Killam Apartment REIT

TSX:KMP.UN

Earnings Call Analysis

Killam Reports Strong 2023 with Growth Plans

Killam achieved a 160 basis point gain in NOI, attributed to acquisitions, dispositions, and development completions, with a strategy to generate 38% of NOI outside Atlantic Canada by 2024. They invested $8.8 million in energy efficiency to support sustainability goals. The fourth quarter saw the $65 million acquisition of Nolan Hill's second phase and a net cash proceed of $94 million from dispositions, used to reduce credit facilities and fund developments. Killam leverages CMHC programs for financing developments, including eKart in Waterloo and Eventide in Halifax, amidst a national housing and affordability crisis. Targeting a greater than 6% same property NOI for the upcoming year, the executive team is cautiously optimistic despite concerns surrounding property tax increases.

Robust Portfolio Growth and Profitability

Killam showcased a year of substantial growth with its same-property NOI increasing by 7.8%, including a notable 7.6% rise in its apartment portfolio and a striking 15.8% upsurge in commercial property NOI.

Positive FFO and AFFO Performance

A 3.6% enhancement in Funds From Operations (FFO) per unit was achieved, hitting $1.15, while Adjusted Funds From Operations (AFFO) per unit improved by 4.3% to $0.97.

Rising Rental Rates and Operating Margins

Increased rental rates across all business segments fueled a 5.4% revenue growth, accompanied by a 210 basis point operating margin improvement. Noteworthy is the 19.8% average increase in rents from new tenants, reflecting Killam's capacity to escalate rental rates effectively.

Expense Control Amid Rising Costs

Even in a challenging economic climate, Killam demonstrated adept cost management with a 0.3% reduction in same-property operating expenses, thanks to savings in natural gas and insurance costs.

Balance Sheet Fortification Amid Rising Interest Rates

Despite higher interest rates leading to increased expenses, Killam managed to refinance $252 million of maturing mortgages with $320 million in new debt, albeit at a higher average rate. Nonetheless, debt to normalized EBITDA decreased meaningfully, highlighting Killam's strategic financial optimization.

Demographic Trends Supporting Occupancy and Growth

Population growth surpassing housing supply availability strengthens Killam's occupancy and earnings, with the company benefitting from a continuous 1% market vacancy rate. Rental rate growth is expected to keep advancing, albeit at a moderated pace compared to recent years.

Strategic Capital Allocation and Environmental Initiatives

The company's outlook for 2024 includes generating 38% of NOI outside Atlantic Canada, coupled with an emphasis on energy efficiency investments totaling $8.8 million, enhancing renewable energy use and reducing carbon emissions in alignment with its NOI growth strategy.

Asset Development and Portfolio Optimization

Killam continued expanding its high-quality offerings with the completion of the Civic 66 development and the strategic disposal of 14 properties, realigning assets to support ongoing development projects and cater to Canadian housing demands.

Opportunities from Housing Supply and Policy Reforms

With the Canadian government seeking to address the housing supply challenge through funds aimed at accelerating housing attainment, Killam stands to gain from increased density and infill opportunities in several municipalities, presenting significant growth prospects for the company.

Accelerated Project Execution

Initially projecting a 2 to 3-year timeline, Killam is now poised to potentially commence ground work on key sites within the year, underscoring the firm’s adaptability and proactive stance in seizing emerging opportunities.

Earnings Call Transcript 2023-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Killam Apartment Real Estate Investment Trust Fourth Quarter 2023 Financial Results Conference Call. [Operator Instructions] Also note that this call is being recorded on Thursday, February 15, 2024. And I would like to turn the conference over to Philip Fraser, President and CEO. Please go ahead, sir.

[Philip Fraser, executive]

Thank you. Good morning, and thank you for joining Killam Apartment REIT's Q4 2023 Year-end Financial Results Conference Call. I am 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 and 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 on SEDAR call. 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 operational results for the fourth quarter and the year ending December 31, 2023. We achieved 7.8% same-property NOI growth across the portfolio, which included 7.6% same-property NOI growth in our apartment portfolio, 3.5% same-property NOI growth in our manufactured home community section and 15.8 same-property NOI growth before our commercial properties. Just like 2022, last year's multifamily residential fundamentals in Canada were the strongest we have seen in our 21-year history. Killam earned $1.15 per unit FFO, which is a 3.6% increase from $1.11 in 2022, and we made progress on our strategic targets, as shown on Slide 4. We grew our portfolio, the completion of Civic 66, the Governor and the purchase of Nolan Hill Phase 2 in December. We also completed the disposition of $169 million of properties. We are optimistic about the opportunities ahead and focused on growing our portfolio through developments and acquisitions, growing our cash flow and increasing the underlying value of our assets. Dale will take us through our financial results, followed by Robert, who will provide us with an operational update. I will conclude with an update on our current and recent developments and capital allocation strategy. I will now hand it over to Dale.

[Dale Noseworthy, executive]

Thanks, Phil. Slide 5 highlights Killam's financial performance. Killam earned FFO per unit of $1.15, up 3.6% from last year. AFFO per unit was $0.97, up 4.3% from 2022. Killam's same property NOI, FFO and AFFO growth Q4 and for the year are summarized on Slide 6. Growth in FFO and AFFO was attributable to increased NOI from our same-property portfolio and incremental contributions from our 3 developments completed in 2022. These gains were partially offset by higher interest expense as we refinanced at higher interest rates during the year. Q4 was another strong quarter with top line growth continuing to drive positive results. Same-property revenue growth of 5.4% was driven by higher rental rates across all 3 business segments. Combined with effective cost containment, Killam's same property NOI was up 8.8% in the quarter, driving a 210 basis point operating margin improvement. The weighted average rental increase chart on the top of Slide 7 captures the increase in rents based on the leases that came into effect each period. This chart shows that in Q4, we achieved a weighted average increase of 7.5% for new and renewing leases that started from October to December. This blended rental rate increase is made up of 3.4% rent growth on lease renewals and an average increase of 19.8% on unit turns from new tenants moving in during the quarter. Strong fundamentals in our markets support wide mark-to-market spreads, and we're harnessing our internal data analytics to ensure that our team is capturing this top line growth when units turn. Slide 8 illustrates our total same property operating expenses. Effective cost management and lower property taxes in PEI and New Brunswick resulted in modest same-property total operating expense growth of 1.6% for the year. During Q4, same-property operating expenses were down 0.3%, supported by quarter-over-quarter savings in both natural gas and insurance costs. After realizing significant price escalation from both these line items over the last few years, we're pleased to see these costs start to moderate. This trend has kept up so far in 2024 with savings in natural gas and insurance costs in the first part of this year. Killam's debt maturity profile, which can be seen on Slide 9, includes average apartment mortgage rates by year versus prevailing CMHC insured mortgage rates. In 2023, Killam refinanced $252 million of maturing mortgages with approximately $320 million of new debt at a weighted average interest rate of 4.89%, 183 basis points higher than the average rate on the maturing debt. Refinancing at higher rates is expected to lead to increased interest expense. However, this increase is expected to be gradual due to the staggered nature of Killam's debt ladder. We're pleased with the successful strengthening of our balance sheet in 2023. Killam's key debt metrics are included on Slide 10. Through a disciplined capital allocation process, we reduced our variable rate debt by $150 million, ending 2023 with only 3% of our total debt being variable. We ended the year with debt to normalized EBITDA of 10.29x, down nicely from 11.21x at year-end 2022. Also, debt as a percentage of total assets decreased by 240 basis points to 42.9%. I will now turn the call over to Robert, who will discuss our operations in more detail.

[Robert Richardson, executive]

Thank you, Dale, and good morning, everyone. Killam delivered solid earnings growth in 2023, delivered by a dedicated team of experienced real estate professionals. Population growth continues to outpace multifamily housing supply, supporting record occupancy and earnings. As we await official figures from Statistics Canada to be released, preliminary estimates for year-end 2023 indicate that Halifax's population eclipsed a record high of 500,000 people, an increase of 6% or 30,000 people year-over-year. This increase follows 2022's population increase of 4.5%, indicating growth in the region is not slowing. This supports Halifax's market vacancy rate of 1% for the third consecutive year according to CMHC's latest rental market report. As expected, the tight rental market has resulted in Killam's suite turnover rate declining in 2023 to 19% from 22% the year before. The recent 5-year sweet turn rate averaged 27%, whereas the historical rate has been more in the 35% range. In rent-controlled markets, fewer sweet turns are creating wider mark-to-market spreads versus renewal rates. As seen on Slide 12, Killam's current leasing spreads are approximately 30% for our portfolio with both Halifax and St. John, New Brunswick, tied at 25%; second only to Kitchener Waterloo region, where the highest average mark-to-market spreads are 33%. Looking ahead, rental rates are expected to continue to grow but likely at a more moderate pace compared to the last 2 years. In an environment where market rents are stabilizing, Killam's opportunity to capture mark-to-market spread on sweet turns is expected to remain strong as we capture the embedded growth on these suites. Although 57% of Killam's net operating income is exposed to rent control, Killam has proven its ability to grow the portfolio's top line despite lower turnover rates. For example, in 2024, Killam is forecasting rent growth on lease renewals to outpace the 2.8% increase achieved in 2023. We are pleased to report that provinces with permanent or temporary rent controls have approved 2024 guideline increases that better reflect the inflationary pressures all Canadians are experiencing. For example, in Nova Scotia, where the premier has stated rent control restrictions will be lifted for 2026. The province has given guideline increases of 5% for the next 2 years. As well, British Columbia's renewal cap increased to 3.5% for this year. PEI's rent cap increased to 3% and Ontario's renewal cap is 2.5% for 2024. Geographic diversification continues to remain a strategic focus for Killam. We ended 2023 with 37.4% of Killam's net operating income generated outside Atlantic Canada, a 160 basis points improvement from 35.8% in 2022. This 160 basis point gain is due to a number of contributors, including acquisitions, calculated dispositions and new development completions. Killam will continue to execute on this strategy and the 2024 goal is to generate 38% of Killam's NOI outside Atlantic Canada. Fundamental to our strategy is also the ability to drive incremental value through energy efficiency initiatives. In 2023, we invested $8.8 million in projects such as solar panels, energy efficient boilers, heat pumps, building automation systems and electricity and water conservation projects. We are waiting on 6 newly installed PV solar arrays to be commissioned. Once online, they will increase Killam's electricity produced through renewable energy by 1.5%, enabling Killam to then offset a total of 5.2% of its common area electricity from renewable resources. Reducing Killam's emissions and energy costs is consistent with our capital recycling and disposition approach. As we look to grow and maintain our portfolio, we consider the capital requirements of each property and how these align with our long-term targets to grow NOI and reduce our carbon footprint. Philip will now provide an update on our developments and capital allocation strategy.

[Philip Fraser, executive]

Thank you, Robert. During the fourth quarter of 2023, Killam fulfilled its commitment to purchase the second phase of Nolan Hill development in Calgary with $65 million, adding 234 new units to our portfolio. Killam completed Civic 66 in the Governor during 2023, which added 181 units of new product. We also completed the disposition of 14 properties summarized on Slides 15 and 16, totaling 1,122 units for a combined sale price of $169 million with net cash proceeds of $94 million. Proceeds were used to reduce Killam's credit facility and to fund our ongoing developments. Developing high-quality properties in our core markets is an important component of Killam's capital allocation strategy, and it allows us to make a contribution to the housing supply for all Canadians. As seen on Slide 18, the eKart, our 139 unit development in Waterloo is progressing nicely and is expected to be completed in Q2 of 2025. The exciting news on eKart is that we have been approved by CMHC to receive a low interest rate construction and permanent financing loan of $62.4 million through the apartment construction loan program previously known as the RCFI program, which is part of the government of Canada's national housing strategy. The program has a number of advantages for Killam, a below CMHC insured interest rate that is fixed from the start, a waiver of the CMHC application fees and a commitment by Killam to include 39 affordable units in the development. As shown on Slide 19, we will start the development of Eventide, an 8-story 55 unit building in Halifax this month. The strong population growth, 3.5 years of high inflation and 20-plus months of rising interest rates have created a housing shortage and an affordability crisis. During the last 9 months, the federal government has started to shift their attention to this issue and is working towards a solution to help the development industry create more supply through the Housing Accelerator Fund. The Housing Accelerator Fund is a program administered by CMHC that provides $4 billion in funding directly to municipalities to eliminate municipal barriers such as the lengthy approval processes. The program is aimed to accelerate the supply of housing throughout Canada. Killam owns many properties that will or going to be impacted by the forthcoming municipal changes. For example, the following municipalities in which Killam operates have already received funding approval to make changes to the landings bylaws. The city of Calgary, London, Kitchener, Waterloo, Mississauga, Fredericton, Moncton and Halifax. Benefits to Killam could include greater density or infill opportunities, more development rights for transit-oriented sites, incentives for wood construction, build form requirements that are less expensive to build and others. We are still evaluating potential developments for sites across the portfolio as additional action plans are approved, funded and activated. As an example, in October of 2023, Halifax became one of the first cities to receive approval of its action plan. By early January, the municipality had initiated many significant changes to their zoning bylaws. Those zoning changes are expected to be approved as early as April 2024 with more to come over the next 2 years. Halifax is providing immediate changes to zoning along transit corridors. This will impact zoning on several Killam's properties and in particular, 2 of our larger sites were identified for positive changes, Harlington Crescent and Victoria Gardens. The Harlington Cresent property is a 16-acre site containing 298 units and Victoria Gardens is a 10-acre site containing 198 units with infill opportunities on vacant land at both locations. To conclude, we are very pleased with our 2023 performance and remain committed to investing in high-quality assets and developments to continue to execute our overall strategy and create value for all of our unitholders. Finally, I would like to thank our employees for their hard work and dedication. Thank you. And I will now open up the call for questions.

[Operator]

[Operator Instructions] And first question will be from Jonathan Kelcher at TD Cowen.

[Jonathan Kelcher, analyst]

First question, just on the -- your targets for the year and specifically the 6% same property NOI. Is that -- like when I look at the stuff, it's tough to see revenues not being up significantly more than 6%. And you're getting a pretty -- it sounds like you're getting a pretty good handle on cost. I'm just wondering if you're just being a little bit conservative given that we're still in Q1 or what the -- or if there's something in there that I'm missing?

[Dale Noseworthy, executive]

I mean I think turnover is one we're looking at carefully. So agreed. We're getting really pleased with the top line growth that we're getting on turns. So we would have seen turnover come down in 2023, and that may tick down a little bit more in '24. So -- but I agree, we're quite bullish on the rent growth. On the expense side, we would have disclosed so far, very, very start of 2024. Natgas is working in the right direction. So that is good to see. Property tax, as we've talked about before, is a bit of a question mark. And we don't get those finalized really until kind of the end of the second quarter. And that's one where we're seeing headlines even today across the country, property taxes are moving up. So that's one that I'd say we're perhaps being conservative, but yes. But overall, we say greater than 6%, we feel quite confident to meet that target.

[Jonathan Kelcher, analyst]

Okay. And then just, I guess, secondly, Philip, you ended on the -- talking about some of the opportunities you might get in Halifax with -- on existing properties with the zoning changes. Like how near term is that something we can think about?

[Philip Fraser, executive]

I think the way we think of these opportunities, we might have been able to sort of relay a little bit about this information the last couple of quarters. But we are always thinking that it was going to take maybe 2 to 3 years from a sort of a complete permitting process in terms of getting it rezoned, getting the application in. And what this program has done is essentially there's going to be a lot of changes approved by counsel in April. So if that's the case, then you quickly go into design. And so that there's a potential that we could actually be in the ground on one of these sites this year, which 2 months ago, 3 months ago, we were thinking it was 2 to 3 years out, but the opportunity was amazing.

[Jonathan Kelcher, analyst]

Okay. Just -- okay. So and I guess that's sort of my last question too. You're starting Eventide this year, but your targets 2 projects to start up just thinking or going to ask where the -- where you think the second one might be? What's the best opportunity.

[Philip Fraser, executive]

I think the other one, yes, the other one we're working on, and we're making great progress is another location in Kitchener. The Whistler property. There in the north end of the city.

[Operator]

Next question will be from Kyle Stanley at Desjardins.

[Kyle Stanley, analyst]

So just, I guess, sticking with kind of the guidance and kind of along the lines of Jon's questioning, I think you made it quite clear on the top line and on the OpEx you're waiting to see what happens. Do you have a sense of where property tax increases could go just preliminarily, I guess, to your point, that is kind of the one uncertainty or real uncertainty.

[Dale Noseworthy, executive]

Certainly, I mean we work with advisers annually to you guys to feel what they're expecting. So I would say weighted average, we're expecting around 6%. And we appeal those always work hard to manage those where we can, but that's the general weighted average for the portfolio that's based on some third-party consultants.

[Kyle Stanley, analyst]

Okay. And then there's been obviously a lot of talk about the rent cap in Nova Scotia being set at 5. I'm just wondering, as you have those discussions with your tenants and passing through that increase, has there been pushback? Have you been able to kind of achieve that 5% lift without much issue?

[Philip Fraser, executive]

So the response we're hearing from the antenna base actually is very quiet. They understand that inflation has been running north of that number, north of the 5% in the last couple of years. So they're understanding the 2% wasn't covering it and the 5% is more in line and -- but no real pushback, which is great.

[Kyle Stanley, analyst]

Okay. Fantastic. That's great to hear. And then just the last one. I was just looking at your mortgage maturities chart on Slide 9, and maybe this is just my eyes looking at it. But it seems like the spread between the 5- and 10-year CMHC financing rates is definitely a bit wider today than maybe it has been over the last several months. If that is, in fact, the case, would you lean towards the shorter term for your 2024 maturities just to minimize that the financing cost impact?

[Philip Fraser, executive]

Well, I guess the good news for us is that the first quarter is very light. The second quarter is heavily weighted to the end of the quarter. So other than working on the reapplications the refinancing applications and a number of them are with CMHC. We're not going to have to make that decision until basically May and June. And I'd tell you, like even the last week, they just keep bouncing around like they're starting -- there's a trend for a week and then they just turn around and bounce right back up. So we're optimistic that by -- into the May, the June time period, we'll see, hopefully, that yield curve inverted and then we'll be looking at the assets and determining whether it's a 5- or 10-year term.

[Kyle Stanley, analyst]

Okay. No, I think that makes sense. And yes, I think, hopefully, things are shifting in your favor and the rest of your peers.

[Operator]

Next question will be from Mario Saric at Scotiabank.

[Mario Saric, analyst]

Philip, just coming back to the zoning change in Halifax, can you just maybe elaborate a little bit in terms of what actually has changed and whether you think that could serve as a blueprint for other municipalities across the country to fall [indiscernible]?

[Philip Fraser, executive]

I think it's -- as I mentioned, there's a huge number. There's like plus 15 cities have already, I believe, have sort of submitted their application into the federal government looking for money from this housing accelerator fund and everything is tied to Killam City or the municipality show that they're going to reduce the wait time from a permitting point of view. And a lot of times, it is changing in upzoning these locations. So for the city here in Halifax Darwin, they have gone around to a number of different sites and say we now are recommending changes that City Council will approve in April and that we're going to increase the density through the zoning process. And then they've gone down streets like Quinpool and basically, for the first time ever said, we're going to allow up to 40 stories along some of the sort of major bus routes in the city. And then again, the sites that I mentioned, they are great locations in terms of public transit, they got retail, they got the ability to sort of absorb this, and they're currently sitting way below in terms of any sort of density of housing inside the city.

[Mario Saric, analyst]

Okay. So the major change is just very simply the pace of approval on the...

[Philip Fraser, executive]

It's been the actual zoning, they've gone from basically whatever it is, like in our 4 with a height of maybe 5 stories, allowing now 15 in some cases. It really has -- it's a game changer. And I think the program right across the country is doing that. So I mean, I think it's going to be a very successful program that the federal government has initiated.

[Mario Saric, analyst]

Great. Okay. So with that in mind, given that it could be a game changer how does that change your capital allocation kind of philosophy over the next couple of years? So I saw the minimum kind of disposition in '24 million is $50 million, you're one of the earlier REITs to start selling assets a couple of years ago. So how do you think about that over the next couple of years?

[Philip Fraser, executive]

Well, I think that it's going to accelerate. I mean it's going to take -- we can't sort of snap our fingers and say we're going to get into the ground in 4 or 5 projects. So I think we'll be very fortunate if we can start, as I mentioned earlier, to this year, but it's the length of time that's going to get shortened to be able to have a number of these projects ready to go. And I think it's a little bit too early for us to be able to say like this will ramp up, and we'll be doing an x amount of units and total number of developments in the next sort of 18 to 24 months. But it's all about the planning process that this program is allowing us to accelerate our time lines and have it ready to go.

[Mario Saric, analyst]

And it's very early, but how do you -- has there been any evidence of changes in residential land values as a result?

[Philip Fraser, executive]

It's too early because, again, I don't see that. I haven't seen it yet.

[Mario Saric, analyst]

Okay. Just switching gears, Robert, you made a comment on market rents stabilizing. Just wanted to clarify whether stabilizing means that they're no longer moving up or the pace of the increase that we've seen over the past couple of years is moderating.

[Robert Richardson, executive]

It's a comment more on pace, Mario. So we're seeing that it's slowing down a bit, but not everywhere. So we're seeing it in some of the markets that have seen larger increases initially, and it seems to be tapering off a little bit. But when I say that, it's not like it's changing materially. It's just showing some abating.

[Mario Saric, analyst]

Okay. And what would you classify as your strongest markets for rent growth today versus the ones where [indiscernible]?

[Robert Richardson, executive]

Kitchen and Waterloo has been strong for us for some time. So it continues to be one we look at New Brunswick had a great quarter and a very good year in 2023. So that's -- and Halifax has remained steady as well. So those 3 are standouts for us. A little bit in Newfoundland, which is nice to see.

[Mario Saric, analyst]

Got it. Okay. And just on the renewal spreads on Slide 7. Obviously, that there's a nice trend there, the mark-to-market on Slide 12. I appreciate the disclosure. That looks impressive. Within your 6% plus same outlook for '24. I think, Dale, you mentioned you expect turnover to come down a little bit. Can you quantify what's embedded within your guidance and the types of newly spreads you're expecting?

[Dale Noseworthy, executive]

We went from 22 in '22 to '19 and '23. So I mean I think somewhere, we wouldn't be surprised to end up around 17.

[Mario Saric, analyst]

Okay. And then in terms of the new lease spreads, showing a 30% mark-to-market, I think on Slide 12, you did 20% in Q4. How should we think about those numbers going forward?

[Dale Noseworthy, executive]

It's always about what units turn and how long the unit tenants have been in the unit. So the numbers that we're presenting at '19 and Q4, some of those units were only occupied for a year, some of them for longer. So I think that we have quite a nice trend that we've shown over the last probably 8 to 12 quarters. And we're not seeing anything to indicate that, that is coming -- is reversing. So I think that there's an opportunity to continue to move that up.

[Operator]

Next question will be from Khing Shan at RBC Capital Markets.

[Khing Shan, analyst]

Just first, just a follow-up on the zoning changes that you talked about with more density. How does that improve your development yield? Can you...

[Philip Fraser, executive]

Well, the simplest ratio is that it reduces your land cost because you're going to have more units per site. The other part of that is that without the HST, I mean that improves the yield as well. And then we're looking at, again, right across the board, what markets is there any slack in labor, which would stabilize and maybe even bring down some of the costs. So for example, what we're seeing there today -- out there today is that Alberta is probably the cheapest market to build in right now. So that's pretty attractive from a number of reasons. And then there's the other part that, again, we're looking at some of these changes would be to go from Congrete back into wood. And the wood product is quite a bit cheaper than the mid-rise concrete today. So all these things that all we're trying to do is look at it, figure out again, adding the features that we typically would put in a building and bringing the cost -- stabilize the cost or reducing it in the next few developments.

[Khing Shan, analyst]

So when I look at the event type project that you have on your slide there, it's a smaller 55- building, like at 4.5 to 5. Presumably, like you mentioned Quinpool, presumably the yield on that would be higher if you can build 4-story type building.

[Philip Fraser, executive]

Yes. But again, if you're going to do that, then it's the length. So like we were well be able to start this month, it means there's about 2.5 years of planning. So if you sit there and say, okay, I got a little piece of land. I can put 40 stories on it someday, you're back into a 2- to 3-year design, again, getting the permits. It's just the city is allowing increased density and zoning. You still have to go through the whole process, which is showing them your plans and everything else being approved. So the length of time to switch gears, if you're comparing it with an asset or an opportunity we're starting today, I mean you're just back to square 1. So it's easier to just go on to the next project, whether it's [indiscernible] land and start looking at it from today's point of view.

[Khing Shan, analyst]

Okay. And then my second question is, how do you think the cap on foreign students, how do you think that impacts any of your assets or any of your markets at all?

[Philip Fraser, executive]

That's an interesting question. So I think right now, where we are across all our markets, the cap is coming, but the buildings are full. There is demand in every single market, whether it's geared to or we rent to a student versus a nonstudent that we will really not see the impact here from that reduction is what I believe.

[Operator]

[Operator Instructions]. Your next question will be from Matt Kornack at National Bank Financial.

[Matt Kornack, analyst]

Just wanted to go back to the comments around market rents, kind of the growth leveling off. I mean, I think January, we saw $125,000 increase in the working population in Canada and housing starts were just out and down $25,000 in the month of January. Do you think that there's the potential for kind of a lull and then reacceleration? Or is the limiter ultimately affordability on these units?

[Robert Richardson, executive]

We're not anticipating a lull. That's not what we're seeing in the market. What we're seeing in the market is just if -- yes, it's not significant. I think that maybe it's being overblown a little bit once it's been written. We do have just a unit will be on for -- instead of automatically lease, it will take a week or 2. So there's -- we're just monitoring it closely, and there is some hesitation, but it's certainly nothing significant.

[Matt Kornack, analyst]

No, that makes sense. And in the context of our population growth. I think you've got a long tailwind. Just flipping or switching gears. On the development side, just from a modeling standpoint, I'm looking at, I guess, Slide 15, 15, yes, with the different lease ups. First off, for Nolan Hill, I think it's added into the Calgary unit count, but I don't think the vacancy was adjusted. Like should we be assuming that vacancy in Calgary is lower and then lease that up over Q1? Or are all of these kind of will be stabilized second half of the year?

[Robert Richardson, executive]

And just because we used that for our vacancy is for the period, for the quarter. So I think it's the timing of when [indiscernible] that's why we wouldn't have seen that impact in the vacancy because it was really only there for the last a week or 2. So I think that that's why you wouldn't have seen it in the vacancy because it was such a small piece of the...

[Philip Fraser, executive]

But we never show vacancy on lease-up of the new building.

[Robert Richardson, executive]

But we show it in our total... Property... Versus same proper -- but I think it's the second half is when...

[Matt Kornack, analyst]

And Civic 66 and the governor in those numbers would already be kind of in your total eye, I think you disclosed for Kitchener that these over is small, but is there any incremental NOI coming from the Latitude decay or Luma that wouldn't have been in Q4? Are those were fully stabilized in Q4?

[Dale Noseworthy, executive]

No, they would have been fully stabilized in Q4.

[Robert Richardson, executive]

Yes.

[Operator]

Thank you. And at this time, we have no other questions registered. Please proceed.

[Philip Fraser, executive]

This concludes today's Q4 2023 analyst call. Thank you very much for listening and participating in the call today, and we look forward to updating you on our first quarter call, May 8. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.