Good morning, ladies and gentlemen, and welcome to InterRent REIT's Q3 call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during the call you need assistance, please press star zero for the operator. This call is being recorded on Thursday, November 2022. I will now turn the conference over to Craig Stewart, VP of Finance. Please go ahead.
Welcome, everybody. Thank you for joining InterRent REIT's Q3 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 Brad Cutsey, President and CEO, Curt Millar, CFO, and Dave Nevins, COO, on the line with us 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. For more information, please refer to the cautionary statements on forward-looking information in the REIT's news release and MD&A dated November 10, 2022. 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. Brad, you're up.
Thanks, Craig. Let's take a run through the highlights for the third quarter. I'm quite happy to say that we were able to improve our overall occupancy by 50 basis points compared to Q2, which puts us ahead of where we were last year going into the fourth quarter. We are pleased to see both overall and same-property portfolios sitting 96%, which is right in line with our expectations and where we were typically around this point in the leasing cycle pre-COVID. Post-Q, we've had continued strong demand across most of the regions and are delighted to see leasing traffic pick up in Montreal and return after the region experienced softness throughout the summer. The continued positive trend in leasing has brought our occupancy levels across the portfolio into the mid-96% for both total and same property portfolios.
Given the strong demand, we were able to significantly reduce the use of promotions, and I'm pleased to report a reduction in the vacancy and rebates compared to Q3 last year, with the reduction evenly split between the two. As we demonstrated in the past, it takes 12-18 months following a strong acquisition period to start to really see the impact on our numbers. Helped by the record acquisition year we had in 2021, we were able to post strong operating revenue and NOI growth rates for our total portfolio of approximately 20% year to date. We're also extremely happy with the robust growth figures for our same-property portfolio again this year. Since this demonstrates the organic growth potential embedded in our portfolio and the strength of our teams on the ground, Curt will share more details around our balance sheets later in the call.
The work his team has been doing to manage our debt ladder has helped to provide stability during a volatile period of sufficient liquidity to allow us to continue to execute on our business model. Finally, at the bottom right, you'll see that our FFO growth in Q3 has come in a bit relative to the first half on the back of higher financing costs. However, it continues to improve despite inflation and interest rate headwinds. Given the strength of our same-property portfolio again this quarter, we wanted to illustrate a trend for same-property NOI. The takeaway here is that with the exception of 2020, when the pandemic effects were most impactful on our occupancy numbers, we have consistently generated revenue growth that has outstripped expense growth.
Although we are certainly feeling the impact of inflation in our operating expenses, as you can see by the year-to-date figure, our top-line growth expectations should continue this positive NOI growth trend in 2022 and beyond. We continue to see strengthening fundamentals in our sector and saw a 6.9% growth in average monthly rent in September relative to last year. It is worthwhile to mention that this figure is impacted by mixed changes, with increased exposure to higher rent markets such as downtown Toronto and Vancouver acting as an important factor. At the regional level, we continue to see steady year-over-year growth in average monthly rent across all regions in September, suggesting that the strengthening fundamentals aren't isolated to specific regional pockets.
On the backdrop of these operating results and the continued strong fundamentals, we are also very pleased to report that the Board of Trustees has approved our eleventh annual increase to our distribution, effective for our November distribution that will be paid out this December. Dave, over to you to take us through some of the operating highlights.
Thanks, Brad. Looking at slide 10, as Brad mentioned, we've grown our overall occupancy to 95.6% for the quarter. Given the strong rental demand in most of our markets, we used significantly less promotion throughout the quarter that will provide much less drag on our NOI during the upcoming year. Looking at a repositioned portfolio, we saw our September 2022 occupancy also increase and sits materially at pre-pandemic levels for the month. As previously mentioned, we continue to see softness in the greater Montreal area throughout the third quarter, and that has caused a slight drag on our occupancy numbers. We are pleased with the activity post-quarter, which should support an overall improved figure in Q4.
Before I turn things over to Curt, I want to touch on our CapEx spend so far for 2022. On the left side of the slide, you can see that our maintenance CapEx in Q3 at an annualized level of 1,028 per suite and is roughly in line with our Q2 reported amounts. You can also see we continue to allocate about 90% of our spend on value-enhancing investments. On the right-hand side of the slide, we see excellent value creation in our repositioning program, and we will continue to strategically invest in the portfolio. It is worth saying again that our individual suite upgrades follow the cadence of natural resident turnover. Our repositioning program has provided us with a well-maintained portfolio that puts us in a good position to navigate any choppiness in the market.
I'll hand it over to Curt to discuss our balance sheet and sustainability efforts.
Thanks, Dave. With the increase in the rate environment, the expectation all around is that at some point, cap rates will adjust. We review the major assumptions around rents, turnover, costs, and cap rates every quarter with our external appraisers. Based on this review, we have increased our cap rates for various properties or markets, which has resulted in an overall increase in our cap rate of 14 basis points from Q2, and we are currently sitting at a weighted average portfolio cap rate of 3.97%. Even with this increase, we recorded a CAD 5.7 million fair value gain for the quarter as a result of our continued strong performance from the operational team. You can see that the REIT continued to be in a healthy financial position.
Our debt to GBV on September 30 was essentially flat at 37.4% compared to 37.3% at the end of Q2. As we alluded to last quarter, it was a busy Q on the mortgage front, with a lot of pieces falling into place that we've been working on for some time. Main takeaways are that we had CAD 35.5 million in up financings on CAD 8.2 million of maturing loans. We renewed and extended CAD 141.5 million of maturities and paid down CAD 5.7 million of mortgage debt. We ended the quarter with CAD 1.62 billion in outstanding mortgage debt on our books.
All the financing activity in the quarter, we have maintained the average term to maturity of 4.8 years, increased our CMHC insured mortgages slightly to 74%, and reduced our overall variable rate exposure to 6%. At the end of the quarter, our weighted average interest rate increased to 3.08%. In addition to the activity during Q3, there has been continued activity on the financing front post-quarter end. Looking at what is closed as of the end of October, we have only CAD 64.8 million in 2022 maturities remaining, of which CAD 30 million is already through CMHC rate locked and scheduled to fund in November. The impact of these closed and committed mortgages is that the REIT's weighted average interest rate is now 3.15%, up 7 basis points.
As previously communicated, we anticipate that with the current market conditions, we expect that our weighted average interest rate at year-end to be in the 3.2%-3.3% range. We also expect to lower our variable rate exposure to be sub 5% by the end of the year and our CMHC insured mortgages to be around 80% of our mortgage book. Turning our attention to sustainability. We participated for the third year in a row in the GRESB real estate assessment, and we are pleased to report a 10% increase in our score compared to 2021. The REIT also earned a green star rating, signaling our continued commitment to sustainability and ESG performance across the company. Our climate change work continues. Last quarter, we advised that we had completed the CDP disclosure questionnaire and submitted our SBTi commitment letter.
In Q3, we were focused on gathering and ensuring completeness of our data in order to advance our objectives of being able to set site-based goals to reduce our greenhouse gas emissions, and we are still on track to complete the first phase of this work by year-end. Last, but definitely not least, we are extremely pleased that this past September, with the support of some great partners, we were able to raise CAD 1.4 million at the Mike McCann Charity Golf Tournament. All proceeds from the event go to support charities in our communities. Coming off the heels of the global pandemic, it is more important now than ever to support and give back. To date, this one-day event has raised nearly CAD 6.5 million while spotlighting many local charities.
As in many things, we continue to set the bar higher every year and challenge ourselves to surpass it. I'll turn things back to Brad to walk through our capital allocation.
We continue to emphasize that one of the key solutions to solving the housing affordability crisis in Canada is to bring on a new supply, and we are committed to play a role in delivering on that solution. We have received partial occupancy in early October and are progressing well in the remaining office to residential conversion at The Slate in Ottawa. Marketing began late in Q2, and we're excited that residents have been moving in over the past month. With the near completion of The Slate, development has become a bigger part of the REIT story and will only continue this in the coming years. We're working with great partners to bring the supply to market, and we're looking forward to sharing additional details as we get closer to getting shovels in the ground for each of our exciting projects.
There has been significant interest rate volatility over this year and has had an impact on the expected yield ranges on these projects. We continue to monitor the ongoing rate and economic situation, and we refine these estimates over time, but we want to be transparent in our current expectations. We had a good quarter and are encouraged with the leasing activity post-quarter end. No one has been immune to inflationary pressures, but we are keeping a close eye on both our operating and G&A costs.
We have continued to be extremely active managing our mortgage ladder and expect to finish the year with about 80% of our mortgages being CMHC insured and a sub-5% exposure to variable rates going into 2023. I would also like to say it was great to see many of you in person this past September in Toronto at the Real Estate Forum and in Ottawa at the Mike McCann Charity Golf Tournament. It's always a pleasure to discuss real estate and our plans with our investors, and being able to do so in person makes it that much more enjoyable. Thanks to you all for your continued support, and we look forward to seeing you in person in the near future. Let's open it up for Q&A.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. If you are using a speakerphone, please lift the handset before pressing any keys. First question comes from Mike Markidis at BMO. Please go ahead.
Hey there, everybody. How are you? Hope you're doing well. Just two quick ones for me, actually. The first would be quite simple. Can you remind me, on that gas side if you guys have a hedging program in place or not?
On the natural gas side. Mike, sorry, you cut out for a second. Did you ask about natural gas?
Yeah. Just wondering if you have a natural gas hedging program in place.
We haven't in the past. We actually have coming into this heating season, rate locked about 50%-51% of our expected natural gas demand for the next 12 months.
For the next 12 months. Okay. With the price that you achieved, is that consistent with what we've experienced recently? I'm just trying to get a sense of where the rate would be relatively.
Yeah. It's slightly below the current rate being charged by the utilities at the current spot rate. Just we took advantage of a small dip and got locked in at that.
Okay, sounds good. Thanks for that. Just more of a technical question, but just wanna make sure I've got the accounting straight for the lease up of The Slate. Partial occupancy, you've got tenants moving in. Is that going to be a full decapitalization from an interest expense perspective and operating cost perspective in Q4 or will it be partial? Because it sounds like you've got partial occupancy at this juncture.
Yeah. The partial occupancy started in October, but it's only the first few suites. Full construction won't be complete till, you know, Q1, depending on how some of the stuff goes in the winter months. Some of it can be tricky outdoors, sort of near the end of Q1, depending on what the weather's like. We expect we're hoping to be done by Q1. Maybe it slips into first month or two of Q2, depending on weather. It wouldn't be sort of fully out of the development PUD side of the house until we're 95% complete on that.
Okay. Because of that staged in cycle, we'd be able to slowly decapitalize or in stages, or is it all in one fell swoop?
I think typically we've done like. We've only done this once before a few years ago. It was one fell swoop type of piece on that. Typically what we do is as we lease up, we start to bring the units into the operating side of the house. We'll have to.
One other thing too, Michael, just so everybody's aware on this call, it's Brad here, is that there is some major construction work going on Albert side to The Slate right now with city work, redoing the mains and the sewer, and then they're gonna come back and beautify that street level as they've done in some of the other nodes here in Ottawa. We're quite fortunate. At the end of the day, it's gonna be a beautiful almost natural amenity outside front of 473 Albert. However, it has caused some complexities as far as construction with regards to things like water and being able to deliver water, the pressure of water to some of that before.
Unfortunately, we are a little bit handicapped at the mercy to their development schedule, and that goes back to Curt saying about the winter, about how some of this might get done or not get done through the winter.
Okay. Thanks.
That said, we've been extremely happy with the take up that we have had on it. Also in the context that it is a prolonged construction zone and the take up has been quite positive. We're very happy and fortunate with the way that development has progressed.
Okay, great. Thanks for that. I lied. I have one more, actually. I might be reading too closely into this because I know you have your anticipated completion dates on Burlington GO, but looks like you expect to pull a permit before the end of this year. Does that mean that shovels in the ground will be sometime in 2023?
Well, I think you won't see shovels in the ground in any of our greenfield projects until we have 90% of the drawings complete and where we can get comfort on what we can lock in as far as actual construction dollars. The good thing I would mention on the development side, we have terrific sites as far as location. In our opinion, they're A- to triple-A type site. So there's a lot of comfort and confidence in where we think we can take rents at those sites. To be honest, the market rents have continued to increase for those locations.
Really it's gonna come down to a combination of once we get the permits, that's one thing, but really being able to get kind of drawings greater than 90% complete so that we can go out and tender and have a really good idea of where the fixed costs are. We really wanna see cost certainty before we break ground.
Great. Thanks so much, and congrats on a great quarter.
Great. Thanks, Michael. Have a great day.
Thanks, Mike.
Thank you. Next question comes from Jonathan Kelcher at TD Securities. Please go ahead.
Thanks. Just to clarify that last thing there, Brad. Do you expect to start any developments in 2023?
Not to be too cute, Jonathan, maybe. It really will come down to, can we get to those cost targets? Obviously, yields will come in a little. A lot of that's kind of due to the financing side of the equation when it comes to the construction. The nice thing is from different talks and understanding with construction costs, they're starting to come down a little in some areas. Not in all areas, but in some areas as far as inputs. They're starting to show that there's a relief in the pressure.
I could envision one of our developments starting in 2023, but again, we won't break ground till we get that cost certainty, and we have things kind of at a 90% plus, as far as the drawings.
Okay.
Said definitely, I'm hopeful.
Okay. Fair enough. Secondly, just the commercial space in Montreal that you're putting some units on. Can you maybe give a little bit of color on that? Like which building is it and sort of the expected cost?
Yeah. The nice thing about that, obviously we wouldn't do it if it wasn't a value add. It's the Ernst Club in Montreal, right? It's a great building. It's a dominant asset in that location. It's really well amenitized. But the office space and the office tenants over there, it really was closer to kind of a class C type office. The rents were a lot lower than what we're gonna be able to achieve on a going forward basis. We looked at it and at the end of the day, we grab this and get incremental NOI, I'd call it, over CAD 300,000 plus replacement.
For us, it really wasn't much debate, do we go forward or not with those 32, 36 units.
Okay. How much will it cost you to do that, roughly?
We don't provide specifics on that, but I think for modeling purposes, you can range it between 100 to 150. I know that's a big range.
Okay. No, I can work with that. Then lastly, just Curt, on your post-quarter financings, what rates did you get on those?
We were fortunate on those to have been able to lock them in. Again, taking advantage of a bit of a dip in the market. The rates were around 4.25%, 4%-4.25%. If we're averaging them out.
Okay. That's, that's helpful. I'll turn it back. Thanks.
Thanks, Jonathan.
Thank you. Next question comes from Kyle Stanley at Desjardins. Please go ahead.
Thanks. Morning, guys.
Morning, Kyle.
It was good to see the OpEx inflation get reined in a little bit this quarter. I'm just wondering, you know, how you're thinking about that as we head into the winter months. Fully realizing you just mentioned that you've now hedged what, 50% of your net gas. You know, just want your thoughts generally on how OpEx likely trends into the winter and then, you know, maybe into next year.
Yeah. I think we had a great quarter from an operating cost perspective, but I would caution the investment community and readers that it can be lumpy, right? Different things can come in. There weren't any real one-time exclusion or gains relative. I would say we do still see some pressures specifically on the utilities, and I would still say that there's pressures on the wage front of it. I do think some pressures on some other inputs into that line item are relieving a little bit. Looking forward and going into the winter months, we're gonna continue to see that line item on a whole increase.
Now, that said, I believe firmly that our rents are gonna continue at a really robust pace, and they're gonna outstrip any increase or any inflationary pressures that we're gonna see on our operating cost lines. I'm very hopeful and confident that we're likely to see flat to modest margin gains going into next year.
Okay, that's good color. Thanks for that. Maybe just looking at Montreal quickly. You know, you mentioned it in the prepared remarks, a bit of a vacancy dip this quarter, I think you kind of guided to last quarter, but that you're encouraged by the leasing activity so far in the fourth quarter. I'm just wondering if you can elaborate a little bit on that and, you know, maybe what are your thoughts on how vacancy trends kind of through the next 12-18 months.
I think we've just seen strong gains across the board, except in the quarter in Montreal. As we mentioned in our commentary, post-quarter, Montreal is sitting in a better place today than it was last year. I'll let you guys go back and do that math. To say the least, we're quite happy with the post-quarter activity in Montreal. It took a lot longer to get started, which was unfortunate. Things have been picking up and the traffic has been picking up and then it's translated into conversions and leases. We feel quite good where Montreal is at this point.
Okay, thanks.
Yeah. The one thing I should also mention on that too is I've noticed we've been able to make these occupancy gains with some pretty solid rent rolls, and that's also been less promos than last year. I'm not gonna say we haven't had to use any, but it was materially down from what we were using a year ago on that note.
Okay, great. Just one last one. With your experience now, you know, building Slate, I'm just wondering, you know, is this something that you'll look to do a little bit more of? Do you see kind of office-to-residential conversion or, you know, have you learned anything that you could use on another project going forward?
Yeah. Well, there's a lot of things we love about this. Obviously, the benefits from taking an obsolete office building, converting them to new homes is a great story and it's great for the city of Ottawa. It's a great part of being the solution to housing affordability crisis that we're currently in. We love the whole story solution behind converting office to residential. The fact does remain it's extremely challenging to do. It's not for the faint-hearted. It takes a strong commitment. The nice thing is that we've had teams in place that have been working on this conversion, that have done this throughout their careers, and I think is the big advantage.
Because I think, you've seen office conversion to multifamily in the past in different regions in the country, and they haven't been maybe as successful as I think The Slate will prove to be. With that said, there's been a lot of challenges that we have faced, and we've been able to overcome. They're challenging. Nevertheless, they're worthwhile doing for so many reasons, right? One being taking an existing infrastructure and being able to repurpose it, I think goes a long ways to help build the communities that we invest in. Then it will have a return commensurate with their capital providers. Long-winded to yes, we would look at doing further, but they are challenging.
Just to add to that, not every office building converts easily to rental, right? You really have to take a good look at that floor plate and how the natural layout is to work with. 473 Albert, given the rectangular shape of it, was a very good candidate for that conversion.
Yeah. That's a great point, and it goes without saying it's obviously a lot easier to do a greenfield from the ground up, but it might not have as many bits, right, as far as the achievement. Yeah.
Okay. No, I think that makes a lot of sense. Thanks for all the color. I'll turn it back. Thanks.
Thank you. Next question comes from Brad Sturges at Raymond James. Please go ahead.
Hi, guys. Just to go back to the Montreal-
Hey, Brad.
Just to go back to the Montreal conversation there. Obviously, the pickup in demand post-quarter does that include you're seeing better demand coming from international students and you know seeing more of a benefit to your more student-focused buildings?
Yeah, we definitely have. I'll turn it over to Dave as well, to let Dave comment on that as well.
Yeah, no, definitely the demand from the foreign students came back strong. I guess later in the season than we're normally used to. We see it across the board that the pickup, the areas outside the student areas were doing really well. It was just really the student areas, but it's come back to basics, almost normal now, right? We're in a good spot.
also, Brad, just to add a little color on that, it's not just Montreal. From different conversations here in Ottawa with universities, we're hearing that this will be one of the bigger influxes for January enrollment that they've seen, I think, on record. I think that goes to speak to kind of the pent-up demand that's been kind of building up in the system, just not getting study permits approved in time. There might be an actual offshoot of even further additional demand from this demand group.
That's good to hear. You know, and then when you think about the 30% gap between in place and market, I assume that's more broad across the portfolio, but are there certain markets that kind of stand out to be relatively wider than others?
Yeah. I mean, we don't get into the color too much on that, but there definitely is a bit of a split. The bigger split, as you'd imagine, just sort of given our model, is between repositioned and non-repositioned in the portfolio. You kind of get a sense of that from when you look at that disclosure in the MD&A. The other thing I would say is that when you look at the difference between mark-to-market, think about our acquisition program, and typically it follows suit. If you look at the markets where we bought the most product in the last three or four years, that'll be the markets also that have the biggest potential gain to lease.
Okay. That's helpful. The last question. You know, I think you guys talked about it for a few quarters, but you know, certainly, you've considered selling assets within the portfolio. I guess, where would you be on that front right now? Is there still potential to see some asset sales, you know, in the next 12 to 24 months?
Yeah, I think there is, Brad. I think it's just the transaction market is quite thin right now. I think there's a lot of buyers with their pen down. I don't necessarily think it's because they don't believe in the fundamentals or don't believe that they wanna increase their exposure to the asset class. I think quite the opposite. I do think there's a period of a wait and see, where the dust settles as far as more clarity on where interest rates today would settle and has the vendor's expectations, are they coming into where something can get done. Unfortunately for some of the non-core assets, they're for us, they're likely private buyers.
The steep run-up in interest rates has thrown a challenge as far as how do they go about to finance acquisition. There's lots of interest for sure. It's just some of these private buyers have to figure out how they can transact. The good news for us is we've got a lot of capacity on the balance sheet. The team's done a really good job of putting us in a position where we can continue to act on opportunities, albeit I think you'll see us be a lot more modest on dispersing capital at this point, at least for acquisitions. If we do so, it'll be more in probably likely with a joint venture partner to kind of spread that capital over more.
I think right now on the disposition front, it's pretty quiet as far as transacting. Not quiet from interested, but from how can people complete the deal, right? Really it's coming up with the financing. You're gonna see that a lot of that in, I believe with the private buyer.
Yeah, that makes sense. I appreciate that. I'll turn it back.
Thank you. Next question comes from Jimmy Shan at RBC Capital Markets. Please go ahead.
Thank you. Brad, maybe just a clarification on the Montreal. You mentioned it's improved better, post-quarter to where it was in September of last year. Is that what you referred to?
No. What I mentioned is that Montreal, where we sit today post-quarter
Mm-hmm.
is in a better position where we ended last year.
Okay.
That's an easy one for you to do by pulling up last year.
Last year was 6%, right? You're saying it's better than 6%?
I'm saying yes. Put it this way, we're very happy with where Montreal sits today.
Okay.
Rentals are still strong. Yeah.
Yes.
I don't know if you guys heard that, but that Dave commentary was and still renting strong, right? Like the leasing season has definitely been extended over and above what would be normal at this time of year. Definitely.
Okay. It doesn't sound like you missed, especially for the buildings with students, you've missed the window in leasing because of the January influx, and so, big downs, you don't have to wait for another year for you to see that in those buildings. Is that fair?
Oh, sorry, I'm not understanding the question. Say that again.
Well, I'm saying that because certain buildings are student-dependent and because you didn't get the lease up done and for the fall of this year.
Yeah.
Um.
No, I wouldn't lead into that and not necessarily would lead into that.
Mm-hmm.
I would assume that maybe some people got here late. Arrange their accommodation. Meaning they were international students, they were just late in getting here and they're in.
Yeah. We know from commentary, both from the federal government, that there was delayed processing student applications, student visas. We also know that, you know, McGill, for example, was out there saying that they were behind in processing applications for the September start. I think that's why you saw not the normal July 1, July influx or August for some of those students. You saw them wait a little longer because they didn't get their notifications in time to be here early August and looking for September.
Yeah. Montreal is a little different too. Montreal typically tends to be more you land, you search for two weeks. You go on short-term accommodations, and then you find your longer term accommodation. Whereas international students in our experience in Ottawa and Southwestern Ontario has been a little more pre-organized. Like before they actually come, they'll arrange their accommodations.
Okay. My second question is really.
Yeah, I wouldn't believe we missed that certain buildings that we've missed the international student because that's quite contrary.
Okay. Understood. I wondered if you'd just comment on the turnover rate trends you're seeing, and I'm actually more interested in kind of Vancouver, seeing that it sounds like a lot of the gain to lease is coming from that market. If you could comment on Vancouver as well.
Well, as we've maintained all the way through, we've been lucky enough that we were able to get that toehold during COVID, and we've been quite fortunate. That market has continued just consistently done better and better. It's extremely tight.
Sorry, what about the turnover rate in those markets?
You're asking if the turnover rate has come in?
Yeah. The turn, yeah.
Yeah. Just to be clear. We used to see the turn or the turnover rate be in and around, you know, typically 30%, and we had that running historically for quite a while. Brad and I are on record for several quarters saying it's gonna come back, and, you know, we expect it to trend down. We haven't seen that this year. We are sort of in that mid-ish 20% range. We do expect, given what we've seen in the broader market, that that will continue to trend down from the mid-20s to maybe even the sort of mid-low to low 20s.
Okay. Thanks, guys.
Thank you. Next question comes from Matt Kornack at National Bank Financial. Please go ahead.
Hey, guys. I'm sorry to beat a dead horse on Montreal, but just the occupancy statement is pretty clear. But you did well on rate sequentially in the market. Should we expect as you lease some of the vacancies that rate would be stable or are you expecting that you're actually gonna see an increase in the aggregate rental rate across that portfolio as well?
If I think I understand your question, yeah, we've maintained the integrity of our rate in Montreal all the way through. Even though it was, it was probably our most challenging market in the pandemic, and it was the slowest to come out. We've always maintained that this was a temporary blip, and we've always been extremely bullish on Montreal for a lot of different reasons. I'm glad we have maintained in that rate. For the product that we did, for the little bit of absorption that we did see in the quarter, we were hitting rents that were higher than the previous year. That really led us to believe that really the
Knowing it in discussion with our leasing team, just kind of knowing that the traffic just wasn't back to the same levels that we saw pre-COVID as far as the foreign international student, led us to believe that when that demand pool would come back, we'd easily achieve the rent growth. It has proven out.
I guess presumably, I think if I'm remember correctly, even though they may be smaller units, that they tend to be a little bit more premium in terms of what international students would pay for the accommodation. It may actually be higher in terms of the vacancy that's coming on relative to the overall portfolio.
I mean, those buildings, the student-specific buildings in downtown Montreal are definitely nice buildings, and they're very well amenitized. The rents there are at the higher end of the market for sure for student rental.
Hence why we love the international student crowd and you've seen them, Matt. They're extremely well located. To Curt's point, they're extremely well amenitized. There is a section of the student population where they can afford those rents. Yes, it allows us to achieve premium relative to, I would call it, the student accommodation for sure.
Okay. No, that's fair. On the financing side, just a few clarifications. You were very active, so deferred financing fees did go up from an amortization standpoint. There was a CAD 100,000 write-off, I believe, in the quarter, however. How should we think of that deferred financing cost? Is the number ex the write-off a good kind of run rate? And then also the interest rates quoted, are those effective or is that just the contractual rate?
Let me just hit the first part of that, the deferred financing fee, Matt. Yeah, the run rate that we have and that we sort of expect to see would be in that 500-525 range per Q. There will be variations like we've seen in the past around, you know, if you take a property out that's sitting there with some deferred financing set up on it. As a sort of normal course, I'd say if you're doing 500-525, you're in the right range. You know, by year end, we'll probably be about CAD 1 million of write-offs.
Given what's on our books for next year, it'll be lumpy as to which Q that hit, but you could probably expect, you know, another CAD 500 thousand-CAD 700 thousand to hit, you know, at some point through the year, just given what's in our mortgage ladder for maturities for next year.
Okay. I usually back those out, but you highlight it at this time around. I assume you'll highlight it, going forward as well.
Yeah, for sure. We have to always highlight that number. The second part of your question, when you were talking about the effective interest rate, are you talking about the rate in the mortgage ladder, like the overall?
Yeah.
Cap rate that we show?
3.08%. Does that include the amortization of deferred financing costs or is that just the contractual rate before the amortization?
Yeah, that's the contracted rate.
Okay.
before the amortization. Yeah.
A last accounting one on-
Sorry, Matt, just to be clear to you on that one, 'cause we did provide some extra color 'cause we all know financing costs have been, you know, hitting all of us and they hurt. We wanna try and make sure to give you guys as much information as we can on that. We did disclose that as of October 31st, we're about 3.15%, as a contracted rate average, and that we still stand by what we said at Q2, that we believe that by year end we'll be in that 3.2%-3.3% range. I just wanna make that clear 'cause I know that's a, you know, big line for going forward compared to what it's been in the last few years.
Sure. Yep. I think we're reflecting that at this point, so appreciate that though. That's good color. Just on the G&A side, I guess it was high in Q2 but kind of looks normal this quarter. I think there's some seasonality aspects in Q4, but is this quarter a pretty clean quarter from a G&A standpoint?
What we've said, I think previously is 4%-4.25% for G&A. I would stick with that. You know, it might be towards the 4% more than the 4.25%, but I think that 4%-4.25% range is still accurate. There is definitely lumpiness to the G&A number. You know, things like our golf tournament in the summer affect Q2. Things like there's certain events year end or different times of when things hit. And then there's also just different sustainability costs that sort of happen throughout the year at different points. From a modeling perspective, I'd say stick with 4%-4.25%.
Okay. No, that's perfect. Thanks, guys.
Thanks, Matt.
Thanks, Matt.
We know you're a hometown guy to Montreal, Matt, so we expect the Montreal questions. No worries.
Thank you. Next question comes from Johann Rodrigues at Industrial Alliance. Please go ahead.
Actually, I'm good. All my questions have been answered.
Great. Thanks, Johann.
Thank you. At this time, there are no other questions. You may proceed.
Well, that's great. Thanks, everyone, and we look forward to our Q4. I don't mind the longer break in between. I hope everybody has a great day, and we'll hope to see everybody in Toronto at the annual CREF.
Take care. Thanks, everyone.
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