InterRent Real Estate Investment Trust

TSX:IIP.UN

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, and welcome to the InterRent REIT Q2 2021 Financial Results Call. I'll now turn the call over to Sandy Rose, Director of Investor Relations and Sustainability.

[Sandy Rose]

Welcome, everyone, and thank you for joining InterRent REIT's Q2 2021 Earnings Call. You can find the presentation to accompany today's call on the Investor Relations section of our website under Events and Presentations. We're pleased to have Mike McGahan, CEO; Brad Cutsey, President; and Curt Millar, CFO, on the line today. As usual, the team will present some prepared remarks, and then we'll open it up to questions.Before we begin, 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 August 9, 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 measures, including reconciliations to the nearest IFRS measures.Mike, over to you.

[Michael Darryl McGahan, CEO & Trustee]

Thank you, Sandy. I hope everybody is doing very well. Things are much more positive than our last time that we talked. I think everybody is in a much better frame of mind. I can tell you that we are in a very good frame of mind. We see that a lot of the things that we were, I guess, contemplating and discussing over the last few Qs are kind of playing out to an extent, maybe not as rapidly as we'd like. We are seeing with the upward take in the vaccinations and just the opening up of the economy, a lot more positivity out there.Post the Q, we're seeing heavy -- we actually -- we're starting to see it in the end of the last Q, but we're seeing now a heavy traffic and almost getting back to normal and in some cases, in some properties, above normal, which we're really excited about because we know we're not really even just -- we haven't really got the full impact of obviously, immigration, international students like those -- once we get those pieces behind us, boy, there'll be huge tailwinds here.We are happy to see that people are, I guess, kids are leaving their parent's houses and they're back out trying to rent, and they're trying to obviously enjoy personal and social engagement with their friends. You can see that the patios and restaurants and many areas are much busier. Traffic's very busy just in general. So a lot of positivity for where we're at. And so we feel very optimistic about rental growth. We're seeing that, too. So we really -- we're happy with our whole strategy. Our strategy, we think, from the get-go has been -- it's going to work out really well. It's going to work out great for our shareholders. And all of us in the room here, our shareholders, we're all very excited, and we like what the future looks like.I guess, on the -- just going to maybe -- I'll just touch on it quickly. I'll get into it later on. There's a lot of product out there right now, but there's a wall of capital chasing it. So it's very, very competitive. But I think you'll see us continuing to transact. We've been pretty nimble on some stuff. Some stuff has been off market, which we really -- we're really happy to get it.We feel very good about where we're going. We also feel very good about -- in particular, I was a little concerned a little bit about Ottawa and I do see some better take-up coming in Ottawa, really post quarter. Again, not fully -- it's not fully happening, and to the great degree that we like it to come. Still, we don't have the federal government really announcing what they're doing, when they're getting back to work.But I have to say is I don't think everybody realizes, they think that Ottawa is just a government town. We're very lucky. We have a lot of great tech companies, and they're kind of picking up the void. And we've got some great universities and colleges here, which are -- it looks like they're growing, too. So that's all -- it's all been very good news.And in Vancouver, we really -- like we're hitting some really top end rents, and we're very excited about that transaction that we did a couple of Qs ago. And I know some people have asked about, we know this what's going on in the legislation in BC. So it looks like it's going to be a very -- almost the same kind of formula that we have in Ontario with the above guideline increases. It looks like it's going to be also the same formula there. And we are excited, too, in Ontario that they actually announced that we're going to have a guideline increase for 2022 of 1.2%.So we see a lot of good things in the horizon here. And we're happy to say that we believe our trough that we had was in really May, early June, and we're seeing very good -- like very good signs right now. We're not perfect, but we see some really good sunny skies opening up.So at this point, I'm going to pass it over to Brad, and Brad will run through some of the financial pieces with Curt. Thank you.

[Bradley Cutsey, President]

Thanks, Mike and good morning, everyone, from my side as well. We thought it might be helpful for these calls to have a snapshot of our key metrics for the quarter off the top. So that's what you'll find on Slide 7.The top left chart outlines the occupancy trend over the past year for a total portfolio in blue, and our same-property portfolio in green. You'll see that as of June last year, we were already feeling the pandemic-related pressures in the occupancy figures. As with the commentary from our last earnings call, our occupancy has stabilized, and we're confident that it will continue to climb back towards our historical 95%, 96% level as we move into 2022.If you move to the middle left-hand side of the slide, you'll see that external growth in the first half of the year has propelled double-digit revenue and NOI growth figures for our overall portfolio. We're also encouraged to be able to report positive same-store growth figures for Q2 and year-to-date, now that we've seen vacancies start to decline, coupled with continued increase in average monthly rent.The bottom left chart shows that due to the scale effects and cost disciplines, these top line improvements are have flown straight to overall FFO and AFFO, which showed strong year-over-year prints for both the quarter and year-to-date.Moving to the top right of the slide, a quick snapshot of the acquisition track record this year. We are delighted to have closed on the transaction this quarter valued at nearly $134 million, of which our share is $124 million, bringing our Q2 year-to-date totaled to nearly $450 million, or just shy of $293 million at our ownership interest. We have also announced the transaction post quarter for a 94-suite property in Mississauga with a joint venture partner, Crestpoint that offers some great synergies with our recent acquisitions down the road.In the bottom right, you can see that our balance sheet is in great shape, and we continue to have ample liquidity to take advantage of external growth opportunities that may arise. So all in all, we are feeling positive about Q2 and certainly about the quarters ahead.Turning to Slide 9. We use as a quick reference for our portfolio composition in the core regions. I'd like to point out that over 80% of our NOIs is in our 4 core markets. We're just happy to be in Canada's top-ranked tech talent markets.Turning to Slide 10. We wanted to put our current occupancy levels in context. As you know, we bucket our portfolio into repositioned suites and those which have been acquired after January 1, 2018, where we still have repositioning work to do. As you can see by the black line, we typically carry higher vacancy in the latter category by design, which is why you won't see us at 98% even in normal comers.As you know, we decided early on during COVID, not to buy occupancy. And we continue to believe that was the right decision. All segments and regions of our portfolio have seen steady increases in average rents. We also hope that this chart helps to illustrate the opportunity in a nonrepositioned portfolio as we continue to execute on our CapEx plans. We continue to see a gap to market at least 20% across our portfolio. And going back to some of Mike's commentary at the start of the call, we'd also expect to see market rents grow from here.On that note, let me turn it back to Mike to walk through our capital spend.

[Michael Darryl McGahan, CEO & Trustee]

Thank you, Brad. Right now is -- you can see I'm on Slide, I believe it's 14. I'm just talking about the -- our CapEx in our whole repositioning program. And as you can see, we have not stopped our repositioning program and we still got quite a number of suites that were in the process. We keep adding to the amount that we're doing. We see a lot of -- again, the take-up in the rentals and the potential rental growth, we think is great. And so we have not slowed down that whole -- the whole CapEx repositioning program.You can see that we bought a number of buildings. Very happy about where we've been adding to. Great. Again, we'll just keep adding to the same areas that we've been focused on. In Vancouver, just a couple of tuck-ins, same with St. Catharines. St. Catharines has been great for us. We've had a couple of properties we've had there for a while that have really seen some really nice uptake. Happy to buy in Oakville, Mississauga. We also had -- I guess, further small JV with Crestpoint in Mississauga. That was -- as we we're both chasing the same property, and we found out and we said we might all just work together. Very happy with our relationship there with Kevin and Elliott and the team. And -- but as we go forward, you can see that we'll still continue to be active. But there's a lot of -- again, a lot of capital chasing and really you got to be very nimble.On the development side, we just started. We're just in the process of starting here at our office refit to multifamily. Really like where we're going on that. I think we're going to see some good results there. And as we've talked about from previously, we're in the midst, and we keep pushing through on the 900 Albert, Richmond & Churchill, our Burlington Lands.And we also -- and I just wanted -- I want to be -- and I know the people that have traveled with us before. We have a number of sites that we have future densification prospects, and you may start seeing some of those coming as we complete or getting -- get through some of these other ones that we've been working on for a while.So lots of good prospects for as far as the development side and acquisition side, again, driven by really just deploying our capital property -- properly. And again, we'll -- even though we are doing development, we'll always be, I guess, really true to ourselves. We've always been a value add creator, and we'll continue on doing that.So again, I see some very, very good signs, but it is a competitive market. And I think you're also seeing that in some of the -- on the private market transactions out there that are -- I don't think they've been fully baked into not only our -- the values, but any of our peers to be frank. But it's very competitive out there, but again, we have long-standing relationships. And I think we're on the ground, and we know how to see value and create value.So at this point, I'm going to pass it over to Curt, and Curt is going to talk about the balance sheet.

[Curt Millar, Chief Financial Officer]

Thanks, Mike, and good morning, everyone. As we all know, our investment properties make up the bulk of the value on the balance sheet, not only for us but for most real estate companies.On Slide 19, we've provided some more color regarding our weighted average cap rate by region for our investment properties. For the second quarter of 2021, we recorded a fair value gain of $59.5 million, driven by the NOI improvement in our same-property portfolio and further cap rate compression. Overall, the cap rate has decreased 8 basis points from Q1. This reduction is a combination of including the Vancouver portfolio in the model as well as a 3 basis point reduction in our cap rate overall across the other 4 regions relative to Q1.We currently sit at a weighted average portfolio cap rate of 3.98%. And given the current market environment and discussion with our external advisers, we believe there may be further cap rate compression in the back half of the year.On Slide 20, you can see that the REIT is in a very healthy financial position. Our debt to GBV on the 30th of June was up slightly to 34.4%, owing to an increase in our mortgage debt following our Q2 acquisitions. At the end of the quarter, the REIT had mortgages of $1.2 billion at an average term to maturity of 3.7 years and a weighted average interest rate of 2.41%, reflecting a further 6 basis point reduction in the interest rate from Q1. 2/3 of our mortgages are CMHC-insured, which provides favorable interest rates given the reduction in financing risk for lenders.At June 30, the REIT had approximately $260 million of available liquidity, which, along with its current debt-to-GBV ratio of 34.4%, offers ample runway to finance future capital requirements.Before I turn things back over to Mike to wrap up, we wanted to highlight some of the work we've been doing on the ESG side of things. The main thing to take away from Slide 22 is that we are approaching sustainability with the same long-term lens that we apply to everything we do. The slide shows some initiatives that bore fruit in Q2. It is important to note that many of these have been worked on for over a year or 2 now. We understand that in order to provide real sustained value, our initiatives need to be well thought out and woven into the fabric of our company. We'll have more to say during our Q3 earnings call alongside with the release of our dedicated sustainability report.So I'll leave it there for today. Mike, back to you for a few closing words.

[Michael Darryl McGahan, CEO & Trustee]

Thanks, Curt. I appreciate your input. As everybody knows, I just already figured out that when we do these, I don't like to have a script. I kind of talk off the top of my head, and I'll try to keep it short because I know that in some cases, I go on too long.So first off, really happy with our team. Our team has done really great, great things, and they're all getting back -- really back to normality, which is terrific, but I appreciate all the work that they've done, especially the people out in the field. They keep the company going and looking for all of our very valued residents and our shareholders. They've just been -- they've been fabulous.I think now as we're all pretty happy where things are heading again, we have -- we're not going to say that we're really satisfied with this Q because we're far of from where we'd like to be. But what we do is there's some very encouraging signs going forward and not so much in the -- we obviously, we'll see some good uptake here in 2021, we believe in the back half, but we really look at what's coming in 2022.And just with the immigration, international students and -- we think we're going to just be in amazing shape, great tailwinds for not only us but a lot of like multifamily and in general for the next couple of years. And we also know that as we've gone through this, we've learned a lot. And we've broadened our team. We've got a much deeper team along the way. We've embraced technology. And not all of it is even fully deployed yet, and that we've been spending a lot of time. And so I can just see some of the items that we're working on, on the analytics side, and some of the customer relationship software that we have, like we just think we're really going to put ourselves on an amazing position as on a go-forward basis. We also know that we've been very disciplined. We've kept our balance sheet nice and clean, that we're lowly levered, that we're really very, very great position as we go forward. You'll see us continually to transact, but we'll be mindful of what we do, and we'll always try to look to see how we can deploy our capital the best.So again, we really appreciate the analyst community, and our Board, and our shareholders, and our valued team, and most of all, our residents to -- all the way through this. And we are -- we do look forward. We see that we have some much better position going forward, and we feel very positive of the future. Again, not super satisfied we're at today, that's for sure. But we just see where things are going and the leasing momentum that we're seeing in the last little bit, we just think it's -- we're out of the trial, so to speak, and when we're starting to climb up and that's a great sign for everybody.So anyways, I will stop at that point. Thank you, everybody. I'm going to open the floor to some questions and we'll do our best to give some answers. So thank you again.

[Operator]

[Operator Instructions] Our first question is from Mike Markidis with Desjardins.

[Michael Markidis, Real Estate Analyst]

Well, thanks very much for the data on the leads. That's very useful, and we obviously see your occupancy trend Q2 versus Q1. Just curious if the lead -- I'm actually wondering if you could comment on the conversion that you're seeing in July. We see the increase in the leads and how is the conversion progression?

[Michael Darryl McGahan, CEO & Trustee]

Mike, yes. No, the July's leads are -- obviously are higher than what they were in June. We're seeing good conversion. It obviously varies by community, not only of just the city. We're extremely happy about what we're seeing in our conversions right now in Vancouver and Ottawa, to be frank with you.And that kind of funny because if you remember, a couple of, I think it was last quarter and the quarter before, that I was a little more concerned about those 2 areas there. And I said, well, I wasn't really ever concerned about Vancouver to be frank with you. I was just more thinking how to get pushed a little longer down the road, but it's gone very well.

[Bradley Cutsey, President]

Yes, I would just add to that. The only observation I would add to that, Mike just touched on it, is the fact that Montreal, last quarter, really picked up some steam and it continues to do well as we mentioned last quarter. But finally, it seems like Ottawa is now kind of trying to catch up to where Montreal was and whatnot. So it is encouraging, Mike.

[Michael Markidis, Real Estate Analyst]

Okay. Great. Just with the -- with regards to Crestpoint and the 50-50 on the new property in Mississauga. Are you guys exploring vending in, in the existing assets anywhere in the portfolio into further JVs with Crestpoint? Or is it purely going to be on new product going forward?

[Michael Darryl McGahan, CEO & Trustee]

It's, right now, like we haven't had any discussions at all about vending anything in. It's on new product. And we have had discussions about other properties and to be frank with you, we've offered on other properties. But we'll see how that all evolves as we go forward. But no, definitely not vending anything at this moment in time.

[Michael Markidis, Real Estate Analyst]

Okay. Great. And then last one for me before I turn it back, just on 473 Albert. You guys are making good progress there. It sounds like the projected IRR is really healthy. Curious if this is a one-off. Or if you guys are seeing any other opportunities to take down a vacant office building and reconvert to resi in the near term?

[Michael Darryl McGahan, CEO & Trustee]

We have looked at some other ones, and we'll continue to look at anything that we think we can create value [indiscernible] pencils through. I think right now, it's -- I mean, there's such a wall of capital out there, Mike, that we've got to be creative at times and seeing what can we do to, hopefully, maybe outmaneuver or put ourselves in a really good spot that we can create the kind of value that we're used to. So we'll definitely look at that. We'll look at anything to be quite frank with you that makes financial sense.

[Operator]

The next question is from Mark Rothschild with Canaccord.

[Mark Rothschild, MD & Real Estate Analyst]

Clearly, the tone is very positive in regards to values of assets. Are there any thoughts to maybe sell additional partial interest in properties or even to sell outright assets considering how hot the market is? Or is your view on fundamental strengthening more important?

[Michael Darryl McGahan, CEO & Trustee]

Well, I do feel that the fundamentals are going to continue to strengthen. Saying that, we've never been afraid to sell off some assets. So I mean, there could be some assets sold here over the second half of the year. We're going to analyze each one. I don't think I'm far from saying before that we've looked at potentially selling Trenton at one point. We've looked at potentially even Aylmer at one point. I think saying that, they've both done incredibly well during this whole COVID. So I guess, we got a little bit lucky on those aspects.But I mean, we'll always look at -- we'll look at anything. And I don't think that we're -- again, we're always looking to try to drive the best value for our shareholders. So we'll look at all properties as we go forward. So -- but I mean, we do feel very, very positive of where the market is going, and we're going to try to be -- we -- I think you're going to see a couple of pretty good years coming here in the multifamily sector. And saying that we're positive, we're positive coming off a very low spot, too. So I'm not going to say that we're not where we would have been in 2019, but we do see 2022 -- I think, it could be very well could upend the 2019.

[Mark Rothschild, MD & Real Estate Analyst]

Okay. Great. And on the fundamentals, clearly, you sound positive on leasing. To what extent is that based on the return of university students and maybe international students? Or is it more just general trends you're seeing?

[Michael Darryl McGahan, CEO & Trustee]

I think it's university students. I also think it's young professionals moving back out of their parents' places. I think I've mentioned that I've had the same. I'm going to use my own home as a litmus test, so that's happening.And I think it's just -- we have not seen the full brunt of -- I'll tell you right now, immigration, obviously. I think almost all the immigration numbers that we're seeing were already people that were here on the ground, and that's getting baked into the current immigration numbers. And really, we have some international students, but not to the same extent that we've had before. We're hopeful we'll see more and more arrive here at the end of August. But I don't think that's going to be fully baked until 2022. That's just my take. I don't have a crystal ball, but that's just what we're seeing right now.

[Operator]

The next question is from Jonathan Kelcher with TD Securities.

[Jonathan Kelcher, Analyst]

Just going back to Mike's question, or I guess, related. You said in the commentary that you're seeing heavy traffic and some properties were above normal. What regions would you say are strongest for you? Like which regions are above normal, which ones are strongest for you right now?

[Bradley Cutsey, President]

I think Mike alluded to it. I think for this quarter, we're seeing really strong traffic in Vancouver, and we're seeing really strong traffic here in the National Capital Region. I just want to also be clear, though, that said, we're also seeing some robust activity in our 2 other regions as well. So like we've mentioned and at the risk of sounding boring in Q1, all trended pointing to the right direction. But I think a lot of that rental demand is domestic rental demand. For the most part, we are anecdotally seeing some new Canadians coming to Canada, but for the most part, it's been domestic.So one way you can look at that, it's quite encouraging in the sense that we are seeing people wanting to get back to life as normal. No different than people want to get into sporting events and sitting in the stadium. People want to leave their homes with their parents. As much as they love them, they want to start their life. And I think that is playing out. And as that clearly started to come to fruition, I think Montreal had a head start. And they -- I think they are a little ahead of the opening up. So I don't think that should really come as a surprise.So we're really encouraged for 2022, Jonathan, because I think the domestic demand has really driven the increase in traffic. So if you believe in everything you're reading and the government opening up in this last week, it's just really the start of the government really kind of opening up to newcomers. I think 2022 is starting to be set up as a very attractive year from a fundamental perspective.

[Jonathan Kelcher, Analyst]

Okay. And then just, I guess, sticking with 2022 for Ontario, you get the guideline increase. Roughly what percent of your portfolio do you think you'll be able to put that guideline increase through on January 1?

[Michael Darryl McGahan, CEO & Trustee]

It's all like -- I mean to be -- we don't have everybody kind of coming due and it's all -- like it's all through different months of the year. A lot of it is more in the summertime, Jonathan, and that's been done more on -- I guess, we've contemplated always to do that. That's the best time. That's why we see a lot more -- it's a lot more leasing activity in the summertime. So again, it's staggered through the whole year. But do we -- what portion we think we'll be able to put through for the whole year? I would be, I think, 100% to be frank with you, I don't see any pushbacks at all.

[Jonathan Kelcher, Analyst]

Okay. And then just last question for Curt. You guys have your $250 million mortgages mature in the back half of this year. What are your plans on that in terms of short term, how much will be short term? And how much maybe you can put long-term debt on?

[Curt Millar, Chief Financial Officer]

We -- thanks, Jonathan. I mean we look at that continuously. Our plan, as you know, historically has been to stay relatively short on the repositioning portfolio. And then once it's repositioned, we pushed that out into longer term CMHC-insured financing.What we're seeing right now in the market is that there's actually some good competition on the long-term side, and there's people offering product that competes very effectively with CMHC-insured mortgages. Similar rates, you can get longer terms and they'll look at the properties coming in even if you're not fully repositioned yet a little differently.So it's attractive. There's lots of long-term capital out there for this stuff when we are ready to flip it in. And we just keep watching the market and where we're at with our repositioning. We're happy that the rates have come back down a little bit in the last 30, 60 days. But like I said, we keep a close eye on it. And the stuff that is short term doesn't get locked for short term. It's very open to early removal from those pools, so that we can take it and throw it into the long term if we see any movement on rates.

[Operator]

The next question is from Matthew Logan with RBC Capital Markets.

[Matt Logan, Analyst]

Can you guys talk a little bit about -- could you talk a little bit about the rental incentives that are reflected in your cash flow statement, and how that increase in the incentive spurs off with the increase in leasing demand?

[Michael Darryl McGahan, CEO & Trustee]

Yes. So we obviously baked in some rental incentives specific around certain, I guess, property where a lot of those incentives are coming off. Now they've -- and the good thing is they'll burn right off in 2022. And we, again, did not want to get ourselves without the value creation going down the road. So a lot of that is getting muted and going down.

[Matt Logan, Analyst]

And in terms of the improving macro environment, how should we be thinking about that economic vacancy rate over the next 2 or 3 quarters?

[Michael Darryl McGahan, CEO & Trustee]

Sorry, can you repeat that question?

[Matt Logan, Analyst]

Just wondering if you guys have any sense for where the committed occupancy could trend to in September. And we're looking at it on an economic basis, if you have those papers handy.

[Michael Darryl McGahan, CEO & Trustee]

As you know that we never really try to get -- we always try to push our rents. And so we've never tried to really push on the -- I guess, on trying to get fully occupied. It will -- I don't know if we'll get to the levels of, like, say, the 96%. We'll hopefully get to the -- in the 95% or so in that range, maybe -- we'll see, but that might be in the back half in the last quarter.We do think it's going to be extended leasing cycle, and we're really mindful of what kind of the rents we are. We do believe we will be in some really -- like the way things are going and trending, when immigration and international students come fully back, it will be very, very, very positive in the marketplace. So we're being very mindful of watching as far as our lease rates and that stuff as we go forward.

[Matt Logan, Analyst]

And we roll everything up, how should we be thinking about potential same-property NOI growth in the back half of this year?

[Michael Darryl McGahan, CEO & Trustee]

I don't think it's something that we usually like to put out there, firstly. I'm looking around the room. And -- well, I think -- he's going to...

[Bradley Cutsey, President]

I'll answer this way without -- and not to be -- not to try to get too cute. But at the end of the day, you just saw what we posted for same-store revenue growth right now. We do think we're trending in the right direction. So we do believe that's going to get stronger.So if you assume, as we do that, and we continue to convert some of the repositionings and you'll get a better margin, you can see where NOI growth can go up to, right? It's not a rocket science. So I don't want to peg it at it. But we are encouraged that the driver of that top line, and we saw a return to that growth as is, and we believe that will -- we'll continue to improve on that.

[Matt Logan, Analyst]

Maybe I'll approach this a little bit differently and say your comments with respect to 2022 potentially exceeding 2019 levels. Would that imply that same-property NOI growth next year could be well into the double-digit range?

[Bradley Cutsey, President]

I'm not going to say -- I'm not going to answer that well into the double-digit range, but there is a scenario if the foreign new companies are back, and we see the kind of rental pressures that we believe that we're going to see given that there's not enough supply out there, there is definitely potential for high single, double-digit NOI growth.

[Matt Logan, Analyst]

I appreciate the commentary. Maybe just changing gears in terms of your cap rate. You mentioned that the -- there was only a 3 basis point change if we exclude the impact of the Vancouver portfolio. How much of what you're seeing in the private market is baked in? And how much further could that cap rate go over the next couple of quarters?

[Michael Darryl McGahan, CEO & Trustee]

I'll tell you, I think that just that we've seen recent sales, things that we've been on and all that, I think there's a wall of capital. I think there's a good possibility you'll see much further cap rate compression.

[Curt Millar, Chief Financial Officer]

And Matt, we've talked about before, but the big piece on that is the private market tends to lead the appraisal reports and everything else, right? So a lot of the deals we know and see, and we've been active on or at least taking a look at, I agree with Mike, it looks like there's going to be further cap rate compression. And we've always been a little conservative on this side and probably we'll trend -- tend to stay a little conservative on this side.But everything we've seen in the market as far as activity goes and deals that are getting done, some of the stuff just isn't reported yet, so it's not in the appraisal reports, but it looks like further cap rate compression is coming at us.

[Operator]

The next question is from Mario Saric with Scotiabank.

[Mario Saric, Analyst]

Maybe if we go to Slide 11 of your conference call presentation where you highlight your average monthly rents for the repositioned, non-repositioned and total portfolio. Just maybe a couple of quick questions there.First, on the non-repositioned side, you saw a pretty decent uptick quarter-over-quarter in Q2 versus Q1. It does seem like the nonposition -- non-repositioned Ottawa portfolio, that disclosed rent came down 11% quarter-over-quarter. Is there anything particular driving that? Because it does seem like the trends in Ottawa are getting better based on your commentary.

[Curt Millar, Chief Financial Officer]

Yes. I think the trends in Ottawa are getting better. You did -- you're right, you did see that tick up on the repositioned. And when we look through what that's driving -- or what's driving that, it's coming from just the timing impact. So it's not so much a demand impact. It's a timing of when people moved out and turning over the suites and getting them leased back up. So it is temporary in nature for what we're looking at on that repositioned portfolio.

[Mario Saric, Analyst]

Okay. And you've also been pretty steadfast in trying to maintain rent where possible. The overall portfolio occupancy today, I think it was 91.5% as of June 30. Your overall rent was about $1,339 Q2. Maybe a difficult question to answer, but how much -- if you chose a different path and decided to try to maintain occupancy in the 95% range, how much lower do you think that $1,339 would have been at the end of Q2?

[Michael Darryl McGahan, CEO & Trustee]

That's a -- I don't think I can give you a quick answer because -- on that one. But I'll tell you what I -- what we've always felt steadfast about if we did that, we would basically box ourselves in for our future growth. And we always believe that this was temporary in nature. Obviously, it was much longer than we all hope that this pandemic was going to go on for. We do think that we've chosen completely right in choosing this path. It'll -- we won't have boxed ourselves in and we won't have entered our growth potential. So we look at it and saying, okay, we've got x amount of vacancy, we've got lots of growth potential in there.So we're -- and we feel really good, and especially seeing the activity that we're seeing and knowing where home prices have gone, unfortunately, for the younger people, and I think you're going to see a lot more renters in the game for a longer time. So we feel very, very positive that this was the right -- I guess, the right way to look at it. And really for the next 5 to 7 years down the road, that we think it's the right thing to do. So temporary -- a little bit of a temporary pause, but we feel very good about what we did.

[Mario Saric, Analyst]

Got it. I don't doubt that. I was just curious. I mean we see what the impact has been in occupancy. I was just curious to see if there's any range in terms of what the savings would have been on a rent basis for those people.Okay. Maybe shifting gears to the acquisition pipeline. Sounds fairly active in the market. I guess if you were to characterize the overall activity in the broader market and let's say, there was $100 of activity at the start of the year, how would that compare to where you see the broader market activity today?

[Michael Darryl McGahan, CEO & Trustee]

I think it's gone -- so if there was a, whatever it was $100 of activity, it's probably maybe $140, $150 now. I'm just talking off the top of my head. But I think you're going to see it keep moving up. I think there's a lot -- there's more new players in the business, it seem. I'm surprised by some of the people that I've seen that have looked at multifamily. But I guess there's just a wall of capital out there looking for a home and they see multifamily as being one of the safe havens.Obviously, the industrial sector has done extremely well, and I put us as #2. And I -- arguably, just because of the nature of our lease tenure, we've probably got the most upside potential in the shorter term. So I look at -- I think a lot of people are looking at it now. And there's a lot more rebalancing from my understanding of different people's portfolio being more heavily weighted towards real estate. So a lot of activity out there and a lot of, I would say, it's -- we have to work really hard to find deals.

[Mario Saric, Analyst]

And of that $40 to $50 increments, how much of that would you say is new entrants looking in the market? And what types of entrants would those be? Are they international, are they different, domestic?

[Michael Darryl McGahan, CEO & Trustee]

I would say it's maybe about -- maybe 10% to 15%, maybe even a little bit more of new entrants, or -- and then I think it's rest of people just feeling confidence of where the market like where the market's at, like not everybody bought all the way through this. We were pretty positive where we're going, and we're always doing this for the long run. And we felt a lot of confidence in what we were doing. We knew it was going to be a temporary nature. That's the way we put this whole -- we've always built the REIT from -- for our shareholders and with lots of support from the Board.And so now we're seeing people that were, I guess, that were not active for about a year, 1.5 years are getting active again because they're starting to see leasing traffic up and then about 10%, 15%, but I keep hearing new people arriving on the scene. So...

[Bradley Cutsey, President]

So I would add that new people tend to be institutional. Now they might be through private REITs and whatnot, Mario. So there's definitely more and more capital that may be coming through some as the same platforms. But -- and that's the point I want to make is in this whole time, we truly still believe that this is a reflection point for this asset class. It is getting institutionalized, and it's getting institutionalized at a much faster clip. And a lot of that's got to do with the fact that it's a lot harder to operate in the current environment that we just went through.And the good thing that have changed through some of that operating environment has been tougher is a good thing for the space. It's made people reinvest into their platform, into the technology, virtual leasing, and we're slowly closing the gap with some of the industry participants around the world and for the most part, ourselves to the Board, we're doing a lot of these things a lot sooner.And I think really what is forced is there is an arbitrage between the private and the well-organized professional operating platforms. So I do think those are going to continue to garner more and more capital, and you're going to start to continue to see this asset class institutionalized, which is great for us from the sense that there's more opportunities for us to look at and bid on the ones that we think are really good strategic fit and we can create value. But it hasn't got any easier from a pricing standpoint.

[Mario Saric, Analyst]

Understood. Okay. In terms of this incremental demand, I think you referenced the Ontario guideline increase for 2022 coming through, and that's good to see. Would you attribute any of the incremental demand to greater visibility on the regulatory front going forward?

[Michael Darryl McGahan, CEO & Trustee]

I think people, I guess, are getting a little bit more comfortable where we're all going. And obviously, when we -- this point, last year, I don't think there was a lot of comfort from anybody of where we're going. Really happy with the vaccines that were -- the takeup here in Canada, where I think we're one of the leading countries in the world on that, which is terrific. So I just think there's just a lot more positivity completely out there.And I guess -- and also a little clearer when you see -- they come out and announce that, yes, this is the guideline increase, like things are returning. We're not completely normal yet. And I don't think we're going to see a full normality until 2022. There's still a number of people that are not back in their offices. We see it here in Ottawa with the federal government not back in the offices. I guess they're doing a little bit of a test case now from what I've read, which is a positive. But I just see like as we get better and better and better shape, I think that people are feeling very comfortable in transacting on multifamily.

[Mario Saric, Analyst]

Got it. Okay. My last question is just more of an operational one. I'm not sure if you have the information or you're willing to disclose it. Any sense or color in terms of the rent-to-income ratio in the portfolio either in the existing portfolio or some of the new leads that you're converting, what you underwrite to in terms of the rent-to-income ratio?

[Bradley Cutsey, President]

Well, that's a lot tougher right now, Mario, given the situation that we're through, right? So there's a lot of people that are current on their rents and they've been able to get help, but maybe they are unserved. So that's a tougher thing to kind of work through and go through. I don't think we'd have comfort in disclosing that number to you right now. But I do feel comfortable in a sense that we're being quite pleased with where our collection has been and where our receivables stands. So back to Mike's point, this has been a very stable asset class and has really stood up, and our portfolio is no different on that front. So I think if I had to anecdotally tell you where we sit today, I'd say we'd probably mirror with the more macro housing to income ratio looks like.

[Michael Darryl McGahan, CEO & Trustee]

Yes, I would agree with Brad. I am encouraged by in certain areas that we've seen. Some good, I guess, some -- I would say, some higher income earners that I would usually see in our portfolio that are buying. I don't know if that -- and I think we're going to see -- I don't know, but I think we're going to see a prolonged amount of time that people will be renters now because the housing costs have gone up a lot.So I really believe that -- and I was surprised, even just I was in Vancouver last week, they're telling me some of the people that are renting from us. And wow, geez, and they're making some big income there, and we're seeing it in like -- in Ottawa, we're seeing it in different places. So I think you are going to see -- that's where I talk about tailwinds.I think we go back and start factoring that in. I think we're going to be fairly happy of where we're -- and I think we're going to start seeing some noticeable down trends on -- or I should say, downtrends on the rent to income more in a positive way on the amount that they're paying for rent versus their income. So I hope I've articulated that properly.

[Mario Saric, Analyst]

No, no. It's interesting, like, I think you've collectively kind of been steadfast in saying this is temporary and the pandemic isn't going to estrange the structural long-term outlook of the portfolio of the broader rental market. So it's interesting to hear about maybe the rent duration gets extended a little bit coming out of this. But at the end of the day, is there anything else in your view coming out of this that structurally changes how you operate the business going forward?

[Bradley Cutsey, President]

I don't know if anything changes in how we operate. I think as a firm, we've always been quite progressive as far as investing in the platform. And I think the one thing that maybe, Mario, some of the things that we're on are to do less and to revamp and different things like that, it got accelerated. But I don't think it's any different from a lot of other industries and a lot of different asset classes. I think COVID accelerated some of the trends for sure.The one comment I would make, and let's come back to your comment pre this and Mike's comment is I think if you asked our management group and when we were in the dark early days of when COVID kind of hit and we went into lockdown, we worked extremely hard and the group worked extremely hard to make sure everybody was safe. Our team members and our resident base were safe. That was #1 priority.But #2 was what's going to come out of this. So we had to step back and look towards the future. And I think the one thing this group thought for sure was we'd have to see lighten up on the housing affordability issue. We've thought the erosion -- maybe there's still keep erosion, but it would decline at the rate of pace. And we couldn't have been more wrong on that. We came out, we thought there would be discounting on housing prices and whatnot. And really, what happened was it got accelerated because of the low interest rates. And anybody that could -- or would potentially think about owning a home in the next 5 years, they felt the panic that they had to do it now.And I think the parents stepped into their [ own ] and gave the kids a little bit of the inheritance early. And that really did create those strain as we all know, on the housing market. And that, I think, will structurally change the ownership level in Canada and housing going forward, which is a big plus for rentals given that we haven't had the kind of supply. But we have to, as an industry, act responsible and help encourage new supply at all 3 levels of the government and be a part of the solution.

[Operator]

The next question is from Joanne Chen with BMO Capital Markets.

[J. Chen, Director of Equity Research]

Maybe just on the occupancy side with the improvement in Montreal. Would you attribute most of that just to the earlier reopening? Or is there any other drivers, whether employment or the student population that kind of drove that improvement?

[Michael Darryl McGahan, CEO & Trustee]

I would attribute a lot of that just to the earlier opening. You're seeing kids come back. They know they're going to have in-person classes there, which is great. I expect we'll still going to get some more takeup here, and I think it's going to be a little bit prolonged. It's still like there is pretty good, when I've been in Montreal, pretty good activity downtown. I just feel like people are being -- are a lot more confident. And though I would say that not all of the -- not everybody's back in their offices and that. So I think that's going to get -- keep improving along the way.And specifically, we have a -- I'm really looking forward to the, I guess, integration happening again because Montreal has done incredibly well once the immigration opens up again, and I think it'll do really exceedingly well when you look at the prices per -- to live there versus when you go into the Torontos and Vancouver, I think you might start seeing higher percentage numbers coming out of Montreal.

[J. Chen, Director of Equity Research]

That's helpful. Maybe just switching gears back onto the -- on the acquisition side of things. How should we be thinking how the back half of the year will shape up given how competitive pricing is right now? And within that, are there certain markets that you're seeing probably the best opportunities at this point?

[Michael Darryl McGahan, CEO & Trustee]

I think we're going to stick to our same markets. So we do see opportunities. I think one thing that we -- I think that we're very hands on. So when we start looking at some of our competitors coming into the market, I think sometimes we see things that maybe just because of years of the experience that we've had and being there that we can see some different levers that we can pull that make the certain properties make more sense than others. So I do believe that we'll be -- continue to transact. I think we'll be at a fairly -- and hopefully, a fairly steady clip.And to be frank with you, we broadened out our team there for acquisitions and that, and we're being -- we're always trying to get anything we can off market. But I think we'll have a -- I think we're going to be still be some -- I think it'll be probably -- I'm going to throw a number out there, probably potentially higher than, I'd say, $100 million or so in the back half.

[Bradley Cutsey, President]

And I'm just going to add one comment in this...

[Michael Darryl McGahan, CEO & Trustee]

I just see if I was going to get in trouble, Joanne, by saying that.

[Bradley Cutsey, President]

I'll just add to that comment. Like I know we're talking on our name, but to go back, this asset class is getting institutionalized. There is only so many operating platforms that can execute. Our peers are a great example. They will benefit, too. But the people that have invested in their platforms that have well-organized professional platforms, in my opinion, and I believe my colleagues share this opinion, is we're poised to really benefit over the next 3 years of what we believe the reflection point because there's a lot of institutions so under-allocated to the asset class. And from a risk-return perspective, it makes a lot sense.

[J. Chen, Director of Equity Research]

All right. Okay. And I guess on the competitive -- on the acquisition side, but in terms of opportunities to further grow your development pipeline, should we be thinking about that over the near term?

[Bradley Cutsey, President]

Sorry, I don't think I understood the question. Can you just repeat that?

[J. Chen, Director of Equity Research]

Sorry, just given how crazy, I guess, on the acquisition side for [ ITPs ], what is the potential for you guys to further grow, I guess, the development pipeline?

[Michael Darryl McGahan, CEO & Trustee]

I think we'll still grow the development pipeline. We may do some -- we may look at some things like some potentially mezzanine financing for a developer on a forward kind of purchase that we can convert. We may look at some different pieces, but we're going to be very mindful. We got to always watch our balance sheet. We're very happy where we're sitting right now. And again, we were -- we knew that we would transact through here.So I think you'll see us do more. We'll look at we're going to be careful and prudent with how much development we do at any one time. But as I said on -- earlier in the call, we do have a lot of potential for intensification and so we'll be mining that as we go forward. So -- and I don't think people have attributed any value to that whole intensification prospects that we have. I know when we brought people around on a tour a few years ago, people were noting it, and I don't think that the market totally appreciates some of the stuff that we have.

[Bradley Cutsey, President]

And I'll pull up, and that's somewhat by design because we're very much about, we'll show you the numbers and we'll let the analyst community and the investment community dictate what kind of value they want to ascribe to that. But going forward, the new developments will play a role in their playbook because at the end of the day, the value creation of the older properties is great. We know what we're buying at a discount replacement cost. So we can do that math.The risk in that game is the turnover, right? Depending on how tight the development gets -- sorry, how tight the fundamentals get. But the nice thing about new developments no longer about a turnover game is about being able to execute, deliver the product, and hit your pro forma of rents.So like anything you do, we think it will all diversified approach to going forward makes a lot of sense. But at the bottom line, what kind of drives this management group and Board, it has to create value. It might not create value in day 1 but it has to create about within a 3- to 5-year time period or it doesn't get us excited.

[Operator]

The next question is from Brad Sturges with Raymond James.

[Bradley Sturges, MD & Equity Research Analyst]

Just to follow up on the intensification discussion there. It sounds like the plan is to add a little bit more disclosure on what that intensification potential could be in the portfolio today. If that's so, what would be the rough time line and maybe seeing a little bit more disclosure on that front?

[Michael Darryl McGahan, CEO & Trustee]

Yes. Maybe I misplayed that out, Brad. We'll be doing -- like I'm just saying, we do have a lot of opportunity to mine stuff. So when you look at it, it's not only just a cash basis. There is potential going forward. So we're happy with our exposure right now on the development side. We'll never overweight ourselves. We'll have to be -- we have to be very mindful and careful about what we do, just of the nature of what the REIT is. But I mean, just anyways -- I talk [indiscernible] sorry, Brad. Good and bad sometimes, probably mostly bad. But anyways, okay. Okay.

[Bradley Sturges, MD & Equity Research Analyst]

Maybe on Slide 14, just on the CapEx and the repositioning program. You gave a range of full and partial suite renovation costs, $15,000 to $40,000 per door. If we're looking at the 3,500 suites left in the program, I'm sure there's a range to what's being done. But is it more weighted towards full renovations or partial renovations? And how should we think about the remaining program from a capital spend perspective?

[Michael Darryl McGahan, CEO & Trustee]

It's a real mix bag. I mean I'll tell you, some of the stuff that we transacted on, like I was -- like they were spot on in what they did as far as their CapEx program. So really little things and maybe just be replacing appliances going from white to stainless steel and maybe changing out a countertop to a quartz or a Caesarstone countertop. So like some of them are done very well. And some of them just -- even it's just like small things like light fixtures and things of that nature. And again, some of them we need to go full tilt on.So it really varies and it can even vary in a building. We may have somebody who started on one program and then whatever they decided they ran out of money to spend more, or they didn't think they were going to get it, or whatever reason, or have gone the other way, where they did a little bit and they started doing more. So it's got to be very specific to the suites. So it's pretty hard to kind of give you like a whole -- here's the average. You know what I mean?

[Bradley Sturges, MD & Equity Research Analyst]

Yes. I have -- I guess, in terms of that range, has that changed much in the last, call it, 6 or 9 months during COVID? Or is that a pretty consistent spend figure that you would have seen pre-COVID?

[Michael Darryl McGahan, CEO & Trustee]

Sorry, I didn't -- I don't know if you heard that. I was on mute. Did you hear that?

[Bradley Sturges, MD & Equity Research Analyst]

No, sorry.

[Michael Darryl McGahan, CEO & Trustee]

Okay. So I was going to say we -- and I apologize. I was on mute. I guess we were all a little tired of hearing that one, be it on mute. But anyways, so we have found that there is a bit of cost pressures on some of the items. Definitely been supply issues, too, as far as the -- like on our appliances. Like we've been backlogged on some -- on dishwashers and things of that nature. So I mean, it's going to -- it's crept a little bit for sure. No question.

[Bradley Cutsey, President]

Two observations I'd like to add to Mike's is, one is -- and both of you kind of hit on it. Obviously, on the repositioning program, the majority of that is full rentals. But to Mike's point, there's sometimes when we will go in and purchase an asset and it might not -- we might not be purchasing it because of the unit. They've had a pretty good renovation program, but maybe they didn't market the building well. But for the most part, still the non-repositioned purchases are typically full rentals.But then this is where I want to just kind of hit home the point is on the repositioning. We're getting to a point where we've owned properties for longer than 5 years. And then this goes -- speaks to what Mike was speaking to. I just want to kind of trying to hit the point is, but in those buildings, we're seeing a second level repositioning where, hey, at the time, we did a really good renovation program. But now we can go back and up it and stay with the times. And like any real good retailer, we've got to stay what's ahead of the curve. And obviously, when we do that, when the returns meet our thresholds. But we are seeing another level of repositioning.Second, I would like to say, too, is from the cost spend, regionally, we've seen some differences. And there's one region in particular where it tends to be a little higher to do a renovation program. We found during COVID, it was actually a region where we can take advantage of and actually saw some decrease in the prices, and we took advantage of that. So -- but on the whole across the board, we are seeing some cost creep.

[Bradley Sturges, MD & Equity Research Analyst]

Got it. Last question for me. Just to go back to the cap rate compression discussion. I'm sure you're seeing some broad-based pressure on cap rates. But is there a market or a region that kind of stands out as seeing a little bit more downward pressure on cap rates right now?

[Michael Darryl McGahan, CEO & Trustee]

I'd say it's across the board to be frank with you. Like I don't see -- I think we're seeing it everywhere.

[Operator]

Our final question for today is from Yashwant Sankpal with Laurentian Bank.

[Yashwant Sankpal, VP & Equity Research Analyst of REIT]

Just a clarification I wanted. I thought Mike -- you said that your occupancy will be at around 95% by the second half of Q4. Is that right?

[Bradley Cutsey, President]

No. What we did say Yash is all -- on occasion, the first half of the year is pointing in the positive direction on the momentum and whatnot. And we're encouraged in what we're seeing. And each month, we continue to gain some momentum. I think what was said is we'll see if we can get it back to 95%. We're very confident that in 2022 will shape up because we'll see more newcomers, and we'll start to see a bigger participation from immigration to contribute.That said, if we do have an extended leasing cycle, we'll see. But we're saying that we'd like -- we'd probably look to get there in 2022, but you never know what 2021 will bring.

[Michael Darryl McGahan, CEO & Trustee]

We're hopeful we're going to get there, Yash. But we don't have a crystal ball, but we are happy of where we're getting. And we've seen, I guess, we've hit the trough and we're starting to come back. So as more and more opening comes about and people get back into their offices and start again, domestically, leaving their parent's house, you see more kids going back into the -- getting comfortable for, I guess, the in-person classes and even just any international student immigration, we just feel it's going to get better and better and better. And we do feel there should be an extended leasing cycle. That's what we're expecting.But again, these are a little bit of uncharted waters, so we're not 100% sure. We'll be able to tell you that on the next call.

[Yashwant Sankpal, VP & Equity Research Analyst of REIT]

Okay. And on student leasing, where is it at this point? Like would you say it is where it was in 2019? Or do you think it is -- is it lower than that?

[Michael Darryl McGahan, CEO & Trustee]

It's not completely there. There's still -- I mean, it's not 100% there. We are expecting to see more of it in a -- a little bit more of a rush here. But again, we don't have the international students to the same degree. And the international students, we didn't realize how many but I believe it's like 700,000 international students come into Canada a year.And then when you look at where they usually situate themselves, it's in our primary markets where we have like, especially Montreal. McGill, Concordia, we didn't realize how many international students we have. So we look at some of those markets, and it's not quite there. It's way better than last year. It's all I got to say.

[Bradley Cutsey, President]

Yes. And the only thing I would add, it's better than last year. We're not back to 2018, 2019. But the one that will be interesting, Yash, and who knows? I'm just throwing this out as more of a comment than anything. I'm not -- we're not budgeting this or forecasting this, but it will be interesting to see if the winter semester has an increase in lots of newcomers, where they couldn't get their paperwork in order for the fall semester, does that translate into an increased winter semester, which has never typically being strong in our markets.But like I said, we're not banking on it. It's more throwing that out there. I'll be curious to see if that translates into something.

[Yashwant Sankpal, VP & Equity Research Analyst of REIT]

Right. Okay. And one last question. Out of your 4 markets, which one do you think will be the slowest to recover?

[Michael Darryl McGahan, CEO & Trustee]

Well, from what I'm seeing, it won't be Vancouver. That's -- so I guess, we're going to see how it all plays out. The thing is, it's just the different times of reopening. In Ottawa, we got the federal government here at play. Montreal, again, like we've got -- we're around the university, so we'll see how that plays out over the next 3, 4 weeks.It's pretty hard to kind of predict. It really depends, again, it's sometimes is property specific. And so it just seems like Van's got a lot of steam. So it's got a lot of steam now when and where it's going to be in a year or 2 down the road.

[Bradley Cutsey, President]

I think Toronto probably have the -- definitely will recover. But until some of the banks and some of the big head offices start mandating people back to the office, you might see that lag a little just given where the pricing is for the core, right? So if you're starting out and you had a revelation that you want to change careers or whatnot, I think you'll see a lot of people start to pick maybe the city. They want to live indoors. They want to where the career to be from a housing affordability perspective and livability perspective.So I think if anything, I would have -- I think all 4 quarters that we're in are going to do extremely well. But I would say probably Toronto would be a little lagger. But that said, I'm talking core. I'm not talking the bedroom communities of the GTA.

[Operator]

No further questions at this time. I'll turn the call back to the presenters for any closing remarks.

[Michael Darryl McGahan, CEO & Trustee]

Okay. I'd like to say to everybody, thank you very much for taking the time for this morning's call. We appreciate everybody's continued analysis and questions, and we're learning from everybody here during these, I guess, very different times. But I am very happy to see that we are heading in the right direction. We are -- we have a long way to go. We're not there yet, but we do feel like we're doing a lot of the right things to get to where we would like to get to.And I also want to thank our team. Our team has done a really good job, and I know that -- I mean, without their efforts, we would not be in this, I guess, this position of being a little bit more positive. And just what they've done with our residents, they've been amazing with our residents, taking care of them, and making sure that they all feel healthy and safe and secure. So we're really -- we really appreciate our whole team.And on that note, I'll thank everybody again, and hope everybody has a great rest of the day and enjoy the rest of the summer. Take care. We'll be looking forward to seeing and talking to you -- a lot of you soon. Thank you. Bye.

[Operator]

Thank you. This concludes the InterRent REIT Q2 2021 Financial Results Call. You may now disconnect.