Good morning. My name is Brittany, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Minto Apartment REIT third quarter 2019 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press the star, then the number one on your touch-tone phone. If you would like to withdraw your question, please press the star followed by the two. 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 November 12, 2019, for more information. During the call, management will also refer to certain non-IFRS financial 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. Thank you. Mr. Waters, you may begin your conference.
Thank you, Brittany, and good morning, everyone. We're pleased you've joined us today. I'm Michael Waters, Chief Executive Officer of Minto Apartment REIT. I'm joined on this morning's call by Julie Morin, our Chief Financial Officer. I'll begin the call by going over some highlights of the third quarter, including our financial performance and other major developments. Julie will then review our financial and operating results in greater detail. I'll conclude with some brief comments on our business outlook. We'd be pleased to answer your questions. This was another very strong quarter for the REIT. We generated 7.2% growth in AFFO per unit as we capitalized on strong rental market conditions in our core urban markets. We also had strong revenue and NOI growth in both our total portfolio and same property portfolio. We maintained a solid balance sheet.
We continued to execute successfully on both our organic and external growth initiatives during the quarter. We completed the repositioning of 74 suites during Q3, the most we've done in any quarter this year. We have repositioned a total of 152 suites during the first nine months of the year, which has driven very strong rental growth in those suites. On the acquisition front, we acquired a 40% stake in the High Park Village property in Toronto during the quarter for a purchase price of approximately CAD 131.2 million. As I discussed on the last conference call, this is a high-quality property with significant repositioning and intensification potential. High Park Village was fully integrated during Q3 and contributed to our operating results during the quarter. In fact, we repositioned six of the property's suites this quarter.
Subsequent to the end of Q3 on October 10th, we announced an agreement to buy the Haddon Hall and Le 4300 properties in Montréal. These properties bring an additional 528 suites into the portfolio. I'll speak more about them in just a moment. The acquisition is being funded in part by a CAD 225 million bought deal offering of trust units, which closed on October 22nd. We also recently made the first advance of CAD 17 million on the previously announced investment loan for the Fifth and Bank project in Ottawa. Just as a reminder, this is the planned redevelopment of a commercial building into a multi-residential, rental, and retail property by Minto Properties. The 163-suite project is located in the heart of The Glebe, one of Ottawa's most desirable neighborhoods.
Remember that the REIT has an option to acquire the property on stabilization after its completion at 95% of its then-current fair market value. On slide four, we have some more information on Haddon Hall and Le 4300. These are premium properties located in Ville-Marie and Westmount, two highly attractive Montréal neighborhoods. Haddon Hall comprises 210 suites in 10, six, and seven-story buildings on 3.2 acres, while Le 4300 comprises 318 suites in a 12-story building on 3.1 acres. The vast majority of suites in both properties have at least two bedrooms. Average monthly rent is CAD 1,882 per suite at Haddon Hall and CAD 2,667 at Le 4300. One of the most attractive features of these properties is the suite repositioning potential. Only 76 of the suites have been renovated to date, leaving 300, sorry, 452 suites to be completed.
In addition, we believe we can drive rent growth by upgrading common areas in both properties, creating additional suites and amenity areas from underutilized space at Le 4300, and upgrading the fitness facility at Haddon Hall. The in-place rents are significantly below market rents at both properties, so we see a lot of value to be gained from suite turnover and repositioning. The purchase price is CAD 281.1 million, which represents a 3.7% cap rate on forecasted year one NOI. The price is being satisfied through the CAD 225 million offering I mentioned, as well as a new CAD 45 million mortgage. The REIT's revolving credit facility. Slide five shows the locations of these properties, and you can see that they're both very central and proximate to our Rockhill property. They're located close to transit, parks, restaurants, retail amenities, schools, and universities.
Haddon Hall has a Walk Score of 98, and Le 4300 has a Walk Score of 95. I'd now like to review the impact of the acquisitions we've made since the IPO, inclusive of Haddon Hall and Le 4300, which we expect to close next week. The two charts on Slide six show our portfolio at the time of the IPO and today. Recall that at the time of the IPO, we outlined our growth plan in primary urban markets across Canada. We've clearly accomplished this goal while bringing significant geographic diversification to the portfolio. In particular, I want to highlight what we've accomplished in Montréal, where we built one of the finest portfolios of Montréal properties in the industry. Montréal now comprises 21% of total suites as measured by fair value.
Since the IPO on July 3rd, 2018, we've acquired interest in nearly 3,000 suites, a suite count increase of more than 69%. We're pleased with this portfolio growth in a little over 16 months of work, but far from satisfied. We see a lot of opportunities for further additions. As I noted earlier, the acquisition of Haddon Hall and Le 4300 is being partly funded by an equity offering from Treasury. We issued 9,850,000 units at a price of CAD 22.85 per unit, for gross proceeds of approximately CAD 225 million. All proceeds will be employed to directly or indirectly finance a portion of the acquisition. I'll now invite Julie to review our third quarter financial and operating results in more detail. Julie?
Thanks, Michael. Turning to Slide 8, I'll be comparing our Q3 2019 results to our third-quarter results last year. As a reminder, the REIT acquired its initial property portfolio on July 2nd, 2018. Completed the IPO on the Toronto Stock Exchange on the following day. Accordingly, the results for the third quarter of 2018 exclude the first day of the quarter. However, that one-day difference was not material to our results. We reported same property revenue, which excludes the impact of the acquisitions, of CAD 22.2 million in Q3 2019, an increase of 5.1% from CAD 21.1 million last year. The positive variance reflects higher rents achieved on new leases and higher revenue earned from repositioned suites. Total revenue in the quarter increased 31% to CAD 27.6 million. The increase was mainly due to the contribution from properties acquired in Toronto, Montreal, and Calgary subsequent to the IPO, and higher rental rates.
Same property NOI in Q3 2019 was CAD 14 million, an increase of 6.9% from CAD 13.1 million last year, reflecting higher revenue and relatively flat operating expenses. As a percentage of revenue, same property NOI was 63.1%, up by 110 basis points from 62% in Q3 2018. Total NOI in the quarter increased 34.4% to CAD 17.6 million due to higher revenues, higher NOI for the same property portfolio, and the REIT's property acquisitions. NOI margin was 63.6%, 160 basis points higher than the 62% NOI margin we recorded in Q3 of 2018. FFO was CAD 10.8 million in Q3 2019, an increase of 35.3% from CAD 8 million last year, reflecting the positive NOI variance. AFFO increased 38.4% to CAD 9.4 million from CAD 6.8 million last year. This increase reflects the higher FFO, adjusted for the maintenance capital expenditure reserve and the amortization of mark-to-market adjustments. AFFO per unit was CAD 0.198.
That represents an increase of 7.2% from CAD 0.1847 in Q3 2018. We declared cash distribution in Q3 2019 of CAD 0.1075 per unit, resulting in an AFFO payout ratio of 54.4%. We made cash distribution of approximately CAD 0.1003 per unit in Q3 2018, resulting in an AFFO payout ratio of 54.3%. As a reminder, we increased our distribution by 7.4% to CAD 0.44 per unit per annum, beginning with the August 2019 distribution. As of September 30th, 2019, our same property portfolio consisted of 4,283 suites, with an average monthly rent of CAD 1,462 for occupied unfurnished suites and an occupancy rate of 98.7%. Average monthly rent increased 5.3% compared to the CAD 1,388 at the end of Q3 2018, while occupancy was broadly in line with the prior year's figure.
The total portfolio, including acquisitions, consisted of 6,715 suites as of September 30th, with an average monthly rent of CAD 1,478 per occupied unfurnished suite and an occupancy rate of 98.6%. Average monthly rate of the total portfolio increased 6.5% year-over-year, while occupancy was only 38 basis points lower. Slide nine shows a breakdown of our operating expenses in Q3 2019. Beginning with the same property portfolio, property operating cost increased 4.4% to CAD 4.2 million, largely due to higher insurance costs. Property taxes increased 1.4% to CAD 2.3 million due to higher assessments, and utility expenses declined 2.7% to CAD 1.7 million, mainly due to lower water consumption. Total operating expenses were up 2% in Q3 2019 from Q3 2018. Turning to the total portfolio, we had property operating costs of CAD 5.2 million, property taxes of CAD 2.9 million, and utility expenses of CAD 2 million.
These represented increases of 30.5%, 25.7%, and 13.5%, respectively, from the same period last year. Total operating expenses were up 25.5%, largely due to the impact of the five property acquisitions that were made subsequent to Q3 2018. On slide 10, the upper chart summarizes our leasing activities in the third quarter. We signed a total of 442 new leases in Q3. The average rent on these suites increased by 16.9% from CAD 1,486 per month to CAD 1,737. This is a very strong result. The 28.5% gain we recorded in Montreal was especially large, demonstrating the gain to lease potential of the Rockhill property. In total, these rental increases provided an incremental annualized revenue gain of approximately CAD 1.2 million to the REIT. The second chart shows the gain to lease potential we estimate in our portfolio as of September 30th.
We believe we can generate more than CAD 15.3 million of annualized incremental revenue growth by bringing rents to market levels as suites turn over. By comparison, we estimated the gain to lease opportunity was CAD 11.5 million at the end of the second quarter, and CAD 7 million at the end of the first quarter. The increase reflects our acquisitions and strong rental markets. Note that our September 30th estimate does not include Haddon Hall and Le 4300, as the acquisition of those properties is expected to close next week. Slide 11 has an update on our repositioning program. During this quarter, we renovated and leased a total of 74 suites. That leaves 2,177 additional suites in our portfolio suite repositioning program, not counting the suites we plan to renovate at Haddon Hall and Le 4300.
In deploying capital for asset repositioning, we are always mindful of the short-term AFFO dilution during renovation, and continually reassess to balance the short-term AFFO impact with the accretion in net asset value. We typically target simple return on investment for these renovations of 8% to 15%, depending on the suite type. Turning now to some balance sheet metrics on Slide 12. Our balance sheet remains strong with a conservative debt profile. At the end of the third quarter, the weighted average term to maturity on our fixed-rate debt was 5.89 years with a weighted average interest rate of 3.14%. A total of 91% of our debt is fixed rate, and 70% is CMHC-insured lower cost debt. Our debt maturities are staggered, with the vast majority of repayments coming due after 2021.
Our debt to gross book value was 43.2% as of September 30th, and total cash and credit facility availability was approximately CAD 85 million. I'll now turn it back to Michael for closing comments. Michael?
Thanks, Julie. Our business outlook remains highly positive. Rental market conditions in our target urban markets are strong, and we expect to continue generating solid financial results by executing on our strategy. On slide 13, we restate our growth strategy. It hasn't changed since we launched the REIT because it's working. We'll continue to capitalize on gain to lease opportunities even though we are constantly turning over suites. The gain to lease potential in our portfolio keeps getting larger. As Julie noted, we currently estimate that our portfolio has an annualized revenue gain opportunity of approximately CAD 15.3 million from suite turnover, and that number will only increase once we include Haddon Hall and Le 4300. Our suite repositioning program will also continue to be a priority. As our portfolio expands, we have more value to create through investments in suite renovations and common area improvements.
However, we will continue to balance short-term AFFO dilution with net asset value creation. Looking externally, we continue to pursue further strategic acquisitions. The multi-residential sector in Canada remains highly fragmented, and we are actively seeking high-quality properties in primary urban markets. As part of these efforts, we'll continue to capitalize on our proprietary relationship with the Minto Group. As you know, this relationship provides us with first access to attractive growth opportunities in the Minto Group's pipeline, such as the Fifth and Bank redevelopment project in Ottawa. That concludes our remarks this morning. Julie and I would now be pleased to answer any questions you may have. Brittany, please open the line for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number 1 on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order that they are received. Should you wish to decline from the pulling process, please press star followed by the 2. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Jonathan Kelcher from TD Securities. Please go ahead.
Thanks. Good morning.
Good morning.
First question on Rockhill. Looks like you only upgraded two suites there. The majority of that, is that just market dynamics or market rent?
Yeah, that's correct. The market in Montreal continues to strengthen. What you see there is a little bit of a suite mix as well, the mix of suites that turned in the quarter. It's perhaps larger than you might otherwise see. In fact, when you look at the bottom of slide 10, you can see that the gain to lease potential on the existing rents in Montreal is around 19%-20% versus the gain on the leases in the quarter.
Okay. How does that uplift and the 20% going forward compare to the underwriting you did on the asset?
It's a little bit higher than when we had underwritten the deal. Remember, we began our work on this acquisition in late 2018 and through the spring of 2019. The Montréal markets just continued to strengthen over that period of time. I think as our repositioning program as well begins to take hold, we can continue to see further progress on that.
Okay. Just secondly, turning to the repositioning program. Looks like you're going to do about 200 suites, give or take, this year. Is that about the same level you'd look for for 2020, or does it go a little higher with the acquisitions you've done this year?
I think you're roughly in the range for 2019, around 200. We would expect to see that the repositioning volume will only increase in 2020, partly because the portfolio is larger. Of course, the dynamic is once a suite has been renovated, you won't renovate it a second time. We're looking for first turns, pre-renovation. As the property advances through its repositioning program, the rate of first turns attenuates. Of course, the volume of repositioning renovation activity in properties that are well advanced tends to diminish. Properties that are early stage, for example, Rockhill, would see a much higher level of renovation activity. As we'd mentioned, one of the things that we're balancing is with renovation, of course, we drive much higher NOI potential and of course, NAV.
We have to balance that against the earnings dilution as we take suites offline during the renovation period. We're trying to balance that, of course. That's one of the factors we take into account when we're planning our 2020 renovation program.
Okay. That works. Thanks. I'll turn it back.
Thanks, Jonathan.
Your next question comes from Brendon Abrams from Canaccord. Please go ahead.
Hi, good morning.
Hey, Brendon.
Hi. Michael and Julie, perhaps you could just remind us again on slide 10 of the presentation, the gain to lease. Does the percentage increase, does that include the impact of repositioned suites, or is that basically taking an existing suite and no renovations and just leasing it out again?
If you look at the top chart on slide 10, it does include the impact of repositioning, but the bottom chart does not.
Right.
The bottom chart is really just sitting rent to unrenovated rent that we can get.
Okay. No, that's helpful. Again, in terms of occupancy rate, does that include suites that are taken offline for repositioning?
I think we back those. The suites that are offline for renovation are excluded in our metrics.
Right. Okay. Just looking forward in terms of the two acquisitions due to close, do you have an estimate in terms of the gain-to-lease potential those would potentially add to the current portfolios?
At this stage, we have not yet closed on the property. We expect to close later in the month. We'll begin to get a better picture as we take over the operations there. Secondly, Brendon, as we've talked about in the past, our repositioning strategy or SOP, what we do is we'll complete a feasibility study, then we'll take a couple suites offline on turnover. We'll renovate them on a pilot program. Expose them separately to the market to determine what the optimal mix of suite finishes would be. Then with that data, we'll fine-tune our renovation program, we'll complete the tendering work with contractors, then we'll proceed to basically roll out the repositioning across the entire property. That work is obviously still to commence, though we've begun the very early stages of thinking about design and contractors, et cetera.
It's still too early for us to give any definitive sense of where that will come. Obviously, we're optimistic.
Okay, that's helpful. Just last question from me. Perhaps you can provide some color or maybe your expectations on turnover for the portfolio at large for 2020, perhaps including the upcoming acquisitions.
What we've traditionally seen is Toronto has sort of been on the low end of turnover in recent quarters. We've looked at Calgary historically, and certainly in the last several quarters has been on the high end, I guess Alberta generally. I think that trend will probably continue. I think that we look at markets like Ottawa, like Montreal, where rents are growing and where we're seeing as well the trend line there to sort of generally lower turnover is probably more likely than higher turnover. I don't know if that helps. Of course, we don't get great visibility till we get into actually notices from tenants, but that's our general sense.
Great. Okay, that's helpful. I'll turn it over. Thank you.
Thanks, Brendon.
Your next question comes from Mike Markidis from Desjardins. Please go ahead.
Hi. Thank you. Couple of questions here. First off, in Alberta, Michael, actually just following on your comments, seeing that turnover there has been quite high. If I just sort of do rough math on your disclosure, it looks like on a trailing 12-month basis, you guys are sort of in the 45%-50% range turnover rate. Would that be consistent with historical experience or what you would expect for that market?
Your figure's a little higher than we're at. We'd be a little bit lower than that, probably starting with a three. Historically, the Alberta market tends to have much higher turnover. It's unregulated, obviously, and it has very low relative to the national average rental penetration of total housing types. It tends to be a more dynamic market. As a consequence, we traditionally have seen higher turnover there. That's very, very consistent with historical trends and what we'd expect to see with the environment.
Okay. It looks like the last couple of quarters you guys have been getting, call it 5% spreads on your turnover or your new leases. Where would you guys roughly be on renewals?
Good question. Give me a second here. I think we'd be kind of in the 1% to 2% on renewals. I think that's pretty reflective of the dynamic in that market. It continues to be a market where we've seen the overall recovery be somewhat choppy, and we've seen incentives used broadly in the market on a fairly consistent basis. Tenants are attuned to the market conditions and savvy and so we're seeing that for sure in the renewals.
Okay. I think on your prior question on the number of reposition units next year, it sounded like at the very least the number of units would increase proportionate with the portfolio. Do you expect that the impact to your economic vacancy is actually going to leak higher in 2020 just given what you're seeing? I know it depends on the rate of turnover in certain markets and what suites become available, but would that be your sort of baseline assumption at this point?
Yeah. We are obviously dependent on tenants terminating their tenancies. That's the number one sort of governor, if you will, on the pace at which we can renovate. I would expect to see that we would see economic vacancies come up just a little bit because of that. That could be something low double-digit basis point, but certainly something that we might expect to see. That would be very normal. Of course, we'll give updates as we get into Q1 and Q2.
Okay. Last one for me before I turn it back. Julie, just curious if, we got one quarter to go, so this year would probably be pretty easy, but if you had full-year CapEx expectations just based on the assets that you own or for 2020, I guess, what you're going to be owning on an annual basis total?
Our total CapEx is in large part dependent on the number of suites that we intend to reposition during the year. I think we're going to be probably in a better position to provide a little bit of guidance with our Q4 reporting cycle. At this point, we're just finalizing our numbers on that. I think we're going to be sort of better positioned to give you a bit of guidance next quarter on that.
Okay. For this year, would you expect Q4 to be similar to last year?
Pretty much in line with the exception of, obviously, the growth in the portfolio.
Got it. Okay, excellent. Thank you.
Thanks, Mike.
Your next question comes from Johann Rodrigues from Raymond James. Please go ahead.
Hey, everyone. Can you maybe tell us what the gain to lease percentage is at Rockhill?
Thanks, Johann. We're probably in the range of about 20%. That slide 10, if you look at that, the table at the bottom there, the 971 suites, that is Rockhill, excluding suites offline for repositioning and vacant suites in that building. Thinking about Haddon Hall and Le 4300, those, as I'd mentioned on the earlier question, were still TBD. We hope to close on that asset late this month and, obviously, with our repositioning feasibility work and some of that stuff, it'll become clearer. We'll provide updates, obviously, with our Q4 in March.
Okay. In terms of on repositionings, you gave an ROI range of 8%-15%. Can you maybe talk about what type of suites would be closer to 8 and what would be closer to 15? Is it the geography? Is it the quality of the suites or size or?
Yeah. Very, very generically, I mean, this is a gross generalization because it does depend on the building. As you get larger and larger suites, you tend to see the ROI come down a little bit. That's, as I say, a gross generalization. Simply because in some markets we've seen the dynamic within a building or within a market act very differently in the sense that, generally speaking, you'll see the rent per square foot be higher in a smaller suite. It's not linear as you get bigger suites. In some buildings, we actually see as the units get larger, the suites get larger, the rent per square foot actually is higher, strangely enough. That's certainly the case at Le 4300, for example, where larger suites attract proportionately higher rents.
As we go through the feasibility work and then pilot some suites there for repositioning, I wouldn't be surprised that we see that generalization probably may not hold at Le 4300 as an example.
Okay. Last question. You're in five of the six major markets. Are you looking at all at Vancouver, or is pricing there kind of?
Well, we're constantly looking at the greater Vancouver area. The challenge, as you pointed out, is pricing. It's very difficult for us to make the numbers work. We'll look at 20 deals. We'll underwrite 10. We'll bid on two. What we've found is that we've been off the bid on deals that we have extended to. I think we'll keep looking. Our interest isn't diminished in any way. We don't want to grow for growth's sake. We want to add to the portfolio in a strategic and judicious manner to make sure that we're maintaining the overall returns to our unitholders and that growth potential. I'm optimistic we'll find something at some point, but I just can't say when that will be.
Great. Okay. Thanks, Michael. I'll turn it back.
Thanks, Johann.
Your next question comes from Matt Logan from RBC Capital Markets. Please go ahead.
Thank you, and good morning.
Hey, Matt.
There seems to be a lot of momentum in Ottawa in terms of accelerating rent growth, population growth, and limited new supply. With your gain to lease opportunities in the city second only to Montreal, how should we think about the relative pecking order in terms of Ottawa versus Toronto, Montreal, or Vancouver for fresh investment capital?
Ottawa is obviously a market we know very, very well. At the time of the IPO, almost 60% of the portfolio was Ottawa based. We have been, over the last five quarters, focused outside of Ottawa with the exception of the investment financing facility we extended for MPI for the redevelopment of Fifth and Bank. Our focus has been outside of Ottawa. Obviously Montréal and Toronto taking the vast majority of our time and energy. Your point about Ottawa is good, which is that market remains very, very healthy, and I think it continues to strengthen with population growth. We have seen Ottawa's dynamics for rental just strengthen. That is, if you look long term, Ottawa's population growth on an annual basis was at or around 10,000 new residents every year.
Over the last four or five years, fueled in large part by immigration, we've seen that number almost triple. At the same time, we've not seen any increases in supply of dwelling, really if you measured by all dwelling types, deliveries of homes in Ottawa have been relatively flat. That's reflective of supply constraints, land costs, planning restrictions, and other things. The Ottawa job market is strong and strengthening and the tech sector there is really driving, I think, a lot of activity. You see that in office vacancy. You see it in lease rates for office and things like that. We think of Ottawa as an opportunity. We'll continue to look at it if we can find stuff that works. I think that could be investing in the portfolio through repositioning opportunities in Ottawa.
We have a couple properties that are going through that right now, but it's possible that we might look at other properties. I think one thing that's just an interesting factoid is that our demand per suite is the highest in our portfolio in Ottawa, and that's measured on leads and other metrics that we use to quantify demand. We're very bullish about Ottawa and we see the relative valuation spread there, returns there could be quite accretive. It's something that we'll continue to look at.
That's great color, Michael. Maybe just following up on the renovations. With rising rents and growing gain to lease opportunities, does that help improve your economics, or do you see the construction and cost side of the fence rising in tandem?
Well, certainly construction costs for new build, and particularly concrete, is continuing to grow. Trade shortages are part of that, for sure. The other factor is when you see that gain to lease widen, it obviously has the impact of reducing a tenant's tendency to vacate their tenancy. But what we've seen as far as costs go from renovation is that they've tended to trend closer to inflation. It's a different set of trades. It's different than new construction, if that makes sense.
No, it makes sense to me. Maybe just last question before I turn it back. In terms of the suite turnover for the portfolio, the portfolio's changed a lot over the last 12 months. Can you talk about how the turnover's trending on a same-property basis? Like, is it generally steady year-over-year, or are you starting to see some moderation in your turnover figures?
It's probably a little bit lower for sure on a same-property basis. I'm not sure it would be different than the broader trend. I think it's probably reflective of the broader trend. Same-property portfolio is probably a little lower than it was year-over-year. I don't have the exact figures in front of me, unfortunately, Matt. I'm sorry.
That's okay. I'll turn the call back. Thank you very much.
Thanks, Matt.
Your next question comes from Matt Kornack from National Bank Financial. Please go ahead.
Hi, guys.
Hey, Matt.
Good morning.
Quick question on Quebec. You seem to be managing the rent control regime there pretty successfully in your favor. Are you finding any intricacies with the unit-based rent control in terms of getting these rent increases on turnover?
No, we're not. We've been, I think, adapting to the new, for us, regulatory regime. We began our work evaluating the Montréal market at least two years ago. We had ample time to evaluate the market, and that would've included, at the time, a detailed review of the regulatory regime. We went into the Rockhill deal and the underwriting for the Rockhill deal armed with a lot of knowledge, not just the wording of the regulation, but the practice and how it's actually implemented by the leading market players in that market. Of course, with Rockhill, we had the benefit of the management contract with the legacy manager, Cogir, who we've retained for the first several months of the acquisition. We were also able to benefit from confirmation of what our underlying thesis was with their practical experience.
We have not struggled with that and found it has not been a hurdle, but I think that was partly because we did a lot of homework in advance.
Fair enough. Demographics-wise, Rockhill versus the two properties that you acquired, is there a difference there? Is Rockhill more students than you'd necessarily have in Westmount, or is it a similar sort of professional demographic that you're going after?
Well, I'll say Le 4300 just for reference. It's a very affluent neighborhood, perhaps the most affluent of the three. If you measured by, say, household income, it's over CAD 150,000 a year. It would be I think, an older demographic at Le 4300, relatively more retirees. I think when we look at Haddon Hall, which is just to the east of Westmount, it's sort of sandwiched into the downtown. It's close to more office, more employment, more education. Dawson College, for example, very close. Larger mix of students and younger professionals, for sure, at Haddon Hall. Rockhill, it's sort of a little more distant from downtown. Obviously. It's a little north and a little west. It is close to HEC, to several hospitals.
It's perhaps not as affluent as Le 4300, but also has a nice mix there of students and professionals drawn to those employment sources that are close by, and of course, the Metro stop, which is very close to the front door. Does that give you the color?
That's perfect. I was just wondering, I don't know if you'd have a sense of this yet, do you find within the rent control regime that a certain aspect of the population is more or less likely to take you to the Régie du logement or do what they can to keep rents lower and if it would impact the specific assets. It sounds like with a renovated suite, people are willing to pay what market is.
Yeah, I think so. I think they're seeing the improvements we're making, not just in-suite, but in the amenities in the building and in the common areas. I think that we've been incredibly fortunate. We've not had any notable issues with the Régie or with tenants. I think that they come in, they see the changes that we're making in the building at Rockhill, and I think they see the value-add, and so we've been very fortunate in that regard. Of course, having those pilot suites is very helpful because it does allow you to really triangulate on what tenants are looking for on the in-suite finishes, the amenities and common areas are more of a judgment call that we've made. Of course, at Rockhill, a lot of that had been done.
Some remains in the amenity area, particularly things like fitness and other areas I think we could and have plans to make some significant improvements there, which I think will help. I think tenants see that. They see that you're investing in the building. They see that you're improving the appeal. So far, we've not had any issue. I think these regulations, they're in place for situations where maybe the rules are being abused a little bit, and we've obviously haven't seen any of that. We've been fortunate, as I say.
Makes sense. Arguably, if you looked at your portfolio, and I don't have the exact demographic data, but for the rents and the size of the units in Montréal and probably even Ottawa versus what you're getting for rents in Toronto, these are still reasonably affordable accommodations versus Toronto. Would you think that that, in terms of the gain to lease opportunity longer term, do you think Toronto maybe has a ceiling or something that would be a limiter versus these other markets where from an affordability standpoint, it's not that big of an issue?
I guess I would say at a general level, we think about rents per foot and really rents as a proportion of income. I think your statement about Montréal and Ottawa rents relative to income or rents on a per square foot basis being lower than what you would see in Toronto, I think is absolutely correct. To be specific, because the generalities are fine, but we look at every building relative to its competitive set of comparable buildings in the immediate vicinity. We price all of our inventory on a weekly basis. Of course, we look at our portfolio from the perspective of location, proximity to amenities, and if you want to quantify that with Walk Score, I think you'd see our Walk Scores are amongst the very highest in the industry.
While the general overall trend might be for rents to be relatively less affordable in Toronto than they would be in Montreal or Ottawa, we think that the properties that we have, because of their locations, because of their amenities, we think that we still have very significant potential to continue to grow rents and grow NAV for those properties simply because of their location.
Okay, that's perfect. Thanks for the color, guys.
Yeah. Thanks, Matt.
Your next question comes from Brad Sturges from iA Securities. Please go ahead.
Hi there.
Hey, Brad.
I guess now that you've been in Montreal for a little bit with Rockhill, is there anything that's popped up positive or negative in terms of surprises that you didn't expect when you entered the market after doing some homework for a couple of years?
I think that obviously our turnover was one area where we'd seen its turns be quite a bit lower than we had expected to see there. That is something that you never really know till you get in there. I think the other thing that was a positive surprise is we were able to make a little further or faster progress than we wanted on our repositioning program, and that has gone very well. On the positive side of the ledger, I think that the investment opportunity in the amenity there, really creating a community at Rockhill, is also something that as we got into the building and really began our detailed planning and stuff, we think that it's an opportunity to really differentiate ourselves because we're not seeing the competitors necessarily doing it. Those are some of the, I guess, positives, negatives within that.
Largely, I would say that our experience has been in line with what we had underwritten. As we get smarter and more experienced in that market, I think we'll continue to refine and fine-tune our plans there and our operations.
Nothing that really has come about that would drastically change your investment process in terms of future acquisitions?
No. Quite the contrary. I think we really continue to like Montreal, and I think the three properties that we've assembled there are amongst the finest in the industry in Montreal. Montreal is a market with very high rental penetration as a proportion of total housing types. There is relatively more rental housing there, but it tends to be smaller, older properties, not really as well-maintained. Finding great properties is difficult. We think that we like the overall dynamics, and I think now that we've got scale in that market, of course, that gives us an opportunity to add strategically smaller tuck-in deals into the larger portfolio on a very efficient basis from an operating perspective.
Just to go back to your comments about Vancouver, I guess, similar to Montréal, would you need a transaction that gives you enough scale to enter the market and that, combined with the pricing, makes the opportunity set a little bit smaller right now?
Yeah. I think that the Rockhill deal is probably the gold standard for scale. 1,000 suites is ample scale. I don't think we would be necessarily targeting anything necessarily that's that big. We think about efficient scale as probably quite a bit lower than 1,000 suites. I don't think we'd necessarily be looking to land a whale of that size. Obviously, we wouldn't go in to pick up a 50-suite building unless we had clear line of sight on picking up a whole bunch more suites to get efficiency. Ideally, we'd like to be in that 1,500 suites in a market. That helps justify the management infrastructure that we need to do the things we need to do to operate the buildings at the standard we've become accustomed to. It's not to say we necessarily need to go in at that level initially.
Got it. Okay, great. Thank you.
Thanks, Brad.
Your next question comes from Dean Wilkinson from CIBC. Please go ahead.
Thanks. Morning, everyone.
Good morning.
Michael, it's kind of come up in a few of the questions, but sort of putting it in a different light. We've seen some pretty healthy, if not surprising, pricing in the private market recently around portfolios sort of in the GTA area. How difficult are you finding the acquisition environment now, and are you seeing some of that pressure start to mitigate out of sort of the GTHA into some of the other markets, and would that necessitate you doing more things like you're doing at Fifth and Bank, or how are you looking at that?
Yeah. The acquisition market is very competitive. We're seeing valuations as measured on a cap rate basis come down. Of course, I think we don't necessarily underwrite on a cap rate basis. It's a convenient metric to talk about valuation. Of course, when we're looking at acquisitions, we're looking at the growth potential within the property. We're looking at the location, and we're looking at the ability to deploy capital within that property to generate that kind of organic growth. Ideally, for us, we're looking for assets where there is a gap to market, and that certainly exists today. Of course, NOI reflects the standing rents. The ability to turn and generate higher NOI when there is a significant gap is something we look for. We look for buildings where, as I say, there's a potential to deploy value-add capital in a repositioning program.
I think because of our strategic alliance with Minto Group and Minto's development and construction competency, I think for us to acquire properties where there may be intensification or redevelopment potential is certainly something that we are focused on. You've seen that with some of the recent acquisitions that we've done. High Park and Leslie/York Mills, for example, are properties where intensification is a huge component of the underwriting. High Park, just for instance, has 750 suites, and we hope to get it rezoned and substantially augment that suite count. I think those are opportunities for us. Of course, pure development plays, such as the Fifth and Bank deal, maybe where we can access pipelines from Minto Group, sites that might otherwise have been condo sites, for example.
Right.
Those are certainly opportunities for us as well. We are seeing that equilibrium between condo and rental. It's always shifting. In Ottawa, I think it's clear based on the condo market there and where the rental market is going, that rentals in place of condo works in a lot of locations. In Toronto, I think in the right circumstances, the rentals line up very nicely against condo economically. We're fortunate because of that relationship with Minto. Minto's got big deal flow, big land bank. That condo pipeline that they have often will find some nice opportunities. We're looking there for sure. That's the challenge, I guess, of a strong rental market. There's the positives. You see that on slide 10. The negatives is it's harder to grow strategically.
Yeah.
If you're just looking at buying properties at retail, you're going to find it a pretty tough slog in for sure.
Yeah. A good problem to have. That's enough color for me. Thanks, guys.
Thanks, Dean.
Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. There are no further questions at this time. Please proceed.
Great. Thank you everybody. That concludes our call this morning. We appreciate your time and interest in Minto Apartment REIT. We look forward to speaking with you again after we report our fourth quarter and year-end financial results in March. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.