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Greg Romundts Presentation Notes from the Canadian Apartment Investment Conference Panel on 2011-09-14

The Session was titled: "Maximizing the Value of Smaller Portfolios: Investment, Management and Analysis Strategies" and was question and answer oriented. Some of the formal questions along with an abbreviated summary of Greg Romundts responses and comments are below:

 

 1.      Are you buying, selling, or both?

Both.  We are firmly in buy mode where we see opportunity but we may look to prune a few properties from the portfolio which no longer fit in for various reasons.



 2.      This discussion is all about maximizing value. I think it might be helpful for our audience to understand what each of you are looking for in an acquisition. Perhaps I could ask each of you to describe your “ideal” acquisition.

We are looking for good locations in markets with positive demographics.  We look for rent upside potential, expense saving potential and reasonable pricing.



 3.      What about management? Any thoughts on active day-to-day management versus 3rd party management of a property?

We don't believe in 3rd
party management.  We don't believe that 3rd party managers will have the same care and interest in a property as an owner.  There are different incentives.  Although on a line item basis it costs us more money to manage ourselves, we have to look at total returns which is what an owner cares about.



 4.      So how does an owner maximize value? It seems to me that “net operating income” is an important component in the value equation. What strategies are you using to improve NOI? Are there any particular approaches to revenues or expenses?

You need, as part of your rental strategy to have good market information to keep vacancies low and rents high.  You need to keep an eye on expenses that you can control like utilities that will impact your NOI.  You need to make sure that your building shows well. This will help you get and keep the right tenants, keep demand for your suites high, vacancies low and rents high.



 5.      What about cap ex? Any thoughts on strategies to maximize value in this area, and can you comment on what cap ex issues you look for when evaluating a possible acquisition?

We believe that you have to always spend whatever a building requires. We want to pay the building first and ourselves second, not the other way around.  The building is an investment asset that will take care of us only if we take care of it.  We look for systems and technologies to cut costs and evaluate discretionary costs (like suite upgrades) versus potential returns for that spending to add value. For new acquisitions, we look at what we need to spend to bring the property to our operating standard and whether we will get a return on this capital spending as part of our analysis.



 6.      Greg, I understand that you are “mr. metrics”. Can you share some insights on what metrics a building owner should be focusing on and why?

There are a  few metrics we like to monitor.

        Revenue Metrics:

        - loss to lease - the potential upside/downside in rents from what is in place to what market rents are

    - rental statistics such as (a) number of calls, (b) number of appointments booked to view suites, (c) applications received, (d) number   of lease closings.  We track and trend analyze our results and look for sudden changes that may indicate problems that need attention.  

        - occupancy statistics  such as (a) notice to vacate ratios, (b) vacancy, (c) availability, (d) vacant availability

 

       Expense Metrics:

       - benchmarks of utility usage and trending

       - variances from budget



 7.      In practical terms, what are the key things that a building or portfolio owner should do to maximize value? Are there any due diligence issues that an owner should consider when positioning a building or portfolio for sale?

    (a) keep rents as close to market rates as possible

    (b) explore new revenue opportunities in things such as parking, laundry and revenue share agreements 

    (c) focus on utility costs as the main expense item you can control

 

    When looking to sell,  ensure your building shows well, occupancy is good, and due diligence deliveries are complete and organized.



 8.      What about “green” initiatives?  We’ve all heard a lot about the importance of “green”, but what are the practical implications to value?

The only "green" projects that you should invest in must make financial sense and provide a reasonable return.  Do not invest in an initiative just because it is perceived as green if it doesn't provide a return.  This is an investment business and if you invest in projects that generate a decent return, then you will have enough money to continue to do more of the same within your program.  The best way to be green, and to truly make an impact is to invest in projects that provide an adequate finantial return which will allow you to do more of the same.