Killam Apartment Real Estate Investment Trust

Good morning, ladies and gentlemen. Welcome to the Colombe Apartment Real Estate Investment Trust 3rd Quarter 2023 Financial Results 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 assistance, please press star 0 for the operator. This call is being recorded on November 8, 2023. I would now like to turn the conference over to Mr. Philip Fraser, President and CEO. Please go ahead.

Thank you. Good morning, and thank you for joining Killam Apartment REIT's third quarter 2023 conference call. I am here today with Robert Richardson, Executive Vice President, Dale Noseworthy, Chief Financial Officer, and Aaron Cleveland, Senior Vice President of Finance. Slides to accompany today's call are available on the investor relations section of our website under events and presentations. I will now ask Erin to read our cautionary statement.

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

Thank you, Erin. We are very pleased with our strong financial and operating results for the third quarter of 2023. Killam delivered FFO per unit of 32 cents in the quarter, a 3.2% increase from 31 cents per unit in Q3 2022, and achieved 8.1% property NOI growth across the portfolio. As we continue to capture market-to-market opportunities on the unit turns, we have exceeded our 6% NOI growth target in the first nine months of the year. We ended the quarter with 42.8% debt-to-total asset ratio, the lowest in our operating history, and continue to focus on strengthening our balance sheet through our capital disposition program and the positive lease-up momentum on our recently completed developments. Dale will now take us through our financial results, followed by Robert, who will discuss our operational results. I will conclude with an update on our current and recent developments in our capital allocation strategy. I will now hand it over to Dale.

Thanks, Phil. Key highlights of QILM's Q3 financial performance can be found on slide five. Kiln generated strong earnings growth in the quarter with net income of $68.3 million. This includes $38.5 million in fair value gains on investment properties, a result of rent acceleration translating into higher NOI. Value enhancements from this NOI growth were partially offset by an uptick in cap rates in Ontario, BC, and PEI, where we increased cap rates between 10 and 25 basis points in Q3. In the last year, we've increased cap rates in Ontario and BC by between 35 and 50 basis points. As Phil noted, we continue to exceed our forecasted NOI growth and have again increased our same property NOI target for the year to over 7%, up from over 6%. A summary of our strategic targets and performance to date can be found on slide six. Revenue is the key driver of strong NOI performance. Slide 7 breaks down the rental growth achieved on renewals and turns by quarter, reflecting rents for tenants whose lease is renewed in the quarter and for new tenants who moved into a unit in the quarter. In Q3, Killam achieved its highest weighted average increase with a combined same property rental rate growth of 5.9%, including an average increase of 16.8% on turns and 3.2% on renewals. Year over year from September 2022 to September 2023, the average rent for our same property portfolio is up 4.7%. With acceleration in rent growth over the last four quarters, our average rent increase in 2024 will exceed the 4.7% we've realized over the last 12 months. Lower turnover continues in this tight rental market. Slide 8 provides a summary of turnover by region, including turnover activity through to the end of October. We are anticipating turnover for 2023 to be approximately 19%. Although down from last year, at 19%, new leasing activity continues to be an important contributor to our rent growth. In addition to increasing top line, we are managing operating expenses. For the second consecutive quarter, expense growth remained below 1%, with total same property operating costs up 0.7%. As seen on slide nine, general operating expenses increased 1.7%, a deceleration from the previous quarter. We are starting to see an easing of inflationary pressures and are benefiting from the impact of expense management initiatives. For example, lower HVAC and plumbing maintenance costs reflect preventative maintenance programs, and lower insurance premiums align with our strong risk management program, both of which have been evolving over the last five years. We are pleased to report continued expansion of our operating margin, a 120 basis point increase on our same property portfolio, achieving a 64.1% margin for the first nine months of the year. Slide 9 shows the steady progression of our margin expansion. In addition to NOI growth, our margin is further expanding from the introduction of new developments with margins well above 70%, as well as the sale of lower margin properties. Maintaining a healthy balance sheet is a core focus. With the successful execution of our capital recycling program and placing permanent financing on recently completed developments, we've reduced our variable rate debt by 110 million year to date. As a percentage of total debt, Variable rate debt has decreased to 4.9% compared to 9.6% at the start of the year. This will continue to come down in Q4. In addition, debt to total assets improved, ending the quarter at 42.8%, the lowest level in our operating history. Debt to normalized EBITDA also improved, ending the quarter at 10.5 times. Finally, slide 11 shows our average apartment mortgage rates by year versus prevailing CMHC insured mortgage rates. Our mortgage maturities are strategically staggered to avoid overexposure in any one year. Looking forward, we have 83 million of mortgages maturing in Q4 with an average rate of 3.3%. In addition, we have two development loans totaling 42 million, which will move from variable rate construction facilities to fixed rate mortgages during Q4. I will now turn the call over to Robert, who will discuss our commercial and MHC results, along with the NSG updates.

Thank you, Dale, and good morning, everyone. Gilm's commercial portfolio consisting of three major properties, the 389,000-square-foot Royalty Crossing in Charlottetown, Halifax's 152,000-square-foot brewery market, and the 306,000-square-foot Westmount Place in Waterloo have all experienced impressive leasing in 2023. Same property commercial net operating income increased 18.9% for the quarter. attributable to an increase in total commercial occupancy of 230 basis points to 94.8% from 92.5% at September 30, 2022. Plus, continued success with strong rental growth on lease renewals. Year-to-date, we have completed 29 lease renewals totaling 77,150 square feet at a weighted average rental increase of 29%, having a weighted average lease term of 6.9 years. We also executed 29 new commercial leases totaling 52,600 square feet at a weighted average net rent of $22.45 per square foot, having a weighted average lease term of 7.6 years. Kiln's MHC properties include 31 permanent communities and nine seasonal resorts. Collectively, these properties delivered solid results in Q3 2023, achieving 5.4% total same property NOI growth. The seasonal resorts, which only operate for the second and third quarters each year, performed very well, producing 7.1% in NOI growth year-to-date 2023, compared to the same period last year. Although representing a relatively small segment of Kiln's business, our permanent and seasonal communities are steady performers, consistently contributing to Kiln's bottom line. The permanent MHCs have a five-year average operating margin of 65%, while the seasonal resorts five-year average margin is slightly less at 60%. Slide 13 illustrates this historical trend and the relationship between the two property types based on the time of year. In 2023, Kilham completed its fifth annual GRES submission, receiving a green three-star designation and maintaining a strong score on our performance and disclosure ratings. The GRES requirements and the ESG sustainability landscape continue to evolve and Kilmet identified areas where we can improve our climate-related disclosure. We recognize that climate change-related impacts are increasing in frequency and severity. Therefore, Kilmet developed resiliency plans to protect our portfolio. This includes exploring best practices that identify, assess, and mitigate climate change risks so we can prioritize the more significant exposures and likewise affect countermeasures. Finally, We are proud to announce that based on the results of our 2023 employee survey, Kilimanjaro has been recognized as an employer of choice for Nova Scotia and New Brunswick by the best companies group. Our third party administered survey results show an overall satisfaction score of 81%, highlighting that 85% of Kilimanjaro employees are satisfied with their role. 87% report excellent relationships with their supervisors. 90% feel positively about Kiln's diversity efforts, and 92% of employees like their coworkers. Kiln utilizes the results of its annual employee survey to ensure we maintain a positive work environment for our employees, communicating to them that their contribution is both recognized and valued. We embrace the survey's insights, using these to keep Kiln current so we may make changes as necessary. Next quarter, we look forward to sharing the details of Killam's annual tenant survey with you. I will now hand you back to Philip to provide further details on our renewable energy project and an update on our development and disposition activities.

Thank you, Robert. During the quarter, Killam invested $2.5 million in energy initiatives. Back in 2020, Killam started investing in solar energy production, and we now have solar panels installed at 19 properties located in Nova Scotia, PEI, Ontario, and Alberta. Our current production capacity of 1,900 megawatt hours per year produces approximately 4.1% of our operational control electricity, moving towards our long-term goal of 10% of our electrical consumption source through renewables by 2025. In addition, we have five additional solar projects underway that are expected to produce an additional 700 megawatt hours per year. We have also been active in rolling out electric vehicle charging stations with 355 units installed across 47 properties. This number continues to grow, and we are committed to investing $900,000 in EV charging installations in 2023, targeting over 400 chargers across 54 properties, with all our new developments being built to incorporate this technology. A key component of this year's strategy was to recycle capital by divesting out of slow growth secondary markets or lower yielding assets while focusing on our development program and strengthening our balance sheet. As of September 2023, Kiln has sold five properties for $97 million and subsequent to the quarter have closed three additional properties for $33.5 million. The majority of the proceeds have been used to reduce our floating rate debt. With completed dispositions in Ottawa, Halifax, Charlottetown, Miramichi, and Sydney, totaling 815 units, we have exceeded our target of $100 million for the year. These planned dispositions meet our criteria for recycling capital and will also further increase our percentage of NOI generated outside Atlantic Canada, thereby enhancing our geographical diversification. On the growth side, we have completed $94 million of high-quality developments this year. The Governor, a 12-unit property in downtown Halifax, and Civic 66, a 169-unit property in Kitchener. Both properties are built with several advanced green technologies that will reduce operating costs, greenhouse gas emissions, and our exposure to energy pricing. We have two active developments, the second phase of Nolan Hill, shown on slide 19 and 20, and the Carrot, on slide 21. The second phase of Nolan Hill, a three-building, 234-unit development in Calgary, is expected to be completed in December of this year. Killam owns a 10% interest and has a commitment to purchase 100% of the development for $65 million. We are currently leasing the first building, which is 42% leased, and will close the transaction once the other two buildings are finished. This will add an additional 234 units to our Alberta portfolio. And with current rent growth in the region, we are expecting the all-cash yield to be over 6.5%. The carrot is expected to be completed in the second half of 2025 and will add 139 units adjacent to our existing commercial property in Waterloo. The construction industry for single-family homes, condos, and apartments has not kept pace with the population growth over the last 10 years. The insufficient housing supply, three years of high inflation, and 18 months of rising interest rates has created a housing affordability crisis and a housing shortage. Recently, a number of provincial governments and the federal government has started to shift their attention to this issue and are working towards a solution to help the development industry create more supply by reducing the time it takes to receive a building permit and eliminating the GST HST tax. This is creating many exciting opportunities for Killam. We own a number of development sites and a number of large redevelopment sites that will create value by building housing on land that we own for many years. We are experienced developers. We have been building rental housing complexes for the last 15 years and have built over 1,900 units in six provinces. We are actively working on a number of new and exciting developments. To conclude, We are very pleased with our Q3 performance. I would like to thank our employees for their hard work and dedication. We are excited for the future and will continue to execute on our strategy and create value for all of our unit holders. Thank you.

I will now open up the call for questions.

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 three-tone prompt acknowledging your request, and your questions will be pulled in the order that you received. 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 flip the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Mark Rothschild from Canaccord. Your line is open.

Thanks. Thanks. Good morning, everyone. In regards to the transaction market, are you seeing any pickup in large transactions actually looking like it might get done? Obviously, interest rates have been somewhat volatile. And maybe in that note, how do you see assets being valued with interest rates where they are and the large rent growth that will take a while to come but should come from any asset?

Mark, to answer your first question, I'm not aware of any large actively marketed transactions in the marketplaces across Canada that are actually going through. What we've been able to accomplish, they've been relatively small deals, and there's been local interest for those deals.

And in regards to how property is being valued on the smaller deals, is it more just maybe families that look at things differently?

I think it is. I mean, obviously they're private buyers and they're looking long-term. They're looking at maybe there is upside in these properties, especially when you look at it from a per-door basis. And they're just happy to be able to sort of acquire this type of asset in some of the smaller markets.

Okay, great. And maybe just if I can look at the same property, NOI, which has been very strong, but, you know, the operating expenses, the cost of expenses have come down. Should I infer from your comments that with the rent growth continuing next year and maybe some easing on the operating cost side, internal growth could potentially be even stronger? Don't want to read into your words too much, but just want to make sure I understand.

Yeah, certainly. I mean, I think that on our general operating expenses, I think that that's fair. Property tax is the one I think we would have talked about this last call too. Certainly, we're not going to see this reduction in property taxes in PEI in New Brunswick next year that we would have seen. So that's one line item on the expense side that we anticipate will be higher next year. But still, I think it's, you know, we're quite bullish on the NOI for next year, but I'm not sure expenses will be as low, but still be very healthy on top line in NOI growth next year.

Excellent. Great. Thank you so much.

Thank you.

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

Thank you, operator. Good morning, Gail, Phil, and Claire. First question for me is just on the dispositions and referring to the slide in your deck. I get the FFO accretion. given the pay down of the high cost variable rate debt. The slide verbiage also refers to NAV accretion. And what I just wanted to clarify, is that simply a referral to sale price that you captured versus prior RFS value? Or does it take into account your future expectations for operating performance and capex of those assets specifically?

I think it takes into consideration the fact that we're paying down debt. when we're looking at our NAV, lower debt on that as well as part of that.

And because of our investments, we're seeing some improvement too, just in terms of operating costs.

Thanks, Rob. I didn't mean to omit you in my good morning. That's fine. You're near and dear to my heart. Okay, thanks for that. What about the in-place NOI yield? I don't know if you're able to provide us with a range, but just given the markets that you've sold recently, Sydney, Miramichi, and St. John, where roughly are you able to provide sort of rough yield range?

Yeah, I mean, the earlier ones, the properties like in Ottawa, the one in Halifax, and even the first transaction, transaction PEI, they were all into the high threes or mid fours or lower. Once we got into the sort of The markets that we had one asset, which would have been the Mary Vichy and the two buildings that were side by side up in Cape Breton, they were roughly about six and a half.

Okay, thank you. And then Nolan Hill, last one from you before I turn it back. Nolan Hill, I think last call you deferred and said you might give us a little bit more of an update on the parameters of your expected return based on your development and fixed purchase price on the remaining 90%. Do you have anything for us on that one?

Yeah, I mean, again, we are leasing it as a group in terms of our ownership group today, the first building. The other two buildings should be finished around the middle of December, and then we'll be in position to be able to purchase it. We stated a couple times that the 100% ownership of this second phase is $65 million. And you got to think of it that we are 10% of the ownership now. So there's a development profit going to us. And then we'll purchase it at the $65 million mark. And roughly, it's close to, it's well over a six, maybe six, six and a half. And that has basically, the reason it's that It's because we would have done this purchase and sale agreement two and a half years ago when the rents were roughly about $1,500, probably on a pro forma basis, and now they're plus $1,800.

Yes, got that. Okay, perfect. And then just to clarify, so the first building, you're leasing that as a group, and then you're buying the second too. So the stabilized yield, it will take several months for that to stabilize up?

Yes, we're buying three of them at the same time. together, but it will be a stabilized deal. We have to lease the remaining two buildings up throughout the first half of the year of 2024.

Understood. Thank you very much. That's all for me. Thanks.

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

Thanks. Good morning. First question, just following up, Dale, on your property tax comment on foreseen property NOI. There's no reason to think that it's going to be a big number, which is back to more typical annual growth there? Correct. Okay. And then switching... The repositioning, your repositioning program, it slowed a little bit in Q3. I guess given the strength in the markets and the higher cost of capital, how do you think about that program going forward?

So, yes, it's a program we certainly enjoy. We have 304 completed so far, budgeting for 450 for the year. It's the turnover that can impact us, but we are still seeing some good activity and healthy increases. So we're going to try and convert as many as we can.

Okay. So it's still full steam ahead. It's just a function of what units you get back? Yes. Okay. And then lastly, just on the capital recycling program, this is really the first time you guys have started doing that. And I guess it's something you want to continue, but How should we think about the pace going forward? I'm guessing you got rid of a lot of the low-hanging fruit right off the bat, but how should we think about that in terms of volumes on an annual basis?

I don't know if we have a number that we could give you today on an annualized basis, but I think the heart of that answer would be that we're going to continue to look at selective assets to dispose on every single year of a go-forward basis. So we could give you more guidance in February, but it's safe to say that the program will continue next year, and we're going to go and spend the next month or so to figure out which assets we might look at disposing of. Okay.

Do you think it will be more than this year or less than this year?

I would probably say by the time we finish this year and maybe some of those slip into the beginning of next year or whatever, this is a pretty good – sort of number if we can achieve 100 million a year. And so maybe some years it might be less. But right now it would be hard to see us selling 200 to 300 million in a year.

Okay. That works. I'll turn it back. Thanks.

Thanks. Your next question comes from the line of Kyle Stanley from the Jordans. Your line is open.

Thanks. Morning, everyone. So we know the renewal rent growth for next year is going to be strong, especially with the 5% growth in Halifax. But just on the turnover side of things, two questions. So you indicated you expect turnover to be about 19% for this year. Where does that trend for 24, based on what you're seeing, where would you say maybe the turnover floor is in your portfolio? And then just secondly, I mean, the turnover spreads have obviously continued to accelerate materially year to date. Would you say the running expectation is that those – continue to trend towards maybe that 25% to 30% mark-to-market opportunity?

I'll answer the first part of that. I think from a turnover point of view, we were kind of projecting 18. Now we're back up to 19 to finish the year. And I think it's going to be plus or minus a couple points off of that 19 for next year. I don't see it trending down on a sort of a year-over-year basis at the same rate. Dale, what's your thought?

Yeah, on the turn. You know, I mean, we're looking at that closely to say, you know, the big question we're having around the table here is have we, you know, are we starting to see plateau in market rents? And I'd say in some regions, select assets we might see, but there's still acceleration in others. So, you know, you've seen the trend in the MD&A that continues to accelerate on turns. I think that there is still some room to continue to set up. I'm not sure they'll keep at the same pace that we've been seeing. So lots of room there in terms of the mark-to-market. So we're looking at 28% to 30% mark-to-market overall. I think that there is still room in a number of our markets that that's continuing to move up.

Okay, that's great, Collar. And I guess kind of building on that a little bit, maybe a bit of a higher-level question, but the underlying fundamentals that you just talked about in the space continue to be quite strong. Where do you see the biggest risks that could derail maybe the fundamental picture? Would it be regulatory, new supply, immigration policy driven? How are you thinking about that today?

You just mentioned three. One is basically new supply is going to take a long time in terms of our world to sort of bring on. Everybody has to do their part. So Even today, if you were ready to put a shovel in the ground, it's probably 24 months to 30 months. So you can sort of project out there. Immigration, whether the federal government slows it down a little bit, a lot, or just continues at the same pace, that will create the demand that we have for housing again for the next five plus years for sure. The first one you said was, sorry, Regulatory. Which I shouldn't have even slipped my mind. That could be the one that we don't know. That's the unpredictable one. But I think everything that we've been hearing for the last number of months is there is a housing shortage and the governments, all levels are aware of it, all three levels and everybody I think is starting to sort of rally around the fact that we need more housing.

I think the lack of cooperation amongst the various levels of government is interesting to note, and it's in the paper today again. So they have to, I think, figure it out, and we're optimistic they will get together and cooperate. The other thing I think is a constraint is skilled labour. That's going to be an issue as you're trying to increase supply, and so we're optimistic that part of the immigration takes a hard look at skilled labour as one of the components that we can welcome to Canada. We all need it going forward.

Okay, no, that all makes sense. And then just the last one, kind of, I guess, building on that, you've got seven projects expected to start development between 24 and 26. You know, how are you thinking about breaking ground on new projects today? You know, how many of those seven would you look at maybe starting next year? Or, you know, is that maybe something for 25 or 26?

Well, I guess it's a... it's a complex answer or even a complex question in terms you're looking at a lot of different variables. So one is that we have a development program that is basically the areas of concentration are right across the country. So there's opportunities in Alberta, obviously there's opportunities in two or three big markets in Ontario, and then here in Atlantic Canada. So you're looking at really what are the underlying fundamentals in all those markets. You're looking at what's availability from the trade and construction sort of capacity, be able to, from a pricing point of view, and then you get into even the next level, which is, are we looking at larger projects that might be 30 storeys high, they're gonna take three years to build, or are there opportunities to go and do four or five storey combination of concrete and stick? and basically get it into the ground and finished within 18 months. So we're juggling a lot of sort of opportunities. And I think the fundamental objective is to be able to say, can we get one or two projects ready to be able to say we're announcing them and we're going to start building because we want to be part of that solution and take advantage right now that essentially in a lot of provinces, the HST, is off, which is a really big cost savings for all developers.

Perfect. Thanks for all the color. I'll turn it back.

Thank you. Your next question comes from the line of Gaurav from Laurentian Bank. Your line is open.

Thank you, and good morning, everyone. When I'm looking at the debt ladder going forward and the $280 million in market maturities, are those maturities staggered across the year or are they somewhat lumpy in nature?

Light on the first two quarters, the majority of it is in the back third and fourth quarter.

Okay, great. And would it be possible for you to provide some color on the conversations with your lenders that you're currently having and where spreads currently lie?

Yeah, I mean, I think that when we look at today, you know, CMHC this week, you know, probably 4.8% that we can get in terms of really five and tens is pretty similar in terms of that rate. So that's come down quite nicely from a week or two ago. So it is ever-changing, but nice to see that sub-five. So I think looking forward, based on today's bond yields and market, that's probably reasonable to expect. But also with an expectation that second half of the year, that could come down.

Right. Thank you so much. And then just my last question. When you're looking at debt-to-total assets, we've seen you guys make a lot of progress on it. But where would that be trending to towards the end of the year and potentially for 2024?

Certainly, we do expect to continue to pay down more of that variable rate debt. So that alone should improve it. The big question is fair value and Q4 that we'll be spending a lot of time on that. But we continue to grow that top line growth. So that's an important contributor. I think the trend that you've seen, it's reasonable to expect that to continue based on what we have underway.

Fantastic. Thank you for the call. I'll turn it back to the operator.

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

Thanks. Just to follow up on the future development program, I know there are a lot of variables that you'd consider. when you decide to push forward with the project. What's your return threshold today? If four to four and a half sounds like that's what it was before, what would it be today?

Well, I think we still work on and we want at least 150 basis points spread between the cost of debt that we're anticipating and the yield that we can achieve. And so really it means that if you're to start a project in the next... three to six months, most likely that you'd be looking at some of the CMHC financing opportunities that they have currently out there.

Okay, so that would put you in at least 5% plus. Sorry, what's this? 6% plus. I didn't hear that. Roughly, yes.

Okay. Okay. And then just a quick, the construction loan on Civic 66 and the governor that's being replaced, that's already been done or is that happening in Q4 and what was the amount again combined?

Civic 66 was done at the end of July. The governor would not be done yet and will be done in Q4.

Okay, so it's just governor left. And how much is that roughly?

Today we'd have about $14 million in construction financing.

Thank you.

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

Good morning, all. Just with regards to the balance sheet flexibility that you've been able to achieve here and improving debt levels, should we think of that as a structural shift or is that kind of in preparation for eventually getting more active on the development side?

I think it's more structural.

I think for years we've been talking about wanting to improve our balance sheet and have been executing on that plan. So I think it's just continuing on that strategy that we've had, recognizing the value and having that flexibility. So if opportunities come up, we can evaluate that. But I think this is more strategic initiative to bring those debt levels down.

Okay, that makes sense. And then... As you look at the development pipeline, is there any thought towards maybe bringing a partner in to some of these projects in order to reduce the capital that you'd need to put into it and maybe get a bit of a fee stream and benefit from the platform you've built with regards to development? Or would you do them all on book?

You never say never. I mean, there are opportunities. But again, what we know, and maybe we don't know everything in terms of the opportunities that are out there for us in terms of new partners. But typically you've got to have it shovel ready and ready to go so there's no issues on or no delays on the zoning, the permitting or any of that and you have a pretty good sense of your budget. But really it would be only if we decide to do a very large building that we might even entertain a partner. Typical buildings that are 100 to 150 to 200 units, they're kind of bite-sized for us these days.

Okay, that makes sense. And then lastly, just a technical one. As a result of these asset sales, are you anticipating any tax consequences or is there enough kind of return of capital component of your distribution that you wouldn't have to necessarily do a special or something along those lines?

We're not anticipating a special distribution. We'd have enough room for the year.

Perfect.

Thank you.

Thanks, Matt.

And once again, if you would like... Thank you. And once again, if you would like to ask a question, simply press the star followed by the number one on your telephone keypad. Your next question comes from the line of Mario Saric from Scotiabank. Your line is open.

Hi. Good morning. Just one really quick question on the newly spread... Specifically thinking about the 17% this quarter versus the quoted 28-30% mark-to-market, I guess theoretically over time those two should converge, i.e. they should be fairly consistent, but that would assume a constant tenant turnover across lease duration, which I suspect isn't the case now. So does that explain the majority of the gap between the 17% and the 28-30% or is there anything else of consequence of preventing you from hitting closer to 30%?

Part of its location of where things are turning to, so when you look at our turnover and some of our highest mark-to-market spreads would be in the GTA, Kitchener and Waterloo, and that is where our lowest turnover is. So when we're looking at that mark-to-market spread opportunity, the weighting makes a difference of where assets are turning. So that's the biggest factor. And you're right, it depends which unit. What is the average rent? How long? You're right, the duration of people have been in there. So all those factors come into play, and that's why we see a bit of a differentiation. Because it's weighted average when we're looking at what we've been able to achieve.

Okay. And are you seeing a notable trend in terms of like the, so the 18 to 20% turnover expectation in 24, I think that kind of thought reference plus or minus relative to 23. Are you seeing the turnover trend where you're seeing like a notable uptick in turnover for residents that have been around for less than two to three years relative to a year ago, or is it fairly stable in that regard?

Yeah, we don't have, you know, in terms of duration on turnover, we haven't got those stats on hand. But I would say, you know, it is higher than we had expected this year. Certainly the trend that we're not seeing such a significant trend as we've seen some other years in terms of that reduction. So it just varies by property and by region.

Okay. Thank you.

Great. Thanks.

Thank you. And there are no further questions at this time. I would like to turn it back to Philip Fraser for closing remarks.

I would like to thank everyone today for listening and participating in our third quarter 2023 conference call. And we look forward to our fourth quarter in February of 2024. Thank you.

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