Good morning. My name is Britney, 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 speakers' remarks, there will be a question and answer session.
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 and 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 and 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, Britney, and good morning, everyone. We're pleased you've joined us today. I'm Michael Waters, Chief Executive Officer of Minto Apartment REIT, and 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 Q3, including our financial performance and other major developments. Julie will then review our financial and operating results in greater detail, and I'll conclude with some brief comments on our business outlook.
Then 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, and we maintained a solid balance sheet. We continue 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 1st 9 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 $131,200,000 As I discussed on the last conference call, this is a high quality property with significant repositioning and intensification potential. The acquisition closed on August 1, so High Park Village was fully integrated during Q3 contributed to our operating results during the quarter. In fact, we repositioned 6 of the property suites this quarter.
Subsequent to the end of Q3 on October 10, we announced an agreement to buy the Haddon Hall and Luf 4,300 properties in Montreal. These properties bring an additional 5 28 suites into the portfolio, and I'll speak more about them in just a moment. The acquisition is being funded in part by a $225,000,000 bought deal offering of trust units, which closed on October 22. We also recently made the first advance of $17,000,000 on the previously announced investment loan for the 5th 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, Biminto 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 4, we have some more information on Haddon Hall and Le 4,300. These are premium properties located in Ville Marie and Westmount, 2 highly attractive Montreal neighborhoods. Haddon Hall comprises 210 Suites in 10, 6 and 7 storey buildings on 3.2 acres, while LIFT 4,300 comprises 3 18 suites in a 12 story building on 3.1 acres.
The vast majority of suites in both properties have at least 2 bedrooms. Average monthly rent is $18.82 per suite at Haddon Hall and $2,667 at La 4,300. 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 3 hundred sorry, 4 52 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 La 4,300 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 $281,100,000 which represents a 3.7% cap rate on forecasted year 1 NOI. The price is being satisfied to the $225,000,000 offering I mentioned as well as the new $45,000,000 mortgage and the REIT's revolving credit facility. Slide 5 shows the locations of these properties and you can see that they're both very central and proximate to our Rock Hill property. They're located close to transit, parks, restaurants, retail amenities, schools and universities.
Haddon Hall has a Walk Score of 98 and La 4,300 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 the 4,300, which we expect to close next week. The two charts on Slide 6 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 Montreal, where we built one of the finest portfolios of Montreal properties in the industry. Montreal now comprises 21% of total suites as measured by fair value. Since the IPO on July 3, 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 the 4,300 is part being partly funded by an equity offering from Treasury. We issued 9,850,000 units at a price of $22.85 per unit for gross proceeds of approximately $225,000,000 All proceeds will be employed to directly or indirectly finance a portion of the acquisition. I'll now invite Julie to review our Q3 financial and operating results in more detail. Julie?
Thanks, Michael. Turning to Slide 8. I'll be comparing our Q3 2019 results to our Q3 results last year. As a reminder, the REIT acquired its initial property portfolio on July 2, 2018 and completed the IPO on the Toronto Stock Exchange on the following day. Accordingly, the results for the Q3 of 2018 exclude the 1st 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 $22,200,000 in twothree twenty nineteen, an increase of 5.1% from 21 $100,000 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 percent to $27,600,000 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 19 was $14,000,000 an increase of 6.9 percent from $13,100,000 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 percent to $17,600,000 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 $10,800,000 in Q3 twenty nineteen, an increase of 35.3 percent from $8,000,000 last year, reflecting the positive NOI variance. AFFO increased 38.4 percent to $9,400,000 from $6,800,000 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 $0.198 That represents an increase of 7.2% from $0.1847 in Q3 2018. We declared cash distribution in Q3 2019 of 10 point $7.5 per unit, resulting in an AFFO payout ratio of 54.4%. We made cash distribution of approximately $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 point 4% to $0.44 per unit per annum beginning with the August 2019 distribution.
As of September 30, 2019, our same property portfolio consisted of 4,283 suites with an average monthly rent of $14.62 per occupied unfurnished suite and an occupancy rate of 98.7%. Average monthly rent increased 5.3% compared to the $13.88 at the end of Q3 2018, while occupancy was broadly in line with the prior year figure. The total portfolio, including acquisitions, consisted of 6,715 suites as of September 30, with an average monthly rent of $14.78 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 9 shows a breakdown of our operating expenses in Q3 2019.
Beginning with the same property portfolio, property operating cost increased 4.4 percent to $4,200,000 largely due to higher insurance costs. Property taxes increased 1.4 percent to $2,300,000 due to higher assessments and utility expenses declined 2.7% to $1,700,000 mainly due to lower water consumption. Total operating expenses were up 2% in Q3 20 19 compared to Q3 2018. Turning to the total portfolio. We had property operating cost of $5,200,000 property taxes of $2,900,000 and utility expenses of $2,000,000 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 5 property acquisitions that were made subsequent to Q3 2018. On Slide 10, the upper chart summarizes our leasing activities in the Q3. We signed a total of 4.42 new leases in Q3. The average rent on these suites increased by 16.9 percent from $14.86 per month to $17.37 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 Rock Hill property.
In total, these rental increases provided an incremental annualized revenue gain of approximately $1,200,000 to the REIT. The second chart shows the gain to lease potential we estimate in our portfolio as of September 30. We believe we can generate more than $15,300,000 of annualized incremental revenue growth by bringing rents to market levels as suites turnover. By comparison, we estimated the gain to lease off gain was 11 point $5,000,000 at the end of the 2nd quarter $7,000,000 at the end of the 1st quarter. The increase reflects our acquisitions in strong rental markets.
Note that our September 30 estimate does not include Hennenhall and the 4,300 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 portfolio suite repositioning program, not counting the suites we plan to renovate at Hayden Hall and the 4,300. 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 Q3, 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% 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 percent as at September 30 and total cash and credit facility availability
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 $15,300,000 from suite turnover and that number will only increase once we include Haddon Hall and the 4,300. 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 the 1st access to attractive growth opportunities in the Minto Group's pipeline, such as the 5th 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. Britney, please open the line for questions.
Thank you. Your first question comes from Jonathan Kelcher from TD Securities. Please go ahead.
Thanks. Good morning.
Good morning.
First question on Rock Hill. It looks like you only upgraded 2 suites there. So the majority of that, is that just market dynamics or market rent?
Yes, that's correct. The market in Montreal continues to strengthen. And so what you see there is a little bit of suite mix as well, the mix of sweets that turned in the quarter. So 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 kind of around 19%, 20% versus the gain on the leases in the quarter.
Okay. And then how does that uplift in the 20% going forward compared 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, and the Montreal markets just continue 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 this.
Okay. And then just secondly, turning to your 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 2020 or does it go a little higher with the acquisitions you've done this year?
Yes. So I think you're roughly in the range for 2019 around 2 $100,000,000 I expect that we would expect to see that the repositioning volume will only increase in 2020, partly because the portfolio is larger. I expect as well that, of course, the dynamic is once a suite has been renovated, you won't renovate it a second time. So we're looking for 1st turn pre renovation. And so as the property advances through its repositioning program, the rate of turns, of first turns, attenuates.
And of course, the volume of repositioning renovation activity in properties that are well advanced tends to diminish. And properties that are early stage, for example, Rock Hill, would see a much higher level of renovation activity. As we've mentioned, one of the things that we're balancing is the with renovation, of course, we drive much higher NOI potential and of course NAV, But we have to balance that against the earnings dilution as we take suites offline during the renovation period. So we're trying to balance that, of course. And 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 Brendan Abrams from Canaccord. Please go ahead.
Hi, good morning. Hey, Brendan. Hi, Michael and Julie, perhaps you could just remind us again on the Slide 10 of the presentation that gained to lease. Does the percentage increase, does that include the impact of reposition suites? Or is that basically taking an existing suite and no renovations and just leasing it out again?
So if you look at the top chart on Slide 10, it does include the impact of repositioning, but the bottom chart does not. The bottom chart is really just sitting rent to unrenovated rent that we can get.
Okay. That's helpful. And again, in terms of occupancy rate, does that include suites that are taken offline for repositioning?
I think we backed those the suites that are offline for renovation are excluded in our metrics.
Right. Okay. And just looking forward in terms of the 2 acquisitions due to close, do
you have
an estimate in terms of the gain to lease potential, those would potentially add to the current portfolio?
At this stage, we have not yet closed on the property. We expect to close later in the month, and we'll begin to get a better picture as we take over the operations there. Secondly, Brendan, 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 of 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. And then with that data, we'll fine tune our renovation program. We'll complete the tendering work with contractors and then we'll proceed to basically roll out the repositioning across the entire property.
So that work is obviously still to commence, though we've begun the very early stages of thinking about design and contractors, etcetera, But it's still too early for us to give any definitive sense of where that will come. But obviously, we're optimistic.
Okay. That's helpful. And then just last question for 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?
So
what we've traditionally seen is Toronto has sort of been on the low end of turnover in recent quarters. And 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 are seeing as well the trend line there to sort of generally lower turnover, it's probably more likely than higher turnover. So 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.
Okay. That's helpful. I'll turn it over. Thank you.
Thanks, Brandon.
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% to 50% range turnover rate. Would that be consistent with historical experience or what you would expect for that market?
Your figure is a little higher than we're at. We'd be a little bit lower than that, probably starting with the 3. But historically, the Alberta market tends to have much higher turnover. It has very unregulated obviously and it has very low relative to the national average rental penetration of total housing types. So it tends to be a more dynamic market.
And as a consequence, we're seeing traditionally have seen higher turnover there. So that's very, very consistent with historical trends and what we'd expect to see call it, 5% -ish spreads
on your turnover or your new call it, 5% -ish spreads on your turnover or your new leases. Where would you guys roughly be on renewals?
Good question. I would need to give me a second here. I think we'd be kind of in 1% to 2% on renewals. And I think that's pretty reflective of the dynamic in that market. It continues to be a market that's 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.
So 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 it would the number of units would increase proportionate with the portfolio. But 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 mean, 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?
Yes. So we are obviously dependent on tenants terminating tenancies. So that's the number one sort of governor, if you will, on the pace at which we can renovate. But I would expect to see that we would see economic vacancy come up just a little bit because of that. So 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 1 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?
So our total CapEx is in large part dependent on the number of suites that we intend to reposition during the year. So 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. But 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
Your next question comes from Johan Rogers from Raymond James. Please go ahead.
Hey, everyone. Can you maybe tell us what the gain to lease percentage is at Rock Hill?
Thanks, Johan. We're probably in the range of about 20%. When that month that Slide 10, if you look at that, the table at the bottom there, the 971 Suites, that is Rock Hill, excluding suites offline for repositioning and vacant suites in that building. The thinking about Haddon Hall and LA 4,300, those, as I 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 will become clear. We'll provide updates obviously with our Q4 in March.
Okay. And then in terms of on repositionings, you gave an ROI range of 8 percent to 15%. Can you maybe talk about what type of suites would be closer to 8% and what would be closer to 15%? Is it kind of geography? Is it kind of the quality of the suites or size or
Yes. So if you get to like very, very generically, I mean this is a gross generalization, because it does depend on the building. But as you get larger and larger suites, you tend to see the ROI come down a little bit. But that's, as I say, a gross generalization simply because that 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.
But 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. And that's certainly the case at La 4,300, for example, where larger suites attract proportionately higher rents. And so 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 it at the 4,300 as an example.
Okay. And then last question, you're in 5 of the 6 major markets. Are you looking at all at Vancouver or is pricing there kind of competitive?
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. And we'll look at 20 deals. We'll underwrite 10.
We'll bid on 2. And what we found is that we've been off the bid on deals that we have extended to. So I think we'll keep looking. Our interest isn't diminished in any way, but we don't want to grow for growth 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.
So I'm optimistic. We'll find something at some point, but I just can't say when that will be.
Okay. Thanks, Michael. I'll turn it back.
Thanks, Johan.
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?
I think that we've looked at Ottawa is obviously a market we know very, very well. We at the time of the IPO, almost 60% of the portfolio was Ottawa based. We have been over the last 5 quarters focused outside of Ottawa with the exception of the investment financing facility we extended for MPI for the redevelopment of 5th and Bank. Our focus has been outside of Ottawa, obviously, Montreal and Toronto taking the vast majority of our time and energy. But 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. And that is if you looked long term, Ottawa's population growth on an annual basis was at or around 10,000 new residents every year. And over the last 4 or 5 years, fueled in large part by immigration, we've seen that number almost triple. And at the same time, we've not seen any increases in supply of dwelling really if you measure by all dwelling types, deliveries of homes in Ottawa have been relatively flat. And 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. So 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 of properties that are going through that right now, but it's possible that we might look at other properties. And I think one thing that 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. So we're very bullish about Ottawa and we see the relative valuation spread there, returns there could be quite accretive. So 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 newbuild, and particularly concrete, is continuing to grow. Trade shortages are part of that, for sure. The other factor is when you see that gap of to market on rents widen, it obviously has the impact of reducing a tenant's tenancy to vacate their tenancy. So 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. And maybe just last question before I turn it back. In terms of the suite turnover for the portfolio, it's the portfolio has changed a lot over the last 12 months. Can you talk about how the turnover is 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. A 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 base 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 Montreal market at least 2 years ago. So we had ample time to evaluate the market and that would have included at the time a detailed review of the regulatory regime. So we went into the Rock Hill deal and the underwriting for the Rock Hill 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.
And of course, with Rock Hill, we had the benefit of the management contract with the legacy manager, Kojir, who we've retained for the 1st several months of the acquisition. So we were also able to benefit from confirmation of our what our underlying thesis was with their practical experience. So 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. And demographics wise, Rock Hill versus the 2 properties that you acquired, is there a difference there? Like is Rock Hill more students than you necessarily have in Westmount or is it a similar sort of professional demographic that you're going after?
Well, I'll say the 4,300 just for references, it's a very affluent neighborhood, perhaps the more most affluent of the 3, if you measured by say household income, it's over $150,000 a year. It would be, I think, an older demographic, Aetna 4,300, 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 more office, more employment, more education. Dawson College, for example, very close.
So larger mix of students and younger professionals for sure at Haddon Hall. Rock Hill, it's sort of a little more distant from downtown. Obviously, it's a little north and a little west. But it is close to, as I say, to several hospitals. So it's perhaps not as affluent as the 4,300, 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, very close to the front door.
So does that give you the color?
Yes, that's perfect. I was just wondering, I don't know if you'd have a sense of this yet, but 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 Regis de Lejemont or do what they can to keep rents lower and if it would impact the specific assets, but it sounds like with a renovated suite, people are willing to pay what market is?
Yes, 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. And I think that we've been incredibly fortunate. We've not had any notable issues with the Regis or with tenants. I think that they come in, they see the changes that we're making in the building at Rock Hill. 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, 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 Rock Hill, a lot of that had been done. Some remains in the amenity area, particularly things like fitness and other areas. I think we could have plans to do make some significant improvements there, which I think will help.
And I think tenants see that. They see that you're investing in the building. They see that you're improving the appeal. And so far, we've not had any issue. I think these regulations are they're in place for situations where maybe the rules are being abused a little bit.
And we've been obviously not we haven't seen any of that. So we've been fortunate as I say.
Makes sense. And 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 Montreal and probably even Ottawa versus what you're getting for rents in Toronto, these are still reasonably affordable accommodations versus Toronto? And 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?
So I guess I would say at a general level, we think about rents per foot and really rents as a proportion of income. And I think your statement about Montreal 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. But to be specific, we I mean, 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. And 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.
And so 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.
Yes. 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 Rock Hill, 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've seen it turns be quite a bit lower than we had expected to see there. That is something that we you never really know till you get in there. But 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. So on the positive side of the ledger, I think that the investment opportunity in the amenity there, really creating a community at Rock Hill 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. So those are some of the, I guess, positives, negatives within that.
But I mean largely, I would say that our experience has been in line with what we had underwritten. And 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 3 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.
So there is relatively more rental housing there, but it tends to be smaller, older properties not really as well maintained. And so finding great properties is difficult, but 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 that on a very efficient basis from an operating perspective.
And just to go back to your comments on Vancouver, I guess, similar to Montreal, 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?
Yes. I mean, I think that the Rock Hill 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. I think we think about efficient scale is probably quite a bit lower than 1,000 suites. So I don't think we'd necessarily be looking to land a whale of that size.
But it's 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 1500 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. But it's not to say we necessarily need to go
in at that
level initially. Got it.
Okay, great. Thank you.
Thanks, Brett.
Thanks. Good morning, everyone. Good morning. Good morning. Good morning.
Thanks. Good 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 the GTA into some of the other markets? And would that necessitate you doing more things like you're doing at 5th and Bank?
Or how are you looking at that?
Yes. I mean, 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.
But 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. So ideally for us, we're looking for assets where there is a gap to market and that certainly exists today. And of course, NOI reflects the standing rents, but the ability to turn and generate higher NOI when there is a significant gap is something we look for. We look for suites where there are 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. And 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, suite count. And fleet count. And so I think those are opportunities for us.
And of course, pure development plays such as the 5th and Bank deal, maybe where we can access pipeline from Minto Group, sites that might otherwise have been condo sites, for example. Those are certainly opportunities for us as well. And 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. And so we're fortunate because of that relationship with Minto. Minto has got big deal flow, big land bank. And so that condo pipeline that they have often will find some nice opportunities. So we're looking there for sure.
And I mean 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. If you're just looking at buying properties at retail, you're going to find it a pretty tough slog in for sure.
Good problem to have. That's
enough color for me. Thanks, guys.
Thanks,
Dean. There are no further questions at this time. Please proceed.
Great. Well, 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 Q4 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.