How Avenue Living’s formidable 2022 provides a solid base for an opportunistic 2023
With a cycle-tested business model and a steadfast commitment to the everyday, Avenue Living continued to make great strides.
In 2022, accelerating inflation and rising interest rates created a challenging investment environment, with negative returns flashing across the asset spectrum. Still, that didn’t stop Avenue Living’s 16-year growth streak.
After ending 2021 with just over $3.1 billion in total assets under management (AUM), the organization grew by 48% to reach $4.6 billion AUM. It achieved broadly diversified growth across its multi-family apartment, farmland, and self-storage real estate portfolios — all while staying true to its strategy of investing in the everyday.
“It speaks to the durability of Avenue Living’s business model across multiple market cycles,” says Gabriel Millard, SVP, Capital Markets – Equity & Research. “2008 (GFC) and 2014 (Commodity Crisis) were lost years for many other players, but they were periods of growth for Avenue Living as we leaned into the opportunities. 2022 was another very formative year for us.”
A win-win in the multi-family residential space
Avenue Living entered the apartment space as owner-operators in 2006 with a relentless focus on the resident experience. The company has continued to grow while offering an institutional level of service to those who call its buildings home. A pivotal strategic development was the establishment of the Avenue Living Real Estate Core Trust, which has grown into the first North American Workforce Housing Fund in just five years. Today, Avenue Living’s residential portfolio includes over 15,000 multi-family suites across 3 Canadian provinces and 5 U.S. states.
While headlines around real estate investments tend to revolve around high-growth markets — the likes of Toronto and Vancouver — Avenue Living leans into moderate growth markets, such as the Prairie provinces, where assets are valued at a relative discount. Its vertically integrated business model has also allowed it to control operational costs.
Those factors have enabled Avenue Living to responsibly raise rents in pace with higher inflation and interest rates, without hurting residential stakeholders. “We’re achieving our targeted returns while still maintaining affordability for our residents,” Millard says. “We’ve seen collections improve, occupancy continued to tick up, and we have wait lists at over 100 of our buildings.”
Growing opportunity in Canada’s breadbasket
Meanwhile, Avenue Living’s farmland holdings have expanded from 49,000 acres of Saskatchewan farmland at the end of 2021, to over 83,000 acres today.
In terms of global output, Canadian farmland represents a large portion of durum wheat, peas, and other important base crops. Saskatchewan is a big piece of the agricultural puzzle, as it accounts for approximately 40% of the cultivated acres in Canada.
“We’re witnessing a breakdown in the global food supply chain,” Millard says. “Canada has a real opportunity to be a world leader in ensuring food security.”
With a history of outperforming inflation over the past 30 years, farmland is also growing more attractive as a diversifying asset class. That’s bolstering Avenue Living’s bullish view on Saskatchewan farmland, which remains at a steep discount compared to neighbouring provinces.
Great strides in self-storage
The Mini Mall Storage Properties Trust has also cemented itself as a premier player in the secondary and tertiary markets of North America’s self-storage industry.
From just over 2 million square feet at the end of 2021, the trust has grown to nearly 6 million square feet of self-storage space. That expansion was partly driven by Avenue Living’s ability to introduce its proprietary technology stack and operating expertise into all the new locations it enters.
“A lot of innovation has happened in the primary downtown, new-development segment of self-storage over the past decade,” Millard says. “We’re taking that approach and applying it to older legacy-run assets that have traditionally operated as mom-and-pop, cash-and-paper businesses.”
Avenue Living is pushing for more growth through a new office in Dallas, where it has hired key industry leaders in the self-storage landscape.
“Our expansion into Texas has taken us from a smaller, scrappy Alberta-based company into a truly North American player,” Millard says. Mini Mall Storage is now a top 25 self-storage operator in North America.
Above the 49th parallel, Avenue Living has arrived on Bay Street with a new Toronto office. With that new foothold in Canada’s financial hub, the company is positioned to further reinforce and broaden its capital base in the years to come.
With about $160 million in expenditures made toward capital improvements in its residential properties, Avenue Living is also sharpening its focus on maintaining a superior resident experience and providing great customer service.
After becoming a PRI signatory in 2021, the company is doubling down on sustainability through a partnership with the Canada Infrastructure Bank, which includes a $150-million co-investment on deep energy retrofits on its older-style multi-family assets.
“Real estate – especially older stock properties – represents a significant portion of GHG emissions in Canada,” Millard says. “Our goal is to reduce GHG emissions by at least 49% through deep energy retrofits”.
Leveraging its unique perspective on workforce housing, Avenue Living has also published industry-leading papers and research. That includes a peer-reviewed paper on the residential housing spectrum, which unpacks the nuances of typical renter demographics, as well as their needs in terms of rental housing.
“We’ve published a number of white papers on the importance of affordability, and how a changing cost of capital affects real estate across different markets and asset classes,” Millard says. “We’re really solidifying ourselves as thought leaders within the industry, while continuing to advocate for our residents and provide value for our investors.”
The way forward
Avenue Living has built a strong capital stack. Coupled with a diversified equity base and the use of longer term, fixed-rate debt instruments, Avenue Living is focusing on innovation and investment to ensure strong same-door performance and operations in 2023. It also plans to continue focusing on active property management to deliver the best possible results for residents and investors alike.
“We’re heading into a world with a lot of dark clouds, but we’re seeing opportunities in the market. We’re in a defensible position, and we are aiming to take advantage of any disruptions that may come,” Millard says. “2023 is going to be an interesting year globally, and a very exciting year for Avenue Living.”
This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://www.avenuelivingam.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.