Morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Minto Apartment REIT second quarter 2019 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by 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 August 12th, 2019 for more information. During the call, management will also reference certain non-IFRS financial measures. Although the REIT believe these measures provide useful supplemental information about its financial performance, they're 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, Joanna. Good morning, everyone. Thank you for joining us today. I'm Michael Waters, Chief Executive Officer of Minto Apartment REIT, and with me on the call today is Julie Morin, our Chief Financial Officer. I'll begin the call on slide three by going over some highlights of the second quarter, 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 comments on our business outlook. We'll hold a question and answer session. Let's begin with the most exciting news we reported last night, which is the increase to our distribution. Our Board of Trustees approved a 7.4% increase to our monthly distribution, increasing it from an annualized rate of CAD 0.41 per unit to CAD 0.44 per unit.
This change is effective for our August distribution, which will be paid on September 16th, 2019. The distribution increase is based on the REIT's consistently solid financial performance and growth prospects generated from both the organic growth and the external growth that we envisioned when we launched the initial public offering last year. We also have a strong outlook, which suggests that we'll be able to continue to perform well going forward. The second quarter marks the end of our four-quarter IPO forecast period. It's a good opportunity to look back and measure the REIT's performance against our expectations we had then. I'm pleased to say that we outperformed on all of our key operational and financial estimates for the period.
I won't go through all of them here, but I will note that AFFO per unit was 12.9% higher than forecast for the 12-month period, and same-property NOI was 7.2% greater than the IPO forecast. For the second quarter, we reported revenue of CAD 24.8 million, which was 17.8% greater than forecast, NOI of CAD 15.8 million, which was 25.2% higher than forecast, and AFFO of CAD 8.5 million, which was 35.7% greater than forecast. Same-property revenue and NOI also exceeded the forecast. We achieved these results while maintaining a strong balance sheet with a conservative debt to gross book value ratio of 43.3%. Overall, it was another busy quarter. We completed the repositioning of 57 suites, significantly more than the 21 suites we renovated in the first quarter. This program continues to drive strong organic rental growth.
As announced previously, we also acquired 50% interest in two high-quality properties, Rockhill in Montreal and Leslie York Mills, or LYM, in Toronto. The total purchase price was approximately CAD 209 million. These two properties comprise more than 1,400 combined suites. The LYM stake was purchased from Minto Properties, another example of the strategic benefit of our relationship with the Minto Group. The acquisition was financed in part through an equity offering in which we issued 8.8 million trust units at a price of CAD 19.60 per unit, for gross proceeds of approximately CAD 173 million. The underwriters' overallotment was fully exercised. We were pleased to see such a strong reception from the investment community. Finally, subsequent to the end of the quarter, we acquired a 40% interest in the High Park Village apartment complex in Toronto from Minto Properties, which comprises 750 suites and has significant repositioning and intensification potential.
The purchase price was approximately CAD 131.2 million. The transaction closed on August 1st, following unitholder approval. On slide four, we provided more support for the increase to the monthly cash distribution. Our total AFFO per unit for the four-quarter forecast period was CAD 0.712 per unit, 12.9% favorable to the IPO forecast of CAD 0.631. As you can see, we've exceeded the forecasted AFFO per unit in every quarter since the IPO. The outperformance was driven by strong organic growth through gain-to-lease and asset repositioning activities, disciplined cost controls, and accretive acquisitions. As a result of this strong performance, our payout ratio dropped below the 65% in our IPO forecast. We're committed to striking an appropriate balance between paying unitholder distributions and retaining capital to support our growth initiatives. This distribution increase allows us to reward our unitholders, while still retaining a significant portion of the AFFO increase for growth.
Now, on slide five, I'd like to talk a little bit more about High Park Village, our latest acquisition. As you probably gathered from the name, the property is located in Toronto's attractive High Park neighborhood. It's a high-quality, multi-residential property comprising three buildings and 750 suites on 5.6 acres. The purchase price of CAD 131.2 million represents an implied cap rate of 4.02% on forecasted year one NOI, and a 5% discount to appraised value at December 31, 2018. It's important to note that this transaction was financed partly through the issuance of Class B LP units to Minto Properties at CAD 19.60 per unit. As a result, MPI's direct and indirect interest in the REIT increased from approximately 46% to 49%. MPI remains committed to the REIT and highly supportive of our growth efforts.
We have a fantastic joint venture partner at this property, the Canada Pension Plan Investment Board, which owns the remaining 60% interest. We serve as asset manager and property manager and earn market fees for these services. One of the most attractive aspects of this property is the repositioning potential. A suite repositioning program began in 2016 and has generated strong returns on invested capital to date. Approximately 400 of the 750 suites have yet to be renovated. We have a great opportunity here to continue to drive rent growth. The other attractive opportunity is intensification. A development proposal has been submitted to the City of Toronto, and we're working our way through the rezoning process. We will provide updates on this plan in the months ahead. On slide six, you can see that this property has an outstanding location.
It's in close proximity to many attractive retail and dining options on Bloor Street West. High Park, the city of Toronto's largest public park, is very close by. The property is a short walk from two subway stations, providing easy access to the rest of the city. As illustrated on slide seven, the property acquisitions we've completed since our IPO have materially expanded and diversified our portfolio. We've acquired interest in 2,432 suites, representing growth of 57% in total suite count since the IPO. Our acquisitions have been located in Toronto, Montreal, and Calgary, all primary urban markets in Canada that we targeted for growth. We now have property holdings in five of Canada's six primary housing markets. I'll now invite Julie to review our second quarter financial and operating results in more detail. Julie?
Thanks, Michael. Turning to slide eight, you can see that all of our key operating metrics exceeded our IPO forecast in the second quarter. We reported same-property revenue, which excludes the impact of acquisitions, of CAD 21.6 million, outperforming the forecast by 2.6%. The positive variance reflects higher than forecasted occupancy, as well as higher rents achieved on new leases, revenue earned from furnished suites, higher revenue earned from repositioned suites, and ancillary revenue. Total revenue in the quarter of CAD 24.8 million exceeded the forecast by approximately CAD 3.7 million, or 17.8%. In addition to the increase from same-property revenue, the outperformance on total revenue was mainly due to the contribution from the properties acquired in Calgary, Toronto, and Montreal subsequent to the IPO. Same-property NOI in Q2 2019 was CAD 13.6 million, which was 8.2% above the forecast due to higher than expected revenues and lower operating expenses.
As a percentage of revenue, same-property NOI was 63.2%, exceeding the forecast of 59.9% by 330 basis points. Total NOI in the quarter was CAD 15.8 million, which outperformed the forecast by CAD 3.2 million, or 25.2%. This result was due to higher revenues and the contribution from property acquisitions. NOI margin was 63.7%, 380 basis points above the forecast of 59.9%. FFO was CAD 9.8 million in Q2 2019, which was 31.5% above the forecast of CAD 7.4 million. This outperformance mainly reflects the positive NOI variance. AFFO was CAD 8.4 million, or CAD 0.186 per unit, compared to the forecast of CAD 6.2 million, or CAD 0.17 per unit. The positive variance reflects the higher than forecast FFO, adjusted for the amortization of mark-to-market adjustments and maintenance capital expenditure reserve.
We also declared cash distribution of CAD 0.1025 per unit, resulting in an AFFO payout ratio of 55.2%, 530 basis points lower than the forecast of 60.5%. As on June 30th, 2019, our same-property portfolio consisted of 4,283 suites with an average monthly rent of CAD 1,435 per suite and an occupancy rate of 99.2%. Average monthly rent exceeded the forecast by CAD 19, reflecting the positive impact of our gain-to-lease and repositioning activities. Occupancy exceeded the forecast by 240 basis points. The total portfolio, including acquisitions, consisted of 5,965 suites at June 30th, with an average monthly rent of CAD 1,439 per suite and an occupancy rate of 98.72%. Average monthly rent was CAD 23 above the forecast, and occupancy exceeded the forecast by 192 basis points. These figures do not include the impact from High Park Village, which was acquired subsequent to quarter end.
Slide nine has a breakdown of our operating expenses in Q2 2019. Same property costs were CAD 4 million, coming in 8.1% favorable to the forecast of CAD 4.4 million. This was due to lower marketing and administrative costs. Property taxes of CAD 2.3 million were in line with the forecast, while utilities expenses of CAD 1.6 million were 7.7% favorable to the forecast. On a total portfolio basis, property operating costs were CAD 4.5 million, property taxes were CAD 2.6 million, and utilities expenses were CAD 1.9 million. All these total portfolio metrics were higher than forecast, as they included costs related to the properties acquired subsequent to the IPO. On the first chart on slide 10, you can see how suite turnover generated rental growth for the REIT in the second quarter. We signed a total of 435 new leases in the quarter, well above the 247 we signed in Q1.
The weighted average monthly rent on these suites increased by 11.5%, from CAD 1,417 to CAD 1,585. These rental increases provided an annualized incremental revenue gain of approximately CAD 822,000 to the REIT. The second chart shows the gain to lease potential we estimate in our portfolio as of June 30th. We believe we can generate more than CAD 11.5 million of annualized incremental revenue growth by bringing rents to market levels. This is a significant increase from the CAD 7 million gain to lease opportunity we saw at the end of the first quarter. The increase reflects acquisitions subsequent to Q1 and higher market rents due to the strong leasing season. This estimate does not, however, include High Park Village, so you will see the impact from that property next quarter. On slide 11, you'll find an update on our repositioning program.
During the second quarter, we repositioned and leased a total of 57 suites. We renovated 19 suites in Toronto at Minto Yorkville and Leslie York Mills, 14 suites in the Edmonton portfolio, and 24 suites in Ottawa at The Carlisle and Castlehill. We just recently began repositioning activities at those two Ottawa properties. We currently have more than 1,300 remaining suites to reposition, including 400 at High Park Village. These renovations are highly accretive to AFFO and net asset value, with an average simple return on investment target of 18%-15%, depending on the suite type. The rate at which we can complete them is obviously dependent on suite turnover. We also expect to initiate a repositioning program at the Rockhill property in Montreal later this month. Turning now to some balance sheet metrics on Slide 12. We continue to have a conservative debt profile.
At the end of the second quarter, the weighted average term to maturity on our fixed-rate debt was 6.09 years, with a weighted average interest rate of 3.19%. A total of 78% of our debt is CMHC-insured lower cost debt, and approximately 96% is fixed rate. Our debt maturities are staggered with minimal repayments this year. Our debt to GBV was 43.3% as of June 30th, and available liquidity was CAD 131.3 million. I'll now turn it back to Michael for some closing comments. Michael?
Thanks, Julie. We think the outlook for our business is very strong. We've established a track record of accretive growth in the REIT's first year of operation. We fully expect it to continue. The distribution increase we announced yesterday illustrates the confidence we have in our business. Slide 13 outlines our growth initiatives. We'll continue to capitalize on organic growth opportunities that we've talked about. That starts with gain to lease. As Julie said, we currently estimate that our portfolio has an annualized revenue gain opportunity of more than CAD 11.5 million from suite turnover. That figure has moved steadily higher since the IPO as we acquired properties and benefited from healthy rental markets. We'll also create value from suite repositioning.
With the addition of High Park Village and a repositioning program soon to begin at Rockhill. We have a lot of opportunities, and we expect this program to generate strong returns. We'll also continue to evaluate attractive acquisition opportunities in urban centers across Canada. We've a proven ability to build value through acquisitions, and we're keen to further expand and diversify our portfolio. Part of those efforts will seek to capitalize on our proprietary relationship with The Minto Group, which has already provided us with access to attractive growth opportunities, including the Leslie York Mills and High Park Village properties. This concludes our remarks this morning. Julie and I would now be pleased to answer any questions you may have. Operator, please open the line for questions.
Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star followed by one. Your first question is from Brendon Abrams from Canaccord. Please go ahead, Brendon.
Hi. Good morning, everyone.
Hi, Brendon. How are you?
Good. Michael, Julie, just looking at the gain to lease opportunity, obviously increased quite materially from Q1 up to CAD 11.5 million. I'm just wondering, I don't know if you have the breakdown between how much of that growth is attributable to the acquisitions completed during the quarter versus the portfolio that was in place at last quarter end.
Yeah, for sure. Quarter-over-quarter, we're looking at about a CAD 4.5 million increase. CAD 1.1 million relates to our Montréal acquisition. There's probably another CAD 800,000 or CAD 900,000 that relates to Leslie York Mills, and the balance of that really is in Ottawa, just from really strong market conditions there.
Okay. That's helpful. Just taking a look at the, I guess, suite repositioning program, the reposition 57 suites during the quarter with over 1,300 remaining. Michael, I'm just wondering if you could speak to perhaps the balance in this program between taking suites offline to reposition versus, I guess, the potential upside of repositioning the suites.
Yeah. The pace at which we can deploy capital through our repositioning program is dictated by the rate of turnover. That sets an ultimate upside, if you will. We do balance, as you suggest, the impact of taking suites offline with the accretive growth that we get from those repositioned suites once we're able to lease them back at the new market rates. We typically look at a renovation for typical repositioning that would be something in the order of 30 days, and then we typically allow a small allowance as well for lease-up that could be 15 days, for example. All of those considerations go into our calculus when we are looking at our repositioning program from an asset management perspective.
Okay. That's helpful. I'll turn it over. Thank you.
Thank you. Your next question is from Jonathan Kelcher of TD Securities. Jonathan, please go ahead.
Thanks. Good morning.
Good morning.
First question. You've done two acquisitions so far from MPI totaling about CAD 200 million. I believe at the IPO, they had about CAD 500 million proportionate interest that could be available to you. How much of that that's left would you consider REIT suitable?
A substantial proportion of that would be REIT suitable. Of course, we don't have a unilateral right to dictate the transfer of those assets into the REIT. Every single one of those assets is in a fund or co-tenancy or joint venture, and we require the consent of our institutional partners in those. To date, we've been fortunate that our partners with whom we have longstanding and productive relationships have been happy to provide those consents. In some cases, some of those assets may not be suitable for the REIT simply because their valuation is too high. Their location, the quality, and character or otherwise factors that would say that they don't fit the quality and character of our portfolio. We carefully evaluate those considerations when we're making those decisions and then underwriting those deals for the REIT.
Okay. Just turning to the development opportunities like with Richgrove and Leslie York Mills High Park. You now have three, I guess, at various stages ongoing in Toronto. Which of those is the furthest along, and do you have an estimate of when you might start in the ground on any of them?
The very first one that would begin would be Fifth + Bank, which is an opportunity in Ottawa, which is also a deal we sourced last year from MPI. It's the third MPI deal that we did. It could begin construction in Q4 of 2019. We're well advanced on that project. When I look at Richgrove and LYM, they're still in the, I'll say, pre-development stage. Putting the finishing touches, if you will, on planning approvals. They both have zoning, so they've both been rezoned. We're at the stage now where we need to get site plan approval perfected on both of those. That's a process that is something that's been delegated to city staff, of course, but it requires some back and forth with city staff before we can get those finalized.
Both of those are still subject to our internal approval milestones that would include tenders, building permits and other considerations, including construction financing. Moreover, I would just add that LYM would also be subject to approval by our co-owner, Healthcare of Ontario Pension Plan. The High Park Village project is probably the farthest out, and again, it's in the process of going through the rezoning process. It does not yet have an approved zoning by-law in place. That has, like the adjoining properties in that sub-market, have been subject to considerable scrutiny, shall I say, from local ratepayers. Obviously, we're very confident about the ultimate outcome, that we will be successful, but it is a process that we've been engaged in for a couple of years, and I expect that we've got more time to run before we get to end of job on the zoning by-law approval there.
Okay. Just back to Fifth + Bank, you guys are providing a mezzanine loan for that. Do you expect to start to put the money out in Q3 or Q4?
Our expectation right now is Q4. The conditions that we set in place, site plan approval, which is in hand. Number 2 was a construction financing commitment. That is very close. We're within weeks of having that completed. Third point is tenders. We're looking to have about 70% of the hard costs tendered before the end of September, and I think we're making solid progress on that. Then the last one, of course, is permits. Again, I think we're making good progress on that. I'm cautiously optimistic that it will be towards the beginning of that quarter, but some of these things are out of our control in that there are city processes that we need to work through, the machinations of the city bureaucracy to get these things done.
Okay. Thanks. I'll turn it back.
Your next question is from Brad Sturges of iA Securities. Brad, please go ahead.
Hi there.
Brad.
In terms of High Park Village, I know you're in the planning stage, I guess, on zoning. I'm just curious to get a sense of what, under the current planning, what the density potential could be. Is that something you could provide?
There are some public documents. I think that we did submit an application. The application would've been to roughly double the density on that site. As I'd mentioned in my earlier comments or answer to Jonathan's question, it's still going through the rezoning process, and what the city looked for was to take this asset and other developments in the immediate vicinity through what they call a SASP, a Site Area Specific Plan, to look at building massing and heights and other things. That took some time to go through that. It's possible that we will achieve our desired outside upper limit of desired additional density. It's possible equally that it could be somewhat lower than that. I can't be more precise than that, Brad, simply because we're so early in that rezoning process with the city and going through a process as well with the LPAT.
I'm cautiously optimistic. You have to be if you're a developer, but the ultimate outcome is still many months away from having full clarity. We'll provide regular updates on this as we go through the redevelopment work on High Park.
Great. In terms of Rockhill, the plan is to start the repositioning program later this month. Does that entail sort of rolling out a few test suites first and then something more formal later in the year if that goes well?
100%. We'll stick to our regular program test suites. Those are well advanced. The results from those test suites are just being analyzed now, but we've completed them. The ROI that we're seeing there is in line with the targets that we've established, between 8% and 15%. We have contractors lined up, and we're ready to go.
Great. Just to go back to the potential pipeline, I guess, outside the REIT from MPI, just to understand, are those assets theoretically available to the REIT today, or would some of those assets, at least the interest that MPI would hold, are those under development or under construction right now?
Both, I guess. Some of them are under development, some of them are going through repositioning, and others are assets that are going through stabilization, I guess you might say. They will each mature as opportunities for the REIT over time as those processes are advanced and obviously as discussions with our partners advance as well. Our investment management team is working with our partners on those. Obviously, we're anxious to bring them forward to the REIT, where they fit and where they'd be accretive to NAV and accretive to earnings.
Great. I'll turn it back. Thank you.
Thanks, Brad Sturges.
Thank you. Your next question is from Matt Logan from RBC Capital Markets. Please go ahead, Matt.
Good morning.
Matt.
Can you guys talk a little bit about what's driving the higher rents in Ottawa and maybe some read-throughs in terms of what you're seeing on the ground?
Sure. As many of you know, the Minto Group, an affiliate of Minto Properties Inc., has a large home building operation in Ottawa, has for 60-plus years. We have a firsthand appreciation of the housing market more broadly, resale housing, new home sales, and rental, of course. What we've seen in Ottawa over the last four or five years is a resurgence of that housing market, which traditionally has been very stable. As one of my colleagues often says, it hews very close to the trend line. It's not prone to overbuilding or overcorrection. Since 2015, what we've seen is strong job growth. We've seen strong population growth. Ottawa just passed the million mark just earlier this year. What we've seen is, with that, a concurrent strengthening of the housing market, whether it's resale, new home, and particularly price point-sensitive product, townhomes, for example.
We've seen tremendous price growth in that product. On the rental side, we've seen just very strong performance. As Julie highlighted on slide 10, when you look at the 262 leases that we signed in the quarter, we saw a fairly significant gain over the turning rents during the quarter. I think it's a lot of generally very positive macro environment in Ottawa that's driving a strong housing market, and the rental is just a big component of that.
With growth in Toronto as well, is there any point where consumers are seeing an upper limit in terms of rent growth, or is it just still kind of to be determined?
I think it's still TBD because our experience over the last many years, certainly over the last four quarters, has been that the underlying fundamental dynamics, supply-demand dynamic in the GTA remains very constructive for multi-res. We have very strong population growth. Notwithstanding the volume of new construction, we've seen restrictions on new purpose-built rentals supply coming on the market just cannot meet the demand for rentals. I don't see any near-term or even medium-term change in that dynamic that would upset what we're seeing in the GTA right now.
Translating this all back to organic growth, how should we be thinking about same-property NOI over the next 12 months? Certainly, the REIT's well exceeded its IPO targets. Maybe just some color on how we should think about revenue and expense growth going forward.
We're always cautious about providing big calls going forward. We strive to live to the maximum of underpromise and overdeliver. Matt, I'm really reluctant to give you a lot of concrete guidance. We are obviously quite optimistic about our business. We're very optimistic about the markets that we're in. I think that our ability to continue to deploy capital within our portfolio, and adding selectively where it makes sense to the portfolio, either from Minto or third party, is an opportunity. It's really hard for me to say with any degree of precision exactly what that revenue growth rate or NOI growth rate might be. I'm going to sort of dodge that question. I'll be completely honest on that one, but we're optimistic.
That's totally okay. Maybe I'll ask it in a slightly different way. In terms of the leasing velocity, 435 new leases in Q2 seems to be healthy turnover. Maybe just some color on how we should be thinking about that.
Sure. What we see, of course, in our portfolio is heavy degree of seasonality in lease-up. Q1 is the lowest season in terms of move-outs. We see Q2 and Q3 traditionally have always been very strong quarters from a leasing perspective. Obviously you saw that in Q2, 435 leases. Normally, what you see is that starts to dial back a little bit as we get into the late fall. Q4 typically sees leasing volume turnover drop as you might expect. I think we would be fairly optimistic about Q3. Q2 was very strong. I'm not sure we'll quite attain that level, but I think we're feeling fairly optimistic about Q3 and beyond. I would expect Q4 would exhibit a similar pattern to what we've seen in the past.
Well, I appreciate the color. I'll turn it back. Thank you very much.
Thanks, Matt.
Your next question is from Johann Rodrigues from Raymond James. Please go ahead.
All my questions have been answered. Thanks.
Thanks, Johann.
Thank you. Your next question is from Troy MacLean of BMO Capital Markets. Please go ahead, Troy. I'm sorry, it seems that we lost the line. The next question is from Michael Markidis from Desjardins. Please go ahead, Mike.
Hi, good morning. Two disclosure questions, actually. I was just curious now that for the next quarter that you've lapped your first four, is same-property NOI comparison something you'll be providing for the IPO portfolio or will you wait till the beginning of the year?
No, we will continue doing that.
Sorry.
Same property portfolio for sure.
Okay. You will provide 3Q18 versus 3Q19?
Yeah.
Instead of forecast. Yeah. Okay, perfect. Okay. I was just curious, do you guys track average income per unit for all your residents?
We would traditionally, as part of any pre-qualification of any tenant when we are going through that lease-up process, would be gathering a bunch of personal financial data, including income, credit history, and other things like that. Beyond that, we don't typically gather more financial disclosure from them as that lease goes on. We do get data at the time that we are leasing the unit.
Yeah, I guess my comment would be that everyone seems to be concerned, and rightly so, with affordability of rent, just given the growth. That viewpoint assumes that your average income of your unit base is staying the same. I would suspect when you turn a unit or especially when you reposition, when you attract a higher level of income. To the extent that that would be something that yourselves and any other Canadian REIT could track on a go-forward basis, I think that would be very helpful.
Okay, noted. Thanks for that question. We will take that away.
Thank you.
Thanks, Mike.
Thank you. Your question is now from Troy MacLean of BMO Capital Markets. Go ahead, please.
Good morning. For your repositioning program, you target 8%-15%. With the rise in market rents, would it be fair to say that ROI is coming in at the high end of the range on your programs?
It's kind of all over the place. Depending on the property, depending on the suite type within that property. I wouldn't say that it is necessarily coming in at the high end. With rent growth as well, what we're also seeing is, of course, repositioning costs are also growing. I think being in that 8%-15% range, which is our target, we're sort of moving into that, I'd say the middle of the range versus the high end of the range.
Just in Alberta, the marked-to-market potential was up marginally to 7.5% in Q2. What's driving that, and would you say that the Alberta market is getting stronger quarter-over-quarter?
The Alberta market on the whole continues its slow recovery, but for our properties, the story of Alberta is more a neighborhood story. For example, for the Kaleidoscope Project in Calgary, it's the university which is the most important driver of rental demand than the price of oil. I would say that's one example. I guess at Quarry Park as well, we've seen employment there, which is quite strong, and that's been driving The Laurier and The Quarters, and benefiting from that. We did see, as you saw in the leases that we signed in the quarter, we saw rental rates move higher than expiring rents. We are still seeing incentives in that market. I'd say that the rental market component of the housing market overall is stronger than resale or new home.
I think the recovery has been choppy, and I think we'll continue to see that slow but steady progress, two steps forward, one step back.
Would that be true for your three properties in Edmonton as well?
Edmonton, those properties have performed quite well, actually. I feel quite bullish about those three properties, actually. Their location's very centrally located, just off Jasper, proximate to downtown. We've seen good performance on the repositioning programs there. Our ROI has been solidly in the middle of that range when we've been able to deploy capital in that portfolio, and I think those three assets just get better and better.
Thank you. That's a good color. I'll turn it back.
Thanks, Troy.
Your next question is from Matt Kornack from National Bank. Please go ahead, Matt.
Good morning, guys, and congrats on a strong quarter.
Thanks, Matt.
Quickly, you provide turnover spreads, and I know you're in mostly rent-controlled markets, but including AGIs, do you have a sense as to what you'd be getting on renewals?
The guideline in Ontario is 2.2%. We do have a number of AGIs out there. Straight up renewals, it is really going to depend on the property and whether we have an AGI in place. It is really hard to say, but I would say it is safe to say that that 2.2% in Ontario where the bulk of the portfolio is, and perhaps a small margin on top of that for AGI. I do not have those figures in front of me, but we do have a number of AGIs out there right now.
Okay. Fair enough. It's a spread to that, but it's not a huge amount higher than that.
No.
In terms of velocity, I'd assume also this is a higher renewal period in terms of a lot of people move in the summer. Do you see a bit of seasonality on that front as well?
100%, yeah. Q2, Q3, those are the big months for turns, and obviously then it abates in Q4 a little bit and Q1 is much quieter traditionally.
Okay. Makes sense. From a G&A standpoint, as you scale this portfolio, are you fairly confident that G&A won't move up too much, as you grow?
If you recall, when we did the IPO, within G&A, for example, we would have the ASA, and for the first year, that amount was fixed. That is definitely something that as we grow, we'll revisit with our Board of Trustees and grow that as required. From a G&A, from an operational perspective, there's definitely efficiencies of scale from that perspective.
Okay. Makes sense. Then the last question, your fair value, and I know you like to underpromise and overdeliver, but I’m just wondering how you treat gain to lease in that equation, given that I think you’re a fair bit under market in terms of where you’re currently valuing the assets.
What we do when we do our fair value, we actually have an estimate of our repositioned suites in our NOI, and then we do a CapEx deduct. In theory, it is already part of our fair value adjustment.
Okay, but you'll do a cost to complete essentially net of-
Yeah.
You're net of future CapEx in that number.
Yeah, that's correct.
Okay. Thanks, guys. Again, congrats.
Thanks, Matt.
Thank you. Your next question is a follow-up from Johann Rodrigues of Raymond James. Please go ahead, Johann.
Yeah. I just wanted to know what the turnover rate is in Montreal.
What we've shown here, 45 leases. Of course, that was a short quarter. We only had two months. We closed on May seven. I think that on an annualized basis, it would be something in the order of the mid to high teens, which is decent. That's actually quite comfortable from us from an underwriting perspective. That's what really drives our ability to deploy capital there through the repositioning program. If you recall at the time of the acquisition, we had something like 900 suites plus to renovate in there.
Okay. You're looking at mid to high teens for Montreal.
Correct. It could rise in Q3. We're gaining experience with that property. We've now got three months now under our belt going into our fourth month, and we'll get smarter and smarter about that leasing market over the next couple of months.
Okay, perfect. Thanks, Ron. I'll turn it back.
Thanks, Johann.
Thank you. Your next question is from Dean Wilkinson of CIBC. Dean, please go ahead.
Thanks. Morning, everyone.
Hey, Dean.
Michael, when you look across the portfolio and drawing upon Minto's experience as a builder, what's the biggest impediment to new supply in any of the markets, and is that something that can be overcome?
Well, you've hit my favorite preaching point here. We feel very strongly that supply constraints are largely around the implementation of planning policy. I say implementation because planning policy is set provincially, and then to some lesser extent at the municipal level. Unfortunately, what happens, even with the benefit of great planning policy, is the implementation of it kind of lives or dies at the ward level. What we have is well-organized and thoughtful ratepayer groups who look at new development applications, and they look at it through the lens of their own parochial interest. Frankly, they live in the neighborhood. They don't want to see increased traffic or other things. Our frustration, I think, as an industry is that often many of the sites that we're seeking to intensify are poster children for good planning policy in that, like High Park, they are on mass transit routes.
They're in areas that are already quite dense, and we're seeking to add further intensification to an area that already has towers, for example. Toronto would be probably the worst in the country, in my experience, at least in the markets that we know, in terms of getting things through the planning process.
I'm assuming that's not getting any better either.
It's not. I think there were a bunch of provincial reforms that the Ford government brought out, which certainly will be helpful. Bringing new supply online, it's not a month-to-month thing. It's a multi-year process. The reforms to the LPAT regime and that process and other things relating to development charges and other stuff will take time to play out. We know that they will have an impact. How much of an impact they can have will depend, to some extent, on how planning policy is actually executed on the ground in these markets. That's our biggest challenge.
I'd say planning policy overall, far and away the biggest impediment to new supply coming online. Number two, I think, is cost. Construction costs continue to rise. That's supply, materials, but also availability of labor things are also impediments. Those are probably the two biggest factors. Moving down the list would be infrastructure funding and other things that are there, I'd say to a lesser extent, but still impactful on new supply coming online. I could talk about this for hours.
We don't have that much time, but those would be the top factors, at least in my mind.
Nothing that would be imminently, for lack of a better term, fixable. It's just going to continue.
Sadly, for the perspective of residents looking for a home, yeah, unfortunately, I don't think there is a quick fix. To the benefit of our unitholders, there is no quick fix.
No quick fix. Yeah.
Yeah. The supply deadlock, there's no sign that that will rectify itself in the near term. The benefit of our unitholders, it means that we don't expect a flood of new supply coming online.
Yeah. Well, that's where I was getting to. That's perfect. Thanks. Appreciate that.
Yeah. Great. Thanks, Dean.
Your next question is a follow-up from Brad Sturges of iA Securities. Brad, please go ahead.
Hi. Just one quick follow-up. Just on the third-party management fee income. With the closing of High Park Village, do you have a rough sense of what that run rate would be going forward?
All of our management fees, like property and asset management fees, are really market rates. Typical of what you would find for similar services in the industry.
In terms of annualized numbers, though, do you have any guidance or no?
No.
Okay. Great. Thank you.
Thanks, Brad.
Thank you. There are no further questions at this time. You may proceed.
Great. Well, thank you, everybody. This concludes our call this morning. Thank you for your interest in Minto Apartment REIT. We look forward to speaking with you again after our Q3 results come out. Please enjoy the rest of summer and look forward to chatting with you all soon.
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