Minto Apartment Real Estate Investment Trust

TSX:MI.UN

Earnings Call Transcript

[Operator]

Good morning. My name is Anas, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Minto Apartment REIT Second Quarter 2021 Results Conference Call. [Operator Instructions]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. Please refer to the cautionary statements on forward-looking information in the REIT's news release and MD&A dated August 12, 2021 for more information. During the call, management will also reference certain non-IFRS financial 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 recent MD&A for additional information regarding non-IFRS financial measures, including reconciliation to the nearest IFRS measures. Thank you. Mr. Waters, you may begin your conference.

[Michael R. Waters, President, CEO & Non]

Thank you, Anas, and good morning, everyone. I'm Michael Waters, CEO of Minto Apartment REIT and I'm joined this morning by our CFO, Julie Morin. I'll begin the call by discussing highlights from the second quarter. Julie will review our financial and operating results in detail and then I'll wrap up with our business outlook. After that, we'll be pleased to take your questions. The market softness that we've seen since the onset of COVID-19 has clearly started to subside. We continue to execute on our strategy, and results are starting to trend in the right direction. The pace of vaccinations contributed to partial economic reopenings and that's increased demand. We entered into 534 new leases in the second quarter, by far the most in any quarter in the REIT's history. It was a 14% increase over Q1 2021, which was also unusually strong and a 58% increase compared to Q2 last year. And during the quarter, we saw leasing promotions peak in April and trend downward through May and June. However we still made use of focused promotions at certain locations to move inventory. Through this, we generated a strong gain to lease on leases signed in the quarter of 5.9%. While that was below the very strong 7.6% gain we reported in the first quarter, it was far above the 2.1% gain we reported in Q4 of 2020. Average monthly rent of unfurnished suites reached a record high of $1,640 per month at the end of the quarter, an increase of 1.9% compared to $1,609 at the end of Q2 last year. We're also pleased to report that occupancy reached a low point in Q1 2021 and it has started to improve. Average occupancy of unfurnished suites was 91.5% in the second quarter, a slight improvement from 91.1% in the first quarter as move-outs were outpaced by move-ins. This is the first sequential improvement in occupancy that we've recorded since the start of the pandemic and we view this as a positive sign that market conditions are improving as vaccinations increase and the economy opens up. We've also made progress with our other organic growth initiatives during the quarter. We completed the repositioning of 88 suites which improved asset quality, reduce future repair costs and drive strong rental growth rates. We made progress in our development program at 2 projects where the REIT has advanced convertible development loans. In that the construction at our Lonsdale Square development in North Vancouver got underway and the rezoning of the Beachwood project in Ottawa was completed. This will permit the redevelopment of the site as residential rental. Construction of the Beachwood project is expected to commence in Q1 2022. Just as a reminder, the terms of the convertible development loans that the REITs advanced on these project provide interest payments during construction that are accretive to the REIT's earnings and provide the REIT with an option to purchase the projects upon stabilization at a 5% discount to their then appraised fair market value. Julie will talk more about this later in the call. During the second quarter, we recorded a fair value gain on investment properties of $50.5 million, reflecting strong investment demand and pricing for multi-residential rental properties. It also reflects the elimination of a valuation reserve previously taken for COVID-19 as we see rental market conditions continuing to improve in the second half of 2021. We continue to prioritize our liquidity position, which has served us well through the last year and a half. We ended the second quarter with total liquidity of approximately $128 million, which represents a liquidity ratio of 14% defined as total liquidity divided by total debt and a debt-to-GBV ratio of 38.6%. We're committed to maintaining financial flexibility as we move forward in a more positive business environment. Overall, we're confident that we're navigating effectively through this challenging period. Occupancy started to improve and we're delivering organic growth through gain to lease on the turnover of units and through repositioning while maintaining a strong balance sheet that positions us well to capitalize on opportunities as they arise. With market conditions starting to improve and the benefits of urban living reasserting themselves, we're looking forward to improve financial performance.I'll now invite Julie Morin to discuss our second quarter financial and operating performance in greater detail. Julie?

[Julie Morin, Chief Financial Officer]

Thank you, Michael. Turning to Slide 4. I'll begin by reviewing the Q2 operating results. We reported revenue excluding furnished suites of $28.1 million in Q2 2021 compared to $29.5 million last year, a decline of 4.6%. The decline was mainly due to lower occupancy and higher promotions, partially offset by higher rents achieved on new leases signed during the quarter. The majority of the decline was due to reduced occupancy at core urban properties where the negative impact of COVID-19 was most pronounced. Total revenue including furnished suites also declined by 4.6% year-over-year from [Technical Difficulty] year-over-year to $19 million or 63.6% of revenue in Q2 last year. Lower NOI in Q2 2021 reflected lower revenue due to reduced occupancy and higher promotions. FFO was $11.9 million in Q2 2021 compared to $12.7 million in Q2 last year, a decline of 5.7%. This mainly reflected the negative NOI variance. AFFO declined 6.5% year-over-year to $10.4 million from $11.1 million in Q2 2020. This result reflected the lower FFO and AFFO per unit was approximately $0.166 compared to $0.188 in Q2 a year ago. The re declared cash distributions in the second quarter of $0.1188 per unit, resulting in an AFFO payout ratio of 64.8%. Cash distributions were $0.11 per unit in Q2 last year, resulting in an AFFO payout ratio of 58.5%. The as of June 30, 2021, our portfolio consisted of 7,277 suites with an average monthly rent of $1,640 per occupied unfurnished suite. Average monthly rent increased by $31 or 1.9% compared to $1,609 at the end of Q2 last year. The average occupancy rate in Q2 2021 was 91.5% compared to 96.2% in Q2 2020. Turning to Slide 5. As Michael noted in his introduction, occupancy improved in the second quarter for the first time since the COVID-19 outbreak began as move in finally outpaced mobile. This slide shows move-outs and the net results for each of the past 4 quarters. You can see on the chart that we had 477 move-ins compared to 441 move-outs in Q2 2021, resulting in a net occupancy improvement for unfurnished suites. As I noted earlier, average occupancy in Q2 2021 was 91.5%, up slightly from 91.1% in the first quarter. This reverses the negative trend that we saw in previous quarters, and we expect improvements in occupancy to continue into the second half of the year and beyond. On Slide 6, you will find our updated revenue analysis. We break down gain-to-lease activity for Q2 2021 in the upper chart and our estimate of the gain-to-lease potential of the portfolio in the lower one. Beginning with the upper chart, as Michael noted, we signed a record 534 new leases in the second quarter. Leasing activity was strong in the Ottawa market, where 296 new leases were signed. We achieved positive gain-to-lease in all markets, including Montreal. The average rent on new leases increased by 5.9% over the expiring rents going from $1,593 to $1,686. This resulted in an annualized incremental revenue gain of approximately $375,000. On the lower chart, we show the gains lease potential that we estimate in our portfolio as of June 30, 2021. We believe we can generate approximately $6.3 million of annualized incremental revenue growth by bringing rents in 6,556 suites to market levels. We expect the total gain-to-lease potential will increase in the second half of 2021, and we expect to realize a significant portion of this potential over the next 3 to 5 years. Turning to Slide 7. The upper chart tracks our gain-to-lease and average monthly rent growth on a quarterly basis. We have generated positive gain-to-lease throughout the pandemic, supported by our decision to hold firm on rental rates. However, the quarterly gains have been broadly below pre pandemic levels. We look forward to resuming strong growth as rental markets gradually return to normal. On the lower chart, we have broken out our rents by geography. Our suites compare favorably to others in our markets on a size and rental rate basis. For example, the average size and rental rate of our Toronto suites is 804 square feet and $2.31 per square foot, respectively. That compares to 695 square feet and $3.25 per square foot for the average Toronto condo rental. Moving to Slide 8. I want to provide an update on our furnished suites. As we have previously noted, demand for furnished suites has been impacted by reductions in business travel and corporate relocations, restrictions on nonessential travel and the closing of the Canadian border. During 2021, we have responded to these challenges by adjusting the furnished suite rental rates and customer mix to include more government and transit users. The lower chart shows that this strategy is bearing some fruit. We had 74.4% occupancy in Q2 2021, up significantly on a sequential basis from 62.5% in the first quarter and up from 64.5% in Q2 2020. Rental rates also increased quarter-over-quarter. However, both occupancy and rental rates on furnished suites remain below pre pandemic levels. We believe the furnished suite performance will recover as the border fully reopens and business travel returns to more normal levels. On Slide 9, you'll find a summary of our repositioning activities. We renovated a total of 88 suites in Q2 2021 or 65 at the REIT's proportionate ownership. [Technical Difficulty] was approximately [ $21,000 ] per suite. The average annual rental increase following repositioning was $4,279 per suite, generating a simple return on investment of 8.4%, which is in line with our target for repositioning. In total, we have 2,369 remaining suites to reposition in our portfolio. We expect to reposition 125 to 175 suites in the second half of 2021. That would bring the total for the year to approximately 250 to 300 suites or 200 to 250 of the REIT's proportionate share. This is consistent with our prior guidance. Turning to Slide 10. You can see how we have consistently built value through repositioning over the last 4 quarters. The average annual unlevered return has been reliably in the 8% to 10% range, with an average return of 9% during the period. We like repositioning because it delivers these predictable, strong returns on invested capital. Overall, we have renovated 252 suites over the last 4 quarters at an average cost per suite of approximately $45,000, generating an average annual rental increase of $4,000. Now I'd like to review our intensification and development initiatives on Slide 11. We have 6 projects that are in various stages of development in which we either have current ownership stakes or options to purchase upon stabilization. Combined, these projects could expand the REIT's portfolio by approximately [ 1,500 ] suites by 2029, an increase of approximately 22% from the current level. We are nearing the start of construction at Richgrove in Toronto, where we are planning to build a new 225 suite building, including 100 affordable suites to be subsidized by the city of Toronto. Construction is anticipated to begin in the fourth quarter of this year, subject to finalizing necessary approvals. I'm also pleased to say that Ottawa City Council has approved the rezoning required to accommodate the Beachwood project. Upon completion, this project will comprise a building with 229 rental suites over 9 stories and approximately 6,000 square feet of retail at grade. Construction is expected to start in the first quarter next year. Turning to the Fifth and Bank redevelopment on Slide 12. You can see on the photo on the top right that construction continues to move along rapidly. This project is on schedule for stabilization in early 2022, at which point we have the option to purchase it at a 5% discount of its then appraised fair market value. Pre-leasing for Fifth and Bank is underway with 33 suites already conditionally pre-leased. The mixed-use multi-res and retail property will have 163 suites. Turning to Lonsdale Square on Slide 13. Phase 1 construction of the North Vancouver property got underway in June of this year as you can see on the photo on the right side of the slide. Phase 1 consists of 113 suites in approximately 7,800 square feet of retail space. The property is expected to be stabilized in the fourth quarter of 2023, at which point, our purchase option can be exercised. Lonsdale Square is a strategically important property for the REIT, providing our first exposure to the attractive greater Vancouver rental market. Finally, I'd like to review our debt financing and liquidity on Slide 14. Since the creation of the REIT in 2018, we've maintained a conservative leverage ratio in a highly balanced maturity schedule. As of June 30, 2021, the weighted average term to maturity on our fixed rate debt was 5.42 years with a weighted average interest rate of 2.9%. Approximately 92% of our debt is fixed rate and 73% is CMHC insured lower cost debt. Our total liquidity was $127.9 million at quarter end, and debt to gross book value was 38.6%.I'll now turn it back over to Michael. Michael?

[Michael R. Waters, President, CEO & Non]

Thanks, Julie. I'll conclude by discussing our business outlook on Slide 15. The pandemic has negatively impacted our financial results thus far in 2021, but it's not changed the underlying fundamentals of our business in the slightest. High-quality multi-residential rental housing in desirable urban areas in Canada has delivered outstanding returns historically. We remain confident that our focus on this segment of the market will enable Minto apartment REIT to outperform over the long term. Our business is supported by numerous factors, including Canada's expansive immigration policy, inelastic housing supply and the increasing affordability gap between renting and owning a home. Looking past the pandemic, all these fundamentals will likely remain in place. Take immigration as an example. The federal government has [ immediate ] target for new permanent residents over the next 3 years to catch up on the immigration that's been delayed since the start of the pandemic due to 1,000 people per year for the next 3 years as a result of the government's new targets and natural growth. That's historically high population growth, last reached prior to COVID-19. The pandemic caused the benefits of urban living to be temporarily diminished, but that's starting to change. The vaccination campaign across Canada has been a tremendous success in recent months, enabling staged economic reopening and paving the way for rental market fundamentals to reassert themselves. We expect demand to expand in the months ahead as government restrictions are eased, employment increases, immigration returns to more normal level and in-person learning resumes at post-secondary institutions. Accordingly, we continue to anticipate improved financial performance towards the end of 2021 and into 2022. Demand is improving, but we do expect occupancy to be lower than normal for the balance of the year. The threat of COVID-19 has not gone away. We continue to monitor new case rates carefully in all of our markets. We're entering a fourth wave. And we're already seeing rising case rates this month. But given strong and growing vaccination rates in Canada, we're hopeful that we are through the worst of the pandemic and confident that urban living will continue to look more attractive. To sum up, we remain confident that [Technical Difficulty] assets and strategy for long-term success. We'll continue to build unitholder value by realizing on organic growth through gain-to-lease, creating value from suite repositionings, exploring attractive acquisitions and capitalizing on our relationship with the Minto group, which has provided us with numerous exciting development opportunities in the past. With our strong portfolio and conservative balance sheet, we're well positioned to generate strong returns for our unitholders as we execute on our strategy and the impact of the pandemic gradually subsides. That concludes our presentation this morning. Julie and I would now be pleased to take any questions you may have. Operator, please open the line for questions.

[Operator]

[Operator Instructions] Your first question comes from Jonathan Kelcher with TD.

[Jonathan Kelcher, Analyst]

It was good to see the occupancy turn positive in the quarter. Based on what you're seeing right now, how long do you think it is until you're back pushing the 95%, 96% level?

[Michael R. Waters, President, CEO & Non]

Well, I think if you look at -- this is the first quarter where we've seen move-ins exceed move-outs since the beginning of the pandemic. And if you look at that deficit of moving the cumulative deficit that we saw Q2, Q3, Q4, Q1, we are -- we've got some deficit to overcome. Now with -- what we've seen is the acceleration of that move-ins over move-outs, and that trend is continuing from the data we've seen for July and this point in August. I expect that we'll make a material dent in that cumulative deficit, Jonathan and I expect that we'll continue to be below normal occupancy for the balance of the year but I would expect that we'll start to reach sort of normal levels in the early part of 2022. But I'm expecting that even below normal sort of occupancies, we're steady ceding to the mid-90s sand maybe possibly higher. That will be enough that we -- ideally, we'll see some earnings growth in the last part of the year.

[Jonathan Kelcher, Analyst]

Okay. And then I guess you talked about leasing promotions peaking in April and trending lower, May and June. And I'm guessing the answer is, that has continued through July and August?

[Michael R. Waters, President, CEO & Non]

Yes. That trend continued in July and thus far in August. And if you think about -- I mean, it really started to sharply dive in May. And certainly, that trend continued in June and then continued thus far in July and August. So we're hopeful that that will continue to move. We are using promo very tactically by suite type, by property, and the market seems to be responding with that. And broadly speaking, I would say, outside our portfolio, looking at our competitors in our various submarkets, competing properties, it's sort of a broader trend. And overall, we're seeing occupancies in the markets trending up as well. So these are all very encouraging signs. They speak to a return to pricing power that we haven't really seen in over a year.

[Operator]

Your next question comes from Matt Logan with RBC.

[Matt Logan, Analyst]

Michael, when you talk about a return to pricing power that you haven't seen in the better part of the year, can you give us some color on how the modest decline in the mark-to-market potential squares off with your use of incentives and maybe how the net effect of market might have changed over the past 3 to 6 months?

[Michael R. Waters, President, CEO & Non]

So I mean, how we measure the potential in that gain-to-lease chart is sort of our assessment as at that point in time. It is not a long-term view of the potential rents in those apartments. It's the view as of that date. And so it tends to be our numbers at least tend to be fairly volatile. But as you've noted in the past, Matt, when you look at our assessment of gain-to-lease potential and you look at our performance in the quarter that succeeds that, we tend to track pretty closely. Like we are realizing at rates that are very close. Now our number tends to be fairly volatile. So we expect that as that market flavor continues to improve, the demand conditions continue to strengthen, pricing power continues to gather momentum, that we'll see that gain-to-lease estimate, the potential in the portfolio should rise. So it's somewhat variable based on market conditions as at that point in time. We talk about the mix of promotions and incentives relative to rate and discount. And so we're always sort of tweaking that to balance, I'll say, growth in AMR and occupancy, but also looking at long-term NAV growth and potential in the portfolio. And so what you would have seen in Q2 is a subtle change. I think, and that we've started to reel in the promotions and incentives that we were offering and tweaking some of the discounts that we were offering as well because what we do know is that tenants, their rational economic creatures, they look at them differently and we know that they value them differently. So we've been very tactical and thoughtful about how we apply them, always with a view to the long term. We are thinking about long-term NAV per unit growth. And so I want to make sure we're doing the things that are going to preserve our ability to drive higher forecast NOI and improve the overall quality of the rent roll and then that goes to value.

[Matt Logan, Analyst]

I guess if I ask the question a slightly different way, if I look at the sequential change in your estimate of market rent in Toronto, would have declined by, call it, $80. Would have your incentives declined by a similar percentage quarter-over-quarter?

[Michael R. Waters, President, CEO & Non]

Yes, probably more actually, Matt. So we would have reeled back the incentives by quite a bit more.

[Matt Logan, Analyst]

Okay. That's what I was trying to get at. So really appreciate that. When we think about occupancy and how that's trending in kind of July, August and perhaps even into September, where would that stand relative to the Q2 levels?

[Michael R. Waters, President, CEO & Non]

So Q2 average was around 91.5%. We saw positive net movement in the quarter in Q2. I expect that number will accelerate materially in Q3. That could push us into something approaching 93% possibly. And then as we get into Q4, of course, the benefit -- the full benefit of the move-ins is then is reflected in the quarter because we have the benefit of a full quarter of that occupancy. And so I would expect that that number would reach into the mid-90s as we get into Q4. So that's the overall trend line and because of the operational leverage, I guess, you might say in our business model is you -- every incremental percentage point of occupancy -- of average occupancy, obviously, has a big impact on NOI.

[Matt Logan, Analyst]

Absolutely. And maybe just changing gears to your fair value mix, when you look at transactions in the market today, would those fair value gains include everything that may be under contract that perhaps hasn't closed? Or is there potential for further gains in the back half of the year?

[Michael R. Waters, President, CEO & Non]

Well, we've been always very conservative in our reporting. And the valuations that we're using would reflect appraisals or data from appraisals. Appraisals are looking at comparable transactions that would have closed in the quarter or historically, certainly, they wouldn't contemplate prospective transactions or transactions that are under contract, but have not yet been closed or have not yet been reported. What I will say is, anecdotally, we are seeing major trades at cap rates that are plus or minus 2.5% and even in places like Ottawa, seeing cap rates implied by transactions, not yet reported that are sub 3%, which for material assets of institutional quality, we've not seen before. Our cap rate implied by our marks, what we're reporting in our statements are high 3s, right? So in kind of 3.8%, 3.9%, something like that. So you might look at that and say that there is a material difference between private market valuations or institutional grade investment properties in major markets and what we are reflecting in our IFRS statements.

[Matt Logan, Analyst]

So I guess, if we think about your IFRS statements, would the similar cadence of cap rate compression likely carry into Q3 and Q4?

[Michael R. Waters, President, CEO & Non]

That's our expectation. Yes. And what I think we're waiting for, obviously, we want to tie to evidence, we want to support it with appraisals, of course. And what we're looking for, waiting for is for some of those transactions to begin to be reported and for appraisers to pick them up in their comparable transaction analysis that supports their appraised valuations.

[Operator]

Your next question comes from Mike Markidis with Desjardins.

[Michael Markidis, Real Estate Analyst]

Just 2 questions from me. On Alberta, I'm just curious, I mean you don't have a huge presence there. You're mostly focusing Ottawa and the GTA or Toronto I should say.. But that market seems to be like it's actually relatively outperforming the others. And I'm just curious if you could provide some color as to what you think describing that [indiscernible]?

[Michael R. Waters, President, CEO & Non]

So I mean, it's interesting. Of course, the Minto group is active in the housing market there more broadly outside the REIT, both on the new home sales side, but also in multi-res. And we have seen a resurgence in the housing market there, whether it was resale, new home or even rental. I mean, oil prices are starting to come back up. There's relatively limited COVID restrictions, low-cost office is bringing new businesses to the city. So there are a lot of positive trends, very, very low inventory of rental relative to population growth. Rental on a per capita basis is relatively small. It's sort of half of what you see in Ottawa and Toronto and of course, it's an unregulated market. So as things turn, you see adjustments in rents relatively quickly. This quarter, what you would have seen like last quarter is that Alberta, for the first time in a while has shown positive gain-to-lease in our portfolio. So I think there's a whole bunch of things that are driving that and so we look at it with some optimism. And I think that we'll see investment activity picking up. We're already seeing signs of that. And of course, it's starting from a pretty low starting point. So those are all factors, I think, that influence our view of Alberta and Calgary specifically, I would say.

[Michael Markidis, Real Estate Analyst]

Is your desire to invest in Alberta stronger today than it would have been 6, 12 months ago?

[Michael R. Waters, President, CEO & Non]

I would say, yes, probably. It's certainly not the prime area of focus. We remain very focused on the GVA, Toronto, Montreal, Ottawa, perhaps to a lesser extent, given we have a fairly significant presence and a long pipeline of future deals there. But if we could find high-quality urban assets in Calgary, stuff that might be on the plus 15 or something of that nature, those would be assets that we would look at seriously. I mean, obviously, we'd underwrite them very carefully, valuation needs to be right, but we would look at it. I mean Alberta is a very small proportion of our portfolio today, well less than 10% by value. But Minto group more broadly has a fairly broad exposure and experience in that market. And so we'll continue to look at that market as we evaluate more or less, to find a good asset that checks all of our boxes. We would look to move on it if we found something that fit our criteria.

[Michael Markidis, Real Estate Analyst]

Okay. And then just turning over to the Burner Suite business, [indiscernible] negative impact on the average rate. With the Canadian border now open to US travelers and soon to be open to foreign travelers, have you seen an increase in lease in terms of that corporate user coming back? Or is it still pretty slow in that one?

[Michael R. Waters, President, CEO & Non]

Yes. For example, our Minto Yorkville project, we're seeing, for example, more movie production, entertainment group businesses back, still transient business there. Our 185 Lyon project, I think we're starting to see some signs of optimism there as well. And we always look at election. Certainly, there's an election in the air rumored. So those are helpful for our 185 asset as well. And that's really where the bulk of our furnished suites now are concentrated in those 2 assets. With Roehampton Renovation program well advanced, we're down to something like 15 furnished suites occupied in that building and our renovation program rolling there now at full speed. Some of that volume, that business volume will naturally migrate over to our Yorkville project, which will help as well. And so I'm expecting that we'll see a decent Q3 on the furnished suite side. And I think Q2, certainly, we held rate, moved it a little bit, and we're able to move occupancy. So it may be that for the first time, furnished suite ceases to be a drag on SP NOI, but maybe a contributor to positive SP NOI growth.

[Operator]

Your next question comes from Joanne Chen with BMO. Please go ahead.

[J. Chen, Director of Equity Research]

I just wanted a follow-up on the really strong leasing with 534 during this quarter. Congrats on that. But maybe -- could you maybe comment on that performance by region and how has that trended post quarter?

[Michael R. Waters, President, CEO & Non]

Yes. I mean -- so I think what we've seen there, I mean, let's focus on the major markets. The big one, obviously, Ottawa was probably our strongest in terms of what we're seeing from a leasing perspective, that market has been, certainly over the last several years, probably one of our strongest markets. Housing generally in Ottawa has been very strong. And I look at both gain-to-lease and the total number of leases in Ottawa and it was -- if you can see on Page 6 of our deck, probably one of our strongest and just in sheer number of leases, 296 in the quarter. So more than half of what we signed. And that kind of mirrors the broader housing market trends in Ottawa. Toronto, what we're seeing overall market-wise is occupancy continues to trend up. If you're looking at [ Urbanization ] or other reports, you're seeing those reported numbers go up. And certainly, I think the big opportunity for us in Q3 will be in Toronto. That's where we are carrying a little bit of vacancy on some of our bigger assets, where I think there's significant gain-to-lease potential there. And so that will be key. Montreal is showing a fairly high gain to lease. You'll see that on Slide 6 and certainly, a good number of leases. Some of that reflects repositionings as we've been really advancing the repositionings at Haddon Hall, Le 4300 and [Technical Difficulty] reflected in that gain to lease, but that market has been decent as well. So -- and as I say earlier, in response to Mike's question, Alberta, again, second quarter running has shown positive into lease.

[J. Chen, Director of Equity Research]

I guess what -- is there -- has there been a change? And you said Ottawa has always been strong, but driver and some of the drivers of the demand in that market or has it been [ pretty consistent ]?

[Michael R. Waters, President, CEO & Non]

I mean what we've seen over the last several years has been, Ottawa, I think that the affordability gap, certainly from the GTA, whether it's buying a home, for sure, resale are new. We've seen a spade of Toronto buyers in that market, which we hadn't historically seen. We've seen solid population growth in Ottawa that's been multiple, 2, 2.5, 3x historical average in terms of population growth there. And that's really helping. I mean there's -- Ottawa in many ways is seeing -- starting to see the signs of some of the inelasticity in housing supply as well. And so some of those things, I mean, I think, are there. And then, of course, Ottawa's economy is a significant component of government workforce and technology. And those 2 sectors have really fared very well through the pandemic, and those things have certainly helped the housing market here.

[J. Chen, Director of Equity Research]

Got it. And okay, just switching gears, I guess, in terms of what you're seeing on the acquisition side right now, are there obviously very competitive, but are you seeing profitable opportunities that fit your kind of your investment criteria at this point or maybe for the remainder of the year?

[Michael R. Waters, President, CEO & Non]

Yes, so very significant deal flow. I'd say 2021 to date, is some of the strongest deal flow that we have seen. And we have been very active pursuing. We have made it to the altar. Unfortunately, not emerged from the church with a deal, but we have -- we've been in the hunt and competitive. There is an absolute change in the number of bidders and how aggressive bidders are pursuing quality assets. We're seeing more firm bids than we've seen in the past. We're seeing bidders stretch aggressively in their underwriting. And so we're being choosy of course. You can't chase every deal that you see, but certainly, there's been 2 of late, one in Ottawa, one in Toronto, both very high-grade institutional quality assets that had repositioning potential, had strong gain-to-lease potential in the portfolio. One had very significant intensification potential. And we saw those -- both deals, multiple round auction processes, large bidding pools in the first round, firm bids even in the first round. So these kinds of things, I think, speak to how competitive the market is today for quality multi-res. And I think that's -- going again back to one of the earlier questions about valuation, I think you're going to see that coming out in some of the implied cap rates by some of the transaction prices and we're seeing huge jumps between first and second round bids. I mean, historically, the increment between first round and second round bids would have been single digits, 2% to 5%. Now we're seeing some bidders raise their bids, double digits kind of thing, which is a sign of how aggressive people are chasing these things. So I think more of our growth, and this is one of the advantages that we have is that we might see more growth through some of these convertible development loans and through straight up development where we're seeing a lot of interest in opportunity there. Those deals, of course, are accretive to the REIT through the development period from an AFFO perspective and confer the right to the REIT and option to purchase a stabilized new asset. And if it's in Ontario, not subject to rent control at a material discount to fair value. So it's NAV accretive on acquisitions. So we may see more growth that way as well, and we tried to highlight that in our development day earlier this year and some of the disclosure we put into the MD&A.

[Operator]

Your next question comes from Matt Kornack with National Bank.

[Matt Kornack, Analyst]

Actually, just a quick follow-up on Joanne's first question there with regards to vacancy. Can you maybe speak to the dispersion within markets? I mean, is it across the portfolio? I think it's probably specific to certain assets in certain nodes? And then maybe along those lines, we saw RioCan with ePlace, seeing a pretty substantial lease-up in that property. Do we need to see kind of the new purpose-built rental product in certain nodes lease-up first and then something like Roehampton will follow? And just your thoughts along those lines?

[Michael R. Waters, President, CEO & Non]

So I think the -- I mean, what we saw is it's still the urban properties that are -- where we're seeing most of the vacancy loss concentrated. Properties like 185 Lyon, our Roehampton project up at Young and Eglinton, have a High Park village complex in Toronto. These are where we've seen the largest vacancy loss, but also, I think the biggest potential here as we go through -- as we pass through the pandemic, I think that's where we're seeing significant potential. When we look at a project like a property like our Roehampton project at Young and Eglinton, that renovation program is now full -- rolling at full steam. And over the last 3 weeks or so, we've seen 10 leases, very good take up, strong ROI, well in the range of 8% to 15% what we set for our repositioning. And I think that's an asset, for example, that had significant vacancy loss because of its urban nature. And I think that it's near new quality, especially post-reno, I think -- and the take-up that we're seeing shows the potential of that. I'll say, outside the REIT portfolio, some of the Minto group's private portfolio, we're seeing new purpose-built rental in Toronto. It's almost like a switch turned in May or June, very significant uptick in leasing. Our 39 Niagara at Bathurst and Front Matt, we leased 60 in the last month. So that's an asset where we've seen leasing sort of stagnate in the first 12 months of the pandemic and then suddenly interest very much renewed. And that's a young urban professional demographic. I think many of them anticipating that they'll be returning to the office, looking to secure rental housing in advance of that. And I think that they're putting value on amenities, location and new finishes that you see in a new purpose-built rental and they're diving in. So I think our Fifth and Bank project in Ottawa, really I think we could be 45 to 50 commitments in the next several weeks. So that's accelerating as we get close to occupancy as well. So I'm optimistic about the urban settings, and that's where I think the big gain is in our portfolio because that's where the dispersion has been in terms of vacancy, it's been highly concentrated on the more urban buildings.

[Matt Kornack, Analyst]

Okay. Now that makes sense. And then maybe you can speak to, has it been on turnover kind of last-in first-out, the guys that were maybe mark-to-marketed at rents that were a bit higher, have left and tried to find something new and maybe you're sitting on bigger mark-to-market gains on people who have been there for a while and just like, oh, there's no opportunity to leave it. Is that a fair statement so that would maybe have an impact on leasing spreads to some extent?

[Michael R. Waters, President, CEO & Non]

Absolutely. And we did see that in Q4 of last year when we saw a very significant number of move-outs for the first time in the pandemic. And what we saw there was the very short length of stay. So those were tenants who had relatively current rent rates that they've negotiated in the last 2 years. And so that really impacted us in Q4 of last year. Since Q4 is that length of stay on tenancies that are ending is getting longer and longer. So still not to where it would have been historically, but we are seeing that. But it's so variable quarter-to-quarter and suit by suite. So we did see that length and the trend is that length of stay on departing tenancies is getting a little bit longer. So will that continue to hold, we'll have to see, but that is the trend line.

[Matt Kornack, Analyst]

Okay. No, that's fair enough. And then the last one for me, and it's a bit of a technicality, I may be getting this wrong. The occupancy at the end-of-period versus the average occupancy, I was just looking -- so period occupancy, I think, was 92.2% in Q1, and it's 92.9%, but the average occupancy is 91.5%. Is that because there's turnover within the portfolio, and that accounts for the gap between those figures? Or did you actually see occupancy decline in sort of the height of lockdowns in April, I guess, and then rebound towards the end of the quarter?

[Michael R. Waters, President, CEO & Non]

I mean I'd have to get into the math, and I don't know if I have that handy, but -- so our average is basically calculated on a daily basis. And we've really tried to move to that I guess, 2 quarters ago, we added that supplemental metric, the average occupancy. The end of quarter is literally on that last day of the quarter. And so you could have move-outs and move-ins. And that -- I mean, it's a little -- it could be a little bit more volatile because of that. But I mean, I think what we think is probably a better indicator or a better guide for what happened in the quarter is the average occupancy. That end of quarter metric is probably a better indicator of kind of what the launch, the starting point would be for Q3, if that helps.

[Matt Kornack, Analyst]

So I'd say, I guess, then with your commentary with regards to 93% occupancy in Q3, that would be on the average, so you'd be moving from 91.5% to 93%.

[Michael R. Waters, President, CEO & Non]

You got it. That's right.

[Operator]

There are no further questions at this time. Mr. Waters.

[Michael R. Waters, President, CEO & Non]

Great. Well, thank you so much, Dennis. Everybody, that concludes our call this morning. Thanks for joining us and for your interest in the REIT. We look forward to speaking with you all again after we report our Q3 results in the fall. So have a great day, great weekend everybody, and we'll talk to you all soon.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.