Earnings Call: Q1 2021

May 11, 2021

Earnings release

And thank you for standing by. Welcome to the Interrent REIT Q1 20 21 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sandy Rose? Welcome, everyone, and thank you for joining InterRent REIT's Q1 2021 Earnings Call. My name is Sandy Rose, and I've recently InterRent as Director of Investor Relations and Sustainability. Leading the call today will be Mike McGon, CEO Brad Cutse, President And Curt Miller, CFO. The team will present some prepared remarks covering the most salient points of the quarter along with an update on market conditions and then we'll be pleased to open Before I hand things over to Mike, I want to remind listeners that certain statements about future events made on this conference call are forward looking in nature. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially. Please refer to the cautionary statements on forward looking information in the REIT's news release and MD and A dated May 11, 2021 for more information. During the call, management will also refer to certain non IFRS measures. Although the REIT believes these measures provide useful supplemental information about its financial performance, Mike, the floor is yours. Thank you, Sandy. It's been a Crazy year, I guess a long 14 months, feels like 5 years, but I have to say that I'm so proud of our team. They've been so diligent. They've been keeping our residents safe and secure, healthy, and they've worked so hard for all of our shareholders And all of our stakeholders for that matter. So I just have to say the team has done such a great job. I am very proud of what our team has also done For our community, they've supported many great causes, helped out we've actually supplied PPE to I think it's 3 or 4 hospitals. We've also helped out many charities, many small businesses. Think it's on numbers almost 200 small businesses. As a team, we've contributed over $300,000 to these different endeavors. 100,000 came from the REIT itself and the rest came through our executive team and many team members. So I'm just so proud of what they've done. We really are and we want to be community partners. We realize how lucky we've been. It has Again, it's been a tough long year for a lot of people and we're very, very lucky for our positions that we're in. I'll tell you, it's one of the I just going to use one of the endeavors that we've done. We've actually contributed to the one of the food banks, And we gave them money. And what they did is we put them in touch with 1 of our local restaurants And gave the food bank money and they would buy the food from the restaurant. So we actually got a double I guess a double fold lift for both of them. And that's just one of the endeavors we've done. So I just again, Our team has done like yeoman work on helping out in our communities. So on the business front, It's not been as great as we've had before and going back to obviously going through COVID and the pandemic. But I do see some light at the bottom of the, I guess, the crack in the door. We have stabilized our occupancy, which everybody is, again, going back to the team, they've worked really hard And achieving, and we are starting to see a little bit of modest rent growth, which we've always had along the way. As everyone knows, we had a strategy and we said we would never buy occupancy. We always said that we would not do that. And I think our strategy is going to prove out to be very successful at the end of the day. Obviously, the next this The last Q and I believe Q2 and I think we will be lucky to see here and I do believe we'll see it at the end of Q3 and especially Q4. I think we're going That this strategy has proven to be the right strategy along the way. And I'll tell you, we had a lot of internal discussions and I've had people Saying they thought it might have been the wrong move, but as a team, we made it collectively and we really, really believe that this will be the best Go forward strategy for all of our shareholders. So I want to give a little bit of Cautionary tale or cautionary point, I know that you're seeing that we've got high vacancy in Vancouver. That's Obviously, going to be just very temporary. We are just in the process of rebranding those properties, great properties, unbelievable locations, So happy that we transacted on that deal with Crest Point. But we are rebranding them. We're doing work in the common areas. We're doing work in the suites. And again, we want to capture The right side of the market. And I think we're going to see that starting to happen. Well, I know we'll see it because we're starting to even get lots of calls Even though we're really not in the rental mode yet, but you'll see it in Q3. Also, I just would say on Ottawa, I think Ottawa would be the right now, I'm a little concerned about well, not really, concern is probably not the right word. I just don't think Ottawa may get the same immediate lift here in the end of Q3 that I really see in the other markets. It's still going to get a lift, but I think Ottawa just because it's federal government based employees and the federal government doesn't seem right now that they've got the impetus to push the people back Into the offices, which is a drag on all the local businesses and the whole downtown community, I'd see and that may not be transact fully and again, I'm going to say it's going to be it will be much better, but it won't transact fully until Sorry, probably 2022 and I'm hopeful in the 1st Q of 2022. And I guess I should also point out is that how positive it is with all the people getting vaccinations. That's really I think that's really lifting the rental traffic. And I think as we go through, Again, I'm very confident that we're going to see some good rental numbers here for the end of Q3 of this 2021 And really going into the Q4 of 2021 and onward. And also with even having The school is announcing that they're going to be in person classes. I think it's going to be tremendous and you'll see more students going and living in Around the universities and that's which is terrific. I know I have a couple of kids that are planning on moving out. I think on our last call, I said I had 4 kids at home. I've got 2 that are Very committed to leaving here this summer. So it's I think that's just everything is kind of going back into the proper and right direction I'm going to go now on to just what's going on in investment market and acquisitions. There's a ton of product out there. It is getting bid up. We're seeing cap rate compression Across the board and quite frankly, even not just primary markets, but secondary and tertiary markets, I see there's just like a wall of capital. There's so many people interested in multifamily. They really see it as a safe harbor. If you look at, again, like what our collection rates and even when we kind of talk about, yes, we're off a little bit On our occupancy, but all of us could be full. It's just a pricing game. Everybody could be full. But we're really seeing this as a safe harbor. Obviously, everybody else sees it too. There's people that are invest, a lot of institutional Players now and private equity, players, there's a lot of people looking for multifamily. So we're going to have to stay disciplined in our approach. We'll have to make sure that nothing veers from what we've done in the past. I do see that we will end up We've transacted all the way through this pandemic. I see that we'll be continuing it on as we go forward. And so there will be obviously some growth in our company and in our portfolio, but we will be disciplined. I also would like to point out too is one of the things that we are been talking about too, we have been talking we will be probably doing some small positions and those are just smaller properties by the on primary basis that we'll sell and We just think it doesn't fit completely into our portfolio anymore. We will also be looking at more JVs potentially. We've been really happy with our JVs to We've had 2 excellent partners, actually more than 2. They've been great to deal with. And I think what it does is it really gives us the Great opportunity to leverage our platform. And by leveraging our platform, it really increases a lot of opportunity for our team. It also helps our bottom line and it's great for our partners too. So it's a win all the way around. So We'll be continuing on with that front. The last items I really want to go over is on our development side. You'll have seen that in our MD and A that we put out. 473 Albert, Great location, 158 suites we're going to be building there. It was a former office building and that construction ended at the start In the start of Q3 of 2021, we're hopeful that it will finish in the end of Q3 2022. And again, really excellent location. We have and I'll tell you, the design work I've seen has been fabulous, And I think we'll do extremely well there. The next one will be 900 Albert. 900 Albert is a very large opportunity for us. Again, we're just we're a partner in that. We've got great partners there, too. So at 9 100 and Albert, we're going to be putting up approximately 12 41 suites plus some commercial space. We are looking at the whole project. We want to make sure that we get the most out of this opportunity. It is right at The tea of the LRT here in Ottawa, fabulous site, very Excited about it, but we are working through what we really want to be mindful to make sure that we get the most out of this opportunity. The 3rd project is again in Ottawa, And it's Richmond and Churchill. And Richmond and Churchill, there's 184 suites that we'll be putting in. We're hopeful to be starting that In Q1 2022. Now I just want to point out these are all premium locations in Ottawa. So I think at the end of the day, location, location, location always wins the day, and we will be mindful of Making sure we don't kick off too many properties at any one time, but we know that these are great, great opportunities. So though we think there might be a little bit of lag in the occupancy in Ottawa, I don't see that as prolonged. And by the time we get through these buildings, We'll be in great shape here in Ottawa. So we're very, very confident about where we're going here. And the last one that we've got That is at Fairview in Burlington. That's a JV too. And that property should consist of over 2,000 apartments and condos. We hope to start that in the first half of twenty twenty two. Again, fabulous site. Really feel very bullish about it. We're working through the city and the city has been great so far to deal with. We're really excited about that opportunity And we see really good things coming there in that area. So in saying that, I guess I I just want to sum up that we're really sticking to our core strategy all the way, and I think we're going to see some really good So I'm going to pass this over to Brad now. Thank you. Thanks, Mike, and good morning, everyone, from my side as well. I'll take you through the operations update for Q1 before I hand it over to Tert to talk through our financial position. I'm going to start with occupancy because I know that's the topic on everybody's At the end of March, we're seeing an occupancy of 91.3% for the overall portfolio and 92.1% for the same property portfolio. As Mike mentioned, we're pleased to see that the overall occupancy has stabilized for year end. As we've discussed during our Q4 call, we have seen So you hit hardest in our urban core properties in Ottawa and Montreal, which typically have a high proportion of students coupled with young professionals, many of whom Have moved back in with their parents. We continue to view the occupancy pressure as temporary and for some of the reasons outlined earlier around the vaccine And current announcements regarding university's reopening plans, we're optimistic about seeing an uptick in occupancy for these properties in Our e mail leads were up 18% in Q1 versus same period last year, and the numbers for April saw an even bigger jump by more than 100%. Web traffic also is on the rise for 49% in the quarter and up 61% in April. Our Aptia approval conversion will hold them steady in and around the 80% range. So we'll find all this to be very encouraging as a source of future leasing demand. As you know, we have an extensive reposition program, which means that our occupancy is likely never going to hit 98%. But we're hopeful that we can gradually return to more normalized run rate in around the 96% target that we that you become accustomed to over the course of 2022. On the rent side of things, we're seeing a strategy to prioritize price over occupancy bear fruit. We are pleased to report an average rent in March of $13.25 for Suite, which is up 4.3% from $12.70 last March. This results even better when looking at our same property portfolio. Remark average rent per suite came in at 1328, Showing growth of 4.6 over last year. On the external growth front, we've added 1242 suites to our portfolio since Q1 2020. As usual, these units initially came into our non repositioned portfolio and expected to contribute to driving our organic growth in the years to come as we work through repositioning upgrades. Overall, these results have contributed to reporting operating revenues of $43,100,000 for the quarter, A 9.4% increase over Q1 2020. Moving to NOI. In Q1, we generated $26,500,000 in NOI Our overall portfolio, leading to growth of 7.2% over Q1 2020, mainly on the back of external growth and average rent per suite improvements that I've just outlined. For our same property portfolio, however, NOI growth was minus 1.8% for the quarter as the opposite pressure we highlighted This resulted in slight NOI margin dip on the same property portfolio from 62.8% in Q1 twenty Same property NOI growth would have been 6.5% and our NOI margin would have been 64.3%. NOI margin for the overall portfolio stood at 61.5 percent in Q1 2021, reflecting the lower operational efficiencies of recent acquisitions and a non repositioned portfolio. We believe this part of our portfolio offers significant opportunity for the REIT to execute on its value add strategy Let me now turn things over to Curt to share our financial update. Thanks, Brad, and good morning, everyone. Mike and Brad have done a lot of the heavy lifting providing color on our Q1 results, so I'll jump straight to FFO. We are reporting FFO of $16,200,000 for the quarter, nearly 12% increase over Q1 last year. On a weighted average unit diluted basis, FFO was $0.114 down marginally from $0.155 in Q1 2020. As Brad mentioned earlier, the increased vacancy and rebates impacted our NOI and therefore FFO. Normalizing this to the same level as Our distribution for Q1 2020 was $0.0814 and represents a 71% FFO payout ratio and an 80% AFFO payout ratio. Relative to Q1 2020, the REIT has increased its distribution 5% quarter over quarter, demonstrating our objective to provide unitholders stable and growing distributions as well as our steadfast confidence in the REIT's outlook despite some short term challenges. During the quarter, we spent $174,200,000 on acquisitions and invested $15,600,000 into the standing portfolio, mainly for value enhancing initiatives. For the Q1 of 2021, we recorded a fair value gain on our investment properties of 97,600,000 driven by the NOI improvements in our same store portfolio and a 10 basis point of cap rate compression relative to Q4, Leading to a weighted average portfolio cap rate of 4.06 percent for Q1 of 2021. Given the current market conditions The REIT is in a very healthy financial situation. Our debt to GBV at March 31 was a comfortable 32.7%, Up slightly from 31.1 we reported in December following an increase in our mortgage debt from our Vancouver acquisition. At March 31, the REIT had mortgages of $1,100,000,000 at an average term to maturity of 4.7 years 73% of Interrent's mortgages are insured by CMHC, which provides for favorable interest rates given the reduction in refinancing risk for lenders. At the end of Q1 2021, the REIT had $285,000,000 of available liquidity, which along with its current debt GBV ratio of 32.7 percent offers ample headroom to finance future capital programs, development opportunities and acquisitions. In closing, I would also like to thank Sandy and welcome her to our team. I'm sure many of you will get to know her in the coming months if you do not know her already. At this point, I'd like to pass it back over to Mike to say a few closing words. Thank you, Kurt. Though we're not Really happy with our results to date. We understand obviously these are challenging times. Our team has responded incredibly well. I have to tell you that now that some of them are getting their shots, I can just see that they're really starting to get bolstered. And I really believe that we're going to Achieve some really great results as we go forward. We're really looking forward to getting back on track. We will be back on track. I can see great things coming forward. Thank you. Thanks, Mike. We'll now hand it back to the operator to open the floor to your questions. Your first question comes from the line of Jonathan Kelcher from TD Securities, your line is open. Thanks. Good morning. First question is, I guess, just on Ottawa. Like you talked about it being Maybe a little bit slower than other markets, but there is going to be the positive impact of students coming back there. How much of your portfolio would you say We'll benefit from students coming back versus be a little bit slower from a slower return with the government. Hi, Jonathan. How are you? Yes, there is a we've got a chunk of properties These are the downtown core and in Sandy Hill that will suffer now. We are seeing leasing activity right now. I'm just I mean, I'm just being cautionary about Ottawa. I do see that it's going to improve, but I just would rather think that it's going to be I don't want people to Put in it's going to bake in like the other markets where at least I feel the other markets look like a little bit more positive, I guess, traffic right now. Okay. So like faster growth in the other markets and then Ottawa trailing by a quarter or 2 is I'm hoping not. I just don't want to I'd rather under promise, hopefully, you're right. We'll hopefully we'll over deliver. We just don't know. We don't know enough of what's going on. Like we're all seeing what's going on here with Vaccinations and everybody's mindset changing, I can tell you I have 2 of my kids, as I said before, We'll be moving out and they'll be moving into the downtown core. So and I know that and that's pretty a lot of their friends are and a lot of I think people are getting more and more positive. So I just the only thing is I do worry a little bit. Ottawa is not like I don't want to say paint Ottawa is only a government town. Really diversified now, but I do I am a little concerned with that part of the workforce that they may not Come back as quickly as some other segments. That's all. And just to add to that, we had a little height and vacancy going in, Jonathan, Into Q4, Q1, as you know, in the National Capital Region. And one of the reasons, and you've seen this a lot in the media, Ottawa's housing market has performed quite well. So that we did lose some to homeownership and that's had A little more of a prevalent factor, I would say, more so in Ottawa than our other core regions. Okay. That's helpful. And if we look at, you said you're going to start 473 Albert hopefully in Q3. 3. Do you have an estimated cost for that development? We haven't put that out there yet. We know that like we've done all of our work on it, it will be very accretive For us, it's something that we'll be mindful of putting out potentially next Q. Okay. And then just generally speaking on It's something that we've got to be very mindful of. There's no question. We've got We got to be careful with that. And it's something that we'll be watching as we go forward on some of these new projects that we're looking at doing. Some of them are not going to hit until I think as I said, it will be into 2022. I have heard chatter that they think costs will Come down once the supply chain comes back to a little bit normalized. I mean, nobody knows for sure. We'll have to see that as a big set. I mean, if anything looks like it's offside, like the cheapest time to own a property, a development site is When you haven't put a shovel in the ground, right? So we know they're all premium locations, not concerned about it. So if we have to hold off a little bit, we'll hold off. Your next question comes from the line of Mike Markidis from Desjardins. Your line is open. Good morning, everybody. A couple of questions from my end. Just first, congrats first of all on stabilizing the occupancy unit. It's great to see. I was wondering if you just chat Or give us some comments on how your traffic changed in 1Q versus the prior several quarters. And to the extent, we're a little more aggressive on incentives in 1Q versus the others. Maybe I'll start. Brad will jump in, I'm sure. So, you know what, it's a really it's really more art than science to an extent, So we have tried to make it a lot more science based of what we're doing. It's we're just really watching and I'll tell you, it's almost like a bit of a push and pull. We are seeing the traffic increasing. I like to think it's because of our and I want to give Kudos to our marketing team. Our marketing team has done really amazing. They've really stepped it up over this whole process. So I'd like to think that they're doing a great job in identifying who our key customers are And spending appropriately. Well, again, it looks like things are, I guess more positive, people are getting in a lot better frame of mind. I'll tell you, I think we've improved a lot in our whole digital approach. That's one thing that kind of brought us forward about 5 years, probably me about 10. And but anyways, I think that we've done some really good improvements as a company, so we're benefiting from that. And you got to remember, last year, When we got to about end of February, man, like it just like it was just off like went to 0 our traffic too and all. And we went into that way all the way through spring. So I think people are feeling more confident. And almost unfortunately, A bit of the normal is the life we're living right now. So Okay. That's helpful. Thanks. Yes, Tony, I would add just I think the world is, to Mike's point, It's getting more encouraging as far as vaccinations. So I think the fact that schools are out there saying that they want to be back On campus in class learning and back to Mike anecdotally just in his own home seeing some of kids wanting to move out and have some of that kind of year 1, year 2 experience in university. I think there's a lot of positive optimism that things will be back to Somewhat normal. We're not banking on it, but it's somewhat normal. And I think that's leading to increased electronic traffic. As far as the rebates, they're up just slightly. The centers are up just slightly over there in Q1. Okay. Thank you. The Vancouver portfolio, elevated vacancy there as you had telegraphed. Just with respect to the In suite work that you plan on executing there, is this a lot of heavy lifting? Is it more of a light touch? And just wondering how that might impact I'm going to start I'm going to Dave Nevins is here too, our Chief Operating Officer. Dave has been out to Vancouver numerous times. And so I don't know, Dave, do you want to Say a couple of comments, please? Yes. I would say for Vancouver, I know it's probably a variety because we inherited some Properties from the previous owner. So we have a lot of good product to work with, but we do have several units that we are Repositioning in order to achieve top rent in the area. So we've been working hard at that for the last couple of months. Yes. They're excellent profit. Dave has been out there I have been out there 2 times for very extended stays, But Dave has been out there about 5 times 4 or 5 times now. So it's but it's we're really, really happy with that portfolio. We think we got it at a great So we're really happy with that transaction. Okay. And then last thing for me before I turn it back. Just You gave me some it's not a precise science as you say, but you gave some pretty good color in terms of how you expect occupancy to trend over the next, call it, 3 to 4 quarters. You think the AMR growth picks up in lockstep with that or will it be a little bit more delayed before you get back to sort of that normal annualized pace that you're at? It will be a little bit of a delay, but I mean, it will and again, I want I want to make sure it was crystal clear. I don't expect there to be much change here in Q2. It's really like in the last I think once we get to September Of this year, that's when I think we'll really see a change. So I don't want anyone to be baking in anything for the next really quarter or 2, right? I want to be very clear to everybody in the market, but we do see we're going to get some growth. Yes, we feel actually very strong of where the market We'll be going. Okay. Noted. Thanks very much and I'll turn it back. Your next question comes from the line of Brad Sturgis from Raymond James. Your line is open. Hi, good morning. In terms of The commentary about looking at some a small amount of asset sales, can you provide a little extra color in terms of what the quantum of that program might look like And is it just simply exiting some of the smaller markets or would you include some assets in your larger target markets? It might be a little bit of a mixed bag. We're kind of going over it right now. I just didn't want anyone to be surprised to be frank with it. We've got Some smaller properties in some of our core markets, we just think it might not be a bad time to transact Autumn, it'd just be a lot more efficient for us. We also have, I'll tell you some non core markets that have and I'll give specifically Trenton And Aylmer really performing extremely well. You know what I mean? Trenton especially, I'll give Trenton not Well, we've been talking about disposing of that asset for the last 2, 3 years. And anyways, it's done amazing. Okay. In terms of the cap rate compression you're seeing or expecting to see, Can you provide a little bit of context in terms of what your expectations are there and how that may relate to Future IFRS value gains that you could record over the next few quarters? I think like In our discussions, we've always been really conservative with our FMV model with our cap rates. In our discussions With our external appraisers and also just what we've seen in the market being active on the acquisition front, realistically, We could probably see another 10 basis points of cap rate compression, which If you do the math on what's disclosed in the financials probably brings in over $80,000,000 of FMD gain just from that regardless of what happens on the NOI improvement front. Last question would be on JVs. You mentioned that you could be looking to enter into Elyse, another one. Is that a function of looking at additional new markets or Just portfolio sizes in terms of what you're looking at for acquisition or what would be the driver of looking at another JV? I'm going to be crystal clear, we're not looking at any other markets right now. We're sticking to these markets. We think they're really, really Strong markets and when we get out of this, they'll be really we think we'll see some very good growth for everybody. It's really sometimes it could be Portfolio size, it could be there's could be different matters of how you go about it, but we just think it's really favorable. And we've been To this date, we've been very well, not even very extremely happy with the way it's worked out. Okay, great. I'll turn it back. Thank you. Your next question comes from the line of Jonny Chen from BMO Capital Markets. Your line is open. Hi, good morning everyone. Just maybe just on the debt fair value gains and the capital compression this quarter, could you maybe comment on Specifically, whether it was driven by any particular markets, a little bit more granularity would be great. Yes. It was pretty even to be honest with you, Joanne. It may be a little higher in the GTHA market And would maybe trend down a little bit towards some of the other markets, but it wasn't like it was driven by only one market in particular. We've been pretty active on the acquisition front. There's been lots of deal flow in just about every market we operate in. So it's We see these cap rates as still being, like I said earlier, still being pretty conservative given the deal flow that's happening in the private side. Got it. Yes, no, for sure. And maybe just on that, then on the acquisitions front, would the kind of focus in terms of your target right now be On kind of the smaller off market deals or would you be any interest in any of some of the larger portfolio sales that are being marketed right now? We've looked at all of them. To be frank with you, we look at everything that comes through. Quite frankly, we even do work up on markets We're not in right now to show future touch points for going forward. I mean, you got to look at each one and you take a look at the merits of each Individual property that gets marketed. We also look again off market deals, we spend a lot of time on that And we tend to those usually tend to be easier transactions than fully marketed deals to be frank with you. A lot less brainpower that gets lost on that stuff. But anyways, I hope that answers your question. No, for sure. There's a lot going on out there right now. But I guess maybe just one more question on the Occupancy front, not to drill too much into it, but given that we're still kind of in this weird phase right now in Q2, could it be potentially you'd be willing to Let occupancy slip a little bit into anticipation that really in Q3 later into Q3 and Q4 that it will come back quite strong And just kind of keeping holding market rents for it. We're going to keep watching it to be frank with you. Like we're We've been pretty mindful of how far we want to take it down. And again, we like we don't want to sacrifice too much In the short term, it's like it's really like you got to look we're looking at it. I won't even tell you it's day to day. And everybody knows in this room, I probably look at our rental report probably every hour if less. And but so we're watching it really careful because it's really, really important and everybody watches it. And I know like Dave, Dave has been very on top of it, and his whole team has done a great job in balancing The whole how much do we let it slip. And again, we feel very positive for the like as we get into September, But nobody has that crystal ball, right? We all wish we did. We do believe we're in a good spot right now. Got it. What I would add is, while we want to expectation for Q2, You've got to appreciate the fact that we're still in this 3rd lockdown, but all indications prior to the lockdown We're very encouraging, Joanne. So we're trying to manage that. We don't have a lot of clarity because There has been this 3rd lockdown, and we think a lot of people have deferred their purchasing decisions to a later date. But we all feel very encouraged Given what we've seen pre this latest lockdown and what we've seen during it, that all indication leads to a strong Back half and most likely going to be stronger as we get into the fall. For sure, yes. And the immigration really number is too Hopefully, that will continue. But really just on a broader bigger picture question On the regulatory side of things, like you said, no one obviously has a crystal ball and no one has been anything but predictable to date. But I guess just what are your thinking in terms of right now with respect to, I guess, the potential for The extension of the new rent freezes and restrictions into 2022 right now? We've heard no indication of that at all. And we're really hopeful that things again will turn back to normal once we get the vaccinations. And as we see everything kind of get back to normal As we get into September and you get kids going back to school, all those good things. So I think, I mean, we're hoping that, I mean this whatever we want to call it, the 5 alarm that we got going on is going to come down significantly. So I would add to it. I think and I'm looking at Mike and Dave when I say this, but I think This year was the first time ever that there wasn't a rent increase imposed by the Ontario government since rent control is in. So I showed you what an anomaly That is right. Okay. That's good to hear. Okay. That's it for me. I'll turn it back. Thanks guys. Your next question comes from the line of Mario Saric from Scotiabank. Your line is open. Hi, good morning. Just a couple of questions on my end. First off, maybe delving into The same property occupancy expense declined 40 basis points year over year this quarter. Can you provide a bit of color in terms of what drove The 6% decline in property operating costs year over year, how sustainable in this environment do you think that type of You will be seeing property operating expenses over the next couple of quarters? It's not going to be easy, obviously, like I mean, we're we keep looking we're trying to get as efficient as we can. We're looking at every little area that we can to try to, I guess, Be as efficient as we can all the way through and even our like everything our procurement is going for it's been going on for a long time. Do I think it can go on forever to keep coming down? No, you're going to get to a point where it's going to stop. But we're happy with our improvement. And we also I would also potentially and I'd have to go back and read through the numbers. We might have a little bit of elevation from Our initial PPE bought in the start of the year, too, right? And we will and there are some things that we will be seeing, too, that I'm Little as we look forward, there could be some wage pressures as we until the government kind of starts slowing down the programs And also a little mindful of, again, insurance potential pressures because it seems like every time there's anything that goes on, The insurance company loves to pass on. This is the reason why we can increase our rates no matter what happens. And it's across the board even if it's not really it doesn't really affect them. So. Got it. Just I guess the genesis beyond the question, if I look at your year over year same Property expenses, Q2, they're up 2.8 percent, Q3 up 4.6%, Q4 up 6.3%, so the negative 0.4% is a marked Deviation from that, I'm just kind of curious in terms of whether you get back to those types of year over year increases? I'm hoping not again, Mario. Again, I think a lot of it was attributed to the like we had some temporary wage increases too Last year, I don't expect you to see I mean, if anything, it may be just flat or something like that. But I'm and we're really watching everything. Again, like we had pretty heavy duty PPE costs, right? Like it was Pretty crazy, to be frank with you. Trying to keep all our residents feeling safe and secure along the way like it was a big expense for not just All of our peers, they all went through that too. Yes. It's Kurt here. There's a lot of moving parts in that between the PPE, between some of the credits we were giving For the rental where we were a self imposed sort of credit cycle we had gone through helping our tenants out. So we had pushed some of that through the OpEx back in Qs 2, 3 and 4 also. Then there's offsets going the other way. We all know that a lot of the utility costs are going up and insurance costs are going up. So Overall, I think we can actually probably do a little bit better than we did last year just because last year has some anomalies. But there'll be some competing pressures between those items I mentioned and also as we continue to invest in technology and our CRM platforms and other platforms, of that will flow through. So I would expect it to not get any worse than last year, continue to improve a little bit, but I wouldn't expect A significant delta there. Okay. Maybe Kurt sticking with you just on the IFRS cap rate, one clarification. Of the 10 basis point Line quarter over quarter, how much of it would have related to the Q1 acquisitions? None of that would have related to the Q1 acquisitions. In our in the Q1 where we acquire a property, We don't fair value it during that quarter. We bring it in at the transacted price because at that point in time that feels like the proper fair market value. You just transacted on it. And then once we get a little more knowledge around what we can do with the rents and other pieces of the CapEx and stuff that's going to go into it fully, Once we get into the Q2 of owning it, that's when we run it through our FNV model. So none of that change would have been a result of Vancouver in Q1. Got it. So the 4.06% disclosed excludes the Vancouver purchase cap rate? Correct. Okay. And then just maybe on some of the acquisitions during the quarter, specifically in Oakville, Mississauga, The price per doors were a bit higher than what we typically see. Presumably that's buying newer product. What's the investment thesis For those three assets? Really like triple premium location, we feel. The 2 in Oakville like to be frank with you, probably the 2 of the best buildings that we've purchased as far as like minimal CapEx Going forward in the future, really just love this and love the location. Location is amazing. So when we bake in our whole thesis This made a lot of sense. And the Mississauga one, again, a great location near Go Train. And again, I mean, even the we believe and what we've seen out there, like we think that we're going to see more potentially more cap rate compression And a lot of people and not just us feel that we're going to see much better times as we get through The end of this, so as far as rentals go. Okay. So rather than repositioning is the game plan here, is the Mary, just to provide a little more color on that, like we've said this before that Often our properties require heavy lifting on the repositioning, but we have in certain times in the past found properties that are Well maintained, but just maybe the marketing corridor, landscaping and the way it's sold is not Sort of representative of what you could do in the market and you can get pretty significant lift sometimes just out of those areas. Okay. Just maybe on the repositioning, Kurt, the number of non repositioned suites Fell 180 suites quarter over quarter despite the addition of 728 suites to the acquisition during the quarter. So net net Suggest that the repositioning portfolio fell 908 suites during the quarter. I know that the classification of these suites is more based on when you bought the suite as opposed to And the full completion of the repositioning initiatives. So can you maybe provide a bit more color in terms of those 900 odd suites that dropped out of repositioning in Q1, what contribution of NOI is coming from those suites relative to your expectation of fully stabilized NOI? Are you done with the repositioning in those assets? Or is it just simply because you bought them 3 to 4 years ago that they've been repositioned or reclassified? Yes. I don't have the specific numbers just for those exact suites in front of me, but I can say that typically Knowing what's in there generally, there's still more upside coming out of that. It takes we market through that cycle at the 4 year mark. But in this environment, with especially with 1 year being COVID and the reduced turnover, I guess, in some assets, You're not going to get through the full extent of the repositioning when your A few months of sort of marketing and sales work and a few cycles of that because once you finish the CapEx work and all the program that you're rolling out, You're still looking if you're doing 25% to 30% turnover, you're still looking at 2 to 3 more years before you get through all that? Yes. I know a couple of properties specifically, Mario, and yes, there's still upside in those things. It's just a timing My last question is straight to the disclosure Change kind of combining the GTA with Hamilton this quarter. Just curious in terms of what drove the decision to kind of change And then can you clarify whether St. Catharines is in other Ontario or in the GTA bucket? I think GTA is taking over all of Ontario, it seems, When you're driving through it. So anyways, no, just joking. A little bit, Curt, you want to answer that? Yes, sure. I can do that. So I mean, the change was a couple of things. One is, as we've continued to expand into other markets, like those a lot of those regions existed prior to us going in even to Montreal. Now that we're into Vancouver, you were getting sort of a bit of a disconnect between the sizes of some of the markets and others. So we felt like sort of grouping them into our 3 core areas and then other provided a little more clarity around that. 2 is, it allows us to do a little better analysis in regards to these versus CMHC because these now tie into the CMAs from CMHC. So it Okay. And then St. Catharines Would be other Ontario or GTA's or St. Catharines would be other Ontario, yes. Okay. Sorry, sorry. No, I apologize, Mary. No, St. Catharines is included with the Greater Toronto and Elephant area. Perfect. Thank you. Your next question comes from the line of Matt Logan from RBC Capital Markets. Your line is open. Thank you and good morning. Just following up in terms of your acquisition capacity, could you talk a little bit about how high you would be comfortable taking up your debt to gross book value ratio? And if you would consider issuing equity for potential transactions at the current unit price? No. Right now, we're not looking at that at all. But we are looking at we don't have a problem of bringing up our debt a bit. We've built ourselves for these times to be frank with you. I think we've done really well in our transactions along the way. We are trying to be we'll always be mindful of keeping our debt in a controllable level. But if we hit the if we saw something that was Pretty exciting that we could create some value for our shareholders and if we hit like the low 40s, maybe 40, I mean, it wouldn't be the end of the world and knowing that we could probably grow out of it over a few quarters too. So we would probably do that. So anyways, we're again, we're looking for to grow, but we're not going to grow just So up to the low 40% range and if there's a bigger deal then perhaps that's where you bring in a JV partner? And we're going to balance it all. It's not like that's not where we're ideally going to. You know what I mean? But it's something that we wouldn't be too And if we saw we could create value along the way. I mean, and if we saw it something that was an exciting transaction, We've always been very careful of keeping our debt down. We've delevered, as you know, over the years, Quite a lot, to be quite frank with you. And we always wanted to do it just because we were always concerned about Potential storms on the horizon, and we never called this storm, that's for sure. Nobody called the COVID one coming at us. But in the short term, I think we would definitely we would look at doing it. Makes total sense to me. And When we change gears and think about your total CapEx spending for 2021, could you give us a sense for a general range including maintenance CapEx as well as the value add spend? Sorry, You're asking about the CapEx for 2021, Matt? Yes. So CapEx for the year. Yes, the first Q was down a little bit and some of that just has to do with some of the work you'd often do, whether it's carpets or hallway paintings and stuff like that, given everything going on with the lockdown So I think we were about 200 a queue for the door per door in Q1. We were about $249,000,000 last year and my expectation for the year will probably have us in around the $925,000,000 mark. And if we include the value add CapEx that would be? Total CapEx Probably looks to be around $70,000,000 in totality, which would include that. Okay. Great color. Yes, for Q2 through Q4. And last one for me just in terms of your outlook. You gave some good color on the various markets and how you expect they'll perform. Do you have a general sense for the occupancy and how that might trend for the overall portfolio, say by year end and mid-twenty 21 or 2022, excuse me? Could you just repeat that quick? Sorry, I apologize. Just trying to roll up your occupancy guidance for the whole portfolio. Just wondering if you could give us a sense for where we could be at year end and the middle of next year? I can't really predict year end. I'm hopeful where we're going to be. We've always guided we're going to be between 3% 4%. That's really what we've been always been looking at because we never wanted to be, I guess, As you say, fully baked as far as our occupancy. We like to keep pushing and creating value for our shareholders and our stakeholders. So I'm hopeful that we will be there again next year. That would be our hope, and I believe we will be. I feel very strongly about it. I think that general mood out there, I think is that we're all very restless being under these Lockdown conditions, I think people are getting more and more positive and they see again the, as I said, the light under the door. And I think at some point, the door is going to get opened. And I think you're going to see honestly, I think it's going to be incredible times And our industry for us, that's just my take on it. So the 3% to 4%, was that vacancy, Mike? 3% or 4% vacancy. Sorry, if I wasn't clear. I apologize. Yes. So basically we're at 8.7% today and maybe by the middle of next year we get back down to a normalized level of 3% to 4%. Yes, I think you're going to see more rent growth too. Excellent. And Matt, just so we're clear to that, I mean that's what we have in our MD and A and we've sort of I said to people that's what we sort of looked on a repositioned property basis, that's where we look to be, but we do not provide guidance on that number. Appreciate it. Thanks, Kurt. Mike, I'll turn the call back. Sorry, just I just want to provide clarity before we jump back. Mario's question earlier about St. Catharines, apologize Mario, it's actually in other Ontario. If you look at Page 31, 32, VMD and A, Given that we changed how we group properties this Q, we added some additional disclosure in the MD and A. So you can actually see specifically which properties, which suites make up each of the regions. Thank you. There are no further questions. I turn the call back for closing comments. I'd just like to say thank you to everybody for joining us today. I appreciate that. I appreciate all the analysts. I know it's been a very tough time for yourselves. I think you're going to see some again, I hope we are very clear of what we said, what we see in our horizon. Again, Things are changing on a daily and hourly basis, but we feel very strongly that our program that We talked about and debated a lot about last from, I guess, right when the pandemic started is the right program to stick to, and I think we'll see the fruits of our labor for everybody. And I want to say thank you again really to our team, to Dave's team has done a tremendous job. Brad has worked extremely hard the last while. We've They're trimming them off his feet and so has Kurt, and the whole financial team has done amazing during this whole time. I can cover every end of our side of our business. I feel extremely proud and very humbled To be a part of this team. Thank you. Thank you, everybody. I appreciate it. I hope everybody has a fantastic day. Look forward to great times Coming forward. That concludes today's conference call. You may now disconnect.