Good afternoon, ladies and gentlemen, and welcome to the fourth quarter for the year ended December 31, 2022 conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star 0 for the operator. This call is being recorded on Thursday, February 16, 2023. I would now like to turn the conference over to Paul Miatello. Please go ahead.
Thank you very much, good afternoon, everybody, and thanks for joining us on our Q4 results conference call. I'll just do a quick introduction or roll call for everybody. This is Paul Miatello, SVP of the REIT speaking. With me, I have Angela Sahi, SVP in Canada; John Talano, SVP of our U.S. Operations; Beverley Flynn, SVP, General Counsel, and I also have Chris Newman, our CFO. As usual, I'll turn it over to Chris. Chris is chomping at the bit to give you a Q4 update. It was another good, another good and very strong quarter for the REIT. Just with that quick introduction, I'll turn it over to Chris.
Okay. Thank you, Paul. As is customary, I'll provide some comments on the REIT's financial position and performance. In terms of our financial position, the REIT completed the fourth quarter of 2022 with total assets amounting to $3.9 billion, higher compared to $3.5 billion at December 31, 2021, resulting from a fair value increase on the REIT's income-producing properties of $208 million and a higher foreign exchange translation. The fair value increase is a result of an increase in underwritten NOI in both the U.S. and Canadian properties, supported by strong rent growth, partially offset by a cap rate increase on the Canadian portfolio.
As well to note, during the fourth quarter, the REIT posted a fair value loss of $203 million, which partially offset the year-to-date fair value gain, and was entirely due to a cap rate increase at most of the Canadian and U.S. properties. During the fourth quarter, the REIT completed the following transactions. On October 6th, the REIT sold its property located in Coconut Creek, Florida, comprising 340 suites for net proceeds of $70.6 million after closing costs and the repayment of a mortgage payable secured by the property.
Subsequent to year-end, the REIT acquired from Morguard Corporation the remaining 60% interest in Fenestra at Rockville Town Square, comprising 492 residential suites for a gross purchase price of $71.5 million, excluding closing costs, and the REIT assumed a mortgage payable of $34 million. The REIT's disposition of three assets this year supports management's strategy to dispose of assets where values are benefiting from strong market demand and to focus on opportunities to acquire properties located in urban centers and major suburban markets in Canada and the U.S. Throughout, the REIT utilized the tax-deferred strategy under Internal Revenue Code Section 1031 in connection with its first two U.S. property dispositions, and it's pursuing a 1031 exchange on the recent disposition completed during the fourth quarter.
Under a 1031 exchange subject to certain conditions, the REIT will be able to defer tax payable upon the acquisition of a replacement property. The REIT finished the fourth quarter with $14.6 million of cash on hand, $62 million from net proceeds received from the sale of Blue Isle during the fourth quarter that is classified as restricted cash on the balance sheet while the REIT pursues a replacement property, and has also $80.7 million advanced to Morguard Corporation under its $100 million revolving credit facility, providing the REIT with $180.7 million available under the facility. The REIT completed the fourth quarter with $1.2 billion of long-term debt obligations.
On December 30th, 2022, the REIT completed a refinancing of a property located in Cooper City, Florida, at a floating interest rate for a term of five years, providing additional net proceeds of $0.7 million. As at December 31st, 2022, the REIT's overall weighted average term to maturity was 4.9 years, decreased from five years at December 31st, 2021. The weighted average interest rate increased to 3.5% from 3.31% at December 31st, 2021. The REIT's debt to gross book value ratio improved to 38% at December 31st, 2022, down compared to 40.2% since December 31st, 2021. Turning to the statement of income, net income was $239.6 million for the year ended December 31st, 2022, compared to $245 million in 2021.
The $5.4 million decrease in net income was primarily due to a lower fair value gain on real estate properties of $80.4 million relative to the gain recorded during 2021 and was partly offset by a higher fair value gain on Class D LP units of $56.3 million, reflecting a decrease in the REIT's unit price during the year and was also offset by an increase in NOI of $21.7 million. IFRS net operating income was $151.2 million for the year ended December 31st, 2022, an increase of $21.7 million or 16.8% compared to 2021. The change in foreign exchange rate increased NOI by $6.7 million of the overall $21.7 million variance to last year.
On a same-property proportionate basis, NOI in the U.S. increased by $11.1 million or 19.4% as an increase in revenue from AMR growth and ancillary revenue was partly offset by higher vacancy and an increase in operating expenses. NOI in Canada increased by CAD 3.4 million or 6.7%, mainly due to AMR growth and lower vacancy, partly offset by an increase in operating expenses. The change in foreign exchange increased NOI by $6.2 million.
Interest expense decreased by $2 million for the year ended December 31st, 2022 compared to 2021, primarily due to a loss on the tax liability on the redemption of Class C LP Units of $3.8 million recorded in 2021, as well as a higher non-cash fair value gain on the convertible debentures conversion option of $2.4 million, partly offset by an increase in interest on mortgages of $3.9 million, mainly resulting from additional net mortgage proceeds on the completion of the refinancings during 2022 and during the fourth quarter of 2021, as well as a net increase from the impact of acquisitions and dispositions throughout the year. The REIT's 2022 performance translated into basic FFO of $82.8 million, an increase of $18 million or 27.8% when compared to 2021.
On a per unit basis, FFO was a record high at $1.47 per unit for the year ended December 31st, 2022, an increase of $0.32 compared to $1.15 per unit in 2021. The increase in FFO per unit was due to the following. On a same property proportionate basis in local currency, an increase in NOI from AMR, from higher AMR and lower vacancy, partly offset by higher operating costs. An increase in interest expense and trust expenses had a $0.15 per unit positive impact, of which a successful property tax appeal's net of consulting fees contributed $0.025 of that increase. In addition, a change in the foreign exchange rate had a $0.09 per unit positive impact.
An increase from the contribution of the REIT's development property, which reached stabilization in October of 2021, had a $0.03 per unit positive impact. The net impact of acquisitions and dispositions had a $0.01 per unit negative impact, primarily due to the timing of reapplying sales proceeds towards acquisitions. An increase in other income, mainly from an increase in interest income on the Morguard Facility and interest income earned on restricted cash held as part of a 1031 exchange from disposition proceeds, had a $0.06 per unit positive impact. The REIT's FFO payout ratio continued to decline to 47.8% for the year ended December 31st, 2022, a very conservative level which allows for significant cash retention.
As previously announced, commencing in November 2022, the REIT increased its annual cash distribution by CAD 0.02 to CAD 0.72 per unit, an increase of 2.86%. Operationally, the REIT's average monthly rent in Canada increased to CAD 1,688 at December 31st, 2022, a 3.5% increase compared to 2021, reflecting the quality of our Canadian portfolio. During the year, the Canadian portfolio turned over 19% of total suites and achieved 13.7% AMR growth on suite turnover. While in the U.S., same property AMR increased by 13.1% compared to 2021, having an average monthly rent of $1,737 US dollars at the end of December 2022 as the REIT continued its strong performance, benefiting from strong market fundamentals across many regions.
The REIT's occupancy in Canada finished Q4 2022 at 98.6% compared to 93.6% at December 31st, 2021. Overall, occupancy has increased across the portfolio as leasing activity increased to pre-pandemic levels as economic conditions improved and as people returned to their normal routine. Same property occupancy in the U.S. of 95.3% at December 31st, 2022 was slightly lower compared to 96.2% at December 31st, 2021, as U.S. occupancy is still maintaining optimum levels. During the year, 2022, the REIT's total CapEx amounted to $40.8 million that included revenue-enhancing in-suite improvements, common area, and exterior building projects, as we continue to ensure that we maintain the structural and overall safety at our property.
The REIT's collections, of rental income during the year continues to be materially in line with historical collection rates. At this time, I'd like to turn the call back over to the moderator for any questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed 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 followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from the line of Jonathan Kelcher from TD Securities. Please go ahead.
Thanks. Good afternoon. First question, just on your U.S. markets. We see a lot of media talk on market rent growth slowing in many of the markets. Maybe give us some color on what you're seeing in your markets and what you expect for market rent growth in 2023. Yeah, no problems. John Talano, do you mind responding to that question?
Sure. Well, I would first say that, you know, the market rent growth are slowing, but that's because it's been so aggressive, you know, in all throughout 2022. For us, we are seeing some seasonality, Growth reductions in, you know, places like Chicago and Washington, DC, where it's cold. Lots of folks will continue to move, you know, if their job ends or something like that in those regions. There aren't as many folks to backfill at that point. We generally have always seen a slowing at that time. You know, in our southern markets, it's definitely stronger. I would say we're returning to more normal levels of growth. You know, it's certainly, you know, not negative.
You know, our projection. We didn't expect to be where we are now today based on our projections from last year. You know, we're doing very well.
Okay. For this year, like inflation type growth, a little bit below, a little bit above? How are you thinking of that?
Yeah, where is inflation this year? You know, I can't predict that stuff obviously, but, I would say, you know, our growth is still good and we're certainly keeping up with inflation.
Okay. Just secondly, on the 1031 funds that you need to invest, what markets are you looking at and what sort of cap rate should we think about there?
Yeah. Hi, John. It's Paul. You know, we're largely sticking to the existing footprint, so not going too far field outside of that. Pretty, probably a pretty safe assumption we would end up doing something in, you know, in the existing sub-markets. In terms of cap rate, you know, it varies obviously just depending on the market. You know, could be, could be, you know, 4.25%-4.75%, maybe 5%, but sort of somewhere in that range. Again, depending on where we're headed.
Okay. Are there like a lot of opportunities or, 'cause every stuff I'm hearing, reading is that the market has slowed down quite a bit in sort of Q4, Q1?
It's definitely slowed down, but, you know, there's still, you know, there's still deal flow there. For sure still, you know, still listings. You know, that's the great thing about the U.S., right? There's always, there's always some deal flow there. Yeah, it's curtailed. But yeah, we're not having a hard time, finding opportunities to look at.
Okay, thanks. I'll turn it back.
Thank you. Your next question comes from the line of David Thomasee from CI Investment Management . Please go ahead.
Your dividend rate increase was relatively small, I thought, given the low payout ratio, the strong NOI growth, the general inflation rate. Can you talk a bit about your philosophy on raising the dividend?
Yeah. I mean, generally, you know, our history is that it's been pretty conservative. I mean, you know, based on that history, you know, you probably shouldn't be too surprised that we kept it relatively conservative. You know, we will, as an organization, we'll continue to sort of err on that side of conservatism. You know, to John's point, you know, he made a few minutes ago about rent growth. You know, each year, you know, distribution increases are looked at separately. You know, obviously it was a very strong year in 2022, suffice it to say.
Certainly as John said, we're expecting rent growth again, but, you know, certainly not, likely not at the level that we saw in 2022. You know, but obviously there's room to increase the distribution further and, you know, still maintain a pretty conservative payout ratio. Overall, you know, the thesis of the organization is to keep it conservative.
Right. Okay. Thank you.
Thank you once again. Should you have a question, please press star followed by the one. Your next question comes from the line of Jimmy Shan from RBC Capital Markets. Please go ahead.
Thanks. Just a couple of quick ones. One is on the convertible debenture, wondering where how you're planning to deal with that one. Then echoing Ed's one and if you could just make some general comments on your GTA assets. Term was spread. Looks like it's pretty strong. Just any interesting observations you'd make with that portfolio grade?
I'll do the convert question, then I'll turn it over to Angela for the, for the GTA asset question. On the converts, yeah, I mean, obviously we're analyzing our options right now. You know, there's a fair bit of cash in the entity now. You know, you'd see from our disclosures, we've got a couple of refinancings coming up in the next like four to six months, or even sooner, two, three months to as far as six months out that will, you know, yield some financing proceeds to the REIT. Yeah, we're looking at the options. Obviously, if we were to do a new convert in this interest rate environment, it'd be at a higher coupon than what's maturing.
you know that we're obviously cutting off, you know, the availability of cash against, you know, what kind of coupon we wanna lock into. Everything's being assessed, you know, as we go. Jimmy, obviously that convert matures on March 31st. you know, we're looking at it real time right now, but that's about as much as I can say right now.
Sorry, do you mind repeating the GTA question?
Yeah, no, I just wondered if you could just comment on what you're seeing in the GTA, because it looks like the lease turnover spreads in the quarter were pretty strong. If any color you could add would be appreciated.
The turnover uplift, you mean? Or just... Yeah.
Yeah, the turnover uplift.
Yeah, exactly. Yeah. We are seeing some definitely very positive rent growth on turnover. We had about 20, just under 20% for the quarter for last year, and we're actually at about 22.7% for January, to just give you an idea. Mississauga is at 23% rent growth and 41% in the Thorncliffe Park area. It's pretty significant. Obviously, given the housing shortage, the increase in immigration. Turnover rate is still low. It's lower than last year, but definitely seeing momentum on the rent growth on turnover. I haven't seen numbers like this actually. In Mississauga we're at the smaller units at CAD 3.40 a sq ft for some of the units, CAD 3.26. Definitely we're seeing a lot of north of CAD 3, which is surprising.
Thorncliffe Park as well, $250 even. Just to give you some idea.
Okay. Did you say... What was it? Which one was the 40% lift or 40%?
Thorncliffe Park.
Thorncliffe Park, okay.
Yeah.
All right. Then the 22.7% in January, that was for the entire-
Our portfolio. That's for the portfolio.
Okay.
Jimmy, sorry. You know, Thorncliffe, it's high, but the number of turnovers are very low, it gets all, you know, weighted down in that average.
Yeah.
Right. Okay. Okay, great. Thank you.
Yeah.
Thanks. Your next question comes from the line of David Thomasee from CI Investment Management. Please go ahead.
Well, thanks. Just to follow up. I was noting in a TD report I read today that your discount to net asset value is at the large end of the historical range. Do you have any thoughts on why that is the case? Do you have any thoughts on how you might shrink that discount, for instance, share buybacks or further to my previous question, a higher payout ratio? In other words, over to you.
Yeah. You know, on the, on the share buyback, we, you know, we have been utilizing NCIB, you know, into 2023. We've purchased 56,000 units, about $1 million worth. We are kind of recognizing, you know, a little bit of value gap there. We're doing. We've started that program. Paul, anything you wanna add on? Like, the, you know, the traditional, you know, structure of the REIT and the, you know, overall it's, I don't know, it's... Sorry, Paul, do you wanna add anything?
Yeah. I mean, the historical discount to now has been larger than our peers. Like, you know, has been there consistently, right? I'm sure you understand that. Appreciate that. You know, and some of that has to do with the smaller trading flows, and some of that has to do with the existence of a major shareholder or a major unitholder in this case. Yeah. I think, you know, we're, you know, largely for those reasons are, you know, somewhat structural. Yeah, using the NCIB and, you know, overall I think, you know, we're unduly punished in capital markets. We should be trading better than we are.
You know, the results for the, you know, for 2022, especially the last couple of quarters, sort of underscore that.
Yeah. Further, we unlocked, you know, some of the value in our assets with the dispositions as well. You know, more so proving out the, you know, the balance sheet itself.
Right. Right. Okay. Thank you.
Thank you. There are no further questions at this time. Please proceed.
Okay. Thank you again everybody for joining us. We look forward to speaking to you on our next conference call. Thank you.
Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.
Okay.