to your section in the MD and A on your above guideline increases. I noted that for the applications outstanding, if we look at your target expected increase in rent of 3%. Is that I just want to confirm, is that a per year number or should we divide that by the 1.43 years to get to kind of a closer to 2% kind of growth target?
Sorry, I got to catch up on that one, but I think that's for the full application, but I'll reconfirm and shoot you a note.
Okay. I guess my question was, when I look at if it is for the full term, I. E. The 2% as opposed to
Yes, you'd need to divide by the number of years.
The application settled this quarter were about 2.33% as well using kind of that calculation methodology a bit below the 3%. Are you seeing a bit more of a challenge to push through some of the AGIs in this environment? Or is it just simply a matter of kind of the mix of the capital that's being spent?
It's really the capital that's being spent. There's been a little bit less opportunity for applications, albeit we do time our applications. So even though we've spent CapEx, we don't automatically go to application because we'll group the CapEx spend together before we do an application. So looking forward, it's important to understand that it's just not an ongoing free flow. We gather up cost before we make the applications.
They do max out at 3% a year over 3 years.
Okay. And then maybe more of a broader question just on the status of the Toronto market. When we look at the lease renewal spreads, they're still pretty strong. They came down a little bit this quarter versus Q1, but they're still north of 2%. How would you characterize the overall market, whether you want to use the analogy of a baseball game or a hockey game or what have you, how much further upside do you see in the broader market?
Where are we towards kind of the level where you think that the growth rates begin to decelerate in terms of rent growth?
Well, yes, I would look at just what's happening quarter over quarter. Even with reduced churn, we're seeing even bigger spreads in terms of uplift in rents. I've used the phrase before, there's just no change in trend at all. I would put that change in trend in the context of definitely in the next quarter or 2. We just don't see anything in the market that's going to really change the dynamic with rents.
That being said, we are testing new heights in terms of rents that we can achieve. And at some point there will be resistance, but we're not really finding it right now. We continue to execute on the new rents that we're trying. So market is very, very strong.
Are there any specific
parts of
the portfolio in the GTA that you've kind of historically used as a barometer for testing that market strength?
I would say we'd really divide it into 2 categories, the downtown core and suburban and we continue to see extremely strong rents in the suburban market. The downtown core has had strong increases over the last 5 years, but it's the suburban market that we're seeing unbelievable lifts in. In part due to a change of approach, we are really upscaling the suites in the suburbs now. And where we did not previously believe there was a high end market, there is that market is revealing itself with those rentals.
Great. Last question just relates to Ireland Green REIT received a bid for a potential privatization, I believe it was yesterday. Any implications on your Irish strategy as a result of that going forward?
No, different sector, but no.
Okay. Thank you.
Yes. Thanks, Mario.
Thank you. The next question is from Matt Kornack from National Bank Financial. Please go ahead. Your line is open.
Good morning, guys.
Good morning, Matt.
With regards to your strategy on turnover, would you say that you're sort of letting turn over naturally occur or are you being aggressive? It's just it's a little bit lower and it's trended down. Obviously, the market is tight and people don't want to move. But I assume you're not doing anything aggressive in terms of trying to push tenants out either.
No, not at all. I think the one of the challenges that we have there's no tools that are available to us to do that nor would we pursue that strategy. We're very, very happy to see that the mark to market in the portfolio continues to widen. So that gives us good assurance going forward. But it's the quality of the buildings are really in some way working against us.
We've created these beautiful homes to live. And with less opportunity in the marketplace, we continue to see that churn slow right down.
Fair enough. Yes. No, and it is seen, I mean, I think you've sequentially seen increases in your turnover spreads now for several years. So that's definitely a positive. Yes.
So it is the value is definitely baked into the portfolio.
With regards to selling non core assets, is the opportunity set large enough on the new build and other assets to start maybe pruning your portfolio more actively on the stuff that's maybe older and cycling into that? Or is that not going to be a focus?
It won't be a material contribution. We will continue to look at really what we would consider to be maxed out properties in terms of revenue, in terms of capital requirements going forward and in terms of market activity. So in some of our locations where the market is overheated on the buying front and we think we can maximize value, then we look very carefully at what's going to happen with those factors I just laid out. And if there's an opportunity, we would do it. But I wouldn't see it as or wouldn't refer to it as any sort of material strategy for CAPREIT, but it will be an ongoing part of our discipline.
And is there a geographic region at this point in Canada that isn't heavily bid? It even seems there's transactions in Alberta at this point from growing, although you've found some interesting opportunities in new builds in BC, which is interesting.
Yes, those new builds in BC have got to do with our closing track record. We're getting we're fortunate to have deals brought to us that need certainty of closing. We've got a great track record for doing that, which allows us to really pick up some properties that wouldn't otherwise be able to buy those kind of rates if they were fully marketed. So deals that have fallen apart, deals where they know CAPREIT can close are the kind of deals that we're finding. Every market in Canada has had cap rate compression to some degree.
It's just the most profound in Toronto and Vancouver.
Right. Makes sense. Thanks, guys.
Yes. Thanks.
Thank you. The next question is from Dean Wilkinson from CIBC. Please go ahead. Your line is open.
Thanks. Good morning, everybody. Good morning, Dean. Just a question on capital strategy. When you look at that stack and it certainly makes sense to I think over equitize in Canada given where the cost of equity is and likewise maybe over lever in Europe given your debt is sub-two percent.
But how
do you look at that going forward? Do you think that that will normalize? Or is that a temporary kind of situation? And if not, sort of how high could you take the leverage sort of offshore?
Yes. I mean we can take it over 100% if we want to. Basically our approach has been to fully fund the European acquisitions through a combination of local debt and then our facility in either euro based or U. S. LIBOR based swapped out.
So it gets us to about 80% hedged and really at risk is the fair value increases that we've seen. So we could move that up. We're fairly comfortable where we're at and we don't accomplishes both the FX hedge from a balance sheet point of view as well as we're getting a total debt cost of anywhere between 1.25% 1.5% all in. So it's obviously an ability to tap extremely low interest rates and kind of arbitrage between countries. But we're comfortable with the exposure being kind of where it is right now.
With Dean, one added factor is that when we're looking at our debt in those markets, we are looking at longer term debt. So 7 year money has typically been the way we've leaned towards going. So that there's not just a temporary effect, it's a longer debt ladder. And we're seeing mortgage rates in the range of 1.5% to 1.7% for long term money.
No, it totally makes sense, right? So I guess reasonable to think that in Canada then the LTV probably drops down into the high 20% range, I would assume.
Yes, I mean I think We also see, I think at 37% leverage, we're starting to move on the lower side of where we would naturally be at. Our top up program, as we noted, for the next many years, will provide significant liquidity. So we'll continue to source from that CMHC pool as well.
That makes sense. That's it for me. Thanks guys. I'll hand it back.
Thank you.
Thank you. The next question is from Mike Markidis from Desjardins. Please go ahead. Your line is open.
Hi, there. Obviously, very strong top line results. My questions are really just focused more on the cost side and I think some of them have been answered a little bit. But on the insurance, I know it's something that broadly the industry has been talking about as being a pressure probably for the last 6 months or so. Just with respect to how your policies are renewed, has all of that been felt or is there still some more renewals that will come through and keep pressuring the op cost side in the next sort of 6 to 12 months?
No, our renewal has been locked in for the year. The market is definitely hardened. You're going to see it with all the apartment REITs. We will be looking very carefully at insurance strategies next year as we work through this year, but the effect is in there now.
It is in there now. Ongoing. Ongoing. Okay, great. Okay.
And then just you mentioned that perhaps R and M can be lumpy and I don't know if it's in the MD and A, if it is, I've missed it. But kind of where did that sort of come in this quarter? And then what would your expectations be for the full year? I mean, I think we've talked about an $800 to $900 R and M, just given lower turnover annually?
Yes. We would hold to that kind of number as we look out. As Scott said, things can move from time to time, especially with the new acquisitions. There tends to be short term spend when we take something new on when it comes to repairs and maintenance. And then it's I wouldn't say there's anything profoundly changing here from the guidance that we've given previously with R and M.
And would you have a sense of where it came in relative to that range this quarter?
I'd say slightly elevated.
Slightly elevated. Okay. And then just lastly on the G and A side, just with the ramp up of your platform with Erez in the Netherlands. How much of that upfront cost is reflected now in your G and A? And I guess, obviously, portfolio continues to grow, you might have some expansion there.
But I'm just wondering if a lot of the sort of real heavy one time costs are now fully reflected in your G and A? Yes.
I would say the majority of it is. I think probably what's misleading and we've been doing our own analysis is that a lot of the asset management fees that we get from Ireland are not netted against our G and A. So a lot of the cost of running iRES and what will be eRES, obviously we're at 90% of older right now. So it's largely just our own position, hasn't been netted against the G and A. So if you normalize for the asset management fees of iRES and moving forward as we dilute down and as we create liquidity public liquidity for Eres and dilute down, you're going to see that G and A kind of normalize.
So I think we probably need to do a better job articulating that to the market, but it's a material management fee side that would really normalize a lot of those costs of the 2 European offices.
For sure.
And as it relates to Eray specifically, a lot of that upfront cost now is in the gross number and you would expect that to sort of not have hyperinflation going forward, would that be fair?
No, That's
right. If anything, yes, like some of the people saw when we did our Investor Day this year, we've got the office at capacity to actually handle more once stabilized. Our staffing structure needs to be this way primarily for integration. It's just a lot of work on boarding so many buildings. So you'll see in particular in the case of Erez, there's just the average building size is actually quite small.
But the staffing structure is definitely there and it'll be not bumpy, but it's definitely front end loaded. There'll be increases over time, but not at the same pace.
Got it. Okay. That's great. Thanks very much.
Thanks, Mike.
Thank you. The next question is from Brad Sturges from IA Securities. Please go ahead.
Hi there.
Good morning.
Just a quick question on the realty taxes that were up, I guess, year over year. Is that just a function of the valuation gains? Or has there been any change anywhere in the portfolio in terms of mill rate?
I think it's largely valuation change. We go through we use 3rd party consultants and go through continuous reassessment program. So there is a little bit year over year. We do see some bumpiness as far as when rebates come in. When we win a reassessment, there's a cumulative impact that can be pulled back into realty taxes.
So sometimes we do see a little bit of contribution to reduce realty taxes as a result of that one time lump sum payment as well as on a go forward basis. But generally, we're seeing obviously these realty taxes by the municipalities getting pushed at 3% to 5% and then it's just a matter of what we can claw back.
Would you say there's any, I guess, lag effect given how much values have increased recently within the sector in terms of the realty taxes?
I mean, it's a pooled approach. So if all residential is going up at the same pace, you're a proportion of the overall budget. But obviously, municipalities are looking for bigger budgets. So it's somewhat proportionate to what's happening overall, but there we've definitely seen some increases in the overall. So, yes, it's a combination of those 2.
Okay, great. Thank you.
Thank you. There are no further questions registered at this time. I will return the meeting back to Mr. Kenny.
Well, thank you all again for your time and attention today. And if you have any further questions, please do not hesitate to contact us at any time. Thanks again and goodbye.
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.