InterRent Real Estate Investment Trust (OTC:IIPZF) Q3 2022 Earnings Conference Call November 10, 2022 10:00 AM ET
Company Participants
Craig Stewart – VP, Finance
Bradley Cutsey – President and CEO
Dave Nevins – COO
Curt Millar – CFO
Conference Call Participants
Mike Markidis – BMO
Jonathan Kelcher – TD Securities
Kyle Stanley – Desjardins
Brad Sturges – Raymond James
Jimmy Shan – RBC Capital Markets
Matt Kornack – National Bank Financial
Johann Rodrigues – Industrial Alliance
Operator
Good morning, ladies and gentlemen, and welcome to InterRent REIT Q3 call. [Operator Instructions]. This call is being recorded on Thursday, November 10th, 2022. I would now like to turn the conference over to Craig Stewart, VP of Finance. Please go ahead.
Craig Stewart
Welcome, everybody. Thank you for joining InterRent REIT’s Q3 2020 Earnings Call. You can find the presentation to accompany today’s call on the Investor Relations section of our website under Events and Presentations. We’re pleased to have Brad Cutsey, President and CEO; Curt Millar, CFO; and Dave Nevins, COO, on the line with us today. As usual, the team will present some prepared remarks, and then we’ll open it up to questions. 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 InterRent’s news release and MD&A dated November 10, 2022. 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 non-IFRS financial measures, including reconciliations to the nearest IFRS measures.
Brad, you’re up.
Bradley Cutsey
Thanks, Craig. Let’s take a run through the highlights for the third quarter. I’m quite happy to say that we were able to improve our overall onset by 50 basis points compared to Q2, which puts us ahead of where we were last year, going into the fourth quarter. We are pleased to see both overall and same-property portfolio sitting at 96%, which is right in line with our expectations and where we were typically around this point in the leasing cycle pre-COVID. Post Q, we’ve had continued strong demand across most of our regions and are delighted to see leasing traffic pick up the Montreal and return after the region experienced softness throughout the summer. The continued positive trend in leasing has brought our occupancy levels across the portfolio into the mid-96% for both total and same property portfolios.
Given the strong demand, we were able to significantly reduce the use of promotions and are pleased to report a reduction in the vacancy and rebates compared to Q3 last year, with the reduction in even split between the 2. As we demonstrated in the past, it takes 12 to 18 months following the strong acquisition period to start to really see the impact of our numbers. Helped by the record acquisition year we had in 2021, we were able to post strong operating revenue and NOI growth print for a total portfolio of approximately 20% year-to-date.
We’re also extremely happy with the robust growth figures for our same property portfolio again this year. Since this demonstrates the organic growth potential embedded in our portfolio and the strength of our team on the ground, Curt will share more details around our balance sheet later in the call. But the work that his team has been doing to manage our debt ladder has helped provide stability during a volatile period of sufficient liquidity to allow us to continue to execute on our business model. And finally, at the bottom right, you’ll see that our FFO, AFFO growth in Q3 has come in a bit relative to the first half on the back of higher financing costs. Operating continues to improve despite inflation and interest rate headwinds. Given the strength of our same-property portfolio again this quarter, we wanted to illustrate a trend for same-property NOI. The takeaway here is that with the exception of 2020 when the pandemic effects were most impactful on the opportunity.
We have consistently generated revenue growth that has outstripped expense growth. Although we are certainly feeling the impact of inflation in our operating expenses, as you can see by the year-to-date figure, our top-line growth expectations should continue its positive NOI growth trend in 2022 and beyond. We continue to see strength in fundamentals in our sector and saw a 6.9% growth in the average monthly rent in September relative to last year. It is worthwhile to mention that this figure is impacted by mix changes with increased closure to higher rent markets such as downtown Toronto and Vancouver acts an important factor.
At the regional level, we continue to see steady year-over-year growth in average monthly rent across all regions in September, suggestion that the strengthening fundamentals aren’t isolated to specific regional pockets. On the backdrop of these operating results and the continued strong fundamentals, we are also very pleased to report that the Board of Trusses has approved our 11th annual increase to our distribution factor for our November distribution that will be paid out December.
Dave, over to you to take us through some of the operating highlights.
Dave Nevins
Thanks, Brad. Looking at Slide 10. As Brad mentioned, we’ve grown our overall occupancy to 95.6% for the quarter. Given the strong rental demand in most of our markets, we use significantly less promotion throughout the quarter that will provide much less drag on our NOI during the upcoming year. Looking at our repositioned portfolio, we saw our September 2022 occupancy also increased and sits materially at pre-pandemic levels for the month. As previously mentioned, we continue to see softness in the Greater Montreal area throughout the third quarter, and that has caused a slight drag on our occupancy numbers, but we are pleased with the activity post-quarter, which should support an overall improved figure in Q4.
Before I turn things over to Curt, I want to touch on our CapEx spend so far for 2022. On the left side of the slide, you can see that our maintenance CapEx in Q3 at an annualized level of $1,028 per suite and is roughly in line with our Q2 reported amounts. You can also see we continue to allocate about 90% of our spend on value-enhancing investments. On the right-hand side of the slide, we see excellent value creation in our repositioning program, and we will continue to strategically invest in the portfolio. It is worth saying again that our individual suite upgrades follow the cadence of natural resident turnover. Our repositioning program has provided us with a well-maintained portfolio that puts us in a good position to navigate any choppiness in the market.
I’ll hand it over to Curt to discuss our balance sheet and sustainability efforts.
Curt Millar
Thanks, Dave. With the increasing rate environment, the expectation all around is that at some point, cap rates will adjust. We review the major assumptions around rent, turnover costs and cap rates every quarter with our external appraisers. Based on this review, we have increased our cap rates for various properties or markets, which has resulted in an overall increase in our cap rate of 14 basis points from Q2, and we are currently sitting at a weighted average portfolio cap rate of 3.97%.
Even with this increase, we recorded a $5.7 million fair value gain for the quarter as a result of our continued strong performance from the operational team. You can see that the REIT continued to be in a healthy financial position. Our debt to GBV on September 30th was essentially flat at 37.4% compared to 37.3% at the end of Q2. As we alluded to last quarter, it was a busy queue on the mortgage front, with a lot of pieces falling into place that we’ve been working on for some time.
Main takeaways are that we had $35.5 million in up financings on $8.2 million of maturing loans. We renewed and extended $141.5 million of maturities and paid down $5.7 million of mortgage debt. We ended the quarter with $1.62 billion in outstanding mortgage debt on our books. All the financing activity in the quarter, we have maintained the average term to maturity of 4.8 years, increased our CMHC-insured mortgages slightly to 74%, and reduced our overall variable rate exposure to 6%. At the end of the quarter, our weighted average interest rate increased to 3.8%.
In addition to the activity during Q3, there has been continued activity on the financing front post-quarter end. Looking at what is closed as of the end of October, we have only $64.8 million in 2022 maturities remaining, of which $30 million is already through CMHC, great locked, and scheduled to fund in November. The impact of these closed and committed mortgages is that the REIT’s weighted average interest rate is now 3.15%, up 7 basis points. As previously communicated, we anticipate that with the current market conditions, we expect that our weighted average interest rate at year-end to be in the 3.2% to 3.3% range. We also expect to lower our variable rate exposure to be sub 5% by the end of the year and our CMHC-insured mortgages to be around 80% of our mortgage book.
Turning our attention to sustainability. We participated for the third year in a row in the [Gras] real estate assessment, and we are pleased to report a 10% increase in our score compared to 2021. The REIT also earned a Green Star rating, signaling our continued commitment to sustainability and ESG performance across the company. Our climate change work continues. Last quarter, we advised that we had completed the CDP disclosure questionnaire and submitted our CBTI commitment letter.
In Q3, we were focused on gathering and ensuring completeness of our data in order to advance our objectives of being able to set science-based goals to reduce our greenhouse gas emissions, and we are still on track to complete the first phase of this work by year-end. Last, but definitely not least, we are extremely pleased that this past September, with support of some great partners, we were able to raise $1.4 million at the Mike McCann Charity Golf Figment, all proceeds from the event go to support charities in our communities. Coming off the heels of the global pandemic, it is more important now than ever to support and give back. To date, this 1-day event has raised nearly $6.5 million while spotlighting many local charities. As in many things, we continue to set the bar higher every year and challenge ourselves to surpass it.
I’ll turn things back to Brad to walk through our capital allocation.
Bradley Cutsey
We continue to emphasize that one of the key solutions to solving the housing affordability crisis in Canada. It should bring on a new supply, and we are committed to playing a role in delivering on that solution. We have received partial occupancy in early October and are progressing well on the remaining office-to-residential conversion at the slate in Ottawa.
Marketing began late in Q2, and we’re excited that the residents have been moving in over the past month. With the near completion of the slate, development has become a bigger part of the REIT story and will only continue this in the coming years. We’re working with great partners to bring this supply to market, and we’re looking forward to sharing additional details as we get closer to getting shovels in the ground for each of our exciting projects. There has been significant interest rate volatility over this year and has had an impact on expected yield ranges on these projects.
We continue to monitor the ongoing rate and economic situation, and we will refine these estimates over time. We want to be transparent in their current expectations. We had a good quarter and encouraged with the leasing activity post-quarter end. No one has been immune to inflationary pressures, but we are keeping a close eye on both our operating and G&A costs. We have continued to be extremely active managing our mortgage ladder and expect to finish the year with about 80% of our mortgages being CMHC insured, and a sub 5% exposure to variable rates going into 2023.
I would also like to say it was great to see many of you in person in this past September in Toronto at the Real Estate Forum and in Ottawa at the Mike McCann charity golf tournament. It’s always a pleasure to discuss real estate and our plans with our investors and being able to do so in person makes it that much more enjoyable. Thanks to you all for your continued support, and we look forward to seeing you in person in the near future.
Let’s open it up for Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]. First question comes from Mike Markidis at BMO.
Mike Markidis
Just 2 quick ones for me, actually. The first would be quite simple. Can you remind me on [that Gras] side if you guys have a hedging program in place or not?
Curt Millar
On the natural gas side, Mike, sorry, you cut out for a second there. Did you…
Mike Markidis
Just wondering if you have a natural gas hedging program in place.
Curt Millar
We haven’t in the past. We actually have coming into this heating season, rate lock about 50%, 51% of our expected natural gas demand for the next 12 months.
Mike Markidis
For the next 12 months. Okay. And with the price that you achieved, is that consistent with what we’ve experienced recently? I’m just trying to get a sense of where the rate would be relatively.
Curt Millar
Yes, it’s slightly below the current rate being charged by the utilities at the current spot rate. Just we took advantage of a small dip and got locked in at that.
Mike Markidis
Sounds good. And then just more of a technical question, but I just want to make sure I’ve got the accounting suite stay for the lease-up of slate. So partial occupancy, you’ve got tenants moving in. Is that going to be a full decapitalization from an interest expense perspective and op cost perspective in 4Q? Or will it be partial? Because it sounds like you’ve got partial occupancy at this juncture.
Curt Millar
Yes. So the partial occupancy started in October, but it’s only the first few years. So full construction won’t be complete until Q1, depending on how some of the stuff goes in the winter months, some of it could be tricky outdoors near the end of Q1, depending on what the weather is like. So we expect — we’re hoping to be done by Q1, maybe it slips into first month or Q2 depending on weather. So it wouldn’t be fully out of the development outside of the house until we were 90%, 95% complete on that.
Mike Markidis
Okay. And then because of that staged in cycle, you’d be able to slowly decapitalize in stages? Or is it all in one fell swoop?
Curt Millar
Typically, we’ve done — like we’ve only done this once before. A few years ago, we live it was one fell type of piece on that. Technically, what we do is as we lease up, we start to bring the units into the operating side of the house. So we’ll have to –
Bradley Cutsey
So one other thing too, Michael, just so everybody is aware on this call, this is Brad here, is that there is some major construction work going on [REIT] slate right now with the city work redoing the main [answer] and then they’re going to come back to pipe that street level as they’ve done in some of the other nodes here in Ottowa. We’re quite fortunate at the end of the day, it can be a beautiful almost natural medium of side front, of course, in Albert. However, it has caused some complexities as far as construction with regards to things like water and being able to deliver water, the pressure of water to some of that report.
So unfortunately, we are a little bit handicapped at the mercy to their development schedule, and that goes back to Curt saying about the winner about how some of this might get done or not get done through the winter. That said, we’ve been extremely happy with the take-up that we have had on it. Also in the context that it is a pull-off construction zone, and the take-up has been quite positive. We’re very happy [fortunately] the way that development has progressed.
Mike Markidis
Okay. Great. And I have one more actually. Just I might be reading too closely into this because I know you have your anticipated completion date on Burlington GO, but it looks like you expect to pull a permit before the end of this year. Does that mean that troubles in the ground will be sometime in 2023?
Bradley Cutsey
I think you won’t see shelves on the ground in any of our greenfield projects until we have 90% of the joints complete and where we can get comfort on what we can lock in as far as actual construction dollars. The good thing I would mention on the development side, we have terrific sites as far as location in our opinion, they’re A to AAA-type sites. So there’s a lot of comfort and confidence in where we think we can take rents at those sites. And to be honest, the market rents have continued to increase for those locations. So really, it’s going to come down to a combination of fine once we get the permits, that’s one thing, but really being able to get drives greater than 90% complete so that we can go out and tender and have a really good idea of where the pit costs are. So we really want to see cost certainly before we break.
Operator
Next question comes from Jonathan Kelcher at TD Securities.
Jonathan Kelcher
Just to clarify that last thing there, Brad. So do you expect to start any developments in 2023?
Bradley Cutsey
It could to be — not to be too – Jonathan, maybe. It really will come down to get to those costs earning. Obviously, yields come in a little. And a lot of that is due to the financing side of the equation when it comes to the construction. The nice thing is from different talks and understanding our construction costs, they’re starting to come down a little in some areas, in all areas, but in some areas as part inputs. They’re starting to show that they’re leased in the pressure. So again, it’s — I could vision one of our developments starting in 2023. But again, we won’t break ground until we get that constantly, and we have things at a 90% plus as far as the [downings]. Said differently, I’m hopeful.
Jonathan Kelcher
Okay. Fair enough. Secondly, just the commercial space in Montreal that you’re putting some units in. Can you maybe give a little bit of color on that, like which building is it and the expected cost?
Curt Millar
Yes. So the nice thing about that, obviously, we wouldn’t do it if it wasn’t a value add. It’s earns clip in Montreal. So it’s a great building. It’s the dominant assets in that location. It’s really well amenitized. But the office space and the office kinds over there really was closer to a Class C type office. So the rents were a lot lower than what we are going to be able to achieve on a going-forward basis. So we looked at it and at the end of the day, we add this and get incremental NOI, I call it, over 300,000-plus replacements. So for us, it really wasn’t — there wasn’t much debate we go forward or not with those 32, 36 units.
Jonathan Kelcher
Okay. And how much will it cost is it to that roughly?
Curt Millar
We don’t provide specifics on that, but I think the modeling purposes, you can range in between 100 and 150. I know that’s a big range.
Jonathan Kelcher
Okay. And then lastly, just, Curt, on your post-quarter financings, what rates did you get on those?
Curt Millar
We were fortunate on those to have been able to lock them in, again, taking advantage of a bit of a dip in the market. The rates were in around 4 to 4.5 between the averaging the –
Operator
Next question comes from Kyle Stanley at Desjardins.
Kyle Stanley
So good to see the OpEx inflation get reined in a little bit this quarter. I’m just wondering how you’re thinking about that as we head into the winter months, fully realizing you just mentioned that you now hedged about 50% of your InterRent gas. But just want your thoughts generally on how OpEx likely trends into the winter and then maybe into next year.
Bradley Cutsey
Yes. I think we had a great quarter from an operating cost perspective, but I would caution the investment community and readers that can be lumpy. And different things can come in. There weren’t any real one-time exclusion again relative. But I would say we do still see some pressures specifically on the utilities. And I would still say that there’s pressure on the wage front of it. I do think some pressures on some other inputs into that line item are relieving a little bit.
But looking forward and going into the months, we’re going to continue to see that line item on a whole increase. Now that said, we firmly that our rent is going to continue at a really robust pace, and they’re going to outstrip any increase or any inflationary pressure that we’re going to see on our operating cost lines. And I’m very hopeful and confident that we’re likely to see flat to modest margin gains going into next year.
Kyle Stanley
Okay. That’s good color. And just looking at Montreal quickly, you mentioned it in the prepared remarks, a bit of a vacancy dip this quarter, which I think you had guided to last quarter, but that you’re encouraged by the leasing activity so far in the fourth quarter. So I’m just wondering if you can elaborate a little bit on that and maybe what are your thoughts on how vacancy trends through the next 12 to 18 months?
Bradley Cutsey
Yes. So I think I can see we made strong gains across the board, except at the quarter in Montreal. But as we mentioned in our commentary, post-quarter Montreal sitting in the better place today than it was last year. So I’ll let you guys go back and do that math. But say the least, we’re quite happy with the post-quarter activity in Montreal. It took a lot later to get started, which was unfortunate.
But things I believe or not believe that they have been picking up and the cap has been picking up and then it’s translated into [versions] we feel good aware Montreal as that at this point. And the ones that I should also mention on that too is, as you’ve noticed, we’ve been able to make the oxy gains with some pretty solid rent growth, and that’s also been up less promos than last year. I’m not going to say we haven’t had to use any, but it was materially down from what we were using a year ago in that note.
Kyle Stanley
Okay. Great. And then just one last one. With your experience now building slate, I’m just wondering, is this something that you’ll look to do a little bit more of the office for residential conversion? Or have you learned anything that you could use on another project going forward?
Bradley Cutsey
Yes. Well, there’s a lot of things we love about this. Obviously, the benefits from taking an obsolete office building converting to new homes is a great story, and it’s a great for the city of Ottawa. It’s a great part of being the solution to housing affordability crisis that we’re currently in. So we love the whole storage solution behind converting our office to residential, but the fact does remain extremely challenging to do. It’s not [for the little] harder. It takes a strong commitment.
The nice thing is that we’ve got teams in place that have been working on this conversion that have done this throughout their careers, and I think is the big advantage because I think you’ve seen office conversion to multifamily in the past in different regions in the country, and they haven’t been maybe as successful as I think the slate will prove to be. But with that said, there’s been a lot of challenges that we have faced, and we’ve been able to overcome, but it’s the challenging. But nevertheless, they’re worthwhile during for so many reasons. One being taking them an existing infrastructure and been able to repurpose it, I think, goes a long ways to help build the communities that we invest in. And then it will have a return that will consummate with their capital providers. So long-winded to, yes, we would look at doing further, but they are challenging.
Kyle Stanley
Yes. And just to add to that, not every office building converts easily to rental. You really have to take a good look at that floor plate and how the natural layout is to work with [473] Albert given the tabular shape of it was a very good candidate for that conversion.
Bradley Cutsey
Yes. And that’s a great point. And it goes with those things obviously a lot easier to do a greenfield for the ground up, but it might not have as many state as far as achievement.
Operator
Next question comes from Brad Sturges at Raymond James.
Brad Sturges
Just to go back to the Montreal conversation there, obviously, the pickup in demand post-quarter, does that include you’re seeing better demand coming from international students and seeing more of a benefit to your more student-focused buildings?
Bradley Cutsey
Yes. We definitely have. I’ll turn it over to Dave and to let Curt comment on that as well.
Dave Nevins
Yes. No, definitely, the demand from the [Ford] students came back strong, I guess, later in the season than we’re normally used to. But we see it across the board that the pickup. The areas inside of the student areas we’re doing really well. It was just really the [student], but it’s come back to basic almost normal now We’re in a good spot.
Bradley Cutsey
And also, Brad, just to add a little color on that, and it’s not just all from different conversations here in Ottawa with universities. We’re hearing that this will be one of the bigger influxes for January enrollment that they’ve seen, I think, on record. So I think that goes to speak to the pent-up demand that’s been building up in the system just not getting study permits approved in time. So there might be an actual offshoot even further additional demand from this demand group.
Brad Sturges
That’s good to hear. And then when you think about the 30% gap between in-place and market, I assume that’s more broad across the portfolio, but are there certain markets that turn out to be relatively wider than others?
Dave Nevins
Yes. We don’t get into the color too, too much on that, but there definitely is a bit of a slip. The bigger split, as you’d imagine, just given our model is between repositioned and non-repositioned in the portfolio and you get a sense of that from — when you look at that disclosure in the MD&A. The other thing I would say is that — when you look at the difference between mark-to-market, think about our acquisition program. And typically, it follows to – so if you look at the markets where we bought the most products in the last 3 or 4 years, that will be the market also that have the biggest potential gain to lease.
Brad Sturges
Okay. That’s helpful. The last question, I think you guys talked about it for a few quarters, but certainly, you’ve considered selling assets within the portfolio. I guess where would you be on that front right now? Is there still potential to see some asset sales in the next 12 to 24 months?
Bradley Cutsey
Yes. I think there is, Brad. I think it’s just — the transaction market is quite thin right now. I think there’s a lot of buyers with [Penn] down. I don’t necessarily think it’s because they don’t believe in the fundamentals. I don’t believe that they want to increase their exposure to the asset class. I think quite the opposite. I do think there’s a period of a wait-and-see where the dust settles as far as more clarity on where interest rates can settle and as the vendor expectations, they come into where something can get done. So unfortunately, for some of the non-core assets, for us, they’re likely private buyers and the steep run-up in interest rates has thrown a challenge as far as how do they go about to finance acquisition.
There’s lots of interest for sure. It’s just some of these private buyers have to figure out how they can transact. The good news for us is we’ve got a lot of capacity on our balance sheet. The team has done a really good job of putting us in a position where we can continue to act on opportunities. Albeit, I think you’ll see us be a lot more modest on disbursing capital at this point, at least for acquisitions and produce, it will be more in — probably likely with the joint venture partner to spread that capital over more. But I think right now on the disposition front, it’s pretty quiet as far as transacting not quite from interested but from how can people or people complete the deal. And really, it’s coming up of the financing. And you’re going to see a lot of that in our belief with the profit higher.
Operator
Next question comes from Jimmy Shan at RBC Capital Markets.
Jimmy Shan
Bradley, maybe just a clarification on the Montreal. So you mentioned it’s improved better first quarter to where it was in September of last year that — is that what you referred to?
Bradley Cutsey
No. What I mentioned is that Montreal where we sit today post-quarter is in a better position where we ended last year. So that’s an easy one for you to do by pulling the last year.
Jimmy Shan
So last year was 6%, that so you think it’s better than 6%.
Bradley Cutsey
I’m saying yes. I’m saying we’re very happy with put it this way. We’re very happy with where Montreal sits today.
Dave Nevins
And rentals are still strong.
Bradley Cutsey
And I don’t know if you get here that, but that Dave commentary was and still renting strong. Like the leasing season has definitely been extended over and above what be normal at this time of the year.
Jimmy Shan
Okay. So it doesn’t sound like you missed especially for the buildings, the students you’ve missed the window in leasing because of the January influx. And so big balance, you don’t have to wait for another year for you to see that in those buildings. Is that fair?
Bradley Cutsey
Sorry, I’m not understanding the question. Say that again.
Jimmy Shan
Because certain buildings are student dependent and because you didn’t get the lease-up done for the fall of this year.
Bradley Cutsey
Yes, no, I wouldn’t lead into that, Jim. I wouldn’t lead into that and not necessarily would lead into that. I would assume that maybe some people come up here late and then arrange their combination. So meaning they were international students. They were just late in getting here, and they’re in.
Dave Nevins
We know from commentary, both from the federal government that there were delayed processing student applications on visas. And we also know that [McGill], for example, was out there saying that they were behind in processing applications for the September start. And I think that’s why you saw not the normal July 1st, July influx or August or some of the stems we saw wait a little longer because they didn’t get their notifications in time to be here early August and looking for September.
Bradley Cutsey
And Montreal is a little different, too. Montreal typically tends to be more new land you search for 2 weeks, so you go in a short-term accommodations and then you find your longer-term accommodation whereas international students and our experience in Ottawa and [Saint] Ontario as being a little more preorganized, but before they actually come, they’ll arrange our combinations.
Jimmy Shan
Okay. And then my second question is really…
Dave Nevins
Yes. I wouldn’t lead in that we missed that certain buildings that we’ve missed the international students because that’s quite contrary.
Jimmy Shan
Okay. Understood. I wonder if you could just comment on the turnover rate trends you’re seeing, and I’m actually more interested in Vancouver seeing that it sounds like a lot of the gain to lease is coming from that market. Maybe if you could comment on Vancouver as well.
Dave Nevins
Well, we’ve maintained all the way through, we’ve been lucky enough that we were able to get that total during COVID and we’ve been quite fortunate. That market has continued just consistently done better and better, and it’s extremely tight.
Jimmy Shan
The turnover rates in those markets.
Dave Nevins
The turnover — you’re asking the if the turnover rates has come in?
Jimmy Shan
Yes, the turn.
Dave Nevins
Yes. Jimmy, just to be clear, so we used to see the churn or the turnover rate be in and around typically 3% and we had that running historically for quite a while. And Brad and I are on record for several quarters saying it’s going to come back, and we expect it to trend down. We have seen that this year. We are in that mid-ish-20 range. But we do expect, given what we’ve seen in the broader market that will continue to trend down from the mid-20s to maybe even the mid, low to low 20s.
Operator
Your next question comes from Matt Kornack at National Bank Financial.
Matt Kornack
I’m sorry to beat a dead horse on Montreal. But just the occupancy statement is pretty clear. But you did well on rate sequentially in the market. So should we expect, as you lease some of the vacancy that rate would be stable? Or are you expecting that you’re actually going to see an increase in the aggregate rental rate across that portfolio as well?
Bradley Cutsey
If I think I understand your question, we maintained the integrity of our Montreal all the way through, even though it was probably our most challenging market in the pandemic and it was the slowest to come out. We’ve always maintained that this was a temporary let, and we’ve always been extremely bullish. I’m not sure for a lot of different reasons. And I’m glad we had a maintained that rate.
And we — for the product that we did for the little bit of absorption that we did see in the quarter, we were hitting rents that were higher than the previous year. So that really led us to believe that really — and knowing in discussion with our leasing team is knowing that the traffic just wasn’t back to the same levels that we saw pre-COVID as far as the foreign international student that is to believe that when that demand pool to come back, we would easily achieve the rent growth, and it has proven out.
Curt Millar
And I guess, presumably, I think, if I remember correctly, even though they may be smaller units that they tend to be a little bit more premium in terms of what international students would pay for the accommodation so it may actually be higher in terms of the vacancy that’s coming on relative to the overall portfolio. Those buildings, the student-specific buildings in Montreal are definitely like buildings and they’re very well-amenitized. The rents there are at the higher end of the market, for sure, for [student rental].
Dave Nevins
And why we love the international student crowd. And you’ve seen them that they were extremely well located. And Curt point, they’re extremely well amenitized. So there is a section of the student population where they’re taking the poor those rents. And yes, it allows us to treat premium relative to, I would call out the student accommodation for sure.
Matt Kornack
Okay. No, that’s fair. On the financing side, just a few clarifications. You were very active. So deferred financing fees did go up from an amortization standpoint. There was 100,000 write-off, I believe, in the quarter, however. But how should we think about deferred financing costs? Is the number ex the write-off a good run rate? And then also the interest rates quoted, are those effective? Or is that just the contractual rate?
Dave Nevins
So let me just kick the first part of that, the deferred financing team at — the run rate that we have and that we expect to see would be in that [500 to 5.25%] range per cube. There will be variations like we’ve seen in the past around if we take a property out that’s sitting there with some deferred financing set up on it. So as a normal course, I’d say if you’re doing [500 to 5.25%], you’re in the right range. We did have — by year-end, we’ll probably be about $1 million of write-offs. And given what’s on our books for next year, it will be lumpy as to what skews that hit, but you can probably expect another $500,000 to $700,000 a hit at some point through the year, just given what’s in our mortgage lot of maturities for next year.
Matt Kornack
Okay. I usually back those out, but you highlighted it this time around, I assume you’ll highlight it going forward as well.
Dave Nevins
Sure. We always highlight that number. And then the second part of your question, when you were talking about the effective interest rate, are you talking about the rate in the mortgage ladder, like the overall –
Matt Kornack
3.08, does that include the amortization of deferred financing costs? Or is that just the contractual rate before the amortization?
Dave Nevins
Yes, that’s the contracted rate before the amortization. Correct.
Matt Kornack
And the last accounting one on –
Dave Nevins
Matt, just to be clear to you on that one because we did provide some extra color because we all know financing costs have been hitting all of us, and they hurt. And we want to try to make sure we fully give you guys as much information as we can on that. So we did disclose that as of October 31st, we’re about 3.15% as a contracted rate average and that we still stand by what we said in Q2 that we believe that by year-end, we’ll be in that 3.2% to 3.3% range. And I just want to make that clear because I know that’s a big line for going forward compared to what it’s been in the last few years.
Matt Kornack
Yes. I think we’re reflecting that at this point. So I appreciate that, though. That’s good color. And just on the G&A side, I guess it was high in Q2, but looks normal this quarter. I think there’s some seasonality aspects in Q4 but is this quarter a pretty clean quarter from a G&A standpoint?
Bradley Cutsey
What we said, I think, previously, is 4% to 4.25% for G&A. I would stick with that. It may be towards the 4 more than the fourth quarter, but I think that [indiscernible]range is still accurate. There is definitely lumpiness to the G&A number. Things like our golf tournament in the summer affect Q2, things like certain year-end or different times of when things hit. And then there’s also just different sustainability costs that happened throughout the year at different points. So from a modeling perspective, I’d say a [indiscernible]. And we know you’re a home count guide of entrant, so we expect the Montreal questions, no worries.
Operator
Your next question comes from Johann Rodrigues of Industrial Alliance.
Johann Rodrigues
Actually, I got all my questions have been answered.
Operator
At this time, there are no other questions. You may proceed.
Bradley Cutsey
Well, that’s great. Thanks, everyone, and we look forward to our Q4, but I don’t mind the longer break in between. I hope everybody has a great day, and we’ll hope to see everybody in Toronto in the real estate forum. Take care. Thanks, everyone.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.
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