Killam Apartment REIT

Thank you. Good morning, and thank you for joining Killam Apartment REIT’s Q4 2024 year-end financial results conference call.

I am here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; and Erin Cleveland, Senior Vice President of Finance. Slides to accompany today’s call are available on the Investor Relations section of our website under Events & Presentations.

I will now ask Erin to read our cautionary statement.

Thank you, Philip. This presentation may contain forward-looking statements with respect to Killam Apartment REIT; and its operations, strategy, financial performance conditions or otherwise.

The actual results and performance of Killam discussed here today could differ materially from those expressed or implied by such statements. Such statements involve numerous inherent risks and uncertainties.

And although Killam management believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that future results, levels of activity, performance or achievements will occur as anticipated. For further information about the inherent risks and uncertainties in respect to forward-looking statements, please refer to Killam’s most recent annual information form and other securities regulatory filings found online on SEDAR.

All forward-looking statements made today speak only as of the date which this presentation refers, and Killam does not intend to update or revise any such statements unless otherwise required by applicable securities laws.

Thank you, Erin. We are very pleased with our strong financial and operating results for the fourth quarter and the year ending December 31, 2024.

We achieved 8.4% same property NOI growth across the portfolio, which included 8.5% same property NOI growth in our apartment portfolio, 7.5% same property NOI growth in our manufactured home community portfolio, and 6.3% same property NOI growth for our commercial properties. Killam earned FFO of $1.18 per unit, a 2.6% increase from $1.15 per unit in 2023, and throughout the year made very good progress on our strategic targets, as shown on Slide 4.

We successfully completed our plan of arrangement, which simplified our organizational structure and reduced future potential corporate taxation. Finally, we completed 10 property dispositions for gross proceeds of $59.2 million.

We are optimistic above the opportunities ahead and remain focused on growing our portfolio through developments and acquisitions, growing our cash flow and increasing the underlying value of our assets. I will now hand it over to Dale.

Thank you, Phil. Key highlights of Killam’s year and financial performance is presented on Slide 5.

Top-line revenue increased 4.7% for the total portfolio and 6.0% for our same property portfolio. As Phil mentioned in his opening remarks, we’re pleased to have completed our strategic corporate restructuring transaction in Q4.

As a result of this plan of arrangement, the taxable entity that existed within our corporate structure has now been removed. This resulted in a deferred tax recovery of $279 million in the quarter, which flowed through net income.

This is a non-cash, non-recurring accounting entry to remove the deferred tax liability from our balance sheet. This deferred tax entry and all plan of arrangements transaction costs have been normalized for FFO purposes.

We ended the year with FFO of $1.18 per unit, a 2.6% increase from 2023, as seen on Slide 6. With the Governor, Civic 66 and Nolan Hill 2 all fully leased, we expect to see greater FFO gains in the coming year as these three developments will contribute meaningfully to our earnings.

Top-line growth was key to our strong results. Our same property apartment portfolio achieved a weighted average 7.0% rental rate increase for the year.

This was partially offset by a 40 basis point uptick in vacancy. We achieved 98.0% same property apartment occupancy during the year, compared to 98.4% in 2023.

Slide 7 highlights the rental rate increases achieved by quarter over the last 9 quarters. In Q4, renewal increases remained healthy at 4.4%, and we achieved 19.5% in rent growth for new tenants who moved in during the quarter.

Together, the weighted average rental rate increase was 7.9% in Q4. We estimate the total mark-to-market opportunity for our portfolio to be approximately 15%.

This spread has decreased over the past 6 months as market rents have stabilized, and where we have observed a softening of market rent for certain units. Market rent trends vary between regions and rental rates.

I’m pleased to report that leasing activity remains robust and Killam anticipates continued top-line growth on unit terms in the coming years. Robert will expand on this opportunity shortly.

Slide 8 shows our same property operating expenses, which increased modestly by 1.7% in 2024. Our most significant cost pressure property taxes increased by 5.9%.

In 2024, operating expenses were offset by a 5% reduction in utility and fuel expenses. Looking forward to 2025, we expect expenses to increase by 5% to 7%.

As with last year, property taxes are expected to be a significant cost pressure. Also, we won’t have the benefit of lower natural gas costs.

With a colder winter so far and higher natural gas commodity pricing in Ontario and Atlantic Canada, utility and fuel expenses will be higher in 2025. Overall, same property NOI was up 8.4% in 2024, our high in annual NOI growth.

We also achieved 150 basis point improvement in our operating margin. We expect same property NOI growth of between 4% and 7% in the year ahead.

We will continue to review and adjust our forecast as operating results are announced each quarter. Slide 9 presents the average apartment mortgage rate by year compared to the prevailing CMHC insured mortgage rates.

We anticipate higher interest rates on refinancing in 2025 due to the current rate on our apartment mortgages maturing this year of 2.14%. However, we do not expect an increase in year-over-year interest expense of the same magnitude as experienced this past year.

Looking ahead to 2026, we foresee reduced pressure on interest rates. By 2027 and beyond based on current rates and forecasts, refinancings may occur at lower interest rates.

We’re pleased with the improvement in our debt levels with debt as a percentage of total assets down to 40.4%, the lowest debt to total assets ratio in our operating history. In 2025, we aim to keep our debt at similar levels.

Slide 10 also highlights our debt-to-normalized EBITDA, another key leverage metric, which was further improved to 9.69 times in 2024, positioning us competitively among our Canadian peers. We’re well positioned both from a balance sheet perspective and from an earnings growth perspective as we start 2025.

Robert will now discuss our outlook on rent growth amid current market conditions.

Thank you, Dale, and good morning, everyone. Killam leasing activity for the month of January 2025, a month with 244 unit turns, delivered strong rental growth of 16% on unit turns.

Supporting Dale’s earlier comment that Killam’s apartment portfolio rents have room to move likely in the 15% range. This mark-to-market opportunity is shown by a region on Slide 11.

Halifax and Kitchener-Waterloo, Cambridge remain two of Killam’s strongest markets with mark-to-market spreads of 20% to 25%. Slide 12 shows the results of Killam’s analysis of the length of tenure for vacating residents over the last 6 years.

It highlights the fact that over 50% of vacating residents had a tenure of 1-year or less. Interestingly, the 1-year or less cohort in 2019 represented 68% of all vacating units and the same percentage for the 1-year or less cohort dropped to 50% by 2024.

This makes sense as renewing in place is more attractive given the increase in market rents since 2020 driven by a combination of more provinces imposing rental caps as well as some provinces setting rental caps that are grossly below inflation recovery rates for property operating costs, especially realty taxes. What we also know is that each year, approximately 50% of the vacating units come from the remaining cohorts, those with tenures of 2 years to over 6 years, and the rents are likely below market.

Killam expects to capture the mark-to-market spreads from these tenants, although it may not be realized all at once as this is dependent on unit type, unit location, and the tenure of the vacating tenant. Killam expects to achieve same property revenue growth from these unit terms in the coming years and, for 2025, we expect 5% to 6% organic top-line revenue growth.

Killam swiftly adapts to market changes based on leasing activity. We remain vigilant in monitoring market rents, multi-family supply levels and population growth in our markets.

Slide 13 illustrates the percentage of apartment completions in Killam’s major markets for the last 2 years relative to their total rental universe, including condominiums offered for rent as reported by CMHC. In 2024, new completions remain mostly in line with their historical norms across Canada, except for Calgary and Moncton.

Not surprisingly, Calgary and Moncton ranked number one and number two as the fastest growing cities per capita in Canada for 2024, so a little concern on increased supply in those markets. Given reasonable population growth, we expect demand for our properties to remain steady.

As shown on the same slide, Killam’s product offering remains affordable and is not overly exposed to any single price point. With new supply in our markets coming online at rental rates well above Killam’s current average rent of $1,493 per month, Killam’s portfolio is well positioned for continued rental growth.

That said, in select markets, we are seeing increased use of rental incentives, most notable with new construction lease-up. This is the case in Calgary where Killam’s Nolan Hill Development matched competitors’ incentives in that marketplace.

Once initial, a lease-up is completed, these incentives tend to fall away. Similarly, Civic 66 and Kitchener used incentives to finalize its lease-up.

Killam will continue to use rental incentives as required to address market forces. Killam will continue to execute on its proven strategy that focuses on providing safe, well-maintained quality housing to be the housing provider of choice for our tenants.

Killam’s 2024 Tenant Survey administered by a third-party provider, reports an overall tenant satisfaction score of 84% above the industry average of 80%, and 87% would recommend Killam to friends and family. As well, 90% of our tenants’ report that they are pleased with their unit.

Killam reviews these results annually and uses the information to adjust its approach as needed based on the feedback received from the survey. Killam monitors its portfolio continually to ensure its buildings are performing to their full potential, so our tenants are proud to call our properties their home.

We prioritize value-enhancing capital investments, such as upgrading units and modernizing common areas to improve the tenants’ experience. For example, in 2024, Killam upgraded a previously underutilized podium roof at its Spring Garden Terrace property in Halifax.

Slide 14 showcases the before and after photos of the rooftop terrace, which is now available for tenants to enjoy. These projects enable Killam’s portfolio to remain relevant and deliver quality housing for many years to come, keeping Killam competitive in its markets.

I will now return you to Philip, so he may address Killam’s capital recycling and development strategies.

Thank you, Robert. In 2024, we completed $59.2 million in property dispositions.

During the fourth quarter, Killam completed the disposition of three properties in Halifax, totaling 110 units for $16.6 million with net proceeds of $9.7 million and sold two parcels of land in PEI for a total of $3 million. For the year, we completed the disposition of 10 properties summarized on Slide 15, totaling 338 units and three parcels of land for a combined sale price of the $59.2 million, with net cash proceeds of $34.2 million.

Proceeds were used to strengthen our balance sheet and to fund ongoing developments. The sale of these properties aligns with Killam’s strategy to optimize value from its portfolio and to increase geographical diversification outside Atlantic Canada.

75% of the units sold were located in Atlantic Canada. Killam invested $6.8 million in energy initiatives during 2024, including $2.4 million in Q4.

At the end of 2024, our solar power production capacity was 2.7 megawatts per year, producing approximately 6.4% of our operationally controlled electricity. Three of these new installations went live in the last two weeks.

We have 12 new installs of solar panels planned for 2025. Five in New Brunswick, five in Ontario, and two in Halifax.

These investments represent a total potential production capacity of 1.728 megawatts per year, or an additional 4% of our operationally controlled electricity. Developing high quality properties in our core markets is important to Killam’s capital allocation strategy.

The Carrick, as shown in Slide 17, is expected to be completed by May 31st of this year, with the first tenants moving in in June. Construction continues at Eventide, our 55-unit building off Spring Garden Road in Halifax, and is expected to be completed by Q3 2026.

We are ready to start construction in Calgary on our 296-unit Nolan Hill Phase 3 development, where we have a 10% ownership interest. Site work has started on the 128-unit with Wissler development in Waterloo, where all site and building permits have been received.

If we look at the overall development budget from a year ago, subtract, soft cost, contingency, and land cost, the hard cost budget of $45.2 million is now estimated to be $42.155 million, down 7%, with 64% of the fixed price contract signed and the remaining 36% out to be signed. This new price plus no HST means the cost compared to a year ago are down $7.5 million.

In Halifax, we are working on two as-of-right developments, a 95-unit building at Victoria Gardens in Dartmouth and a 150-unit building at our Harlington Crescent community. All of the above developments are all in our top three markets, where we want to continue to grow our portfolio.

Our disposition target for 2025 is between $100 million and $150 million in sales. These dispositions are in the early stages and we will have more details by the time we release our Q1 results in May.

The capital will be used to pay down our line of credit, the NCIB, and for acquisitions in our key markets. On the acquisition front, we are increasing our level of interest and activity by tracking and touring a number of properties currently for sale in Western Canada and Ontario.

Finally, we hope to start one or two developments per year and participate in the existing ACLP program from CMHC that reduces the overall development risk by providing below market fixed interest rate financing and a component of affordable housing in each development. To conclude, we are very pleased with our 2024 performance and remain committed to investing in high quality assets and developments to continue to execute on our overall strategy and create value for all of our unit holders.

I would like to thank our employees for their hard work and dedication. Thank you.

And I will now open up the call for questions.

Thanks. Good morning.

Good morning.

First question, just on the mark-to-market, and I guess the slowdowns, a combo of a little bit lower market rents and, obviously, you guys capturing rent. How do you think market rents evolve over the next year or so?

Yeah, it’s going to be interesting to see as we come off what is typically pretty slow season in terms of January and February. And what we’re already seeing, it’s a different story in different markets.

And as we talk about at different rent levels. So I can tell you even now, Peninsula Halifax, we’re getting a lot of interest and that’s we have the potential market rent as the busy leasing season comes up.

It might come back up. Newfoundland is looking really strong.

We’re seeing acceleration there. There’s some other markets, where there’s more supply and it’s at the higher end.

We feel those market rents we’re looking at what we’re actually leasing things at and feeling pretty good about those. So, I mean, they may come down a little, but I generally feel as we hit the spring leasing season, I expect they’ll be generally stable.

That would be my expectation.

Okay. That’s fair enough.

And then you talked a little bit about incentives, and so you guys were using them basically just to help on lease ups. Are you starting to see more use of incentives outside of leasing up properties?

And if so, where?

Yeah, we are. I mean, certainly in Western Canada, we would be seeing that as those do tend to turn on and off, depending on the strength of the market there.

So those are definitely on. And we’re always keeping an eye on what’s happening around us in terms of remaining competitive.

I’d say, in Ontario, we’re seeing those more than we have historically in the past. Again, it’s unit by unit, or building by building, I guess some more.

When we’re competing against, as there’s new supply and you’re at the higher end, I think those buildings that are leasing up are offering incentives more than the older, more affordable properties in general. Sprinkling here and there outside of those provinces, I’d say BC a little bit too.

We would have those in Atlantic, a few here and there, but not in any meaningful way.

It really is building specific. It’s surprising that you could have a number of buildings in one community, and one would be the property that requires more incentive, but the others are fine.

So I do find that one of the more interesting things as we look through our portfolio, how isolated these incentives can be.

Okay. That’s helpful.

And then one more just, Phil, you talked about starting to kick tires on acquisitions, Western Canada, Ontario, what types of properties are you looking at? Is it more new build or more value add?

Or is it a mix?

Hi, Jonathan, it’s not the value add. It’s the newer part of the market.

It’s the merchant builders. I mean, there’s good supply and opportunities in Alberta, Lower Mainland, BC, the island there.

And surprisingly, a few properties and few buildings throughout Southern Ontario.

Okay. Thanks.

I’ll turn it back.

Thank you.

Hey, good morning.

Good morning.

Just following up on Jon’s question there, just on the acquisition front. Would you characterize the acquisition program at the moment as still being more opportunistic or do you have more of a soft target in terms of dollar amounts you’re looking to spend this year on acquisitions?

Oh, it’s really starting to get back and looking at opportunities as opposed to any sort of a target for sure.

Yeah. And you highlighted Western Canada and Ontario.

Is there anything you’re looking at opportunity wise in Atlantic Canada?

I think I said the last call that basically Moncton is on our sort of radar for sure. There’s some nice new product being built in that marketplace.

And really the other one that we’re kind of thinking, well, we know it’s a strong market and we got a good position there is St. John’s, Newfoundland.

I mean, I think looking at if their deal gets finalized with Québec Hydro, it means a lot to the province and to the town and also just the sort of shift in attitude towards oil and gas that’s been around for the last couple of months. That would be very positive for the St.

John’s market over there.

Okay. Last question just in terms of capital locations.

Well, how would you think about buying back stock to the NCIB? Like, where would that rank in terms of priority in the application today?

It really is a function of our disposition program. And as I’ve said before, as noted, we are looking for $100 million to $150 million.

And as we execute on that throughout the year, then basically, it becomes then the focus on what are we going to do with the money. And therefore, obviously, the NCIB is up there, right there with any kind of an opportunity, acquisition opportunity.

Okay. That makes sense.

I’ll turn it back. Thank you.

Thanks.

Thanks. Good morning, everyone.

Good morning.

You mentioned 16% turnover spreads in January. And I know you’ve given kind of top-line guidance of 5% to 6% growth.

Just wondering, is that 16% kind of a good estimate of where turnover spreads trend or is there any seasonal softness given that it’s a bit slower on the leasing front in January? Safe to assume, I guess, that turnover spread the line with your view of where the mark-to-market opportunity is today.

I think that it’s pretty representative and we’ve got a mix of regular turns and repositionings in that 16%, so that’s why it trips up a little bit higher than the 15%, when we talk about 15% mark-to-market that’s actually without repositioning opportunities. So, I think that’s a good indicator it all depends which unit’s turn.

It was 244 units turned in January. So it was, I think, a fairly significant pool which gives us an indication, the market is roughly strong in terms of moving those rents capturing that mark-to-market.

Okay. That’s helpful.

And then, I think your comment there about the 244 units that turned is interesting and you mentioned I think in your disclosure, an expectation of turnover stabilizing maybe in the 18% range. Would you say that that’s kind of your view on maybe trough turnover in the portfolio and actually with market rents may be softening a bit is there a view that turnover trends a bit higher?

It’s so different by markets, when you talk trough like, I think, that we may see turnover start to tick up as you have more units that are not that far off the market rent. But we don’t expect any significant change trending upward, but I think we’re probably moving up – more chance of moving up than down I would say.

But our disclosure shows market by market, but the high being out in the west which is already back up into the 30s and then it’s just sort of like slight down into the Ontario and even Halifax is still relatively low.

But for maintaining their respective norms.

Yeah.

Okay. That’s very helpful.

Just last one – just on your OpEx guidance, would you say the primary driver of maybe uncertainty on where OpEx ends up is definitely regarding property tax. And would you have maybe a better understanding where that shakes out come April?

I guess just trying to figure out how conservative maybe that 5% to 7% range ends up being?

Yeah, it’s definitely the property tax with one of them by April. I’d say it’s probably more in the May timeframe that we have a better line of sight into exactly what that will look like.

It all kind of depends on the mill rates in the various regions. And then the other piece is around the gas and that consumption kind of between November – or February or March.

So we’ll have a better sense of that in April.

Okay. Perfect.

Thank you very much. I’ll turn it back.

Thanks. Good morning, guys.

So in terms of your 2025 expectation of revenue growth. What sort of occupancy portfolio wide are you assuming?

It generally is pretty flat compared to occupancy – yeah, pretty flat overall compared to where we would have been in 2024 is what we would be expecting. And, again, we’re watching this closely.

And when we – with market rents coming down, it is amazing when you got it priced, right, the demand that’s there. So we’ve seen, as Rob talked about a lot of leasing activities.

So we do expect occupancy levels overall to be quite high.

Okay. We did see kind of full markets, Calgary, Ottawa, London, Victoria, on a year-over-year basis, the occupancy did come down a decent amount.

I think you already talked about Calgary, but wondering kind of what sort of store there is in terms of Ottawa, London, and Victoria.

Sorry, it’s a bit hard to hear you. Are you asking about top-lines in those markets?

Yeah, the occupancy in Ottawa, London, and Victoria seem to have come out a decent amount in the quarter.

Yeah, I think that, again, we’re seeing activity in all of those markets as we are adjusting to the current market. So, I think that we have the opportunity to improve those…

Well, and also they’re – like, if you look, you’re asking like the Victoria, the Vancouver, it’s pretty small sample size. So, I mean, 5, 10 tenants for a couple of months, it drops it down more than what we saw as a decline for the whole year on the portfolio, which was 40 basis points.

Yeah. Fair enough.

Okay. And then just last one to the clarification on the quarter.

So your mark-to-market portfolio wide, 15%, your turn spread’s still 19.5%. Usually we see the reverse, but is that was just a function of the mix of units that turn in the quarter?

It’s also because when we look at mark-to-market, as I mentioned, that does not include our repositioning. So when we look at that 19.6%, that does include a mix of regular turns and repositioned, and it’s somewhere around, call it, 13% on regular, and could be 40 to 50 on reposition.

So that weighted average moves it up. So that’s why it’s higher.

So when we look at our regular turns, it is a little bit below the mark-to-market, which makes sense based on some of the units that are turning – would have turned last year.

Makes sense. Thanks.

Thanks, operator. Good morning, everybody.

Forgive me if this info is in the MD&A, I haven’t had a chance to look at it in fine detail yet, but just with following on Jimmy’s line of questioning with the mark-to-market versus the capture spread on turn, did your repositioning program grant materially throughout last year? And, I guess, it’s part one.

No, it actually came down a little bit. I mean, it’s still going to be a part of our program on an annual basis and it really we’re looking opportunity by opportunity and making sure that if we’re investing that capital, those market rents, we can still get.

And what we’re seeing is some properties where we’ve done it in the past. It still makes sense.

Some, if you’ve got a more supply close by, you might not be able to capture what you could have a couple of years ago with those higher market rents. So it’s come down on moderating a bit.

It’ll still continue, but down from the peak.

Okay. And, again, it’s probably in there, but I haven’t seen, so no material change in terms of your non-development related CapEx expected in 2025?

It’s in line. Yeah.

Yeah. It’s very consistent.

Okay. Thanks.

Just on the incentives, realize it’s somewhat isolated and building specific, but maybe if you could just give us a little bit of color with respect to the quantum or type of incentive that you’re seeing at the select properties you highlighted?

Typically, 1-month rent free is a fairly strong inducement in most markets. So, we would maybe alter that a little bit and then sometimes we decrease it, but that’s a pretty good representative.

I think also getting a bit creative too and potentially using parking and other things than just the rent, for instance, as well.

Okay. Thanks.

And then, last one for me is just appreciate all the detail. Your slide deck is great, by the way.

Really appreciate it. But I think on Slide 13, you had the historical completions looking at condo inventory as well for all of your markets.

And the comparison was 2024 versus 2023 in the tenure average. And I’m just curious if you’ve looked at under construction and anticipated deliveries in the next year or two.

And if you’re expecting any meaningful changes, are there upwards or downwards versus what’s shown on Slide 13 for any markets in particular?

Yeah. I mean, we’ve got a slide, but I’ve actually gotten it from you.

I don’t know if we put it out or it’s been. But essentially, it’s CMHC data.

And it’s the construction as a percentage of the rental universe, including condo across all our major market. And when you look at it, Halifax, Moncton, Kitchener-Waterloo, Toronto and Ottawa, Calgary, Edmonton, they’re all in about a 13 to basically the top two ones or maybe a Toronto, the Calgary around 16%.

So essentially what it’s saying is that the what is coming, what has started, it’s probably the same percentage right across the country.

Just to clarify that, we’re comparing it with condos that are identified for rent, not all condos.

Right. It just rental plus the condos.

So when you look at that, you go and say, well, okay, so the whole country is basically both the same in terms of what’s coming on new supply. And I mean, the other interesting point, it was in today’s paper was the – and I’ll give credit to Desjardins [ph] there for putting it out.

It’s about the population and the immigration. And the sense that they’re saying other than international students, we still have quite a bit of immigration in Canada in especially the last 4 months.

So, you look at that, the country is roughly at almost equal in terms of new supply. It’s basically – it’s quite positive.

Okay. Got it.

And just to clarify…

If you have that information – Mike, we do have that information on our IR slide deck that would be on the website where we do look at key markets. We can follow up.

Yeah, that’s great.

I will circle back and have a look at that. Thanks so much.

Hey, guys, maybe just circling back to your Slide 12 and the commentary around January. Can you give us a sense, are you starting to see a reversion more towards, maybe not just immediately, but towards the 2019 sort of higher composition of zero to 1 year leases turning at this point?

Or is it still kind of 50-50 old and recent leases that are turning?

Yeah, Matt, we didn’t [charge back] [ph], so can I speak to the finished billing?

What do you think the expectation is that you’ll start to see that composition change a bit?

I wouldn’t be surprised to see it start to move close like move in that direction in terms of more than – so you’re asking more than 50% of turn speed kind of in that 1-year range. Is that…

Right. Yes.

Yeah. I mean, I don’t think – I think it may go up a little bit, but right now we’re not seeing anything to indicate that, specifically watching with great interest.

Yeah, your markets, the mark-to-market is still such that maybe it makes sense to remain in place. And then, I guess, just on the repositioning side is, you mentioned that it’s come down, but as the dynamics change, would you see that as kind of coming back as a potential growth mechanism within apartments more broadly?

Or, yeah, how should we think about that opportunity set? Because I know there was a period of time where rent growth was fairly low on an organic basis, but you guys were able to access rent growth through repositioning.

So just interested in your thought on deploying capital into those renovations, and at which point it makes sense to do more of it.

Well, I think we will continue to look at it. And maybe what we will end up doing is right sizing those renovations, depending on what the top end of the rent we can get.

So, the way we’re looking at it now is saying what’s the incremental capital we have to spend to do a repositioning over what the regular market rent would be without doing that work and, making sure, the return makes sense for the spread from what we expect to be able to achieve versus just turning it for a regular turn. So, we’re already having those conversations and finding ways to still do the upgrades, move it higher and spend less, and it is market by market.

So, we will continue to look at it. And I wouldn’t be surprised to see it, come back a little bit, but it’s still going to be an important part of our program.

With our average rent being just shy of $1,500 a month. There is ample opportunity to spend some money, invest some money, and when you take a look at other new bills that are going to have to charge north of $2,000 a month.

So that gives us the opportunity to continue to invest in our existing portfolio to fill that gap and earn that in mark-to-market.

Yeah, that makes sense. Just lastly on margins, particularly Q1, do you expect it to look obvious that the portfolio has changed a bit, but to look more like Q1 of 2023, obviously, last year we had a very mild winter and we’re sitting with the snow on the ground right here in Toronto.

I know snow removal, I think, is contractual, but can you give us a sense of how much you expect the expense to increase in Q1 for you guys?

Well, certainly, Q1 is going to – we’re going to feel it the most because of cold weather. I don’t know, Erin, do you want to comment?

I mean, I think it’s generally in line with the guidance that we’ve provided for expenses in the MD&A. And as we said kind of in that 5% to 7% range.

We’ll see that increase in utilities in Q1 with the colder weather, but would kind of expect the rest to be in line. And when you think margin, I would say it would be generally in line with what we saw kind of in 2024.

Okay. And broadly speaking, I guess, the portfolio’s changing, maybe not rapidly, but you’re going to more Hydro [ph] releases and with your newer product, presumably, you’re less exposed to utilities to some extent.

Yeah, our newer bills, absolutely. They’re all submitted.

Okay. Thanks, guys.

Thank you. Good morning, everybody.

Good morning.

Looking at Slide 11, the mark-to-market opportunity by region and mainly focusing on Halifax, Kitchener-Waterloo-GTA, some of the biggest opportunities in the portfolio there. How would you guys characterize the cadence year-over-year in terms of these spreads maybe last year?

So the cadence – are you saying for Halifax specifically?

Both Halifax and Kitchener-Waterloo. I’m just trying to understand how those spreads have moved when you look at last year, how these markets have seen inventory coming?

I mean, I think that they’ve moved generally in line, they have come down. But, again, we’ve achieved some really strong rents.

So when you look at that spread, that is part of it. So, I think in both those, when you’ve got a building that’s competing against some new supply, those market rents have come down a bit.

There’s some units that are still moving up. So, I think, it’s generally in line in those markets as the other markets.

I mean, I’m thinking back a couple of quarters, I believe, we were above 30, just two quarters ago or one for Halifax. We were probably at 31% maybe last quarter, so it has come down.

But, I’d say we’ve had this info for a couple of months, so I guess you can go back and look and we can kind of compare which markets have moved the most to help understand that. But, I’d say both those markets are holding up very well.

And I think a lot has to do with you look at the range of assets that we have in each of those property, in each of those markets. So Kitchener-Waterloo, we have some wonderful new buildings and we have some older buildings that more affordable rents that still have a very strong mark-to-market and same in Halifax.

I think the mark-to-market is an interesting number, but for us, it’s what we’re capturing. So, we’re seeing impressive 15% capture.

We think that that’s representative of what this portfolio can do.

That makes sense. And maybe you’re shifting gears on the acquisition front and some color in terms of the product you’re seeing on the market, when you look at these transactions, what seems to be the main motivation of sellers actually going out selling these assets?

Sorry, could you just repeat that last little bit?

So when you look at the product that is coming in these acquisitions – in the markets right now for acquisitions, what seems to be the main motivation of sellers actually coming to sell?

Well, again, the motivation of a good part of this full sort of product that’s available for sale is still contained within the merchant builder sort of universe. So, I mean, they build it to sell it.

They’re not builders and owners and managers. So that’s always been part of the market almost since the beginning of time in every major market across the country.

So that’s the area that you first start to look at.

That’s good color. Thanks.

I’m going back.

Thanks.

Thank you.

Thank you. Good morning, everyone.

There’s a lot of focus on this mark-to-market, 19 going to, 15 going to whatever it might be. I’m trying to get a sense of what that number looks like in a historical context, if I go back to, so 4% or 5% same property NOI growth before we all knew what a pandemic was.

How does these spreads look relative to them and maybe there’s a bit of overreaction to what we’re seeing here? Could you just comment on that?

Yeah, I think you’re right on it. It’s almost trying to figure out how to sort of summarize the end of all these questions.

And the way to look at it is pre-COVID, we lived in a world it was the total revenue growth was between 2% and 4% and that included all the markets we were in that had rent control and you’re getting your little 1.5%, 2%, 2.5%. And so, obviously, the mark-to-market was the difference.

And what that was like you come through 2020 to last year the COVID years increase in population, increase in cost, basically in those couple of years we had below sort of increases due to self-imposed zero increases per year or so, or governments doing something and everything sort of popped and all of a sudden, we were just trying to catch up to what would have been the trend line. So, now you come out and, I guess, really the punch line from my point of view is, is that if you look at all the rent control areas what is the current allowable increase for the year.

And, here, we sit in Halifax and we have a 5% increase and it follows like 2.5% or 3% depending on the province. So that’s built into what’s going to be part of the increase in the revenue and essentially anyway you look at it whether like you said it’s a 10% to 15%, what we’re trying to do is average the ones that are basically not much of an increase, because the person’s been living there for a year or somebody tends to sort of move and they’ve been a tenant for 4 years, 5 years, 6 years and there’s a very good sort of difference in the in the cost, because of it could have been in the rent control or just the fact that they’ve been living there in a building.

So, when you combine that, I mean, I look at it the first month in January, 3,768 units renewed 3.61, the regular turns or the turns 220 that Robert mentioned before, 12.28 repositions it’s another big lift on the number of that. And so, you’re going to see that throughout the whole next 11 months to 12 months.

And at the end of it, we’re still getting the benefit of all those increases that came the last 3 or 4 months of last year that were bigger rents, so they’re all spread out throughout the portfolio. So, it’s positive is the only way to say it.

Yeah. I mean to me it’s seemed a little more like a mean reversion than a deterioration in leasing fundamentals.

Yes. It’s going to take a couple of years.

Yeah. If we were talking about these numbers back in 2019, it’d be like, yeah, this is great.

So, I appreciate the colors. Thanks, guys.

Hand it back.

Yeah. It is a mean reversion that’s going to take, we believe, 2 to 3 years to go back.

Yeah, that’s fair. Yeah.

Yeah. Thank you.

Thanks.

Thank you.

Once again, thank you very much for participating and listening today. And we look forward to continuing this conversation in May and giving you an update on our first quarter results.

Thank you.