Killam Apartment Real Estate Investment Trust (REIT) showcased robust financial and operational performance in the first quarter of 2024, with a significant increase in funds from operations (FFO) per unit and net operating income (NOI). During the earnings call, the company revealed a 34% surge in FFO per unit to $0.26 and a 10.3% growth in same-property NOI, driven by healthy market conditions and strategic property management.
The Canadian rental market's strength was evident with a high apartment occupancy rate of 98.2%. Killam also revised its 2024 NOI growth target to over 8% and discussed its proactive debt management approach. The company completed property transactions and provided updates on developments across Canada, maintaining a positive outlook for the future and reaffirming its dedication to enhancing financial performance and asset value.
Key Takeaways
- FFO per unit increased by 34% to $0.26 in Q1 2024 compared to Q1 2023.
- Same-property NOI saw a 10.3% increase across the portfolio.
- High occupancy rate in apartments at 98.2%.
- Revised NOI growth target for 2024 to over 8%.
- Successful refinancing of maturing mortgages and expanded CMHC insured coverage.
- Two acquisitions and a property disposition completed in the quarter.
- Positive impact expected from the recent federal budget addressing Canada's housing shortage.
- Development projects underway in Calgary, Waterloo, and Halifax.
Company Outlook
- Optimistic about continued value creation for unitholders.
- Focus on development opportunities in Calgary, Kitchener, Waterloo, Cambridge, and wholesale.
- Plans to utilize as-of-right zoning for developments in Halifax and Burlington (NYSE:BURL) Crescent.
Bearish Highlights
- Slight downtick in turnover compared to the previous year.
- Anticipate a widening mark-to-market spread for long-term tenants.
- Lower density associated with lower development costs.
- Jurisdictions not assisting with affordable housing construction costs.
- Less capital being allocated to suite renovations across the portfolio.
Bullish Highlights
- 42% increase in annualized unlevered return on cost from leasing and upgrades.
- Occupancy increased from 89% to 94% in Q1 2024.
- Positive influence from government programs on development speed and density.
Misses
- No active plans to acquire new assets in the next three to six months.
- Reduction in incentives in Alberta could impact development plans.
Q&A Highlights
- Company is exploring lower-cost development options such as mid-rise concrete and wood frame buildings.
- Government programs may accelerate zoning and increase density for faster development.
- No anticipated impact on market rent growth from nonpermanent resident immigration policy changes.
- A correlation between tenant tenure and turnover frequency to be further analyzed.
In summary, Killam Apartment REIT (ticker: KMP.UN) demonstrated a strong start to 2024, with positive financial results and strategic property management contributing to its growth. The company is navigating the Canadian real estate market with a clear focus on development and asset value enhancement while managing its debt and capital allocations effectively. Despite some challenges, Killam's leadership remains confident in their approach to sustain growth and support their unitholders' interests.
Full transcript - None (KMMPF) Q1 2024:
Operator: Good morning, ladies and gentlemen. Welcome to the Killam Apartment Real Estate Investment Trust First Quarter 2024 Financial Results Conference Call. [Operator Instructions]. This call is being recorded on May 8, 2024. And I would now like to turn the conference over to Mr. Philip Fraser, President and CEO. Please go ahead.
Philip Fraser: So thank you good morning, and thank you for joining Killam Apartment REIT's First Quarter 2024 conference call. I'm here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; and Erin Cleveland, Senior Vice President of Finance. Slides to accompany today's call are available on the Investor Relations section of our website under Events and Presentations. I will now ask Erin to read our cautionary statement.
Erin Cleveland: Thank you, Philip. This presentation may contain forward-looking statements with respect to Killam Apartment REIT and its operations strategy, financial performance conditions or otherwise. The actual results and performance of Killam discussed here today could differ materially from those expressed or implied by such statements. Such statements involve numerous inherent risks and uncertainties. And although Killam management believes that the expectations reflected in the forward-looking statements are reasonable. There can be no assurance that future results, levels of activity, performance or achievements will occur as anticipated. For further information about the inherent risks and uncertainties in respect to forward-looking statements, please refer to Killam's most recent annual information form and other securities regulatory filings found online on SEDAR. All forward-looking statements made today speak only as of the date, which this presentation refers and Killam does not intend to update or revise any such statements unless otherwise required by applicable securities laws.
Philip Fraser: Thank you, Erin. We were very pleased with our strong financial and operating results for the first quarter of 2020 for Killam delivered FFO per unit of $0.26 during the quarter, 34% increase from $0.25 per unit in Q1 2023, we achieved 10.3% same property NOI growth across the portfolio, which included 10.4%, same property NOI growth in our apartment portfolio, 9.8% same-property NOI growth in our manufactured home community portfolio and 9.7% same property NOI growth for our commercial properties. Multifamily fundamentals in Canada are very strong, and our same-property apartment occupancy at the end of the quarter was 98.2%. We remain very optimistic about the future of the Canadian rental market, and we will continue to focus on our earnings, cash flow and the underlying value of our assets sale will take us through our financial results followed by Robert, who will discuss our apartment and commercial operational results. I will conclude with an update on our current developments and our capital allocation strategy. I will now hand it over to Dale.
Dale Noseworthy: Thanks, Philip. Key highlights of Killam's Q1 financial performance can be found on Slide 5. Kilometer achieved solid earnings growth in Q1, resulting in net income of $127.2 million compared to $83 million in Q1 2023. This increase is primarily attributable to $116 million in fair value gains driven by robust same-property NOI growth across our portfolio. As shown on slide 6, growth in revenue was an important driver of Killam's 250 basis point margin expansion in the quarter, we're seeing strong rental increases on unit turns, a 5.4% weighted average combined increase in apartment rental rates for those units that turned or renewed in the quarter highlights the strong demand for apartment units across the country. This step down in the weighted average rental rate change from 7.5% in Q4 2023 was anticipated based on Q1 and January, in particular, having the highest number of units renewing during the year. This resulted in only 10% of the unit that turned or renewed in the quarter in turn compared to an expectation of approximately 17% for the year. Slide 7 highlights our expense growth by expense type with a reduction of 0.7% in total same property expenses in Q1, we realized a 10% reduction in utility and fuel expenses with a mild winter leading to lower energy consumption and low natural gas prices. As well as savings from our energy investments. These savings more than offset a 6% increase in property taxes. General operating expenses were up 1.6% in Q1. Looking forward, we expect operating expenses to be generally in line with inflation for the year following 10.3% NOI growth in Q1, we have revised our 2024 NOI target to over 8% growth for the year, up from our original target of 6%. As Phil noted, we generated FFO per unit of $0.26 in the quarter, a 4% increase from Q1 2023. It's important to highlight that Killam's Q1 FFO per unit growth was impacted by the lease up phase of our three developments completed last year. The short term dilution during the property's initial occupancy is standard for new developments as interest expense is no longer capitalized. Looking forward upon stabilization, earnings from these three developments are expected to increase Killam's FFO per unit growth starting in Q3. Slide 8 highlights the expected FFO impact from these developments for fiscal 2024 and 25 year over year in 2025, we expect approximately $3.4 million in growth or $0.027 in FFO per unit from these developments compared to 2024. We're pleased to show continued growth in our balance sheet in Q1 as debt as a percentage of total assets was 42.1%, down 80 basis points from year end as shown on slide 9, we continue to diligently manage our debt metrics and have reduced debt to normalized EBITDA from 10.29 times at year end to 10.16 times at the end of the first quarter. Variable rate debt as a percentage of total debt remains low at 4% as at March 31st. Slide can include average apartment mortgage rates by year versus prevailing CMHC-insured mortgage rates. Our mortgage maturities are strategically staggered to avoid overexposure in any one year. In Q one, Killam refinanced $12 million of maturing mortgages with approximately $17.4 million of new debt at a weighted average interest rate of 4.32%, 130 basis points higher than the average rate on the maturing debt refinancing at higher rates is expected to lead to increased interest expense. However, this increase is expected to be gradual due to the staggered nature of Killam's debt ladder. We have $276 million of apartment mortgage refinancings ahead for the remainder of the year at a weighted average interest rate of 2.91% as part of our debt management strategy. We leveraging CMHC program as mortgages come due with a focus on increasing our CMHC insured coverage, which is now at 79% for our port apartment portfolio and 74% of our total portfolio. We are targeting increasing our percentage CMHC insured mortgages in 2024. I will now turn the call over to Robert, who will discuss our operating results in more detail.
Robert Richardson: Thank you, Dale, and good morning, everyone. As highlighted in terms of quarterly calls, since 2020, the combination of population growth, increased government regulations in the form of both temporary and permanent rent control and an increased urbanization have all contributed to the decline in units available for releasing also known as vacancies, for example, comes long term annual portfolio turnover rate pre pandemic averaged 33%. However, by 23 basis, the turnover rate has declined to 19% and we expect that percentage to trend lower in 2024. Slide 11 provides a breakdown of Killam's turnover by core market for Q1 2024 compared to Q1 23. Given declining turnover rates, the mark to market spread between in-place rents and market rents has grown to approximately 25% in Q1 2024. As noted on slide 12 with fewer units turning, it is increasingly important that Killam successfully leased vacant units at rents that caps for this mark to market premium. Our leasing team perform cost return analysis as units become vacant. The goal is to meet potential tenants expectations in terms of the units level of upgrade when compared to mark-to-market rents. With this approach in mind, our 2024 suite repositioning target has been reduced to 300 units with 70 units repositioned this quarter. We are on target. Killam invested a total of $4.5 million for renewal and repositioning renovations during Q1 2024. This represents a 44% decrease compared to the $8 million invested in total renovations in Q1 2023. The reduction in investment quarter over quarter is attributed to the decrease in unit turnovers, coupled with the opportunity for market rent growth without the need for an investment in full suite repositionings Killam's repositioning program remains an important component of Killam's operating strategy. We are committed to enhancing the value offering to our residents and maintain the quality of our existing portfolio of properties in addition to our strong apartment portfolio performance, our MHC and commercial segments continued to contribute positively to our overall performance. As shown on slide 14, our same-property MSC portfolio recorded 9.8% net operating income growth for the quarter and our commercial portfolio generated 9.7% NOI growth. Killam and a 25% partner have made impressive progress transforming the Charlottetown Mall into the new royalty crossing. We have attracted strong national retailers, including Sephora, Pandora (OTC:PANDY), the shoe company, R W & Company, pure and simple and Samuel Samuel & Co. Further royalty crossing has renewed winners. Dollarama Loblaws have relocated the Bank of Montreal to a new pad site all in the last three years. Royalty crossing will continue to execute its reinvestment strategy in 2020 for completing common area upgrades and unlocking strategic expansion and redevelopment opportunities. These include the 85 hundred square foot winners expansion to 35,000 square feet, a complete food court renovation to maximize height and access to natural life, converting the 11,000 square-foot stand-alone former office building to a multi-tenant retail strip that faces University Avenue and is already 65% leased and the development of a 12,700 square foot former indoor tennis facility to 25,400 square feet of leasable space that should attract a big box user. Our commercial team also continues to find opportunities for organic growth as we analyze existing lease terms at renewal with the objective of recovering more operating costs given current inflationary pressures. This has resulted in over $200,000 in annualized savings in Q1 2024. Our weighted average rental increase on renewed leases saw an 18% increase per square foot across seven leases as seen on slide 15, since 2021, we have increased our net operating income at this property from $3.3 million in 2021 to $4.7 million in 2023, a 42% increase with a 12% annualized unlevered return on cost of leasing and upgrades. We have created positive leasing momentum and have increased occupancy from 89% in 21% to 94% in Q1 2024. We are pleased to see the investments in the property translate into strong revenue and earnings growth. I will now hand you back to Philip to provide an update on our development and disposition activity.
Philip Fraser: Thank you, Robert. During the quarter, we completed two small acquisitions totaling $14 million. On January 31st, we purchased two apartment buildings totaling 50 units in Halifax, Nova Scotia for $11 million. The buildings are located on Heartland and Crescent adjacent to existing Killam asset and contain future redevelopment opportunities. On February 20th, Killam acquired the remaining 60% interest in land for future development adjacent to an existing Killam asset in downtown Calgary for$ 3 million. We also completed the disposition of the land in downtown Calgary for a sale price of $2.4 million. Subsequent to the quarter end, we expect to close this week the sale of Walbridge apartments located in growth for $19.2 million. As shown on slide 17, we are focusing on the majority of our future development opportunities in the inventory locations across Canada, Calgary, Kitchener, Waterloo, Cambridge and wholesale. The entitlement and design process continues to advance for our two future development opportunities in Calgary, Nolan Hill Phase three and our fourth and fifth site in downtown design work continues on the of the development in Waterloo and Phase two at West LA Westmount square intensification master plan design document for the entire site submitted to the city of Waterloo on February 26th, with the request to build up to 2000 units. Finally, in Halifax, we are working on as of right zoning, 90 unit development at Victoria Gardens as well as 150 unit development on vacant land in our Burlington Crescent community Herley's and Crescent development as a result of the housing accelerator fund program that has encouraged the city to change the zoning and increased density in this neighborhood developing high-quality properties in these markets is an important component of Killam's capital allocation strategy, and it also allows us to make a contribution to the housing supply for all Canadians As seen on Slide 18. The carat or 139 unit development in Waterloo is progressing nicely and is expected to be completed in Q2 of 2025. As shown on slide 19, we started the development of even tied at eight storey 50,000 into one building in Halifax, Nova Scotia in February of 2024. Population of Canada has grown from $39.5 million in Q1 2023, $40.8 million in Q1 2024, an increase of $1.3 million people compound the housing shortage in the affordability crisis during the last 12 months, the federal government has shifted their attention to this issue, and the recent federal budget has a number of positive features to help address the housing shortage. This would include more money to the housing accelerator fund, providing funding directly to municipalities, which have resulted in a number of municipalities, increasing density and zoning changes, accelerated capital cost allowance on new rental properties to 10% from 4% and increase the amount of debt for the apartment loan construction program. We are well positioned to take advantage of these teams to conclude the first quarter with a strong start to the year, and we are very pleased with our financial performance. I would like to thank our employees for their hard work and dedication. We are optimistic for the future, and we will continue to execute on our priorities and create value for all of our unitholders. Thank you. I will now open up the call for questions.
Operator: [Operator Instructions]. Your first question comes from Mike Markidis at BMO Capital Markets,
Mike Markidis: Thank you, operator. Good morning, everybody. I just have a quick question on the on how you guys are looking at development returns. So I remember correctly, last quarter you mentioned you had favorable financing or they could say a LCPRI. compartment construction loan program, ACLP. on at least one of your new developments. Is that something you're relying on as you go forward? And I'm just wondering how you're thinking about the appropriate spread on that financing in this environment and just given the higher for longer interest rate environment that we're experiencing?
Philip Fraser: Good morning, Mike. The answer first part of that is they carry does have that financing so that's locked in through the construction period and the same interest rate as it turns out and the remaining amount of years out of the 10-year term. The other one that we started. We are looking to go and make application very shortly on that one as well. So really if you're looking at it, the interesting thing is, is that where the interest rates are today, it makes a lot of sense to be able to lock in using CMHC in this program. I think on a go-forward basis, depending how much we can sort of get to the point we're willing to start, the next wave of developments are actually at a lower cost point in terms of the overall development cost. And so that gives us a little bit more flexibility to go back in maybe looking at conventional financing construction financing along with what the federal government's offering right now.
Mike Markidis: Okay. And what would be the and I mean there's a lower rate on the AZLP. So what would be the advantage of switching back to conventional if you're where yields are going higher?
Philip Fraser: Well, I think it's a it's all about availability from them. So we will do that. But again, that we make it to the point where they're saying that we were out of money or basically you've had your share of projects and maybe it's someone else's term term.
Mike Markidis: Okay, got you. So it's based on the availability, not necessarily that there's any restrictions on that financing. Okay, got it. And then for the care, can you remind us where that where that rate you locked into was and how long and what were there any specific affordability requirements you had to meet or was it all together linked?
Philip Fraser: The interest rate was 3.08, and that's locked in today and that's good for 10 years. And we just started that about three months ago in terms of the affordability, there was 30 units approximately. You have 30 units. It will be below market open market below market data.
Mike Markidis: No, that makes sense. Yes, okay. Thank you for that, and I'm going to leave it there and turn it back. That's great growth on the strong quarter. I think you think you might hit it.
Operator: Your next question comes from Mark Rothschild at Canaccord.
Mark Rothschild: Thanks, and good morning, everyone. I realize for the carrier, you can get some of these projects, you can get some more attractive debt. But in general, I'm just curious about how you think about starting new development projects when it appears that the yields have just they're at a level that's comparable to cost of debt in many cases, maybe because of the availability that you guys have for some special loan programs is not the case but I'm just curious how you guys are thinking about that.
Philip Fraser: Well, I think I was trying to say they didn't say it with Mike. We are looking number one to go in applied through the program that's being offered from the Feds first on every development. Now I'm saying that if we don't get it for whatever reasons in terms of availability, then we'll look at what's available relative to conventional construction financing at the time.
Mark Rothschild: I guess what I'm kind of asking is if the rents aren't higher than where they are now, I guess or where they were budgeting for the projects that you're undergoing now, will you still be comfortable going ahead with projects if you can't get any special low rates like you were able to for the carrier?
Philip Fraser: Well, I think the bigger thing is one is that it depends on the market we're in. It depends on the construction and in terms of the material, whether it's wood frame or concrete, that depends on the overall development costs and what the yield would be all cash in that you look at that and then you compare it to what's going to be your cost of financing at that time. And the cost of financing on a on a variable rate is higher than what you could get with conventional CMHC financing, which we will be going in applying for for all projects.
Mark Rothschild: Okay, fine. I'll maybe just move on to a different question on the spread between market rents and what you have in place is pretty significant, both in Halifax and in Ontario. Do you see any potential changes or changes in whether it's immigration laws or what's going on which will impact your ability to capture that in one market versus the other? Like should the pace be comparable?
Erin Cleveland: I think it should be comparable and it's all about turn and as we know and talked about for a number of quarters turn is coming down. So that is that that is the challenge in capturing those. But outside of that, I think that's the big limiting factor.
Operator: Your next question comes from Jonathan Kelcher at TD Cowen.
Jonathan Kelcher: Thanks. Good morning. You talked about the drag from development, your development properties in lease. Could you estimate or let us know how much that was in Q1?
Erin Cleveland: Sure. When we look at year-over-year Q1 to Q1, in total about $1.2 million, and that would include the difference in interest that would have been capitalized in Q1 last year. That is the equity like the full interest capitalized interest component. So that will get a lot smaller in Q2. And then we'll flip positive in Q3 and then should provide us some good runway Q3 to Q2 next year, especially Q1 next year. So we're almost through that.
Jonathan Kelcher: Okay. And then just on the renewal rates that you you've gotten Q1 at 3.7% with with the Nova Scotia being, I allowed 5% that were there any issues in getting the full 5% bumps there?
Philip Fraser: No.
Jonathan Kelcher: Okay. That short and sweet and then ends up next just on dispositions and acquisitions. I guess would it be fair to say that the dispositions you see coming for the balance of the year would mostly be Atlantic Canada and probably look, there's the odd thing that might be outside.
Philip Fraser: But again, it's the majority will be in Atlantic Canada. And over time, the majority will be even more.
Jonathan Kelcher: So in Atlantic Canada, you've identified a number of properties or?
Philip Fraser: Yes.
Jonathan Kelcher: Okay. And then are you are you seeing much or anything in the way of acquisition opportunities? And there's obviously that one large portfolio out there would you interested in any any parts of it if it ends up getting broken up?
Philip Fraser: I think that's way too early to tell on that portfolio you're talking about and right now there's quite a bit of product that's potentially could be for sale. I mean, we're looking I mean, it helps to look and helps to see what put done what's available, where sort of pricing is going to be now or in the next three to six months. But I can say that we're not too active on looking hard to acquire assets in the next three to six months.
Operator: Your next question comes from Kyle Stanley at Desjardins.
Kyle Stanley: Thanks. Good morning, everyone. I just wanted to clarify something in your answer to Mike's question earlier, Phil, you just mentioned the next wave of developments are running at kind of lower all in development costs. Just curious if you could elaborate on that a little bit?
Philip Fraser: Well, again, I think we sort of the carry would have been, as we've stated, above $600,000, and that included HST. So when you look out that we're looking, we can still see that mid-rise concrete in the urban centers with a lot of development charges like around GTA, some maybe some locations in Halifax are really urban. That's the pricing today. I mean, even in Toronto, the pricing is still between 708 hundred thousand dollars. So if you take a look at it, we say, okay, what's what's the landscape really look like? And you can look at Alberta and we're getting pricing to do mid-rise concrete for about $400,000, and we're getting pricing to do six storey, five story wood frame in Halifax for about 400, 400 in the quarter. And we're getting that we're getting out for 50 wood frame in Waterloo. So we're just basically looking at all our options. And right now, if I could do the next number of developments in that price range, then I think that's a pretty prudent thing to do. And again, it's not like we're going to be doing six of them. I mean it's one or two at a time, but I think the next wave that's worth some of this pricing is going to come in. You got to remember, there's no HST. on the future developments, which helped a lot right now.
Kyle Stanley: That makes sense. And actually, it kind of leads me into the next question. You kind of answered it. There was just on the three markets you've identified out of your kind of target development markets, given the dynamics. Obviously, you've just kind of given the pricing in each of those markets to develop, where would you like to focus your efforts more if you are starting something new today, obviously, we saw even tighter this quarter in Halifax, but just curious if a good option came up in one of those markets where you'd focus first?
Philip Fraser: Well, I think logically, we just did Phase one to Phase two in Nolan Hill in Calgary. So obviously, we're a small part of the ownership structure on that development and it's four phases. So we're looking at Phase three with our partners, which makes a lot of sense. The shuffle of land that we announced interest in downtown Calgary excuse me think I'm on and basically was land beside grid five and we sold one parcel and bought out our partners on the other one, we wanted 100%. So there's another logical location in the next 12 months to 24 months to do something and then work actively talking about our property in Waterloo, which is Whistler. And then after that are the opportunities that are coming to us a lot faster than we would have thought a year ago. And that's because of the of the program that the Feds have introduced, which is to accelerate some sort of zoning and increased density by getting the municipality to change their opinion forecast right now. I think that all makes sense.
Kyle Stanley: And just one last one for me. Part of the rationale for the kind of 6% same-property NOI guidance last quarter was just uncertainty with regard to property tax and Dale, in the disclosure you gave good color on kind of how that's trending. Would you say the increase in your guidance to 8% or greater than 8% for the year was more related to, you know, managing through that uncertainty? Or is it stronger revenue growth or maybe what was the driver there that give you more comfort?
Erin Cleveland: Yes, I think two things. One is the revenue growth and the rent increases that we're seeing. We are really pleased with the trend that we're seeing and what we forecast for the rest of the year. And certainly the property taxes, I would say not too much has changed on that front. We will get by the end of Q2, we'll have a much more certainty. A bigger piece was the energy cost in Q1 winter season is always an important one when we look at those nat gas costs. So that was positive for us this quarter.
Operator: Your next question comes from Sairam Srinivas at Cormark Securities.
Sairam Srinivas: Thanks, operator. Good morning, everybody and cases looking at the revenue growth and I believe one of the drivers also reduction in incentives year-over-year. Can you elaborate a bit on those?
Erin Cleveland: There are projects that relate to an amount of unwinding that gap to the year. Thanks, primarily Alberta. So outside of Alberta were very limited in terms of our use of incentives over the last number of years before things really heated up in that market would have been used quite regularly and us and I think most of the landlords out there and as Alberta has strengthened, we've definitely seen a reduction in those incentives. So I think it's reasonable to expect that to continue to come down this year. But outside of Alberta, it's pretty limited.
Sairam Srinivas: All right. Phil, can you just broadly quantify the amount of those incentives. And what I can say that I was in general the past, it would have been one month free and Alberta often really up to about a year ago on both new and renewal and those ones. Now we're not from MAJORITY properties, we're not doing any incentives. And that makes sense. And just maybe looking at the National Housing Plan and the implications, are you seeing all these announcements also maybe make development of the modern development more attract?
Philip Fraser: Yes. Yes. I mean, in terms of for us, in particular, it's about land that we thought would take three to four years to get sort of zone and ready for development. We can see some of it as of right in the next three to six months. And if it's vacant land, then it's straightforward to be able to go and design and building and maybe potentially start development. Wow, that's amazing.
Sairam Srinivas: And maybe strongly shifting gears towards leasing. If you look at historical time of maybe leasing up a new development, has that timing essentially changed over the year? That is like our existing lease fast and our days? And is it more a function of just the market demand also for incentives in place or any of those thoughts?
Philip Fraser: And that's a that's a good question. And an interesting one because we've had a number of discussions around that. So I think that if you look back, a lot of our developments have been in Atlantic Canada and we have experienced over the history of our development program, really quick lease ups between three to six months. If you take a look at them, Ontario, the larger projects that we've been involved with our partners, they have typically taken about a year. So from that point of view, this civic 66 is about right on schedule from that. But from that timing of the governor on it was only 12 units on very high end in Halifax. And basically we had quickly leased up six of the 12 and then winter hit in our target market are essentially folks that tend to go away for the winter. And since them we are now into spring, I mean the activity has really picked up where we have three more leased and strong interest on the remaining three. So again, that's a bit of a one-off type of thing look in terms of lease-up ability and then again, back to where we are a West what we'll be on target between six to nine months to really good big dent on that one out there.
Operator: Your next question comes from Jimmy Shan at RBC Capital.
Jimmy Shan: Thanks, on last quarter, you talked a little bit about seeing some moderation in market rent growth in certain markets. I was wondering so far in the spring leasing season, what sort of trends are you seeing on that front?
Robert Richardson: Jimmy, this is Robert. We're seeing the trend just being steady from the demand there, and we're continuing to lease up and we're capturing a fair bit of the mark-to-market.
Jimmy Shan: I'm pleased to say, right, and invested. You mean there is market rent still growing or it's growing at a slower pace or for the same steady pace?
Robert Richardson: I would say the same steady pace.
Jimmy Shan: All right. Okay. And then just to follow-up on the on acquisition comment, the various products that are on the market, what sort of pricing are being indicated for those portfolios or assets and you know, I don't know that off hand.
Philip Fraser: I mean, I honestly, I you know, I don't think I think we're in the data room at all. So I don't I don't know what they're asking, but my guess is that it's below five is probably right around four.
Jimmy Shan: Right. Okay. And so your comment about not being too active is a function of the pricing still being relatively tight versus the development opportunities that you prefer to allocate capital to?
Philip Fraser: Well, I mean, it's even that's not fair to say. We don't really know what the portfolio is, portfolio looks like. So we have no sense of that to be comment on it.
Jimmy Shan: Okay. All right. That's it for me. Thanks.
Operator: Your next question comes from Matt Kornack at National Bank Financial.
Matt Kornack: Hey, guys. Just a quick follow-up to Jimmy's question. With regards to the estimated mark-to-market opportunity, it looks like you had pretty substantial gains in that figure. On slide 12, I think it is for Kitchener, Halifax, Calgary and Victoria. Is that just the nature the nature of those markets being kind of stronger in terms of population growth relative to mix, apartment rental there, or is that just a point in time comparison?
Erin Cleveland: Part of it's the way we've been measuring that. So I'm just expanding our unit count. So historically, we've been reporting what we've been capturing in terms of what units have turned. So we've done more of a deep dive to look at the true mark-to-market compared to all the units in our portfolio, looking at actual rents compared to and estimated market rents based on based on what we've been seeing. So I think that. That's the difference. And you know, what we capture is all dependent on what units turn. And we all know there's number of units that don't turn every year that have long term, some tenants that aren't that aren't leaving. So it's a more representative of the total of the whole portfolio mark to market.
Matt Kornack: Okay. No, that that's a very helpful distinction. And then just on that, I mean, given where rents have gone and the lack of opportunities, are you seeing a higher propensity for kind of recently rented units to turn and then some of these ones where you've got people in place for a longer period of time. And is there a certain number of years after which tenants become stickier?
Erin Cleveland: I would say in this market mean, I'd say there probably is a few years ago, we weren't we were looking at total turnover. We're certainly digging into the details more as we've seen it come down. And even in the slide deck, we report that we've seen a slight downtick in turnover Q. one this year versus last year. So I'd say that it is coming down and there are maybe a 15% to 20% of units that we looked at last year turned were only there for a year now. I don't know that that's any different from past years because we weren't measuring it as in as much detail. But I think that's for those that have been there for recently, don't have as much of a mark to market spread for sure, but it's a good question Rob?
Robert Richardson: In terms of taking a look at our portfolio and and see what the correlation is between and among a number of years in the unit and the frequency of the turning of pickup, we'll take a deeper dive maybe next quarter. We can talk about it.
Philip Fraser: Yes. I mean, I would anticipate that you could actually see a widening mark-to-market spreads because the same units promoted it may turn out over a period of time have looked at. We have looked at that and the mark to market for tenants that have been in the units over five years is closer to 35% pressure on delinquent for more.
Matt Kornack: Thanks.
Operator: Your next question comes from Dean Wilkinson at CIBC.
Dean Wilkinson: Thanks. Good morning, everybody. I'll just follow up on the development side of things from that, that lower cost with that come at sort of a lower density? Or are you just finding that some of the states non Ontario jurisdictions have more favorable land acquisition and actual hard construction costs? And I would say that a lot of it is lower density for shorten. And if you like, again, the forward development costs, a big part of it with all that. And just yes, and I guess I was my second question then is development charges have arguably been one of the most insulated components of construction over the past five, 10 years whenever you want to call it. Have you had any conversations with any jurisdictions that are perhaps acknowledging that and saying, maybe there's something we can do to help you build more affordable housing these are you look in the 416, it's probably 30%, 35% of your construction budget is DCs like or are they just stuck on that and they're kind of punch drunk on the money.
Philip Fraser: And I think you've described it the way it is.
Dean Wilkinson: Okay. Fair enough. That's all I've got. Thanks.
Philip Fraser: Yes, thank you.
Operator: [Operator Instructions]. Your next question comes from Brad Sturges at Raymond James.
Brad Sturges: Good morning. Just to go back to the market rent growth discussion in terms of the nonpermanent resident immigration policy change, how do you how do you expect that to impact or alter market rent growth as popular as a population growth slows over the next two couple of years.
Erin Cleveland: We're really not expecting it's going to have any pertained to the market rent growth. We're definitely looking at our portfolio and we don't have it's relatively small exposure, but there's a lot of other drivers of demand for apartments, though. We don't see that as a big risk for market rents.
Mike Markidis: With the I guess the slowdown a little bit on the suite renovation side. Obviously you've noted turnover, but also strategically maybe not spending as much capital work or market rent growth conditions are quite strong just as there are certain markets where you're allocating less capital to suite renovations right now? Or is that just more of a broad statement across the portfolio?
Robert Richardson: There is no standout on that, no standout market we're seeing it across portfolio.
Brad Sturges: Okay. Sounds good. I'll turn it back.
Operator: Thank you. We have no further questions. I will turn the call back over for closing comments.
Philip Fraser: I would like to thank everybody for listening participating today, and we look forward to reporting Q2 results the first week in August.
Operator: Thank you. Ladies and gentlemen, this concludes your conference for today. We thank you for participating.
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