InterRent Real Estate Investment Trust

TSX:IIP.UN

Earnings Call Analysis

Robust Performance and Optimistic Outlook

The company ended the year 2023 with significant strides in occupancy and rental growth, having bolstered total and same-property occupancy by 180 basis points from Q3 2023 and 20 basis points year-over-year. Occupancy levels reached 97%, a six-year high, driven especially by strong performances in the Greater Toronto and Hamilton Area (GTHA) and Ontario. The average market rents saw a substantial 7.9% increase year-over-year, outpacing pre-pandemic levels, indicating robust demand across the portfolio.

Effective Revenue Growth and NOI Expansion

Revenue and Net Operating Income (NOI) experienced substantial growth due to the company's effective management of occupancy and rents. Operating revenues increased by 8.8% for the quarter, peaking at $61.9 million. The annual figure reached $238.2 million, a 10% rise. NOI followed suit, with same-property NOI for the quarter growing by 10.5% to $39.7 million, and 11.1% to $40.6 million for the total portfolio. The NOI margin stood strong at 65.6%, signaling effective cost management amid increased interest costs with Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO) both marking record highs for the year.

Cost Management and Financial Positioning

Operating expenses increased by 4.8% year-over-year but represented a lesser percentage of revenue as compared to the previous year, indicating efficient cost control measures. Important efforts on utility cost and energy efficiency, alongside managing property taxes, echoed the company's focus on sustainable returns. Additionally, significant financing activities led to refinancing of mortgages at lower interest rates which will contribute to interest expense savings, reinforcing a solid financial standing with less than 1% of total variable exposure.

Sustainability and Governance Enhancements

The company has doubled down on sustainability with the establishment of a sustainability committee at the board level, implementation of mandatory climate training across the organization, and an ISO 5001-aligned energy management system. More than 70% of suites are now certified under the Certified Rental Building program, reflecting the company's commitment to responsible management and operational excellence.

Strategic Asset Management and Development Focus

Strategic dispositions of non-core assets allowed for fund reallocation towards capital allocation priorities, including debt reduction. The sale of a 224-suite portfolio in Greater Montreal exemplified this strategy. Furthermore, the company has maintained and enhanced its development pipeline with over 4000 suites in progress, anticipating these projects will contribute to future FFO growth and address housing supply shortages.

Impact of International Student Intake Measures

In response to new measures limiting international student intake, the company highlighted that the rental market will experience varied impacts due to provincial population share caps. Notably, the higher concentration of student residents in Quebec appears less affected due to the cap exceeding current international student intake, providing some insulation against these policy shifts.

Promising Economic Indicators for Future Growth

In summary, the company sees 2023 as a year of outstanding operational performance and strong positioning for the future, with the tight rental market setting the stage for 6-8% same-store revenue growth and potentially high single to low-double-digit same store NOI growth. This outlook reflects both the company's internal capability for generating value and the external market conditions favoring steady demand in their operating regions.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, ladies and gentlemen and welcome to the InterRent Q4 2023 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 29, 2024.I would now like to turn the conference over to Renee Wei, Director of Investor Relations. Please go ahead.

[Renee Wei, executive]

Welcome everyone. Thank you for joining InterRent REIT's Q4 2023 earnings call. My name is Renee Wei, Director of Investor Relations and Sustainability. You can find a presentation to accompany today's call on the Investor Relations section of our website under Events and Presentations.We're pleased to have Brad Cutsey, President and CEO; Curt Millar, CFO; and Dave Nevins, COO 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. For more information please refer to the cautionary statements on forward-looking information in the recent news release and MD&A dated February 29, 2024.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. Brad, over to you.

[Bradley Cutsey, executive]

Thanks, Renee. We ended 2023 on a strong note. We improved a total and same-property occupancy by 180 basis points from Q3 2023 and 20 basis points from Q4 2022. Total portfolio occupancy level at 97% marked the best being grown into new year that we've experienced in 6 years. When you break down vacancy by reposition and non-reposition portfolios, a notable concentration of vacancies is in the non-reposition portfolio, which aligns with our business models, seeking greater upside potential on these suites through value-enhancing programs.Average market rents across our portfolio gained further momentum reached 7.9% year over year, our highest growth to date and surpassing pre-pandemic levels. We've seen strong growth in all regions especially in the GTHA in [indiscernible] Ontario each succeeding 8% for both total and same-property growth. Dave will give more information about regional rent and occupancy later in the call.Strong AMR growth and occupancy fueled revenue and NOI growth. Total operating revenues increased by 8.8% to $61.9 million for the quarter and 10% to $238.2 million for the year ended 2023. Reviewed on same-property basis, our operating revenues have increased by 8.2% to $60.6 million for the quarter and 9% to $233.8 million for the year, demonstrating the strong organic growth potential of our portfolio.Throughout 2023 we consistently delivered double-digit NOI growth every quarter, including Q4. Same-property NOI for the quarter was $39.7 million, a 10.5% increase. Total portfolio NOI was $40.6 million, an 11.1% increase. On an annual basis, same-property NOI reached $153.4 million and total portfolio NOI was $156.3 million representing an 11.8% and 12.9% improvement respectively from 2022.We closed out the year with an NOI margin of 65.6% in line with the strong levels we achieved prior to the pandemic. During the fourth quarter the strong NOI growth that we produced was able to absorb the increased interest costs and still delivered bottom line growth. Our FFO growth continued to strengthen throughout the year, reaching $20.8 million or $0.142 per unit in Q4 reflecting an 11.2% and a 10.1% growth respectively.We delivered $80.6 million in FFO for the full year at $0.551 on a per unit basis surpassing pre-pandemic high watermarks. AFFO for the full year achieved a new record high, up 4.5% overall at 3.4% on a per unit basis to reach $0.482. We've also seen strong momentum building throughout the year with AFFO for Q4 increasing 13.1% to $18.1 million and up 12.7% to $0.124 per unit.Taking a closer look at our balance sheet, we ended the year in a solid financial position. Curt will provide more details later in the call. But I like to highlight some post-quarter activities that have further enhanced our positioning. So far in 2024, we successfully financed $183.5 million of maturing mortgages with the weighted average rate of 4.25% compared to maturing weighted average rate of 6.06%. Our overall weighted average cost for mortgage debt is now sitting at 3.37%.Dave, over to you to take us through some of the operating highlights.

[Dave Nevins, executive]

Thanks, Brad. We're pleased to report the positive leasing trends we've discussed last quarter continued to materialize this quarter. Occupancy ended the year on a strong note alongside robust average market rent growth. This was driven by rent growth from a mix of lease renewals and suite turns over expiring rents. On an annual basis we achieve 3.3% average rental lift on lease renewals and 21% increase on new leases.Mark-to-market gap is approximately 30%. As previously disclosed and in line with industry norms, turnover has been trending lower over the past few years due to tight rental market conditions. Total portfolio turnover in 2023 was 24.8%. Our reposition portfolio at a vacancy of 2.7% and our non-reposition vacancy sat at 4.3% as of December. As you know, we anticipate higher vacancy in our reposition portfolio as we work through our value add CapEx program.All properties in our entire Vancouver portfolio representing 4% of our Q4 NOI is currently undergoing repositioning. As of December, vacancy in Vancouver increased 340 basis points year-over-year, primarily due to planned upgrades in recently vacated suites. As we finished our work on these suites and bring them back online, we're seeing strong demand for the renovated suites. We expect vacancy in Vancouver to normalize in subsequent quarters. We're also keeping a close eye on transition of Airbnb units to long term rentals and a new regulation is set to take effect in the spring in BC. We believe any potential impact will be short-lived.CMHC projected that housing supply gap will exceed half a million units in British Columbia by 2030. And in the provinces constrained rental market suggests that a relatively modest increase in supply from short-term rentals will quickly be absorbed. However, we're closely monitoring rent levels in Vancouver and will remain agile in a revenue strategy to adapt to any changes in market conditions quickly.Our operating expenses came in at $21.3 million for the quarter, up 4.8% year-over-year, while operating revenue grew by 8.8%. Operating expenses as a percentage of revenue was 34.4%, a decrease of 130 basis points compared to the fourth quarter last year. On an annual basis operating expenses as a percentage of revenue decreased by 160 basis points to 34.4% on a weighted average per suite basis while our annual rental revenue grew per suite by 8.5%. Operating expenses per suite only increased 3.5% reflecting our ability to manage expenses effectively to drive long-term value for investors.Utility costs came in at $18.1 million or 7.6% of revenue for the year. Compared to 2022, utility costs decreased by $0.1 million or 80 basis points as a percentage of operating revenue. During the quarter we achieved 10% decrease in natural gas usage due to a combination of lower heating degree days and our effective energy efficiency programs. Electricity costs are consistent with last year despite the larger portfolio under ownership. We continue to manage our electricity costs through our hydro sub metering initiative, which reduced electricity costs by 27.1% or $2.1 million for the year.Property taxes for the year increased by $1.7 million year-over-year to $25.6 million as a result of higher suite count and annual rate increases. As a percentage of operating revenues, property taxes actually decreased by 30 basis points. We're consistently reviewing our property tax assessments and making individual property tax appeals when necessary. We invest in our portfolio to drive growth and deliver sustainable returns.For 2023, our maintenance CapEx came in at $1,005 per suite which has come down slightly from 2022. The vast majority of our spend, close to 90%, is directed towards investments aimed at enhancing value. As you can see on the right hand of the slide, our repositioning program which remains at the core of our business strategy has been a significant driver of value creation for us. As of this year, about 1/5 of our portfolio is at various stages in their repositioning program representing significant potential for continued organic growth.Before I hand it over to Curt to discuss our balance sheet and sustainability programs, I'd like to provide a final update on the slate, our first office conversion project. Lease upgrade has surpassed 90% as of February this year. We're proud of what we've accomplished. Not only do we manage to deliver crucial housing supply quickly, but we've also built a vibrant community right in the heart of downtown Ottawa, all while achieving a 55% savings in greenhouse gas emissions by reusing the structure. With that, over to you, Curt.

[Curt Millar, executive]

Thanks, Dave. As part of our year-end review, we worked with our external appraiser to conduct a portfolio-wide valuation and fine-tune our key assumptions around rents, turnover, input costs and cap rates. After this review, we are keeping our Q4 cap rate unchanged at 4.22%. For some context, you may recall that our cap rates have increased 40 basis points from their lowest point in Q1 of 2022. The minor changes within regions that you see on this slide reflect changes related to NOI at a property level and the resulting impact on the average for the region.For the quarter we recorded a $14.8 million proportionate fair value gain driven by continued strong operational performance. Our sound financial position continues to strengthen. We're pleased to report that following the end of the year, we successfully financed mortgages totaling $183.5 million with a weighted average interest rate of 4.25%. These had a maturing balance of $144.9 million with a weighted average rate of 6.06% and will translate into significant interest expense savings. This work netted $34 million of proceeds which were used to further reduce the REIT's total variable exposure, which currently sits at less than 1%.Following these transactions, the REIT has a weighted average cost of mortgage debt of 3.37%. The remaining balance of 2024 mortgages, which are in the second half of the year and carry a weighted average interest rate of 4.9%. We will continue to focus on managing financing activities carefully and anticipate our interest expense for 2024 to be in line with 2023 given the activity in the first 2 months and the current market conditions.Moving to slide 18. Earlier this year, we established a sustainability committee at the Board level to enhance governance oversight and drive sustainability initiatives forward. To further enhance collective climate understanding and commitment throughout our organization, we introduced mandatory climate training for our Board of Trustees and across our entire team. We established our ISO 5001-aligned energy management system to better guide our operational efficiency initiatives and reduce greenhouse gas emissions.Toward the end of the year, we collaborated with external advisors to integrate climate considerations into our acquisitions and capital expenditure models. These enhancements will continue to add climate considerations when reviewing our existing portfolio or evaluating potential new acquisitions.Finally, the strong operational performance of our teams within our different communities has been recognized with more than 70% of our total suites now certified under the certified rental building program and the remainder anticipated to receive certification within the next few months.I'll now turn things back to Brad to walk through our capital allocation.

[Bradley Cutsey, executive]

Thanks, Curt. During the quarter we continue to pursue strategic dispositions as part of a broader capital allocation strategy. In Q2 Last year, we communicated that we identified certain noncore reposition to assets that meet a disposition criteria that could potentially provide net proceeds of over $75 million. Relative to other assets in our portfolio, we believe we have done an excellent job of maximizing revenue and our projected forward return are comparatively lower versus the cost of capital.We have also carefully considered operational scales and efficiencies. During the quarter, [indiscernible] 224 suite portfolio consisting of 5 properties and [indiscernible] in Greater Montreal for the gross sale price of $46 million, which is above their IFRS values. After the quarter this transaction is successfully closed with net proceeds of approximately $22 million after repaying in place mortgages.Proceeds from strategic dispositions will be used to reduce our leverage and fund various capital allocation priorities for the year. As seen on the slide, we finished the year with 4 development projects under the way, total over 4000 suites that are in various stages of development. Our development pipeline will not only contributing much needed new housing supply, but will also add exceptional quality to our portfolio, drive our [ NV ] accretion and contribute to our FFO growth in the years to come.We are optimistic about our second office conversion project 360 Laurier in Ottawa. Demolition is currently under the way and we're gearing up to start construction in late Q2 this year, with a goal to complete construction by Q3 2025. Keeping a close eye on development costs and capital constraints, we carefully managed the pace of each project. However, we understand the importance of upsizing opportunity and executing a prudent strategic investment to enhance the quality and scale of our portfolio over the long run.Over to slide 23. With the recently introduced new measures to limit undergrad international students intake, we wanted to shed some light on the student residence base. About 15% of our residents are students and over half of them live in our communities located within 2 kilometers of well-established post-secondary institutions. Not all rental market will be impacted equally. The national cap is based on provincial population shares and more constraining in Ontario and BC. We have a higher concentration of student residents in Quebec where the cap exceeds the current intake of international students. Approximately 1/3 of our students residents are in our GMA region.International students residing in Canada surpassed 1 million as of last year. The record influx of the male students in 2023 and 2022 is anticipated to support the student population in Canada over the next 2 years before outflow is expected to pick up. During this period we're expecting growth of international student population to persist, but at a more moderate pace.Canada's high population growth has often been cited as a key support factor in the multifamily industry fundamentals. However, our analysis suggests that Canada's housing deficit will persist even in the scenario where immigration returns to pre-COVID levels and 2.3 million new homes are built by 2030, an outcome deemed highly unlikely by the CMHC. In fact, CMHC projected a housing shortfall of over 3 million units in this low economic growth scenario with the gap widening do 3.45 million in this baseline scenario.As you can see on this slide, more than 85% of the supply deficit is concentrated in 3 provinces where we operate. To tackle this persistent supply shortage, we are steadfast in our commitment to expanding the housing stock through methods such as intensification, office conversions or development. At the same time, we are focused on strategic investments in our properties to sharpen a competitive edge and position ourselves for a future where supply gradually aligns with demand.To sum up, 2023 has been a fantastic year for us. We have consistently delivered top-notch operational performance and generate a significant value through our repositioning programs. With the industry on solid ground and strong and flexible financial position and our experienced and dedicated team, we couldn't be more optimistic about what 2024 holds. When considering how tight the rental market has been and the forecasts of supply/demand for the next few years, it laid out a path for 6% to 8% same-store revenue growth which leads to high single-, low-double-digit same store NOI growth.I wanted to thank everyone for your continued support. And I'd like to encourage you to go to our website and check out our interactive annual report to learn more about our achievements this year. Let's open it up for Q&A.

[Operator]

[Operator Instructions] Your first question comes from the line of Kyle Stanley from Desjardins.

[Kyle Stanley, analyst]

Dave, I just wanted to clarify, I think some of your commentary earlier just on the rent growth on turnover and renewal, would you be able to repeat that?

[Dave Nevins, executive]

Sure, no problem. We're at 3.3% rent growth on renewals and 21% on new leases.

[Kyle Stanley, analyst]

Okay, so 21% on new leases. How do you think about that, I guess trending as we kind of push through 2024, I guess, in the context of the commentary in the MD&A about continuing to see turnover slow as well?

[Dave Nevins, executive]

Yes, I think, you know, looking at the numbers, we're looking at renewals probably in that 3% to 3.5% range for 2024. And turnovers probably stay consistent at low 20%s to mid-20% range.

[Bradley Cutsey, executive]

So it's up to you to model what you want to model for turnover. Obviously turnover is the wildcard when it comes to the value, the value-add. Curt and I have been saying to our stakeholder base for quite some time now that we didn't expect turnover to come in and that -- and I think it is coming in and you see that through the different publications and whatnot, but it hasn't materially changed on a year-over-year basis for us.Yes, it's come in from low 30%s historically, but as we disclosed, it's in the mid 20%s range. We do anticipate that will probably continue to come in the middle. But surprisingly, that's been a lot more stubborn than one would imagine. We think it has to do with the back of our urban portfolio and where it's situated, close to a technology ecosystems, life sciences, hospitals, postsecondary institutions, why we garner a higher than average turnover rate.

[Kyle Stanley, analyst]

Okay. No, that makes sense. And I do believe that's new disclosure, so very much appreciate it. Secondly, just within the portfolio, are you seeing certain unit configurations, whether that might be bachelor 1 bed, 2 bed or finished quality outperforming others? And maybe if so, like how are you thinking about those ones that might be a little less in demand today? Or what's driving that? And how do you manage through that?

[Bradley Cutsey, executive]

Yes. Well, Kyle, I guess maybe what you're getting at is as the fundamental is so tight and I think I can speak for all -- everybody around the table here. We haven't seen these kind of fundamentals ever. So we remain quite optimistic and bullish on the fundamentals for the outlook across Canada and specifically to the markets and the nodes that we operate in.I think where the question you're leading to is toward affordability. The [indiscernible] will continue to push up. So there are going to be something else in some layoffs that will tend to do better just by the very nature that somebody can take on a roommate or an additional person to help with the rents. When you look outside of Canada and it's really a Canadian phenomenon of having the right to kind of your own home. You look at a lot of different places around the world. It's not uncommon to move out of your parent's place and look for a roommate that you maybe have never even known.So you kind of take that viewpoint from an affordability perspective, the majority of our portfolio, when you look at the household income is affordable. So in some regions where rents are continuing to see increased pressure and starting to butt up to an area, I do think the 2 bedrooms start to outperform the 1 bedrooms and all of a sudden, kind of the rent pressures at all housing is experienced right now is a lot more manageable from a credit underwriting perspective.

[Kyle Stanley, analyst]

Okay. [Indiscernible].

[Bradley Cutsey, executive]

I hope that makes sense. I think that's what you're getting at?

[Kyle Stanley, analyst]

Yes, yes, definitely. Definitely that's it. And that's a good answer. Just a last question. Good progress on the capital recycling. Would you say there's still about $50 million of net proceeds targeted for the next little while? And I think your disclosure said the use of proceeds, funding capital requirements, reducing leverage and buying back stock. Would that be in the order of preference?

[Bradley Cutsey, executive]

I don't think it's an order of preference. I think we weigh all capital allocation decisions at different opportunities that are in front of us and then we weigh which one has a better overall outlook. Sometimes you might do something for strategic reasons as well, Kyle. So I think our track record speaks for itself as far as being pretty prudent when it comes to capital allocation and we're definitely going to maintain that discipline.So yes, to your first question, I think we're on pace to meet the previous disclosure of $75 million in net proceeds. And quite honestly, we might -- we're hopeful that we're actually going to generate a little more. You can be assured that whatever we are allocating back into is going to be at higher potential risk-adjusted returns than what the proceeds generated had been forecasted for.Obviously, the name of the game is really managing the cash balance. And I think that's when the NCIB come into play for unit price continues to stay well below of where we believe our intrinsic value is. And we don't have an opportunity at the current moment to redeploy that and recycle that capital into. I think that's a great tool. However, if we are working on opportunities, which we have forecast that those return thresholds are greater than our internal cost of capital, then we'll reserve that and we will manage that and recycle that into those opportunities.As you know, though, there's timing delays that typically happen when you're looking at either development or external opportunities, it takes time for different deals to come through to fruition, different timing when it comes to development for the tendering process and the entitlement process. So we look at all of those opportunities. But I think the no-brainer obviously is as cash comes in, you do pay down the credit facility because that's pretty expensive here, call it high 6s, low 7s.

[Operator]

And your next question comes from the line of Brad Sturges from Raymond James.

[Bradley Sturges, analyst]

Appreciate the commentary on the student -- international student cap. I'm curious, just based on your analysis and expectations for turnover rate, would you expect the caps to have any material impact on your turnover rate? Or is it more to do with, I guess, how tight the rental conditions are within your markets?

[Bradley Cutsey, executive]

Yes, it's a good question. I think, to be quite honest, I don't think it's going to place that much on the turnover unless maybe you're leaving -- unless you're leaving and then coming in. But for the first couple of years, we don't think the cap will add to -- I think it's going to be quite neutral. We don't really see the cap affecting our current base is probably till 3-year result because the existing student population base, at least to where our communities have that exposure to will burn off because it might be in years 2 this year, year 3 next year, then year 4. Obviously, the cap doesn't apply, not obviously, but the cap doesn't apply to the graduate study. So that's a good news as well.We take a lot of comfort in the fact that where our communities are located, they're in prime location relative to some of the best postsecondary institutions in this country. So irregardless of the cap, we think we're extremely well located to get the cream on the crop to begin with. That said, a good portion as you know, Brad, a good portion of our student exposure is in Montreal and we have an extremely urban core portfolio in Montreal and very close -- a lot of our exposure is close to McGill and Concordia. But the cap doesn't apply to Quebec, okay? So that's good news. So we'll have to take a wait and see approach.Typically, unfortunately, it's great having the foreign students. We love having that part of the exposure. The only thing that comes with it, you don't have a lot of visibility. You kind of have -- it's kind of a wait and see until August. You do everything you can to get the early birds that are looking ahead of that, so you try to secure that. But the reality is when it comes to our Montreal portfolio, you really wait and see till August.That said, around this table, there's consensus that we don't anticipate -- it might be naive, but we don't anticipate we're going to see a big change in trend when it comes to the student population. It is more Ontario and BC that's impacted, but we feel pretty confident with our exposure that we're going to continue to be and perform on that basis.

[Bradley Sturges, analyst]

Okay. That's great color. I appreciate that. In terms of redeploying capital out from the capital rotation and capital recycling you're doing and you're assessing potential external opportunities, I guess I'm curious to get an update in terms of what you're seeing in terms of the acquisition market today, in terms of the opportunities across your markets in either the value-add category or other kind of total return opportunities that could make sense for the REIT?

[Bradley Cutsey, executive]

Yes. We're in a really interesting time. I think if we had a cost of capital that we had prior to COVID, we'd be salivating right now. It is definitely not as competitive of a market as it was pre-COVID when it comes to [indiscernible]. I don't want to take that commentary that there isn't capital earmarked for the [indiscernible], there very much is. We don't have any problem when it comes to looking for private capital institutional quality partners that want to increase their exposure to the asset class.That said, there hasn't been a lot of transactions. So really, it's not a wait and see, maybe a tad on seeing the bond yield stabilize. When the bond yield that -- towards the end of the year last year came down as low as it did. So there's definitely a lot more of to be and a lot more people underwriting. It is a buyer's market.I do think we have to put into context the overall investable set in Canada is still very much controlled by the private smaller owner, which is a real advantage to the institutions and to the publicly listed REITs in the sense that we have a much longer time horizon. And as this private ownership group gets older and they've seen visibility in a low interest rate environment for such a long period and now we roll back last year, it's created some uncertainty into their generational planning. And now I think there's much more of a willingness to maybe now is the time to start to think about succession in the state planning. So I do think there's opportunities to be had out there. And I do think the bid ask will continue to come in.We -- in our own portfolio for smaller ticket items, we're seeing some good interest from private buyers. So there is private -- competition from private buyers who are more wealth -- I would say, more wealth preservation type capital out there looking at really increasing the exposure, which, to me, I think, a very opportune time to be doing this because I couldn't think of a better inflation hedge asset class than our asset class, given how undersupplied the market is has been -- if you can wait through the near term of the volatility in the interest rate cycle, you're going to do extremely well, private or publicly. Obviously, the public market is trading below where the private valuations are. We're starting to see that gap close, but I still think there's a ways to go.

[Bradley Sturges, analyst]

So if you were to execute right now and there's a really compelling opportunity, would it be more likely or less likely to pursue it through a JV with a partner or [indiscernible]?

[Bradley Cutsey, executive]

We'd be more likely to do -- we'd be more likely to do continuing to use joint venture partners. We've got to spread our capital across the many opportunities that we feel that fits in our lines with our strategic plan. I think that's just prudent business. There are opportunities we would love to own 100% up. But given that our capital pool right now, why we believe we have great liquidity, it is limited. And because it is limited, we've got to be very choosy with how we allocate that capital. And if we can participate and have a toehold and scale our operations with using like-minded partners, we're going to continue to do so.

[Operator]

And your next question comes from the line of Mike Markidis from BMO Capital Markets.

[Michael Markidis, analyst]

Maybe just starting on the -- can you guys hear me?

[Bradley Cutsey, executive]

Yes.

[Michael Markidis, analyst]

Okay. Good. Just starting on the dispositions. I guess, a concentration of stuff in Cote-Saint-Luc and maybe tying this back to your comment on the international students and not thinking it's much of an impact to federal cap. But do the provincial change in your Cote-Saint-Luc properties are, I think, close to Concordia. So maybe if you could just shed some light on whether that concern was part of the reason for the disposition of those properties? Or am I just thinking -- got too much time on my hands and thinking too much over here?

[Dave Nevins, executive]

Well, I think first of all, just on the sort of second part of that question, Mike, about the proximity to Concordia, those wouldn't be very close to Concordia. They're sort of more out of the Downtown Cor. They're not within that sort of corridor where we have quite a few assets that sort of service both McGill and Concordia. They are a little further.

[Bradley Cutsey, executive]

The other thing I would say, too, is consistent with what we've communicated in the past, when we look at what we're disposing of, we kind of look at the opportunities organically within our company and how does this community stack up relative. And to be honest, I think we've done a really good job of operating in this community. So it's bittersweet, to be really honest. It's a beautiful community. I'm very proud of what we've built and invested in that community when we took it over. And to what the current buyer is receiving, they're receiving an amazing asset, a great community in a very well-located area of Cote-Saint-Luc.That said, the projected growth for us versus what our overall portfolio is, it was below it. And we were starting to bump up against new product reps and that's not necessarily sustainable if we felt that was going to do more with the asset to be competitive with that new supply. So it really came down on a part where we felt that while this buyer will probably do well with it relative to the context of our overall organic growth profile, it wasn't a key piece. So it was a good one earmarked for us to dispose of. I think it was a win-win.

[Michael Markidis, analyst]

Okay. Appreciate it. And then just on the cap rate for that transaction, should we be thinking something in line with the average of your Montreal portfolio? Or would it be somewhat higher than that?

[Bradley Cutsey, executive]

I'd say it's a little higher than that.

[Michael Markidis, analyst]

Yes, it would be...

[Bradley Cutsey, executive]

It is outside of our core of Montreal, I think just for modeling purposes for the call, I think mid-4s, you'll be fine with.

[Michael Markidis, analyst]

That's great. Helpful. I guess last one for me before I turn it back, actually 2 last ones, sorry, quickly. So just to confirm, the renewal on new leasing spreads that you guys gave, was that full year or just for the quarter?

[Bradley Cutsey, executive]

Sorry, say that again?

[Michael Markidis, analyst]

The renewal and turnover spreads that you guys gave earlier in the call...

[Bradley Cutsey, executive]

That's for the full year.

[Michael Markidis, analyst]

It's the full year. Got it. Okay. And then just, Curt, I just want to make sure I caught this correctly. Did you say that you expect interest expense for '24 to be flat year-over-year, given everything that's happened?

[Curt Millar, executive]

Yes, I think it will be like depending on what happens, what Brad has mentioned previously, but hopefully having some dispositions through the year recycling that capital, I think it will be flat to plus or minus $500,000, depending on the timing of dispositions and recycling that capital. And if you're modeling flattish, you're probably in the right range.

[Michael Markidis, analyst]

Okay. But just -- that's just contemplating the dispositions that have happened? Or is it anticipating more dispositions?

[Curt Millar, executive]

It's anticipating a little bit more dispositions, but very conservatively.

[Operator]

And your next question comes from the line of Jonathan Kelcher from TD Cowen.

[Jonathan Kelcher, analyst]

Just going back to your one comment, Brad, on one of the reasons that you're selling Cote-Saint-Luc is the rents were approaching new product rents. How much of your portfolio would you say is getting close to new product rents when you're on turnover?

[Bradley Cutsey, executive]

It's a good question. I don't have that handy right off because it's really, really no, no specific. So I wouldn't be able to give you a consolidated view on it. Said differently, Jonathan, though, I think when you look on the overall it's negligible, right? It's -- I'd probably say -- I'm just going out. I don't have the -- it's probably less than 5% of the portfolio.

[Jonathan Kelcher, analyst]

Okay. That's helpful. And that would obviously be something in your -- when you're looking at which assets that you might wish to sell going forward?

[Bradley Cutsey, executive]

Sorry, say that again, Jonathan?

[Jonathan Kelcher, analyst]

I guess looking where -- how much more rent growth you can get would be obviously something that you're looking at which assets you're looking to dispose of?

[Bradley Cutsey, executive]

For sure. 100%.

[Jonathan Kelcher, analyst]

Now when you're looking at -- just staying with capital allocation, when you're -- have you guys looked at selling partial interest in properties to some of your existing JV partners? Is that something you...

[Bradley Cutsey, executive]

I think everything is on the table and you've got to weigh everything that comes with that, Jonathan. So we would look at that. We have looked at that.

[Jonathan Kelcher, analyst]

Okay. And then just lastly on the -- I don't know if you want to call it guidance, but your last part of your prepared remarks talked about 6% to 8% revenue growth and high-single to low-double-digit same-property NOI growth. What do you assume in terms of expense growth for that? Would that be inflation-ish or a little bit more than that?

[Bradley Cutsey, executive]

A tad more than inflation, but definitely not what we've been accustomed to over the last couple of years. I think you're going to still come in and you and I can debate what inflation is all day long. Unfortunately, others might not agree who set to or trying to manage the inflation. But I think, Jonathan, if you kind of model in that 4% to 5% range, we would feel comfortable.

[Operator]

And your next question comes from the line of Jimmy Shan from RBC Capital Markets.

[Khing Shan, analyst]

So just a couple of quick ones. Was there any material costs associated with the rebranding initiative that might have impacted the quarter at all?

[Bradley Cutsey, executive]

Yes. I wouldn't say anything significant. I think we're going to continue -- continuing to see a little more cost than you normally maybe would in the G&A line, but the initial -- some of the initial costs I think it was an additional $200 million, but I don't think it's enough to call out although you just made me call it out.

[Khing Shan, analyst]

All right. With respect to the student comment, I think you said that you won't know until August whether you'll see potentially an impact if any. Is there anything that you can do or are doing to prepare for or to make sure that your buildings that are geared toward students remain full to the extent you do see an impact?

[Bradley Cutsey, executive]

Well, I think, Jimmy, we're not -- I think the community that we're talking about at the end of the day, they're not 100% geared to students. There might be 2 communities within a full portfolio that might have over 90% geared towards students. So at the end of the day, the best way you make sure that your community is defensive is by profitably amenitizing it and providing the best service possible. And you will also attract additional residents such as young professionals, right?And I think as you continue to see -- it might not be as fast as office owners would like, but as you continue to see different team members come back into the office, we're only going to continue to see more demand from that segment come back into the rental pool as well.

[Khing Shan, analyst]

Okay. Okay. And sorry, just last one. CapEx budget for '24, how should we think about that relative to '23?

[Bradley Cutsey, executive]

Yes. I don't think you're going to see a major dramatic difference. I think we could see it trend a little lower than what we've posted in 2023, which is down a little from 2022. It also -- this will also be a factor of our development programs. We are going ahead with 360 Laurier. Richmond & Churchill is currently outside tenders. So we'll have to wait and see where that comes back before we see if we're going to spend real higher dollars on that.

[Operator]

Your next question comes from the line of Matt Kornack from National Bank Financial.

[Matt Kornack, analyst]

I just have a follow-up. Just a follow-up to Jimmy's comments on CapEx and just generally the idea of value-add within apartment investments. It seems like there's been a bit of a shift away from value-add from some of your peers, but it is core to the InterRent story. Like are you still seeing that as something that is core to the story going forward? And how should we think about value-add within the context of the current rental market?

[Bradley Cutsey, executive]

I'll answer this way, value-add is InterRent. We'd like to believe anything -- anytime we put out $1 of capital is value-add. And not trying to be cute about that, but it can be value-add and you take on a new project, maybe it's not leased up. We think we have one of the best leasing teams in the business.That's value-add, leveraging of our operating platform. Yes, it's also value-add, taking an asset that was built 55 years ago and you have in-house, the team of experts that can come in, take a look and have a vision for an asset and see that, hey, on paper, it says it has 135 suites. By the time we're done, let's say, it has 145, 150 suites. And yes, it's InterRent and yes, turnover has come down, but it meets some of our investment criteria that we believe why we have some of the highest turnover in the business is because we're located where the communities were willing to put money in.Maybe that comes in a little, but there are some natural tendencies that goes around being around tech ecosystems and hospitals and institutions so that we feel that we can put real dollars to a community to reposition it in order to recover and meet our return thresholds.So I think everything we approach we try to make it value-add, otherwise why put the dollar out, right? So you will continue to see us look at vintage communities and for us to reinvest in them and bring them back to the glamour that they once were perceived to have when they were newly developed and we'll do so by weighing the risk-adjusted return relative to other opportunities. You will also see us purchase a new asset that we think is really well-located, but there's been some design flaws or is being mismanaged on the lease-up. So you'll see us take advantage of those opportunities.I think going forward, I think the big thing you can expect from us is we're going to continue to invest in our platform and our people. And I think that's a big difference for our story, we're in the people business and it starts with our own people. And really, that's where we're going to leverage and continue to try to add the value. So we're not deviating from that at all.

[Matt Kornack, analyst]

Okay. No. That's fair enough. And just given your cost of capital relative to kind of opportunities in the market, understand that you're selling some assets to probably deleverage and fund commitments in the near term. But how should we think of the growth profile and taking advantage of the platform longer term? I mean, I assume your goal is to get back to the cost of capital where it makes sense to grow the portfolio. Is that fair?

[Bradley Cutsey, executive]

Yes. I mean we could sit here and have [indiscernible] debates all day long about what is the true cost of capital. That's a great favorable finance. But the one thing I get a lot of comfort in, Matt, is when you're looking and you're operating within asset class, you're seeing the visibility of this cash flow and seeing the organic growth profile that we have inherent in our portfolio.That allows us to plan towards the external growth with some comfort, right? Now yes, the bond rates are moving on us, yes, our cost of equity is not where it used to be, but we can do things in the near term that are in our control, being disposal of communities where they are forecast to be under our projected growth rates and recycle them into opportunities that we believe exceed our growth rate. And by the very nature of managing that from a portfolio perspective, we should be able to continue our track record of above industry -- posting above-industry growth. And then really, at the end of the day, that's kind of the approach to it and we'll continue to do it.If you ask me are there enough external opportunities that can exceed our current outlook, there is. And for different reasons. And that's a great thing about this. Not everybody is capitalized in the same way and not everybody has access to cash flow the way some of the publicly listed REITs do. And I think we're coming into a time where we're going to be able to optimize their portfolios and use some of that organic cash flow to build up for future growth.

[Matt Kornack, analyst]

Okay. That's very helpful.

[Bradley Cutsey, executive]

It's a different -- I probably should want to make sure we've got this point across in the call. We're not going to do that at expensively [indiscernible] balance sheet though. So when we're making these comments, you can assume we're making leverage-neutral capital allocation decisions. Yes, there might be timing blips where we might feel comfortable increasing that leverage for a very short period, but there's a reason behind that that we know about that will bring it back to where we're currently sitting.

[Operator]

And we have a follow-up question from Mike Markidis of BMO Capital Markets.

[Michael Markidis, analyst]

Just to follow up on Jimmy's question on the CapEx. I guess, Brad, you were talking about it in the context of including development. But if we were just to look at the rental portfolio spend, including the repositioning portfolio, that number has been trending up over the past couple of years. So what are your expectations just on IPP spend for 2024?

[Bradley Cutsey, executive]

Actually, I think it's down, Mike. I'm not sure what you referred to. We can take it offline if you want, make sure that we're comparing apples-to-apples. But I would -- for year 2024, you can assume that our CapEx spend excluding development will come in.

[Michael Markidis, analyst]

Okay. Yes. All right. [Indiscernible].

[Bradley Cutsey, executive]

We're not out there saying that there's a significant change in the way we're operating. We're not saying that.

[Michael Markidis, analyst]

Yes. No, that's fair. Okay.

[Bradley Cutsey, executive]

We think for other reasons, we're seeing a little relief in some areas and different things. But let's take that offline if you want. It's just not there.

[Michael Markidis, analyst]

Sounds good.

[Operator]

And ladies and gentlemen, we have reached the end of our Q&A session. I'd like to turn it back to Renee Wei, Director of Investor Relations, for closing comments.

[Renee Wei, executive]

Thank you, everyone, again, for joining today's call. If you have any additional questions, please feel free to reach out. Have a great day.

[Operator]

Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.