This call is being recorded on Thursday, August 1, 2024. I would now like to turn the conference over to Mr. Paul Miatello. Thank you. Please go ahead.
Hi, good afternoon, and thank you, everybody, for joining us for our second quarter results conference call. This is Paul Miatello speaking. We've got the whole management team here, so I'll just do a very quick roll call. We've got Chris Newman, Chief Financial Officer. We've got Ruth Griebel, Assistant Vice President, Canadian Operations. Beverley Flynn, General Counsel, Secretary. Rai Sahi, Chief Executive Officer. Angela Sahi, Executive Vice President, Canadian Operations, and John Talano, Senior Vice President, U.S. Operations. So with that, quick set of introductions, I'll ask Chris Newman to make some prepared comments, and then we'll turn it over for a question-and-answer period. Chris, over to you.
Okay, thank you. Thank you, Paul. As is customary, I will provide comments on the REIT's financial position and performance. In terms of our financial position, the REIT completed the second quarter of 2024 with total assets amounting to CAD 4.4 billion, higher compared to CAD 4.1 billion as of December 31, 2023. This was due to fair value increases on the REIT's income-producing properties, foreign exchange rate fluctuations, and an increase in cash. The REIT finished the second quarter with approximately CAD 127.8 million of cash on hand and CAD 100 million available under the REIT's revolving credit facility with Morguard Corporation.
During the second quarter of 2024, the REIT completed the financing of three Canadian properties for aggregate proceeds of CAD 209.6 million at an average weighted average interest rate of 4.64% and for terms of 10.5 years. The maturing mortgages amounted to CAD 91.4 million, had a weighted average interest rate of 3.36%, resulting in net proceeds of CAD 112.8 million after financing costs.
The REIT completed the second quarter with CAD 1.6 billion of long-term debt obligations, and as at June 13th, 2024, the REIT's mortgages payable had an overall weighted average term to maturity of 5.4 years, an increase from 4.9 years at December 31st, 2023, and the weighted average interest rate increased to 3.87% from 3.72% at December 31st, 2023. The REIT's debt to gross book value ratio was 39.3% at June 30th, 2024, an increase compared to 38.7% at December 31st, 2023. During 2024, the REIT continued to be active under its NCIB, repurchasing approximately 520,000 units at an average unit price of CAD 15.98.
The REIT's IFRS net asset value per unit is CAD 40.58, making the NCIB plan an appealing use of capital. Turning to the statement of income, net income was CAD 50.6 million for the second quarter, compared to CAD 87.5 million in 2023. The CAD 36.9 million decrease in net income was primarily due to the following non-cash items: a decrease in fair value gain on real estate properties of CAD 43.6 million, which was partially offset by a decrease in deferred income taxes of CAD 7.9 million. IFRS net operating income was CAD 54.6 million for the second quarter of 2024, an increase of CAD 1.2 million or 2.2% compared to 2023.
The change in foreign exchange rate increased NOI by CAD 0.5 million of the overall variance to last year. On the same property proportionate basis, NOI in Canada increased by CAD 1.2 million or 7.5%, mainly due to AMR growth, net of higher vacancy, partially offset by an increase in operating expenses. NOI in the US decreased by $0.4 million or 1.8% from an increase in operating expenses, partially offset by AMR growth, net of higher vacancy. The change in foreign exchange increased same property proportionate NOI by CAD 0.4 million.
Interest expense increased by CAD 1.1 million for the second quarter of 2024 compared to 2023, primarily due to an increase in interest on mortgages of CAD 1.2 million from higher principal and higher interest rates on the completion of the REIT's refinancings. The REIT's second quarter performance translated into basic FFO of CAD 22.7 million, a decrease of CAD 1 million or 4.3% when compared to 2023. On a per unit basis, FFO was CAD 0.41 per unit for the three months ended June 30, 2024, a decrease of CAD 0.01 or 2.4% compared to CAD 0.42 per unit in 2023.
The decrease in FFO per unit was due to the following: On the same property proportionate basis in local currency, an increase in interest expense, partially offset by a decrease in trust expenses and an increase in NOI at an overall CAD 0.01 negative impact. An increase in current income tax at the REIT's U.S. subsidiaries had a CAD 0.01 per unit negative impact, and the impact from units repurchased under the REIT's NCIB had a CAD 0.01 per unit positive impact. The REIT's FFO payout ratio of 44.6% for the three months ended June thirtieth, 2024, compared to 42.5% in 2023, represents a very conservative level, which allows for significant cash retention.
Operationally, the REIT's average monthly rent in Canada increased to CAD 1,730 at June 30th, 2024, a 6.1% increase compared to 2023, reflecting the quality of our Canadian portfolio. During the second quarter, the Canadian portfolio turned over 4.6% of total suites and achieved AMR growth on suite turnover of 26.3%, while in the U.S., AMR increased by 2.6% compared to 2023, having an average monthly rent of $1,896 at the end of the second quarter. The REIT's occupancy in Canada finished the second quarter of 2024 at 98%, compared to 98.4% at June 30, 2023.
Rental market conditions remain strong and stable as housing demand continues to outdistance supply and as an elevated level of immigration and a high interest rate environment discourage tenants from homeownership. Occupancy in the US of 93.3% at June 30th, 2024, was lower compared to 95.3% at June 30th, 2023. Although turnover is higher during the summer, management expects occupancies to be stable moving through the busy summer leasing season. During the six months ended June 30th, 2024, the REIT's total CapEx amounted to CAD 17.4 million. That included revenue-enhancing in-suite improvements, exterior building projects, common area garage renovations, mechanical, plumbing, and electrical, as well as energy initiative expenditures. At this time, I'll turn the call back over to the moderator to open up the floor for questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star four by the one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received. Should you wish to cancel your request, please press the star four followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Jonathan Kelcher from TD Cowen . Please go ahead.
Thanks. Good afternoon. I guess the first question is just really on the operations in the U.S. market at 93%. I guess you're expecting it to stay that way over the summer. When do you think occupancy starts to improve in the U.S. back to sort of the 95%-96% level?
John, can you discuss that option?
Sure, sure. I would say we've definitely seen more turnover this year than we have over the last several. You know, we enjoyed some really aggressive rental growth over really the last two years, but double-digit growth. And we are, you know, today at about 93% occupied and 95% leased. But again, this is the busiest season. When folks really go back to school, which is starting now, is when it normally slows down a bit. So between, you know, now and the end of August, we should see our various markets stabilize. And then, you know, of course, going into winter, we slow down quite a bit up north.
I've discussed it before, but we do use management software that we reduce the amount of turnover we have over the winter months, especially in the northern markets, to make sure we can maintain higher occupancies through the winter.
Okay. Do you think, like, there's been a lot of new supply in a lot of markets, do you think you're like, we're through the worst of that, or is there more? Like, when does that sort of taper out?
Yeah, I think, we've, we've had some pressure in, in Dallas, specifically in Tampa, and that has, has subsided a bit. I would say in our markets, we're generally in more mature areas, so a lot of the supply you're seeing is, you know, high rise in very urban areas. Let's say in South Florida, in, in Fort Lauderdale, as an example. But we're not there. So, you know, most of our markets, I would, I would say, are generally more mature. But in, in the south in general, I think there's definitely been, in more supply. You know, our, our assets in Chicago, we're really enjoying some very high occupancies there right now because there was very limited supply that was built.
But I think for us, we've really seen in Dallas the economy slow down there a bit, thanks to the Fed. I think that's definitely working. So we had some expatriates that were working in Dallas, that went back home or left the country and we're backfilling now with folks that are in and around that market.
Okay. Switching gears, you guys obviously, after doing the mortgage refinancings, have lots of cash on the balance sheet. And maybe give your outlook on acquisitions, where you're targeting, where you're looking, Canada versus the U.S.
Yeah, John, it's Paul here. Yeah, I mean, we're looking definitely both sides of the border. We're looking within our footprint and, and looking to expand the footprint a little bit.
Interestingly, you know, we're seeing some decent buying opportunities in some of the major urban centers. So we're scrubbing opportunities on that front as well. But also seeing, you know, decent pricing, you know, more so in the U.S., than you know, Canada is still somewhat tight from in terms of transaction market. We've seen more volume, certainly on the Canadian side of the border for opportunities. But we're seeing better pricing, better opportunity, better pricing per door and better opportunities to buy below replacement costs in the U.S. So all that said, we're not giving any specific guidance on when we might deploy that capital, but we're active looking at opportunities.
Okay. And when you say major urban centers, is that, U.S., or Canada or both?
Both, I would say.
Okay. And then, what type of asset would you target? Would like more value add versus, newer assets?
I mean, we're traditionally, you know, this REIT hasn't been traditionally sort of the deep value add kind of buyer. You know, we think we've got, we've got really good, strong skill sets in terms of, you know, buying an asset, and being able to, you know, increase cash flow, increase rents, using our management platform. So yeah, I mean, you know, generally, it's not, it's not heavy value add, but it's more light value add that we're looking for.
Okay. That's, that's it for me. I'll turn it back. Thanks.
Thank you. Your next question comes from the line of Dean Wilkinson from CIBC. Please go ahead.
Thanks. Afternoon, everyone. Maybe I'll just follow along the lines of Mr. Kelcher's question there. You know, on that theoretical acquisition capacity that you've got, I guess with the units trading at an implied cap rate close to eight, is still the best source of capital, the NCIB, and do you find that you're just limited by the daily volume that you can go out into the market and purchase?
Yeah. The daily volume limitation, that ceiling, is definitely a restriction. We get the exemption for one block trade per calendar week. So, you know, we've got our hook in the water, looking for those block trades. But yeah, definitely we're somewhat limited on the buyback. And yeah, I don't disagree with you, you know, buying back units is, you know, probably the best use of cash right now, but again, we're somewhat limited.
Right. Could you do a Substantial Issuer Bid, or, or do you think that being able to get that stock out of the people's hands, given the discount, would, would just. It probably wouldn't get the take up?
Yeah, I mean, there's always a bit of a balance in terms of, you know, exactly how much you wanna buy back and, you know, being able to deploy some of that capital into hard assets and some, you know, giving liquidity to the unitholders. So, I mean, that's something that, you know, we analyze. I can't give any specific guidance on it, but it's something that we look at continuously.
Fair enough. Yeah, makes sense. That's all I had. Thanks, guys.
Thank you. Once again, should you have a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Jimmy Shan from RBC Capital Markets. Please go ahead.
Hey, Jimmy, are you there?
Yeah. Oh, sorry about that. Yeah, when we talk about the acquisitions, you're seeing a better pricing in the US and Canada. What. Like, can you give us a sense of what are those better pricing in terms of cap rates or price per door? And then what would what does your hurdle rate look like now in the context of today's debt environment?
I mean, in terms of pricing, you know, you're seeing anything in the U.S., you know, you're seeing really good quality assets and good markets. You know, and again, it, it's all relative, right? Depending on the asset, depending on the market. But, you know, you're seeing good stuff, you know, in the high fours and all the way through, you know, the five cap range. And these are in, you know, markets again, that we look at, that we're confident we can raise rents in. You know, we're seeing some deals trade in, you know, Chicago and other larger centers, you know, around $400,000 a door, a little under $400,000 a door.
So, you know, relatively speaking, for the rent levels you can achieve there, we're seeing good pricing. Everything, you know. And again, Canada, it's a little bit all over the map, depending on the age, depending on the market. But pricier, so we're just continuing to kick tires on both sides of the border.
Right. And in Canada, those cap rates would be probably in around that range, right? Except with lower cost of debt. I'm just kind of, I understand the price per door is lower in the U.S. I'm just kind of curious as to why you wouldn't be looking at Canada today, given where cap rates are, given where cost of debts are, and given the growth profile. I'm just kind of curious as to how you balance the two markets.
Yeah, I mean, yeah, well, that's. Yeah, I think you characterize it as we're not looking in Canada. I mean, we, we definitely are. I mean, the deals that we find interesting, you know, are typically, you know, around, you know, 50-100 basis points lower on cap rate than they are in the U.S., right? So we just, you know, and obviously, you know, financing is less expensive in, in Canada. So, you know, we're just, you know, playing that off one against the other. But, you know, we are, we are seeing opportunities on both sides.
Okay. Okay, and then on quick one on the U.S. operations, what would the new lease spreads and renewal rental spreads look like for the portfolio today?
You said the new lease spreads versus what was that last piece?
Renewal.
Right. Well, we are seeing on renewals, we are seeing an increase in rents and that, you know, roughly year-over-year, I think we talked about it earlier, is about 2.8%. Right now, on our new leases, again, it's wildly different depending on the market, but in areas like Dallas, right now, we're having some occupancy issues. But there we had, you know, we were basically flat, but in Chicago, we're seeing rates, you know, in upwards of 5% or 6% still. So it's very dependent on the market. We were very conservative in terms of raising rents aggressively over time.
So, you know, during COVID, you know, our rates did go up, but we were cognizant to make sure that we maintain our existing rental base and don't price people out of the market. So there still is a little room there, from a renewal perspective, but, you know, it's our busy leasing season now, and, there's certainly a lot more pressure than there was last year, but again, we've enjoyed such great increases over the last two years that I really think things are normalizing, right? So you have interest rates and the cost of living expenses and all those things going up so aggressively that now I think all of that is definitely normalizing. Like I mentioned, the Fed's work is absolutely working.
Okay. Thank you.
Thank you. There are no further questions at this time. I will now hand the call back to Mr. Paul Miatello for any closing remarks.
Okay. Thank you, everyone, for joining us, and we look forward to speaking to you on Q3. Thank you.
Thank you, and that concludes our conference for today. Thank you for participating. You may all disconnect.