CA - InterRent Real Estate Investment Trust (IIPZF) Q1 2023 Earnings Call Transcript
2023-05-12 21:25:18 ET
InterRent Real Estate Investment Trust (IIPZF)
Q1 2023 Earnings Conference Call
May 09, 2023 10:00 AM ET
Company Participants
Renee Wei - Director, IR and Sustainability
Bradley Cutsey - President and CEO
Dave Nevins - COO
Curt Millar - CFO
Conference Call Participants
Brad Sturges - Raymond James
Mike Markidis - BMO Capital Markets
Kyle Stanley - Desjardins
Jonathan Kelcher - TD Cowen
Jimmy Shan - RBC Capital Markets
Matt Kornack - National Bank Financial
Gaurav Mathur - iA Capital Markets
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the InterRent Q1 2023 Earnings Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Tuesday, May 9th, 2023.
I would now like to turn the conference over to Renee Wei. Please go ahead.
Renee Wei
Welcome everyone. Thank you for joining InterRent REIT's Q1 2023 Earnings Call. My name is Renee Wei, and I've recently joined InterRent as Director of Investor Relations and Sustainability. It's a pleasure being here with you today. You can find the presentation to accompany today's call on the Investor Relations section of our website under Events & Presentations.
We're pleased to have Brad Cutsey, President and CEO; Curt Millar, CFO; and Dave Nevins, COO, on the line today. As usual, the team will present some prepared remarks, and then we'll open it up to question.
Before we begin, I want to remind listeners that certain statements about future events made on this conference call are forward-looking in nature. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially. For more information, please refer to the cautionary statements on forward-looking information in the recent news release and MD&A dated May 9th, 2023.
During the call, management will also refer to certain non-IFRS measures. Although the REIT believes these measures provide useful supplemental information about its financial performance, they are not recognized measures and do not have standardized meanings under IFRS.
Please see the REIT's MD&A for additional information regarding the non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Brad, you're up.
Bradley Cutsey
Thanks Renee. Let's start by reviewing our Q1 highlights. As you can see on the left-hand side of the slide, we've been able to maintain our strong occupancy levels compared to the prior quarter. And when compared to Q1 2022, we believe we improved our overall occupancy by 130 basis points and 140 basis points for our total and same-property portfolios respectively.
Turning to the right-hand side of the slide. These strong occupancy numbers and the burn off from promotions, combined with robust rent growth have resulted in a strong overall operating revenue growth of 11.3%.
In turn, this has driven NOI growth of 12.9% on a year-over-year basis. This theme continues when we look at our same-property portfolio, where our operating revenue growth was 9.8% and NOI growth was 11.4%. This was the third consecutive quarter with double-digit NOI growth within this part of our portfolio.
Not only have we been able to grow our NOI, but we've also seen NOI margin expansion of 90 basis points for both total and same-property portfolios on a year-over-year basis.
These growth numbers are a testament to our team on the ground and their commitment to delivering unparalleled value to our residents and stakeholders. We continue to see higher financing costs this quarter, similar to the tail end of 2022, that offset our strong revenue and NOI prints.
Our FFO coming in at $18.9 million or $0.13 per unit and an AFFO come in at $16.4 million or $0.113 per unit. Both decreased marginally in total and on a per unit basis when compared to Q1 of last year.
As a result of seasonality, we typically see these two performance measures decrease from Q4 to Q1. And I'm pleased to see both metrics improved marginally when compared to Q4 of 2022 as a result of the continued strong operating performance.
Q1 has continued with significant volatility in the debt market, as the historical rate increases seen in 2022 and early 2023 worked their way through the economy. Throughout this volatility, we remain steadfast in our efforts to maintain a strong balance sheet while managing our interest rate risk. Curt will provide further insights into our balance sheet later in this call.
But I'd like to take a moment to underscore our continued commitment to this objective. Our solid financial position where debt to growth for value has remained flat compared to the prior quarter and our healthy liquidity levels position us well to continue executing on our business model with confidence.
It gives us great pleasure to announce the successful acquisition of a 605-suite community in the city of Brampton. I will provide more details about this later in the presentation.
But suffice to say that we're very happy to be starting in the new year with such a substantial acquisition, which is partially funded by very attractive debt at 2.17% and we're doing it with such great joint venture partners such as Crestpoint and Vestcor.
Turning our attention to average rents. The fundamentals of our portfolio of sector continues to strengthen as demonstrated by a 7.1% growth in average monthly rent in March compared to the prior year. It's essential to take note that this metric is affected by both same-store rent growth as well as changes in the portfolio's composition as we continue to build our portfolio in urban core markets with higher rents such as Toronto and Vancouver.
Looking ahead, we anticipate a tight rental to market through 2023 due to various factors. Notably, Canada is experiencing the imbalance in the rental market where limited rental supply is paired with continued strong immigration and housing demand.
In 2022, Canada welcomed over 437,000 new permanent residents and over 550,000 international students, both being an all-time record for administration in a single year.
And the federal government continues to set ambitious integration targets in 2023 with the range between $400,000 to $500,000. Strong immigration has continued through Q1, where we've welcomed over 145,000 new permanent residents, up 33% compared to last year.
Now, let's consider a more detailed breakout of this growth. These charts showcased the noteworthy year-over-year growth in average monthly rent was observed through all regions, indicating that the fundamentals are not restricted to specific locales. This displays the resiliency of our portfolio and validates our commitment to fostering growth and stability in all regions.
With our ongoing capital program and our strong team, we are confident that we can continue to meet the opportunity of this rising demand across all regions.
Turning our attention towards our organic growth prospects within our current portfolio, as demonstrated on the preceding slides, we are continuously fostering growth through traditional means such as annual regulated increases, capturing mark-to-market on turnover, and driving ancillary revenues.
I'd, however, like to point out there are other areas that will drive revenue growth in the coming year. Firstly, our intensification efforts, most notably through the conversion of underutilized space in our existing building to new residential suites. One such example is that currently taking place in Montreal involve the transformation of C class office space into 36 residential suites.
The project is nearing completion with leasing activity already underway in preparation for Quebec's tradition Moving Day on July 1st. Other such initiatives, albeit to lesser extent, are underway in various stages throughout our entire portfolio.
Secondly, I'd like to highlight the growth opportunity within our commercial portfolio. We're strategically taken ahead on occupancy during the repositioning process to transition from historically low rents per square foot on a gross leases to higher rents per square foot on a triple net basis.
At the end of March, our occupancy was 75% based on our total commercial square footage. We have some positive momentum post-quarter on this front, leasing up two key locations to strong QSR tenants.
Lastly, developments have grown and will remain a key part of the REIT's future. We'll get into that in more detail later in the presentation. This quarter removed the Slayte in Ottawa from development into income-producing properties for Q1, and I wanted to highlight how pleased we are with the lease momentum through the hard-to-lease winter months. With the property quickly approaching 50% occupancy, has rented a strong summer rental season.
The completion of this project and lease-up will help drive revenue and NOI growth throughout the remainder of 2023. We are confident that our capabilities to find and drive supplementary revenues will help sustain the momentum of NOI growth throughout 2023.
Dave, over to you to take us through some of the operating highlights.
Dave Nevins
Thanks Brad. As Brad previously mentioned, our overall occupancy remained steady at 96.8% for March, unchanged from December, and a 130 basis point improvement when compared to March of 2022.
Looking at the repositioned portfolio, we have seen a slight dip of 20 basis points in our occupancy compared to December, but is up by 20 basis points compared to March 2022.
Historically, we see a seasonality effect in occupancy that shrinks it modestly between Q4 and Q1, and are pleased to see it stay steady between the quarters, which is a testament to how tight the rental market is currently.
On this front, we've been seeing turnover in the mid-20%. However, like our peers and what we've seen in CMHC publications, this rate is coming in and we're anticipating it to sit in the low 20% for the year.
Nevertheless, with the tightening rental market and the 150-basis points differential between a non-repositioned and repositioned portfolios, we are optimistic about the potential to capture additional operating revenues within our portfolio.
When our overall occupancy gains are factored in with our reduced utilization of promotional incentives and our strong average month growth in all regions, we have established a firm foundation for growth and stability in the coming year.
As we review our Q1 CapEx spend, our maintenance CapEx for the quarter came in at $2.5 million, which is $244 per suite. The total increase is partially being driven by the inclusion of 1,215 suites into our repositioned portfolio compared to last year, but has also been impacted by a baseline effect where our Q1 2022 maintenance CapEx was historically low.
When we look at annualized and trailing 12 months maintenance CapEx, the figures are consistent with our historical numbers and are in line with our expectations. It's important to note that when you exclude development costs, sustainability of our capital spend continues to go towards not only maintaining, but improving our communities.
Through our investment in our communities, we've been able to create a desirable portfolio, which will help us to favorably capture mark-to-market on turnover, while extending the lifespan of existing housing supply.
On the right side of the slide, we take pride in presenting the value created from our ongoing repositioning program, which currently comprises of 2,523 suites at various stages.
Our non-repositioned portfolio currently lags the repositioned portfolio in terms of occupancy and NOI margin by 150 basis points and 390 basis points respectively.
By continuing with strategic investment in these communities, we can unlock their potential for value creation, yielding benefits from our residents and stakeholders in the long run.
We remain steadfast in our commitment to investing in our communities, creating a beautiful, safe and high-quality living environments for residents. By leveraging technology and innovation, we transform underutilized buildings that would otherwise be headed for demolition in the much-needed homes that are energy-efficient and smart.
I'll hand it over now to Curt to discuss our balance sheet and sustainability efforts.
Curt Millar
Thanks Dave. As you can see on slide 14, given the expansion in cap rates we recognized in Q4 and the review of market transactions in Q1, we maintained our overall weighted average cap rate of 4.04%.
Significant growth in market rents were only partially offset by reduced turnover and increased operating costs in our fair market value model, resulting in a fair value gain of $70.2 million. On a NAV per unit basis, this equates to $0.49 per unit.
Consistent with prior quarters, the key assumptions regarding rents, turnover, input costs and cap rates were reviewed with our external appraisers. You can see that the REIT continues to be in a healthy financial position.
We had a total of $1.7 billion of outstanding mortgages at the end of March, an increase of roughly $200 million compared to March of 2022, but consistent with where we ended December of 2022. The average term to maturity at 5.1 years is up 0.6 years on a year-over-year basis and relatively unchanged from where we ended 2022.
Our weighted average interest rate increased to 3.38%, up from 3.22% at year-end and 2.51% at March of 2022. Our CMHC insured mortgages increased to 83% of our total mortgage debt, providing added protection against any liquidity risks in the market.
Lastly, the variable debt exposure sits at 4% compared to 3% at the end of the year, but is in line with the expected exposure mentioned on our prior earnings call and is below the 16% exposure at the end of Q1 2022.
We entered 2023 with $266.7 million of maturing mortgages and at the end of Q1, we've worked through over half of that balance. The majority of the remaining 2023 maturities are at various stages of the review or approval process with CMHC.
With the continuing volatility in the debt markets, we have been actively monitoring interest rates and are employing forward rate locks or rate swaps when rates are attractive to mitigate further interest rate risk.
With the changes, CMHC recently announced to their insurance program, including MLI Select, we continue to proactively manage our renewals and up financings to minimize the impact of the change in premiums in the near-term.
Our debt to gross book value decreased by 30 basis points from Q4 to 38% as we continue to maintain a conservative balance sheet with our leverage remaining at historically low levels.
As you can see on slide 17, we have included some highlights from our third annual sustainability report along with our Q1 results. We have made important strides on the environmental and climate front with the completion of our first baseline climate risk assessment and the inaugural submission of our greenhouse gas emission targets to SBTi.
A few other highlights to include raising a record high of $1.4 million in last year's Mike McCann Charity Golf Tournament and using the proceeds to support 24 local charities. We also achieved a 10% improvement in our GRESB real estate assessment score and earned our second Green Star rating.
Slide 18 presents some of our long-standing commitments around diversity, equity and inclusion. As part of this, we incorporated more governance best practices, such as including ESG metrics in our executive performance equity plans.
We encourage you to read the report, which is available in the sustainability section of our website, and we welcome your feedback as we continue to take positive steps forward and build momentum on our sustainability journey.
I'll turn things back to Brad to walk through our capital allocation.
Bradley Cutsey
Thanks Curt. We are proud to say that after we in, bringing a new supply to the market with our four ongoing projects, having potential to add an additional 3,900 units of rental housing.
The Slayte project in Ottawa, our first office conversion, is nearing completion with occupancy reaching the 50% mark despite leasing up having mainly incurred during the weaker winter rental months. Post-quarter, we continue to see strong momentum as we enter the strong rental season during the summer months.
Curt previously referred to our files undergoing underwriting at CMHC, among which is MLI Select takeoff financing for the Slayte. We have been able to achieve the highest-level rating within the program that's growing on all three criteria; energy efficiency, accessibility and affordability, which provides significant benefits including a longer amortization period lower insurance premiums, and a beneficial rate to name a few.
With the success of the transition of the Slayte into our income-producing properties, our focus and development continues to grow and will remain a key part of the REIT's future.
We are proud to collaborate with exceptional partners to bring this much needed supply to market and eagerly anticipate sharing future details as we move closer to breaking ground on each of our exciting projects.
We are well aware of the fluctuating interest rates through 2022 and so far in 2023 have affected many construction plans across the real estate sector. We continue to refine our estimates as we monitor the ongoing rate and economic situations, construction costs and customer demand.
The purchase of 2 and 4 Hanover adds to an expanding portfolio in the Greater Toronto Area premium rent. The community located in the city of Brampton, one of GTHA flourishing suburbs and a strong rental market, was acquired in late March with two joint venture partners. It's located on a 10-acre to land and was zone approval in place for over 350,000 square feet of additional density.
With a wide variety of amenities, the community provides an excellent opportunity for the REIT to bring its best-in-class operating platform to a rapidly growing suburban area.
The REIT's initial equity interest in the joint venture is 10% and retain the option to increase our ownership to one-third within the first two years after closing. Like our other partnerships, the REIT will act as the property manager and will collect industry standard fees.
I'd like to take this last moment in the presentation to emphasize our future revenue growth potential through the intensification in our current portfolio, the lease up of commercial portfolio and the facts of our developments, including the lease up on the Slayte and the long-term potential of a development pipeline.
In closing, I would also like to thank Renee and welcome her to our team. I'm sure many of you will get to know her in the coming months, if you have not already. Let's open it up for Q&A.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]
Your first question comes from Brad Sturges with Raymond James. Please go ahead.
Brad Sturges
Hi, good morning. Just on the value-add opportunities that you spoke to, particularly the unit build-outs, I think you highlighted some of the opportunities. I'm just curious what's the total size of the opportunity to add suites to underutilized space right now across the portfolio?
[Technical Difficulty]
Operator
This is the operator. I am unable to hear you.
Brad Sturges
Hi. You got me now?
Bradley Cutsey
Sorry. Can you hear me now? Sorry, we seem to be having technical difficulties on our end.
Operator
Yes, we can hear.
Bradley Cutsey
Okay, great. Thanks for the question, Brad. Yes, as far as the unit build-outs, as you know, we historically have always kind of taken a look at our space and try to have somewhat of a creative vision. We look at an opportunity and look for the repositioning. So, we're constantly looking at our portfolio and seeing what we can do with what others might think of that space.
And to be quite honest, we've had come up with quite a potential number of additional units that we can also bring to market. But we're at different stages of working with different municipalities to actually get the permitting on that. But it can add up to a meaningful number. We can add up to anywhere in, call it, $0.005 to $0.01 in FFO if all of them were brought to market.
Brad Sturges
Okay. Is there -- when you're looking at the analysis of these opportunities, is there a specific return or yield you look to achieve before you execute on this? Or is it just you're looking at the opportunity where there's no real income from that space and it's probably the best use of space to convert the suite?
Bradley Cutsey
I think it's more the latter. It's not going to be revenue enhancing in other ways in which we'll enrich the amenity programming of the community. I think we will always choose to become a part of the solution and bring additional supply and new homes into a very tight housing market. So, I think at the end of the day, it has to make -- obviously, it has to make economic sense feasibility.
You can be assured that from a return threshold, it wouldn't be any different than how we would look at bringing on greenfield and on what the street costs would be on that excluding obviously land and other costs associated with that development.
So, really it's just your head cost. So, it's not too often where it does not make sense. As long as you can -- as long as the layout is sufficient and makes sense to justify your pro forma rent.
Brad Sturges
Makes sense. Just last question from me. Just on the Slayte, congrats on getting fairly quick lease-up so far. Just how are the rents trending compared to pro forma? And then I'm assuming you're still expecting to be stabilized by, I guess, the end of September?
Bradley Cutsey
Yes, we've been really happy with the traffic and then I'm really excited for this community to be honest. I mean we've had our own challenges just dealing with construction activity that's been ongoing outside of the Slayte. So, that's always present a challenge.
I think at the end of the day, the activity that is ongoing outside of the Slayte will benefit our overall residents longer term. So, I think a lot of people can see through that.
So, that said, given kind of the challenges from that construction upfront, I think to be leased up where we are we're really excited about it. And I do feel that we will be able to meet our original schedule kind of being leased up through the normal course of the summer months, and we are beating our pro forma.
So, while there has been a little bit of a cost creep, our pro forma rents have offset that and we've been able to maintain the development deal that were originally underwritten.
Brad Sturges
Okay, that’s great. Thanks for the color. I'll turn it back.
Bradley Cutsey
Thanks Brad.
Operator
Your next question comes from Mike Markidis with BMO Capital Markets. Please go ahead.
Mike Markidis
Thanks for taking my questions. Good morning everybody.
Bradley Cutsey
Hey Mike.
Mike Markidis
Hey there. My first question is you guys -- Dave, you gave good commentary in declining turnover in sub 20% this year. I don't think anybody would be surprised by the directionality there.
But if we think about your 7%-ish AMR growth, just given what you guys are seeing currently in the market and probably an expectation of that not slowing, if not, maybe it's even increasing, what should we be thinking about for AMR growth as we progress over the next sort of 12 to 18 months?
Dave Nevins
Well, I don't think it's any secret. Obviously, the demand side of the equation fire outstrips the supply side, and that's putting pressure on rents and is not just within our own portfolio. I think that's industry-wide and it's not -- I think it's across all provinces and across all nodes within each different cities.
So, unfortunately, we've got to figure out and regard how we can deliver more supply so that we can leave a little bit of the pressure on the rent growth. It's really going to be a factor of immigration of the integration continues at the pace it is and not that this is going to help that supply this equilibrium -- demand/supply to this equilibrium.
But even of the immigration that's been quoted, we're still not back to the historical norms as far as the amount of new residents net to Canada. We're at about 40%, and I'm looking over at Curt, Curt knows these stats pretty well. But I think historically, we've been close to 70% of the immigration is net new to Canada.
So, that's just going to put even further supply on a very tight market. So, I can't emphasize this enough -- I can't emphasize this enough. We need, as an industry, to really deliver more supply and work with all three levels of government to get it there so that we can bring in this pressure on rents.
That said, I don't see rent growth abating any time soon. I will let you forecast where you think it can go. But unfortunately, I don't see a relief valve in the near-term on rental.
Mike Markidis
Got it. So, I don't want to put words in your mouth, but no reason to believe that your current level of AMR growth will temper from here. And if anything, there's potentially some upward pressure on it over the next little while.
Dave Nevins
I think that's a fair comment, Mike.
Mike Markidis
Okay. Awesome. Thanks. Just curious, I mean, there's been some changes, as you've noted, with the fees for CMHC insured financing. And if I think if I read correctly or recall correctly, they're also getting maybe a little bit more stringent with their underwriting standards. You did a lot of -- I mean, I guess you're getting in ahead of the activity with the stuff that you did this quarter.
But given -- I'm curious to know if there is a difference between sort of what CMHC underwrites with respect to a loan-to-value or a loan value on the properties that you're doing recently? And how that compares to your carrying values under IFRS?
Curt Millar
Thanks Mike. It's Curt here. There hasn't really been a difference on the underwriting that we've seen over the last little while in regards to their policy. In fact, over the last couple of years, they got a little better, if you will, on the cap rates and recognizing what was going on in the market.
I don't think these changes will influence that. From my understanding, it just might be a little more careful about which markets they're encouraging new supply in because they want to make sure they're encouraging new supply in markets that need it and not markets that already have higher vacancy rates. So, I don't see a change on the underwriting.
Typically, CMHC is still very conservative. And as a taxpayer, we all foot the bill if they're not so happy that they are in some ways or in many ways. Typically, I would say over time, what they would call 75% loan-to-value on a mortgage would be somewhere between 60% and 65% loan to value if you compare that to RFMD model or an external appraisal.
Mike Markidis
That's helpful. Thanks Curt. Last question for me before I turn it back. Just I think you noted that there was a significant swap that rolled off this quarter. Are there any other swaps in place currently when you look at your fixed rate debt being at 96%?
Curt Millar
Yes, there's not a lot left. We have a very small one left that's sitting out there. I'm sorry, it's not swap. It's just floating, very small floating left. This was the only major one that was sitting out there. Our plans is probably it will be around Q3, depending on what happens with CMHC because I understand that there's a lot of people submitting applications right now just in regards to their increasing rates.
So, hoping to get that one rolled into CMHC by Q3. Could that drift into Q4 depending on their timing? Yes. But we've got the mechanisms in place if we see the rates come down before then and we have some line of sight to when it will fund that we could lock early.
Mike Markidis
And if you lock that down, where is your variable rate exposure after that pro forma?
Curt Millar
Once that one's locked away, assuming no other acquisitions that go into that bucket, it would be sub 1%.
Mike Markidis
Sub 1%, great. Thanks very much. Turn it back.
Curt Millar
Thanks Mike.
Operator
Your next question comes from Kyle Stanley with Desjardins. Please go ahead.
Bradley Cutsey
Hey Kyle.
Kyle Stanley
Thanks morning everyone. So, I just wanted to clarify, Dave, I think in your commentary about turnover, did you say low 20% turnover where you expect or sub 20%? Just wanted a clarification there.
Dave Nevins
No, in the low 20%.
Kyle Stanley
Okay, perfect. That's what I thought. Just as we enter the seasonally stronger leasing period, are you seeing anything that surprises you, the demand stronger or weaker than maybe expected by geography? Are you seeing the ability for your tenant to absorb higher rents, maybe different from expectations or just, I guess, as we get into that stronger period, is there anything that has surprised you thus far?
Dave Nevins
Not really. I think one good sign is things are -- seem to be back in normal in the traditional student market. So, that seems to be following a regular flow. But I think it's sort of following the regular things that happened year-to-year, quarter-to-quarter. I think what we're seeing now is what we we're expecting.
Kyle Stanley
Okay, perfect. On, you're--
Dave Nevins
The only thing I might -- sorry, Kyle, the only thing I might add to that is, as we know, we had a lot of vacancy in going into like after the prime leasing months previous year. So, we will have a higher turn -- and hopefully, we'll have a higher turn towards the later part of the year, more so than normal.
Kyle Stanley
Okay, great. Just wondering--
Dave Nevins
To understand what I mean, we're not worried. And I want to clarify, like with the amount of demand, we're not worried about that. I just want to clarify that. Typically, a lot of -- would have more traditional turns coming out in the next couple of months versus towards the later part of Q3. But given the nature of what COVID impacted the timing of your leasing, it's going to take a couple of cycles to get back to a fully normal type of cycle.
Kyle Stanley
Right, got it. Okay. Thank you for that. On your same-property OpEx, I mean it's still a little bit elevated this quarter, I think up 7.4%. I'm just wondering how do you see that trending? Do you see some tailwinds from lower nat gas and things like that pushing through as we advance through the year or just what are your thoughts there?
Dave Nevins
We do. The heating degree days were down, the assumption was down, but the price -- you still saw that the price is up. We do expect from some of the work that we mentioned on the previous call that we have a little bit of visibility of some of the pricing of the commodities. So, we are confident that from that aspect that will come in and we'll continue to benefit from some tailwinds that going forward.
I would also say we probably had a little more off cost in this quarter on a relative year-over-year basis versus previous, I would say, last year, maybe had a little bit more timing issue between Q4 of 2021 and Q1 of 2022.
So that, I think, will start to smooth out a little as well. So, I think the wind is at our back? No. Am I going to go out and fly a Kite? Probably not, but it's going in the right direction.
Kyle Stanley
Okay, perfect. Good to hear. And then just the last one from me. Could you just walk us through how the REIT expects to potentially scale its ownership interest in the Crestpoint-Vestcor JV over time?
Dave Nevins
Well, it's -- we're really thrilled to have completed that transaction and be in the city of Brampton. We were there once before. It was extremely hard market to get scale. And since we couldn't get scale on that market, we actually disposed off one of our communities. This is a while back.
So, we're really thrilled to be back in it because it is a great rental node. And we love the site because of the intensification opportunity as well. And we love doing it with Crestpoint and Vestcor.
And to be honest, they're great partners, they've given us the ability to have an optionality where it allows us to be able to put down minimal equity, manage it and continue to invest in our operating platform.
And when our cost of capital aligned, we'll be able to buy up our ownership interest to where we would want to be in a more normal situation when our equity capital appropriately reflects the interested value of our company. So, that's a thought behind it. We would love to do more deals like that. We're very fortunate that we do have such good partners like we do in Crestpoint and Vestcor to allow.
I think to be -- not to be self-serving, but I think what they get out of it is they get access to our operating platform and a team that's very much in line and very focused on creating value for all stakeholders.
So, I think we'll look to continue to do that, Brad. What we don't want to do is put all of eggs in one basket. So, it's very important that we continue to kind of make sure that we have capacity to be able to execute on the other opportunities that we feel so strong about.
And then last but not least, specifically on that acquisition, I mean the debt profile is a great example of us being able to go in and create value from day one.
Kyle Stanley
Right. Okay, perfect. Thanks for the color and that’s it for me. I'll turn it back.
Dave Nevins
I'm sorry, Kyle, I called you Brad. I apologize Kyle.
Kyle Stanley
No problem.
Operator
Your next question comes from Jonathan Kelcher with TD Cowen. Please go ahead.
Jonathan Kelcher
Thanks. Good morning. Just going back to the operating costs excluding utilities, were there any one time or weather-related items in there facility in Q1 [ph]?
Curt Millar
So, in Q1 of this year, if there was any one-time operating costs?
Jonathan Kelcher
Yes.
Curt Millar
No, I think as Brad touched on earlier, I think it's more a relation to the comparable Q1 last year, where it was a little bit light. If you look Q1, we had a little bit of timing issues with stuff going into Q4 that got done like sort of before the year started, that often gets done in the Q1. We got ahead of it and got it done in Q4. So, I think it's more a matter of Q1 was a little bit light last year. Q1 of this year is a good number.
Jonathan Kelcher
Okay. And then Brad you talked about -- and you, Brad, talked about like sort of the wind at your back. So, would it be fair to say you would think your overall revenue growth would exceed operating cost growth for the rest of the year and you get a little margin expansion on that line?
Bradley Cutsey
Yes. Yes, that's fair to say for sure, Jonathan. And there's one clarification just want to make too is as everybody knows me, I can get a little overzealous, and I think it got a little overzealous in the time for, I mentioned NOI growth of three consecutive quarters. It's really two consecutive quarter. And Q4, I believe, was high single-digits.
So, for the full year, it was a double digit, but I just wanted to point that out for everybody, just to clarify that point. But yes, it's fair to say, Jonathan, that revenue growth should outstrip operating growth for the remainder of the year.
Jonathan Kelcher
Okay. And then secondly, you talked a little bit about your commercial vacancy and the potential opportunity there in the two lease-ups you did post the quarter. How big -- like what is your vacancy in your commercial portfolio? And how big an opportunity is that?
Bradley Cutsey
I'm not going to get into the specifics, but on the margin, all of these little things do add up. And I think there is still an opportunity of, call it, 25% the lease-up on that commercial space. It could contribute on the commercial side, Jonathan, call it 0.5% of FFO.
Jonathan Kelcher
Okay. That is it for me. I'll turn it back guys.
Operator
Your next question comes from Jimmy Shan with RBC Capital Markets. Please go ahead.
Bradley Cutsey
Hi Jimmy.
Jimmy Shan
Thanks. On the Brampton asset, what does the going-in cap rate look like?
Bradley Cutsey
We're not going to disclose that, Jimmy. We've got a partner. You can -- with the debt being where it is, you can be assured that it's accretive going in from day one. I will say we're very happy with it and I will say it meets our traditional thresholds of being able to increase it once to get the stabilization of, call it, over 100 basis points.
Jimmy Shan
Right. Presumably, there's a decent amount of mark-to-market opportunity on that asset?
Bradley Cutsey
That would be correct.
Jimmy Shan
And be fairly consistent to what you're seeing across your GTA portfolio?
Bradley Cutsey
That's correct. And I would also say we've taken a very conservative approach on the underwriter because, as we all know, turnover is coming in specific, especially for core areas.
Jimmy Shan
Yes. And so that's what I really were trying to get at. I mean, this dynamic of lowering turnover rates and -- but higher turnover growth. So, maybe using this as an example, if you can, like it seems to me that those would be the two big variables in underwriting and assets to come up with a value today. So, how are you and how do you think the market is thinking about sort of the interplay between those two variables?
Bradley Cutsey
Well, I mean every asset is specific to itself for sure in the [indiscernible]. I think at the end of the day, it's been able to being conservative enough on your turnover could -- let's back up.
The one thing we can do, I think we can do pretty well is know our market and be able to price our rents accordingly to the fundamentals of that node and the competitive positioning of where we want to take that product within a competitive positioning.
So, I do feel pretty comfortable when we underwrite when we do our market analysis approach. So, for us, that's less of a look or a forecast per se. As a turnover, I don't have as much visibility to, obviously. I mean we'll look at the historical rent rules and whatnot, and we'll look at different disclosure within the marketplace.
And if we're lucky enough to have own -- manage their own communities within the same competitive node, then obviously we can draw upon that intel to make a more informed decision.
But when you lock those different pieces of information, then you err on the side of conservatism and what you will -- at least what we typically will do. And a lot of times, it hurts us and takes sort of the running on a lot of the competitive bids is we will err on the conservative side, and we'll cut our -- will cut our turnover assumptions by much as 200 to 400 basis points, which will hurt our overall long-term IRRs. But it is what it is, right? So, that's how we approach, Jimmy. I don't know if that answers your question.
Jimmy Shan
That makes sense. And so maybe just to use -- just for me to get a sense of the numbers. So, these days, you'd be using for -- as an example, this Brampton asset, your turnover rate assumption would be in the 15% range or would it be 10% or would it be 20%?
Dave Nevins
I'm not going to give it.
Jimmy Shan
Sorry, maybe not this one, just in general.
Bradley Cutsey
It's very market specific.
Dave Nevins
Not even market -- it's no, it is extremely specific.
Bradley Cutsey
Yes, it's very different. There's markets that are still very--
Dave Nevins
Is there a university, is there a college, is there a hospital across from it? Is the demographic profile a lot of international students? Is there a lot of young professionals that are single and haven't met a light partner yet where they've decided to move out and move in together? Is it -- like there's a lot of different dynamics.
Now, Brampton tends to be more a pretty strong immigration market. So, from that, you might defer from statistically data has shown that newcomers to Canada will settle in one area for five to six years before branching out. So, as an the overall market, you might infer that there might be lower turnover in the market like that. But it isn't really asset-specific.
Jimmy Shan
Right, okay. Thanks for that. And then just maybe quickly accounting wise on the Slayte assets. It was transferred into income-producing -- a little confuses too. So, there's really no NOI relating to that asset in the quarter or how does that work again?
Bradley Cutsey
Yes, it was pretty minor. The NOI related to that asset in the quarter would've $92,000 approximately because the lease up through the quarter, and you got a lot of operating costs that are full cost where rents are not full rents because you're still leasing up. So, pretty minimal contribution to NOI in the quarter.
But just given where we were at with basically a few finishing touches at the end of the quarter plus the amenity on the roof and some of the outside work that we're holding off on because the city is still ripping up the street front. There's no use doing that just yet.
But the main 11 floors of occupancy are all pretty much ready to go. So, given where we were at, it just made sense to move it from properties under development to income producing.
And with our lease up and the strong lease-up that we've seen through the Q being close to 50% at Q end, just it sort of checked all the boxes from an accounting perspective to move it from -- to income producing.
Jimmy Shan
Okay. Thanks guys.
Bradley Cutsey
Thanks Jimmy.
Operator
Your next question comes from Matt Kornack with National Bank Financial. Please go ahead.
Matt Kornack
Hey guys. Just with regards to new versus value add versus development, you're deploying capital into each of these buckets. Do you have a sense as to which you prefer at this point or do the risk/reward profiles kind of make all three entertaining to you going forward?
Bradley Cutsey
Well, I think without a doubt from a risk/reward potential, the reposition and just continuing to invest into our own repositioning program currently. We'll have the highest risk-adjusted returns. But obviously, you're at the -- you recognize the natural cadence of the turnover in that aspect.
But I think that one you do all day long when it comes to capital allocation. I would say as we go forward, we'll continue to look at new builds and buying new for multiple reasons. I think it makes sense.
But we will continue to look at the value add. It served us well. We've built up the expertise over the last 20 years in this organization. And it's something I think we do a good job of. I think it's balancing that. And I don't think this should come as a shock. I think we have said over kind of the last 12 months that you will continue to see us play more and more in the new and you will see that.
Now, the good news from a development side is costs start to look like they might be subsiding. And in some cases, they might be decreased in the level and rents have continued gone that way. I understand that interest rates have increased at a record pace. They've accelerated over six times in a very short bit, but rents will continue to increase.
And hopefully, I think seeing close to the peak, I'm not going to call the top where I want to be on this call. I'd be trading fixed income somewhere. But I think we're somewhere near the peak or we've seen the peak. So, I think there's some good news on the horizon on the newbuild trend.
And the ones that I do know, this country needs to deliver new supply. We have like this, this is not when or what. We just -- we have to do it. So, we're going to have to find ways with the three-level government.
I know ourselves and I know our peers are going to be -- play a big role in helping to provide that new supply or at least be on other side and purchase some of that new supply and operate it a very professional banner, which I think all stakeholders will be on the winning side of.
So, you will see gradually more capital allocated to the greenfield. But that's not to say that you won't see us continue to explore and execute on opportunities that are value add that fit within their core regions and meet our investment criteria.
Matt Kornack
No thank you. And then on some of the repositioning projects that may have been put on hold during the pandemic, is the rent environment at a point where you're willing to put that capital to work? And then I know you guys have access to capital, but some of your private smaller peers may not.
So, do you think that this type of environment may actually see a degradation in the quality of your competition to some extent because they're not investing in their assets to keep them up?
Bradley Cutsey
Yes, there's no question on the latter. I do believe that, Matt. I do believe it's getting to a point it's going to be very hard for the private landlord and I'm looking over at Curt because a big part of the puzzle for them is the financing and CMHC and the way things are changing and additional premiums that CMHC is coming with.
And I'll let Curt come in and add some color. But I would very much say that the competitive landscape is changing and it's changing pretty fast. But the one thing that it's scarce is capital for everyone right now or at least reasonably price capital but the one known is there's a lot of product that needs to be reinvested in, right?
And not only do we need to deliver new supply, but there is a big need for the interventions of the world and some of our peers in the world that do, do the reposition to continue to reinvest.
So, net, it's just making sense of longer term capital and the shorter-term opportunity to go and notch it up. But I would say that it does definitely feel like there's going to continue to be a following of the market and a willingness on the private side to maybe unload where there's definitely a willingness on the private side to transact, but they can't transact -- harder to get financing. I don't know, Curt, if you want to add something to that.
Curt Millar
No, I agree. I mean, if you think about the equity takeout rules that CMHC introduced a couple of years ago, you think about the rates they're doing now and you think about the announcement that they just made about being sort of, if you will, if you read between the lines, more selective or more conservative or more of a risk-based approach.
So, looking at someone who maybe tend to take on a little more leverage or whatever. You could see -- I agree, you could see that tightening up for the smaller private owner who may be on the building or two because all those things will eat into their ability to operate the way they used to operate it. So, I think you could see more of that come to market as a result.
Bradley Cutsey
I would say this, Matt. I definitely think if you're an equity buyer right now or if you're a high net worth family office, it's a great time to be there because this is a great asset class to kind of hedge your inflation bet and preservation of capital. And I think those groups are definitely well woken and looking.
But to be fair, I think the majority of the buyers in this space has been the leader private buyer, which is having a tough time.
Matt Kornack
Okay. That absolutely makes sense. And then last one for me. With regards to FFO growth, you've almost marked your debt to market. It's still a little bit below where interest rates are today, but getting closer. So, I mean, obviously, year-over-year, the figures are impacted by that.
But as we look to 2024, I'd assume given the same-property NOI growth that you're putting up and expect to continue to put up and interest rates stabilizing, your hope is to get back to pretty robust earnings growth in 2024 and beyond?
Bradley Cutsey
Yes, I would say, Matt, like you bang on. We've had the headwinds of the higher financing costs. I think the majority of that is now being absorbed for the most part. So, I do look forward to all else being equal, meaning we continue to post strong operational results, and there's no reason to believe that we won't. We are -- we should see a return to the year-over-year FFO growth. And I think we become more pronounced as you enter into the second half.
Matt Kornack
Sure. No, that all make sense. Thanks guys.
Operator
Your next question comes from Gaurav Mathur with iA Capital Markets. Please go ahead.
Gaurav Mathur
Thank you and good morning everyone.
Bradley Cutsey
Good morning Gaurav.
Gaurav Mathur
Just from an acquisition viewpoint, are you seeing any distressed opportunities that could potentially fit into the portfolio across any of your markets?
Bradley Cutsey
We're not seeing distressed opportunities to say. I think what you will see is, there might be some examples where if you looked at new development and whatnot, and they're developing condos and whatnot that may depending on how much it had on the go now be willing to talk. But there'll be nothing that's really come to us from a duress standpoint.
Gaurav Mathur
Okay, great. And just one last one for me. We saw the decrease in administrative costs this quarter compared to the last. What's driving that? And would that be a fair run rate for the year ahead?
Bradley Cutsey
Sorry, I just missed the first little bit, something about disclosure?
Gaurav Mathur
No, the decrease in administrative costs quarter-on-quarter. I'm just asking what's driving that and what would be a fair run rate for the year ahead?
Bradley Cutsey
I think if you go back, I think when we published Q4, we were saying we expect to be around 4.25% to 4.5% on a quarterly basis. It was a little light in Q1. Some of that is timing issues. Given where we're at now and we're looking sort of ahead, we're probably at the low end of that range to probably 4% and a quarter more than 4.5%, and you you'd be at a good run rate.
Gaurav Mathur
Okay, great. Thank you for the color gentlemen. I'll turn it back to the operator.
Operator
There are no further questions at this time. Please proceed.
Bradley Cutsey
Okay, great. Thanks everybody. Hello.
Operator
Sorry about that.
Bradley Cutsey
All right. No problem. I just like to thank everybody for their participation on the call. Thank you very much and we look forward to talking to all of you again next quarter. But in the meantime, like always, if there's any further questions or any further color, we're always more than happy to jump on the call. Thanks. Thanks again, everyone. Have great day.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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InterRent Real Estate Investment Trust (IIPZF) Q1 2023 Earnings Call Transcript