Killam Apartment REIT

TSX:KMP.UN

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, ladies and gentlemen. Welcome to the Killam Apartment Real Estate Investment Trust Third Quarter 2024 Financial Results Conference Call.

[Operator Instructions] This call is being recorded on November 7, 2024.

I would now like to turn the conference over to Mr. Philip Fraser, President and CEO. Please go ahead.

[Philip Fraser, executive]

Thank you. Good morning and thank you for joining Killam Apartment REIT's Third Quarter 2024 Conference Call.

I'm here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; and Erin Cleveland, Senior Vice President of Finance.

Slides to accompany today's call are available on the investor relations section of our website, under Events & Presentations. I will now ask Erin to read our cautionary statement.

[Erin Cleveland, executive]

Thank you, Philip.

This presentation may contain forward-looking statements with respect to Killam Apartment REIT; and its operations, strategy, financial performance conditions or otherwise. The actual results and performance of Killam discussed here today could differ materially from those expressed or implied by such statements. Such statements involve numerous inherent risks and uncertainties. And although Killam management believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that future results, levels of activity, performance or achievements will occur as anticipated. For further information about the inherent risks and uncertainties in respect to forward-looking statements, please refer to Killam's most recent annual information form and other securities regulatory filings found online at SEDAR+. All forward-looking statements made today speak only as of the date which this presentation refers, and Killam does not intend to update or revise any such statements unless otherwise required by applicable securities laws.

[Philip Fraser, executive]

Thank you, Erin.

We are very pleased with our strong financial and operating results for the third quarter of 2024. Killam delivered FFO per unit of $0.33 per unit in the quarter, a 3.1% increase from $0.32 [indiscernible] in Q3 2023. We achieved 7.4% same-property NOI growth across the portfolio in the third quarter, positioning us to meet our target of 8% same-property NOI growth for the year. We have also made very good progress towards achieving all of our strategic goals, as shown on Slide 4.

We ended the quarter with 40.7% debt-to-total asset ratio, the lowest in our operating history; and continue to focus on strengthening our balance sheet in the lease-up of our recently completed developments. We continue to see strong rental demand for our properties, which shows in our same-property apartment occupancy that ended the quarter at 97.9%.

Dale will now take us through the financial results; followed by Robert, who will discuss market trends within our core markets. I will conclude with an update on our current and recent developments and our capital allocation strategy. I will now hand it over to Dale.

[Dale Noseworthy, executive]

Thank you, Phil.

Key highlights to Killam's Q3 financial performance are presented on Slide 5. Killam reported robust earnings growth, including fair value gains on investment properties of $51.3 million. We are pleased to report another strong quarter of same-property NOI growth, up 7.4% in Q3. These gains were a primary driver of our 3.1% increase in FFO per unit. Top line growth was key to our strong results. Overall same-property revenue was up 5.9% in Q3. This includes a 7.2% increase in rents in September 2024 compared to September '23, partially offset by an uptick in vacancy.

Slide 6 summarizes the rent gains achieved by quarter for those units that turned or renewed in the period. For the second consecutive quarter, Killam achieved an average rent increase of over 20% for those units that turned over to new tenants during the quarter. Renewal increases also remained healthy at 4.7%. Combined, Killam achieved a weighted average rental increase of 7.7% during Q3.

Same-property operating expenses increased by 2.6% compared to the third quarter of 2023, as detailed on Slide 8. As we've seen in previous quarters this year, the most significant cost pressure was property taxes, up 5.2%. General operating costs were up 3.6% due primarily to inflationary pressures. These increases were partially offset by a 4% decrease in utility and fuel expenses due primarily to lower electricity costs in Alberta.

Overall, Killam's same-property apartment operating margin improved 100 basis points in Q3 and is up 160 basis points year-to-date versus the same period last year. Killam's total operating margin has improved 180 basis points, which reflects the disposition of properties with lower margins and the introduction of new developments with higher margins.

I'm pleased to report positive FFO contributions from our 3 recently completed developments in Q3, with further contributions expected as the properties reach full occupancy. Developments contributions to FFO per unit growth will continue throughout the next year as full occupancy is achieved. To quantify the impact, Slide 9 highlights the approximate impact of $3.5 million in additional earnings in 2025 to accelerate our FFO growth.

Higher interest expense impacted Killam's FFO per unit growth in Q3 following higher mortgage rates on renewals over the last year. Recent decreases in interest rates are encouraging and provide a path for more attractive refinancing opportunities looking forward. The longer-term outlook for refinancing is favorable. Looking out beyond 2025, current CMHC insured refinancing rates are not far off our 2026 maturity rates and are starting to come in lower than our average rates in 2027 and beyond.

Slide 10 includes average apartment mortgage rates by year versus prevailing CMHC insured mortgage rates. In the coming year, we have the opportunity to increase our CMHC insured mortgages from our current level of 76.2% to 85% by the end of 2025, reducing our overall borrowing costs. Our total debt levels have also improved, with debt as a percentage of total assets down to 40.7%, the lowest in our history.

Slide 11 shows our debt management strategy has changed our balance sheet composition over the last decade. We plan to continue this positive trajectory in the coming years. Finally, debt-to-normalized EBITDA, a key metric for measuring balance sheet health, was further reduced to 9.86x in Q3, positioning us competitively among our Canadian peers.

We're in a strong financial position as we get ready for 2025 both from a balance sheet perspective and from an earnings growth perspective.

Robert will now discuss the strength of our portfolio in the current market.

[Robert Richardson, executive]

Thank you, Dale. And good morning, everyone.

The prevailing trend in market rents across the country has been receiving increased attention recently. Killam closely monitors market rents in each of its operating regions, and we continue to see rental growth across the portfolio.

Slide 12 illustrates the change in rents per square foot achieved on new leases signed in Q3 2024 compared to Q3 last year. The Atlantic region remained strong, with Halifax delivering an increase of $0.48 per square foot on new leases signed in Q3 2024 compared to new leases in Q3 '23. Other Atlantic Canadian cities in New Brunswick and Newfoundland also performed, when compared to larger markets such as the GTA, Kitchener-Waterloo, Cambridge and London.

Killam's geographic diversification is yielding positive results, as demonstrated on Slide 13. Killam's experienced staff and established operating platform enables Killam to quickly respond to market factors impacting its portfolio and offer competitive rates in this fluid market. As Dale indicated earlier, Killam's same-property revenue growth was just over 20% on new leasing across the portfolio in Q3 2024.

Slide 13 reinforces the relative strength of the Atlantic Canadian market compared to Ontario and the West. Rental increases achieved with new leases are strongest in Halifax, Saint John and Moncton, yet we are pleased to note that Killam's current average rent-to-income ratio on new leases across our portfolio aligned with CMHC's definition of affordable rent, as a percentage of [ gross income ]. Killam manages its portfolio to capture market rents as units turn. However, we remain cognizant of our responsibility to our communities by maintaining an affordable housing component in Killam's mix of rental suites. For example, we work with CMHC's finance programs to deliver an increased supply of rental units with long-term affordability commitments.

Looking forward. Our overall mark-to-market spread on rental rates has tightened slightly from 25% to 22%. Unit turnover is stabilizing in the 18% range for 2024, trending similar to 2023's 19%, as shown on Slide 14. The bottom chart on this slide highlights the fact rent control jurisdictions foster lower turnover of units that result in higher mark-to-market rental spreads. On the supply side, municipal and federal government efforts have encouraged new construction across Canada. And we are seeing increased housing starts for both multi- and single-family properties, but it will take many years to deliver sufficient housing to balance out demand.

For example, the 10-year annual average housing starts in Halifax is approximately 3,000 units, which worked well when Halifax was growing at 7,500 people per year. However, given higher population growth in the last 2 years, which averaged 20,000 people per year, housing starts have not kept pace. In the last 12 months, there have been only 6,300 housing starts, which is insufficient to house the 40,000 people that arrived in 2022 and 2023 combined, let alone the expected 12,500 people in 2024.

As of 2023, the province of Nova Scotia estimated an existing shortfall of approximately 20,000 housing units. Forecasts suggest that, to accommodate recent and future population growth, the province will need over 70,000 new units by 2027, including the existing shortage; and over 100,000 units by 2032. If future housing development continues to reflect recent trends, approximately 6,000 units could be built annually. This pace of construction will still result in a housing deficit of 40,000 units by 2027 and 44,000 units by 2032. As such, Killam does not see the increase in housing starts as a threat to its occupancy levels. Rather, we welcome the much needed new supply to our growing city.

With rents on new developments priced at the higher end of the market, ranging from $1,700 for a bachelor to $3,000 for a 2 bedroom per month, Killam does not anticipate notable pressure on its portfolio and may well experience additional demand for our suite as tenants seek more affordable options. Killam's diversified approach to building its portfolio over the past 2 decades has created an inherent resiliency to fluctuations in market demand.

Killam's portfolio is well positioned for growth across all markets. As seen on Slide 16, our portfolio is not overexposed to any single price point. For example, this chart shows only 27% of Killam's portfolio would be impacted by the level of rent a new building must charge, given the cost to construct, being $1,700 to $3,000 per month in rent.

I will now hand you back to Philip, who will share further insights on our growth strategy and recent developments.

[Philip Fraser, executive]

Thank you, Robert.

During the quarter, Killam invested $2 million in energy initiatives. This brings Killam's total investment to $4.4 million year-to-date. At the end of Q3, our current production capacity of 2.24 megawatts per year produced approximately 5.4% of our operationally controlled electricity. We are on track to build and go live with another 5 sites before December 31, 2024, bringing our capacity to 2.87 megawatts or approximately 7%.

The next site expected to be turned on this month is Quinpool Court in Halifax. This solar panel installation will be Killam's first virtually net metered project, which means its generated electricity can be greater than what the building can consume for its common areas. Therefore, the surplus electricity generated can be transferred to another Killam-owned property within the local utility's distribution node, which will be Quinpool Tower next door.

Recycling capital by divesting out of slow-growth secondary markets or lower-yielding assets while focusing on our development program and strengthening our balance sheet has been a key component to our 2024 strategy. As of September, Killam has sold 5 properties for a total of $39.5 million. And subsequent to the quarter, we have closed 1 additional property for $8.2 million. With completed dispositions in Guelph, Halifax and Charlottetown, totaling 288 units; and several other dispositions planned before the end of the year, we expect to exceed our target of $50 million. These planned dispositions meet our criteria for recycling capital and will also further increase our percentage of NOI generated outside Atlantic Canada, thereby enhancing our geographical diversification.

During the quarter, The Governor and Civic 66 achieved initial lease-up. Nolan Hill Phase 2 is now 88% leased, with 28 available units remaining. The Carrick is expected to be completed by June 1, 2025; and pre-leasing has already started. Construction continues at Eventide, our 55-unit building on Spring Garden Road in Halifax, with a completion date of Q2 2026.

We are ready to start construction, in Calgary, on our 296-unit Nolan Hill Phase 3 development, where we have a 10% ownership interest. We are about to start site work on the 128-unit Wissler development in Waterloo and expect to have all permits to begin construction by the end of the year. In Halifax, we are working on 2 as-of-right developments: a 95-unit building at Victoria Gardens and a 150-unit building at our Harlington Crescent community. These developments contain 669 units and are all located in markets where we want to continue to grow our portfolio through development.

We intend to increase our disposition program in 2025 and have a new target of between $100 million and $150 million in sales. This capital will be used to pay down our line of credit and other mortgage debt and for acquisitions in our key markets. We believe, with the 4 recent Bank of Canada rate cuts, and more to come, interest rates will trend downward over the next 12 to 24 months.

Finally, we hope to start 1 or 2 developments per year and participate in the new CMHC financing programs that reduce overall development risk by providing below-market fixed-interest-rate financing and a component of affordable housing included in each development. These developments will have a total development cost between $400,000 and $450,000 per door, resulting in lower overall rent compared to other newly built rental buildings.

To conclude. We are optimistic about Killam's future growth opportunities. I would like to thank our employees for their hard work and dedication. And we'll continue to create value for all of our shareholders.

I will now open up the call for questions. Thank you.

[Operator]

[Operator Instructions] First question comes from Mark -- Mike Markidis from BMO Capital Markets.

[Michael Markidis, analyst]

I was just curious. You noticed that -- you mentioned that there was some more softness, I guess, in Western Canada versus other areas in your portfolio. And you've got assets and Edmonton and Calgary. Would you say that the softness you're seeing is similar in both of those markets? Or are there any discernible differences between the trends in both of those things?

[Dale Noseworthy, executive]

I'd say more softness in Calgary. Edmonton actually feels quite robust at this point, frankly, but it's more Calgary.

[Michael Markidis, analyst]

Okay, that's helpful. And then it sounds like you guys are getting more interested in resuming acquisition growth next year. Just curious given your comments on softness in Western Canada and the softness that you're seeing at the high end of the rental market in Ontario; plus your desire to continue -- I presume, your desire to continue diversifying out of Atlantic Canada. What regions are you more -- most interested in? And what your strategy might be in pursuing that path next year.

[Philip Fraser, executive]

Mike, it's Phil. To answer that: Even with a little bit of softness -- I mean we don't anticipate this softness is going to last for a long time relative [ to looking at ] real estate from a long-term point of view, so therefore, we're still going to look in Alberta. And we're still going to look in BC, especially Vancouver Island. And we also like Moncton and here closer to home.

[Operator]

The next question comes from Mark Rothschild at Canaccord.

[Mark Rothschild, analyst]

[ There's talk about ] population growth, immigration slowing. I'm just curious. You guys have done a good job expanding outside of Atlantic Canada at a measured pace for several years now, many years now. Does this make you think about any of the markets differently? Do you expect this to maybe -- will this push you maybe into certain markets more than others?

[Philip Fraser, executive]

Well, I think what you're underlying -- the theme of your question, it's about where the federal government has announced that they're going to slow down immigration. And I think, even again, I mean, they're still saying 395,000 for the next 2 years. And they're going to try to sort of then slow down or reduce the other number of the other categories. Overall, by the time you start to look and by the time even 2 years [ goes by ], I think we're going be back into at least a net positive on immigration. And most of that will go into the larger urban centers, so that's where we'll be concentrating our growth in the future years.

[Mark Rothschild, analyst]

Okay, great. Maybe just one more. You continue to consistently sell assets, recycle capital. The buyers that you're seeing now, is there any change in how they're looking at what they're buying? Is it based on a cash-on-cash return? And maybe just on the assets you're selling: Are these assets that maybe have debt that's fixed in place for some time that they won't have to refinance anytime soon? If you can just give a little more color on that.

[Philip Fraser, executive]

Well, the second part of that question is essentially most of the assets are selling basically all cash at time of closing. And so therefore, they're going to arrange their own sort of short-term or long-term financing either on closing or shortly thereafter.

Typical profile of buyers, again it's just multiple smaller owners that are looking in markets where they might have 1 or 2 assets. And they basically are very interested in assets that we have. And again, from our point of view, the profile is the assets that were in sort of areas where we had no growth for many years because it wasn't one of our major markets in Atlantic Canada. It was also -- some of the assets would be from a size criteria. And the third part of it is -- and we've said this many times, is our interest in -- has weighed relative to PEI and we will take the capital out of that province and move it elsewhere.

[Operator]

The next question comes from Jonathan Kelcher at TD Cowen.

[Jonathan Kelcher, analyst]

Just looking at the outlook that you guys put in the MD&A. I just want to sort of marry up what seems to be a little bit of a cautious outlook on Halifax with the expectation that Atlantic Canada should be the -- be your strongest region next year in terms of revenue growth.

[Dale Noseworthy, executive]

What we really want to highlight there, we highlighted it throughout, that it really is, when you hit that top end of the market, call it 2,500-plus, whatever -- it varies a bit by market. The more expensive units is where we're seeing a more flattening in terms of market rent. So the wording was -- what we were trying to convey was that, I mean, Halifax is still strong, but some select assets that are at that higher rent -- those market rents are flattening, and we're still seeing growth in some others. So when we talk about Atlantic Canada, Halifax is included in that, but there are some assets at the top that we would have seen some -- we're seeing some stabilization [ of rents ].

[Philip Fraser, executive]

Yes. And it's also a little bit of a market commentary relative to -- as we talk to other developers. And where they're leasing up larger new buildings, they're basically [indiscernible] the -- basically commentary is it's getting a little bit harder to lease up anything over $3,000 a month.

[Robert Richardson, executive]

So it's slowing down somewhat [ with the other ]...

[Philip Fraser, executive]

Yes...

[Dale Noseworthy, executive]

At the top end, yes.

[Jonathan Kelcher, analyst]

Okay. So the top end is slowing, but still, I mean, you guys have got lots in the sort of mid-range and you expect to keep growing nicely -- a fair way to think about...

[Dale Noseworthy, executive]

Absolutely [indiscernible], yes.

[Philip Fraser, executive]

[indiscernible].

[Jonathan Kelcher, analyst]

Okay. And then on the expense growth side, Dale, I think you talked about 2% to 4% next year. And you also talked about getting margin expansion but said that, that would be aided by the change in portfolio mix. I guess, on a same-property basis, would you still expect margin expansion next year?

[Dale Noseworthy, executive]

Yes, I do. I think that, when we took -- look at the top line growth that we would expect to get -- and that 2% to 4% of our controllable costs, as we always -- we'll see what the winter brings. We'll see what property taxes bring, but as long as they're not totally wildly increased, we would expect some pretty healthy NOI growth and some margin expansion, yes.

[Robert Richardson, executive]

And if I could add this. I think, on the disposition side, some of the properties we're selling are older and less energy efficient, so we're seeing gains as we lose some of that in our portfolio.

[Jonathan Kelcher, analyst]

Okay, that's helpful. And then just lastly, on -- and quickly, on New Brunswick. Are your expectations still for a 3% rent cap in 2025? And what was -- what uplifts did you get in 2024 there?

[Dale Noseworthy, executive]

So...

[Philip Fraser, executive]

The expectation is that's what the new government has basically been saying relative to their platform. And we'll know a lot more in the next basically month or so, for sure.

[Robert Richardson, executive]

I think they're willing to consult too. So that's good news.

[Philip Fraser, executive]

Yes.

[Dale Noseworthy, executive]

In this past year, we're probably like more 4.5% to 5% range.

[Operator]

The next question comes from Brad Sturges at Raymond James.

[Bradley Sturges, analyst]

I think starting with the disposition activity that you're expecting to see by the year-end and increasing your target for next year. Is that partly a function of seeing more unsolicited or more buyer interest in the private market coming back in for some of the assets you've identified that could be for sale?

[Philip Fraser, executive]

Absolutely. We've had a lot of inquiries in the last 2 or 3 months, so even looking out, if we can sort of agree on pricing on a number of assets, and -- then we're going to be off to a great start next year.

[Bradley Sturges, analyst]

Yes. And I guess you've identified Moncton as an area where you could be active from an acquisition point of view. If we look at the rest of New Brunswick, would it be fair to say you're more of a net seller than the other 2 markets?

[Philip Fraser, executive]

Yes, but it's not as simple as just saying yes. I mean we probably have a couple of assets that we would be willing to sell in the other cities. And really again it's a function of size and basically how it fits in with the rest of our portfolio. Moncton is interesting because there is quite a bit of new development. And it's growing the fastest of the 3 cities, so we just see a lot of demand from -- for new product in that market. And we'd be willing to look at some of the product that's being built because they've got some really good local developers out there.

[Operator]

Your next question comes from Kyle Stanley, Desjardins.

[Kyle Stanley, analyst]

Just sticking with Moncton just given that you've maybe highlighted it as an area you'd like to buy. And you mentioned some new development. I know, obviously. Very early days. Is there any discussion? Or have you heard anything from the new government that would indicate there might be like a rent control break or holiday, not unlike what you see in Ontario, for new build as they think about rolling out the process? I know, Rob, you said they're open to discussion. Just curious.

[Philip Fraser, executive]

Yes. We have no insight at all. I mean we're just reading what's in the sort of the press and the news.

[Kyle Stanley, analyst]

Okay, fair enough. That makes sense. Just curious. For next year, as you think about the guideline increase in Nova Scotia being at 5%, do you see -- do you have any concerns with being able to achieve that just given that the market that -- has maybe shifted a little bit and kind of lower inflation on a macro basis?

[Robert Richardson, executive]

Turnover is down to 20%. I'd say that we feel quite confident that we can achieve [ it ]. There's not a lot of alternatives [ in this market ].

[Kyle Stanley, analyst]

Okay. And -- yes. No, that's fair. And just the last one for me, I guess: If we look at the most recent Rentals.ca report, it had Halifax running at year-over-year rent growth in the 11% range, let's call it, asking rent. Curious. Do you believe that's accurate? Is that what you're seeing on the ground? I would just love to hear your thoughts on what we're seeing come out of some of these monthly reports.

[Dale Noseworthy, executive]

We tried to -- we added a new slide, which you might -- 2 new slides, which you may have noticed, but Slide 12, to actually -- in reaction to that, to show what we're seeing on a per-square-foot basis on what we've been able to achieve. And that Halifax number, it's probably in that, if not even a bit higher, so it really does stand out that, Q3 this year versus Q3 last year, it has moved up.

[Kyle Stanley, analyst]

Okay, fair enough. I had done the quick math earlier when I saw the slide and thought it but still wanted the color.

[Dale Noseworthy, executive]

Yes.

[Operator]

Your next question comes from Mario Srazek (sic) [ Saric ] with Scotiabank.

[Mario Saric, analyst]

Just I wanted to continue on the new lease spreads, the renewal rate for '25. As you mentioned, you feel pretty confident [ about hitting 5% ]. How confident are you in terms of your ability to continue hitting 20% new lease spreads over the next 2 to 3 quarters?

[Robert Richardson, executive]

I'm not so sure, Mario, it's going to be 20%, but I -- what I do know is we do have room. The mark to market, we've not absorbed all of that. And so I'm quite confident, as we go forward, we should be able to.

[Dale Noseworthy, executive]

And it will depend all on what units turn. So some that have only been there in the short term, obviously that looks different, right? And some of them may be more inclined to move because they don't have that mark-to-market spread, depending on the market, so I think which units turn can make a big difference.

[Mario Saric, analyst]

Got it. And just on that point, do you have any incremental color on kind of the weighted average lease term from units that did turn in this quarter in relation to what the overall WALT would be for the portfolio?

[Dale Noseworthy, executive]

I don't think we have that data. So in terms of you're asking the units that turned, how long they had been tenants essentially...

[Mario Saric, analyst]

Yes. I'm just trying to understand whether this quarter or the past quarter and whether the weighted average lease term is abnormally low or abnormally high in relation to the portfolio.

[Dale Noseworthy, executive]

We don't have that data on hand to be able to comment. I expect it's pretty similar to what we've seen. I mean I don't think anything stands out as abnormal this quarter, but we don't have those details right on our fingertips.

[Philip Fraser, executive]

Yes, but just when -- I think, when I listened to your question, Mario -- I mean we're seeing positive spreads right across the country, with a little bit less in sort of the West, right now, but I mean it really is a function of where we've been in terms of an average rent as a portfolio. And we would be the lowest of the other 3 or 4 REITs that we -- our peer group in Canada, so -- and really what you're looking at is tenants that might have been with us for many years. And the rents have moved a lot in the last 3 to 4 years, and that's what we're capturing not just in Halifax but right across the country.

[Mario Saric, analyst]

Yes, okay. No, that makes sense. And then my second question just pertains to a comment that you made on Page 9 of the MD&A pertaining to reduced pressure from interest rates, with the outlook moderating. i.e., it -- you feel like it's getting better. I'm curious on the comment that you expect a refi rate in '26 closer to your current average rate. And I just wanted to clarify whether you're saying that you expect a '26 debt refi rate that is consistent with your expiring rate in '26, which is 4%; or closer to your current weighted average rate of 3.5%.

[Dale Noseworthy, executive]

Looking at what's coming due in that year.

[Mario Saric, analyst]

[indiscernible], okay.

[Dale Noseworthy, executive]

And based on current information, so just -- looking out, if we were to assume today's bond yields, we're getting pretty close [ on what's the rolling period ]. Operator, is there another call -- questions? One moment, while we determine what's going on.

[Technical Difficulty]

[Operator]

Next question comes from Matt Kornack, National Bank.

[Matt Kornack, analyst]

Just quickly. Is it fair to say that your goal through capital recycling is still to kind of lessen or make newer the age of the portfolio? And if so, can you kind of give us the sense as to how to balance the idea that some of these older assets have probably more defensive rent profiles but there's clear benefits to owning new assets as well?

[Philip Fraser, executive]

It's -- I think the majority of looking out for 2025 is fundamentally there's a -- we still have a lot of assets in PEI. So I mean that's in itself -- and we've talked about this in the past, but we're going to concentrate on selling-down in that marketplace, so that -- whether they're low rents, brand new, eventually we'll be out of that market in the next couple of years. The other assets, it really is about when we look long term. And not that there is deferred capital maintenance right now in those assets, but in the next 3 to 5 years, they are going to take quite a bit of money to maintain them and basically at the size and where costs have gone over the last 4 years of inflation. That's another added element and makes part of the decision to sell them a lot easier. So it's not just they are affordable. It is about the combination of what it's going to take to maintain them in the next 5 to 10 years.

[Matt Kornack, analyst]

No, that's fair. And then just, in terms of in the quarter, it sounds like you had some transitory vacancy in Victoria, London and obviously Calgary, but that sounds like it's related to kind of lease-up of one property adjacent to an existing one. Can you give us a sense as to how quickly you think those will resolve and maybe the nature of the vacancy? Was London student related? Or otherwise.

[Dale Noseworthy, executive]

Yes, London was student related. And that property is full now. So we see that every 3 years, frankly, with that properties as the group of students leave [ and at least come back as new ] people come in September. So that is resolved. And then the other markets are that's what we're working on.

[Philip Fraser, executive]

I mean our vacancy around the Nolan 1 is...

[Dale Noseworthy, executive]

Yes. It would be -- like that particular [ node ] would be almost 25% to 30% of our overall vacancy. And in Victoria, that will take a little bit, but we're focused on that particular region right now.

[Robert Richardson, executive]

Yes. I think the other thing to highlight is that Nolan 2 is leasing up for the first time. And so it's just making its way through. It's a big complex over 200 units. And it takes a little longer now, and so -- but now it's included in our numbers.

[Matt Kornack, analyst]

And do you actually see people moving from your existing property to that one during the lease-up? And then you're backfilling those and, I guess, filling both properties at the same time. Is that fair?

[Philip Fraser, executive]

Well, yes, because we had people from Treo moving in to Nolan 1. And we see a lot -- some people moving from Nolan 1 to Nolan 2, so that's pretty common. I think -- discussing it yesterday that the properties that, [ I think ], only finished -- say for instance the property off of Spring Garden Road -- next to Spring Garden [ place ]. Most likely, we'll have people moving from our older building, into the new building. And then that creates a little bit of vacancy from that point of view. And we'll probably see that when we get the asset built up in Wissler because it's right next door to [ 270 ] units that we own. Pretty common.

[Matt Kornack, analyst]

Yes, makes sense. And then maybe just quickly on New Brunswick with the potential introduction of a rent cap. Can you give us a sense as to your experience in Nova Scotia with the rent cap? Presumably it just decreases turnover, but you're getting higher spreads on turnover, so net-net, it will kind of spread the rent increases out over a number of years. [ Has that been your experience ]?

[Robert Richardson, executive]

Yes, we are confident that's how it will play out.

[Matt Kornack, analyst]

[ Okay ], makes sense.

[Robert Richardson, executive]

At least it's inflation, right, 3%. I think so. Unlike PEI, so...

[Matt Kornack, analyst]

Right.

[Operator]

Your next question comes from Sairam Savaris (sic) [ Srinivas ] with Cormark Securities.

[Sairam Srinivas, analyst]

Most of my questions have been answered, guys. Just maybe going back to your comments, Dale, on the softness in the high end of the market versus the lower end. How does that translate into your development strategy?

[Philip Fraser, executive]

Well, I think we've been pretty vocal on the fact that the majority of these developments that we're going to undertake over the next 2 to 3 years will have a affordability component. So once you do that, you're tapping into the newer programs from CMHC and also providing affordability to a certain percentage of the new building. So I think that's the way that these developments work from a yield return. And it's also providing an affordability component to the markets.

[Sairam Srinivas, analyst]

That makes sense. And maybe just switching to the debt side of the structure. Leverage has been going down on a quarter-over-quarter basis. Do you guys have a floor in terms of where you see that leverage number kind of landing, or is it more of a market-dependent call?

[Dale Noseworthy, executive]

We haven't talked about a floor. I think we definitely see the advantages in terms of those lower debt leverage. We like the trending we've seen. So we are pretty close to getting under that 40%, which would be nice to see, but we'll see. But we haven't discussed a floor.

[Robert Richardson, executive]

We like the flexibility the lower debt level gives us.

[Operator]

Your next question comes from Dean Wilkinson with CIBC.

[Dean Wilkinson, analyst]

Phil, maybe just a question about new assets. I'm kind of hearing in the market that some of the new build stuff is being transacted at or below replacement costs. How do you look at the difference between where you could buy something and the yield on which you could build something? And balance off, say, the development risk, which I think you guys are probably well ensconced in; and the upside from the lease-up versus, say, just buying something that's already there and giving away some of that upside. Are the numbers that divergent? Or does it still make more sense to put shovel in the ground?

[Philip Fraser, executive]

Well, I think it's both. And again, I mean, as you said, we can go out and start to look at acquisitions And you're basically tapping into what everybody else has built, so when I look at it, we've got a couple of advantages. One is most likely the land is next door to properties that we own, so we like that. And therefore -- even though, from a value point of view and an HST point of view, you have to mark the land up to market. Number two is -- and again I think most developers have that attitude, but we build a better product. I mean we spend money, more money, on installation. We spend more money basically sort of in the envelope. We put in solar panels. We have energy efficiency sort of features that we do that we don't actually end up buying stuff that has it, so we're experienced on that. Because we're looking at it, long term, how do we reduce the sort of capital and the repair and maintenance line over the next 10 to 20 years. And all of those things add up that basically, if you have control and have the ability to build, that's going to be a small part of your growth strategy going forward. And at the same time, even if I -- if your -- comment that it's below replacement cost, they're kind of still pretty rare out there. All the developers that we've talked to in the last 6 months are still looking for a bit of a developer's profit. And right now, when you do, do developments, you're actually owning it at cost.

[Dean Wilkinson, analyst]

Yes, it makes sense to me. I mean, when I hear that we can buy below replacement costs, I kind of wonder. Well, what exactly are you buying? But [indiscernible] maybe that's an entirely different conversation.

[Philip Fraser, executive]

Yes. [indiscernible] I mean it's like we talk about -- or the market talks about the risk. These new CMHC programs really take away a lot of the financial risk. And basically what you've got to look at is -- and, again, we're going and we're moving and pivoting a bit, is to look at properties or developments that we can do in basically 20 to 24 months, 2 years or less, as opposed to now typically the mid-rise concrete is 3 years. And if it's a larger property development, it even takes longer. So we're very aware of how long our money is tied up before it starts to earn a return for us, so it's that combination that we're looking at as well.

[Dean Wilkinson, analyst]

Which would suggest you'd -- probably don't want to build in the GTA because it takes 5 years just to get a planning meeting...

[Philip Fraser, executive]

Absolutely.

[Operator]

Your next question comes from Jimmy Shan with RBC Capital Markets.

[Khing Shan, analyst]

So I just really have one question just to tie up everything you've said regarding the '25 outlook. Like would you agree that a 5% to 6% same-property NOI growth is quite achievable? And I ask this just because the market seems to be pricing in a far worse scenario since the immigration news. So I just wanted to get your thoughts there.

[Dale Noseworthy, executive]

No, at this point, I think that does seem reasonable. We will provide our guidance range, as we always do, with Q4, to give a little bit more, but based on what we're seeing today, that does seem reasonable.

[Operator]

[Operator Instructions] Your next question comes from Fred Blondeau with Green Street.

[Frederic Blondeau, analyst]

Just one from me. Dale, you discussed the interest rate environment. Just looking at your maturities: You still have $100 million remaining this year. I was wondering. At today, what are you seeing? If you have any color for us. And maybe a quick overview of the [ 330 million ] maturing next year.

[Dale Noseworthy, executive]

What we're seeing, sorry, in terms of rates...

[Frederic Blondeau, analyst]

Yes.

[Dale Noseworthy, executive]

Well, those bond yields are bouncing around a lot. So call it sort of 3.5%, 3.6%, depending on the day, 3.7%, maybe even a bit lower than the 3.5%. It's just it's varying by day, I'd say...

[Erin Cleveland, executive]

I'd say a good chunk of the $100 million has already been completed, so far, this quarter.

[Frederic Blondeau, analyst]

Yes, okay. So can you be a bit more specific on this or...

[Erin Cleveland, executive]

I mean, yes, a chunk of it had been -- I don't have the exact dollar value in front of me. But kind of in that range of 3.3% to 3.5%.

[Frederic Blondeau, analyst]

Okay, okay. And the [ 330 million ] maturing next year, is it more like in the first half? Or second half of the year.

[Erin Cleveland, executive]

More in the second half of the year and predominantly in the fourth quarter.

[Dale Noseworthy, executive]

Yes.

[Operator]

There are no further questions at this time. I'd now like to turn it back over to the speakers for any closing remarks.

[Philip Fraser, executive]

Thank you for the questions today. And thank you to everyone else for listening. We look forward to presenting our year-end Q4 results on February 12, 2025.

[Operator]

Thank you. Ladies and gentlemen, this now concludes your conference call for today. We do thank you for participating and ask that you please disconnect your lines. Have a great day, everyone.