How environmental retrofit will increase these REITs' returns

Project will pay for itself with 30% energy reductions, but firm is aiming for 50%

How environmental retrofit will increase these REITs' returns

The Canada Infrastructure Bank (CIB) is giving Avenue Living Asset Management of Calgary $120 million to retrofit half of its low-density residential buildings in western Canada, which will ultimately increase real estate investment trust (REIT) fund returns for its investors, says one of its officers.

“We’re trailblazing,” Jason Jogia, Avenue Living’s chief investment officer, told Wealth Professional. “We’re the second largest building owner by structure In Canada. We typically buy low to medium density buildings. Even though our buildings might be smaller and sprawl, more width than height, we still have a fiduciary responsibility to all the stakeholders to do the best we can with them.”

Avenue Living owns and operates more than 500 medium-density buildings with 14,400 apartments and townhouses in 20 Canadian prairie and U.S. locations. The CIB investment will cover 80% of the work’s $150 million capital value to retrofit about half of Avenue Living’s Canadian buildings – 6,000 suites – and help it meet its reduce greenhouse gas emissions while addressing the prairie’s aging housing supply for lower and middle-income earners. Jogia said the company plans to pursue further funding before the end of the year to retrofit the rest of its Canadian stock.

Avenue Living was already committed to upgrading the suites and exteriors, but spent a year convincing the CIB that it could retrofit its multi-family apartments to reduce greenhouse gas emissions by more than 49% since the CIB was funding retrofits for large commercial buildings built before 2000. The company will focus on renewable energy generation on-site, low carbon heating and cooling, sensors and smart thermostats, optimized air filtration, water and vapour management, and energy consumption strategies to reduce in-suite utility costs.

While Avenue Living had been installing LED lighting, low-flow toilets, and better appliances to reduce consumption and costs, Jogia said this initiative provides its environmental efforts with a “whole refreshed look” that not only reduces GHG emissions and extends the new cladding, window, and solar roof panels’ life by 20 years, but pays for itself in ten years.

“We really like this because we do something good for the environment, but at the same time, we save a whack of money and accelerate a lot of our capital plans,” he said, noting it has already started work on some buildings. While it has four years to deploy the capital, Avenue Living hopes to be done the initial phase in three years.

Even though the project would pay for itself with 30% energy reductions, Jogia hopes to obtain 50%.

“You then have a longer useful life that can lead to improved cap rates and valuations,” he said. “That enhances returns when you’ve got less consumption, and you can flow through that savings to the bottom line, even after paying for the capital cost of the incremental investment. It’s profitable.”

Jogia said that will impact both of its Core and Opportunity REITs. While he won’t state exactly how much they expect to increase their returns, “I would definitely tell you that they would increase.”