Earnings Call: Q4 2020

Mar 15, 2021

Earnings release

Good morning, and welcome to the Interrent REIT 4th Quarter and Year End 2020 Financial Results Conference Call and Webcast. After the presentation, we will open the call for questions. Instructions will be provided at that time. At any time. Please note that today's call is being recorded Monday, March 15, 2021 at 10 am Eastern Daylight Time. I'd now like to turn the call over to your host for today's call, Mike McGahn, Chief Executive Officer Brad Cutzey, President and Curt Miller, Chief Financial Officer. Mr. Miller, please go ahead. Before we begin, 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 certain non IFRS measures. Although the REIT believes these measures provide useful supplemental information about its financial performance, Everybody taking their time out of their day. This is our first call that we've had. I've been the CEO for 11 years. I think this was maybe the 44th or the 45th Q. Couldn't think of a better time to have our first call. Obviously, it has been a challenging year, 2020, and I think this is just the appropriate time. So First off, again, I want to say I'm really proud of our whole team. Our whole team has done tremendous here in Dealing with COVID and all the issues with it and making sure that our residents have been safe, They've been really up to the challenge. As we know and as you've looked at our results, again, it was a tough Q And it's been a tough year. We've had a bit of a pause on demand. We know that all comes from the lack of students out there, Foreign and the domestic, immigration has also been hit, international students. And we've seen a little bit of acceleration In homeownership with interest rates going down to record lows. This has all really made The amount of demand that we've had, much tougher. But what we decided to do is we wanted to hold our rents. We knew by holding our rents, it would be a better strategy in the long term and would provide a little bit of bumpiness in the short term. We think we should hopefully get through this by the end of the first half of the year and we'll start hopefully with optimism with the vaccines coming out And that will be in a much stronger position for the second half of the year and our strategy will be proved to be correct. As you also know, this our multifamily class is proven to be very resilient During these times, our collections are at records that I guess versus the other classes, we really haven't seen any bump And our bad debts to anything of any magnitude and the bid for our class is Very strong. Regarding deal flow, we have seen increased deal flow that I've never seen in My 35 years of being involved in real estate that we can attribute that to 2 factors. One of them being that the private owners Really, really tired with the whole COVID fatigue and that gets attributed to the extra cost of PPE, All the extra cleaning, the online applications, some of them are not set up for online applications. And the second item is a big thing that's pending is Taxation on capital gains, which is a real big concern that I think a lot of people are seeing as A big potential impediment to sell their properties in the future. We've also as we've gone forward here, we've still been working on our development deals. And I'm going to highlight 4 current developments that we have. And I want to say that there is a lot of product We're seeing come out of the ground. It really comes down to location. And I would say our locations here are preeminent. So I think we're going to be in Very, very good condition as we go forward. Our first joint venture, which we have with Brookfield, is at the Burlington GO Station. And at this point right now, we've applied for site application. We were expecting some comments coming back from the city from our latest submission. We should get it back by within a few weeks here. We're currently applying for 2,400 residential suites and an approximately 40,000 square feet of commercial space. Our next joint venture partnership we have is at 900 Albert. At Niner and Albert, we're continually working on our detailed design plans and working with our consultants and our partners to make sure that we have the best product that's going to stand the test of time. We have an approved site plan application right now for over Our 3rd The project is at 473 Albert Street in Ottawa. Here we are going to be converting it to 158 residential suites. And we are anticipating by the end of Q1 2021 that we will have our buildings permit hopefully in hand. We are expecting construction activities to begin in late 2020 late spring 2021. And our 4th and final development site is at Richmond and Churchill, which is a fantastic location in Ottawa. It's in the heart of Westborough. And here we've submitted our for zoning by law amendment and site plan application. We expect to have our subsequent submissions to the city by the end of the Q2 of 2021. This site is contemplating right now 184 residential suites and approximately 20,000 square feet of commercial space. So you can see on both levels that we've got some great development sites going and we're still very much looking at some deal flow. We've had some did a lot of purchases in the last year, and we think we should be fairly active as we go through 2021, especially since we've built ourselves to have what I would consider one of the best balance sheets in the business. I'm going to pass over to Brad Cutzey, the President of the company right now. Thanks, Mike. I'm just going to start off with a little bit of an But as you highlighted in your opening remarks, 2020 was a year like no other one, and I hope we don't ever have to repeat. That said, I believe the multifamily asset class has proved wise so coveted and revered as one of the best risk adjusted returns amongst real estate asset classes. From an operational standpoint, we saw operating revenue for the quarter increase by CAD 2,700,000 to $41,900,000 an increase of 6.8 percent over Q4 2019. Operating revenue for the year ended 2020 increased by $14,700,000 to $160,000,000 The increase was mainly due to the contribution from $227,000,000 worth of property acquisitions completing the year, which was comprised of a total of 8 80 suites. On the same property portfolio basis, our operating revenue The effect of the 2nd wave of the pandemic on the quarter and decreased by $500,000 to $34,900,000 a decrease of 1.5% over Q4 2019. Operating revenue for the year ended 2020 increased by 3% year over year to or $4,200,000 to $141,000,000 As of December 31, 2020, our same property consists of 8,953 suites, which represent 81% of our portfolio. The year over year increase in same property operating Revenues were due to a 5.3% increase in average rents to 13.54%. Occupancy for the same property portfolio at the end of the year was down 430 basis points to 92.4% from the comparable period last year. As Mike alluded to in his opening remarks, our effort to hold rents has resulted in an increased vacancy. This pandemic from a real estate Viewpoint really has been the tale of 2 cities as evident in our operating results. Our Montreal same store vacancy was up year over year by 610 basis points to 14.6 percent and our Ottawa same store vacancy was up year over year by 9 20 basis points to 11%. This comes as no surprise that the majority of our Montreal and Ottawa properties are located in the urban core, which we peg in around 70%. We have felt the biggest impact of COVID in our urban core where there's been a lack of rental demand due to the borders closing, Universities and college switching the classes to online from in class, young professionals moving back home with their parents We're taking advantage, as Mike commented, low interest rates and making the foray into homeownership. We believe the deterioration in rental demand is a temporary phenomenon and that the housing needs that existed pre COVID will continue to outstrip Housing Supply. Same property NOI for the quarter decreased by 6.3 percent or 1,500,000 to $22,400,000 compared to Q4 2019. Same property NOI for the year ended December 31, 2020, was $91,300,000 and an increase of $600,000 or 0.7 percentage points compared to the same period last year. The NOI margin for the year ended was 64.7%, a decrease of 160 basis points compared to 2019. However, same property NOI for the year included $1,600,000 of COVID-nineteen related operating expenses. Excluding these COVID related expenses and assuming a more normalized occupancy, something similar to 2019, Our same store NOI would have grown by 5.5% for the full year and an NOI margin of 66.6%. We have long been known for our commitment to the reduction of energy consumption and supporting our broader communities, both through charitable contributions and the time and energy of many of our team members. In 2020, we participated in the global real estate sustainability benchmark rating. Gresby is a well known global ESG benchmark for real estate assets, which measures performance against sustainability benchmarks. We are pleased with our initial submission. And based on the results, we have continued to make improvements around measuring and presenting many of these measures we've had in place, that were not made public as well as pursuing improvements in areas that we have not yet covered internally. We anticipate sharing more information in regards to our initiatives on this front in the second half of twenty twenty one. Also in 2020, we completed The benchmark for comparison purposes was Companies of similar size included over 60,000 respondents in 101 Companies across various industries. We were very pleased to have a participation rate of 80% across the organization. We are also very pleased not only with the responses overall and as compared to the benchmarks across many dimensions such as safety, diversity and Inclusion and Work Environment. But one of the most important aspects of the survey is that it provided us with critical feedback that we can use to engage our team and work together in order to continue to improve and create value for all of our stakeholders. Last but not least, and Mike touched on some of this in his opening comments, We truly believe we're embarking on a generational opportunity as we see a transformation in the ownership group of multifamily properties. Historically, the SaaS class has been highly fragmented and dominated by the private sector. We have started to see significant increase in deal velocity And these groups struggle to come with terms of operating fatigue, potential changes to tax policies and the recent change in CMHC underwriting. We to turn the call over to our CFO, Curt Miller, for Financial OVV. Thanks, Brad. Through 2020, We have continued to invest in our technology infrastructure with a focus on sharing and collaboration tools, which we were fortunate enough to have started pre pandemic. We continued further automation of our leasing processes and virtual property tours and is the 2nd generation of both our BI and CRM platforms. We believe that these investments in technology will help us to continue improving the service we provide to our customers as well as provide even more scalability as we continue to grow. Our funds from operations or FFO for the quarter increased by $241,000 or 1.5 percent and for the year increased by $6,200,000 or 10.9 percent. On a per weighted average unit diluted basis, FFO was down $0.014 for the quarter or 11.1 percent and for the year was down $0.017 or 3.5%. As Brad mentioned earlier, The increase in vacancy and rebates for the quarter the year compared to 2019 impacted NOI and therefore FFO. This impact was approximately $2,400,000 for the quarter $4,500,000 for the year. COVID related costs for the quarter the year compared to 2019 impacted NOI and therefore FFO by $164,000 in the quarter $1,89,000 for the year. The combined impact from vacancy and COVID on FFO per unit was $0.018 for the quarter and $0.047 for the year on a per weighted average unit diluted basis. Despite these impacts, for the 3 12 months ended December 31, 2020, adjusted cash flow from operations exceeded distributions declared by $8,800,000 $20,700,000 respectively. Distributions for 2020 were $0.31 per unit, which was an increase of 6.6% over 2019. Distributions declared were 67% of FFO and 70 6% of AFFO for 2020. Over the last few years, the Interrent team has worked diligently at not only growing Also strengthening our balance sheet. We commenced 2020 with $2,700,000,000 in investment properties, Acquired properties for approximately $230,000,000 during the year, invested a further $55,000,000 into our portfolio and recognized a fair market value gain of $70,000,000 to end the year with a portfolio valued at 3,100,000,000 Our debt to GBV at December 31 was 31.1%. The increase in value of our portfolio combined with the $230,000,000 in net proceeds from an equity raise in June of 2020 has positioned The REIT well to be able to stick with its rent growth strategy, which should lead to strong NOI growth as we emerge from the pandemic. Real estate is a very capital intensive industry and the REIT works closely with its capital providers in planning for its future capital requirements. The REIT had $1,000,000,000 in mortgages at December 31 at a weighted average interest rate of 2.56 percent and an average life to maturity of 5.2 years. 81 percent 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 2020, Interrent had $344,000,000 of available liquidity. The REIT had a further $370,000,000 in unencumbered assets at year end, which remain unencumbered at this time. Thank you very much. And I will hand it back over to Mike. Thanks, Kurt and Brad. I appreciate your comments. Again, we know we've had a really it's been a trying year in a lot of different levels for a lot of people. I'm really again going back, I'm very proud of our team, how they've reacted and taken care of our very valued residents And just everybody just pulling together as one consolidated group to achieve what we've achieved. I do believe with a lot of conviction that as we go forward, we've left ourselves in a great position. And I think it will bear the fruit and we're hoping in the back half of the of 2021 early 2022, we'll start seeing some good results. Thank you, everybody. I'm going to hand you back right now to the operator, and they'll be open for any questions that you may have. Thank you. Mike Markidis with Desjardins, your line is open. Thanks. And maybe just before I begin, just want to commend you guys on moving to the conference call format. I think it's much appreciated, at least on our end. So Kurt, they put you last, so I'm going to start with you first. The 2021 mortgage maturities that you have coming due. I think it's a pretty healthy number. How much capital do you think you can take out of that as you refi those mortgages this year? The mortgages we have for 2021, Quite a bit of those are on some of the newer properties that we bought and are in the repositioning phase. So there's some definite upside there. The loan to value on those is Sitting in and around the low 40% range. So there is some value that can be extracted, whether we do it right now or As you know, typically in our repositioning portfolio, we'll wait a year to 3 years depending on where it's at. So we could either pull the equity out of it this year or push it out 1 more year into next year depending on what's going on with the rates and what access to capital we need at the time. Okay. And would the thanks for that. And would the composition of the uncovered pool be similar? Would it be more of the properties that were recently acquired and still within the repositioning base? No, there's actually a mix. There's a pretty healthy mix of both properties we've owned for a while that are fully repositioned And some that aren't, I'd say, off the top of my head, I can't give you a percentage of which, but it's a pretty healthy mix of both. Okay, great. Thank you for that. Maybe just shifting over to 473, Albert, just It looks like that's going to be the first thing that you guys start on. Could you remind us of your cost base With that property, and then what the expected spend will be to execute on the conversion and what type of returns you are targeting? Thank you. Yes. We haven't usually put that out in public, Michael, but I bought it around $20,000,000 It's something right up our alley to be quite frank with you. It's like almost like a mini live for that matter. So When we're kind of looking at it, it's going to be we'll have a double digit IRR and so we feel very positive about it. Yes. Just to add to Mike's comment, I think you also asked about on the cost base. And I believe, if my memory serves me correctly, it's in around $24,000,000 Cost Okay. Cost today. Okay, great. I just have one more before I'll turn it back. Just You guys do a great job showing economic vacancy for the quarter as opposed to just the percentage of suites occupied. So I really appreciate that disclosure. If we look at the increase in that figure over the past several quarters, I think the answer is I likely know the answer is, I just want to get a sense from you guys. How much of that would be an actual increase in vacancy versus an increase in incentives? Just given that we would expect that, I guess that would take 12 months to burn off in some instances, how we should think about the evolution of that line initially as we start to recover Fundamentally. Sorry, Michael, I just want to make sure I'm clear on the question. Are you talking about the vacancy and rebates and the percentage that would be rebates versus? Yes. We haven't typically broken that out. I think we could maybe take that away and look at breaking it out in the future. We haven't broken it out in this report or previous reports. Sorry, I think I'd have to come back to you on that one. Okay. And maybe and I guess just high level, would it be Mostly direct vacancy as opposed to incentives. Would that be fair to say? I think on a directional basis, that's correct, Michael. It's Obviously, on the MACC has increased and I mean, I'm sure we'll get into it with some other questions, but it's increased Essentially in our course, right? And it's no different than what we've kind of recorded over the last couple of quarters. And we continue to see that trend, Specifically in our urban core in Ottawa, which is roughly around 70% and our Montreal, Believe it or not, it's roughly around 70% of the law that's urban core. Now the good news is we're starting to see and as you saw in the disclosure documents, We're starting to see on a quarter over quarter basis some improvement in our Montreal and we're going to continue to be excited what we see, but still early days. But yes, it is more on the direct vacancy than on the setups. Okay, great. Thanks. That's it for me. I'll turn it back. Mario Saric with Scotiabank, your line is open. Hi, good morning, Nick. So my two questions, I just wanted to focus on operations and the second one just on your buy for us for values and acquisition pipeline. Just on the operational side, how would you characterize the quarter relative to internal expectations, let's say, 3 to 4 months ago in And occupancy erosion, were there any surprises either to the upside or downside relative to general expectations? We were a little bit more hopeful, Mario, like we really kind of we basically decided to stand to our Hold our ground here as far as our what we are doing as far as rentals and that, I don't think it was anything drastic. I guess we were all hoping that we'd be a little bit further along the way and some of what's going on here. But again, we've been very we've got a lot of conviction of where we're going. We really believe that it's going to be a second half This year's situation, we're really going to look at September as being a telltale point for us. And hopefully, we'll see some good results here into next year. So we really we didn't want to give away Just for now, we thought it's better to be brought it out a little bit. So are we happy with it? No. And I guess that's partly the reason why And then maybe just as a follow-up to that And consistent with Brad's comments on Montreal occupancy, I noted that as well improving quarter over quarter this quarter. Did the leasing strategy in Montreal change at all in Q4? And then when we broadly speaking, like what are the key kind of Leading operating indicator that you look at internally in terms of what would explain why Montreal occupancy went up quarter over quarter, Notwithstanding the schools remaining kind of online and immigration essentially frozen, how would you describe the improvement in Montreal? We've actually just seen some good like good traffic flow in Montreal, and we were probably a little too Hesitant in giving away incentives there. So we've started giving a little bit more in Montreal and it's really in the core. But again, like our we have some buildings that are right around Concordia and McGill, like there's a few there that are Very close to the universities. They've been really the ones that have been hit the most. So we do believe With hopefully everything going back to normal, again, we've seen a lot of positive announcements. McGill is going back full time. We're seeing a lot of the schools at least Announcing that they're going to be 30% to 50% in person classes. So we're feeling much better Right now, we're heading in here to September. So we'll think that what we've done here has proved to be the right strategy. Got it. Okay. And then maybe a question for Kurt. Your IFRS cap rate came down 7 basis points versus Q3, but you also noted the expectation of continued cap rate compression. It looks like most of your portfolio was extremely appraised at year end. How much further cap rate compression do you see in the portfolio based on the kind of extremely elevated transaction activity that you're seeing in the market today? And then how much of an impact on the quarter over quarter change in cap rate would have the Hamilton portfolio acquisition during the quarter had? Yes. So good question, Mario. We do these at a point in time in December 31. We went with the info we had and the appraisers had in their books. The discussions have been that they have continued to compress here in the beginning of the year. And we don't provide guidance on that, but from discussions, it looks like it could be down to 4%, just sub 4% potentially as we go forward. And that play out over Q1 and Q2, I believe, as these transactions firm up and the data is in the hands of our appraisers. So I mean if you look at a 4 cap on our current portfolio, that's going to add about $120,000,000 to $225,000,000 to the FMV, which means you're going to run that $0.85 mark on a per unit basis. Got it. And then the Hamilton acquisition impact during the quarter, did that have any impact on the 7 basis point decline quarter over quarter? Or is it negligible? Yes. No, that was pretty negligible overall. It's just some of the markets where We've seen a lot of activity in some of the in the Hamilton London markets and in and around there. So that definitely did have It definitely did come down. But when I look at the overall portfolio, It was more or less across the board between sort of the Eastern Ontario and the Hamilton Niagara Region, sort of leading the pack, if you will, but it was across the board. Fred Blondeau with IA Capital Markets, your line is open. Thank you and good morning. Looking again at occupancy, it looks like you remain quite confident in terms of demand. But is there like a threshold in occupancy where you could be tempted We're watching it really carefully, Fred. I mean, it really hasn't come off a lot from the Q3, we're kind of we believe we're in the trough from what we're seeing. We do feel that, again, we're watching it really closely. We don't I think we're just going to stick to our guns and most of the way through here, but I don't see it really coming off A lot out of here. So and if we do see anything that looks like it's going to be a change, you know what I mean, as far as we have this gets Prolonged, we will look at it at that point in time. The only thing I would add to Mike's comments, Fred, is While we're not happy with the last couple of quarters where we've trended on the vacancy, we really do believe it's COVID related and it's a timing blip As far as when does the rental demand come back for some of the reasons that we highlighted in our opening remarks, I think we've communicated over the last couple of quarters that we're really not going to have a good idea until through this leasing cycle Where that demand is, and we're also very confident that immigration is not just going to come back right off the bat. While we know it's going to come back, It will have to get through applications. But on the flip side of that, we have what we believe is double coal heart and things like that adding to the rental And we also believe any rental demand we lost to homeownership has abated. I think a lot of that's been satisfied and So really the way we're approaching this, September is going to be a big month for us to kind of see where we're at because we really do Don't want to buy, obviously, at this point, but we have that opportunity that lies ahead of us. That's totally fair. And on that subject, I mean, it looks like you're sticking with seeing improvements in Q3, Q4 this year despite talks of a 3rd wave of The pandemic, is that fair to say? Yes, I think so for sure. And I'll tell you, I'll use kind of Kind of going on with Brad's comments, I'll kind of even use my own family situation. I have 4 kids that are home right now that probably wouldn't be At home. And we love the fact that they're home. It's been fantastic. My wife is extremely happy, But all these kids, they're already talking about they like to leave and get their own places. And they wouldn't be at home if it wasn't for this situation. So and I know just talking to their friends, all these kids are really and it's not just the students, It's the young professionals. The young like a lot of the young professionals have come back home to live with their parents. So I mean, I just look at The whole multiplier effect of where this could go and I just see that there's a lot of kids that will be leaving, Getting their own apartments, even if they're young professionals, you're going to have the domestic students coming back. You're going to have a double cohort of students Effectively going, a lot of the kids that were supposedly going to university here at the start of this year have only taken part time courses. They don't want to lose that experience. So you're going to see that domestically. Hopefully, we get to the point where it's international. Students come back in. Probably, it's going to be the 2022 item and then immigration. So I just see that I mean there's a lot of things that we see as a really positive going forward And we're built this thing for the long run and we're all fairly significant Jonathan Kelcher with TD Securities. Your line is open. Thanks. Good morning. First question, just I guess to sort of continue on the vacancy. Are you seeing Demand down, like less showing, less inquiry, stuff like that? Or are you Noticing that you're losing units on a price basis? I think it's been pretty consistent. I mean, there's from what we've seen as far as demand, and actually it's up a little bit from where it was. I mean, in this like in this queue, it seems like it's up a little bit, to be frank with you. And so we're seeing some good things. Again, We're really believing that there's a lot of people that are sitting in their parents' homes and for a variety of reasons that they're And I'm very lucky to have a good lens on that on a personal lens and seeing their own My own kids and their friends. So we've actually found demand a little bit stronger. So, okay. And when you say this Q, do you mean Q1 versus Q4? Like how are the trends? Yes. Yes. So, it's both start 1 versus Q4. Yes. Sorry, not compared to this time last year, Jonathan. No, no, I know that. So Q4 is hopefully the trough I think it's going to be probably fairly similar. That's just my take on it without seeing it. And again, I'm thinking It's going to be a little bit bumpy here, the first two quarters of this year. And hopefully, we'll see some good improvements in Q3. Again, we're really sticking to our strategy like we could easily rent up Jonathan. That's just not what we want to do. We don't want to buy occupancy. We think that in the long run, that is not a good strategy. Okay. That's helpful. And then I guess on acquisitions, you said it's the most you've seen in your career. Do you think there's enough Supply coming or enough supply out there that cap rates might grip a little higher or is demand that I think demand is hugely strong. There's a wall of capital out there and there's a lot of like it's just I'm amazed that some of the players that I've seen at the table that I did not know had the capability of taking down deals. There is a wall of capital out there. I mean, I think you've probably seen that even in the stock market. There's so many. It's just I'm amazed again by how many players there are at the table. Okay. And was it the Vancouver deal that you guys announced that closes April, was that a marketed deal? Yes, it was. Okay. Thanks. I'll turn it back. Thanks, Jonathan. Brad Sturges with Raymond James, your line is open. Hi, guys. Maybe just to go back to the occupancy discussion a little bit To start off with here, just so I understand it correctly, it sounds like perhaps the move outs of the turnover rate that you're experiencing in Q1 so far, that's Stabilized a little bit more compared to where you were at the back half of last year? As far as the turnover, it's been pretty consistent to be quite frank with you. I mean it's from year over year and even the Quarters haven't changed really that much sequentially. As far as the demand, we're finding a little bit more demand this quarter. And maybe just on the discussion on the development side, maybe you're not giving specifics On specific properties or projects, but do you have general target returns that you're looking to achieve on an unlevered yield relative to what you can buy in the market today? And have you put more analysis or thought into what the Total portfolio intensification potential could be over time? First off, yes, we're very mindful of our returns that we're looking for. So we're obviously trying to beat by, I'd say, a good 100, 150 basis points of what we can acquire Out there, so we're definitely looking double digit IRR returns. As far as the intensification, we know we have lots of capability We haven't put that to paper to anybody, but we've been working our way through it. I mean, these are some of the projects that we've got. They're the early ones. And there are various degrees of development, obviously, and getting through the entitlement process. We just wanted to feature those. Again, they're terrific locations. We really, really believe location always wins the day. Right now, if I look at our portfolio and if I would have said, even on the not even on the development, but on our assets, We have got great locations all the way through. Unfortunately, core has been hit, okay, but I think that's a temporary relocation. Truly 100 percent believe it. We all believe it. Okay, great. I'll turn back. Thank you. Matt Kornack with National Bank Financial, your line is open. Hi, guys. Sorry to beat a dead horse here. But just maybe On market specific drivers, as we come out of this, would you anticipate that maybe Montreal would move Faster than Ottawa because it's mostly student related. And then maybe if you could on an asset by asset basis, And you don't have to go into granular detail, but are you seeing severely heightened vacancy in those McGill and Concordia assets, but something more normal sort of Yes, on the latter part of your question, 100%. It's more heightened in Ottawa too. That's around our properties around the universities and colleges, Algonquin and Ottawa U Carlton. So that's yes, we've definitely been hit around the schools for sure. And again, we really believe that with these Tools opening up that we're going to see some good take up as far as those Taken apartments are, so we feel pretty strong about it. All right. And then just I guess so then you don't expect the difference in The Ottawa versus Montreal repopulation. Actually, the one thing is that we're really expecting Montreal is going to see A good flow. If you look at the once we get immigration opened up again, we really strongly believe Montreal is A bit of a, I guess, a gem that people don't fully appreciate. I think Montreal is going to do extremely well. Yes. I've just a couple of comments I would just add to Mike's comments, Matt, is on Montreal. Just given the number post secondary institutions in Montreal. And going back to what we were talking about with potentially call it, For lack of a better term, a double cohort year. I think you're already seeing some of that excitement come into the marketplace. And if you would talk to our marketing department, Montrealers do look for their apartments and want to secure it sooner than later. So they will Entering into something a little sooner than later. I would say in Ottawa, one of the differences in the sense that it's a government employee based town. To anybody that thought that maybe they were going to purchase a home, call it, in the next 5 years, really took advantage of the low interest rates, But we've already seen it in both regions, but we've already seen pretty strong housing pricing in Ottawa. And we really believe a lot of that's been pulled forward and since been satisfied. But given that, it's probably Ottawa is a little behind Montreal in the quarter. And those trends have been notable on house prices. I mean, you've seen 20% increases in both Ottawa and Montreal, I believe, For housing, do you have a sense as to what portion of the turnover would have been related to people moving out? Or is The bigger component here ultimately sort of young professionals that moved in with their parents in the international student component. Yes. It's really a combination, Matt. Like it really is even in our own shop, I saw some younger kids that reached out to buy a home. And they're probably they're pretty thankful that they did. I've had even people say to me that they've how much money they've Made by buying their home in the start of 2020 or not like so anyway, so yes, it's been a real combination. There's been a variety of factors. I would say by far Ottawa has been for home ownership just overall just because of the government Town and the steadiness of the jobs and that so that we've been lost more in Ottawa for homes versus Montreal on the other side. Okay. No, fair enough. Thanks, guys. It's all on paper and please sell it though. Matt, I'd just add something to that because we keep About the double cohort piece, right? And it's important on several fronts because it's not it's both on the entry into the schooling, right? So people that were 1st year September last year that ended up not moving out and people that are going to be September last year that ended up not moving out and people that are going to be 1st year this year, but it's also the double cohort of young professionals that graduated, The ones that graduated last year, the ones that are graduating this year, if you graduated last April, you probably weren't out looking for an apartment and then you were moving back home or doing whatever. So There's sort of multiple branches of that double cohort. And on the move out piece, I agree 100% with Mike And Brad and what their comments were, but you think through what the fact that if you pull homeownership ahead a couple of years in someone's plans because of what's going on in the market, It takes a while to save up and buy that first home. And you pull that ahead, people stretch a little bit for a year or 2 years out. It Lisa, my expectation is that it will create a bit of a void coming in behind it because, A, those people didn't have enough time to save up and, B, as you alluded to yourself, the 15% to 20% increase in home prices we saw from end of 2019 to end of 2020. Yes. So that 100% makes sense Joanne Chen with BMO Capital Markets, your line is open. Hi, good morning guys. Maybe just shifting back on the leasing front, we're already pretty much done with Just wondering if you could provide some color on with respect to what you guys were seeing in terms of turnover Okay. I didn't hear it 100% clearly, but I you're just asking about the trend Q4 versus Q1, if I'm right, Joanne? Yes. Yes. It's been again, it's been pretty consistent. We're seeing just more traffic though right now than what we've seen before. Do I think that we're going to see everything return to normal For Q1, no. Do I think we'll see it in Q2? No. I think we'll be lucky again. We're looking at September of this year, and That's when we think we'll get back hopefully to normal, but we'll be watching very carefully and a lot of it's going to come down to how is our government dealing With the vaccinations and giving people confidence to go back out and back to school in that. So we're going to have to watch it very carefully. Yes, I'm sure we all have our opinions there. But maybe just switching gears, I guess on VB, you mentioned in terms of the deal flow, Could you maybe talk more specifically with your recent expansion into Vancouver? What are you seeing on the ground now in terms of opportunities in that market? We've seen a lot of different opportunities in Vancouver. Again, it's early stages for us. Got to know a lot of people by being out there myself, being on the ground with our team. We are very bullish on Vancouver, again, we're building this again, as we've said, for the long run, and we see there's going to be a we think there's going to be a good Amount of people that will be coming to Vancouver here as we get through this. And we also know there's a huge population of students that go to the variety of institutions there in Vancouver. And so and their vacancy rate over the years It's been ultra low, like we're looking at 1% for a lot of years. So we really believe there's a lot of potential in Vancouver. And we all And again, with the technology sector becoming more and more apparent and more jobs coming to Vancouver. So we just think there's a lot of great things about Vancouver. We're early stages. I'm not going to say we're not putting all of our funds into Vancouver. We're watching it and being careful and mindful. The one thing I would add to Mike's comment, Wren, is just to is, it's a little different of an inventory. It's a little more mid rise. So typically, you don't get the same size building in Vancouver. So when we have this opportunity to joint venture With Crest Point, which we're super excited about as a capital partner, we saw the opportunity that we've got Some scale, which is extremely hard to do in Vancouver. So it wouldn't have made sense from a one off basis, but now we're going to be able to pick up And Sherry picked some smaller buildings in the other markets, we probably wouldn't have done, but it makes sense in this market because they're clustered Together, while individually they look small, but from an operating standpoint, they're clustered and they're around the corners from each other. So was the add ons that's in April, is that done with ChrisPoint or? But these couple, yes, we've taken them down. They're going well, they potentially will be with Crest Point too. Again, these were off market whereas that's one of the things we've already started to build some Relationships with people that we're getting to see some properties before they come to market. So We're excited about it and we're really extremely we've got a great partner that knows that market very well in Crest Point. We're very happy about that partnership. Matt Logan with RBC Capital Markets, your line is open. Thank you and good morning. Just wanted to follow-up on Matt's question with regards to How concentrated the vacancy is in your portfolio? Could you give us a sense for like across the whole business, Like how many buildings really have above the average vacancy that might be north of 10%? And like what percentage of the portfolio might be running more in the It's really concentrated around our schools and in the course. I mean, that's really where it is. And as you know, the 97 is not our typical operating Sorry, Mike. It's not our typical operating model. We We tend to kind of be a little lower than that, dollars 97,000,000 would be on the high end of that range to begin with, right? But suffice it to say, it's fairly concentrated in a handful of buildings in the core and around universities and Yes, 100%. That's why we feel we've got a great opportunity here as we go forward. We think we're actually we're in a good position. We talked a lot about it. Obviously, a lot of it's going to be will unfold here as we get into September, We feel pretty good about where we're going. So I guess if we think about the demand profile, If you were to lower rents, would there be sufficient demand that you could fill units? Or are these buildings where There's simply no students on campus and there's no demand no matter what the rate or incentives are. It would be a combination. There'll be some demand. It would be definitely not a student demand per se, but there would be some demand. And Again, that would be we just think it's counterintuitive to where we want to go. And so and again, it's fairly concentrated Again, I totally appreciate that. Matt, the one thing I would just add to that, And as you're quite aware, we like turnover, right? So in those areas, we want to Keep it consistent with the tenant profile that we've been leasing to historically as well, right? And in terms of turnover and perhaps the mark to market potential in the portfolio, would you say that's diminished relative to where that would have been In say November at roughly 15%. Sorry, Can you repeat that, Matt? In terms of the mark to market opportunity for the portfolio, would you say that's diminished Materially since November when you reported Q3 results? I thought my microphone was on and it wasn't. No, it hasn't changed significantly. We've been looking at it consistently across sort of On a property basis, on a city basis and on a regional basis, and it's been fairly consistent across the board. And maybe last one for me before I turn it back. In terms of the NOI margins for the business this year, do you think we get back to the 65 I think we do. It's just a matter of whether we get there in sort of 2021 or 2022, just given the timing like Mike was talking about when that comes back. I think If things track well with the rollout of the vaccines and students, I think we could see the later the latter half of this year like Q3 and Q4 be on In track or in line with previous years. And then but Q1 and Q2, I think we'll still see the impact of the increased vacancy. Yes. Just the run rate we'd get back. Appreciate it, guys. I'll turn the call back. Thank you very much. Dean Wilkinson with CIBC, your line is open. Thanks. Good morning, guys. Mike, I'm going to take from your comments that I was extremely lucky that my kid did stay at Well, my kids didn't have an option because they were closed down unfortunately. So I'm assuming that your kids went to somewhere like Westrin or somewhere? They're out in Laurier, so they got Okay. Yes, they didn't have the No. I'm pretty happy to have them home actually. It's been a great family experience that I think they've experienced now and like to Move on from. Happy to have him home, happy to have him leave. There's been a lot of talk on this call about the occupancy, But I'd like to talk just more on rates, rental rates. I mean, you did acknowledge that the mark market opportunity in the MD and A has kind of gone from a 25% to 20% move. How does that 20% mark compare against what you realize And do you track the duration of those tenant Move out to how long they've been there. Obviously, the longer they've been, the bigger that mark is. Are you seeing more of a shorter term tenancy term For a longer term and just what should we be thinking of in the 300 basis point or 400 basis point backfill in terms of that mark to market capture on the releasing going into the back half of the year? Again, it's been pretty consistent about our as far as Our turnovers and that, we do believe again the back half of the year we're going to see hopefully return to normal And I think and hopefully that our mark to market will move up a little bit on the back half of the year. We'll see how it goes though. What was 2020's lift on the turns? Can you remind me that? I don't think we've disclosed the lift on turnovers before. So I don't think we're going to do that. That's why I'm asking. I know if you have a question which remind me, but I was just I was waking up and I had Josh Sankpal with Laurentian Bank. Your line is open. Good morning. Just wanted to understand the incentives being offered in your markets And if you could provide color on your incentive policy? We look at it Case by case and building by building, we are probably should have maybe did a little bit more earlier on. We didn't do that. We are very Hopeful that we would get through this a little quicker than we did. We are doing it now, but it's really case by case, building by building. It would be more elevated. Whatever we're giving would be in core buildings. Right. And what is how is the market In that area, like are your competitors offering a lot of incentives as compared to What you are offering like any color there? Some of our competitors are offering more. We are very I guess we are watching being very mindful on that. But yes, some of our competitors are offering more than what we're doing. We're pretty Well, I think we're being very specific and being very targeted on the buildings. We're also making sure that we don't Change the profile of buildings. So we've been very, very careful and been very mindful of what we're doing. How many months of free rent is being offered in general in your markets? Again, it's been really Targeted depending on there would be more around the students. If that mean if we can get our students right now, it could be 1 to 2 months. And then there's some that there's like you're getting 0 and we're pushing our rents. It's been in our portfolio, it's a really It's everything's really a huge disparity going on right now. And in some of the properties that I'm shocked about how Where the demand is very strong and we're pushing rents. So we're being very targeted. Okay. That's good. And maybe you could tell us a little bit about your repositioning program. Has that program Been affected by the pandemic or you continue to do what you have been what you were doing before? It's continuing on. Nothing's changing. We're being mindful of what we're in. We are continuing on with that whole repositioning, I guess, in trying to high grading the properties to an extent. So we're very we're continuing on. We're watching again the markets. We're going to be mindful of what we do. But again, we really believe this is the right course of action For all of our shareholders as we go through, we think this is the right course of action. But being mindful that some of this stuff Is out of our really, we can't really do too much about what goes on with the vaccine, But we are very hopeful. We've seen a lot of positive news. We think we're doing the right moves. Okay. That's it for me. Thank you. Fred Blondo with IA Capital Markets, your line is open. I apologize, I didn't I mean to overextend the call. I realize it's still relatively early, but I was wondering if you could give us a bit more color on how is the Vancouver portfolio performing so far, but more importantly, how should we be viewing the relative contribution of Vancouver this year and next? Again, as far as the it's a smaller piece of our portfolio. It's something that hopefully over time will Balance out some different areas. We as far as contribution, it's really early. We're just going through the Doing some renovations right now. We are really trying to do some a little bit of upgrading on that So you're not going to see heavy rentals right now. We're expecting you're going to start seeing heavy Like I guess more traffic and actually I'm kind of surprised because I'm hearing there is much more traffic than we thought there would be, but we think we'll really see some Good rentals come this summer. No, that's great. Thank you. Mario Saric with Scotiabank, your line is open. Hi, sorry. Just a couple of quick other ones on my end. Really focusing on your Student exposure, like across your entire portfolio, what's your best guess in terms of the percentage of the portfolio that's leased to students, both domestic and international? I would say it's about 8% or so, 7%, 8%. But the problem too is When you look at it, it's also the young professionals too in the portfolio. That's really it's a kind of a 2 pronged effect. That's really where we're getting it. And those are people that usually want to be in the courts. So you have kids that will graduate, they'll stay downtown Because they want to be at the bars, the restaurants, the whole bit. Now, unfortunately, nobody first off, you can't get into many of them depending on the zone You're living in. And if you are in an area where the bars and restaurants are open, they're very hesitant. So like that whole experience is gone. We believe it will come back actually. I think it's going to come back in A much higher velocity than even before personally once we get through it. I think everybody is reasonably tired of sitting at home, So especially the young ones watching my own kids. So I'm feeling very bullish of where we're going to be at the end of this. Just on that comment, Mike, even internally with some of our younger team members, when you engage with some of our younger future leaders, They're sitting there, they're young professionals and they're some of them are just chomping up the bit to get out. And I've asked them like, how are you and your friends Looking at it because you're kind of in the cohort that really matters in our urban core and consistently, I would just say at least 75 And Earl is saying it's just a matter of time. We'll be back. We all want to live in the core. It's just really when we have more So right now, they're looking at this as an opportunity to save a little cash And be able to fit out their place a little nicer once they do move out. Got it. And would you say that Your exposure to the young working professional, for lack of a better description, is comparable to the 7% to 8% student exposure? I would say yes for sure. Again, where we're getting hit is in the core. So that's basically, I would say that's the line. Got it. And then just maybe on the concentration, absolutely sounds like you're being hit in the court as you mentioned multiple times. One of your peers has noted that their vacancy in student driven buildings is 30% to 40% In the portfolio, are you seeing that type of concentrated vacancy in your student buildings in your portfolio or is it much less In certain buildings, we are, yes. I would be very consistent. I think we'd all be fairly consistent. Got it. And based on your experience in Montreal, let's you mentioned McGill announced Expectations for in person classes in September, typically when would international students arrive in your buildings for A fall school year that starts in September. And are they typically 12 months leases? They would arrive in August typically, but I've seen some arrive later. I'll tell you though, I'm going to Say like everything to me this next year is like it's changed. I don't think there's anything I'm going to go rule by thumb. I'm going to go rule by day, rule by the hour. Everything's changed. You got to look at your stuff consistently all the time being mindful of what's happening out there. So will these students arrive in October, November and do their first part in online? Who knows, Right. It's going to be all I know is that the universities are going to there are a lot of them have some financial duress. We've seen that play out on one school in particular. I believe that they're really You're going to want to up their game as far as international students. I've been hearing the same from a couple of different sources. We'll see how it all plays out. But Again, I wouldn't I don't think I would go rule by thumb on anything right now. I would say the good news, Mario, to that, of all the different Education institutions that are kind of potential demand and feeder demand to us, over 50% of them have Come out with some kind of intention of increasing their in class exposure. So what that translates into, who knows? We'll have to take a wait and see. But that is definitely positive news and more visibility than we had 3 months ago. And each couple of weeks, more and more institutions are trying to come out with what their intentions are come in the fall program, And we've even seen some with the summer program. So directionally, it's going the right way. Great. And then just on that point, Brad, McGill, I think, announced 3 weeks ago in terms of expectations for full in person classes. Have you anecdotally, have you seen Any impact on weeds within your McGill focused? Starting to see a little bit of impact there. Again, like usually the kids would all like lease from May to April 30. I mean, I think that we're seeing that this may change a little bit. But yes, we are starting to see a little bit of impact. I'm very hopeful as we get through the spring here, we're going to see There are no further questions at this time. I'd now like to turn the call back over to Mike McGann for closing comments. Thank you. I appreciate everybody joining us on our first call. Excellent questions From everybody, again, this is obviously a very, very different time. It's very strange times to say the least. We are feeling very bullish on our strategy. We think it's the right course of action. We think all of our shareholders will benefit from this In the long run, again, have a sole belief in our team. Our team has done a tremendous job Getting through this, their engagement with our residents was unbelievable. Just checking on them for Everything from to make sure that they had groceries, any pharmaceuticals they needed. So I really value our whole team members. And as a company, I think we're all going into a very good time. We've learned a lot about ourselves during this. I think we've all learned a lot about Ourselves and on a business size and personally, but I feel very fortunate to be part of this great team. So we look forward to having some very good results as we get forward through at the end of this year and into 2022. And thank you again. I appreciate all the analysts and their coverage. And I appreciate everybody joining us on this first call. Thank you very much. This concludes the Interrent REIT 4th quarter and year end 2020 financial results conference call and webcast. Thank you for calling.