Welcome, everyone. Thank you for joining InterRent REIT's Q1 2022 Earnings Call. You can find the presentation to accompany today's call on the Investor Relations section of our website under Events and Presentations. We're pleased to have Mike McGahan, Executive Chair, Brad Cutsey, President and CEO, Curt Millar, CFO, and Dave Nevins, COO, on the line today. As usual, the team will present some prepared remarks, and then we'll open it up to questions. 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 news release and MD&A dated May 10, 2022 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, they are not recognized measures and do not have standardized meanings under IFRS. Please see the REIT's MD&A for additional information regarding non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Mike, would you like to start things off?
Thank you, Sandy, and thank you everyone for following us over the years. It's been 50 quarters, 12+ years since being the CEO. We've come from less than CAD 40 million market cap to over CAD 2 billion. All of this because we've had some great team members in the past and present. I do wanna make some special mentions of a few key individuals. Bob Jarrett, Dave Nevins, Curt Millar, Will Chan, Ozren Runtic in the early years, Roseanne Holtman, Kelly Meyers, Cindy Masquez, Martin Vervoort, and Ray LaChance, who's been trying to retire for the last two to three years, and I have told him he can't do it. He was not impressed with the press release, but we've been on the phone at 7:00 A.M. and on the weekends and.
He knows that this retirement is not happening. It is just a different role. We will have a long retirement plan between the two of us. I have to say, like, in the 35 years I've been in the business, I've seen lots of different things. I've seen the crazy rates of the 1980s and, you know, I'll tell you, I remember one of my first places I bought while I was in university, I secured a second mortgage at 18%, and I thought that was fabulous. I remember coming home telling my dad. He didn't look as impressed as I was. The recession of the early 1990s, the tech bubble, the world financial crisis, the pandemic, and, who knows what we're going through now.
Now it looks like just a mixed bag of a bunch of different things, inflation, pandemic, war, all sorts of stuff. That's why we always talked about it being a very important to be prepared for these shocks and to bring our leverage down, which I think we've done a really good job on. Also, that this business must be sustainable. It must be ready for anything. It's a living and breathing entity that we need to always caretake and make sure we pass on. That is part of our whole strategy about succession planning. That doesn't just start at the CEO level. That's all the way through the organization. Nobody should ever be afraid of hiring great people because great people will just push you up.
I think we've always shown that, and it helps you develop that deep, talented team that I believe that we have. Well, I don't believe. I know we have. In late 2019, early 2020, I knew it was my time to start, you know, looking to step down. I usually work in 10-year patterns or cycles, as you may. My time was up. I chatted with the board, and we were putting together a whole succession plan, but it was well underway. I had been grooming Brad for years. You know, and Brad's a very talented individual, so I knew that would work its way through in very short order.
We hit the pandemic in early 2020, and we put all this on hold because it was time for us all to roll up our sleeves. In doing so, we had to come up with you know, a strategy of what's our best path forward. We saw our best path forward and strategy was not to buy occupancy. It was really about, you know, delivering top-end service, top-end product and taking care of our residents, our very valued residents. I believe when you look at the results from this quarter, you'll see that this has proven out to be the right strategy. I think we're you know, still gonna see lots of different things coming at us. It's continual.
You know, we're gonna have to really watch the cost containment, that side for sure, 'cause obviously there's inflationary pressures. But when you look through the results and you know we're burning off our promos, I'm pretty pleased. This, I have to say, this team is very resilient and deep. As I mentioned that it's gotten deeper over the last couple years. We've added more talent, and so it's really built for the future. I'm really not gonna be far away. I'm the Executive Chair, as you know, but I will have a very active role in the business, and I do have a significant amount of shares, but I do believe this team is ready, and the timing was right. Brad is a wonderful leader.
He's got so many different skill sets. He's been involved in the organization over the last seven years in so many different areas, so he knows this business through and throughout. He is very relatable, and he just. His leadership skills just shine. When looking at the timing in that and knowing on the you know all the way through the organization and the private side, when you make a decision somebody's moving to a different position, you make the call and you make the move. You don't need a big overhang. The organization needs clarity. This is time for Brad to shine. It's the start of the leasing season.
I want the people to know that they look to Brad here in the day-to-day operations, and I have 150% confidence in Brad that he will deliver as we go forward. I also feel really fortunate the board saw a role for me as Executive Chair. I couldn't ask for a better job description. I get to be involved in the strategy, the capital allocation, maintaining and adding to our JV partnerships and to coach and mentor. You know, those are all great parts of the job that I love doing. I also am gonna be very involved in, you know, working with the various governments and levels of government in the affordable housing side. We wanna be part of the solution.
We know it's really important for Canadians. We know it's very important for all of us to be involved and to be part of the answer. I'm also fortunate to be able to do some stuff with my kids in our real estate business. I am looking forward to that part. I'm not sure if they'll feel the same after six months, but I feel very fortunate to be able to do a little bit of that. That'll be great. I look at this as when I put all the pieces together, I'm not retiring, I'm ramping up. I love this business. I feel so passionate about it.
I'll tell you, I feel so humbled and fortunate to work with so many talented people and to continue on to work with so many talented people at the REIT. I do know that the time right now is to pass this on to Brad. Brad's gonna take the REIT on some very exciting paths along the way, and I look forward to the future. At this point, I'm gonna hand you over to Brad, your new CEO, and I wanna say thank you to everybody for again for following us over the years and to continue following us as you watch what Brad does with this company. Thank you.
Thanks, Mike. I'd like to start off by just saying I couldn't be happier with both of our new appointments. In my opinion, it truly reflects how strong a team we're surrounded by, and I truly feel blessed for it. Over to the quarter. We had a great start to 2022, especially considering how we started things off with Omicron in January. We're pleased to see that our March occupancy held at its December levels, and we're now firmly back in the historical range of 96%-97%. As expected, given our 2021 record acquisition year, our total portfolio posted strong operating revenue and NOI growth prints for the quarter. We're also happy with the robust growth figures for our same property portfolio in Q1, as this demonstrates the organic growth potential embedded in our portfolio and the strengths of our teams on the ground in our communities.
Looking to the right side of the slide, you'll see that we're reporting strong FFO and AFFO growth on an absolute and per unit basis for the quarter, and that our balance sheet continues to be in great shape. Over to slide six. We continue to see strength in fundamentals in our sector and saw 6% growth in average monthly rents in March relative to last year. You may have seen an announcement from our immigration minister a few weeks ago that the government is resuming its Federal Skilled Workers program this July. That's a big announcement because the program has been on pause since December 2020, and is the main way the government manages skilled worker applications from an immigration perspective.
The other key piece of that announcement is that the IRCC is expecting to be back to their six month service standard by this summer, which gives applicants more certainty in the process and signals that we should see the share of permanent residents coming from abroad revert back to the majority. Over to slide seven. At the regional level, we continue to see steady year-over-year growth in average monthly rents across all regions in March, suggesting that the strength in fundamentals aren't isolated to specific regional pockets. The current cap rate in excess of 20% across our portfolio, and that doesn't fully capture the return of international students and true inbound immigration. I'll hand it over to you, Dave, to share some highlights on the operational side.
Thanks, Brad. As Brad mentioned, we have put the elevated vacancy figures we reported at this time last year firmly behind us, and we're back to our historical occupancy range. In Q1, we usually see a seasonality effect in occupancy that can cause it to slip anywhere from 50-100 basis points from December before recovering in our high leasing season of Q2 and Q3. In that context, we're pleased to report that our overall portfolio occupancy is at 95.5% at the end of March, which is essentially flat relative to year-end 2021. Our same property portfolio improved further in this quarter to finish at 96.4%. Again, this quarter, I'd like to highlight the vacancy evolution in Vancouver, which was sitting below 2% at the end of March and highlights the tight fundamentals in this region.
Looking to the east, Montreal continues to lag our other regions with a vacancy level back above 7% after seeing a bit of a temporary bounce in Q4. As we mentioned on previous calls, we're waiting for the student effect to be realized in the upcoming months and expect to see progress on chewing through the elevated vacancy in that region toward the end of Q3. Now looking at Slide 10. We know that inflation is on everyone's mind right now, including ours. The operating expense line is the one over which we have the greatest ability to influence. This line item has increased not as a percentage of revenues in 2020 and 2021 while vacancy was elevated, but we're encouraged to see it back closer to levels than seen in 2018 and 2019, as shown in the left-hand chart.
It's worth noting, however, that this cost has crept up on a per suite basis over the years as we built out our operating platform to position us for future growth. As we highlighted in our press release, we definitely felt the impact of natural gas rates across the portfolio, as you can see in the right-hand chart. We have explored hedging programs on a regular basis, and the most recent recommendation we received is to wait and revisit later this spring. Our biggest defense against utility rate boomlets is our efficiency programs, which we have continued throughout the pandemic. I encourage you to read through our sustainability report, which we published this morning for additional context on our many initiatives. I'll turn things back to Brad to walk through our capital spend.
Thanks, Dave. Turning to slide 12. On the left side of this slide, you can see that the maintenance CapEx in Q1 was too light on a per suite basis, which we attribute to on account of some residents being hesitant to let our teams in for non-emergency repairs in January. With the start of a new year, our repositioned portfolio now constitutes anything that the REIT acquired before January 1st, 2019. Which is why the number of non-reposition suites is slightly lower than as of December 31st, but it still represents about 30% of our portfolio. During the quarter, we continued to invest in value-enhancing initiatives in both our non-reposition and reposition portfolios for a combined total of CAD 16 million. We see excellent value creation in the reposition program. However, it's important to note that individual suite upgrades follow the natural cadence of resident turnover.
Turning to slide 13. As we mentioned with the Q4 results, we closed on two tuck-in acquisitions in Vancouver in January and February with our partners that fit in nicely with our existing footprint. Private market conditions remain extremely competitive, highlighting a huge disconnect between what we're seeing in the public markets for our sector. We're continuing to go after bids for undermanaged properties where we believe we can add value. We are also exploring new builds in some regions to generate strong cash flows on day one while still generating upside potential from our expertise in marketing and leasing. We're still optimistic on acquisitions for 2022 and hope to have some announcements to share in the coming months. We're unlikely to see a repeat of the record volumes from 2021. Turning to slide 14.
You've heard us say before that bringing on new supply is key to solving the housing affordability issue in Canada, and we're committed to play a role in delivering that supply. We are progressing well on our office to residential conversion in Ottawa at 473 Albert, which has been branded as The Slaighte. Construction is fully underway and hard costs are now 95% contracted. Marketing activities have already started, and we look forward to welcoming our first residents starting in late Q3, early Q4. Turning to slide 15. Development will become a bigger part of the REIT story in the coming years, so we'll disclose some additional details on the pipeline this quarter, which we hope will help model the potential for these incredible greenfield projects.
We're working with great partners to bring this supply to market, and we're looking forward to sharing additional details as we get closer to getting shovels in the ground. I'll pass things over to Curt to go through our balance sheet.
Thanks, Brad. In Q1, we recorded a CAD 66 million fair value gain, which results primarily from our continued strong operational performance. We are currently sitting at a weighted average portfolio cap rate of 3.82%. This is a four basis point reduction from Q4 2021 and is driven mainly by the inclusion of our Q4 acquisitions with only a handful of tweaks to other assets that have progressed through the repositioning program. Moving to slide 18, we see that the REIT continues to be in a healthy financial position. Our debt-to-GBV on March 31st decreased slightly to 36.4% from 36.7% at the end of Q4 2021. At the end of March, the REIT had CAD 1.45 billion in outstanding mortgages on our books.
As we outlined during our Q4 call, we have been actively managing our mortgage ladder and have increased the average term to maturity from 3.6 years at year-end to 4.5 years at the end of March, as well as increasing our percentage of CMHC insured mortgages from 63% at the end of December to 71% at the end of March. As expected, those refinances have led to an increase in our weighted average interest rate of 13 basis points going to 2.51% overall, which by historical norms, is still very low. As of March 31st, we had approximately CAD 340 million of mortgages remaining for renewal in 2022, of which we have already finalized CAD 51 million subsequent to the quarter.
At the end of April, the market rates for CMHC insured mortgages for a 10-year term were in the 3.85%-3.95% range, but rates are moving as much as 10-15 basis points a day up or down.
With such unprecedented swings in the rates on a daily basis, we are staying very active in managing the timing of our financings. Looking at what has closed or is in progress for Q2, we expect our June 30th average term to maturity to continue to improve with a further uptick in our CMHC-insured. Moving away from our mortgage ladder and into our sustainability progress. I'm on slide 20. As Dave mentioned, our 2021 sustainability report was published this morning and is available in the sustainability section of our website, along with annual updates on our social and environmental performance metrics. Our aim with this report was to reinforce our commitments around both climate change and diversity, equity and inclusion that we made to you in our inaugural report last fall.
We have set an ambitious plan, and our team members are fully engaged as we move forward on these important commitments. We welcome your feedback and look forward to some interesting discussions as we meet with investors over the coming weeks. I would like to thank Sandy and the whole team for all of their hard work as there has been many hours put into moving these commitments forward and pulling together all of the information for this report. Brad, would you like to say a few closing words?
Thanks, Curt. Over to slide 22. As I mentioned at the top of the call, we had a good Q1 and are encouraged that fundamentals to continue to strengthen as our true immigration comes in and international students come back in full force to on-campus learning this fall. We're committed to being part of the supply solution and work with our peers to engage with our government partners, explain the role the REITs play as housing providers in Canada. We're keeping a close eye on the costs we can influence, and we're pursuing energy initiatives to reduce consumption. As Curt outlined, we are paying close attention to our mortgage ladder and have already worked through a big piece of our 2022 renewals that will only serve to reinforce our already top-notch balance sheet.
I'll echo the comments from my colleagues that we're encouraged to read through our sustainability report and check out the website. You're going to hear more and more from us on sustainability because these are big commitments, and we know that they are the right things to do for all stakeholders. Thanks to you all for your continued support, and we look forward to seeing you in person soon. Let's open it up for Q&A.
Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you wish to remove yourself from the queue, we ask that you please press star one again. One moment, please. Your first question comes from the line of Jonathan Kelcher of TD Securities. Please go ahead.
Thanks. Good morning. First question, just on the operations side, how has Q2 started out? It's your strong leasing season. How's it started out in terms of occupancy? Probably more important, the 20% uplifts or mark-to-market that you talked about, are you starting to see that translate through?
Yeah. Hi, John. I'll turn it over to Dave, but so far, so good. Maybe Dave, you can give some more color.
Yeah, I think to just echo that, you know, very, very strong in Vancouver and Southwestern Ontario. Things are going extremely well. You know, a little bit lagging in downtown Ottawa and Montreal, but things are really coming together. Yeah. I think, yeah, I think we're looking forward to a really strong leasing season coming up.
I would also just highlight what we've said on previous calls. Vancouver is still doing extremely well and outperforming original expectations. Both the GTA area and Vancouver have started to see some immigration, and I think that's showing up in the numbers. Just to Dave's point on Ottawa and Montreal, while we've seen some very strong recovery, there's still some upside left to be had. I think we'll start to see that once we see the return of international students.
Sort of closer to the end of Q3 for Ottawa and Montreal and strength in Vancouver and Toronto areas all the way through?
Correct. I'm not sure if you saw it, but the federal government made an announcement that they're gonna increase study permits. We should hopefully start to see some statistics in around that in July.
Okay. Secondly, just on the acquisition side, just given where your stock price is, you probably don't want to be as active. Are you starting to look more at asset recycling?
Yeah. As you know, Jonathan, we've never been married to our assets, so we've always taken an approach where if we think we realize the value that we have in a certain community, we're always open to the idea of monetizing that and recycling that cash flow into other opportunities and try to continue the value creation. There's no question right now, not only our unit price, but unfortunately, the REIT sector overall in the multifamily sector, we're trading at significant discounts to what you can actually buy out there. I think it's safe to say the public markets are somewhat turned off at this point, but there are other ways to skin a cat, and you've just mentioned one of them.
The recycling of capital is always a good idea if you do have some communities that do you think to maximize that potential. The other thing I would like to highlight, we entered into this the last time we saw our unit price trade at a pretty steep discount. We found ourselves a wonderful partner and became less dependent on the public markets when we did the joint venture with Crestpoint in Vancouver. They've been a great partner, and they've been a great source of capital, and their capital motivation is a lot different than the public market. Right now, there continues to be a disconnect between the public and the private market.
Would they be looking to get any assets outside of Vancouver, so like maybe part of your Toronto or Ottawa or Montreal portfolios?
I can't speak for them, Jonathan, but I do know this much. They're very extremely bullish on the multifamily market, and I believe they wanna expand exposure. You would have to ask them, but so far, all their indications have shown that it's been a great partnership so far. I don't wanna put words in their mouth, but I think they're extremely happy with us. I think they partner with us for our operating abilities and our operating platform. We partner with them because they've got a great track record, and they've got a lot of institutional capital to put to work.
Okay, thanks. I'll turn it back.
Thanks, Jonathan.
Your next question comes from the line of Mike Markidis of Desjardins. Please go ahead.
Hi. Thanks, and good morning, everybody. Just two questions for me. Curt, you gave some good commentary on the refi activity you've done, but just wanna make sure I got it all clear here. The CAD 340 million that's left, you've locked down CAD 51 million to date. Is that correct?
Yep. That's correct, Michael.
Okay. What would that rate be consistent with that 3.75%, 3.85%, 3.95% range that you were talking about, or are you going shorter than 10%?
No. We were actually able to lock a lot of that prior to the rates moving on us. Let me just grab what that overall rate is. It's. Yeah. Well, it's sort of at the lower end of that range, if you will, but it's in that range.
Okay. Then remainder would just be subject to current market or future market to the extent that it happens in due course.
Correct. Yeah. A lot of what we have right now that's coming up that is in the last quarter of the year. We've got some time ahead of us to sort of see if the turbulence that we're currently seeing, to say the least, in the market sort of settles down. Then, you know, based on that, we have some options whether we continue to lengthen out like you've seen. You've seen our the barbell approach that we've had in the past with our repositioning into CMHC program. You've seen that jump up to almost 42% is beyond that five-year mark, as of the Q.
You know, it gives us an opportunity if things sort of stay high for a while, as we can sort of finish filling in that ladder and start to put some money into that two and three year bucket, which has a very low percentage of debt in there, just to sort of let the turbulence settle and rates to return back to sort of more normalized levels. The other thing I'd say on that front is when you look, knowing our sort of history around repositioning and the work we do there and sort of that strategy with building up that value, if you will. When you look at our repositioned portfolio, over 90%, it's in that 94% range of our repositioned portfolio is actually CMHC insured.
Even our same-store portfolio is into the mid-80s% CMHC insured. The percentage that's not really is focused on those assets that we've acquired mainly in the last, you know, 12-20 months, if you will. That's what sort of makes up that more short-term focused and more interest rate sensitive portion.
Okay. That makes sense. Thank you. Then just lastly, I mean, this is a high level question, but I'll give you guys a stab at it anyways. Very fluid bond market in the last eight weeks. I'm just curious if your confidence in the market has increased materially in the last eight weeks, such that you would believe that if you were penciling an acquisition today, would your expectations for future market rent growth offset the rise in the yield curve? Thank you.
Great question, Mike. I think it's a question that the industry as a whole is struggling with. I can't remember the last time we've seen such heightened volatility in the bond market and such a drastic rate of change in the increase. Good news, absolute levels are still relatively low in historical context. However, things the rate of change has been pretty large. Cap rates haven't changed. If that's where you're kinda getting to the point of the question, but obviously, the vendors' expectations lag maybe the nuances of the capital markets. That said, there are acquisitions in the pipeline. As you know, we've always said we've worked on some acquisitions, and it's taken us over two years.
We always have had a pipeline of acquisitions that have been are engaged at different points, and you enter into at different points. Our pipeline is not as static as you turn on the switch, you turn off the switch. That said, what we do have in our pipeline, I think we're very confident that they're great strategic opportunities, and we'll continue to add to our track record that we've already kind of shown. Going forward, I think we have to sit back as a senior management group and reevaluate and see where the dust settles as far as going forward, where expectations are, given where the interest rates are. As you're aware, in my time of studying the capital markets, things do adjust and they readjust and whatnot. I don't want this discussion turn into solely on cap rates.
This is the second point of your question. If new supply is not delivered at a pretty quick speed, there's gonna be pressure on rents. As an industry, we have to be the part of the solution and work with the different levels of government, right from the provincial to the municipalities. We have to help deliver that supply because if we don't, rents are gonna increase at an alarming rate. Those rent increases over a long enough time period will likely offset what you're seeing as far as operating cost pressures and interest rate pressures. There's a third variable that I should mention.
As you are in this environment where it still has high barriers to delivering that supply, an increase in interest rate environment and an increase in operating cost environment, all of a sudden the existing apartment stock has got a lot more valuable. On a replacement value basis, all forms of housing has just got a lot more valuable. When people are somewhat sometimes stuck on the actual yield calculation or valuation, I think they're forgetting to look at the replacement value aspect. I don't think you're gonna find any participant that's in the industry that would not say that we needed the new supply. We're an extremely tight market. To be honest, the federal government has some ambitious immigration targets, which I think everybody, every Canadian welcomes, because that is gonna help grow our wonderful country.
We better come up with a solution on how we're gonna house those, newcomers to Canada.
The only thing I think I would add to what Brad was saying too, Jonathan, is that, the privates. Sorry. Oh, Mike. Sorry, I thought it was Jonathan still. Sorry, Mike. The private market still is very hungry for multifamily. So even if our public company peers are seeing, you know, that pressure on the equity and the debt, the private market still wants to be in real estate, still remembers what happened in the last financial crisis, still sees it as a very safe harbor in very turbulent times. So there has not been a letup on the bidding side of the equation.
Thanks. That's it for me.
Our next question comes from the line of Matt Kornack of National Bank Financial. Please go ahead.
Hi, guys. Just to follow up on that last train of thought with regards to rent growth trajectory. Would you think at this point that it may be even nearer term? Don't we have a lot of the conditions in place at this point, given a lack of supply that the spring leasing market itself may be pretty frothy on the rent growth side?
Yeah. I think, Matt, I think what you've seen in our results in this quarter and even Q4, I think the fact that we didn't boost occupancy in anticipation that rent growth was on the horizon is kind of proof in the pudding. We definitely saw some strong top-line growth, and we're gonna continue, and we are experiencing it as we speak today. Yes.
Fair enough. Then I saw that you have an NCIB that was recently approved. Given your comments around potential JV sales, could you foresee kind of that as a source of capital or even you have leverage capacity ultimately to buy back stock given where you're trading? Is that entertaining at this point or yeah, your thoughts on that?
I'm laughing because it's definitely entertaining and the gentlemen and ladies around this table with me today are laughing. All jokes aside, this is a very healthy debate among our board and our senior management team. I think we all recognize that the NCIB is a great tool in your toolbox, and it's a great way to add to your immediate NAV per unit. However, it does compete with other opportunities, and it is competing capital. Unfortunately, it does lever up your balance sheet. It's worthy of big discussions, and there's kind of two views to it. Like I said, there's other ways to source equity. At some point, your unit prices are so low that you can't ignore it.
I'm looking over at my boss, and he's smiling because I think you share the view. I don't wanna put words in your Mike, but over to you.
Well, we're having, with have a lot of healthy debates. I looked at messages. We could not buy our company. Forget the platform, but just the properties, it's not even close to what we would be able to get this. This is like we're totally undervalued. I've seen this disconnect before, and then you start layering in the platform, which as we go forward at the whole new builds that are gonna come down the pipe, it's gonna be super important. Just we're totally undervalued. That's the way I look at it. Man, it's pretty compelling when I look at it right now. It's good to have these healthy debates. We'll see who wins at the end.
Yeah. Fair enough. I think you're 200 basis points above where cap rates were not too long ago, and I can't imagine the private market has moved that much. Then just a last one back on operations. You noted it, but your op costs I think they beat us. Obviously, utilities have been an issue across the board. How much potential is there to kind of, if not constrain costs, at least keep them at bay in this inflationary environment?
I think the key is, I think we're all gonna experience operating costs unfortunately. It's just the new reality. The good news is we're not in this alone. Every industry, every business is experiencing it. The question is, can you protect your margins? In an increasing and inflationary environment on your operating costs, you have to get the top line growth. I don't want to oversell it, but the culture at our shop is really about making sure when you have a vacant house that you're getting the price. That means you just don't accept. You go out, and you really push to see where that rent can go. At the end of the day, the operating torque you get on that will outstrip and protect your margins.
I think we've seen the worst as far as knock on wood, as far as where utility costs will be. As everyone knows, it's a seasonal business. Q1 is our worst quarter. Now, does natural gas prices come off by a lot? No, I can't say necessarily they will. I think there's a lot of things, especially the war in Ukraine has to get resolved before you see some relief on that front. At the end of the day, if you don't have the culture where you are trying to really maximize the top line, then you're gonna see margin erosion. I'm pretty confident with this group that we're all very much zeroed focused on watching every cent that we spend so that we can protect those margins.
I know, like, Dave speaks to this all the time. It also comes down to the quality of our staff, the quality of the training, and we make sure to spend a lot of time through our teams and training our teams on all the little things they can do to help save money, whether it's a small thing that normally they might outsource, you know, or call in a contractor for a small plumbing repair or different types of repairs. Our team spends a ton of time. We've set up training rooms in each of the regions.
We have a whole program that Dave and his team have developed, that they all go through, and they've done a really good job of trying to make sure we keep some of those costs down where we have certain level of control that we can bring in-house.
Yeah, that's a great point, Curt. Like, instead of paying another business their profit margin, we try to capture that in-house and use some of that in reinvesting in our own operating platform and training.
The only other thing I'd add, too, is really working hard and following our sustainability plan, making sure that we're capturing all the savings we can within our CapEx program to make sure we're implementing all those pieces. You know, like Curt said, training and obviously keeping track of our utilities the best we can with the measures that we put in place.
Okay. Great, great. Thanks, guys. Congrats on a good operating quarter.
Great. Thanks a lot, Matt.
Thanks, Matt.
Your next question comes from the line of Jimmy Shan of RBC Capital Markets. Please go ahead.
Hey, thanks. Just on the market rent gap to in-place rent, just wanna clarify, is that sitting at about 25% today? How would you describe how that number breaks out by region, roughly speaking?
We haven't broken it out sort of by region, Jimmy, and I don't know if I wanna do that on the call, so we'll take that away and maybe try and include some of that in the future as far as our disclosure goes. But it is in that 25% range. We were closer to the 20% last year at the end of the Q4, but we've seen a very strong Q1, as you can tell, just from the point of view of normally our Q1 occupancy sort of goes down a little bit, and we've actually held flat this year, which is a pretty strong start to the year. I think Mike in his opening remarks talks about how we see this sort of getting back to almost pre-pandemic levels.
I think that given the current trajectory, if it continues, we'll definitely be back there by, you know, Q2 or Q3. Not to put Dave and the ops team on the spot, but I think given the current trajectory and what we're seeing in our lease turnover, that those numbers seem very reasonable to me.
Okay. Sorry, I don't really need specific numbers in terms of geographical breakdown. I just wanted to get a sense whether that's tilted in a particular market or not.
I think it's fair to say, Jimmy, if you look at the disclosure in the MD&A, at the trends that you see in the MD&A, that it's fairly consistent with what's reported. The main thing is everything's shown significant recovery from the troughs that we experienced at the height of COVID. There has been some regions that have outperformed on a relative basis to the other regions. I would say it's fair to say that the gap is fairly reflective of that. I think you mentioned it earlier on, like Greater Vancouver area, Greater Toronto area, and the other one is other Ontario. It's been very, very strong. Like, those three in particular have been very, very strong.
I think we'll see more of that pressure come into Montreal and the National Capital Region as we get into the summer leasing cycle and ready for the return of the students, because those are markets where our product is very core, is very near university. If they don't cater directly, there's still that trickle-on effect of the overall market within that zone, if you will. Yeah. Another thing I would mention to Curt's point, that's where the opportunity lies is within those more student dedicated markets. I'd also point to the fact that we're starting to see the promos come in, and I think we're gonna continue to see the promos come in over the course of the year, and that's roughly about CAD 1.5 million this quarter. That's significant when you kind of add that number up.
Right. Okay. Quickly on the development pipeline, that you outlaid on slide 15, did you disclose what the total budgeted cost for those projects are? I think that would be kind of the final piece of the puzzle to put some math behind that.
Yeah. We haven't, and it's not to be cute, Jimmy. Until you have the, call it, grade B or A drawings, like, we really don't wanna put ourselves out there in this environment. I think what you can take comfort in, we're not gonna start a project where we don't have good confidence in being able to achieve the pro forma. Essentially, when you talk about a pro forma, it's really about the rent that you can achieve. We're not gonna start incurring hard costs, dollars of construction until we have a pretty good idea of where our fixed costs are and that we can deliver into a market that we can achieve those rents.
I think what's being fair is we've given you the yields, so yes, you can't see what costs are associated with them. We feel comfortable at this point that we can achieve those yields. Like I said, as we enter in fixed cost agreements and get the majority of the project contracted out, we feel more comfortable disclosing that number to the market.
Okay. Roughly speaking, kinda, I think not specific to those assets, but roughly cost to build per foot these days sit at around what kinda range?
Obviously it's gone up. I could give you a number, but it seems like it's going every day. What I would go back to saying what Brad was saying, we would not build without having fixed construction cost contracts, a good percentage of 75% or more in place, probably more. It is changing a lot. This is going on all the time. Unfortunately, there's lots of different issues going on now. There's actually a couple even strikes going on. We have the crane operators and the form workers, which is a bit of an issue. The plumbers I'm hearing they're potentially gonna go. It's moving a lot. That's the problem.
When you start penciling out your numbers, it's very fluid right now.
Okay.
We have to be extremely careful. Just to add on that, Mike, it's not just the cost with some of these strikes we're seeing, it's the timing, 'cause that can lag a project a couple of months easily when you get different trades. Yeah. 'Cause there is a knock-on effect to when the order in which the work has to be done, right? Yes.
Okay, sorry. Last one from me, Mike, since you're on the line now. Which side of the NCIB debate are you on, Mike?
Jimmy, what side are you on? I asked the question.
I asked you first.
You know what? It's healthy. Like, we have a discussion. I mean, I look at it and I say, "Geez, like, we are so undervalued." I really feel it's not a bad time to be buying our stock, to be frank with you. But we have a healthy debate. It's been really. I mean, obviously the market's dropped really quickly. Yeah, I guess Brad wants to make his comment. We do have a healthy debate because it's very frustrating, right?
Mike and I and the rest of the team sit there and look what's in the private market and what it costs to transact, and there's so much capital with this asset class 'cause let's face it, if we are heading in a recessionary environment, which the bond market's saying, you couldn't ask to be in a better asset class than housing. We all know that from studying this industry and us participating in this industry. Who really know if cap rates really do adjust to these increasing interest rates for this asset class? It's yet to be seen. The future will tell us. We do know one thing. It's frustrating to see where our unit price is trading today relative to what the private market is. I completely appreciate Mike's frustration and views when it comes to the NCIB.
The other view would be the sense that if this is a macro call and the powers that be are sitting there and saying, "This is not about company-specific" and the negative sentiment. You can throw a lot of money at NCIB. Yes. And in theory, decrease in NAV per unit. So move that from CAD 17.80 to CAD 18.50, CAD 19. But if you're still trading at CAD 12, all I've done is widen the discount and tie up the balance sheet when we actually do have some other opportunities in the portfolio that are gonna be NAV accretive over the term and through the cycle. The other thing I would also say is, Mike touched on this, and we all wholeheartedly believe here at InterRent, but what makes us special is we're an operating platform.
That's what we do well, okay? When we find an asset, we reposition it, and we operate it. I think that is our special sauce, and that I don't think you get, the same value back, right? We have to continue to invest in that operating platform. You can see there's really strong arguments on either side, and I don't think necessarily there's a right one.
Okay. Thank you.
Your next question comes from the line of Johann Rodrigues of IA. Please go ahead.
Hey, everyone. I just wanted to clarify. Curt, I think it was you that mentioned earlier that you're still seeing the same strength in terms of pricing on bidding. Are you still seeing the same number of bidders in the same profile, I guess, with respect to domestic and foreign, given what may or may not be coming down the pipe regulatory-wise?
Yeah. I think basically I'm gonna let Mike or Brad answer that one because they're a lot closer to the acquisitions team than I am. I'm just talking about what I'm seeing once it flows sort of through them on some underwriting over to my desk.
Yeah. Like, up to now, we have not. You gotta realize that the acquirers are not looking at it in the same lens. They look at, you know, Canada where it's, you know, where the potential is to grow over the long term. So really the depth of bidders has not changed at all. What has really surprised me is the amount they're apportioning to future density on these sites. I mean, we've been on some bids where, you know, we weren't even close because people are looking at the, you know, the potential density on those sites and to be able to add on to those properties. So really up to now, we haven't seen anything happen. Does that mean that, you know, things won't you know, shake out over the near term?
We're gonna be very careful what we do, so we'll be watching really careful, and it could change. As we all know, it's fluid, and that's the beautiful part about the business, right? There's always things changing. It's never static, so.
The one thing I would add to Mike's comment too is, I think we've been communicating this for a while, and I'm conscious of self. I think our peers have done a good job of this too, is the asset class is getting institutionalized, right? Some of those institutions are or could be equity buyers, where they're not as reliant on debt. Another thing I would say too is on the private side, there are a lot of private buyers that will look to hold us as a generational asset to preserve capital. If they're less, they're less likely to be impacted by some near-term financing.
I do think, and I think we agree, there will be some private buyers that might be taken out of the market because of the higher interest costs, and all of a sudden the levered returns on a risk-adjusted basis don't make as much sense. I agree with Mike. I think it's still too early days, and we haven't seen any indication from those institutional buyers that they're gone.
Gotcha. Okay. That's a good color. Thanks. Just on turnover. You know, obviously, turnover has plummeted the last two years, both because of rising rents but also because of the pandemic. You know, with the pandemic kind of easing, I guess, have you seen either tangibly or is the expectation for maybe a slight rise in turnover, as we progress through the years?
I wouldn't say we've seen a rise. I think we've seen it come in a little. It hasn't been that great, but it is coming in. You've touched on a point that I want to make is. I think we have communicated this in the last while. It's you're gonna start to see us participate in new supply. I think this is one way to countereffect the so-coveted turnover rate. Because at the end of the day, you really in order to capture and capture that return that's associated with the reposition is really the effect of the natural cadence of your portfolio on turnover.
I think augmenting that with new supply where if you are well operated, you should be able to maintain or better your growth profile than a lease inflation on your new supply, which I think is a great way to augment your top-line growth. I think you will see us participate in more supply. That said, we're gonna be very mindful of the feasibility and the returns of what we're purchasing and what we're gonna be delivered into, given our current cost of capital. We've seen, unfortunately, an increase in both our cost of debt and our cost of equity.
Gotcha. Okay. Then just on that last point, last question for me is, obviously given where equity prices are, you know, how much would you be willing to lever up, to kind of complete the acquisition program this year. I mean, would you take it above 40%?
Yeah. That's a great question, Johann. If you asked us if we were a private company right now, and I look around at my partners around the table, I don't think any of us would have a problem levering this up into mid-60s% and maybe even the mid-70s% if we were privately holding this for the long term. I really don't, because that's how visible the cash flow stream of the asset class is. Obviously, we appreciate that we're a public company, and I think you're afforded a lower cost of equity when you have a clean balance sheet and a very conservative balance sheet. We would like to preserve all the hard work that Curt and his team has done to get us into these lower leverage.
If the world was to stay in this extreme volatility, I would say, and we saw the right opportunities, we would be willing to lever up into the low 40s, and that would afford us quite a bit. That would afford us probably CAD 200 million-CAD 250 million, call it, of acquisition potential.
Yeah. I'm just saying from a person who's operated on the private side for 30 whatever years, 35, 37, 38. I try to lose count. Anyways, I like the fact that we're not levered a lot. Like, it gives us a lot of availability here where people may be shy, so maybe if we see a good asset, then we'll take a look at it and if we see some potential there. Especially if we've got, like, I love the fact of having the JV partnerships, which we'll leverage more during these times. We'll look at, you know, special acquisitions, especially we're very interested in some of the new builds because that is something you can really take up some of your upside a lot quicker. That's what we would look at.
We'd be very, very careful and we would not wanna try to take too much leverage.
No. But where I think we're going with this in the reverse way, I know Mike and Curt and the rest of the team agrees, is we're trading at a steep discount to NAV. Who knows where cap rates go, but I'm very confident given the asset class and knowing the capital that is chasing the asset class, the public market has this one, has overshot on this one.
Gotcha. Okay. Thanks. I'll turn it back and, congrats on the quarter and the new roles, Mike and Brad.
Great. Thanks, Johann.
Thank you very much. Thanks, Johann.
Your next question comes from the line of Frank Liu of BMO Capital Markets. Please go ahead.
Hi, good morning, everyone. For the time being, I have a couple quick questions here. First one, you know, Ontario provincial election is, you know, months away and, you know, of course, no one can predict the outcome, but if we end up with a government that is more supportive on the supply side, and I'm curious to see what, you know, InterRent participate in this, and would you be more robust on your development pipeline to help with the supply issue?
Yeah. We're very hopeful that we will have. Oh, I gotta be careful what I say, but maybe not. We like the current government. The current government has got really just started to understand the whole issue to the best result. I mean, I saw the platform that just got released by the Liberal Party yesterday, not as worrisome as you always think of the worst case scenario. But I do believe like I believe, look, everybody has priced in the worst case scenario into all of not just us, but all of our peers. As you know, I think either one of those parties being in power would be relatively positive to us.
Obviously, I think the current party really gets it very much so. We do wanna be part of the solution. It's a really key thing and element for us to look at. We'd like to be, like, very involved in it. We are very involved in the government relations right now. I think if you asked all of our peers, we were probably, you know, I'd say that we were not on top of it before. That's one thing about the whole going on for the last two years. We've become very close, you know, not, you know, just peers or competitors, but actually friends in a lot. That's not only in our in the public side, but also some of the large housing providers in the private side.
We've all been working very hard to make sure that all levels of government understand all sides of the equation. Because at the end of the day, we are gonna be able to deliver a lot of supply for them, not only internally, but we'll also be the purchasers of a lot of these merchant builders building stuff. They need us at the end of it. We, you know, they've got to understand all the different pieces of it. I'm very hopeful that we'll have a very good outcome.
Oh, thank you. That's a great color. You know, let's see what's happening down the road. Just one quick one. I think you touched on this a little bit before, but you know, are you still using some incentives in some of your markets coming to the, you know, the peak leasing season? Could you like mention like which market specifically you're using more incentives over others?
Hey, Frank. It's Anne. Do you mind repeating the question? We didn't have good quality on our side.
Oh, yeah, sorry. I mean, like, I think you touched on this a little bit before, but I mean, like, you know, do you still using some incentives in some of your markets? Which markets do you expect to leverage more on incentives versus others?
Yes. Thanks, Frank. We're selectively, I would say, taking a targeted approach to some communities when it comes to incentives. It's definitely not a shotgun approach. We've definitely seen that come into play. I think it really is very minimal, and it's a very select communities where we are currently offering, and it's really just offering a one free month. Typically where it would be, Frank, if there's a lease-up going on in the direct proximity to our community, because those lease-ups are using a little more aggressive incentives.
Got it. Yeah. Thanks a lot for the color. For the time being, I'll turn the call back. Thank you.
Thanks, Frank.
Thank you, Frank.
Your next question comes from the line of Brad Sturges of Raymond James. Please go ahead.
Hey, guys. Just to go back to your commentary on potential for capital recycling, I guess, where assets might have a little bit more limited upside. Would you say that's reviewing opportunities within some of your core markets on an individual asset basis? Or are you going back? I know you discussed in the past about maybe exiting some of the smaller Ontario markets that you're still in. I know it's not a large part of the portfolio, but any updated thoughts on a capital rotation strategy there?
I think what we've stated in the past stands today. I think there's one market in particular that you're probably thinking of. If there's the right offer, I think we'd entertain. Obviously, we'd entertain disposing of that. There are some select smaller communities within our core portfolio that we believe, given the local market dynamics, that we probably maximize the rents to the best of the ability of that community, and we would monetize and recycle that. We're not opposed, to be quite honest, to looking at a little larger portfolio and maybe monetizing a partial interest depending on where the current capital market state is.
If the current capital market state, if this is the new reality for the next two years, that's definitely gonna be a possibility because we do have some pretty good opportunities in front of us that we think will continue to position ourselves as a stronger operating platform. At the end of the day, that's what we are. We are an operating platform that owns a great asset class that has a great ability to be financed by CMHC financing. At the end of the day, when we look around the table, we look at ourselves as a collection of great team members that are gonna form a really good operating platform that we can provide housing services and be part of the solution to this housing crisis.
That's great color. Just one last question for me. Just on the leasing environment. Obviously, you've noted within your release about the international students, the permits being up. I guess, when would you think you could see that flow through into more leasing activity? Is that more of a Q3 event, or could you start to see it sooner?
I think the leasing will show up in Q3, but I think we'll be able to provide more color in Q2. I think we'll start to see the inquiries pick up in Q2, so the traffic should start to pick up in Q2, and that should result in actual leasing activity and being booked in Q3.
I think maybe just by the nature of the timing of the release, by the time we're doing this call, the Q2 call, you know, we'll be into late July and early August, so we should be able to provide some more color on it.
That's great. Thanks a lot. I'll turn it back.
Thank you. There are no further questions at this time. I'll turn the call back over to Mr. Brad Cutsey.
Actually, I'm just gonna say, I forgot to call out our former chairs, Jacie Levinson, Victor Stone. They were amazing guiding us in the early days. I also appreciate Paul Amirault. He's done a fantastic job as a chair, and I appreciate his graciousness to step over to Lead Trustee. I'm passing this over to Brad. This is my last call. Took me 10 years to have a call. It's now over to you.
Thanks, Mike. We're all chuckling here because it at least took me seven years to get Mike to have a conference call. At the end of the day, I'm not sure if we did a great job explaining the transition, but as you can see, Mike is not going anywhere. Mike is still very much committed and involved in the REIT. I still report into him. This team is still here, and we're very fortunate and blessed to have Mike's experience, wisdom, and counsel. Mike is very much still part of the strategic and capital allocation decisions. I think this really should be viewed as a smooth transition. Not often do we see Executive Chair, but essentially Executive Chair is just that.
They made Executive Chair for a smooth transition. I hope the market sees it that way, and we're delighted to still have Mike's commitment with us on a daily basis. I'd like to thank Mike for giving myself, and not only myself, this is a testament to both the team members I'm surrounded by. I'm very fortunate with the bench strength that Mike has left, and we're gonna do everything in our power to make sure that we continue to work really hard and continue to post and continue to perform. At the end of the day, this is about an operating platform, which to me is a fancy word about the people. At the end of the day, we're gonna continue to invest in this operating platform. We're gonna continue to hopefully deliver outperformance.
Thank you very much for your time and for your continued support.
This concludes today's conference call. You may now disconnect your lines.