Good morning. My name is Pam, and I will be your conference coordinator today. At this time, I would like to welcome everyone to the Minto Apartment REIT 2022 third quarter financial 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'd 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 then the number two. Before we begin, I would like 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 risk, uncertainties, and assumptions that can cause actual results to differ materially.
Please refer to the cautionary statements on forward-looking information in the REIT's news release and MD&A dated November eighth, twenty twenty-two 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're not recognized measures and do not have standardized meaning under IFRS. Please see the REIT's MD&A for additional information regarding non-IFRS financial measures, including reconciliation to the nearest IFRS measures. Thank you. Mr. Waters, you may begin your conference.
Thank you, Pam, and good morning, everyone. I'm Michael Waters, Chief Executive Officer of Minto Apartment REIT. I'm joined on the call today by Julie Morin, our Chief Financial Officer, and Jonathan Li, our President and Chief Operating Officer. I'll begin the call by providing an overview of our third quarter results, as well as other corporate developments. Julie will review our financial results in detail, and Jonathan will discuss our operating performance and growth initiatives. I'll conclude with our business outlook, and then we'll be pleased to take your questions. Our business momentum continued into a seasonally robust third quarter, and we delivered strong financial results. Like many REITs, our third quarter was relatively quiet from a transaction perspective, and our strong performance was a direct result of our talented operations team and our best-in-class urban portfolio.
Our results were also supported by growing demand for urban rental housing, which is a result of rising interest rates, a growing housing affordability gap, increasing immigration, strengthening rental demand from students, and a noticeable return to downtown living. This was easily our best quarter since the onset of the pandemic. Average monthly rent for the Same Property Portfolio increased 4.2% year-over-year to CAD 1,720 per suite. Average occupancy increased to 96.2% compared to 92.9% in Q3 last year. We achieved that increase even though we significantly reduced leasing promotions due to rising demand. The end of the quarter occupancy was 97.4%.
Year-over-year NOI for the Same Property Portfolio increased by 13.3%, and NOI margin for the Same Property Portfolio improved by 200 basis points to 64.1%. We negotiated 574 new leases in the third quarter and achieved a gain of 14.5% over expiring rents. This was the highest quarterly gain to lease we've generated since the onset of the pandemic and the second highest in the history of the REIT. Market rents increased in all of our markets. We estimate that the embedded gain to lease potential in the portfolio increased to 12.1% at the end of Q3, or approximately CAD 16 million on an annualized basis. That compares to 6.6% or CAD 7.3 million a year ago.
We generated AFFO growth in the quarter of 28.2% compared to Q3 last year, and AFFO per unit increased by 15.1% year-over-year or 10.2%, excluding the impact of a one-time insurance recovery received in the third quarter. We continued to make good progress in our repositioning program in the third quarter as well. We renovated 75 suites, generating an average annualized return on investment of 9.4%. These low-risk investments improve asset quality, reduce repair costs, and drive strong growth in rental revenue. I have a few additional updates to go over on slide four. As we announced in September, Julie Morin will be transitioning back to the Minto Group as Chief Financial Officer following this reporting period. Edward Fu will take over as CFO of the REIT.
Edward is currently the REIT's Vice President of Finance and has done a terrific job in this role. He's been a valuable member of the Minto team for more than eight years, and I'm confident that he's the right choice for CFO. Edward, along with Jonathan Li, will be full-time employees of the REIT. Yesterday we announced some more good news. As you probably saw in our news release, the Board of Trustees has approved a 3.2% increase in the REIT's monthly distribution. The annual distribution increase amounts to CAD 0.015 per unit and will be payable beginning with the November distribution. The REIT has now increased distributions in each of the four years following its formation. This is another measured increase that highlights our positive financial performance and our confidence in our growth strategy and business outlook.
It's important to note that while regularly increasing distributions is a priority for the REIT, we're also committed to maintaining a strong balance sheet and conservative AFFO payout ratio. Finally, in October, we released the REIT's 2021 ESG report, which included the results from our 2022 Global Real Estate Sustainability Benchmark, or GRESB assessment. We're proud of the overall result. Our GRESB score was 80, an increase of 10 points over the prior year's score, and places us in the top quartile among 16 North American peers. In addition, the REIT received a score of 93 and a level A rank in the GRESB public disclosure evaluation, ranking first out of 10 in its comparison group. These results demonstrate our ongoing commitment to ESG initiatives. Julie will speak more of this shortly.
Overall, we're very pleased with the quarter and believe that we're in a strong competitive position as market conditions continue to strengthen. In addition, we're working hard on a number of initiatives to drive value for unitholders, including achieving operational efficiencies, refinancing variable rate mortgages to mitigate interest rate volatility, continuing to execute on our existing developments, fulfilling our convertible development loan commitments, and advancing repositioning projects. We're confident that our strategy will drive continued growth in revenue, NOI, and AFFO per unit despite the current elevated interest rate environment and inflation. I'd now like to invite Julie Morin to discuss our third quarter financial and operating performance in greater detail. Julie.
Thank you, Michael. Turning to slide five, we reported Same Property Portfolio revenue of CAD 34.3 million in Q3 2022, an increase of 9.8% compared to CAD 31.2 million in Q3 last year. The increase was mainly due to higher occupancy, higher average rents, and reduced amortization of promotions. Total portfolio revenue was CAD 37.8 million, a year-over-year increase of 21.1%, reflecting higher rents and occupancy, reduced amortization of promotions, and the three property acquisitions completed subsequent to Q3 last year. Hill Park in Montreal , Niagara West in Toronto, and The International in Calgary.
Same Property Portfolio NOI in the third quarter was CAD 22 million, or 64.1% of revenue, an increase of 13.3% from CAD 19.4 million, or 62.1% of revenue in Q3 last year. Total NOI was CAD 24.2 million or 64% of revenue, an increase of 24.8% from last year. The higher NOI this year mainly reflected increased revenue, partially offset by higher operating expenses. FFO in Q3 2022 increased 25.7% year-over-year to CAD 15.7 million, compared to CAD 12.5 million in Q3 2021, mainly due to the positive NOI variance. AFFO increased 28.2% to CAD 14 million or CAD 0.212 per unit from CAD 10.9 million or CAD 0.184 per unit last year.
Higher AFFO mainly reflected the higher FFO, partially offset by an increase in the maintenance capital expenditure reserve from the three properties acquired subsequent to Q3 2021. As Michael noted earlier, AFFO per unit increased 10.2% year-over-year after excluding the impact of a one-time insurance recovery. The AFFO payout ratio was 55.9%, compared to 61.7% in Q3 last year. Average monthly rent per unfurnished occupied suite in Q3 2022 was CAD 1,720 for the Same Property Portfolio and CAD 1,714 for the total portfolio, representing increases of 4.2% and 3.8% respectively from last year. Average occupancy was 96.3% for the Same Property Portfolio and 96.2% for the total portfolio.
These represented significant improvements from 92.9% in Q3 2021. I'll now turn it over to Jonathan Li to review our operating performance and growth initiatives. Jonathan.
Thank you, Julie. I'll start with average monthly rent and gain to lease on slide six. You can see the positive upward trend in both leasing gains and average monthly rents on the upper chart. Average monthly rents surpassed CAD 1,700 in Q3 2022 and have increased more than 20% since the formation of the REIT. Gain to lease was negatively impacted by the onset of the pandemic in the spring of 2020. Our realized gain to lease continues to improve as rental market dynamics continue to be favorable, with realized gains of 14.5%, marking the fourth sequential quarterly improvement, which is notable in a seasonal business. On the lower chart, we break out rents by geography.
Despite recent market rent increases, our rental pricing remains a very attractive alternative compared to renting a condo, buying a new home, or owning an existing home with a variable rate mortgage. For example, in Toronto, our rental rate per square foot is CAD 2.62, which is 25% lower than renting a condo based on market data from Urbanation. In addition, the carrying cost of a CAD 500,000 mortgage would be approximately CAD 2,900 per month, using a 5% interest rate and a 25-year amortization. I'll now dig into the gain to lease performance in greater detail on slide seven. Beginning with the upper chart, which breaks down our realized gains in the third quarter. We signed 574 new leases in the quarter following suite turnover, up from 555 new leases in Q3 last year.
We generated double-digit gain to lease in all of our markets, including an impressive 15.5% gain to lease in Toronto. Average rents on new leases increased by 14.5% from CAD 1,675 to CAD 1,918. This was the second largest quarterly gain in the REIT's history, and it resulted in an annualized incremental revenue gain of approximately CAD 1.4 million. Turning to the embedded rent portfolio gain to lease potential on the lower chart, we believe we can generate approximately CAD 16 million of annualized incremental revenue by bringing rents to market levels, representing potential gain to lease of 12.1%. By comparison, we estimate gain to lease potential of CAD 6.6 million or 7.3% at the end of Q3 2021.
I'd now like to review occupancy on slide eight. As rental demand has improved over the last 12 months, our move ins have exceeded move outs, contributing to higher occupancy. We had 691 move ins during the third quarter compared to 562 move outs, a net increase of 129. Over the last four quarters, there was an increase of net move- ins of 302, despite significantly reducing the use of discounts and promotions, which were an important tool to drive occupancy during the pandemic when occupancy was lower. Turnover in Q3 was consistent with our turnover in Q2. However, we do expect a slight slowdown in turnover going forward as the gap between sitting rent and market rent widens as well as due to seasonality. Moving to slide nine, I want to review our furnished suite portfolio performance.
Reduced business travel during the pandemic severely impacted demand for the furnished suites. As travel restrictions were removed and demand from corporate users and the film industry recovered, furnished suite demand rebounded as well. In the third quarter, average monthly rent was CAD 5,261, an increase of more than 30% from Q3 last year, and occupancy was 91.9%, an increase of 560 basis points from Q3, 2021. Our furnished suite count now stands at 189 suites, a reduction of 23 from Q3 last year, and is close to our steady-state target. We are very pleased with the strong performance of our furnished suite offering in Q3. However, it is important to note that Q4 is seasonally a slower quarter for furnished suites.
Slide 10 breaks down our quarterly operating expenses for both the Same Property Portfolio and the total portfolio. Property operating costs in the third quarter increased due to higher labor costs, filling staffing vacancies, and higher insurance costs. We are working hard to minimize operating costs, which are rising industry-wide in the current environment of high inflation. Property taxes for the Same Property Portfolio increased marginally compared to Q3 last year, reflecting higher assessments and rates. The large percentage increase in utilities expenses was mainly attributable to a substantial increase in natural gas rates, recognizing that typically our natural gas costs represents a smaller portion of our overall cost structure in the third quarter. On slide 11, you'll find a summary of our repositioning activities.
We renovated and leased a total of 75 suites in the third quarter, or 56 at the REIT's proportionate share, at an average cost of approximately CAD 55,000 per suite. The average annual rental increase following repositioning was CAD 5,150 per suite, or CAD 370 per month, which generated a simple return on investment of 9.4%. We have 2,024 remaining suites to reposition under the current program. We expect to reposition approximately 40-50 in the fourth quarter, subject to turnover. We repositioned a total of 218 suites in the first 9 months of the year. On slide 12, we have eight projects in our pipeline, five of which are in active development and one is stabilized.
Five of them are convertible development loan projects that include exclusive purchase options upon stabilization, and three are direct investments in properties we own. These projects are located in our target markets and have the potential to increase the REIT's suite count by over 2,300 suites or 28% from our current level. On slide 13 to 14, you can see recent photos of each of the projects in active development, and we'll talk about a few of them. Beginning with Fifth + Bank, this mixed-use residential and retail property in Ottawa's popular Glebe neighborhood is stabilized. It is currently 100% leased and is not subject to rent control. Minto Group has agreed to extend the REIT's option to purchase the property to June 30, 2023, and extend the maturity of the convertible development loan to July 31, 2023.
At this time, the REIT has not yet made a decision regarding the exercise of the purchase option, and any decision will be based on market conditions and other factors at that time. Lonsdale Square in North Vancouver has been topped off and is nearing completion. Market rents in the North Vancouver node continue to increase, with rental buildings in the area achieving rents of approximately CAD 5 per sq ft. Pre-leasing of the 113 suites is expected to begin in the first quarter of 2023. Once stabilized, the REIT will have the option to purchase the project at a 5% discount to appraised value. Stabilization is expected to occur in Q4 of 2023.
Finally, at our Richgrove property in Toronto, we are very proud to be building 100 affordable suites as part of this 225 suite offering with the help of our federal and municipal partners. This is an exciting example of developing new affordable housing for the betterment of our local communities. We anticipate stabilization in the second quarter of 2026. I'll now turn it over to Julie to review our debt financing and liquidity.
Thanks, Jon. Turning to slide 15, we are committed to maintaining a conservative leverage ratio and a balanced debt maturity schedule. As the chart shows, debt maturities are highly manageable through 2027. As of September 30, 2022, the weighted average term to maturity on our fixed rate debt was 4.48 years, with a weighted average interest rate of 2.9%. Approximately 70% of our debt was fixed rate and 65% was CMHC insured lower cost debt. I also want to note that we assumed approximately CAD 108 million of floating rate loans on the acquisitions of Niagara West and the International in the second quarter of this year. We are actively pursuing long-term CMHC insured financing to refinance these properties with funding expected before year-end.
Closing these loans would increase our proportion of fixed rate debt to 88%, and the amount insured by CMHC would increase to 72%. Total liquidity was approximately CAD 145 million at the end of September 2022, and debt- to- gross book value was 39.9%. Regarding our capital recycling initiatives, the sale of our Edmonton portfolio continues to progress, and we hope to provide an update next quarter. Moving to slide 16. We have now owned 39 Niagara and the International for slightly more than six months. Both properties are performing very well for the REIT. Occupancy at 39 Niagara in downtown Toronto increased to 98% at the end of September from 95.6% at the end of June. Asking rental rates have increased 5.5% since the acquisition in late April.
These figures highlight the ongoing return to downtown living as the negative impact of the pandemic recedes. It is a very similar story at the International in downtown Calgary. Occupancy was also 98% at the end of the third quarter, and asking rental rates have increased 4.9% since the acquisition closed in early May. Turning to slide 17, you'll find some highlights from our ESG report, which we released last month. Firstly, we reduced energy consumption by 11% and carbon emissions by 13% from the 2019 benchmark levels. Secondly, 50% of individual annual bonus compensation is tied to performance against ESG objectives. Thirdly, we began construction on 100 affordable suites at the Richgrove property with support from the City of Toronto. Lastly, we completed our first inaugural diversity and inclusion survey.
The full report is available on our website, and I encourage you to read it. We are proud of the progress we have made on ESG initiatives to date and are committed to achieving greater performance in the months and years ahead. I'll now turn it back over to Michael.
Thanks, Julie. I'll conclude with our business outlook on slide 18 before we take your questions. We're pleased with the steady improvement in the REIT's financial performance over the course of 2022. We've capitalized on the strengthening industry fundamentals. They include the rising cost of home ownership, Canada's expansive immigration policy, and inelastic housing supply that's just not keeping up with demand. The affordability gap between owning and renting a home increased substantially as housing prices remain high and mortgage rates have increased sharply. With regards to immigration, Canada has set an ambitious target to add 500,000 permanent residents per year by 2025. These people will need places to live, and rental housing is necessary to meet that demand.
Over the last year, we've seen downtown environments come alive again as students have returned to in-person learning, and restaurants, sporting events, and cultural attractions have drawn big crowds. Downtown living and renting is once again highly attractive. Finally, I want to note that strong commodity prices have solidified the rental market conditions in Alberta, which lagged our other markets over the last few years. Put together, we believe the outlook for the Canadian urban rental market will remain strong for the foreseeable future, especially if you consider that the multi-family sector has historically performed well during recessionary periods due to the short-term nature of our leases. To achieve long-term success, we remain focused on these five key strategies. Growing NOI by maximizing revenue, optimizing occupancy, creating value from suite repositioning, and minimizing operating expenses. Strategic allocation of capital, which may include capital recycling opportunities, accretive investments, and deleveraging.
Best-in-class execution of our existing intensification and development pipeline in order to further upgrade our portfolio. Third-party acquisition or development opportunities, which will be market-dependent. Finally, prudent balance sheet and liquidity management. Regardless of short-term capital markets volatility, the key elements of our strategy have not changed. We're confident that by sticking to them, we will deliver strong returns to unitholders as the fundamentals of the apartment sector remain strong. That concludes our presentation this morning. Julie, Jon, and I would now be pleased to answer any questions you may have.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, please lift your handset before pressing any keys. One moment for your first question. Your first question comes from Sairam Srinivas with Cormark Securities. Please go ahead.
Thank you, operator. Good morning, Julie , Jon, Michael. Congrats on a great quarter. Just looking at the occupancy numbers, obviously this quarter saw a huge amount of occupancy gains coming in.
I was wondering if you guys could kind of give us some color on the breakdown of these occupancy gains across markets, and if there are some markets where you saw a better performance relative to others?
Hey, Sai, it's Jon . Thanks for the question. Yeah, the occupancy, we experienced a stronger occupancy both in Toronto and Ottawa. Both of those are above 98%. Calgary is more in the mid-nineties, kinda 96% or so. Where we see the biggest opportunity for increasing our occupancy is actually in Montreal, where we're just a tick over 93%, which we're quite happy with, because, you know, we've been kind of bouncing along between 89%-91% since the onset of the pandemic. It's nice to see the hard work of our operations team starting to bear a little bit of fruit in Montreal, with our occupancy kind of ticked up, you know, broke through 93% last quarter.
Thanks for that color, Jon. Just probably, you know, transitioning from there into the gain-to-lease potential. I think across every other market, we saw a huge gain-to-lease, a material gain-to-lease in that potential, except for Montreal, where I think those numbers come down a bit quarter-over-quarter from Q2. Can you just speak about the fundamentals there and the opportunities you're seeing there from a rental perspective?
Yeah, for Montreal, you're saying, Sai?
Yeah, that's right.
Yeah. Look, in Montreal, you know, I think what we've experienced, and I think you saw this when you were on our property tour, you know, the cost for us to turn the suites, you know, has been a little bit higher than other places. The time it's taken us to turn the suites is a little bit longer. You know, market rents are increasing in Montreal. I would say the pace at which is slightly less than others. You know, when there's double-digit potential for gain to lease in any market, I think that's quite attractive, and Montreal is still there for us.
Thanks, Jon. Finally, Michael, I know in the outlook you mentioned capital recycling opportunities as one of the avenues for adding a value. Just wondering if you guys have any looking at any targets on that side or any opportunities for you on that side.
Well, I think you're talking about the Edmonton portfolio that we talked about. Is that where-
Yeah.
Yeah. I mean, we're continuing to work that process. We have nothing that we can announce at this point, but we're optimistic that we'll be able to share some news shortly.
Thanks, Michael. That's all I got.
Thanks, Sai.
Your next question comes from Jonathan Kelcher with TD Securities. Please go ahead.
Thanks. Just continuing on the operations side. Your period-end occupancy was 97.4%. How is that holding through Q4, or do you think we'll see a seasonal dip?
You know, I think as the market continues to tighten, we are starting to see a little bit more of a reversion back to what I'd call normal seasonality for this sector. You know, October was relatively consistent with September. We went down about one basis point in terms of occupancy. You know, the weather in October was pretty warm up until today, up until right now actually, as we kind of look out our office, it's pretty beautiful outside. You know, we're hopeful that the leasing season is extended a little bit. But look, there we are facing some headwinds overall in Q4 in terms of our utility costs. You know, it's a tough comp in Q4 for us, right?
Because the rates for natural gas, in particular in Q4 2021, were significantly lower because that was kind of pre-Ukraine war. You know, we're you know, that's a tougher comp for us when the rates from trough to peak are kind of two to three times. Even if our usage is the same, you know, it's gonna be pretty elevated. In terms of occupancy, we're pretty happy with our performance in October.
Okay. That helps. Then on the Fifth + Bank loan that got extended, is that on the same terms as previous?
That's correct.
Okay. On capital recycling, you did take a small little fair value decline this quarter. Did the Edmonton portfolio change at all?
No, it didn't. No change in Alberta whatsoever. It was just a few properties in Ottawa and Toronto.
Okay. Beyond the Edmonton portfolio, are there any other properties that you might be thinking of selling?
You know, what I'd say is this: we take a very active portfolio management sort of stance, and so we're constantly evaluating our portfolio for opportunities. As well, when we think about our pipeline of deals that we have outside the REIT, you know, looking for opportunities to upgrade the portfolio. I would say, you know, there are no sacred cows. We would look at our entire portfolio from a forecast in terms of the performance of each asset and their fit with our strategy.
I would say that, you know, we take a very expansive view, Jonathan, on sort of, you know, potential candidates for capital recycling, particularly if we think that we can make better use of the capital in that in other investments.
Yeah. Just to layer onto that, you know, if we can potentially reduce exposure to older rent-controlled assets and take that money and invest it into new non-rent controlled assets, I mean, I think that would be for us, you know, a transaction that makes sense.
Okay. That's helpful. I'll turn it back. Thanks.
Thanks, Jon.
Your next question comes from Michael Markidis with BMO Capital Markets. Please go ahead.
Good morning, everybody. Just on the refi that you expect to do on Niagara West and The International. I know you're fixing the term. Are you gonna pull out any incremental capital on that transaction?
No, we're not.
Okay. In Alberta, Jon, I think you highlighted the strong rent spreads across the portfolio, but good to see the new leasing spreads in Alberta be in that mid-teen range. Curious if you give us some commentary in terms of what you guys are seeing on the renewal side since it's not subject to rent control.
Yeah, I mean, look, it's broad strength across the portfolio. We're seeing particular strength in the international. I think, as Julie highlighted, we've pretty much eliminated promo from most everything. I think there's a little bit of competing products going around the quarters in the Laurier. You know, we're keeping a very close eye on that. But it's pretty consistent with the rest of our portfolio in terms of just broad market strength with, you know, re-rent's up, you know, 5% since we acquired the international in particular.
I mean, just in terms of the renewals, like broadly speaking, for Alberta, would you guys be doing something above, say, the 1.2% or 1%, you know, what you're getting in Ontario, just due to the limit?
Yeah. I mean, we're seeing just bringing everyone up to market rents without promo.
Got it. Okay. Fair enough. Last question from me before I turn it back. Just on the convertible development loan program. Is the 5% discount in the value that you capture, is it a one way? Or if in the event that you pass on a project or it gets recapitalized in another manner, do you still capture the 5% value creation on that?
Are you asking about the instance where the REIT would waive on its ROFO rights?
Yes.
We haven't encountered that situation, but when the REIT has waived on deals, particularly in the last 12 months, let's say, when we've been more restricted in our ability to access the capital markets, MPI has pursued some deals with the concurrence and approval of the independent trustees on the REIT's board. What we've undertaken, I would say, is a best effort sort of approach whereby when market conditions improve and our cost of capital returns to where we think it should be, that you know, MPI will use its best efforts to bring those investment opportunities back to the REIT.
Whether that would come in the form of a CDL investment, which is possible, because some of those opportunities are in the pre-development stage, and so there would be ample opportunity, for the REIT to participate in the development. Which is obviously first prize for the REIT, because the CDL structure allows the REIT to garner the vast majority of the economics from development and is ring-fenced from most of the risk in terms of cost overruns, schedule risk, lease-up risk. Those risks all remain with MPI. We're looking for opportunities, to do that, Mike, if the capital market conditions improve and we see our cost of capital come back down to sort of where it should be.
Okay. That's helpful. I guess what I was asking more specifically was just in the event, I know you have an extension on Fifth + Bank till mid-2023, but in the event that the REIT wasn't able to exercise its discount purchase option once the property hits stabilization. That 5% value capture on purchase, is that something that the REIT is still entitled to if the property doesn't sell or is recapitalized in a different manner?
No, I mean, it's part of the CDL instrument. If the CDL was to mature and it was to be repaid, the option goes along with it, unfortunately.
Okay. No, that's helpful. Thanks very much. I'll turn it back.
Thanks, Mike.
Your next question comes from Johann Rodrigues with Industrial Alliance. Please go ahead.
Hey, everyone. Given that it's stabilized, do you have a rough sense of what the value of Fifth + Bank would be?
You know, it would be in dollar terms in the high 90s. You know, and then we would apply our 5% purchase discount to that. We're seeing cap rates holding pretty steady. We've seen five or seven transactions, I would say, of urban multifamily that would suggest, you know, cap rates that are, you know, in the low threes or high 2s. We've been, I think, conservative in assuming, you know, a higher cap rate for this asset. But that's kind of the rough order of magnitude.
Should we take it that the extension and the delay in deciding whether to pull the trigger on that is due to availability of capital slash cost of capital, or does it have anything to do with where the pro formas landed, or anything like that, the actual return on the asset?
No, I mean, I think that the asset's leased up well. We've leased at rates in excess of our underwriting pro forma. We're very happy with the performance of that asset. It is, you know, because it was completed after November 2018, it's not subject to the rent control provisions. It's absolutely loaded with all the latest PropTech and amenities. And it's in a sub-market where, you know, there's probably less than 1% vacancy. So, you know, it's a fantastic asset. It's an asset we wanna put in the REIT. We are sensitive to some of the feedback that we got, you know, in the spring with the timing of the International and 39 Niagara transactions, and obviously sensitive to where our stock's trading. Right now, we're kind of 45% discount to NAV.
We took a lot of feedback from investors, very sensitive to the fact that this is a related party transaction and wanting to be absolutely, you know, transparent and, you know, bend over backwards to ensure that the minority unitholders are treated fairly. It was a very quick discussion with the MPI board to get them to extend for another six months. Jonathan Li, I don't know if you'd add anything to that.
I mean, the only thing I would add is that, like, we're highly focused on, you know, our cash flow per unit performance and our current cost of debt right now on our floating. You know, this is to your point earlier, this, if you call this a CAD 100 million asset, you know, we probably only need another less than CAD 20 million of incremental capital because of the CAD 30 million that's already outstanding on the CDL.
Right. Even if you finance this thing with 100% debt, the cost of debt would exceed the purchase cap rate. That math just is very difficult for us to make work in the current market. We're not beholden to any specific timing, you know, thanks to the extension, other than when this extension runs out. We're just trying to be prudent with our capital.
Right. Should we take it that if you guys are able to sell some of the Edmonton properties that you might pull the trigger on , if you make?
It is possible. I mean, I don't know if the timing is gonna line up. At the end of the day, if we have excess capital, we're gonna look at high grading the portfolio, we're gonna look at paying down debt, we're gonna look at NCIB. You know, we're gonna look at everything that's on the table and kind of make the appropriate decision at that time.
Sure. Last question, did you have to take down 100% of it, or can you split it with and bring in a partner, or have MPI retain half of it?
The way it's documented, it's a 100% transaction, but it's something that we've talked about internally, whether we could, you know, work with some of our existing relationships. We have a fairly good Rolodex of institutional partners. That is a scenario that we've evaluated as well. No firm thoughts or plans on that at this stage.
I mean, we want this asset. We want 100% of it. This is a fantastic asset. To the extent we can do that, then I think we would. If to the extent we would lose it and we're, you know, we need to consider all other alternatives, obviously, we would be open to that too.
Right. Okay. Just switching, last question. You keep reducing the furnished suite count in the portfolio each quarter. Do you know roughly where you see that stabilizing long term?
Yeah, yeah. We're pretty much there. I think we have one suite left in 150 Roehampton that'll be done by the end of the year. We're gonna be at that 188, somewhere between 186, 188 furnished suites, and it's gonna be only in those two buildings, 185 Lyon as well as 61 Yorkville.
Okay.
Not to say for the medium term, we couldn't add more inventory at those properties or others, but at this stage, we don't have any plans to do so.
Okay. Thanks, everyone. I'll turn it back. Good quarter.
Thanks, Johann. Thank you.
Your next question comes from Kyle Stanley with Desjardins. Please go ahead.
Thanks. Morning, everyone. Just kind of looking at the OpEx side of things, and more specifically nat gas. I mean, your nat gas was up 70% year-over-year in the third quarter. While understanding, and I think you highlighted this, you know, nat gas represents a small part of the cost structure in those summer months, sorry. I'm just wondering your thoughts on how that trend, you know, looks in the fourth quarter and first quarter. I think, Jon, you made some mention, but, you know, does that 70% kind of year-over-year growth number, you know, what do you think about that?
I think over two, three , you're likely gonna see additional consumption, so that number is likely gonna be higher going into Q4, as it relates to utilities. I think from a staffing cost perspective, we're still seeing cost creep, on that side, so you're likely seeing a bit of an increase there as well.
Okay, thanks. Just one more from me, and then this is for Michael. Just could you comment on, you know, any recent discussions you've had with the federal government just regarding the review of the multifamily REIT taxation status and, you know, affordable housing, I guess, more generally?
Yeah. You know, we've been working, I think as you know, with our closest peers, Killam, CAPREIT, Boardwalk, and InterRent, and then more broadly with a larger list of, I'll say, you know, alternative housing providers in the REIT space and some large privates. Broadly with industry groups like FRPO, CFAA, and REALPAC in a coordinated fashion to educate policymakers and, I'll say, influencers in the policy space, and both in the political realm, folks who are in cabinet-level positions, elected members of parliament, but also not just within the Liberal government but also members of the opposition, the NDP and the Conservative Party as well. I'd say those conversations have been productive.
You know, we found that our counterparts have been open to, I think, a good exchange of ideas and some fruitful discussions as well as it relates to policy alternatives. I think it's too early to comment on where the outcome of those conversations might happen. You know, I'm optimistic that the parties working together will find some solutions to improve the housing affordability crisis that we have in this country. I mean, it's notable that we saw, you know, in the 12 months ended at the end of June, using StatCan figures, Canada's population surging by 700,000 people.
Also notable that, you know, recently in the last week, we've seen the federal government raise our immigration targets yet higher to 500,000 people ultimately in the next three years or in the three years out. That's those are substantial indicators of housing demand. We know as an industry our housing supply curve is very inelastic and that we in the REIT space and I speak about my peers as being big parts of that. You've heard earlier today in calls with Killam and CAP, the roles they see playing on that. Certainly, you know, Minto, I think for sure in that space as well, that we can be part of the solution.
What I like to see is the conversation has shifted at the government level to one of incentives to bringing new supply online. That's happened at both the provincial level, you know, with the Ontario government's recent announcements on land planning and affordable housing, but also at the federal level. I think we're gonna have to wait and see at the federal level how this plays out. I think everyone in the summer was so hoping maybe for some clarity in the fall economic statement. I think it's taken longer for the government. This file is tremendously complex. They have limited bandwidth. They're dealing with multiple big files, not just housing. I expect it may not be until the budget timeframe that we see a little bit more clarity.
You know, like I say, I'm optimistic.
Okay, thanks for that. Good to hear, the level of optimism there. You know, hopefully we do get a positive outcome and lift the, you know, overhang that's been over the sector for a little while. Thanks. I'll turn it back.
Thanks, Kyle.
Ladies and gentlemen, as a reminder, if you do have any questions, please press star one. Your next question comes from Jimmy Shan with RBC Capital Markets. Please go ahead.
Thanks. Just a couple of questions from me. First on the turnover rate trends, I know the expectation is that they will continue to tick down. Kind of where do you see that going? Where do you see that bottoming out? Secondly, maybe putting your investor hat on, can you just talk generally about kind of what you're seeing in the new condo sales development market, and how that might impact the rental business over the next few years?
Hey, Jimmy. It's Jon. I'll take the first one, and then I'll hand it to Mike for the second one. Look, on turnover, as we said in the opening comments, the actual turnover we experienced in Q3 was very similar, virtually unchanged from the turnover we experienced in Q2. We do expect turnover to increase with just seasonality as well as the strengthening and the tightening of the rental market. You know, I think two things that will moderate the turnover for us. Number one, you know, 16% of our portfolio is non-rent controlled, so that's good. The second thing is there's a couple of very large buildings that a year ago had a lot of promotion in those rents, and those leases are turning over.
As those leases turn over, it's quite a large gap between what they're paying and what market rents are. We're seeing sort of a normal natural turnover in those leases as well. You know, just to give you, I guess, some. I think our portfolio is something like mid-20s% in terms of turnover.
I think we're expecting it to be kinda low-20s turnover to just give you a little bit of that. I may have said turnover decrease, or increased by accident. I meant decrease. Yeah.
Yeah. On the condo side, you know, I'm speaking specifically of the new condo supply, so not speaking about resale. But what we've seen, I'll say broadly, you know, across the country, but if we wanna look at, say, you know, Toronto as a specific instance. We have seen very significant declines in sales of new homes broadly, but condos in particular. I mean, you could look at Altus reports, you could look at Urbanation reporting, and what we're seeing are volumes of new condo sales dropping, you know, 80%-90% year-over-year on a monthly basis. That's a function of higher interest rates and challenges for buyers to qualify.
You know, when you've seen this reported by Urbanation and others, that many of condos that were planned for launch this year have been pulled by developers who are looking at market conditions closely, looking at reception to their offerings and opting, I think, to pull deals. The implication for the industry is that obviously fewer condos will proceed to that presale point. Condos that are already in presales may not achieve their presale threshold they require for financing. Potentially we could see projects delayed and/or canceled and go back on the shelf as developers wait for market conditions to improve.
I think the implication for the rental housing is that, obviously that source of new competing supply will be somewhat constricted, until we see market conditions improve for developers, and I think that's largely gonna be a function of mortgage rates. Right now we're seeing five-year fixed rates for preferred customers in the high fours and low fives. Then of course, customers are having to qualify with a 200 basis point premium to that. It's probably, you know, gonna restrict some new supply coming online, frankly. You know, that's just unfortunately the reality I think for renters right now is that there's probably gonna be fewer options for them in the near term until we get some clarity around mortgage rates coming down.
Okay. Thank you. Are you seeing some of that supply that otherwise would have been condo shifting to purpose-built rental? I assume no, but I wonder if there's any sign of something like that happening.
Unfortunately, I'm not seeing that yet on a large scale. I suspect there may be individual projects that might shift that way. You know, the rental development pro forma and the condo pro forma share a lot of similarity. Rising short-term borrowing rates for construction financing. You know, construction costs are soaring. You know, the slowdown in the home building industry is gonna impact construction pricing first on the low-rise wood frame trades, because those are short cycle time projects. The concrete construction, the impact of lower construction volumes, I suspect, on pricing. Construction pricing is probably gonna take quite a bit longer to filter through. Partly, you know, that a lot of the competing demands on construction trades and supply, suppliers is not just, you know, residential high-rise construction.
It's infrastructure, it's office, it's industrial. Those trades have you know, other calls for what they do. What we're seeing is rental pro formas are under pressure in much the same way that condo pro formas are. I haven't seen a big shift. Now it will be interesting to see when in Ontario some of the proposals put forward by the Ford government to favor the construction of affordable rental or rental period whether that might start to have an impact. I think it's too early to say because those proposals were just released in the last couple weeks. That's my sense anyhow.
Okay. Thanks for the color.
Thanks, Jimmy.
Your next question comes from Matt Kornack with National Bank Financial. Please go ahead.
Hey, guys. I'll keep it quick with two quick ones here. Just with regards to the Niagara asset, can you give us a sense? I mean, you bought it fairly recently, but the Toronto market has been on fire from what we've heard. Just as to where maybe mark-to-market potential is, notwithstanding obviously, you would have done leasing at market at the time that it was in lease up. But just some thoughts there. Because it's non-rent-controlled, how do you think about passing through that on lease renewal?
I mean, you hit it on the head, I think, right? Like, we're able to achieve market rents with no promotion in that market. So, you know, the mark to market is every lease pretty much at market, and we've seen market rents grow 5% since April.
In the process of lease up for that, were there promotions given that would still kinda be outstanding relative to today, I guess?
Yes. Yes, for sure. That's kinda what is generating some of our good financial performance, especially in that building, is that, you know, I'll give you just one specific example of a suite on the eighth floor that it looks directly into a black wall. We were renting it for net effective two months of promotion a year and a half ago for CAD 1,600, and we rented it last month for CAD 2,400. No promo. That's like one small example in a very attractive building and neighborhood, just to give it to you there. Like, that's what's happening in that building.
That just highlights, I think, Matt, why we were so keen on that acquisition and so, notwithstanding the timing of not being ideal last March, but so focused on retaining that asset for the REIT rather than see it sold in the market, because of exactly what Jonathan just pointed out. Its location and the fact that it's not subject to rent controls allow us to adjust quickly as demand is surging.
Yeah. No, that makes sense. I think everybody's surprised with how quickly things turned. Yeah, they've turned to the positive. One quick, just, housekeeping-type item. For the insurance recovery of CAD 594,000 , is that in other income? That's not in a line item that would go into NOI, is it?
Yeah, that's correct. It's other income, not NOI.
Okay. Perfect. Thanks, guys.
Thanks, Matt.
There are no further questions at this time. Please proceed.
Well, that's great. I would like to, before we conclude our call, put in a pitch. Many of you may know that Jon Li and I are sleeping on the street, on Toronto's Mean Streets on the night of November 17. We're raising money for Covenant House, which is a cause, an organization that provides housing, healthcare and other services for youth who are at risk. It's a great cause. We've raised, I think, at this point in excess of CAD 70,000 towards a CAD 100,000 goal. You all could be a big part of helping us hit our goal. If you've given already, thank you so much. If you haven't yet, please consider doing so. CAD 1,000 goes a long way.
It would house and feed three troubled and homeless teens for a month. Please do give it some thought. I would also as well like to just thank Julie Morin. This is her last earnings call, and I think of it, she and I have been working hard on this for going on five years now. It certainly is the end of an era with Julie stepping away, and I'm very thankful for all of her hard work and energy and leadership that she's brought to the REIT's success over the last five years. Julie, thank you very much.
It's been fun.
I can't believe you're saying that. Anyhow, thank you everyone. That concludes our call this morning. Thank you very much for your interest in Minto Apartment REIT. We look forward to speaking with you again after we report our fourth quarter and year-end results next year. Have a great day. Thanks, everybody.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.