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InterRent Real Estate Investment Trust
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Good day and thank you for standing by. Welcome to the InterRent Q1 2021 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Sandy Rose.
Welcome everyone and thank you for joining InterRent REIT's Q1 2021 Earnings Call. My name is Sandy Rose and I've recently joined InterRent as Director of Investor Relations and Sustainability. Joining the call today will be Mike McGahan, CEO; Brad Cutsey, President; and Curt Millar, CFO. The team will present some prepared remarks covering the most salient points of the quarter, along with an update on market conditions and then we'll be pleased to open the floor to your questions. Before I hand things over to Mike, I want to remind listeners that certain statements about future events made on this conference call are forward-looking in nature. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially. Please refer to the cautionary statements on forward-looking information in the REIT's news release and MD&A dated May 11, 2021, for more information.During the call management will also refer to certain non-IFRS measures. Although the REIT believes these measures provide useful supplemental information about its financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see the REIT's MD&A for additional information regarding non-IFRS financial measures, including reconciliations to the nearest IFRS measures.Mike, the floor is yours.
Thank you, Sandy. It's been a crazy year, I guess a long 14 months feels like 5 years. But I have to say that I'm so proud of our team. They've been so diligent. They've been keeping our residents safe and secure, healthy. And they worked so hard for all of our shareholders and all of our stakeholders for that matter. So I just have to say that team has done such a great job. I am very proud of what our team has also done for our community. They have supported many great causes, helped out -- we've actually supplied PPE to, I think it's 3 or 4 hospitals. We've also helped out many charities, many small businesses, I think it's on numbers almost 200 small businesses. As a team, we've contributed over $300,000 to these different endeavors, $100,000 came from the REIT itself and the rest came through our executive team and many team members. So I'm just so proud of what they've done. We really are and we want to be community partners. We realized how lucky we've been. It has been -- again it's been a tough long year for a lot of people and we're very, very lucky for our positions that we're in. I'll tell you -- it's one of the -- I just going to use one of the endeavors that we've done. We've actually contributed to the -- one of the food banks and we gave them money. And what they did is we put them in touch with one of our local restaurants and gave the food bank money and they would buy the food from the restaurants. So we actually got a double -- I guess a double fold lift for both of them and that's just one of the endeavors we've done. So I just, again, like our team has done like yeoman work on helping out in our communities. On the business front, It's not been as great as year we've had before and going back to obviously going through COVID the pandemic. But I do see some light at the bottom of the -- I guess the crack in the door. We have stabilized our occupancy, which everybody is again going back to the team, they've worked really hard and achieving. And we are starting to see a little bit of modest rent growth, which we've always had along the way. As everyone knows, we had a strategy and we said we would never buy occupancy. We always said that we would not do that. And I think our strategy is going to prove out to be very successful at the end of the day. Obviously the next, the last Q and I believe Q2 and I think we will be lucky to see here and I do believe we'll see it at the end of Q3 and especially Q4. I think we're going to see that this strategy has proven to be the right strategy along the way. And I'll tell you, we had a lot of internal discussions and I've had people to saying they thought we'd made have been the wrong move. But as a team, we made it collectively. And we really believe that this will be the best go-forward strategy for all of our shareholders. So I want to give a little bit of a cautionary point. I know that you are seeing that we've got high vacancy in Vancouver, that's obviously going to be just very temporary. We are just still in the process of re-branding those properties, great properties, unbelievable locations, so happy that we transacted on that deal with Crestpoint.But we are rebranding them. We're doing work in the common areas, where we're doing work in the suites. And again, we want to capture the right side of the market. And I think we're going to see that starting to happen. Well, I know we'll see it, because we're starting to even get lots of calls, even though we're really not in the rental mode yet, but you'll see it in Q3. Also, I just would say on Ottawa, I think Ottawa would be the -- right now, I'm a little concerned about, will not really a concern, it's probably not the right word. I just don't think Ottawa may get the same immediate lift here in the end of Q3 that I really see in the other markets. It's still going to get a lift. But I think Ottawa just because it's Federal Government based employees and the Federal Government is doesn't seem right now that they've got the impetus just to push the people back into the offices, which is a drag on all the local businesses and the whole downtown community. I'd see and that may not been transact fully. And again I'm going to say it's going to be, it will be much better. But it won't transact fully until and probably 2022 and I'm hopeful the first Q 2022. And I guess I should also point out is that how positive it is with all the people getting vaccinations, that's really, I think that's really lifting the rental traffic. And I think as we go through, again, I'm very confident that we're going to see some good rental numbers here for the end of Q3 of this 2021 and really going into the Q4 of 2021 and onward.And also, but even having the schools announcing that they're going to be in person classes. I think it's going to be tremendous. And you'll see more students going and living in around the universities and that which is terrific. I know, I have a couple of kids sort of planning on moving out. I think on our last call, I said I had 4 kids at home. I've got 2 that are very committed to leaving here at this summer. So it's, I think that's just everything is kind of going back into the proper and right direction where it was before. I'm going to go now onto just to what's going on in investment market and acquisitions. There is a ton of product out there, it is getting bid up. We are seeing cap rate compression across the board. And quite frankly, even not just primary markets, but the secondary and tertiary markets. I see there is just like a wall of capital. There's so many people interested and in multifamily, they really see it as a safe harbor. If you look at, again, like what our collection rates and even when we kind of talk about, we're off a little bit on our occupancy, but all of us could be full. It's just a pricing game, everybody could be full. But we're really seeing this as a safe Harbor. Obviously everybody else sees it too. There is people that are invest a lot of the institutional players now and private equity there are players, there is a lot of people looking for multifamily. So we're going to have to stay disciplined in our approach. We'll have to make sure that we -- nothing weird in what we've done in the past. I do see that we will end up transacting, like we've transacted all the way through this pandemic. I see that we'll be continuing it on as we go forward. And so there will be obviously some growth in our company and in our portfolio, but we will be disciplined. I also would like to point out too is one of the things that we are been talking about too. We have been talking, we will be probably doing some small dispositions. And those are just smaller properties by the primary basis that we'll sell and we just think it doesn't fit completely into our portfolio anymore. We will also be looking at more JVs potentially. We've been really happy with our JVs to date. We've had 2 excellent partners, actually more than 2. They've been great to deal with. And I think what it does is it really gives us the great opportunity to leverage our platform. And by leveraging our platform, it really increases a lot of opportunity for our team.It also helps our bottom line and it's great for our partners too. So it's a win all the way around. So we'll be continuing on with that front. The last items, I really want to go over is on our development side. You'll see that in our MD&A that we put out, 473 Albert, great location, 158 suites are going to be building there, was a former office building. And that construction at a start in the start of Q3 of 2021. We're hopeful that we'll finish in the end of Q3 2022 and again really excellent location. We have, and I will tell you the design work I've seen is fabulous and I think we'll do extremely well there.The next one would be 900 Albert. 900 Albert is a very large opportunity for us. Again, we're just, we're a partner in that. We've got great partners there too. So 900 Albert, we're going to be putting up approximately 1,241suites plus some commercial space. We are looking at the whole project. We want to make sure that we get the most of this opportunity. It is right at the T of the LRT here in Ottawa, fabulous site, very excited about it. But we are working through what we are really want to be mindful to make sure that we get the most of this opportunity.The third project is again in Ottawa, and it's Richmond and Churchill. And Richmond Churchill, there is 184 suites we'll be putting in. We are hopeful to be starting that in Q1 2022. Now I just want to point out, these are all premium locations in Ottawa. So I think at the end of the day, location, location, location always wins the day. And we will be mindful of try -- making sure we don't kick off too many properties at any one time. But we know that these are great, great opportunities. So though we said, we think there might be a little bit of a lag in the occupancy in Ottawa, I don't see that is prolonged. And by the time we get through these buildings, we'll be in great shape here in Ottawa. So we're very, very confident about where we're going here. And the last one that we've got is that Fairview in Burlington and that's a JV too and that property was should consist of over 2,000 apartments and condos. We hope to start that in the first half of 2022, again, fabulous site, really feel very bullish about it. We're working through the city and the city has been great so far to deal with. We're really excited about that opportunity. And we see really good things coming there in that area. So saying that I guess, I just want to sum up that we're really sticking to our core strategy all the way. And I think we're going to see some really good success here at the end of this year.So I'm going to pass this over to Brad now. Thank you.
Thanks, Mike, and good morning, everyone, from my side as well. I'll take you through the operations update for Q1 before I hand it over to Curt to talk through our financial position. I'm going to start with occupancy because I know that's the topic on everybody's mind. And then, in March, we're seeing on an occupancy of 91.3% to the overall portfolio and 92.1% for the same property portfolio. As Mike mentioned, we're pleased to see that the overall occupancy has stabilized for year-end. As we discussed during our Q4 call, we have seen in occupancy hit hardest in our urban core properties in Ottawa and Montreal, which typically have a higher proportion of students coupled with young professionals, many of whom have moved back in with their parents. We continue to view the occupancy pressure as temporary. And for some of the reasons outlined earlier around the vaccine -- vaccination rollout and current announcements regarding universities reopening plans.We're optimistic about seeing an uptick in occupancy for these properties in Q3 and more meaningfully into Q4. Also our contactless rental process and virtual properties seem to be gaining traction. Our email leads were up 18% in Q1 versus same period last year and the numbers for April saw even bigger jump by more than 100%. Web traffic also is on the rise, 49% in the quarter and up 61% in April. After approval conversion holding steady in around the 80% range. So we'll find all this to be very encouraging to the source of future leasing demand. As you know, we have an extensive repositioning program, which means that our occupancy is likely never going to hit 98%. But we're hopeful that we can gradually return to more normalized run rate in around the 97% target that we -- that become accustomed too over the course of 2022. On the rent side of things, we're seeing a strategy to prioritize price of our occupancy bear fruit. We are pleased to report an average rent in March of 1,325 per suite, which is up 4.3% from 1,270 last March. This results even barely when looking at our same property portfolio, where March average rent came in that 1,328 showing growth of 4.6% over last year. On the external growth front, we've added 1,242 suites to our portfolio since Q1 2020. As usual, these units initially came into a non-reposition portfolio and expected to contribute to driving our organic growth in the years to come, as we work through repositioning upgrades.Overall these results have contributed to reporting operating revenues of $43.1 million for the quarter, a 9.4% increase over Q1 2020. Moving to NOI, in Q1, we generated $26.5 million NOI on overall portfolio, leading the growth of 7.2% over Q1 2020, mainly on the back of external growth and average rent per suite improvements that I've just outlined. For the same property portfolio, however, NOI growth was minus 1.8% for the quarter, as occupancy pressure we highlighted continued to outweigh strong underlying rental growth. This resulted in slight NOI margin dip on the same property portfolio from 62.8% in Q1 2020 to 62.5% for the first quarter of 2021.For your reference so, normalizing the occupancy to the same level last year, our same-property NOI growth would have been 6.5% and our NOI margin would have been 64.3%. NOI margin for the overall portfolio stood at 61.5% in Q1 2021, reflecting the lower operational efficiencies in recent acquisitions and a non-reposition portfolio. We believe this part of our portfolio offers significant opportunity for the REIT to execute on its value add strategy in the years to come.Let me now turn things over to Curt to share our financial update.
Thanks, Brad, and good morning, everyone. Mike and Brad have done a lot of the heavy lifting providing color on our Q1 results. So I'll jump straight to FFO. We are reporting FFO of $16.2 million for the quarter, nearly 12% increase over Q1 last year. On a weighted average unit diluted basis, FFO was $0.114, down marginally from $0.115 in Q1 2020. As Brad mentioned earlier, the increased vacancy in rebates impacted our NOI and therefore FFO. Normalizing this to the same level as Q1 2020, our FFO per unit growth would have been 13.9% year-over-year for Q1. Our distribution for Q1 2020 was $0.814 and represents a 71% FFO payout ratio and an 80% AFFO payout ratio. Relative to Q1 2020, the REIT has increased its distribution 5% quarter-over-quarter, demonstrating our objective to provide unitholders stable and growing distributions as well as our steadfast confidence in the REIT's outlook, despite some short-term challenges. During the quarter, we spent $174.2 million on acquisitions and invested $15.6 million into the standing portfolio, mainly for value enhancing initiatives. For the first quarter of 2021, we recorded a fair value gain on our investment properties of $97.6 million, driven by the NOI improvements in our same-store portfolio and a 10 basis point of cap rate compression relative to Q4, leading to a weighted average portfolio cap rate of 4.06% for Q1 of 2021. Given the current market conditions and in discussions with our external advisors, we expect further cap rate compression in Q2.The REIT is in a very healthy financial situation. Our debt to GBV at March 31 was a comfortable 32.7%, up slightly from 31.1% we've reported in December, following an increase in our mortgage debt from our Vancouver acquisition. At March 31, the REIT had mortgages of $1.1 billion at an average term to maturity of 4.7 years and a weighted average interest rate of 2.47%, reflecting a 9 basis point reduction from year-end. 73% of insurance mortgages are insured by CMHC, which provides for favorable interest rates given the reduction in refinancing risk for lenders.At the end of Q1 2021, the REIT had $285 million of available liquidity, which along with its current debt to GBV ratio of 32.7% offers ample headroom to finance future capital programs, development opportunities and acquisitions. In closing, I would also like to thank, Sandy, and welcome her to our team. I'm sure many of you will get to know her in the coming months, if you do not know her already. At this point, I'd like to pass it back over to Mike to say a few closing words.
Thank you, Curt. Though we're not really happy with our results to date, we understand obviously these are challenging times. Our team has responded incredibly well. I have to tell you that now that some of them are getting their shots, I can just see that they're are really starting to get bolstered. And I really believe that we're going to achieve some really great results as we go forward. We're really looking forward to getting back on track. We will be back on track. I can see great things coming forward. Thank you.
Thanks, Mike. I will now hand it back to the operator to open the floor to your questions.
[Operator Instructions] Your first question comes from the line of Jonathan Kelcher from TD Securities.
First question is I guess just on Ottawa. Like you've talked about it being maybe a little bit slower than other markets. But there is going to be the positive impact of students coming back there. How much of your portfolio would you say will benefit from students coming back versus be a little bit slower from a slower return with the government?
Yes. There is -- we've got a chunk of properties or the downtown core and then Sandy Hill, that will suffer now. We are seeing leasing activity right now. I'm just mean -- and just being cautionary about Ottawa. I do see that it's going to improve, but I just would we rather think that it's going to be -- I don't want people to put it's going to bake in like the other markets where I at least I feel the other markets look like a little bit more positive I guess traffic right now.
So like faster growth in the other markets and then Ottawa trailing by a quarter or 2 is kind of?
I am hoping not. I just don't want, I know what I'd rather under promise, hopefully you're right and we'll hopefully we'll over-deliver. We just don't know. We don't know enough of what's going on like we're all seeing what's going on here with vaccinations and everybody's mindset changing. I can tell you, I have 2 of my kids as I said before, we'll be moving out and they'll be moving into the downtown core. And I know that and that's pretty and it's pretty -- a lot of their friends are and a lot of like I think people are getting more and more positive. So I just -- the only thing as I do worry a little bit, Ottawa is not like I don't want to pain, Ottawa is only a government town, it's really diversified. But I do -- I am a little concerned with that part of the workforce that they may not come back as quickly as some other segments, that's all.
And just add to that, we have a little heightened vacancy going in Jonathan into Q4, Q1, as you know in the National Capital Region. And one of the reasons and you've seen us a lot in the media is Ottawa's housing market has performed quite well. So that we did lose some to homeownership and that's had a little more of a prevalent factor I would say more so in Ottawa than or other core regions.
And if we look at, you said you're going to start 473 Albert hopefully in Q3. Do you have an estimated cost for that development?
We haven't put that out there yet. We know that like we've done all of our work on it, it will be very accretive for us. It's something that we'll be mindful of putting out potentially next Q.
And then, just generally speaking on your development program. And I guess also your repositioning program. How impacted do you think you'll be from construction cost inflation?
It's something that we've got to be very mindful of, there is no question, we've got to be careful with that and it's something that we'll be watching as we go forward on some of these new projects that we're looking at doing. So some of them are not going to hit until I think as I said, it will be into 2022. I have heard chatter that they think costs will come down once the supply chain comes back to a little bit normalized. I mean nobody knows for sure, we'll have to see that as a big. So it mean if anything looks like it's off side, like the cheapest time to own a property and development site is when you have put a shovel in the ground, right? So we know they're all -- we know they're all premium locations, not concerned about it. So we have to hold off a little bit, we'll hold off.
Your next question comes from the line of Mike Markidis from Desjardins.
Four questions from my end. Just first, congrats first of all on stabilizing occupancy, it's great to see. I was wondering if you just chat or give us your comments on how your traffic changed in 1Q versus the prior several quarters and the extent we're a little more aggressive on incentives in 1Q versus the others?
Maybe I'll start, Brad will jump in I'm sure. What, it's a really imperfect. It's really more art than science to an extent. Though we have tried to make it a lot more science based on what we're doing. It's -- we're just really watching and I'll tell you it's almost like a bit of a push and pull. We are seeing the traffic increasing. I'd like to think it's because of our -- and I want to give full kudos to our marketing team. Our marketing team has done really amazing. They've really stepped it up over this whole process. So I'd like to think that they're doing a great job in identifying who our key customers are and spending appropriately. Well, again it just looks like things are, I guess more positive. People are getting in a lot better frame of mind. I'll tell you, I think we've improved a lot in our whole digital approach. That's one thing that kind of brought us forward about 5 years, probably me about 10. And -- but anyways, I think that we've done some really good improvements as the company, so we're benefiting from that. And you got to remember, last year, when we got about end of February man, like it was just off like went to zero our traffic. And we went into that way, all the way through spring. So I think people are feeling more confident and almost unfortunately live like a bit of a normal is, the life we're living right now.
Mike, the only thing I'd add just I think the world is to Mike's point is getting more encouraging about vaccinations. So I think the fact that schools are out there saying that, they want to be back on campus in class learning and back to Mike anecdotally just in his own home, seems some of his own kids wanted to move out and have some of that kind of year, 1 year, 2 experience in university. I think there is a lot of positive optimism that things will be back to somewhat normal. We're not banking on it, but as somewhat normal and I think that's leading to increased electronic traffic.
And as far as the rebates, they're up just slightly. Some things are up just slightly over the Q1.
The Vancouver portfolio elevated vacancy there as you had telegraphed, just with respect to the in-suite work that you plan on executing there. Is this a lot of heavy lifting, is it more of a light touch and just wondering how that might impact your CapEx spend in the next couple of quarters?
I'm going to start. I'm going to Dave Nevins is here too, our Chief Operating Officer. Dave's has been out to Vancouver numerous times and so Dave, do you want to say a couple of comments, please.
Yes, I would say, for Vancouver, I know, it's probably a variety, because we've inherited some good properties from the previous owner. So we have a lot of good product to work with. But we do have several units that we are repositioning in order to achieve top rank in the area. So we've been working hard at that for the last couple of months.
Yes. Dave has been out there -- I've been out there 2 times for very extended stays, but Dave has been out there about 5 times, 4 to 5 times now. So it's, but it's, we're really, really happy with our portfolio. We think we got it at a great time. So we're really happy with that transaction.
And then, last thing for me before I turn it back. Just on, you gave me, so it's not a precise science, as you say. But you've been some pretty good color in terms of how you expect occupancy to trend over the next, call it 3 to 4 quarters. Do you think the AMR growth picks up in lockstep with that or will it be a little bit more delayed before you get back to sort of that normal annualized space that you are at?
It will be a little bit of a delay. But I mean it will -- and again, I want every -- I want to make sure it was crystal clear. I don't expect there to be much change here in Q2. It's really like in the last I think once we get to September of this year, that's when I think we'll really see a change. So I don't want anyone to be baking in anything for the next really quarter or 2, right? It's -- I want to be very clear to everybody in the market. But we do see we're going to get some growth. Yes, we feel actually very strong of where the market will be going.
Your next question comes from the line of Brad Sturges from Raymond James.
In terms of the commentary about looking at some, a small amount of asset sales, can you provide a little extra color in terms of what the quantum of that program might look like this year? And is it just simply exiting some of the smaller markets or would you include some assets in your larger target markets?
It might be a little bit of a mixed bag. We're kind of going over it right now. I just didn't want anyone to be surprised to be frank with it. We've got some smaller properties in some of our core markets. We just think and might not be a bad time to transact on them. It just be a lot more efficient for us. We also have, I'll tell you some non-core markets, sort of, and I'll give specifically Trenton and Elmer really performing extremely well. Trenton is especially, I'll give Trenton, not just because I was born in Trenton, but these guys are laughing here, but anyways, Trenton has done really, really well like incredibly well. We've been talking about disposing of that asset about last 2, 3 years and anyways, it's done amazing.
In terms of the cap rate compression, you're seeing or expecting to see, can you provide a little bit of context of in terms of what your expectations are there? And how that may relate to future IFRS value gains that you could recorded over the next few quarters?
I think like in our discussions, we've always been really conservative with our F&B model, with our cap rates. In our discussions with what we, with our external appraisers and also just what we've seen in the market being active on the acquisition front. Realistically, we could probably see another 10 basis points of cap rate compression, which, if you do the math and what's disclosed in the financials, probably brings in over $80 million of F&B gain just from that regardless of what happens on the NOI improvement front.
Last question would be on JVs. You mentioned that you could be looking to enter into at least another one. Is that a function of looking at additional new markets or just portfolio size in terms of what you're looking at per acquisition or what will be the driver of looking at another JV?
I'm going to be crystal clear, we're not looking at any other markets right now. We're sticking to these markets. We think they're really, really strong markets. And when we get out of this still and there'll be really we think we'll see some very good growth for everybody. It's really, sometimes, it could be portfolio size, it could be, there could be different matters of how you go about it. But we just think it's really favorable and we've been -- to this date, we've been very, we're not even, we're extremely happy with the way it's worked out.
Your next question comes from the line of Joanne Chen from BMO Capital Markets.
Just maybe just on the fair value in the cap rate compression this quarter. Could you maybe comment on specifically whether it's driven by any particular markets or a bit more granularity would be great.
Yes. It's -- it was pretty even to be honest with you, Joanne. It may be a little higher in the GTA market and may be trend down a little bit towards some of the other markets. But it wasn't like it was driven by only one market in particular. We've been pretty active on the acquisition front. There has been lots of deal flow in just about every market we operate in. So it's -- we see these cap rates is still being like I said earlier, still being pretty conservative, given the deal flow that's happening in the private side.
And maybe just on that, then, on the acquisitions front. With the kind of focus in terms of your target right now be on kind smaller off-market deals or would you be interested in and some of the larger portfolio sales that are being marketed right now?
We've looked at all of them to be frank with you. We look at everything that comes through. Quite frankly, we even do work up on markets that we're not in right now. So future touch points for going forward. I mean you got to look at each one and you'll take a look at the merits of each individual property that gets marketed. We also look, again off market deals. We spent a lot of time on that too. And we tend to, those are usually tend to be easier transactions than fully marketed deals to be frank with you. There's a lot less brain power it'll gets lost on that stuff, but anyways I hope that answers your question?
Sure. I know, there's a lot going on out there right now. But I guess maybe just one more question on the occupancy front, not control too much into it. But given that we're still kind of in this weird phase right now in Q2. Could it be potentially be willing to let occupancy slip a little bit in the anticipation that really in Q3 later into Q3 and Q4 that will come back quite strong and just kind of keep holding market rents right?
We're going to keep watching it to be frank with you like we are, we've been pretty mindful of how far we want to take it down. And again we'd like, we don't want to sacrifice too much in the short term. But like it's really like you got to look, we're looking at it. I won't even tell you it's a day-to-day and everybody knows in this room. I probably look at our rental report probably every hour of less. And -- but, so I, we're watching it really careful, because it's really, really important and everybody watches it. I know and like Dave, Dave has been very on top of it and his whole team has done a great job in balancing the whole, how much do we let it slip. And again, we feel very positive for the like as we get into September. But nobody has that crystal ball, right? We always, we did, but we do believe we're in a good spot right now.
What I would add this is why we want to expectation for Q2. You've got and appreciate the fact that we're still on this third lockdown, but all indications prior to the lockdown were very encouraging, Joanne. So we're trying to manage that. We don't have a lot of clarity because there has been the lockdown. And we think a lot of people has deferred their purchasing decisions to a later date. But we're also very encouraged given what we've seen pre this latest lockdown and what we've seen churn it that all indication leads to a strong back half and most likely going to be stronger as we get into the fall.
And the immigration really numbers too were to also quite for free, hopefully that will continue. Maybe just on a broader bigger picture question. On the regulatory side of things, like you said, no one, obviously has a crystal ball and obviously anything not predictable to date. But I guess just what is your thinking in terms of right now with respect to, I guess the potential for the extension of any free restrictions into 2022 right now?
We have heard no indication of that at all. And we're really hopeful that things again will turn back to normal once we get the vaccinations. And as we see everything kind of get back to normal as we get into September and you get kids going back to school, all those good things. So I think, I mean, we're hoping that, mean this whatever we want to call it the 5 alarm that we've got going on is going to come down significantly.
I would add to it. I think, and I'm looking at Mike and Dave when I say this. But I think this year was the first time ever that there wasn't a rent increase imposed by the Ontario government since rent control then. So I have showed you what a norm that is, right?
Your next question comes from the line of Mario Saric from Scotiabank.
Just a couple of questions on my end. First off, maybe delving into the same-property occupancy expense decline of 40 basis points year-over-year this quarter. Can you provide a bit of color in terms of what drove and the 6% decline in property operating costs year-over-year. How sustainable in this environment do you think that type of year-over-year same-property operating expenses over the next couple of quarters?
I mean it's not going to be easy obviously, like we're I mean, we're -- we keep looking. We're trying to get as efficient as we can. We're looking at every little area that we can to try to, I guess be as efficient as we can all the way through and even our procure -- like everything, our procurement is going for. It's been going on for a long time. Do I think it can go on forever to keep coming down? No, you're going to get to a point where it's going to stop. But we are happy with our improvement. And we also, I would also potentially and I'd have to go back and read through the numbers. We might have a little bit of elevation from our initial PPE, but in the start of the year too, right? And we will. I mean, and there are some things that we will be seeing too that I'm little, as we look forward, there could be some wage pressures as until the government kind of start slowing down the programs and also little mindful of again insurance, potential pressures, because it seems like every time there is anything that goes on the insurance company loves to pass on. This is the reason why we can increase our rates, no matter what happens and it's across the board, even if it's not really, it doesn't really affect themselves.
Just I guess, the [ genesis beyond the ] question. If I look at your year-over-year same-property expenses Q2 they're up 2.8% and Q3 up 4.6%, Q4 up 6.3%. So the negatives are 0.4 the marked, deviation from that I'm just kind of curious in terms of whether you're back to those types of year-over-year increases?
I'm hoping not again, Mario. Again, I think a lot of it was attributed to the -- like we had some temporary wage increases too last year. I don't expect you to see, I mean, if anything, it may be just flat or something like that. But and we're really watching everything. And again like we had a pretty heavy duty PPE costs, right, like it was pretty crazy to be frank with you, trying to keep all our residents feel and safe and secure along the way, like it was, it was a big expense for not just us all of our peers. They all went through.
It's Curt here. There's a lot of moving parts in that between the PPE, between the -- some of the credits we were giving for the rental, where we were a self-imposed sort of credit cycle, we had gone through helping our tenants out. So we had pushed some of that through the OpEx back in Qs, Q3 and 4 also. Then, there is offsets going the other way. We all know that there's a lot of utility costs are going up and insurance costs are going up. So overall, I think, we can actually probably do a little bit better than we did last year, just because last year had some anomalies. But there'll be some competing pressures between those items I mentioned. And also as we continue to invest in technology and our CRM platforms and other platforms, some of that will flow through. So I would expect it to not get any worse than last year, continue to improve a little bit, but I wouldn't expect a significant delta there.
And maybe Curt, sticking with you just on the IFRS cap rate. One clarification, of the 10 basis point decline quarter-over-quarter, how much of it would have related to the Q1 acquisitions?
None of that and none of that would have related to the Q1 acquisitions. In our, in the Q, in the first quarter, where we acquired a property. We don't fair value it during that quarter. We bring it in at the transacted price, because at that point in time, that feels like the proper fair market value, you just transacted on it. And then, once we get a little more knowledge around what we can do with the rents and other pieces of the CapEx and stuff, it's going to go into it fully. Once we get into the second quarter of owning it, that's when we run it through our F&B model. So none of that change would have been a result of Vancouver in Q1.
So the 4.06% disclosed excludes the Vancouver purchase cap rate?
Correct.
And then, just maybe on some of the acquisitions during the quarter, specifically on -- and price per doors were a bit higher than what we typically see. Presumably that's buying newer product with what's the investment thesis for those 3 assets?
Really like triple premium location we feel. The 2 in outfield like to be frank with you and probably the 2 and the best buildings that we purchased as far as like minimal CapEx going forward in the future. Really just love this and loved the location, and location is amazing. So when we baked in our whole thesis, this made a lot of sense. And the Mississauga one, again a great location, near go train. And again if you mean, even though, we believe and what we've seen out there like we think that we're going to see more potentially more cap-rate compression. And a lot of people and not just us feel that we're going to see much better times as we get through the end of this so as far as rentals go.
So rather than repositioning is the game plan here is the expectation of above average rent growth from these products where you've got a constraint thesis?
Yes, we will get, yes, 100%.
And then my next question.
May I just provide a little more color on that. Like, we've said this before that often our properties require heavy lifting on the repositioning. But we have in certain times in the past found properties that are well maintained. But just maybe the marketing corridor, landscaping and the way it's sold, is not sort of representative of what you could do in the market and you can get pretty significant lift sometimes just out of those areas.
Just maybe on the repositioning. And Curt, the number of written non-reposition suites fell 180 suite quarter-over-quarter, despite the addition of 728 suites the acquisition during the quarter. So net-net, that suggests that the repositioning portfolio felled 908 suites during the quarter. I know that the classification of these suite is more based on when you bought this suite as opposed to the full completion of the repositioning initiatives. So can you maybe bit provide a bit more color in terms of those 900 odd suite that dropped out reposition in Q1? What contribution of NOI was coming from those suites relative to your expectation fully stabilized NOI? Like are you done with the repositioning in those assets or it just simply because you bought them 3 to 4 years ago, now that they've been repositioned or reclassified?
Yes. I don't have the specific numbers just for those exact suites in front of me. But I can say that typically knowing what's in there. Generally, there's still more upside coming out of that. It takes, we market through that cycle at the 4-year mark. But in this environment with especially with one you're being COVID and reduced turnover, I guess in some assets, you're not going to get through the full extent of the repositioning, when your construction is done. You still going to go through a few months on that one. And a few months of sort of marketing and sales work in a few cycles of that, because once you finish the CapEx work all the program that you're rolling out, you're still looking, if you're doing 25% to 30% turnover, you're still looking at 2 to 3 more years before you get through all that.
Yes. And now couple of properties specifically, Mario and other still upside in those thing, it's just the timing issue as far as that.
My last question to be a disclosure change kind of combining the GTA with Hamilton this quarter. I'm just curious in terms of what drove the decision to kind of change in the characterization and that can you clarify whether it's in Catherine's is in other Ontario in the GTA bucket?
I think GTA is taking over all of Ontario, it seems when you drive through it. Curt, you want to answer that?
Yes, sure, I can do it. So I mean the change with a couple of things. One is as we've continue to expand into other markets like those, a lot of those regions existed prior to us going even to Montreal. Now that, we're into Vancouver, you were getting sort of a bit of a disconnect between the sizes of some of the markets and others. So we felt like sort of grouping them into our 3 core areas and then other provided a little more clarity around that. Two is, it allows us to do a little bit analysis in regards to these versus CMHC, because these now tied into the CMAs from CMHC. So it allows us to a better comparison on that basis, on an overall for the different regions. And then, three, it just quite frankly provides a better comparison with many of our peer group. So we try to align that to give people an easier time to see how that stacks up.
And then, St. Catherine would be other Ontario or GTA?
St. Catherine be other Ontario, yes. Sorry, no, I apologize Mario. No, St. Catherine is included with the Greater Toronto and Hamilton area.
Your next question comes the line of Matt Logan from RBC Capital Markets.
Just following up in terms of your acquisition capacity. Could you talk a little bit about, how high you'd be comfortable taking up your debt to gross book value ratio? And if you would consider issuing equity for potential transactions at the current enterprise?
No, right now, we're not looking at that at all. But we are looking at, like we don't have a problem of bringing up our debt a bit. We've built ourselves for these times, to be frank with you. I think we've done really well in our transactions along the way. We are trying to be, we'll always be mindful of keeping our debt in a controllable level. But if we hit the -- if we saw something that was pretty exciting that we could create some value for our shareholders, and if we hit like the low '40s, may be 40. I mean it wouldn't be the end of the world. And then, knowing that we could probably grow out of it over a few quarters too. So we would probably, we'd probably do that. So anyways, we're, again, we're looking for to grow, but we're not going to grow just for the sake of growing.
So up to the low 40% range and if there is a bigger deal than perhaps that's where you bring in a JV partner?
And we're going to balance at all. It's not like that's not where we're ideally going to, you know what I mean? But it's something that we wouldn't be too concerned about going there. If we saw, we could create value along the way. I mean, and if we saw it's something that was an exciting transaction, we've always been very careful of keeping our debt down. We've de-levered as you know over the years, quite a lot to be quite frank with you. And what we always wanted to do it, just because we're always concerned about potential storms and the horizon. And we never called this storm that's for sure. Nobody called the COVID when coming at us. But in the short term, I think, we'd definitely, we would look at doing it.
Makes total sense to me. And when we changed gears I think about your total CapEx spending for 2021. Could you give us a sense for a general range, including maintenance CapEx as well as the value add spend.
You're asking about the CapEx, you're asking what the CapEx for 2021, Matt? Yes. The first Q was down a little bit and some of that just has to do with some of the work you'd often do whether it's carpets or hall paintings and stuff like that, given everything going on with the lockdown sort of got delayed a little bit. So I think we were about 200 Q for the per door in Q1, we were about 249 last year. And my expectation for the year will probably have us in around the 925 mark.
And if we include the value add CapEx that would be?
Total CapEx probably looks to be around $70 million in totality, which it would include that, yes, for Q2 through Q4.
And last one for me, just in terms of your outlook. You gave some good color on the various markets and how you expect they'll perform. Do you have a general sense for the occupancy and how that might trend for the overall portfolio, say by year-end and mid-2021 or 2022, excuse me.
Could you just repeat that quick, sorry, I apologize.
Just trying to roll up your occupancy guidance for the whole portfolio. Just wondering if you could give us a sense for where we could be at year-end and the middle of next year?
Can't really predict year-end. I'm hopeful where we're going to be. We've always guided, we are going to be between 3% and 4%, that's really what we've been always been looking at, because we never wanted to be, I guess as you say fully baked as far as our occupancy we'd like to keep we'd like to keep pushing and creating value for our shareholders and our stakeholders. So I'm hopeful that we will be there again next year, that would be our hope and I believe we will be. I feel very strongly about it. I think that general mood out there I think is that we're all very restless feel under these lockdown conditions. I think people are getting more and more positive and they see again, as I said will be the light under the door. And I think at some point the door is going to get opened. And I think you're going to see, honestly I think it's going to be incredible times in our entire industry for us. That's just my take on it.
So the 3% to 4% was that vacancy Mike?
3% or 4% vacancy. Sorry, if I wasn't clear, I apologize.
Yes. So basically, we're at 8.7 today and maybe by the middle of next year, we get back down to normalized level of 3% to 4%?
Yes, I think you're going to see more rent growth too.
And Matt just so we're clear to that. I mean that's what we have in our MD&A and we've sort of said to people that's what we sort of look. We had on a re-positioned property basis, that's where we look to be, but we do not provide guidance on that number. Sorry, I just want to provide clarity before we jump back. Mario's question earlier about St. Catharine, apologize Mario. It's actually in Other Ontario. If you look at Page 31, 32 of the MD&A, given that we changed how we group properties this Q, we added some additional disclosure in the MD&A. So you can actually see specifically which properties which suites make up each of the regions.
There are no further questions. I turn the call back for closing comments.
I would just like to say thank you to everybody for joining us today. I appreciate that. I appreciate all the analysts. I know it's been a very tough time for yourselves. I think you're going to see some, again, I hope we are very clear what we said. What we see in our horizon to get things are changing on a daily and hourly basis. But we feel very strongly that our program that we've talked about and debated a lot about last, from I guess right from the pandemic started is the right program to stick to and I think we'll see the fruits of our labor for everybody.And I want to say thank you again really to our team, to Dave's team. Dave's team has done a tremendous job. Brad has worked extremely hard the last while. We've driven him off his feet and so as Curt and the whole financial team has done amazing during this whole time.I can cover every, every end of our side of our business. I feel extremely proud and very humbled to be a part of this team. Thank you. Thank you, everybody. I appreciate. Hope everybody has a fantastic day. Look forward to great times coming forward.
That concludes today's conference call. You may now disconnect.