InterRent Real Estate Investment Trust

Good morning, ladies and gentlemen, and welcome to the Interim Q4 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press the star zero for the operator. This call is being recorded on Thursday, February 29, 2024. I would now like to turn the conference over to Renee Wei, Director of Investor Relations, Please go ahead.

Welcome, everyone. Thank you for joining Interrent REIT's Q4 2023 earnings call. My name is Renee Wei, Director of Investor Relations and Sustainability. You can find a presentation to accompany today's call on the Investor Relations section of our website under Events and Presentations. We're pleased to have Brad Cutsey, President and CEO, Kurt Miller, CFO, and Dave Nevins, COO, on the line today. As usual, the team will present some prepared remarks and then we'll open it up to questions. Before we begin, I want to remind listeners that certain statements about future events made on this conference call are forward-looking in nature. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially. For more information, please refer to the cautionary statements on forward-looking information in the REIT's news release and MD&A dated February 29, 2024. During the call, management will also refer to certain non-IFRS measures. Although the REIT believes these measures provide useful supplemental information about its financial performance, They are not recognized measures and do not have standardized meanings under IFRS. Please see the REITs MD&A for additional information regarding non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Brad, over to you.

Thanks, Renee. We ended 2023 on a strong note. We improved our total and same property occupancy by 180 basis points from Q3 2023, 20 basis points from Q4 2022. Total portfolio occupancy level at 97% marked the best as being thrown into a new year that we've experienced in six years. When you break down vacancy by reposition and non-reposition portfolios, a notable concentration of vacancies is in the non-reposition portfolio, which aligns with our business model of seeking greater upside potential in these suites through value-enhancing programs. Average market rents across the portfolio gained a further momentum reaching 7.9% year-over-year, our highest growth to date and surpassing pre-pandemic levels. We've seen strong growth in all regions, especially in the GTHA and other Ontario, each exceeding 8% for both total and same-property growth. Dave will give more information about regional rent and opportunity later in the call. Strong AMR growth and actually fueled our revenue and NOI growth. Total operating revenues increased by 8.8% to $61.9 million for the quarter, 10% to $238.2 million for the year ended 2023. Reviewed on the same property basis, our operating revenues have increased by 8.2% to $60.6 million for the quarter, 9% to $233.8 million for the year. demonstrating the strong organic growth potential of our portfolio. Throughout 2023, we consistently delivered double-digit NOI growth every quarter, including Q4. Same property NOI for the quarter was $39.7 million, a 10.5% increase. Total portfolio NOI was $40.6 million, an 11.1% increase. On an annual basis, same property NOI reached $153.4 million, and total portfolio NOI was $156.3 million, representing an 11.8% and 12.9% improvement, respectively, from 2022. We closed out the year with an NOI margin of 65.6%, in line with the strong levels we achieved prior to the pandemic. During the fourth quarter, the strong NOI growth that we produced was able to absorb the increased interest costs and still delivered bottom-line growth. Our FFO growth continued to strengthen throughout the year, reaching $20.8 million, or $0.142 per unit in Q4, reflecting an 11.2% and a 10.1% growth, respectively. We delivered $80.6 million in FFO for the full year at $0.551 on a per-unit basis, surpassing pre-pandemic high water levels. FFOs for the full year achieved a new record high, up 4.5% overall and 3.4% on a per-unit basis to reach $0.482. We've also seen strong momentum building throughout the year with the AFFO for Q4 increasing 13.1% to $18.1 million and up 12.7% to $12.4 per unit. Taking a closer look at our balance sheet, we ended the year in a solid financial position, Kurt will provide more details later in the call, but I'd like to highlight some post-quarter activities that have further enhanced our positioning. So far in 2024, we successfully financed $183.5 million of maturing mortgages with a weighted average rate of 4.25%, compared to a maturing weighted average rate of 6.06%. Our overall weighted average cost of mortgage debt is now sitting at 3.37%. Dave, over to you to take us through some of the operating highlights.

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

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

Thanks, Kurt. During the quarter, we continue to pursue strategic dispositions as part of our broader capital allocation strategy. In Q2 last year, we communicated that we identified certain non-core repositioned assets that meet our disposition criteria and could potentially provide net proceeds of over $75 million. Relative to other assets in our portfolio, we believe we have done an excellent job of maximizing revenues and our projected forward returns are comparatively lower versus the cost of capital. We have also carefully considered operational scales and efficiencies. During the quarter, we committed to sell a 224-suite portfolio consisting of five properties in Coast St. Luke and the Greater Montreal Area for the gross sale price of $46 million, which is above their IFRS values. After the quarter, this transaction successfully closed with net proceeds of approximately $22 million after repaying in-place mortgages. Proceeds from strategic dispositions will be used to reduce our leverage and fund various capital allocation priorities for the year. As seen on this slide, we finished the year with four development projects underway. Total over 4,000 suites that are in various stages of development. Our development pipeline will not only contribute to much-needed new housing supply, but will also add exceptional quality to our portfolio, drive our energy creation, and contribute to our FFO, growth in the years to come. We are optimistic about our second office conversion project, 360 Loray in Ottawa. Demolition is currently under the way and we're gearing up to start construction in late Q2 this year, with the goal to complete construction by Q3 2025. Keeping a close eye on development costs and capital constraints, we carefully manage the pace of each project. However, we understand the importance of sizing opportunity and executing a prudent strategic investment to enhance the quality and scale of our portfolio over the long run. Only slide 23. With the recently introduced new measures to limit undergrad international students' intake, we wanted to shed some light on our student and resident base. About 15% of our residents are students, and over half of them live in our communities located within two kilometers of well-established post-secondary institutions. Not all rental markets will be impacted equally. The national cap is based on provincial population shares and more constraining in Ontario and BC. We have a higher concentration of student residents in Quebec where the cap exceeds the current intake of international students. Approximately one-third of our students' residents are in our GMA region. International students residing in Canada surpassed one million as of last year, the record influx of international students 2023 and 2022 is anticipated to support the student population in Canada over the next two years, before else low is expected to pick up. During this period, we are expecting growth of international student population to persist, but at a more moderate pace. Canada's high population growth has often been cited as a key support factor in the multifamily industry fundamentals. However, our analysis suggests that Canada's housing deficit will persist, even in a scenario where immigration returns to pre-COVID levels and 2.3 million new homes are built by 2030, an outcome deemed highly unlikely by the CMHC. In fact, CMHC projects a housing shortfall of over 3 million units in this low economic growth scenario, with the gap widening to 3.45 million in this baseline scenario. As you can see on this slide, more than 85% of the supply deficit is concentrated in three provinces where we operate. To tackle this persistent supply shortage, we are steadfast in our commitment to expanding the housing stock through methods such as intensification, office conversions, or development. At the same time, we are focused on strategic investments in our properties to sharpen our competitive edge and position ourselves for a future where supply gradually aligns with demand. To sum up, 2023 has been a fantastic year for us. We have consistently delivered top-notch operational performance and generated significant value through our repositioning programs. With the industry on solid ground, a strong and flexible financial position, and an experienced and dedicated team, we couldn't be more optimistic about what 2024 holds. When considering how tight the rental market has been and the forecasted supply and demand for the next few years, It lays out a path for 6% to 8% same-store revenue growth, which leads to high single, low double-digit same-store and online growth. I wanted to thank everyone for your continued support. I would like to encourage you to go to our website and check out our interactive annual report to learn more about our achievements this year. Let's open it up for Q&A.

Thank you. And ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. And if you're using a speakerphone, please keep the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Kyle Stanley from Day Jordan. Your line is open.

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

Sure, no problem. Thanks, Kyle. We were at 3.3% rent growth on renewals. and 21% on new leases.

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

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

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

Okay, now that makes sense, and I do believe that's new disclosure, so very much appreciated. Secondly, just Within the portfolio, are you seeing certain unit configurations, whether that might be bachelor one bed, two bed, or finish quality outperforming others? And maybe if so, how are you thinking about those ones that might be a little less in demand today, or what's driving that, and how do you manage through that?

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

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

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

Thank you. And your next question comes from the line of Brad Sturgis from Raymond James. Your line is open.

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

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

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

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

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

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

Okay, that's great. I'll turn it back. Thanks a lot.

Thank you. And your next question comes from the line of Mike Markides from BMO Capital Markets. Your line is open.

Hi. Thank you, operator. Good morning, everybody. Maybe just starting on the – can you guys hear me? Yep. Okay, good. Sorry. Just starting on the dispositions, I guess a concentration of stuff in St. Luke and maybe tying this back to your comment on the international students and not thinking it's much of an impact, the federal cap, but to the provincial change, and your Coat St. Luke properties are, I think, close to Concordia. So maybe if you just shed some light on whether that, you know, that concern was part of the reason for the disposition of those properties, or am I just thinking, got too much time on my hands and thinking too much over here?

No, I think, first of all, just on the sort of second part of that question, Mike, about their proximity to Concordia, those wouldn't be very close to Concordia. They're sort of more out of the downtown core. They're not within that sort of corridor where we have quite a few assets that sort of serve as both McGill and Concordia. They're a little further.

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

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

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

Yeah, it would be. Mike?

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

That's great. Helpful. Thank you. I guess last one for me before I turn it back. Actually, two last ones, sorry, quickly. So just to confirm, the renewal and new leasing spreads that you guys gave, was that full year or just for the quarter? Sorry, say that again? The renewal and turnover spreads that you guys gave? That's for the full year. It's the full year. Got it. Okay. And then just, Kurt, I just want to make sure I caught this. correctly, did you say that you expect interest expense or 24 to be flat year over year, given everything that's happened?

Yeah, I think it'll be like, depending on what happens with what Brad has mentioned previously about hopefully having some dispositions through the year and recycling that capital, I think it'll be flat to plus or minus 500K, depending on the timing of dispositions and recycling that capital. If you're modeling flattish, you're probably in the right range.

Okay, but that's just contemplating the dispositions that have happened, or is it anticipating more dispositions?

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

Okay. That is very helpful. Thank you very much. I'll turn it back.

Thanks, Mike.

And your next question comes from the line of Jonathan Kelcher from TD Calvin. Your line is open.

Thanks. Good morning. Good morning, Mr. Keltcher. Good morning. Good morning. Just going back to your one comment, Brad, on one of the reasons that you're selling Coast St. Luke is the rents were approaching new product rents. How much of your portfolio would you say is getting close to new product rents when you're on turnover?

It's a good question. I don't have that handy read-off because it's really, really node-specific. So I wouldn't be able to give you a consolidated view on it. Said differently, Jonathan, though, I think when you look on the overall, it's measurable, right? It's... I'd probably say, and I'm just going out, it's probably less than 5% of the portfolio. Okay.

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

Sorry, say that again, Jonathan?

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

For sure, 100%.

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

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

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

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

I'll turn it back. Thanks.

Thanks, Jonathan. Thank you. And your next question comes from the line of Jimmy Sean from RBC Capital Markets. Your line is open.

Hi, Jimmy.

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

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

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

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

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

Yeah, I don't think we're going to see a major dramatic difference. I think we could see a trend a little lower than what we posted in 2023, which is down a little from 2022. This will also be a factor of our development programs. We are going ahead with 360 Laurier. Richmond Churchill is currently out for tender, so we'll have to wait and see where that comes back before we see if we're going to spend real hard dollars on that.

Okay. Thanks, guys.

Great. Thanks, Jimmy.

Thanks, Jimmy.

Your next question comes from the line of Matt Cornett from National Bank Financial. Your line is open.

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

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

Fair enough. your cost of capital relative to kind of opportunities in the market, understand that you're selling some assets to probably deleverage and fund commitments in the near term. But how should we think of the growth profile and take advantage of the platform longer term? I mean, I'd assume your goal is to get back to a cost of capital where it makes sense to grow the portfolio. Is that fair? Yeah.

Yeah, I mean, we could sit here and have theoretical debates all day long about what is a true cost of capital. That's the great thing about finance. But the one thing I get a lot of comfort in, Matt, is when you're looking and you're operating within the SaaS class and seeing the visibility of this cash flow and seeing the organic growth profile that we have inherent in a portfolio, that allows us to plan for the external growth with some comfort. Now, yes, the bond rates are moving on us. Yes, our cost of equity is not where it used to be. But we can do things in the near term that are in our control, being disposal communities where they are forecast to be under our projected growth rates and recycle them into opportunities that we believe exceed our growth rate. And by the very nature of managing that from a... a portfolio perspective, we should be able to continue our track record of above industry, posting above industry growth. And really, at the end of the day, that's kind of the approach to it, and we'll continue to do it. If you ask me, are there enough external opportunities that can exceed our current outlook, there is. And for different reasons. And that's the great thing about this. Not everybody's capitalized the same way, and not everybody has access to cash flow the way some of the publicly listed REITs do. And I think we're coming into a time where we're going to be able to optimize our portfolios and use some of that organic cash flow to build up for future growth. Okay, that's very helpful. It's quite different. I probably should want to make sure we get this point across on the call. We're not going to do that as expensively. We're not going to balance sheet bill. So when we're making these comments, you can assume we're making leveraged neutral capital allocation decisions. Yes, there might be timing blips where we might feel comfortable increasing that leverage for a very short period. But there's a reason behind it that we know about that will bring it back to where we're currently sitting.

Okay. No, it makes sense. I appreciate that.

Thank you. And we have a follow-up question from Mike Markitis of BMO Capital Markets. Your line is open.

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

Actually, I think it's down. I'm not sure... what you referred to. We can take it offline if you want. Make sure that we're comparing apples to apples. But I would, for your 2024, you can assume that our capex then excluding development will come in. Okay.

Yeah.

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

Yeah. No, that's fair.

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

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

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

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