My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mintoa Permanent REIT Second 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 August 12, 2019 for more information. During the call, management will also reference 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.
You. Mr. Waters, you may begin your conference.
Thank you, Joanna, and good morning, everyone. Thank you for joining us today. I'm Michael Waters, Chief Executive Officer of Mintel Apartment REIT, and with me on the call today is Julie Moran, our Chief Financial Officer. I'll begin the call on Slide 3 by going over some highlights of the Q2, 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.
Then 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 $0.41 per unit to $0.44 per unit. This change is effective for our August distribution, which will be paid on September 16, 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 Q2 marks the end of our 4 quarter IPO forecast period. So 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 Q2, we reported revenue of $24,800,000 which was 17.8% greater than forecast. NOI of $15,800,000 which was 25.2% higher than forecast and AFFO of $8,500,000 which was 35.7 exceeded the forecast. And 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 Q1.
This program continues to drive strong organic rental growth. As announced previously, we also acquired 50% interest in 2 high quality properties, Rock Hill in Montreal and Leslie York Mills or LYM in Toronto. The total purchase price was approximately $209,000,000 These two properties comprised more than 1400 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 8,800,000 trust units at a price of $19.60 per unit for gross proceeds of approximately $173,000,000 The underwriters over allotment was fully exercised and 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 for Minto Properties, which comprises 750 suites and has significant repositioning and intensification potential. The purchase price was approximately $131,200,000 and the transaction closed on August 1 following the unitholder approval. On Slide 4, we provided more support for the increase to the monthly cash distribution. Our total AFFO per unit for the 4 quarter forecast period was $0.712 per unit, 12.9 percent favorable to the IPO forecast of $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 the 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 5, 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 3 buildings and 7.50 suites on 5.6 acres. The purchase price of $131,200,000 represents an implied cap rate of 4.02% on forecasted year 1 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 Mitchell Properties at $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 7 50 suites have yet to be renovated. So 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 6, you can see that this property has an outstanding location. It's in close proximity to many attractive of retail and dining options on Bloor Street West. High Park, the City of Toronto's largest public park is very close by. And the property is a short walk from 2 subway stations providing easy access to the rest of the city. As illustrated on Slide 7, 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 5 of Canada's 6 primary housing markets. I'll now invite Julie to review our 2nd quarter financial and operating results in more detail. Julie?
Thanks, Michael. Turning to Slide 8, you can see that all of our key operating metrics exceeded our IPO forecast in the 2nd quarter. We reported same property revenue, which excludes the impact of acquisitions of $21,600,000 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 $24,800,000 exceeded the forecast by approximately $3,700,000 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 $13,600,000 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 percent by 3 30 basis points. Total NOI in the quarter was $15,800,000 which outperformed the forecast by $3,200,000 or 25.2 percent. 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 9 point $8,000,000 in Q2 2019, which was 31.5 percent above the forecast of $7,400,000 This outperformance mainly reflects the positive NOI variance. AFFO was $8,400,000 or 0.18 $6 per unit compared to the forecast of $6,200,000 or $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 $0.1025 per unit, resulting in an AFFO payout ratio of 55.2%, 5.30 basis points lower than the forecast of 60 of consisted of 4,283 suites with an average monthly rent of $14.35 per suite and an occupancy rate of 99.2 percent.
Average monthly rent exceeded the forecast by $19 reflecting the positive impact of our gain to lease and repositioning activities. Occupancy exceeded the forecast by 2.40 basis points. The total portfolio, including acquisitions, consisted of 5,965 suites at June 30, with an average monthly rent of $14.39 per suite and an occupancy rate of 98.72 percent. Average monthly rent was $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 9 has a breakdown of our operating expenses in Q2 2019. Same property costs were $4,000,000 coming in 8.1% favorable to the forecast of $4,400,000
This
was due to lower marketing and administrative costs. Property taxes of $2,300,000 were in line with the forecast, while utilities expenses of $1,600,000 were 7.7% favorable to the forecast. On a total portfolio basis, property operating costs were $4,500,000 property taxes were $2,600,000 and utilities expenses were $1,900,000 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 fleet turnover generated rental growth for the REIT in the 2nd quarter. We signed a total of 4.35 new leases in the quarter, well above the 2.47 we signed in Q1.
The weighted average monthly rent on these suites increased by 11.5 percent from $14.17 to $15.85 These rental increases provided an annualized incremental revenue gain of approximately $822,000 to the REIT. The second chart shows the gain to lease potential we estimate in our portfolio as of June 30. We believe we can generate more than $11,500,000 of annualized incremental revenue growth by bringing rents to market levels. This is a significant increase from the $7,000,000 gain to lease opportunity we saw at the end of the Q1. 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 Q2, we repositioned and leased a total of 57 suites. We renovated 19 suites in Toronto at Minto Yorkville and Wesley York Mills, 14 suites in the Edmonton portfolio and 24 suites in Ottawa at Carlisle and Castle Hill. We just recently began repositioning activities
at those 2 Ottawa properties.
We currently have more than 1300 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% to 15% depending on the suite type. The rate at which we can complete them is obviously
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 Rockville 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 percent.
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 percent as of June 30 and available liquidity was $131,300,000 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 1st year of operations and 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 and that starts with gain to lease. As Julie said, we currently estimate that our portfolio has an annualized revenue gain opportunity of more than $11,500,000 from suite turnover. And 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 Rock Hill, 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 have 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 Mincho 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 Your first question
Good. Michael and Julie, just looking at the gain to lease opportunity, obviously increased quite materially from Q1 up to $11,500,000 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 quarter end last quarter end?
Yes, for sure. So quarter over quarter, we're looking at about a $4,500,000 increase. $1,100,000 relates to our Montreal acquisition. There's probably another $800,000 or $900,000 that relates to Wesley York Mills. And the balance of that really is in Ottawa just from really strong market conditions there.
Okay. That's helpful. And just taking a look at the, I guess, suite repositioning program, the REIT reposition 57 suites during the quarter, it's over 1300 remaining. Michael, I'm just wondering if you could speak to perhaps the balance in this program between picking suites offline to reposition versus, I guess, the potential upside of repositioning
the suite?
Yes. So the pace at which we can deploy capital through our repositioning program is dictated by the rate of turnover. And so 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 reposition 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 small allowance as well for lease up that could be 15 days, for example. So 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 2 acquisitions so far from MPI totaling about 200,000,000 dollars And I believe at the IPO, they had about $500,000,000 proportionate interest that could be available to you. You.
How much of that would you 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 partners, our institutional partners in those. To date, we've been fortunate that our partners with whom we have long standing 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 or their location, the quality and character or otherwise factors that would say that they don't fit the quality and character of our portfolio.
So we carefully evaluate those considerations when we're making those decisions and then underwriting those deals for the REIT.
Okay. And then just turning to the development opportunities like with Rich Grove and Leslie York Mills, Hyde Park, you now have 3, 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?
So the very first one that would begin would be 5th and Bank, which is an opportunity in Ottawa, which is also a deal we sourced last year from MPI. So it's the 3rd MPI deal that we did. It could begin construction in Q4 of 2019. So we're well advanced on that project. When I look at Richgrove and LYM, they're still in the, I'll say, predevelopment stage, putting the finishing touches, if you will, on planning approvals.
They both have zoning, so they've both been rezoned, but we're at the stage now where we need to get site plan approval perfected on both of those. And 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. And both of those are still subject to internal 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 and 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 submarket have been subject to considerable scrutiny, shall I say, from local rate payers. 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. And just back to 5th and Bank, you guys are providing a mezz loan for that. Have you put any or do you expect to put 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 the construction financing commitment, and that is very close. We're within weeks of having that completed. 3rd 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. And then the last one, of course, is permits. And again, I think we're making good progress on that. So I'm cautiously optimistic that it will be towards the beginning of that quarter, but we're still some of these things are out of our control and that there are city processes that we need to work through that 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. Hey,
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 have been to roughly double the density on that site. As I mentioned in my earlier comments or was answered to Jonathan's question, The it's still going through the rezoning process. And what the city looked for was a to take this asset and other developments in immediate vicinity through what they call a SaaS, the site area specific plan to look at building massing and heights and other things.
So that took some time to go through that. It's possible that we will achieve our desired outside upper limit of desired additional density, but it's possible equally that it could be somewhat lower than that. I can't be precise, 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. So 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.
But we'll provide regular updates on this as we go through the redevelopment work on High Park.
Great. In terms of Rock Hill, the plan is to start the repositioning program later this month. Would it 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%. So 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. And the ROI that we're seeing there is in line with the targets that we've established between 8% 15%.
So we have contractors lined up and we're ready to go.
Great. In terms of just go back to the potential pipeline, I guess, outside the REIT from MPI, just to understand, are those assets theoretically available to 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?
So 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. And 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, Brian.
Thank you. Your next question is from Matt Logan from RBC Capital Markets. Please go
ahead, Matt. Good morning. Hi, 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. So as many of you know, Minto or the Minto Group, an affiliate of Minto Properties, Inc. Has a large homebuilding operation in Ottawa, has for 60 plus years. So 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 4 or 5 years is a resurgence hues very close to the trend line.
It's not prone to overbuilding or over correction. But since 2015, what we've seen is strong job growth. We've seen strong population growth. Ottawa just passed the 1,000,000 mark just earlier this year. And 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.
And then on the rental side, we've seen just very, very strong performance. And as Julie highlighted on Slide 10, when you look at the 262 leases that we signed in the quarter, we saw fairly significant gain over the turning rents during the quarter. So 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.
And 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 and we've seen notwithstanding the volume of new construction, we've seen restrictions on new purpose built rentals by coming on the market just cannot meet the demand for rentals. So I think 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.
And translating this all back to organic growth, how should we be thinking about same property NOI over the next 12 months? Certainly, the REITs 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 under promise and over deliver. So 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.
And 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 3rd party is an opportunity. But 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. So 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. And maybe I'll ask it in a slightly different way. In terms of the leasing velocity, like 435 new leases in Q2 seems to be healthy turnover. Maybe just some color on how we should be thinking about that?
Sure. I mean, 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. And so and obviously you saw that in Q2, 4.35 leases.
Normally what you see is that starts to dial back a little bit as we get into the late fall. So Q4 typically sees leasing volume turnover drop as you might expect. So 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 be 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 Johan from Raymond James. Please go ahead.
All my questions have been answered. Thanks.
Thanks, Johan.
Thank you. And 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 Mike Markidis from Desjardins.
Please go ahead, Mike.
Hi, good morning. 2 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 a little bit at the beginning of the year?
No, we will continue doing that.
Sorry. So continue doing because you haven't been
Portfolio for sure.
Okay. So you will provide 3Q 2018 versus 3Q 2019 then?
Yes.
Instead of forecast. Yes. Okay, perfect. Okay. And then, I was just curious, do you guys track average income per unit for all your resins?
We would traditionally as part of any prequalification of any tenant when they when we 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, it's not we don't typically gather more financial disclosure from them as that a lease goes on. But we do get data at the time that we are leasing the unit.
Yes. I just think, I guess my comment would be that everyone seems to be concerned, and rightly so with affordability of rents just given the growth. That analysis assumes that or that viewpoint assumes that your average income of your unit base is staying the same. And I would suspect when you turn a unit or especially when you reposition, when you attract a higher level of income. So 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. 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% to 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. And so I think being in that 8% to 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.
And then on just in Alberta, the mark 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. So 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. And so 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 in the quarters and benefiting from that.
And we did see, as you saw in the leases that we signed in the quarter, we saw rental rates move higher than expiring rents. I mean, 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. But I think the recovery has been choppy and I think we'll continue to see that slow but steady progress, 2 steps forward, 1 step back.
And would that be true for your 3 properties in Edmonton as well?
Edmonton, those properties have performed quite well actually. I feel quite bullish about those three properties actually. I mean their location is very centrally located just off Jasper, approximate 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 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?
So
it's the guideline in Ontario is 2.2%. So we do have a number of AGIs out there. And so straight up renewal, it's really going to depend on the property and whether we have an AGI in place. So it's really hard to say, but I would say it's safe to say that that 2.2 percent in Ontario, where the bulk of the portfolio is, and perhaps a small margin on top of that for AGI. I don't have those figures in front of me, but we do have a number of AGIs out there right now.
Okay, fair enough. So it's a spread to that, but it's not a huge amount higher than that? No. And then 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. So do you see a bit of seasonality on that front as well?
100%. Yes. So Q2, Q3, those are the big months for returns and obviously then it abates in Q4 a little bit and Q1 is much quieter traditionally.
Okay. Makes sense. And from a G and A standpoint, as you scale this portfolio, is it are you fairly confident that G and A won't move up too much as you grow?
So if you recall, when we did the IPO within G and A, for example, we would have the ASA. And for the 1st year, that amount was fixed. So that is definitely something that as we grow, we'll revisit with our Board Trustees and grow that as required. But from a G and A from an operational perspective, there's definitely efficiencies of scale from that perspective.
Okay. Makes sense. And then the last question, your fair value, and I know you like to under promise and over deliver, 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?
So what we do when we do our fair value, we actually have an estimate of our reposition suites in our NOI, and then we do a CapEx deduct. So in theory, it is already part of our fair value adjustment.
Okay. But you'll do a cost to complete essentially net of so you're net of the future CapEx in that number?
Yes, that's correct.
Okay. Thanks guys and again congrats.
Thanks Matt.
Thank you. Your next question is a follow-up from Johan Rodrigues of Raymond James. Please go ahead, Johan.
Yes. I just wanted to know what the turnover rate is in Montreal?
So the I mean, what we've shown here, 45 leases, of course, that was a short quarter. We only had 2 months. We closed on May 7. And so I think that on an annualized basis, it would be something in the order of the mid to high teens, which is decent. I mean, that's actually quite comfortable from us from an underwriting perspective.
That's what really drives our ability to deploy the capital there through the repositioning program. And if you recall, at the time of the acquisition, we had something like 900 suites plus to renovate in there.
Okay. So you're looking at mid to high teens for Montreal?
Correct. And it could rise in Q3. We're gaining experience with that property. We've now got 3 months now under our belt going into our 4th month and we'll get smarter and smarter about that leasing market over the next couple of months.
Okay, perfect. Thanks, Faoum. I'll turn it back.
Thanks, Joanne.
Thank you. And your next question is from Dean Wilkinson of CIBC. Dean, please go ahead.
Thanks. Good 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 I
mean,
we feel very strongly that supply constraint, I mean, we feel very strongly that supply constraints are largely around the implementation of planning policy. And 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. And 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 upholstered children for good planning policy and 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. So I think there is and 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 mean, I think there were a bunch of provincial reforms that the Ford government brought out, which certainly will be helpful. But bringing new supply online is a it's not a monthly month to month thing, it's a multi year process. So the reforms to the LPAD or regime in 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. And that's our biggest challenge. I'd say planning policy overall, far and away the biggest impediment to new supply coming online. Number 2, I think is cost. Construction costs continue to rise.
That's all supply, materials, but also availability of labor, things are also impediments. So those are probably the 2 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 mean, I could talk about this for hours. So 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, fixables?
No. Sadly, for the perspective of residents looking for a home, yes, unfortunately, I don't think there is a quick fix. I mean, the benefit of our unitholders, there is no quick fix. Quick fix,
yes, the supply
deadlock is there's no sign that, that will rectify itself in the near term. And the benefit of our unitholders, it means that we don't expect a flood of new supply coming online. Yes. That's perfect. Thanks.
Appreciate that. Yes, 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 3rd 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?
So all of our management fees like property and asset management fees are really market rates. So typical of what you would find for similar services in the industry.
In terms of annualized number 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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