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Killam Apartment REIT
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Good morning, ladies and gentlemen, and welcome to the Killam Apartment Real Estate Investment Trust First Quarter 2021 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 6, 2021. I would now like to turn the conference over to Philip Fraser, President and CEO. Please go ahead.
Thank you. Good morning, and thank you for joining Killam Apartment REIT's Q1 2021 Conference Call. I am here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; Erin Cleveland, Senior Vice President of Finance; and Nancy Alexander, Vice President of Investor Relations and Sustainability. Slides to accompany today's call are available on the Investor Relations section of our website under events and presentations.I will now ask Nancy to read our cautionary statement.
Thanks, Phil. This presentation may contain forward-looking statements with respect to Killam Apartment REIT and its operations, strategy, financial performance, conditions and otherwise. The actual results and performance of Killam discussed here could differ materially from those expressed or implied by such statements. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding its forward-looking statements. For further information about the inherent risks and uncertainties in respect to forward-looking statements, please refer to Killam's most recent annual information form and other securities regulatory filings found on line SEDAR. Unless otherwise stated, all forward-looking statements made today speak only as of today's date. Unless otherwise stated, all forward-looking statements speak only as of the date of which this presentation refers, and the parties have no obligation to update such statements.
Thank you, Nancy. We are pleased with our financial and operating results for Q1 2021. Our employees' commitment to our residents over the last 15 months has been exceptional. And we are very hopeful that the speed of vaccinations will increase throughout May and June, and a number of cases across the country will trend down. Our 2021 targets were introduced in the Q4 2020 MD&A and are outlined on Slide 4, showing the year-to-date performance. We have made good progress in Q1 with all of our targets, which reinforces our strategy and commitment to the long-term viability and sustainability of our core markets. Dale will take us through the Killam's first quarter financial results, followed by Robert, who will discuss our initiatives for growing our existing asset base. I will conclude with a brief recap of Q1 acquisitions and the progress on our development pipeline. I will now hand it over to Dale.
Thanks, Phil. A summary of Killam's Q1 2021 financial performance can be found on Slide 5. We started the year with strong financial results, highlighting the underlying strength of our key markets. In addition, in Q1, we added 233 new units to our portfolio in Calgary, along with a small property in Moncton and 3 pieces of land adjacent existing Killam assets for future development. We achieved 4.5% FFO per unit growth and 5.6% AFFO per unit growth in Q1. Please refer to Slide 6. FFO and AFFO growth was attributable to increased NOI from strong same-property performance and incremental contributions from recent acquisitions and completed development. This growth was partially offset by a 5.2% increase in the weighted average number of units outstanding. Killam's same-property portfolio achieved NOI growth of 3.1% and a 60 basis point improvement in operating margin. Rental rate growth remained strong compared to Q1 last year, driving overall same-property revenue growth of 2.1% in the quarter. Operating expenses increased only modestly as higher property taxes and general operating expenses were modestly offset by a reduction in utility costs. Slide 7 highlights key drivers of our 2.1% increase in same-property revenue in Q1, including rental rate growth, occupancy and incentives. Overall, rental rates in March 2021 were up 3.3% compared to March 2020. As this is a March-to-March measure, it captures the impact of all leasing activity in the last year. In the MD&A, we also highlight recent leasing trends, including the rental increases, which came into effect during Q1. Although recent rental increases on unit renewals in Q1 were lower than the first quarter last year because of current provincial rent freezes and restrictions, we achieved healthy lift on turns in Q1, including 4.4% on regular turns and 26.4% on repositioned units. Killam's same-property apartment portfolio achieved 96.6% occupancy in Q1, 100 basis points lower than Q1 2020 but in line with the healthy occupancy we experienced prior to the record highs of 2019 and 2020. Decreased occupancy was largely property specific, and I'm pleased to report that we're seeing improving occupancy trends post Q1. Incentive offerings remain limited and focused primarily in Alberta, St. John's and very specific properties with occupancy challenges. Overall, Killam reported incentives of 60 basis points of total residential rent for the quarter, relatively in line with the last few years. Slide 8 breaks down operating expenses by category. General operating expenses were up 3.3% compared to Q1 last year, largely due to increased wages for frontline staff and higher insurance premiums. Property tax expense increased 3.2% from Q1 2020 with increases across the majority of regions, with Calgary and Halifax seeing the largest increases. Killam actively appeals tax assessments wherever possible to minimize these increases. These higher operating expenses were largely offset by 6.1% savings in heating fuel and utilities. These savings were a combination of lower natural gas pricing in New Brunswick and Nova Scotia and decreased natural gas consumption due to milder winter weather and the continued rollout of energy efficiency projects. We also realized a decrease in electricity expense related to savings from LED lighting retrofit, warmer temperatures and a reduction of utility being included as part of a tenant's monthly rent. Slide 9 highlights our debt maturity profile, including average apartment mortgage rates by year versus prevailing CMHC insured mortgage rate. We realized a 55 basis point reduction in interest rates on the $10.6 million of mortgages that were refinanced in Q1 2021 and expect continued opportunities to refinance at lower rates for mortgages coming up for renewals throughout the year. Slide 10 includes key balance sheet metrics. We are maintaining a conservative balance sheet and ended the quarter with debt as a percentage of total assets of 45.5%, below our target for the year of less than 47%. In addition, Killam finished the quarter with acquisition capacity of over $240 million. We're well positioned to execute on our growth plans for the year. I will now turn the call over to Robert, who will provide color on our operating initiatives.
Thank you, Dale, and good morning, everyone. Growing earnings from our existing portfolio is a key component of Killam's strategy. Decision to move rents takes into consideration of financial demands on our tenants and the evolving economic climate in our communities and globally. Killam's portfolio of properties benefits from the deployment of innovative approaches that grow our revenues and manage our expenses. Slide 11 highlights 4 key initiatives we are executing at Killam to grow net operating income from existing properties. Killam offers a range of housing options in each of its markets, and we have always maintained a very responsible approach to increasing rents for existing tenants. Killam's portfolio has a wide selection of locations, unit sizes and layouts throughout its urban markets and suburban communities with an average rent of $1.42 per square foot or $1,133 per unit for Killam's same-property portfolio. This represents considerable value and accommodates a diverse group of residents and potential tenants. Please refer to Slide 12. As previously noted, same-property rental rates improved 2.9% for the first quarter. Renewing rents averaged 1.3% increase for the quarter versus 2.1% in Q1 2020. Please note Nova Scotia renewal increases are currently capped at 2% during the state of emergency in the province, and both Ontario and BC have temporary rental rate freezes in effect. These measures are expected to dampen rental rate growth on renewals for most of 2021. And as a consequence, the majority of Killam's rental growth this year is expected to come from unit terms. The blue bar chart on Slide 12 shows the average rental rate growth by quarter and further provides a breakdown of the rent achieved on renewals with the green line and on turns with the gray line. The chart on Slide 13 provides additional details on rental rate growth for renewing tenants by month for the past 24 months. These charts demonstrate that Killam's mark-to-market opportunities remain strong. And based on a 29% average annual turnover can be realized in a relatively short time. The pandemic has not mitigated Killam's determined focus on its suite repositioning program and impress revenue growth lever for Killam. After successfully upgrading 495 suites in 2020, we have targeted 550 repositionings for 2021. Details are provided on Slide 14. During Q1 2021, Killam invested $3.4 million in unit repositionings, completing 149 unit upgrades and achieved an average unlevered return on investment of 12% based on an average renovation cost of $25,500 per unit. I want to highlight, Killam only undertakes repositionings as units become vacant. We emphasize minimizing the downtime for renovation work and provide our residents with the best finishes based on appeal, functionality and durability.The return on cost per unit varies slightly quarter-to-quarter depending on the mix of units repositioned across the portfolio. These capital investments not only achieve rental growth, but also improve the efficiency and market acceptance for Killam's properties. On the expense side, we are investing in expense saving initiative to deliver strong returns on investment. Killam's 2021 energy plan is important as we are determined to lower Killam's utility and heating costs, decrease consumption and reduce Killam's carbon footprint. On April 1, 2021, we released our 2020 ESG report, which details how Killam incorporates environmental, social and governance principles in its operating and business strategies. With oversight from Killam's Board and championed internally by management's sustainability committee, much progress was made on our ESG journey in the past year. Please see Slide 16 for highlights. Along with our energy initiatives, we add more rigor to our energy and greenhouse gas data by commissioning an independent review. This ensures we have an accurate baseline for measuring our performance in the years ahead. We advanced our culture of diversity and inclusion by partnering with the Canadian Center for Diversity and Inclusion and require mandatory diversity training for all management employees as well as a host of additional training for our entire team. We have much more work planned for 2021. We understand the housing affordability issues in Canada, and we are committed to being part of the solution. For example, with our purchase of Nolan Hill in January, we now have more than 825 subsidized affordable housing units across our portfolio. In addition, we donate furnished suites to hospitals in our markets and contribute financially to an array of community organizations. We enhanced our public ESG disclosure, reporting in accordance with all 3 global reporting standards, giving more attention to Killam's material ESG aspect in our business.And lastly, we set out 5- to 10-year medium-term ESG targets, as shown on Slide 17. We will work towards and measure our progress against these targets annually. Adjustments to these targets may occur, with more time, information and the evolution of technology as we pursue carbon neutrality for Killam's portfolio in the long term. I want to finish my comments by speaking to Killam's COVID-19 management and emphasize that Killam's priority continues to be the health and safety of its residents and employees. We have a pandemic illness plan and a wide range of policies and procedures to reduce and/or mitigate the spread of the virus. Our committed employees across the country adapted quickly to the changing circumstances, and we're very grateful for their dedication and good work. We support them by offering additional flexibility in work schedules, and increased compensation for our frontline employees. I will now hand you back to Philip to provide an update on our development and acquisitions pipeline. Thank you.
Thank you, Robert. Slide 19 shows the 2 purchases completed in early 2021. Both were disclosed with our Q4 2020 results in February. On the Nolan Hill development, we placed mortgage financing through CMHC's rental construction financing initiative and have 78 units at 70% of the market rent. This is Killam's most recent commitment to increasing affordable housing for the Alberta market. We are now in the lease-up phase of this development, along with the lease-up of 2 new developments in Charlottetown.Slide 20 grabs the strong lease-up of all 3 developments. The Shorefront in Charlottetown opened in October 2020 and is now 78% leased. Nolan Hill opened the end of January and is 75% leased, with less than 5 market units remaining to be leased. The remaining units are affordable units, which we expect to have fully leased in the near-term as we finalize our affordable housing partnerships. Lastly, the Harley opened in March and after just 2 months, is 63% leased. We expect all 3 developments to be fully stabilized by Q3 2021. The 349 new high-quality units added to Killam's portfolio in the past 6 months, again, reinforces how Killam's development pipeline continues to be a key driver of net asset value creation. Five developments are currently underway in Ottawa, Mississauga, Kitchener and Halifax. Slide 21 shows the approximate 500 units over the 5 projects, which will add $237 million of new product over the next 18 months. These properties will start delivering FFO growth in 2022. Construction activity progressed as scheduled on all projects with only slight delays experienced due to various levels of restrictions in lockdowns in each province relating to the COVID-19. We have seen some increases in instruction cost. For example, slight increases in cost at the Latitude, shown on Slide 22. Fortunately, we are building in markets where the demand is strong and market cap rates compression is still allowing for a healthy 50 to 150 basis point spread between construction, yields and market cap rates. The Kay on Slide 23 remains on budget. Pre-leasing activity is being done on both The Kay and the Latitude. We are excited about Civic 66 in Kitchener. That is shown on Slide 25, and we know this product is in high demand in the downtown Kitchener area. The footings report and construction is progressing on budget and schedule. As well, we have broken ground on The Governor, a unique luxury project in downtown Halifax that is adjacent to The Alexander, the 242-unit apartment building that we built in 2018. The Governor has 3,500 square feet of ground floor commercial space and 12 large units. There are only 2 or 3 units per floor and is a very unique product offering that will complement the brewery market and Halifax Waterfront neighborhood. For reference, Slide 27 breaks down Killam's future development opportunities totaling approximately 3,100 units that are in various stages of development or predevelopment. This pipeline continues to give us great opportunities for value creation for Killam in the future. To conclude, I am pleased with our year-to-date progress and all the strategic priorities in ESG initiatives. We place great effort on being a strong corporate citizen and creating value for all our unitholders. Thank you. I will now open up the call for questions.
[Operator Instructions] First question comes from Mark Rothschild at Canaccord Genuity.
Can you maybe give some more detail on some of your markets that are more exposed to students and foreign students, such as maybe, I don't know if you have more exposure, perhaps in London? And then in that context, maybe it's too early to talk about what your expectations are for the fall to the extent that lockdowns are eased and students could go back-to-school?
Mark. Yes, right now, most of our -- our biggest exposure would be in Halifax -- Peninsula, Halifax. And as you mentioned, we do have one asset in London that very much caters to students. So what we're seeing is demand from students coming back to both those markets. So based on the trending we're seeing, we expect to have some year-over-year gains when we look to September in our student focused market. So the trending is looking good in both of those markets.
Okay. Great. And with the utility costs, which obviously were lower this quarter. When I look at your comments regarding natural gas versus electricity, would it be fair to say that perhaps electricity, the improved cost -- the lower cost would be recurring versus for natural gas, it would be more volatile?
I think that some of the electricity will be recurring as we're moving some of those electric charges, tenant electricity to tenants. Some of the electricity was weather-related because we do have some properties that still have electric exposure for heat, but I think that, that's there. Generally -- well, although as I say that, the natural gas, some of the savings is because of the energy efficiencies we've put on in. But we did have the pricing, the actual cost of gas was lower, quarter-over-quarter. So that won't necessarily be recurring. So I think it's a mix for both of them.
Next question comes from Jonathan Kelcher at TD.
First, just on the -- Rob, you talked about turnover being 29% on average. How is that trending thus far in 2021?
It came in for this quarter at 5.4%, and that's very consistent for the last 3 years. So it's -- we're on track. We think it will trend down a bit as we go through this year. We finished last year just around 29%, what we think we might gain on that.
Okay. A gain is in closer to 25%?
No, no. I won't go that low. It doesn't change that...
Okay. But that direction? That direction?
Yes. It's -- I think it will come in under 29% is my guess.
Okay. And what would you estimate your current mark-to-market is?
We think it's something like 10% to 15% would be the percentage that were a little less than our optimum. And sometimes it's high as 20%. It would vary through the portfolio. But if I was to pick an average, I'd go 15%.
Okay. That's helpful. And then just switching gears on the acquisition front. There's obviously a number of portfolios out there. Would you guys expect to be involved in any of those larger portfolios? Or would you expect to sort of go -- continue to go more on a one-off basis?
Jonathan, do you -- what are you referring to?
Well, there is a story in The Globe last week or the week before, about the multibillion-dollar portfolios. There are rumors of other larger portfolios out there. I'm just curious as to whether you guys would be involved in bidding on those? Or but just sort of stick to your more traditional where you guys just kind of find some off markets and some one-off deals?
Yes. No, that's fair. I think the answer is, since the beginning of the year, there's been midsized portfolios, call them, at that level. And I think that we've been trying. Some of them -- the answer is no. Some of them it's yet to be determined. But I think the large one that you're talking about that I read in The Globe and Mail, we're not part of that. And one of our strengths is off-market relationships with developers, and we'll continue with that part of the program as well.
The next question comes from Matt Logan at RBC.
It's great to see some of your recently completed development leasing up quickly. Can you give us a sense of what's driving the demand, particularly in Calgary? And maybe some color on how leasing velocity is trending across your portfolio overall?
Of the developments, we are pleasantly surprised with the rate of leasing up the Calgary asset. But really, the trend is suburban is strong, and we see that in Calgary with our other assets that are not in the downtown core. And we would also -- if we had a project in Edmonton leasing up, we would probably seeing the same thing, where suburban assets, there's more current demand than the downtown urban course. And then the 2 in PEI, I can honestly say that if anything, we're a little bit sort of behind a typical new build in Atlantic Canada. And I would blame that on COVID-19 and the restrictions and everything else that's going on. I mean, I think we're doing very well with the understanding that we are still in state of emergencies and lockdowns in a lot of the provinces.
And in terms of the lockdowns and the rent freeze in Ontario, do you think that keeps a lid on your top line growth at around 2% this year?
Well, I mean, we're -- there's a couple of parts. One is, we see, on average, the turnover. So if it's vacant, we have the ability to look at it and assess the market in terms of what the rent is going to be. But it's interesting where we came out in the last, basically, 8 to 9 weeks, it's been very strong leasing from our point of view, right across the board. And we are basically believing that was the sort of the pent-up demand and everybody's sort of outlook for the remaining part of the year and where COVID is going. But as soon as the Ontario third wave came into, we saw a little bit of slowdown because it just restricts people's movements and activities. And we're in one now here in Nova Scotia, and it's -- it really -- we haven't seen it yet, but if this continues more than what is expected, which is only a couple more weeks, maybe the end of May, it will start to slow down. So there is a correlation between the 2.
So some encouraging signs, but hopefully, once we get vaccines rollout in the back half of the year, we could hopefully see some of that again.
I think so. I mean -- go ahead.
Matt, I was just going to mention that the disclosure that we put in the MD&A where we talk about the $2.9 million we've actually seen achieve in Q4 -- in Q1 rather, is kind of representative of the impact with those restrictions. Because when we look at the lease renewals, those are what actually came into effect in the quarter when the restrictions were in place. So when you look at what to expect for the year, I think that, that's probably a good starting point because that includes restrictions imposed because of COVID.
That's great color. I appreciate all that. And maybe just changing gears, when we think about the margins, maybe just circling back on some of Mark's comments with regards to the utility cost. Is it possible we could see some modest margin expansion continue in the balance of the year? Would that be a fair assessment?
I think we have the potential for that. I think that Q1 is where we really see that those energy costs makes the biggest difference. But as we continue to make top line growth and continue to manage the expenses, I think there's the opportunity for that.
The next question comes from Joanne Chen at BMO Capital Markets.
One just maybe on that with some of the recent restrictions that have been put in place, obviously a very healthy rebound in organic growth this quarter. And obviously on track to achieve the 2021 targets. But just wondering how should we be thinking about the trend in that given some of the recent measures that were put in place and some of the recent spikes in cases in Atlantic Canada?
I think what's happening there is a recent spike, but also, the vaccine is rolling out, and I think that, that will overcome this spike. And so our expectation is by June, July at the latest, we should have a fairly open market that won't be an issue. Our leasing has maintained serious momentum through the last 9 weeks. We've had almost record numbers of weekly leasing, averaging about 113 units per week, which is very strong for this time of the year. So I'm optimistic that we can get through this without very much impact from this recent lockdown.
Okay. That's good. That's good to hear. And maybe just shifting, I guess, to the repositioning program. Obviously, you guys have remained very well on track. But just wondering with some of the rise in development, a lot of the cost inflation that you're hearing, is that changing any sort of your decision making with respect to the repositioning program at all or do you still expect to remain on target?
No. We expect to remain on target, but you're right to highlight that. I mean there is some cost escalation, and it's also just product availability. So for us, white goods being [indiscernible]. It's more difficult to get product. We had stockpiled certain number. So that put us in a good place. But we don't have to watch the costs going as we go forward. The market acceptance for these renovated units is tremendous, and we don't want to miss the opportunity. So we'll find a way to get it to that one way or the other.
Okay. And maybe just the last one for me with respect to -- on the acquisition side. Is there -- are you seeing more opportunities right now, that's at your criteria kind of in the Ontario market or kind of blend still with opportunities at West?
I would say that so far this year, there's been a lot of opportunities right across the country. Be -- what's for sale is there's a lot more year-to-date compared to last year year-to-date. So it's just a matter of sort of sifting through and figuring out what you think you can buy and what fits in the best.
Next question comes from Matt Kornack at National Bank Financial.
It's just a follow-up on that point with regards to acquisition opportunities. Are you seeing these opportunities in all markets at pricing that -- or any markets at pricing that makes sense. It sounds like there's a fair bit of product, but there's also a fair bit of buyers in terms of people looking at it, and then pricing has been fairly aggressive. But are there any markets where maybe there are more sellers than necessarily buyers that would provide a pricing opportunity?
No. I think there's lots of opportunities. There is tremendous depth on the buying side, and the pricing is basically -- it is what it is. As you look at it, just look at the single-family home market right now, right across the country and how much that's gone up. And there is a correlation, again, in a relationship between that and where pricing is going for the multifamily.
And we talk a lot about affordability of rents, but your home market or your largest market, Halifax has seen home prices increase pretty precipitously. What are your thoughts there in terms of the longer-term implications on rental markets generally, I mean, as home prices move in the way that they have?
Well, I think it strengthens the rental market for us.
And back to acquisitions. What are your thoughts on buying more sort of retail properties with intensification opportunities or looking at maybe some stuff that's a little bit more creative. And it seems like development for you, at least from a cost of capital standpoint is still a pretty attractive place to put incremental dollars?
Yes. I mean I think we have -- from a pipeline of development opportunities, I mean, our 2 largest retail or commercial assets, Charlottetown and Waterloo, we've got enough opportunity around those assets to fulfill a lot of our future development on the apartment sites straight up. And so that's why we bought them, and we're working very hard in both locations. So with that in mind, there's no other new market, new commercial-type of opportunity that we're looking at.
And last one for me, just in terms of the status of some of your larger projects in Ontario. Is there any update on the timing of those and when you'd be going ahead with phases?
Well, we're not -- we have 2 more phases in Ottawa with RioCan, and we're not really working a lot on the third phase. We want to get this second phase finished and start moving people in. We are in the application process in Waterloo. We're still working on that. So once we get that first one, that will be multiple years. And we fully expect to be able to do 3 to 4 phases down there once we start the first one.
And sorry, last one, timing-wise, when would you, at this point, anticipate potentially getting started on that project?
Waterloo?
Yes.
We have hoped to be able to come pretty close to breaking ground this year. It'll be at the very end of the year, for sure.
The next question comes from David Chrystal at Echelon Capital Markets.
Just looking at your same-property occupancy and some of the comments and answers to a few of the other questions. You mentioned leasing volumes, there's some pent-up demand and there's kind of sizable leasing volumes post quarter. Where do you see same-property occupancy trending in the coming quarters? Obviously, lockdowns kind of throw a wrench at everything. But it kind of held steady after first [ sitting ] in Q2 2020, would it be fair to say we should see year-over-year improvement in the remainder of the year?
I would say that, yes, we do expect 2% or 3% gain. We are -- go ahead.
I say just as one of the markets that has been suffering a little bit is Newfoundland, and we've seen some really good gains in that marketplace over the last 3 months, and we expect that to continue through the rest of the year.
And kind of in that context, the lifts on turnover, obviously, the lifts on renewal are impacted by freezes or caps. The lift on turnover was in the kind of 7%, 8% range for the last 3 quarters. Is that a good expectation going forward, assuming that the same number of repositionings take place?
I think that's reasonable to assume. Yes.
Okay. And so I guess if I'm kind of looking at, say, 3% rent growth and flat to potentially positive spread on occupancy. It looks like we could see organic growth in the 3% plus range for the back half of the year. Would that be fair?
I think based on those assumptions, that's reasonable, yes.
Next question comes from Mario Saric of Scotiabank.
Just coming back to the near record leasing that you highlighted over the past 8 to 9 weeks, is that simply -- would you characterize that as simply being pent-up demand during the pandemic is it kind of typical seasonality? Or are you seeing any other unique trends materializing?
I think a couple of universities coming out and saying they're going to have in-person classes has prompted some of that, anybody that was on the sidelines would like to secure their accommodations for September. So we're sure that's a component of what's going on. But overall, in the markets, it seems there's a fair bit of, I think, enthusiasm. So people are looking to move around. The recent change with the -- a couple of additional lockdowns is unfortunate, but it's not going to stop the momentum. I think that there is the pent-up demand people are looking around and they're prepared to move and they offer good product. So I think it's moving in the right direction overall.
And on the student leases in London and Halifax can you just remind us of the typical structure with respect to the leases and when those typically kick in for a usual September school session?
Did you say kicking in May? We start leasing as we come into the new year. Students go home, especially the ones that are in residents, and they start speaking to their parents and as units come up the early part of the year, and we get a few, and then it just ramps up before they leave campus in September. It's before the campus start of me in April. A number of them locked down their accommodations for the year. We don't typically do 9-month deals, although that's more like to school year, we would do annual deals across the board in our buildings. And that's the way that some of the mates have let during the summer, Mario, but that's the structure we have.
Okay. And then my last question. Just turning to the mark-to-market on Slide 13. It sounds based on the previous commentary that the expectation is for that to maybe come up a little bit on the strength of the leasing market. Just with respect to the Q1 mark-to-market, is it fair to say that there's some kind of incremental self-regulation in that 4.4%, or was it simply a function of the vacancy increase on a year-over-year basis that drove it a bit lower than what we're typically seeing?
I think there's a component of self-regulation there. At this time, nobody wants to be in the front on raising rents too aggressively. I think that, that's probably the right thing to do in this market. But there is the opportunity to, as units come vacant, we will move them when the market [indiscernible] there.
Okay. And then the -- I guess, the 10% to 15% mark-to-market that you highlighted, are there any notable market rent changes quarter-over-quarter within the geographies? Or are the market runs pretty stable?
I can't highlight one for you, off the top of my head. I don't know. I'll ask the rest of the team here. Yes? So Dale?
Yes. Mario, it's Nancy here. Yes, I would say that the -- honestly, there's really no notable changes from market to market. I mean Halifax would have a bigger spread and other markets would have very little at this point. But overall, we're looking at it. It always changes what's in place versus what kind of units we're leasing in each of the months. But I would tell you that it has remained pretty much steady as is over the course of the first 4 months of 2021.
[Operator Instructions] Next question is from Dean Wilkinson at CIBC.
Phil, The Governor, that's quite the project. I mean that's something we'd see here in Yorkville. What was the decision around -- and I realize it's 12 units, but what kicked off the thought of introducing that kind of product? And is there demand for sort of $7,000 plus a month units in Halifax? And when that's done, that's probably a sub 3 cap asset.
Well, we're pro formaing it above the 3. So that's not what we believe we're going to be able to achieve on this asset. And the answer is, yes. I mean, if you look at the way that basically, the new rental market sort of grows, typically a lot of the buildings. And even back in the 1960s when they built buildings, the penthouse floor, the top 2 floors were larger units and basically charge more rent. And so even today, a lot of the designs are like that. And what we recognize and see is that there's competition right now in the market that would be achieving the same rents per square foot that we're going to look to achieve right now in the downtown market. And what is -- what we look at it is that it was a small sort of a piece of land with restrictions in terms of the height, and we know that what it is, it's a complement To the Alexander. And so look at it as just another extension to what that building is. And so from a service point of view, amenity, everything else around it, it all blends into it. And as opposed to putting in smaller units at the same per square foot pricing, the decision was larger ones, and we think we'll be able to achieve it quite -- the outlook is quite strong.
Right. I mean, as I recall, and my memory is starting to go a little. You do have some larger-sized suites and some of your buildings that are quite updated, right?
Absolutely. Comparable brands, Alexander. Yes.
And they're comparable brands to that. Okay. I can't wait to see this thing once completed, I think. Yes. That's all I had.
There are no further questions. You may proceed.
I guess we're not hearing any more questions?
No further questions. You may proceed at this time.
Okay. Well, I would just say -- like to say thank you very much for listening and participating today on our first quarter 2021 conference call, and we look forward to being back here in August for Q2. Thank you very much.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.