The Apartment Market Continues to be Buoyant Solid Returns, Sustainable Demand, and Purpose Built Rental David Bloomstone Director, Investment Banking, TD Securities November 30 th, 2017
Panelists Ugo Bizzarri Founding Managing Director, Portfolio Management & Investments Daniel Drimmer Founder & CEO Philip Fraser President & CEO Tyler Seaman Head of Hotels & Multi-Residential Wendy Waters Senior Director, Research Services & Strategy
Table of Contents 1. Investments Trends 2. New Purpose-Built Rental 3. Risks & Challenges 4. Outlook for 2018
Investments Trends
National Market Overview Comparing Returns Across Asset Classes 25.0% 20.0% 15.0% Annualized Total Returns by Asset Class (1) 10.0% 5.0% 0.0% 8.19% 6.75% 5.40% 4.96% -5.0% -10.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Retail Office Industrial Multi-Residential CPI+400 Bps 1. Standing Investments Only
National Market Overview Multi-Residential Returns Across Canada 7.0% 6.0% Multi-Residential Cap Rates 2007-2017 5.0% 4.0% 3.0% 2.0% 1.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q3 2017 Vancouver Toronto Montréal Calgary 10 Year GOC Average 4.8% 4.4% 3.4% 2.8% 2.2% Limited Supply, Low Interest Rates Coupled with Strong Operating Fundamentals has Resulted in Ongoing Cap Rate Compression
Volume ($ Billions) Trends and Trades Major Urban Centres Across Canada Multi-Residential Sale Volume Transactions > $20MM $3.5 $3.0 $2.98 $2.5 $2.0 $1.78 $1.68 $1.79 $2.00 $1.5 $1.32 $1.0 $0.5 $0.57 $0.98 $0.0 2010 2011 2012 2013 2014 2015 2016 2017 (Q3)
Trends and Trades Most Active Investors in Past 24 Months Across Canada Acquisitions Over Average Rank 24 Months ($MM) Acquisition ($MM) 1 Starlight Investments $872 $26 2 Timbercreek Asset Management $671 $23 3 CAPREIT (Canada) $389 $16 4 Conundrum Capital Corp $364 $24 5 Akelius Residential AB $328 $14 6 Skyline Apartment REIT $292 $16 7 Killam Apartment REIT $229 $23 8 Northview Apartment REIT $228 $14 9 Realstar Group Inc $227 $45 10 InterRent REIT $217 $31 Dispositions Over Average Rank 24 Months ($MM) Disposition ($MM) 1 Starlight Investments $600 $23 2 Beach Properties $258 $65 3 Cromwell $251 $31 4 New Summit Partners Corp $237 $16 5 Minto Group $236 $39 6 Barafield Realty Ltd $214 $19 7 R K Developments $191 $191 8 Homestead $180 $60 9 Wall Financial Corp $175 $58 10 Skyline Apartment REIT $173 $19 Source: Real Capital Analytics
Recent Portfolio Purpose-Built Apartment Transactions in 2017 Major Markets Highfield Park Portfolio Municipality Halifax Date Oct 2017 Price $113,000,000 Units 1,354 $/Unit $84,000 Cap Rate 5.75% Oxford Westdale Midtown Portfolio Municipality Toronto Date Jul 2017 Price $75,000,000 Units 203 $/Unit $369,000 Cap Rate 2.8% Yolles Akelius Greater Hamilton Portfolio Municipality Hamilton Date Sep 2017 Price $173,000,000 Units 1,036 $/Unit $167,000 Cap Rate 4.2% Skyline Q Residential Source: RealNet, TD Transactions
Recent Portfolio Purpose-Built Apartment Transactions in 2017 Major Markets Northview REIT Portfolio Acquisition Region ON, QC, BC, NS Date Nov 2017 Price $197,000,000 Units 1,250 $/Unit $157,000 Cap Rate 4.4% Various Northview REIT Homestead Hamilton Municipality Hamilton Date Sep 2017 Price $59,200,000 Units 425 $/Unit $139,000 Cap Rate 4.0% Homestead Q Residential Homestead - London Municipality London Date Oct 2017 Price $70,000,000 Units 556 $/Unit $126,000 Cap Rate 4.0% Homestead Q Residential Source: RealNet, TD Transactions
Recent New Purpose-Built Transactions in 2017 Major Markets 132 Berkeley Street 685 Rue Saint Maurice 246 Innovation Drive (1) 140 Main Street West 2 Municipality Toronto, ON Municipality Montreal, QC Municipality Bedford, NS Municipality Hamilton, ON Date Jun 2017 Date Apr 2017 Date Jul 2017 Date Apr 2017 Price $53,700,000 Price $38,800,000 Price $16,000,000 Price $90,500,000 Units 177 Units 118 Units 68 Units 321 $/Unit $304,000 $/Unit $329,000 $/Unit $235,000 $/Unit $282,000 Cap Rate 4.1% Cap Rate 4.05% Cap Rate 5.05% Cap Rate 4.75% Concert Private Sky Vistas Inc. Vrancor Oxford Canadian Urban Killam REIT Starlight Source: RealNet, TD Transactions 1. Purchased concurrently with 300 Innovation Drive 2. Forward Sale
Recent Purpose-Built Apartment Transactions in 2017 Major Markets 2777 Kipling Avenue 1686 12th Avenue 365 Eglinton Avenue East 1710 Radisson Drive SE Municipality Toronto Municipality Vancouver Municipality Toronto Municipality Calgary Date May 2017 Date Jul 2017 Date Aug 2017 Date Apr 2017 Price $55,000,000 Price $22,810,000 Price $14,500,000 Price $24,000,000 Units 325 Units 48 Units 48 Units 130 $/Unit $169,000 $/Unit $475,000 $/Unit $302,000 $/Unit $185,000 Cap Rate 3.9% Cap Rate 1.8% Cap Rate 3.5% Cap Rate 5.0% Aplomb Goran Holdings GWL Radisson Minto EMV Holdings Akeluis Minto Group Source: RealNet, TD Transactions
New Purpose-Built Rental
Purpose-Built Multi-Family Select Market Participants Legacy Developers Newer Rental Developers Current JV Partners ~ 40,000 Suites Under Development or Planned in the Next Year Across Canada
Top Retail REITs in Canada Who's Building / Planning to Build Multi-Residential Development Pipelines (M sq. ft.) Retail Residential Total Notes 2.48 11.86 14.3 6.5 17.3 23.8 0.2 M sq. ft. of active ground-up development 2.8 M sq. ft. of medium term future uncommitted incremental density 8.9 M sq. ft. of long term future uncommitted incremental density RioCan's mixed-use residential projects account for approximately 96.1% of its estimated development pipeline (RioCan's share) 0.84 5.10 5.94 Multi-residential pipeline consists of 5,800 units across 19 properties n/a n/a 3.92 n/a n/a 1.34 Announced plans to develop 700 condo suites in the Vaughan Metropolitan Centre - 50% - 50% joint venture with CentreCourt Announced plans to develop 230 freehold townhouses on 16 acre parcel of land - 50% - 50% joint venture with Fieldgate Completed all 347,000 square feet of the development projects targeted for completion in 2017 Sources: Company press releases and filings as at September 30, 2017 or latest available
Millennial Demand Drivers High levels of disposable income Increasingly active lifestyles with a focus on maximizing personal utility Building Amenities / Attributes Desire to live within proximity to work & entertainment Environmentally conscientious Amenities very important: Eco-friendly attributes (electric vehicle charging station, green roof, central heating recovery) Modern finishes (hardwood / laminate, stone countertops, stainless steel appliances) Pool / sauna / steam rooms / fitness centre Games room/recreational space (indoor / outdoor) Housekeeping services On-site security High-speed Internet Storage Pet friendly 5 appliances Neighborhood Amenities
Rental Survey Overview Preference for Purpose-Built Rental vs. Condo Survey of 1,250 Renters in November 2016 with Incomes of > $50,000 per annum Did you prefer purpose-built rental vs. condo for equivalent quality unit? Wouldn't Matter 24% If purpose-built rental is preferred would you pay $100 - $200 more? No 30% Prefer Purpose Built Rental 62% Prefer Condo 14% Yes 70% Preferences for Purpose-Built Rental Suggests "Pent Up Demand" Among Renters Source: GWLRA Custom Survey completed by Mustell Group
Rental Survey Overview What about Empty Nester Home Owners who could Downsize to Apartments? GWLRA surveyed 888 homeowners over 55 years old without school-aged children at home Planning to downsize into an apartment or condo If you could downsize would you consider renting? 60 50 40 30 20 10 Maybe 23% Yes 36% 0 All VAN EDM CAL TOR OTT MON 1-2 years 3-5 years One day, not sure when No 41% Source: GWLRA Custom Survey completed by Mustell Group
Rental Survey Overview Demand Pool Demand for purpose-built rental will continue to grow; likely to exceed supply growth Metro Area Apt / Condo Rental Households PB Rental Stock Gap Pent Up Demand from Condo Renters Empty Nesters Considering Downsizing & Renting Estimated 10 Year Population Growth in Rental Households Estimated PB Rental Demand Sub Total Over Next 10 Years Vancouver 307,555 Rental Households 201,530 108,000 93,540 31,000 34,000 15,000 80,000 GTA 631,070 Rental Households 508,895 309,000 199,895 116,000 72,000 41,000 229,000 1. Does not include 20 35 year olds living at home in Toronto & Vancouver because there are no apartments to rent. CIBC estimates pent up household formation of 6,600 in the Toronto CMA
Risks & Challenges
Risks & Challenges Facing Ahead Rent Control Ontario Municipal Board (OMB) Political Risk Climate Risk Foreign Competition Risk Interest Rate Risk
Outlook for 2018
Outlook Ahead Airbnb Shared Vehicles Sidewalk Labs Echo & Amazon Artificial Intelligence Sustainable Buildings
Outlook Ahead Dynamic Tower World's First Rotating 80-Storey Apartment Skyscraper