© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, ladies and gentlemen, and welcome to the Killam Apartment Real Estate Investment Trust Third Quarter 2020 Financial Results Conference Call. [Operator Instructions] This call is being recorded on November 5, 2020.I would now like to turn the conference over to Philip Fraser. Please go ahead.
Hello, and thank you. I want to welcome you to Killam Apartment REIT's Q3 2020 earnings presentation. I am here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; Erin Cleveland, Senior Vice President of Finance; and Nancy Alexander, Vice President of Investor Relations and Sustainability. Slides to accompany today's call are available on the Investor Relations section of our website under Events and Presentations.I will now ask Nancy to read our cautionary statement.
Thanks, Phil. This presentation may contain forward-looking statements with respect to Killam Apartment REIT and its operations, strategies, financial performance, conditions and otherwise. The actual results and performance of Killam discussed today could differ materially from those expressed or implied by such statements. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding forward-looking statements. For further information about the inherent risks and uncertainties in respect of forward-looking statements, please refer to Killam's most recent annual information form and other securities regulatory filings found online on SEDAR. Unless otherwise stated, all forward-looking statements made today speak only as of today's date. Killam has no obligation to update such statements, unless required under applicable securities laws. Unless otherwise stated, all forward-looking statements speak only as of the date of which this presentation refers and the parties have no obligation to update such statements.
Thank you, Nancy. Before I start, I would like to take the opportunity to acknowledge the unexpected passing of Wayne Watson on September 28, 2020. Wayne was a founding board member and investor of Killam and chair of our audit committee for 19 years. Wayne was a gentlemen, an experienced and knowledgeable CPA and most of all a close friend to all of us here at Killam. Wayne will be missed.This morning we are focused on our third quarter performance. Dale and Robert will take us through Killam's solid operating and financial results. But first, I want to start with a summary of our strategy. We find ourselves in a very different world today than even 8 months ago. But Killam's long-term strategy remains unchanged. We are focused on increasing shareholder value by increasing funds from operations and net asset value. We will accomplish this by concentrating on our 3 key priorities: number one, increasing earnings from the existing portfolio; two, expanding the portfolio and diversifying geographically through accretive acquisitions with an emphasis on newer properties; and number three, developing high-quality properties in Killam's core markets.In a year where rental growth has been partially muted, our existing portfolio of 17,000 property units and 5,900 MHC sites is benefiting from the innovative ways we grow our top line revenue and manage our operating expenses. We continue to accelerate our suite renovation program, utilize data analytics across our organization and invest in technologies to make our operating platform more energy efficient and greener. Accretive acquisitions have been the foundation of our growth, averaging $122 million over the past 19 years. We have targets to diversify our portfolio geographically and continue to look for additional assets in our 3 Ontario markets, as well as Calgary, Edmonton and Victoria. Killam's development activities is a key cornerstone in our long-term growth strategy. We have a proven record of building high-quality properties in our core markets over the last 10 years. We have approximately $250 million of development underway and expect to complete these projects in the next 24 months. Overall, this focused strategy continues to increase our earnings, produce a stronger balance and geographically diversify us across Canada. I will now hand it over to Dale to take us through our Q3 results.
Thanks, Phil. Killam produced solid financial results in the third quarter. Despite challenges linked to the pandemic, we continued to increase earnings from our existing portfolio, advanced our acquisition and development pipeline and strengthened our balance sheet with a $69 million equity raise. We ended the quarter with significant capital flexibility, including over $230 million in acquisition capacity. Slide 4 highlights our Q3 financial performance. We achieved net income of $37.1 million and earned funds from operations of $0.27 per unit, in line with FFO per unit in Q3 last year. Positive same property NOI growth and interest expense savings were offset by short-term dilution from the timing of deployment of funds following the July equity raise. These funds will be fully invested by the end of November. Killam's debt metrics improved during Q3, including a 160-basis-point reduction in debt-to-total-assets to 43.8%. Same property NOI growth is one of our key performance metrics. Overall, same property NOI was up 0.4%. Killam's apartment portfolio achieved 1.1% growth. The strength from the apartment portfolio was offset by a reduction in NOI from the MHCs, specifically from our seasonal resort communities. Due to social distancing regulations along with travel restrictions into Atlantic Canada, NOI from our seasonals was down 15.2% in the quarter. By contrast, NOI from our permanent MHCs was up 3.6%. The decline in the seasonals' earnings was pandemic-specific and does not reflect a long-term decline in the earnings potential from these communities. Killam's revenue growth measures are charted on Slide 5. Same-property revenue increased 1% in Q3, including 1.8% growth in the apartment portfolio. Year-over-year, as at September 30, the weighted average apartment rents were up 3.1%. Occupancy levels in Q3 dipped 70 basis points from Q3 last year. Although demand for rental units remained strong across the majority of the portfolio, we experienced an uptick in vacancy in most markets, coming off record high occupancy levels in 2019. Killam's incentive offerings have remained flat. We remain selective in the regions and properties where we are using incentive offerings. Revenue growth in Halifax and New Brunswick have stood out in 2020, including in Q3. Killam monitors mark-to-market opportunities by region and assesses the relative strength of each market to adjust rents accordingly. Both these markets are showing continued strength and resiliency throughout the pandemic. In Halifax, we continue to see rents on unit turns that are, on average, 10% more than in-place rents. Although we saw a dip in the Halifax portfolio's occupancy last quarter, we're not seeing indications of declines in market rent. The decline in occupancy is at least partially attributable to many universities moving to full online learning, resulting in student concentrated buildings seeing less demand. New Brunswick also saw a modest uptick in vacancy in the quarter, but occupancy levels remain healthy at above 97%. Mark-to-market opportunities in these regions continue to be strong. Rents on unit turns achieved by Killam's New Brunswick leasing team averaged 9% above in-place rents in Q3. This includes the success of our repositioning program in our New Brunswick market. Overall, we're seeing stable to growing market rents across the majority of our portfolio. Operating expenses were up 2.3% in Q3, as illustrated on Slide 6. The main driver of this growth was a 5.1% increase in property taxes. We continue to appeal property tax assessments to minimize this rising cost. General operating costs were up 1.1% as higher insurance premiums and increased compensation for frontline staff offset other savings. Utility and fuel costs were largely flat in Q3. I'm pleased to report that Killam's mortgage renewal program continues to progress on schedule with interest rate savings. The weighted average interest rate on CMHC insured mortgages refinanced in Q3 was 1.38%, 105 basis points lower than the weighted average rate on the maturing debt. Slide 7 highlights our debt maturity profile, including average apartment mortgage rates by year versus prevailing CMHC-insured mortgage rates. Looking forward, we have $143 million in mortgages maturing in 2021, and we expect to up finance approximately $50 million on these renewals, and based on today's rates, reduce our weighted average interest rate. We're focused on strengthening our balance sheet. And as noted already, we were successful in doing so in Q3, as shown on Slide 8. We ended the quarter with investment properties valued at $3.6 billion. This includes a $15 million fair value gain in Q3, reflecting the rental rate growth we're achieving on the apartment portfolio. I will now turn the call over to Robert, who will provide color on some key revenue initiatives and value delivery to our residents.
Thank you, Dale, and good morning, everyone. Before commenting on Killam's financial and operating initiatives, I want to first thank Killen's 700 employees that continue to work with tremendous communal spirit and poise during this unprecedented pandemic year. Our employees each day deliver safe and well-managed housing to both apartment and MHC tenants, as well as to the many businesses in our commercial portfolio. I would further highlight the outstanding commitment and care our frontline staff have extended to Killam's residents and stakeholders these past 8 months. Approximately 2/3 of our employees and residents call Atlantic Canada home. Due to the 14-day quarantine mandate for anyone entering the Atlantic Canadian bubble, Nova Scotia, New Brunswick, PEI and Newfoundland have to date been able to avoid the second COVID-19 wave that is unfortunately disrupting many communities and cities across Canada. Nevertheless, Killam is acutely aware of the demanding operating conditions in our Ontario, Alberta and British Columbia markets as the number of COVID-19 cases continues to rise. In these regions, Killam remains focused on the health and safety of Killam's resident families and stakeholders, remaining diligent in its cleaning and physical distancing protocols, doing our part to keep the active virus case load numbers low. Despite COVID-19, rent collection has remained very strong for Killam throughout 2020. As shown on Slide 9, Killam collected 99.7% of all rents in the third quarter. To date in October, we have collected 98.6% of apartment, MHC and commercial rent. Historically, Killam typically collects 99.6% of rents each month, and we do not anticipate a change to these collection patterns for the remainder of 2020. Killam has been working closely with its commercial tenants under the Canada Emergency Commercial Rental Assistance program, also known as CECRA, as detailed on Slide 9. Killam's contribution to date to its tenants under the CECRA program totals $200,000. As noted in the last 2 quarterly conference calls, Killam has in place or is working on rent deferral arrangements for a number of our commercial and residential tenants on a case-by-case basis and has waved any interest charges on deferred rent. Killam is proud to supply clean and affordable high-quality housing to its 22,000 tenants across Canada, and our employees are proud to provide an exceptional value proposition to our tenants. When compared to the cost of owning a home in the communities and cities where Killam invests, included the upkeep and maintenance that go with homeownership, renting is an excellent alternative. Affordable housing is a top priority in Canada, and all indications are that this will remain the case with Canada's population continuing to grow. Last week, the federal government announced an increase in immigration that will see over 1.2 million new Canadians arrive by 2024. The dual trends of population growth and increased urbanization in Canada's major markets has put pressure on housing supply and consequently increased pricing. Killam wants to be part of the solution, and therefore provides very affordable living options in all its markets. Please refer to Slide 10. Canada Mortgage and Housing Corporation's measure of housing affordability is the shelter cost-to-income ratio, which sets the affordability threshold at 30% of before-tax median household income. Comparing CMHC's 30% cost-to-income ratio metric to Killam's average rents in each of Killam's core markets clearly highlights the fact Killam's average rents are well within CMHC's threshold, ranging from 15% to 25% of the pretax median household income. Killam has the ability to accommodate the demand for both affordable housing and those preferring higher end accommodations by offering a wide selection of locations, unit sizes, layouts and amenities. Killam's properties reflect the rich diversity and character of its urban communities. Slide 11 charts Killam's rental rate growth from Q1 2017 to Q3 2020, 15 quarters or almost 3 years. Quarterly rental rate growth is represented by the green bars, and is a combination of rent increases for renewing tenants per quarter as shown by the blue line, plus rent increases for new leasing on turns when tenants vacate, shown by the gray line. Overall, during this 15-quarter time frame, Killam has generated steadily increasing growth in our rental rates to 3.6% per quarter until 2020 when the pandemic started. Despite the pandemic, Killam continues to deliver rental rate growth, primarily from moving rents up when a unit turns. For example, this quarter, unit turns averaged 5.2% rental growth. Killam's decision to suspend collection of rent renewal increases and to also delay issuing notice for future rent increases in the months of April through July have impacted Killam's rental rate growth for renewals this year. For example, rental rate growth for renewals for the 4 quarters ending Q1 2020 averaged 2.1% per quarter, whereas rental rate growth for renewals for Q2 2020 was 0%. And for this quarter, Q3 2020, rental rate growth for renewals is only 10 basis points. Coming back to my earlier comments on affordability, we believe Chart 11 drives home the point that Killam's rent has increased responsibly. Moving to Slide 12. Looking ahead to Q4 2020, Killam expects rental rate growth for renewals to be in the 2.4% range, trending upward to the rental rate growth Killam generated pre-COVID-19. The blue line on this chart shows the number of renewals by a month with October 2020 showing 2,000 renewals forecast, which is approximately twice the monthly average for renewals. This peak number for renewals is due to the delivery of renewal notices being delayed in Q2 2020, as discussed earlier. Killam's unit turnover during the first wave of the pandemic this spring saw a decline, but now the trending is moving slightly higher. We attribute this slight increase to the pandemic's uncertain trajectory that most certainly had tenants delaying their moves for a few months. For 2020 overall, we estimate Killam's unit turns will decrease plus or minus 20 basis points to finish the year at 28.5%. After repositioning 300 units in 2019, Killam's 2020 program is to complete 500 units, as shown on Slide 13. Year-to-date, 426 units have been repositioned at an average cost of $26,000 per unit, earning a 12% unleveraged return on investment. We have reviewed the entire portfolio and forecast we can upgrade a minimum of 500 units per year to fill a portion of the demand for high-quality upgraded units in our markets. Broadly, Killam presently has 5,000 additional units that can be repositioned, and this opportunity continues to cycle forward as the properties age. Expense management is a flow to that Killam, and we continue to benefit from our investment in energy efficiency projects. Please see Slide 14. Killam has invested approximately $20 million in efficiency projects over the past 4 years, including installing 11,500 low-flow toilets, lighting retrofits at 90 properties and many boiler installations and thermostat upgrades, saving millions of dollars by reducing utility and heating fuel consumption. 2020 energy projects include $6 million in investments, having an average 8-year payback. New this year are photo voltaic solar panel installations at both Quinpool Court pictured here on Slide 14 and our newest development Shorefront in PEI. Both these properties are now connected to the grid, producing renewable energy for our buildings. These projects are indicative of Killam's commitment to climate change mitigation by adopting greener strategies to reduce Killam's carbon footprint. On the topic of climate change, Killen participated in GRESB's ESG rating survey for the second year, and we look forward to sharing our progress and improvements once the final results are released later next month. I will now hand you back to Philip to provide an update on our development and acquisitions pipeline.
Thank you, Robert. Slide 15 summarizes Killam's year-to-date acquisition activity. On October 26, Killam purchased 171 and 181 Leopold, a new 4-story, 107 unit wood frame property in Moncton, New Brunswick. Please see Slide 16. The purchase price was $17.6 million, and it was satisfied by placing a new first mortgage of $13.2 million and the balance in cash. Killam has also agreed to purchase Horizon Place, a new 7-story concrete building located in Moncton, New Brunswick that is scheduled to close by the middle of November 2020. The purchase price is $55 million and will be satisfied by placing a new first mortgage and the balance in cash. Stabilized all cash yield is 4.5% and is currently 88% leased. With a mixture of 1, 2 and 3 bedrooms, the average unit size is 1,420 square feet with an average rental rate of $1.32 per square foot. Common areas include a well- appointed gym, a large social room and an outdoor patio. With $210 million in acquisitions year-to-date, 2020 is Killam's second-largest acquisition year despite the challenging environment. With regards to development, construction activity progressed in our 6 developments plus Nolan Hill development during the quarter. Slide 21 shows renderings of these projects, and Slide 22 shows the expected remaining time before completion and the total development cost. We expect Nolan Hill and 10 Harley developments to be completed in Q1 2021. By the end of 2022, we fully expect all of these projects to be completed, which is an additional 670 units of growth. Our Shorefront development opened its doors on October 1. Please see slides 23 and 24. A 100-kilowatt solar panel array has been installed on the rooftop, which is expected to produce 111 megawatt hours of energy annually. The property is currently 33% leased. Slide 25 shows The Harley, which is scheduled to be completed by February of 2021. A 47-kilowatt solar panel array will be installed on The Harley, along with solar panel arrays on the other 3 buildings in the complex for a total installed capacity of 262 kilowatts, which is expected to produce 302 megawatt megawatts of power annually. Slide 27 shows a rendering of The Latitude, the second phase of Gloucester City Centre project with RioCan. Construction Finance was placed on this project during Q3 2020, and all the remaining development costs will be funded through this financing. The Kay in Mississauga is progressing on long quickly now with renderings on Slide 29 and an aerial progress shot on Slide 30. Construction financing was secured in Q2 and all the remaining development cost is being funded through this facility with an anticipated completion in early 2022. Luma on Slide 31, is the 168-unit development that we are developing with RioCan. This apartment building is adjacent to their grocery-anchored Elmvale shopping center in Ottawa. We broke ground on our 169-unit development known as Civic 66 and Kitchener at the beginning of July, with exterior and interior renderings shown on Slides 32 and 33. We expect it will take 24 months to build with a completion target for Q3 2022. This project will have geothermal heating and cooling. For reference, Slide 34 breaks out Killam's future development opportunities. We are in the final design and approval phase for a 12-unit luxury project in downtown Halifax called The Governor and expect to start before the end of the year. Over 70% of our development land is outside Atlantic Canada. Although 2020 has been a challenging year-to-date, we remain positive for the future. We have a great team at Killam, and we continue to keep our employees and residents safety as one of our top priorities. We take great pride in our great operating platform in high-quality assets, and we are confident that we will continue to create value for our unitholders. Thank you. I will now open up the call for questions.
[Operator Instructions] Your first question comes from Mark Rothschild at Canaccord.
First question, maybe it's for Rob, just following up on your comments on rent. You guys did note that you delayed rent increases and you're restarting them in Q4. As we looking into next year same property NOI, and I know you're not going to give us guidance necessarily, but there's a whole bunch of moving parts. Obviously there's rent freezes in Ontario and there is rent control in certain markets. But as you're restarting rent increases, are you able to possibly push a little bit more because you paused them for a period of time, or does it just not work that way? I'm just trying to balance all these moving parts as we think about next year.
So the question is, can we catch up on any revenue we may not have earned. Interesting question. I would say to you that's probably quite linked to COVID. I mean in the marketplace, if it stays as uncertain as it is right now, it will be difficult to do that. But if we can find ourselves with things coming together with either the ability to diagnose or to treat, I think that things would -- you could move the market a little more. So for the most part, I think it will just be -- it wouldn't be any more than we charged before at this time, right? So not a big push to collect what may have not been collected. We'll remain in this range currently.
Just to clarify, Mark, too that most of the ones where we delayed the increases, except for Nova Scotia, we were able to put those through. There's just a timing difference.
Okay, great. And then in regards to the acquisition at Moncton, obviously it's a new property, a relatively low cap rate. You're using quite a bit of higher cap rates for IFRS. How should we think about that acquisition in the context of where market cap rates might be at Moncton or other smaller markets, meaning not Halifax and Atlantic Canada? And then with that cap rate of 4.5, is that on a stabilized income? Because I understand you bought it with some vacancy.
That is correct that it is stabilized income, and I think the way to look at that, there is pressure on cap rates in all our markets. I mean you mentioned smaller markets. It's true, but sort of the counterbalance of that is that this would be probably the premier asset in New Brunswick. This asset is outstanding. So from a long-term point of view, with all the features, the size of it, the rent per square foot; we're very happy to own this.
The next question comes from Jonathan Kelcher at TD Securities.
Just going to back to revenue, so if we look forward to 2021, on renewals and I guess with the freeze in Ontario and potentially B.C., do you think you'll be able to average 2% on renewals in 2021 or somewhere in and around there?
We think so. We think we can be in that range.
Okay, and then on turnover, the last couple years you've been in sort of the 5-6% ranges. Is that something you think you could continue to do going forward?
Yes.
Okay, that is good. And then I guess switching gears on acquisitions, what are you guys seeing on pricing right now?
I think the simplest answer is, is that there's huge pressure on cap rates with the assets in Ontario and B.C. They're a little bit better in Alberta, but obviously, the market is a little bit softer. And like the product that's available in Atlantic Canada, they're stable to, again, a little bit of pressure on the downward side.
Okay. That is helpful. And then just last question. On Nolan Hill, I think you're scheduled to close out in Q1, would that be like a March close?
Well, it depends on if they finish up the construction. It's going along very nicely. It's very fast. But we kind of think it might be February right now.
Okay. And then what in terms of -- like that will be an empty property when you get it. What are you budgeting in terms of lease-up time for that?
Well, we're actually doing pre-leasing now. So basically, there's good, even the first couple of weeks, and we'll gear up and be heavily involved in the pre-leasing through the rest of November, December and January. So you know what? I mean we'll know, we'll have really a good handle on that at the end of the fourth quarter, early February. But we're not too concerned about it.
The next question comes from Howard Leung at Veritas.
I just want to start with the same-property expense tick-up we're seeing in, I guess, a few areas in Ontario and also in Alberta. Could you just maybe have some color on there? Is it related to this property taxes that you talked about earlier?
That certainly is contributing.
Yes. Property taxes, you would have seen that highlighted, was up about 5.1% in the quarter. We're definitely feeling the cost of increased insurance premiums across the real estate industry and other industries as well. There's definitely pressure on insurance costs and our renewal would have happened for -- on July 1. So this is the first quarter we saw that uptick. Additional salary costs, we have provided more compensation to our frontline staff, and we would have seen that impact. Those were probably the ones that really stood out in the quarter. We did have some savings in some other areas as well, but those ones were fairly high increases quarter-over-quarter.
Right. And do you expect, I guess, that those expenses particularly in Ontario and Alberta to continue to outpace the ones in the maritimes?
I think that when we talk insurance costs, that one, I don't think it's one region more than the other. Property tax, it is a little more region specific, and we would have seen some more pressure in some markets more than others. So I'd say, yes, for property taxes. Some of the others are a little bit more evenly distributed throughout the portfolio.
Okay. No, that makes sense. And then just a question on your -- the ROI table on investments or unit repositions. I just saw that it looked like it slipped slightly from, I think, 13% year-to-date in Q2 and now it's 12%. So it kind of implies that this quarter, I think it's like a 10%. Which particular province would you attribute slightly lower returns to? And is that related to the pandemic, or is it just a function of that particular province?
I think it's a function of more on the increased cost side, not so much our ability to get to increased rents. What we're seeing now, it's looking like $26,500. So that's -- and I think that part of that costing is attributed to COVID, because there's been a premium on some materials, lumber, in particular.
Right, right. Makes sense. So I guess, maybe going forward, when you think about fiscal '21, would you maybe project slightly lower returns than what you were going in with into the pandemic?
It's pretty fine-tuning, right? It's impossible to say definitively. I would say that I think the prices are -- and I know lumber is coming down right now. So I think they'll stabilize on that side. So I would say we -- 12% to 13% is certainly achievable.
I mean, another part of this is right now, there's a shortage of appliances we find, depending on the market you're in. So from a premium pricing, just to get the appliances on the suite renovations, that will get corrected once COVID gets over. So there's different price points that add to the cost.
Right. Right. Yes. No, that makes sense. We've seen construction prices and appliance prices go up. I also wanted to ask about the same-property incentive offerings that you showed in the presentation. It looks pretty mild at 0.4% this quarter. Is there any like spillover into Q4 from these incentives? Like maybe operate in September, but they'll eat into October? And also, which markets are you seeing incentives continue pretty competitively in?
So we would -- from an accounting perspective, we would take those over 12 months. So those markets where we are offering, that is carried over a 12-month period. So overall, not too much change, but we are using them more in Downtown Calgary. So the Grid 5 asset we would have spoken of specifically. So Alberta, we have more incentives than other regions. And Newfoundland is another one that we're looking at incentives as well. So we would have started to see that. So those are the ones that would stand out in terms of our use, but we are very selective. So I think that the trending that we would have seen in Q3 is reasonable to expect to trend through Q4 and likely into next year.
That's helpful. And I guess that segues well into my last question. Just where we're seeing a little more pressure on Alberta markets, Alberta and Edmonton. And like Killam spoke about increasing exposure to Western Canada, including Alberta. Can you speak on that a little? And maybe why you still think it's attractive?
Well, I think it's because these markets are very large, and we believe in the long term. The probability of seeing growth other than our Nolan Hill is probably pretty low until the COVID sort of -- the pandemic gets over, because we're still in a bubble relative to travel. So we haven't been able to really do the total amount of traveling, going out looking for assets in Western Canada. But once it's over, we'll be back out.
The suburban markets are very strong. And we get that both in Edmonton and in Calgary. So and you know what? It's a young, youthful population in that marketplace, and it's going to be fine long term. And we're a long-term business.
And you would have seen our Edmonton numbers. I mean, same property, those are some assets that we saw fantastic top line growth and NOI growth in the quarter. It is, as Robert mentioned, like suburban. And the demand is fairly strong for units in those suburban markets.
No, that's great. That's where we are seeing the difference.
The next question comes from Liyan Chen at IA Securities.
Just a quick couple of questions from me. You've spoken about it in, I guess, in the previous questions, but maybe more longer term. I was just wondering if you could talk about what your expectations are in terms of same-store NOI for the next couple of quarters, and what you're seeing so far in terms of current trends?
It's -- I think that longer term, it is back to Robert's comments about how long -- what's going to happen with COVID-19. But I think that we do expect to go back more to a -- in line with what more normalized at the kind of 2% to 4% range we've talked about before, looking forward, but there's still a lot of uncertainty in the market with what's going to happen with the virus. But we think that 2020 will prove to be on the low side when we look over kind of a 10-year trend.
Great. And in terms of rental growth rate, you've touched upon it. And I guess it was the very first question when it comes to a lot of moving parts. So what would be your perspective, specifically in the context of decreasing occupancy? And again, if you could provide some color as to what you're seeing so far in the quarter.
Decreasing -- sorry, can you just repeat the question, please?
Yes. So what would be your -- like regarding to rental growth rate, more specifically regarding to -- in the context of a decreasing occupancy. What would that look like and what you're seeing so far in the quarter, in terms of some of the current trends?
I think if I understand what you're asking. I think that we are -- that it is a balance between rental increases and occupancy levels. And we look at closely region by region and even asset by asset, and we're looking to -- at that result, which is revenue growth. So in areas that we see a lot of increased upticks in vacancy, and St. John's is a prime example, then we'll look at those rental rates and decide. But there's other markets that we are -- reminder, we are coming off record high occupancy, too. So still at 97%, 96.5% occupancy, those levels are still looking quite healthy. So it is a balance, and we'll look at the data analytics that we have, the amount of demand that we're seeing and adjust accordingly.
But again, just as a reminder, we're in this situation. And currently, there are decreased levels of new immigration. There is sort of a lot of restrictions on international students coming back into the country to go to university. So do we believe this is going to be around forever? No. But again, to recognize the fact that these are all the byproducts of the shutdown through the first and second quarters of this year. And who knows as we come back, and there's actually a second larger wave that's happening that require shutdowns and depending on the province. So I mean, from an operator, we look at it as we'll get over this. Hopefully there will be a vaccine sometime maybe in 2021. I mean the big part of it is, is that our downtown cores have to reopen in terms of the worker and the workforce that goes and go back and forth into those areas. So all that plays into the demand for housing, especially on the rental side. And we don't think this is a long-term structural increase in vacancy.
I would highlight that on the vacancy side, approximately 1/3 of our portfolio at any time is100% occupied. And so we're able to move rents despite other buildings may be suffering some vacancy. So there is the opportunity we should see some growth that way. And Phil touched on international students, and we know the province has stated that starting in the new year, we will be permitting international students to return and Halifax has over 30,000 students, university students here. So it will be nice to get that portion of the market back, too. So I think generally speaking, there is an opportunity for growth. Any vacancy we're experiencing is actually somewhat minor, and it's not definitely a structural change.
The next question comes from Matt Kornack at National Bank.
Other than students, are you seeing any other demographic trends? I mean, some were saying, and maybe it's an Ontario-centric issue, but there's some cases of young professionals moving back in with their parents. I guess you guys don't have the COVID levels and less of a downtown exposure. But are you seeing any other demographics other than students that have been under pressure?
I thought you were going to say some people in the Ontario market are moving back to Nova Scotia, which is something we are seeing. And so there is a bit of that going on. And it's interesting. I think the best way to see -- to look at that is 70% of sales, and I think there was 5,000 home sales, 70% were sold above asking price in our market. And so that -- there's a tremendous demand. And we know when we speak to our people in PEI, they're seeing the same thing. So there's been some benefit to the outlying provinces from the bigger centers because of COVID and people choosing this as a good time to perhaps go to a smaller market. So that's been one of the good things, if anything can be good with COVID.
But I think, Matt, your question, I mean, it makes sense that it's actually occurring if you have young workers in the workforce that now are basically working out of their apartment in the large urban centers, and especially if some of these units are quite small, and maybe they already have a roommate and they're sharing it. So there is going to be a movement in that part of the market for sure.
Sure. No, that makes sense. On the expense side of things, looking at maybe 2021, I mean, do you expect that your margins will continue to sort of flatline, or is there still a potential for margin expansion? Obviously, it depends on rent growth to some extent. But what would be a normal sort of expense growth rate at this point for OpEx and taxes, et cetera?
I think somewhere between 3 and 5. I think that property tax is always a big question every year. But we also have some efficiencies we continue to roll out. That's going to help. So I think that that's probably a reasonable range to assume.
Okay. And then with regards to -- what was I going to say -- sorry, it's been a long week. With regards to your renovation programs, I mean, I was surprised that for Q3 2020 versus Q3 '19, you're getting the same rent spread on renovations and on turnover. So clearly, your market has held in pretty well if those are indicators of market performance. But is there still the same amount of demand, notwithstanding the issues you said on cost and maybe delays in getting some of the renovation materials, but still the same demand for these renovated units?
The demand remains very strong.
So you'd foresee continuing to move ahead with that program as you were prior to COVID?
And so this year, we would do 500 units, we'll renovate. And next year, we're looking at a similar number, and that can meet the market demand, we think. If we could do more, we might. But right now, we're just working on that.
The next question comes from Mike Markidis at Desjardins.
I appreciate your comments on no long-term or no [ subsequent ] change to your vacancies. Just -- and obviously, the future would depend on if we have a second wave and so on and so forth. But if we just assume the status quo for the next quarter or 2, do you guys anticipate that your vacancy levels have stabilized here? Or should we expect that they'll continue to grow a little bit in the short term?
Again, the way we look at this, and it's a good question, is that our increase in vacancy can basically -- it's concentrated in about 10 buildings. So for every market, it's not that the overall vacancy has gone up across the board per market. And so when we look at it, and this has always been the way that when you look at increase in vacancy, you look at it and say, okay, was this a student-focused building and the international students didn't couldn't get into the country in, say, metro Halifax? Or is it another issue over in Newfoundland where the immigration numbers are down and that was attracting new Canadians? So -- and then the other one would be downtown Calgary and all the sort of the negative news that's in that marketplace in terms of job loss. So we look at it and say, okay, the majority of the decrease is concentrated in a very small number of properties. And then from that point of view, we can sit there and say, how are we going to stop that and what sort of leasing strategy are we going to put in place to sort of bring it back.
Okay. I appreciate that. On the acquisition front, I know you guys sort of with at least more of travel bubble still in place, not able to execute outside of Atlantic Canada. But I'm just curious if you can comment on if you've seen an increase in the number of offerings and acquisition opportunities across Canada over the last several months?
Well, the answer is yes because there was very little through February, March and April and into May. So everybody got back working. I mean, there's a lot of the brokers had product that they were negotiating with the potential seller. And yes, there was a lot of product that has come across our desk in the last 2 to 3 months.
Okay. Last one for me is just -- and I don't know if there's [indiscernible] providing news feed based on what I searched. But I just noticed a couple of articles in Halifax recently about some advocates for rent control. I was just curious if you had any comments on that, whether the social call for that has gotten stronger versus history lately? Or is it something that at this point mild?
I think the big question is around affordability, and then it becomes some discussion on rent control. But mostly, it's making units affordable, that portion of the marketplace. And when we look at the numbers in this market using CMHC as the ratio of before tax income, 30% being the measure. And when we look at that, and it's been done, I think, one of the analysts did it as well. But across the board, certainly, our portfolio would meet that tax of affordability. But there's no denying, there's been a number of cases that come up. And the question I have for the market, and I haven't had it answered yet is how many are there? They would be, in some cases, it's an older person. And there is an issue with that person, but I don't think the numbers are as big as they're being made out to be. So we're working with an association here that speaks for the rental market to do an economic study that's being prepared by a third-party to address this concern and then use that to speak to any of the policymakers. So we can bring the fact of the case to bear. And the main thing is this. We all know in our business that rent control is not beneficial, helping to increase supply. And we know the best way to deal with affordability is increased supply. And that point can be made and it's empirically supported. So that's what we'll do next.
Okay. And is the political -- just not being as familiar -- is the political backdrop right now, such that there are proponents for free market system? Or are they showing any sort of -- I don't want to say vulnerability -- but just appetite to consider alternative structures?
For sure. And we would talk more about supplemental and in terms of a way to address those that can't afford it. The other thing about rent control is just -- what it does is it subsidizes the rent for everyone when really it should be more directed towards those that need affordable housing. And I think the people that we're speaking to in government certainly understand that reality, and that's part of the discussion.
The next question comes from Dean Wilkinson at CIBC.
I think I know the answer to this, but I just wanted to confirm it. On the property tax increase, was that changing the mill rate? Or was that an increase in the value of the underlying assets?
It would depend on the municipality. I mean we'd be in 70 different municipalities. And some of it is done by provincial. And then depending on the municipality, it's a combination of one or the other, or both.
Or both. Okay. And of the $3.5 billion of investment properties, how much got reassessed?
Well, I mean, every province is different. I mean, Ontario is on a 3-year cycle, PEI is on a similar one. We'd have to go back and look.
Nova Scotia, they're [indiscernible].
Every year.
Do you have a sense of how the magnitude of what those valuation reassessments would have been on average?
No.
Okay. Fair enough. That's a pretty detailed question. I will leave it there. And hopefully, that ends the call.
Next question comes from Mario Saric at Scotiabank.
Sorry to disappoint Dean with an additional question here. Just 2 really quick ones on my end, just really focusing on affordability. Again, I thought your table on Page 10 was interesting. I just want to confirm, these are broader market median household incomes. When you look at your portfolio, is there any reason to think in any of the markets that your specific household income wouldn't be at or above the CMHC average? And I'm just thinking about perhaps a higher concentration of students in some markets, which I don't know whether that is or not, but just curious to hear your thoughts on that.
In the absence of more data, I think that, that's the proxy we have to go with. On students, the interesting thing about -- it's not really their income, it's their parents. And most students that show up in our markets would have good support from the families.
Again, a lot of those units, there's 2 students. And again, the stats that we're quoting are household and a lot of times, it's one person working.
But we do have additional breakdown. And we've been -- as we spend time thinking about this, like what percentage of our rents are below $900 or whatever number that may be. When you think of what those understanding the different -- that medium income might not represent a lot of people, and we do have, overall, our -- in Halifax, for example, I think almost 30% of our units are under for -- I guess, that's 2 bedroom units, but under that $900 rent, which would be very affordable rent. So it kind of varies by market, but we look at it a lot of different ways. It's hard to get the income [indiscernible].
So Mario, this is so math, I think that maybe helps. So the average hourly rate in Halifax is $12.50 an hour, that's the minimum wage, and people work 2,080 hours, 40 hour weeks, 52 weeks, and that's $26,000 a year. And using CMHC's 30% calculation that gives you, on an annual base -- sorry, on a monthly basis, $650 that you could contribute towards rent. And as Phil noted, a lot of people would co-share. So the 2-bedroom unit they would take that together. That gives you $1,300 a month. So when you do the math on it, really, there's a lot of units in the market that are $1,300 or less. The people that mostly are affected by -- when the affordable question comes up, are people want to live alone on their own and often a single parent with children. So those are the 2 that you need to address, which is a segment of the market, no denying, but that's a segment that can be addressed. And that's how it should be addressed, would be our thinking.
Great. I understand. I'm just trying to get a sense of whether in Halifax, for example, at 20.3%, whether you think that again, you don't have necessarily -- you don't have the data, but whether Killam's percentage would be notably lower than 20.3%, maybe a bit higher, specific to your portfolio. But I appreciate that the data isn't necessarily available. Okay. And then just maybe a secondary question. With respect to supply and I guess supply appetite or new supply appetite as a result of the pandemic or COVID. Have you seen any change on the ground in terms of kind of intention to build because of the pandemic, or do you think you'll see historical new supply growth rates in Halifax over the next 3-4 years?
I'll give you a broader answer to that question. What I see across the country, the supply side slowing down because it is becoming more and more difficult to get permits to actually build product. And there's like -- there is basically a growing sort of anti-development along with the affordability that people are really not that happy. And what you're going to see is that it's taking longer to get a permit to actually build something. And we see that in a lot of different cities that we're looking at trying to get final permits. So I think you'll see supply really start to slow down in the next 12 to 24 months.
Okay. And then just maybe a related question on new supply. I think you've established yourself as one of the leaders in terms of ESG in the public markets. On the private side, your competitors, do they focus as much on green when they build a new product? Or would you say that your focus is quite differentiated?
I think our focus is quite different. I mean, we're -- there's a big section of the new product that's being built by merchant builders, and they are basically -- they would not put a lot of these features into the buildings. The established private landlords that are building their own product, probably would look at it because it all adds to the efficiency and the overall margins of new product. But we definitely -- it's a big belief inside Killam that this is the way to go long term.
And the last question comes from Yash Sankpal at Laurentian Bank.
I'm just trying to reconcile a few contradictory factors, and maybe you can help me. So we know that there is a lack of demand from new immigration students. We know that young professionals are opting to move out and go to suburban locations. But on the other hand, your same-property occupancy declines by only 20 bps sequentially. And the demand for your repositioned or renovated suites is quite strong. So it looks like -- or it seems like we are missing some undercurrents.
You are. It's the Atlantic bubble that's part of it. No, and I think that is part of it. I think that in other bigger centers, with the rapid increase in the number of positive cases, it's affecting people dramatically, and we're not seeing that in our marketplace. We've been fortunate these last number of months, and the numbers are relatively low. And I think it supports a more stable occupancy, and that's, I think, how it's going. In the absence of the new Canadians coming, some students not arriving; the market has maintained its status quo, and that's been the fortunate part of it for us in Atlantic Canada.
So your geographic concentration is helping you here.
It is helping us here.
There is one more question from Brad Sturges at Raymond James.
Maybe just to wrap up the discussion here on demand drivers, I'm just curious if COVID has had an impact on the move out of single-family and downsizing into the multifamily, has that kind of been impacted at all by COVID?
The biggest driver for that move out is somebody to buy the new houses. And so what we are seeing is single home sales have increased a fair bit. So you're probably onto something there. I think that is one of the contributors that has made it possible for everything to remain status quo, but that's probably true.
Thank you. There are no further questions. You may proceed.
That concludes the third quarter conference call for Killam Apartment REIT, and we thank everybody for participating today. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.