Killam Apartment REIT (KMMPF) Q4 2022 Earnings Call Transcript

Killam Apartment REIT (OTC:KMMPF) Q4 2022 Earnings Conference Call February 17, 2023 9:00 AM ET

Company Participants

Philip Fraser - President and Chief Executive Officer

Erin Cleveland - Senior Vice President of Finance

Dale Noseworthy - Chief Financial Officer

Robert Richardson - Executive Vice President

Conference Call Participants

Michael Markidis - BMO Capital Markets

Mark Rothschild - Canaccord Genuity

Jonathan Kelcher - TD Securities

Brad Sturges - Raymond James

Kyle Stanley - Desjardins

Mario Saric - Scotiabank

Matt Kornack - National Bank Financial

Jimmy Shan - RBC Capital Markets

Gaurav Mathur - Industrial Alliance

David Chrystal - Echelon Capital Markets

Dean Wilkinson - CIBC World Markets

Operator

Good morning, ladies and gentlemen. Welcome to nan Killam Apartment Real Estate Investment Trust Q4 2022 Year-End Financial Results Conference Call. At this time, each lines are successful a listen-only mode. Following nan presentation, we will behaviour a question-and-answer session. [Operator Instructions] This telephone is being recorded connected Friday, February 17, 2023.

I would now for illustration to move nan convention complete to Mr. Philip Fraser, President and CEO. Please spell ahead.

Philip Fraser

Thank you. Good greeting and convey you for joining Killam Apartment REIT's Q4 2022 year-end financial results convention call. I americium present coming pinch Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; and Erin Cleveland, Senior Vice President of Finance. Slides to travel today's telephone are disposable connected nan Investor Relations conception of our website nether Events and Presentations.

I will now inquire Erin to publication our cautionary statement.

Erin Cleveland

Thank you, Philip. This position whitethorn incorporate forward-looking statements pinch respect to Killam Apartment REIT and its operations, strategies, financial performance, conditions aliases otherwise. The existent results and capacity of Killam discussed present coming could disagree materially from those expressed aliases implied by specified statements. Such statements impact galore inherent risks and uncertainties, and although Killam guidance believes that nan expectations reflected successful nan forward-looking statements are reasonable, location tin beryllium nary assurance that early results, levels of activity, capacity aliases achievements will hap arsenic anticipated.

For further accusation astir nan inherent risks and uncertainties successful respect to forward-looking statements, please mention to Killam's astir caller yearly accusation shape and different securities regulatory filings recovered online connected SEDAR.

All forward-looking statements made coming speak only arsenic of nan day which this position refers, and Killam does not intend to update aliases revise immoderate specified statements, unless different required by applicable securities laws.

Philip Fraser

Thank you, Erin. We person delivered beardown financial and operating results for nan 4th fourth and for nan twelvemonth ending December 31, 2022. However, nan past twelvemonth came pinch caller uncertainties and headwinds. Nevertheless, we stay focused connected our 3 halfway maturation strategies. We achieved 4.7% same-property NOI maturation crossed nan portfolio, which included 4.5% same-property NOI maturation successful our flat portfolio, 6% same-property NOI maturation successful our manufactured location organization portfolio and 7.9% same-property NOI maturation for our commercialized properties.

Despite unit successful nan superior markets successful 2022, multifamily fundamentals successful Canada pinch nan strongest we person seen successful our 20-year history. Killam ended nan twelvemonth astatine 98.3% same-property flat occupancy, besides nan highest successful our 20-year history. We are optimistic of nan opportunities ahead, and we'll stay focused connected increasing our portfolio, our rate travel and nan underlying worth of our assets. Dale will return america done our financial results, followed by Robert, who will talk our MHC and commercialized portfolio results and an operational update. I will reason pinch an update connected our existent and caller developments and our superior allocation strategy.

I will now manus it complete to Dale.

Dale Noseworthy

Thanks, Phil. Slide 5 highlights Killam's financial performance. Killam earned nett income of $122.7 cardinal successful 2022 and FFO per portion of $1.11, up 3.7% from past year. AFFO per portion of $0.93 was up 3.3% from 2021. Killam's same-property NOI, FFO and AFFO maturation successful Q4 and for nan twelvemonth are summarized connected Slide 6. The maturation successful FFO and AFFO is attributable to accrued NOI from our same-property portfolio and incremental contributions from acquisitions, which totaled complete $500 cardinal since nan opening of 2021. This maturation was partially offset by an summation successful nan weighted mean number of spot units outstanding and nan effect of rising liking rates.

Strong topline maturation continued to thrust affirmative results successful Q4. Same-property gross maturation of 5% was driven by higher rental rates connected each 3 business segments coupled pinch a 130 ground constituent summation successful flat occupancy ending nan twelvemonth pinch Killam's highest occupancy level successful its history.

The weighted mean rental summation floor plan connected nan apical of Slide 7 captures nan summation successful rents based connected nan leases that came into effect during each period. This floor plan shows that successful Q4, we achieved a weighted mean summation of 4.3% for caller and renewing leases that started successful October to December, good supra our 3.7% year-over-year growth. This 4.3% summation is made up of 2.1% rent maturation connected leased renewals and an mean summation of 12% connected portion turns from caller tenants moving successful during nan quarter.

Slide 8 illustrates our full same-property operating expenses, up 5.4% successful 2022. The astir important summation was successful spot inferior and substance expenses, driven chiefly by higher earthy state prices. Same-property wide operating expenses were managed beneath inflation, expanding by 3.6%, while spot taxation expenses accrued by 2.2%. Killam's indebtedness maturity profile, which tin beryllium seen connected Slide 9, includes mean flat owe rates by twelvemonth versus prevailing 5 twelvemonth CMHC-insured owe rates.

Based connected today's enslaved yields, existent adjacent borrowing rates are supra Killam's yearly weighted mean liking rates. In 2022, Killam refinanced $152 cardinal successful maturing mortgages pinch astir $213 cardinal of caller indebtedness astatine a weighted mean liking complaint of 3.7%, 90 ground points higher than nan mean complaint connected nan maturing debt. Refinancing astatine higher rates is expected to lead to accrued liking expenses. However, this summation is expected to beryllium gradual owed to nan staggered quality of Killam's indebtedness ladder. We stay focused connected reducing our indebtedness levels and ended nan twelvemonth pinch indebtedness to normalized EBITDA of 11.2x and indebtedness arsenic a percent of full assets of 45.3%, conscionable supra our target of 45%. The summation successful this ratio is attributable to higher equilibrium connected Killam's in installments accommodation from acquisitions during nan twelvemonth and nan nickname of adjacent worth losses related to finance properties owed to a mean description of headdress rates successful nan 2nd half of nan year. Killam's indebtedness metrics are included connected Slide 10.

I will now move nan telephone complete to Robert, who will talk our operating results successful much detail.

Robert Richardson

Thank you, Dale, and bully morning, everyone. We proceed to spot affirmative results crossed each Killam's business segments. Our MHC and commercialized portfolios had beardown 4th fourth 2022 results and are expected to proceed to adhd meaningful contributions to Killam's early growth. The MHC assemblage besides delivered an awesome capacity for nan twelvemonth arsenic a compelling affordable lodging solution. As well, Killam's seasonal resorts outperformed erstwhile years arsenic Canadians enjoyed these well-located affordable picnic destinations during nan summertime and autumn of 2022.

As noted connected Slide 11, Killam's MHC portfolio realized same-property gross maturation of 5.8% and NOI maturation of 6%. This maturation is chiefly attributable to summation seasonal revenues achieved done yearly rent increases positive much short-term rentals, each compared to 2021. Killam's MHC business conception generated 6.1% of Killam's wide nett operating income for 2022.

Slide 12 highlights Killam's same-property commercialized portfolio, which besides performed very good successful 2022 pinch revenues up 5.9% and a 7.9% summation successful nett operating income. These improvements are chiefly owed to a 240 ground constituent summation successful occupancy to 93% for nan year. Killam leased 50,000 quadrate feet of nett caller commercialized abstraction and renewed a further [108,000] quadrate feet passim nan portfolio during nan year. Combined, caller and renewal leasing generated a weighted mean nett rental complaint summation of 11.4%. Killam's commercialized portfolio is proving to beryllium very complementary to our flat portfolio.

On nan flat side, we proceed to strategically put superior successful our portfolio pinch superior upgrades power efficiencies and portion repositionings. Killam is good positioned to present value lodging solutions to our residents and communities. Our suite renewal programme is an important inaugural that meets nan market's request for modernized suites. Potential first-time homebuyers are turning to nan rental marketplace arsenic an progressively affordable action fixed today's surging single-family location prices. At Killam, we are cognizant of our work successful Canada's competitory flat market. For example, Killam upgrades only those suites that travel vacant erstwhile tenants do not renew arsenic we do not prosecute successful programs to power returns done fierce rent hikes aliases inducement offerings.

As shown connected Slide 13, Killam repositioned 617 suites, exceeding our 2022 target of 600 suites. This represents astir 15% of nan suites turned and 3% of our full portfolio. Over nan years, Killam has fine-tuned its upgrade processes and has nan expertise to reposition astir suites wrong 28 days and supply our residents pinch nan champion finishes based connected appeal, functionality and durability.

Slides 14 and 15 floor plan a number of Killam's upgrade projects successful 2022, wherever we invested superior to amended nan attractiveness and curb entreaty of each of our properties. We added 2 caller amenity rooms astatine Quinpool Towers successful Halifax, a afloat equipped 2,000 quadrate ft gym on pinch a 2,000 quadrate ft residence lounge. Further, we installed a dedicated elevator to guarantee our mobility-challenged residents tin besides entree and bask these facilities. At Brentwood, Apartments, besides successful Halifax and nan Belvedere successful Charlottetown, Killam installed caller exterior cladding and windows. These superior investments amended nan durability of nan properties fixed ambiance changes related to upwind and accrued installation for improved power ratio and resident comfort.

Our power ratio investments totaled $8.5 cardinal successful 2022, exceeding our yearly target. This included projects specified arsenic solar, photovoltaic installations, electrical conveyance charging stations, geothermal heating and cooling systems, boiler and power pump replacements and energy and h2o conservation projects. These precocious greenish initiatives will trim Killam's effect connected nan situation and thief mitigate our vulnerability to volatile power costs.

As nan floor plan connected Slide 16 highlights, continued organization maturation successful Canada and specifically, successful nan Halifax region, our largest market, is besides expected to thrust request for our properties. Population maturation successful Halifax has continued to stay astatine grounds levels. The metropolis is attracting group from crossed Canada and astir nan world. According to Statistics Canada, Halifax was nan 2nd fastest-growing region successful nan state down Moncton Canada starring awesome 5.4% organization growth. Not only our Atlantic Canadian cities increasing astatine a grounds rate, nan mean property of nan organization successful nan region is besides trending younger.

Demand for lodging is unprecedented. We admit that lodging proviso and affordability is simply a situation successful Canada, and arsenic I noted earlier, Killam is committed to contributing to a solution. In 2022, we accrued our semipermanent committedness to affordable lodging done CMHC's innovative MLI prime owe indebtedness security product. We ended nan twelvemonth pinch complete 1,000 flat suites having a semipermanent affordable commitment, an 18% summation from 2021.

At year-end, afloat 42% of our portfolio remains affordable arsenic defined by CMHC's 30% of median family income metric. Our environmental, societal and governance priorities are halfway to our business, and successful 2022, we proceed to attraction connected inclusive and sustainable growth. Our yearly third-party managed residential study is an basal measurement we measurement our progress. In 2022, we proceed to people good connected these metrics compared to manufacture benchmarks pinch 86% of our residents stating that they are happy to rent from Killam. We certified an further 10 properties this twelvemonth nether that certified rental building program, and we are good connected our measurement to reaching our portfolio extremity of 20% certified by 2025. These certifications guarantee that we person nan champion operating and patient surviving standards for our residents.

I will now manus you backmost to Philip to supply an update connected our developments, acquisitions and superior allocation strategy.

Philip Fraser

Thank you, Robert. We completed $119 cardinal successful acquisitions successful nan first half of 2022, expanding our portfolio successful Halifax, Waterloo, Guelph and connected Vancouver Island. We reduced our acquisition activity during nan 2nd half of nan twelvemonth because of rising liking rates and focused connected maintaining superior flexibility. Future acquisitions will proceed to beryllium an important constituent of Killam's growth. However, we judge now is not nan clip to beryllium aggressive.

During nan past 2 to threer months, Killam has been focused connected identifying assets to waste and reallocating this superior to salary down our adaptable complaint debt. After repayment of debt, we will usage nan superior for caller developments aliases our NCIB program. Killam has received galore inbound inquiries for off-market income from backstage capital, and we expect to adjacent connected respective mini transactions successful nan coming months. PEI is 1 of nan markets wherever we've had galore inquiries, and we will look to trim our ownership vulnerability passim 2023, 2024.

Killam's attraction connected dispositions is driven by a desire to recycle capital, accrued geographical diversification and reduced leverage. Developing high-quality properties successful our halfway markets is an important constituent of Killam's superior allocation strategy arsenic we turn our portfolio and lend to caller lodging proviso that is truthful severely needed successful Canada today. This past twelvemonth has been Killam's largest twelvemonth for improvement since our programme started successful 2010 pinch $243 cardinal successful completed developments. This constituent of Killam's maturation strategy is 1 that distinguishes america from our peers and allows america to adhd assets to our portfolio successful beardown markets.

As seen connected Slide 19, successful 2022, we completed 3 developments successful nan Ontario region: The Kay, a spot successful Mississauga; Latitude; and Luma successful Ottawa. These developments are exceptional additions to Killam's portfolio and are expected to lend positively to our NOI and FFO maturation successful nan coming year. We vanished nan twelvemonth pinch 3 developments underway, which will adhd an further 320 high-quality suites to Killam's portfolio complete nan adjacent 24 months. They are profiled connected Slides 20 to 25 and see The Governor successful Halifax and Civic 66 successful Kitchener. The Carrick successful Waterloo, which collapsed crushed past fall, is expected to beryllium completed by nan extremity of 2024.

To conclude, Killam has a beardown equilibrium sheet, has a proven business exemplary and an knowledgeable guidance team. We admit that Canadians trust connected america much than ever, and Killam will beryllium location for our residents and our communities arsenic a responsible firm citizen. We are committed to being an ESG leader, processing a civilization of diverseness inclusion, building meaningful purpose-built rentals and investing successful initiatives to amended operating efficiencies. I would for illustration to convey our Killam squad crossed nan state for their difficult activity and dedication, our residents for choosing Killam arsenic their location and our unitholders for their continued support. We are optimistic of nan twelvemonth ahead, and we will proceed to execute connected our priorities and create worth for our unitholders during 2023.

Thank you. I will now unfastened up nan telephone for questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now statesman nan question-and-answer session. [Operator Instructions] The first mobility comes from Mike Markidis of BMO Capital Markets. Please spell ahead.

Michael Markidis

Thank you, operator. Good morning, everyone.

Philip Fraser

Good morning.

Michael Markidis

So conscionable connected nan – conscionable want to get a small spot of further clarity connected nan dispositions. Is that a gross figure? Or is it net? And I conjecture what I'm getting astatine is, are you contemplating doing immoderate acquisitions astatine each this year?

Philip Fraser

And that is correct now a maturation is minimal. So it could spell higher than that. It depends connected fundamentally nan woody and that's going to beryllium deal-by-deal. These are each smaller properties that we're looking at, and it doesn't really exclude acquisitions. But again, from our constituent of view, connected nan maturation side, correct now, we don't spot a batch of worth and opportunities connected nan older banal from looking astatine it. If there's opportunities retired westbound connected possibly newer merchandise and 2nd half of nan year, we'll look astatine that, but nan attraction connected maturation for america this twelvemonth will beryllium connected our improvement broadside of nan business.

Michael Markidis

Okay. So not ruling retired acquisitions, but not explicitly putting a target retired 5th year?

Philip Fraser

Right.

Michael Markidis

Got it. Okay. Just connected nan guidance for same-property NOI of 3% to 5% for this year, possibly you guys could springiness america a small spot much colour successful position of what you're expecting from nan apical – and topline versus nan OpEx ostentation side, that would beryllium great.

Dale Noseworthy

I'll return that one. So connected nan topline, I mean we are seeing acceleration successful position of rent growth, arsenic you would person seen successful nan results. So first, starting disconnected 2023, that's continuing. So we're beautiful bullish successful position of being capable to get 4% to 5% connected topline. Again, reminder, occupancy is beautiful precocious successful astir of our markets. So it's each going to beryllium astir rent growth. Although we do person immoderate occupancy gains to beryllium made successful 2023.

And past connected nan disbursal side, we've talked a batch astir nat state exposure, and we're going to person a batch much accusation aft Q1. So heading into 2023, I deliberation that was our biggest costs unit that we were seeing, particularly immoderate of nan pricing wherever we're precocious successful Atlantic Canada. What we person seen is that pricing is coming successful a spot little than we had primitively expected. So connected nan disbursal side, I deliberation akin to astir apt what – wherever we would person ended this twelvemonth erstwhile we look crossed nan board. The mild upwind is surely helping america connected that side.

When we look astatine different expenses, spot taxes will astir apt 3% to 4%. We've sewage immoderate provinces that are going to beryllium a batch less, immoderate is going to beryllium more. We are having inflationary pressures connected a batch of our repairs and attraction and contract-related costs. Those are being offset by immoderate different efficiencies we've sewage internally. So overall, that should get america to nan scope that we talked about.

Michael Markidis

Okay. And conscionable – I mean, you didn't opportunity it explicitly, Dale. And I deliberation you guys are apt being blimpish for a assortment of reasons, astir apt little turnover connected nan OpEx side, for illustration you noted. But would it beryllium adjacent to opportunity that you're expecting a little turnover. From a topline perspective, you're expecting little turnover, but that 12%, and really, your caller leasing spreads person started to successful cheque pinch nan past mates of quarters will beryllium nan offset, and that will proceed to spell higher. And past connected nan OpEx side, apt immoderate conservatism there. We conscionable sewage to get done nan Q1 bogie, and past we'll reassess. Is that fair?

Dale Noseworthy

I deliberation that's fair. The turnover is 1 you would person seen for illustration it really came down a adjacent spot successful this past year, and that trend, we are expecting that to continue. So that's nan large mobility erstwhile we look retired really overmuch little turnover are we going to have.

Michael Markidis

That's great. Thanks. I'll move it back.

Philip Fraser

Thank you.

Operator

Thank you. The adjacent mobility comes from Mark Rothschild of Canaccord. Please spell ahead.

Mark Rothschild

Thanks, and bully greeting everyone. Philip, successful your comments astir not being fierce successful acquisitions this year, I presume that was referring to conscionable nan returns you tin get, and you besides mentioned that you're getting inbound calls to waste properties. What do you deliberation changes complete nan adjacent small while? Do you deliberation that prices request to travel down? Or does nan marketplace conscionable request to stabilize arsenic acold arsenic liking rates go? Because obviously, complete nan long-term, you do want to beryllium progressive successful buying properties, and I understand your constituent that nan numbers don't look to activity correct now?

Philip Fraser

Well, I deliberation of nan 2 comments are nan 2 reasons. The 1 that's much concerning to america is conscionable to understand wherever nan liking rates are going to be. And again, it's been a changeless benignant of summation passim past year. The opening of this year, they started to travel down, and now they've moved backmost up successful nan past 3 aliases 4 weeks ago, and each we want is simply a small spot of certainty. We want to cognize that nan Bank of Canada has signaled, this is nan extremity of their complaint increases because I deliberation that erstwhile that happens, for sure, we will commencement to spot nan enslaved yields and moreover nan costs of our indebtedness connected a 5 aliases 10-year to travel down a small bit. And moreover if it doesn't, that's not nan extremity of nan world. What is really difficult to benignant of activity with, if you look astatine a spot and it's going to beryllium a 60 to 90-day benignant of necktie up, you don't moreover cognize what it's going to beryllium erstwhile you close. And we conscionable want a small spot of certainty, and for nan past 10 years, it was ever rather simple. It was going to beryllium comparatively unchangeable aliases less, and that's nan part. And again, we're looking astatine – typically, nan acquisitions are each going to beryllium $50 cardinal plus. And truthful you don't really want to make a correction if you tin benignant of postpone that benignant of uncertainty for a fewer months.

Mark Rothschild

Understood. Okay. Great. And past possibly connected nan improvement side, wherever you've been successful and stay active, nan costs to develop, whether it's improvement charges aliases conscionable wide costs, person gone up rather a bit. Are you seeing further unit connected returns? Or is nan rent maturation – nan emergence successful rental rates capable to offset that and get to comparable returns?

Philip Fraser

I deliberation it's – to reply your question, again, we spot that location is nan expertise to move those rents, and truthful therefore, erstwhile moreover if you look astatine it and say, it's 4.5 improvement output today, and moreover if there's costs unit complete nan adjacent 30 months arsenic you build it, we genuinely judge we tin move nan rents. And again, if you look astatine it, what this state needs is caller supply. And truthful from a axenic existent property company, nan maturation broadside should beryllium connected nan caller supply. And truthful you tin do your ain developments, you tin benignant of possibly partner up pinch different developers and person associated ventures connected nan caller construction. So I deliberation that, that's really what we're going to ore connected because that's nan biggest opportunity successful request for nan country.

Mark Rothschild

Okay. Great. Thank you truthful much.

Operator

Thank you. The adjacent mobility comes from Jonathan Kelcher of TD Securities. Please spell ahead.

Jonathan Kelcher

Thanks. Good morning. Just going backmost to nan same-property NOI guidance, Dale, you said 3% to 4% expected increases connected nan spot taxation and utilities are evidently ever going to beryllium a wildcard astatine slightest done Q1. But what are your expectations for your R&M aliases your wide operating expenses?

Dale Noseworthy

They’re more. Yes, 4% to 5%.

Jonathan Kelcher

4% to 5%. Okay. And past connected nan – Phil, you talked astir successful your remarks astir trading assets to trim leverage. But if your benignant of outlook aliases targets for nan year, you person leverage fundamentally flat. What – wherever do you deliberation you want to return leverage over, I guess, a 2 to 3 twelvemonth period?

Philip Fraser

Well, again, nan inclination has ever been to effort to move it down. Right now, we're astatine 45.3%. And erstwhile I opportunity we're reducing nan debt, it is our benignant of our statement of in installments that we would person typically for nan past number of years been partially into nan line, which is variable. And past basically, we've been, complete nan past 3 aliases 4 years, fortunate capable to beryllium capable to raise money connected nan marketplace done nan markets, salary down that statement and past spell complete and look for acquisitions and usage that statement successful position of quickly being capable to close. We cognize wherever everybody's banal value move past year. We're not prepared to raise equity astatine this time. So therefore, 1 of nan ways to salary down that statement is to waste assets. I mean there's specified immense demand. Pricing looks incredible. Use that to salary down nan line, and it will trim our leverage to a definite extent, and past we person nan elasticity successful nan superior elasticity to look astatine opportunities. We're going to put it backmost into their improvement programme or, arsenic I said, our NCIB program.

Jonathan Kelcher

Okay. That makes a batch of sense. And you mentioned specifically PEI. Is that fundamentally owed to nan regulatory situation there? You conscionable can't get capable aliases arsenic overmuch maturation arsenic you tin successful nan remainder of your markets?

Philip Fraser

I deliberation successful – arsenic we benignant of thought astir if we were going to get asked that mobility today, I mean we are looking astatine opportunities to waste assets successful Ontario, New Brunswick, Nova Scotia and PEI. PEI is basically, we've been location almost for 20 years. It's been very bully to us. But nan past mates of years person been – nan rent power broadside of it has been little than what we hoped for and expected. And it comes to nan constituent wherever we cognize that our superior tin find a amended home, and if we tin waste down immoderate of those assets, past we're prepared to do that.

Jonathan Kelcher

Okay. And past conscionable past for maine connected rent control. Is location thing to propose that it doesn't spell distant astatine nan extremity of 2023 successful Nova Scotia?

Philip Fraser

Well, there's talk 1 measurement aliases nan other. We don't cognize thing for sure. But again, my remark connected rent power this morning, I guess, is if you look astatine it pinch fundamentally BC astatine 2, Ontario pinch 2.5, Nova Scotia astatine 2. So these are nan provinces that impact america nan most. My remark is that arsenic we've knowledgeable nan inflationary pressures for nan past 2 to 3 years, it's been a batch higher than that 2 to 2.5 range. So I deliberation that arsenic a landlord and moreover benignant of talking to these provincial governments aliases conscionable moreover being progressive successful nan industry, we request a small spot much of an summation connected these complaint power markets.

Jonathan Kelcher

Okay. That's helpful. I'll move it back. Thanks.

Operator

Thank you. The adjacent mobility comes from Brad Sturges of Raymond James. Please spell ahead.

Brad Sturges

Hi there. Just to proceed connected nan statement of questions connected nan plus sales. It sounds for illustration there's imaginable for respective mini transactions. Is it adjacent to opportunity that you're targeting aliases contemplating it, I guess, immoderate smaller assets? Maybe a small spot possibly older assets? Or are location different attributes that make an plus waste charismatic astatine this point?

Philip Fraser

I would opportunity that, that's a large chunk of nan opportunities successful beforehand of america are older and smaller assets for sure.

Brad Sturges

Okay. And...

Philip Fraser

And then, sorry, conscionable 1 much comment. It's almost because that's nan biggest excavation of imaginable buyers successful nan smaller scope of these assets.

Brad Sturges

Because it's chiefly backstage buyers that are approaching you, yes.

Philip Fraser

Yes.

Brad Sturges

Can you remark connected wherever those conversations are going successful position of pricing comparative to nan IFRS? Are you expecting to fundamentally execute your existent book value, if you were to waste assets?

Philip Fraser

That would beryllium adjacent to say, for sure.

Brad Sturges

Okay. I'll move it back. Thanks a lot.

Operator

Thank you. The adjacent mobility comes from Kyle Stanley of Desjardins. Please spell ahead.

Kyle Stanley

Thanks. Good greeting everyone. Just going backmost to nan earlier comments connected PEI. I'm conscionable wondering, arsenic you do look to waste immoderate of nan assets successful nan province, do you – are you seeing reduced investor liking aliases immoderate effect connected imaginable pricing conscionable fixed nan caller regulatory shift?

Philip Fraser

No, not astatine all.

Kyle Stanley

Okay. Good to know. You did disclose that benignant of 10% to 20% mark-to-market upside crossed your portfolio. I'm conscionable wondering, could you talk astir really that whitethorn disagree crossed your geographies?

Dale Noseworthy

Sure. Yes. I mean I deliberation that pinch nan moving target each month, looking astatine it, it is simply a difficult 1 to peg down. I'd say, we've seen acceleration successful nan West, wherever we wouldn't person had, I'd say, successful nan past 2 quarters overmuch connected that mark-to-market, but that's really starting to broaden. And especially, erstwhile we look astatine nett effective rents aft incentives successful that market, I deliberation that's for illustration 10% positive successful Alberta that we haven't seen. Nova Scotia is 1 that Halifax sewage a batch of headlines erstwhile CMHC trial stats came out. That's different 1 that it's moving up quickly. So mark-to-market successful this marketplace is astir apt 15 to 20, but it gets higher erstwhile we do immoderate repositioning. Ontario, it's very healthy. I'd say, New Brunswick still strong, but possibly conscionable a small spot nether 10. Newfoundland is astir apt 3 to eight, yes.

Robert Richardson

So nan vacancy has gone down materially successful St. John's. We're seeing bully gains there. And Southwestern Ontario crossed nan committee has been very strong.

Dale Noseworthy

Very strong, yes.

Robert Richardson

Will astir apt lead us.

Dale Noseworthy

So really for illustration that 10 to 20 is astir apt person to nan 20, and it's – we're conscionable keeping an oculus connected what we're capturing.

Robert Richardson

So a batch of it is simply a usability of nan alteration successful turnovers. So pinch nan jurisdictions having rent control, group are choosing not to move. So therefore, less units travel up. And those, erstwhile they do travel up, there's a request to maximize rent.

Dale Noseworthy

And that's an mean number, too. Just a reminder, too. So we're seeing immoderate acold supra that and immoderate lower.

Kyle Stanley

Okay. Perfect. That's precisely wherever – I guess, why I asked nan question, conscionable reasoning that possibly nan number is possibly a small person to nan 20%. So awesome to hear. And conscionable 1 much for me. Just connected your superior fund for 2023, I mean superior spending was up decent amount, I think, astir 30% successful 2022. I do judge immoderate of that was catch-up. And I mean you highlighted nan truth that possibly you do less repositioning this year, but I'm conscionable wondering wherever your superior spending possibly trends successful 2023 versus past year?

Robert Richardson

It will beryllium comparatively comparable. It will be, let's telephone it, $85 cardinal to $90 million. So it will beryllium very akin to this year.

Kyle Stanley

Okay, convey you very much. I'll move it back.

Operator

Thank you. The adjacent mobility comes from Mario Saric of Scotiabank. Please spell ahead.

Mario Saric

Hi. Good morning. And I want to travel backmost to nan turnover arsenic well. In 2022, it was 23%. It sounds for illustration you mentioned aliases you did mention that you expect it to travel down this year. Can you springiness a consciousness of what is baked into nan guidance successful position of really overmuch much it tin travel down? And nan logic I inquire is, there's fundamentally a structural turnover that takes spot that irrespective of nan market, group move. Like what do you deliberation that structural churn complaint is for your portfolio?

Dale Noseworthy

We're expecting for this twelvemonth astir apt successful nan scope of 18% to 20%. And that structural number, I think. Are we there?

Philip Fraser

I tin perceive you, Dale. I just...

Dale Noseworthy

Sorry, I had immoderate method problems. Can you perceive me?

Philip Fraser

Yes.

Dale Noseworthy

So I deliberation astir apt 10% is astir apt that. When we look astatine – it's astir apt that method number.

Mario Saric

Got it. Okay. And past successful position of – truthful we travel backmost to nan turnover, person you had a chance to way that turnover by lease durations? Look, it's 23% for nan wide portfolio, but really that alteration for leases that person been beingness for 10 years positive 5 to, is location a wide variety successful that?

Dale Noseworthy

We don't person by tenure. We haven't dug into that detail. And I would say, yes little turnover for nan 1 that has been location for a longer play of clip generally, yes. Yes.

Philip Fraser

But obviously, nan main driving facet of nan simplification successful turnover is simply nan accrued organization correct crossed nan state and our expertise not to support up pinch nan proviso side.

Mario Saric

Right. Okay. And past conscionable my 2nd question. In position of headdress rates, successful your Q3 disclosure, I deliberation you talked astir nan anticipation of CapEx moving higher, which we saw grounds successful your IFRS valuation this quarter. That disclosure was missing this course. I'm not judge if that was intentional aliases not, but based on, I guess, Dale's commentary regarding beardown marketplace pricing, is it adjacent to opportunity that nan existent complaint situation you deliberation that nan upward unit connected headdress rates is beautiful overmuch done?

Dale Noseworthy

We deliberation so. It's that equilibrium betwixt nan rent growth, and I mean we consciousness bully wherever headdress complaint settled for nan quarter. And we're – particularly pinch nan transactions that we're looking at, arsenic Phil already talked astir successful position of sales, there's tons of support for nan values that we have. So astatine this point, we're not expecting those proceed to move successful immoderate worldly measurement based connected existent information.

Philip Fraser

I mean, nan different remark I'll make. It's absorbing that arsenic a sector. The different – Killam and each nan different publically traded person prevalent rates, we ain 3% of nan market. And conscionable by default, we don't dictate wherever volumes are going. And moreover if we extremity buying, there's a larger marketplace retired location down america that fundamentally sees a batch of value, and that's conscionable being reinforced to america almost each time pinch nan number of inquiries we're getting to waste assets.

Mario Saric

Okay. And past I guess, I don't cognize if you reply this question, but pinch these buyers, for illustration what are they seeing successful truthful acold arsenic headdress rates still look to beryllium a spot beneath wherever financing costs are coming crossed – what are they saying?

Philip Fraser

What they're really seeing is that they look astatine it, they astir apt – and successful almost each case, they already are landlords and a mini – obviously, astatine a smaller scale. We're seeing nan unthinkable unit connected rents. They're seeing that they fundamentally cognize that rents are going to spell up. What they're buying depending, connected nan market, a batch of it would beryllium nether rent control. And past they look astatine it and say, I don't person to study it each 90 days. So therefore, I return nan agelong view, and these assets are really appreciated successful value. And connected that size wherever I tin spot existent wealthiness creation by being a smaller midsized landlord because I for illustration nan business.

Robert Richardson

The difficult aspects of nan inflationary unit is going to – arsenic we spot nan costs to switch is importantly higher, and it's accelerating. So taking those assets successful time, they will salary back.

Mario Saric

Okay. That makes sense. And possibly conscionable nan past one. Where would benignant of 5 and 10-year you spot financing costs today?

Dale Noseworthy

Would beryllium successful nan scope of benignant of a 410 to 430, depending connected nan day.

Philip Fraser

And again, 2 aliases 3 weeks ago, it's astir 30 to 40 ground points less. And depending connected benignant of nan measurement that nan slope relationship reacts successful nan remainder of nan year, and we benignant of expect that it will spell backmost up and down arsenic a spot of a roller coaster.

Mario Saric

Okay, great. Thanks for nan color.

Philip Fraser

Thank you.

Operator

Thank you. The adjacent mobility comes from Matt Kornack of National Bank Financial. Please spell ahead.

Matt Kornack

Good morning, guys. Just wanted to quickly spell backmost to nan CapEx guideline being akin to 2022. Is nan creation changing location successful position of wherever you're spending nan superior successful suite versus connected buildings? And past successful position of nan building improvements, what's benignant of nan target successful position of really you spell astir that CapEx spend?

Robert Richardson

So it's a very elaborate fund and that gets allocated accordingly. Certainly, for us, 1 of nan main thrusts of that programme is our repositioning program. So we're looking astatine 450 turns this twelvemonth connected nan repositioning side. So we'll put there, returns being 13% each cash. But crossed nan board, it's building envelopes. When we're doing that, we're improving our worth of nan building. So we're redeeming money operationally. So there's a payback connected that. And – but successful position of nan breakdown, it will beryllium very similar. The different cardinal inaugural we person is conscionable our greenish programme wherever we're utilizing much photovoltaic installations that are moving for america connected caller building geothermal is nan measurement to spell unless you – nan compelling logic you can't do it, that's exceptional payback. And crossed nan board, we're modernizing our properties and moving to make them much upwind resistance, fixed there's a adjacent spot of variability these days and wave of nan storms.

Matt Kornack

Okay. No, that's perfect. Appreciate that color. And past conscionable nan past 1 for me. With regards to your improvement pipeline, tin you springiness america a consciousness arsenic to what nan impediment would beryllium to build astatine this constituent aliases preventing you from building further? Is it entree to superior returns aliases benignant of process-driven zoning items? And past is nan improvement pipeline aliases expanding it astatine each limited connected nan disposition program?

Philip Fraser

Right now, I deliberation it's independently – 1 of nan biggest focuses we'll beryllium doing for nan remainder of this twelvemonth is looking astatine each our developments, each nan opportunities successful beforehand of america and moving up from nan entitlement process connected a number of files consecutive up. And truthful if location is simply a taxable is that connected this telephone aliases were what we spot successful position of nan large opportunity successful beforehand of us, is to beryllium progressive successful nan proviso side. So it takes a batch of clip for each azygous task from a conception to an entitlement to nan opening of construction. So we've sewage 3 developments. Currently 2 finishing up. One conscionable starting. There will beryllium different 24 months. We're progressive successful different 1 and a smaller percent ownership successful Calgary. And we genuinely want to get nan adjacent 1 aliases two, astatine slightest 1 started this year. So we get precocious probability of that happening. We are looking astatine that 1 to benignant of do a small spot of worth engineering to spot if we tin bring down nan costs a small much clip because we still haven't received nan permitting up until nan past fewer weeks, and that's not going to beryllium nan issue.

And past really, nan adjacent one, we've sewage a number of files that we conscionable really person to push. And past to beryllium capable to look astatine these opportunities and bring them up to nan adjacent level arsenic a large chunk of activity that we're prepared to do astatine this time. One of nan much breathtaking ones will beryllium Westmount. That's nan 1 wherever we person The Carrick underway. The 2nd shape would beryllium arsenic of correct perchance up to 244 units. And past there's nan maestro readying down that, which is – we will beryllium rather fierce connected trying to get nan number up successful position of building a existent organization location complete time.

Matt Kornack

Okay. No, that makes sense. And fixed your expertise connected nan building front, your publication to caller proviso would beryllium done improvement much truthful than buying of caller assets. Is that adjacent characterization?

Philip Fraser

Well, again, I deliberation nan large – arsenic I was hopefully trying to reinforce, if we spot stabilization of liking rates successful nan 2nd half of nan year, past we cognize what benignant of return we're going to get looking astatine opportunities connected nan caller broadside of nan – of acquisitions. I deliberation correct now, nan thought of buying thing comparatively aged tin do successful nan added worth pinch a debased turnover, it's conscionable going to return that overmuch much clip to fundamentally move these buildings astir and spot immense improvements successful rate flow. I mean that's amended served for nan backstage investor because they don't person nan clip sky than we do.

Matt Kornack

That makes sense. Thanks guys.

Operator

Thank you. Our adjacent mobility comes from Jimmy Shan of RBC. Please spell ahead.

Jimmy Shan

Thanks. Just a speedy follow-up connected nan turnover rents spread. So erstwhile I look astatine nan CMHC rental report, they're reporting spreads successful markets like, Halifax, Kitchener, Waterloo successful nan 25% to 30%, and moreover successful New Brunswick successful nan benignant of debased teens and that was October data. So I'm conscionable trying to quadrate that pinch your reported 12 for nan quarter. Is that – I don't cognize if that's conscionable rule of averages, but conscionable immoderate thoughts arsenic to why location is seemingly a large difference?

Dale Noseworthy

Yes, we've been having nan aforesaid question. So erstwhile we look astatine it, I will conscionable item that CMHC, really they stitchery nan data, they do statement that Halifax really has a Level D, which is mediocre information supporting that. So I'm not judge really they propulsion it. Certainly, erstwhile we look astatine nan repositions, those numbers make sense, but regular churn opportunity look high. So for example, our [indiscernible] largest landlord here, and we were not included successful those conversations. So I deliberation it's – it is astir apt what group they pulled to get that data. So yes, it is different than what we're seeing, but I deliberation that nan inclination pinch those marketplace rents expanding is perfectly true, but I'm expecting that their sample excavation was rather small. And if you look astatine our much – depending connected immoderate of our older assets, those numbers do make sense. But that's – they don't afloat align pinch what we're seeing.

Philip Fraser

Jimmy, did you prime that up successful position of nan information they're saying that it's – nan value of it was a D successful New Brunswick was a C. So really, you're talking a very mini sample. And for us, I mean, 6,000 units, I mean, statistically, we'd beryllium 10%, and they ne'er called us.

Jimmy Shan

Okay. All right. Well, that makes sense. Okay. So conscionable turning to nan indebtedness maturity connected 2023. So I deliberation half of nan maturities connected nan flat broadside are non CMHC insured. Maybe if you could punctual maine for illustration what was nan rationale to not person CMHC insured to statesman with? And past arsenic a prospective scheme is to refinance those indebtedness pinch CMHC financing?

Dale Noseworthy

Yes, I mean, astir of those would've been either assumptions, that we would've assumed erstwhile we acquired those assets aliases indebtedness that we put successful spot conscionable instantly upon an acquisition. All of those would apt spell CMHC this year.

Philip Fraser

Yes, I mean location was been caller acquisitions retired westbound that did not person CMHC money connected it, and we assumed pinch indebtedness erstwhile we bought it successful nan past mates years, and they're comparatively short-term, for illustration 3 twelvemonth term, 2 to 3 years.

Dale Noseworthy

Yes. In a while connected caller developments, we weren’t needfully putting CMHC insured conscionable because of timing and whereas nan caller improvement today, we are doing it, and we're capable to get – usage nan MLI prime and usage nan power efficiencies, and that's really affirmative for america connected nan development. So immoderate of nan changes that CMHC made has, and we're fans of and we’re utilizing connected nan caller improvement financing.

Jimmy Shan

Okay. Great. Thanks, guys.

Philip Fraser

Thanks.

Operator

Thank you. The adjacent mobility comes from Gaurav Mathur of IA Capital. Please spell ahead.

Gaurav Mathur

Thank you truthful much. And bully greeting everyone. Firstly, convey you for nan guidance. It’s really helpful. But reasoning of superior recycling successful 2023 and fixed nan upward – caller upward activity successful headdress rates are location immoderate markets which look much favorable from an acquisition viewpoint than nan others, particularly erstwhile financing rates stabilize?

Philip Fraser

So sorry, if I – your mobility is, what – wherever do we spot nan astir charismatic markets for acquisition, not disposition of assets? Is that correct?

Gaurav Mathur

Yes.

Philip Fraser

I would deliberation from a headdress rate, it will beryllium nan West Alberta.

Gaurav Mathur

Okay. Thank you. And conscionable connected nan disposition front, could you supply immoderate much colour connected really heavy nan purchaser excavation is? And if that's changed materially from nan past 12 months?

Philip Fraser

Well, I deliberation it's – well, nan database is different. It's rather deep. When we're looking astatine nan opportunities successful beforehand of us, for illustration I mentioned earlier, these are off-market inbound inquiries. And basically, it is nan 1 personification coming retired and saying that I want to bargain it, and this is what I'm consenting to pay. And because of nan pricing, we're much than happy to entertain that discuss pinch them. And that’s nan starting point.

Gaurav Mathur

Okay. Thank you for nan color. I'll move it backmost to nan operator.

Operator

Thank you. The adjacent mobility comes from David Chrystal of Echelon. Please spell ahead.

David Chrystal

Thanks. Good morning, guys. Just really quickly connected nan disposition proceeds. Do you person a target for indebtedness reduction? And beneath that level, would you benignant of attraction connected nan NCIB? Or really would you equilibrium nan benignant of proceeds of dispositions?

Philip Fraser

Well, I mean our statement – our acquisition statement is now presently six-plus percent. So therefore, I mean nan extremity is to benignant of salary that down, and past we'll look astatine nan superior to look astatine nan improvement broadside aliases nan NCIB program.

Dale Noseworthy

To clarify, refinancing will thief salary down that statement arsenic well.

David Chrystal

Okay. But nan extremity really is to get that statement down arsenic adjacent to zero done dispositions and refinancing?

Philip Fraser

Yes.

David Chrystal

Okay. And past conscionable possibly a speedy housekeeping 1 for nan developments you delivered successful 2022. Can you supply nan full NOI publication from these assets successful Q4 conscionable comparative to nan $6 cardinal annualized tally rate?

Dale Noseworthy

Q4, well, we'll probably...

Philip Fraser

So you person nan number...

Dale Noseworthy

200, 300. Yes, this twelvemonth was astir 1.2. It's astir apt astir 300,000 immoderate publication successful nan 4th quarter.

Philip Fraser

So is afloat leased up and contributing very positively for FFO arsenic well.

Dale Noseworthy

Sorry, that was FFO, I don't know.

Philip Fraser

No. I deliberation nan mobility was – your answer.

Dale Noseworthy

My reply was FFO

Philip Fraser

Yes. So from an NOI perspective, it would beryllium a adjacent spot higher. So I cognize looking retired to 2023, Erin, do you want to remark connected those conscionable to spell a spot about...

Erin Cleveland

Well, 2023, we had successful nan MD&A that was astir $6 cardinal successful NOI. That's connected a stabilized basis, that would beryllium betwixt 2023 and 2024.

David Chrystal

Yes. I'm conscionable trying to get a consciousness of nan incremental for illustration really overmuch was nan NOI successful Q4? And really overmuch incremental upside is location from stabilization?

Erin Cleveland

There's still lease-up happening connected some Luma and Latitude. The Kay successful Q4 would person been comparatively stabilized. You astir apt person a mates of 100 grands from occupancy gains year-over-year, and you'll spot a spot of a simplification successful liking disbursal from an FFO position arsenic good arsenic that indebtedness is fixed.

David Chrystal

Okay. That's helpful. Thanks. I'll move it back.

Dale Noseworthy

Just look – I mean, overall, erstwhile we look astatine our developments that we vanished past year, we would expect from an FFO position year-over-year publication of astir $1.2 million. Does that help?

David Chrystal

Yes, that's great.

Operator

Thank you. [Operator Instructions] Our adjacent mobility comes from Dean Wilkinson of CIBC. Please spell ahead.

Dean Wilkinson

Thanks. Good morning. Dale, connected nan debt, I deliberation if we talk astir rates stabilizing, and I deliberation that's – we tin each work together that's a euphemism for being little than they are today. If that stabilization doesn't travel until, say, into 2024, would you beryllium consenting to look astatine trading disconnected word for complaint pinch a position that you mightiness beryllium capable to do thing better? Or would you alternatively conscionable ladder retired nan indebtedness maturity correct now and past benignant of return nan rates arsenic they are?

Dale Noseworthy

I deliberation we – generally, overall, we're looking agelong word successful position of laddering. Now one-off opportunities, that's a different discussion. But overall, we want to make judge that we are allocating that risk, not overloading immoderate 1 year. So I'd opportunity that we will proceed to negociate our indebtedness ladder, ladder successful a responsible way.

Philip Fraser

I mean, looking astatine it, I deliberation I don't person it successful beforehand of me, Dean, but this twelvemonth is about, what, 200, 250. And moreover adjacent year, it's possibly astir 300. So these are smaller years comparative to nan $2 billion. I mean what we're talking astir successful position of reasoning connected nan statement and you conscionable asked that mobility here, what are we doing connected nan caller developments? Is it a five? Is it a 10? Because wherever rates are today. And I deliberation you've ne'er been capable to hit nan marketplace comparative to what it's going to do. And truthful nan easiest point and nan astir blimpish point is, we look retired and spot that really makes sense. So – and ever successful nan past 20 aliases 30 days, nan cheaper shape pinch portion of nan curve has been 5 versus 10. That wasn't – but we've conscionable travel disconnected a 20-year diminution successful liking complaint environment. And truthful now it's a small spot much complicated, but astatine nan aforesaid time, our existing indebtedness will conscionable people rotation up, and we've been looking for that aforesaid 5 and 10-year benignant of matter. And connected nan caller development, it will return a small spot much decision-making from our pact to determine whether it's 5 aliases 10.

Dean Wilkinson

No, that's great. I conjecture we each suffer show of nan fact, Phil, that complete our lifetimes, 4.2% is still really beautiful inexpensive debt. My backmost tells maine that I'm astir apt excessively aged to beryllium playing awesome games. Thanks guys. I'll manus it back.

Philip Fraser

Thank you.

Operator

Thank you. There are nary further questions astatine this time. Please proceed pinch closing remarks.

Philip Fraser

I would conscionable for illustration to opportunity convey you very overmuch for everybody participating today, and we look guardant to Q1 2023, nan 1st of May. Thank you.

Operator

Ladies and gentlemen, this does reason nan convention telephone for today. We convey you for your information and inquire that you please disconnect your lines.