Killam Apartment REIT

Thank you. Good morning, and thank you for joining Killam Apartment REIT’s Q2 2019 conference call.

I’m here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; Erin Cleveland, Vice President of Finance; and Nancy Alexander, Senior Director of Investor Relations. Slides to accompany today’s call are available on the Investor Relations section of our website under Events and Presentations.

I will now ask Nancy to read our cautionary statement.

Thanks, Phil. This presentation contains forward-looking statements with respect to Killam Apartment REIT and its operations, strategies, financial performance and conditions.

The actual results and performance of Killam Apartment REIT could differ materially from those expressed or implied in such statements. These statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations.

Important factors that could cause actual results to differ materially from those expressed include, among other things, general economic and market factors, competition, changes in government regulations and factors described in the Risk Factors section of Killam’s annual information form and other securities and regulatory filings. This cautionary statement qualifies all forward-looking statements attributed to Killam and the persons acting on its behalf.

Unless otherwise stated, all forward-looking statements are as of the date of this presentation and the parties have no obligation to update such statements.

Thank you, Nancy. I’m pleased to report another quarter of solid operating and financial growth for Killam.

We achieved net income of $82.8 million, which was fueled by organic NOI growth, acquisitions and developments and fair value gains on our portfolio. We earned funds from operations of $0.25 per unit, in line with Q2 2018.

We are on track with our financial plan and expect to show FFO per unit growth in the second-half of the year. We have made headway on our strategic targets in the first-half of the year, as summarized on Slide 4.

Based on strong top line revenue growth and continuing management of expenses, same property NOI increased by 3.7%, compared to Q2 2018 and 4% year-to-date. This is in the range of our same property NOI growth targets for the year.

Q2 was busy with acquisitions. We closed $136 million of assets in Toronto, Calgary, Charlottetown, Moncton and Fredericton, with another $9 million expected to close in the next week.

Of the assets acquired, approximately 53% are located outside Atlantic Canada and we are expected to meet our target of earning a minimum of 30% of our 2019 NOI outside this region. Our 50% owned Ottawa development, Frontier, opened on June 1, and is already 75% leased.

Our development activity in Ontario continues to progress with work underway at both the second phase of Frontier development and our development in Mississauga. I will now ask Dale to recap our financial results.

Thanks. Phil.

Slide 5 shows our Q2 2019 and year-to-date financial results. Killam generated FFO per unit of $0.25 in Q2 and $0.45 year-to-date, in line with our 2018 results.

Increased NOI from strong across same property performance and contributions from recent acquisitions and development was offset by the short-term equity dilution from the timing of deployment of funds raised for acquisitions and $0.7 million of timing differences and one-time costs. This includes $0.2 million of non-recurring marketing costs associated with the lease-up of the Frontier and $0.5 million of timing differences and energy and natural gas costs, which are expected to reverse in Q4.

In order to shorten our monthly closed process, as well as refine the accuracy of our monthly utility expenses and allow for improved analytics, we recently moved to recognizing actual utility bills in the month they are received, i.e., a month delay versus setting up accrual on a monthly basis. This means in Q2 2019, utility expense reflects bills from March to May versus April to June in Q2 last year.

The increased expense from March to June is approximately $500,000. This will flip in Q4 when we expense bills from September to November versus October to December.

Please note, we made adjustments to the 2018 same property results to ensure comparable periods. We’re pleased with the performance of our same property portfolio.

The trend of high occupancy and increasing rental rates continues. As illustrated on Slide 6.

Overall rental rate growth was up 3.2%, 80 basis points higher than Q2 last year and doubled the 1.6% average rental rate growth we achieved in Q2 2017. With higher rental rates, improved occupancy and low incentive offerings, Killam achieved revenue growth of 3.5%.

Robert will provide further details on increased rental rates later in the call. As shown on Slide 7, operating expenses increased 3.1% in the quarter.

Higher natural gas prices, coupled with increased fuel consumption as a result of colder spring temperatures contributed to this increase, with apartment utility costs up 4.3%. General operating expenses and property taxes were up in the 2% to 3% range in the quarter and year-to-date and in line with our expectations.

Killam’s debt metrics are highlighted on Slide 8. Total debt as a percentage of total assets was 47.7%.

Killam’s interest coverage ratio was 3.21 times and normalized debt to EBITDA decreased to 10.35 from 10.62 in the year at year-end 2018. Slide 9 highlights Killam’s debt maturity profile, including average apartment mortgage rates by year versus prevailing CMHC-insured mortgage rates.

Based on current market rates, we expect to refinance maturing debt through the remainder of 2019 at interest rates well below existing levels. Approximately 84% of our apartment mortgages are CMHC-insured, with a weighted average interest rate on all mortgage debt at 2.95%.

The portfolio has a weighted average term and maturity of 4.6 years. As shown on Slide 10, through acquisitions, development, capital investment and appreciation of existing properties, Killam’s real estate portfolio has grown to $3.1 billion in value.

We are acquiring and developing high-quality assets in prime locations. This, along with strong demand for multifamily residential assets has translated into compression and the weighted average cap rate of our portfolio, including a 10 basis point tightening since year-end for our apartment portfolio and 114 basis point compression in the MHC portfolio.

This decrease in cap rates, coupled with strong revenue growth, is reflected in $97 million of fair value gains so far in 2019, $30 million of which is attributable to the MHC. I’ll now turn the call over to Robert, who will provide details on our operating performance.

Thank you, Dale, and good morning, everyone. As shown on Slide 11, Killam continues to execute its strategy to increase the value of our business by increasing funds from operations and net asset value based on three key priorities: increase earnings from the existing portfolio; expand the portfolio and diversify geographically through accretive acquisitions with an emphasis on newer properties; and number three, the development of high-quality properties in Killam’s core markets.

I will focus on Killam’s operating performance year-to-date and our key revenue initiatives that drive our growth, before turning the call back to Philip to discuss new developments, our development pipeline and recent acquisitions. Slide 12 highlights the key areas we use to achieve funds from operations and net asset value growth goals with a robust and seasoned development program Killam adds a new high-quality, energy-efficient units to our portfolio each year.

We’re fortunate to work with like-minded joint venture partners, such as RioCan REIT that complement Killam’s skill set and deliver accretive growth opportunities. We continue to acquire assets across the country targeting newer properties where possible to decrease our portfolio with average age.

Our commercial mixed-use acquisitions these past two years have focused on retail development with intensification opportunities. Dispositions have misaligned our non-core assets are done, so we can more profitably reinvest to sale proceeds.

This past quarter, we sold two properties in Ottawa and have recycled that capital. Killam’s portfolio is comprised of 16,000 apartment suites, 5,400 MHC suites and 0.75 million square feet of commercial space.

In the next several slides, I will discuss our operating results; detail two value-enhancing programs, namely our suite and building upgrade program; and our technology investments, all designed to maximize unitholder value. Slide 13 shows Killam’s same property rental growth and property occupancy results by market for Q2 2019.

In addition to the strong occupancy already noted, we are pleased with Killam’s apartment portfolios 3.2% average rental rate growth. As shown, Killam has delivered impressive same property rental growth in virtually all markets, say, for Edmonton.

The value of geographic diversification is evident when you see Saint John rental lease leading Killam’s rental growth parade with a 4.4% increase this quarter, followed closely by the GTA and Cambridge region, which reported a 4% increase. As well, the Halifax, Ottawa, Moncton, Calgary and London markets’ rents were up 3.2% or better this quarter.

Rental rate growth for new tenant leasing was 5.6% in Q1, a 120 basis point improvement over last year. Rental rate growth for renewing tenants, which represents approximately 70% of our apartment portfolio annually, delivered an average gain of 2%, up 40 basis points over Q2 2018.

We see additional opportunities to move rent for renewing units higher in coming months and quarters. To recognize the better market conditions and Killam’s value proposition, Slide 14 graph the rental rate trends over the past two years, strong market fundamentals and Killam’s rent optimization program has generated notable increases in rental rates on unit turns.

We have earned a healthy 20 basis point uptick each and every quarter for the past six quarters as we rolled out our revenue-enhancing programs. For Q2 2019, we delivered a 30 basis point increase in average same property rental rates to 3.2%.

Market demand for Killam’s quality rental units continues across the country and our response to this opportunity and is highlighted on Slide 15, we have been accelerating our suite repositioning program. For 2019, we are targeting 300-plus repositionings that should generate an aggregate $1 million in additional NOI.

With 186 new repositions completed or underway year-to-date, we are executing to plan. So far in 2019, the average monthly rental increase for repositioned units is $280 per unit, generating an unlevered return of 13% on an average investment of $26,000 per unit.

Given these stellar returns, in 2020, we will bolster Killam’s unit repositioning program to complete 400 and perhaps 500 repositionings. Slide 16 highlights the result of an upgraded and repositioned unit at our Westminster property in London, alongside pictures showing the unit prior to the upgrade.

We have identified 3,000 additional units for repositioning and estimate we can complete this work within six to seven years to earn an estimated $10 million in additional NOI. This translates into approximately $200 million in organic net asset value growth.

In conjunction with driving revenue growth by repositioning the units, we also invest in common area upgrades to ensure the curve appeal and property amenity spaces have the same look and feel as the upgraded apartments. Slide 17 includes pictures of the upgrades at our 233-unit Quinpool Tower property in Halifax.

We had invested $4.5 million to upgrade the exterior cladding plus took the opportunity to install superior installation in all new windows. So today, Quinpool Tower is not only more aesthetically pleasing, it’s more energy-efficient, thereby decreasing Killam’s carbon footprint and driving higher FFO per unit.

In 2020, we will construct a two-storey 2,000 square foot tenant lounge at the building’s entrance to complement the updated signage, corridors and common areas, stay tuned. Slide 18 highlights new amenity upgrades at our 84-unit Torbay Road property in St.

John’s and 198-unit Quinpool Court asset in Halifax that are being completed along with the unit upgrades. Killam’s more recent investment embraces technology for its online property management platform, enabling Killam to integrate new and innovative technologies as our business continuously evolves.

Slide 19 highlights the program Killam uses to better serve its tenants and optimize NOI. We rolled out mobile maintenance work orders, property inspection apps, and fully integrated our front-end online leasing, marketing and customer relationship software.

This gives Killam the ability to optimize rental opportunities, reduce vacancy and deliver high-quality services to our prospects and tenants. As well, we have real-time access to this data.

Having real-time access to this data is key to ensuring we can rapidly analyze our markets, our tenants, prospects, vendors and better enables Killam to make informed and more accurate operating decisions. Slide 20 shows examples of how we use analytics to make timely decisions regarding employee hours, effectiveness of marketing sources, leasing conversion ratios and traffic trends by property, neighborhood, day and by the hour.

I will now hand you back to Philip to provide an update on our mixed-use redevelopment project we’re working on a downtown Halifax, our recent acquisitions and new developments. Thank you.

Thank you, Robert. Slide 21 shows the Brewery market, the unique historic complex in downtown Halifax.

This 158,000 square foot commercial property was purchased with two adjacent development sites in March 2015. We built the 240-unit Alexander apartment building on the largest of the two development sites next to the Brewery market, which has turned out to be an exceptional apartment building with commanding views of the harbor, high-quality submissions and amenities.

The Brewery market has a mixture of office and retail tenants. From the initial purchase, the intent was to integrate the two development sites with the commercial complex and maximize long-term earning potential.

In Q2 2019, a planned tenant turnover at the Brewery market provided Killam with an opportunity to redevelop the vacant space and attract the more diverse tenant base at higher net rents, which complements the increased residential density in the area. As shown on Slides 22 and 23, currently, we have committed occupancy of 84% and expect to be fully re-leased in 2020.

New leases have averaged 1,420 per square foot, 44% higher than the old rent for the 31,000 square feet already re-leased. NOI in 2019 is expected to be $0.5 million lower compared to 2018.

However, this is expected to be more than offset by long-term NAV growth in an estimated increase of $750,000 in NOI for 2020. We have good leasing activity on the other commercial space in the adjacent buildings, 6,000 square feet in the Alexander, 5,800 square feet in the Benjamin Warehouse and an additional 1,800 square feet in the Alexander Keith building, that is either in its initial lease-up or current rental rates are below market.

In addition, the Governor, the proposed remaining residential development is expected to start in Q1 2020. Slide 24 details our acquisition history.

Killam acquired $135 million in Q2, with an additional $9.2 million expected to close in mid-August. We now have exceeded our minimum acquisition target of $100 million for the year and we’ll continue to look for accretive opportunities to add to our portfolio.

Slide 25 shows our acquisition of a 50% interest in the Charlottetown Mall from RioCan REIT that closed in May. This 352,000 square foot retail complex features a stabilized grocery anchored and closed mall located on 32 acres in the heart of PEI’s busiest retail node.

Charlottetown Mall is a dominant shopping center in the province. It capitalizes on superior frontage, high traffic flows and visibility on Charlottetown’s busiest north-south intersection.

This property is well located, surrounded by retail, residential neighborhoods, apartment complexes that we own in the University of PEI. This complex provides an attractive all cash yield of 6.7% with multi-residential development potential.

Killam and RioCan are working together to redevelop their retail operation by relocating tenants in the older portion of the mall to a newer section, providing room, which will provide room for residential development. As shown on Slide 26, the large surface parking lot surrounding the mall offers a compelling future multi-res opportunity.

Current zoning and development bylaws allow for significant new retail and multi-res development in the – on the site. The current zoning could accommodate a potential development of up to 300 units in approximately 100-unit buildings, four to five storeys, as indicated in the red rectangles on the slide.

This development may require the demolition of some of the underutilized portions of the existing mall. Slide 27 shows our recent purchase asset in Fredericton, which has been easily absorbed in our strong operating platform.

It is a four-storey new concrete apartment building containing 55 – 59 units and 48 underground parking stalls for a purchase price of $8.3 million. The building was designed with the intention of catering to seniors with a full-care senior facility directly next door to the building.

The building is conveniently located in a developing neighborhood close to retailers, including Walmart, Canadian Tire and Atlantic Superstore. The all cash yield is 5.8% and the building is 100% leased.

In June, Killam acquired the remaining 50% interest in two assets, Grid 5 in Calgary and Silver Spear in Mississauga from our partners for $70 million, as shown on Slide 28. The purchase price of the apartments represents an all cash rate – an all cap rate of approximately 4.2% and is in line with Killam’s IFRS fair values for the existing interest.

The purchase also includes $4 million for the remaining 50% interest in the development site. Slide 29 shows a 127-unit residential and 45,500 square foot commercial portfolio located in the fast-growing neighborhood of Dieppe that Killam purchased for $28.9 million in June.

This property in the Moncton area consists of three four-storey residential apartment buildings, a mixed-use building with retail on the ground and residential on the top floor and an IGA anchored grocery store. The purchase also included 2.5 acres of vacant land for future residential development.

The buildings are relatively new in an excellent condition. The residential buildings were completed between 2011 and 2017, currently 99% occupied, with an average rent of $1,143 per unit.

The mixed-use concrete building was completed in 2019 and the grocery store in 2007. Slide 30 shows Lian Street asset, a new, four-storey wood-frame apartment building in Fredericton, New Brunswick that will close next week.

The purchase price of the 48-unit building is $9.25 million. The all cash yield is 5.4% and the building is currently 100% occupied.

Slides 32 and 33 show the Frontier in Ottawa, our latest completed development, which opens in June – on June 1. Frontier was completed on budget and on schedule and is already 75% leased.

We expect to be fully leased by the end of the year. Expected yields on this development – the expected yield on this development is approximately 5.25, a healthy 125 basis points above the current cap rate.

This is the result of a $9.2 million – this has resulted in a $9.2 million as fair value gain today on a 50% ownership, with another $2 million to $3 million expected once stabilized. Slide 34 shows the second phase of the Gloucester City Centre development, Latitude, next to Frontier.

We broke ground – excuse me. In Q2 on this 209-unit project and the expected completion is in late 2021.

Our Charlottetown development, shown on Slide 35, is progressing on schedule. The five-storey building will contain 78 units with underground parking, overlooking downtown Charlottetown on the waterfront.

The average size of the units will be 1,000-plus square feet, with amenities that include a gym, social room and the library, The project’s budget of $20.8 million has the anticipated all cash yield of 5.6%. Slide 36 show progress pictures of this project.

As shown on Slide 37, site preparation work is underway at our 128-unit development in Mississauga, which will now be called The Kay. Construction – that’s K-A-Y.

Construction will take 24 months with a $49 million budget, with an anticipated all cash yield between 5.25% and – which is an approximate 179 basis points premium over the current market cap rate. Finally, we continue to refine and enhance our development pipeline.

A full list of our pipeline is included on Slide 38. It’s worth noting that two-thirds of Killam’s future development pipeline is outside Atlantic Canada, as we continue to grow our presence in Ontario and Alberta.

To conclude, we’re pleased with Killam’s strong operating and financial performance. We embrace innovation, innovative ways to accelerate revenue growth, manage our operating expenses and create value for our unitholders.

Our focused strategy is leading to increased earnings, a stronger balance sheet, more geographical diversification and one of the highest quality apartment portfolios in Canada. This concludes the formal part of the presentation, and we will now open up the call for questions.

Thanks. Good morning, guys.

Hi, Mark.

Good morning, Mark.

At the Frontier, you obviously do well with brands [ph] and we see the fair value gains. To what extent have rising costs been an issue with development returns?

And does that impact at all the values we should see going forward? And I’m looking at the Latitude, where you’re forecasting or projecting an expected yield of 5.2%.

I’m wondering how that relates with the rents that you’re getting at Frontier?

Mark, I think, it’s a good question, and you got to kind of look at it again. Think about that every development that you start with, there’s a planning process.

You basically prepare your budget. You go to tender and then all the pricing is fixed.

So there is a period when it’s like from a – from looking long over a period of time at that time, like so when you finish the development, that pricing is basically 18 to 24 months, historically, in terms of what the pricing was to build it. So fast forward, like you’re asking, pricing has gone up since we started the first phase of Frontier.

And with that, we fully expect because of where we are with rental rates on the first phase, that the second phase will be higher rents on a per square foot basis. And there – therefore, if even with increased development costs, your yields are still within that range of where they were in the first one.

So for the Latitude, for the 5.2%, that assumes better rents than what you’re getting at Frontier?

That’s right.

Okay, fine. And then in regards to cap rates, if you’re buying new in Fredericton at 5.8% and you’re assuming in Ottawa, the value for, let’s say, for Frontier or Latitude would be 4%.

Is that when you consider now the proper spread between a smaller market like Fredericton and a newer property in Ottawa, and maybe if you can just expand on how it relates to where you – how it compares to the IFRS values cap rates you’re using?

No, I don’t think it’s like in the smaller markets, like a Fredericton or Moncton, there is a bit of that. And again, I think we’re also drawing strongly on our relationships to be able to buy these assets as opposed to they’re not being fully marketed.

The larger the market, the more than all properties are fully marketed, and therefore, there is the – where cap rates are today.

Okay, great. Thank you.

Yes.

Thanks. Just going back to the Frontier, the 75% leased, is that in place or leased?

I think in place is…

Occupancy is about 52%, yes.

It’s about 59%, 60% today.

Oh, yes, occupied.

Occupied.

Okay. Was there any NOI in Q2 from it, or just that would point to….

No.

…sort of loss, I guess?

Yes, that’s it. Yes.

Yes, that’s it.

Okay. And the $80,000 in gains per unit, which obviously a big number and another 20,000 or so to go sounds like, is that just a function of where rental rates – of rental rates being above pro forma?

Yes.

Okay. And then, just, I guess, sort of back to Mark’s question.

If the cost for Latitude is about 25% higher, is that really just a function of where construction costs have gone over the last couple of years, or is there something more specific to…?

Again, we’re in early stages of that development. There’s nothing has gone out to tender.

So that is a real pre-budget, budget that we have nothing sort of nailed down from a cost.

It does have more underground parking, which is more expensive.

Yes.

Parking is – underground parking is actually quite expensive. So that’s factored into that value, too.

Okay. And then that might answer my next question, because for Silver Spear, that’s about $35,000 nor or less than Latitude is, that be with no underground parking, or is there something else there?

The underground at Latitude is three levels. The underground at Silver Spear, I think is just one.

So there’s – again, it depends on also the – the Mississauga development is our typical sort of Cambridge Waterloo construction. It’s the sort of the tilt up, whereas Ottawa is port in place with a crane.

Okay, that…

Yes.

…all in. And just on the Brewery market, are you putting – how much money are you putting into that to improve the NOI there, if anything?

Yes. So it would be something like for a round number $4 million or might be little higher.

Okay, thanks. I’ll turn it back.

Thanks.

Yes. Good morning, everybody.

Good morning.

Your CapEx, excluding development, so just on the rental portfolio this year, I think, is it $27 million, $28 million for the first-half, and I think it tends to be a little bit back-end loaded? Is it possible for you to provide an annual range of where you would expect that CapEx budget to come in?

Yes…

That actually in the MD&A.

$60 million to $65 million.

$65 million, excellent. Sorry for missing that.

$60 million to $65 million, Mike. [Multiple Speakers] Yes.

Got it. Okay.

Thank you. That’s great.

Just with respect to your progress on rental rate growth, both on turn and renewal, you guys are getting really good traction there. I do also note that your CRM was only implemented in March.

And I guess, my question would be, do you expect that the progress that you’ve had, I think, Rob, specifically you said that, you expect it to do better than 2% going forward as given us – I’m wondering if you could give us a sense of how much more you’re expecting and how quickly on that program?

I think it’s hard to narrow down on a number. But I think that, as you mentioned, that CRM is still relatively new, and we are not yet maximizing the full potential of it.

It’s, as we’ve highlighted in the call, we – we’re already capturing a lot of data. But there are a few more layers to really try to maximize the growth.

So I’d say, safe to say, we expect to be able to maximize revenues more than we have been with us. It’s hard to quantify what exactly that’s going to look like.

So trend keeps going higher, just not sure if it accelerates or…?

Well, I would expect – we may see some acceleration. I think it’s going to be market-by-market.

So there’s going to be some markets where we really able to capture where the demand is super strong and those will accelerate. And yes, so.

Okay. No, I got it.

That’s fun. And last one here is just, Phil, wondering if you could provide any thoughts.

I mean, I think, as the last sort of six to nine months has progressed, originally, it was sort of moratorium on development to Alberta, you did by Grid 5, but that was I guess, a partnership, JV deal. Just given what you’re seeing in Alberta today, just wondering if you could give us some more additional thought in terms of if you expect to acquire more assets in Alberta in the near future, or if you’re looking for the portfolio to strengthen there first?

I think the answer is, we’re looking to see what we have there strengthened, sort of stabilized in terms of not only the occupancy, but this – our staff out there. And then – but still with an eye on looking for opportunities.

But in the next few months, there’s nothing on the horizon.

Okay. And I guess on rental, you’ve been kind of flattish on the rental rates there, which in this market is probably a good outcome, and just noticed that there’s a lot of cost pressure out there, as well as that related to the staff turnover of suits and staff that you mentioned there or...?

Yes. No, I mean, I think year-over-year, we certainly staffed up there compared to what we had last year from a leasing staff perspective and also kind of more administration there as well.

Okay. And so is that sort of the new run rate going forward, or you expect some of that to be transitional?

I think it would be the new run rate go forward.

Okay. That’s great.

Thanks very much.

Thank you.

Good morning.

Hi, Yash.

Good morning.

I just wanted to explore your NOI margins, they came down 60 bps lower than last year. And I understand part of that was, because you have started accounting your expenses differently.

But do you think your margins will keep expanding over the next two to three quarters?

I think as we keep moving those rents up and managing those expenses down that we’ve seen that trend of the margin, the expansion over the last little while. And I think if we keep on the trend that we’ve been on, we – it’s reasonable to expect that those will continue to increase.

Yes. We invest a lot of money in energy saving initiatives.

So we’re seeing some gains there and we’re moving the rents higher, so we’re seeing gains there. So they’re working both in our favor on the margin side.

Yes, we’re looking for efficiencies across our expense portfolio to see how we can continue to deliver the same product and current quality at the most efficient price. So the goal is to continue to move those margins up.

That’s great. I was wondering if you could talk about your Edmonton market, in terms of like what you’re seeing in general in the market in terms of [Multiple Speakers] or occupancy?

Yes. What we’re seeing there, we’re seeing actually a little more vacancy with our tenant base.

We’re leasing, but we’re also seeing the people move. So that market seems to be a bit in transition right now.

And we know that the work in the oilfield is not as strong as it was. So we think it’s short-term, but we don’t really know exactly how the trend is going to proceed.

Yes. The two properties 474 units are one that’s downtown is actually trending positively in terms of occupancy.

So we’re getting there to almost to the kind of a level where we want. Whereas the other one, a little bit more suburban, that has had about a 50% turnover on a yearly basis and we are sort of still seeing movement in there.

But the focus is to get there with good staffing that we have in a little bit more attention from head office that we think will be able to improve that over the next quarter to two quarters.

We’re doing some upgrades in terms of the amenity space as well as being undertaken this fall. So we’ll deliver on that front, they should come around.

But it is interesting to see the turnover rates, as Phil mentioned. And when you look for our portfolio overall, which is about 30%, and as high as – the high-40%s to 50% in Alberta and then low whatever in-between teens, I think in the Cambridge and GTA area.

So really, it’s an interesting just difference in the market. But the turnover is definitely higher for our assets out west compared to the norm.

So are those your property specifications, or they’re like…?

No, I’d say those are market…

…specific?

Yes. Those are for the area, it’s not just our province.

We monitor them – monitor it closely.

All right. And just one more question, if you could give us your development budget for the rest of 2019 and 2020?

I think off the top of our head, we don’t have that. I mean, we’re…

The actual cash [Multiple Speakers].

…cash or just overall because of [Multiple Speakers]

Just cash, like how much you expect to spend on your development projects?

Yes. So the end – towards the end of the year, probably between $10 million and $12 million, but there would be large amount related to Silver Spear when that gets going before construction financing kicks in.

And then in 2020, it would probably be in, yes, the $10 million to $15 million range.

Shorefront, for example, a construction financing is expecting to start to kick in soon. So from a net cash flow perspective, that’s one asset that the cash will be offset by financing, and even with Silver Spear because of the value of the land and some of the development costs upfront.

It’s pretty quick when we expect those construction financing to kick in soon.

All right. Thank you.

Thank you.

Hi there. Just one quick one on the repositioning program.

I was just looking at the potential total investment for the program over the next several years. It looks like the budget or potential total investment has increased a bit from last quarter.

Just curious to know if that’s a change in the type of work you’re thinking on – the type of work that might be done within the suite source, that’s just baking in a little bit more cost escalation?

Yes. So there’s a bit of inflation impact there.

And – but it depends, it’s across the Board. We have some units that are in the low-27 to higher 20s, but it’s costing around $26,000 to do one, so that’s the costing.

It’s a very competitive market out there for labor.

Is that where you’re seeing the most pressure now in terms of labor, or is it some of the other material costs?

It’s both. Material costs are – there’s an inflation impact there, and the labor is an interesting one.

Yes.

It’s interesting to note that even those higher costs, we’re getting some very healthy rent increases, too. So when we look at the return on both, we’re still staying around the same – we’re still targeting the same type of return.

Yes. So 13% so far this year, all cash.

It’s a pretty nice cap rate.

Yes. Okay, thank you.

Thanks, Brad.

Hi, good morning. In the app, how long or what’s the remaining lease term rather on the co-op IGA store in the gas bar?

And are those leases flat, or are there any escalators over time?

Eight years with renewals and flat to the eight years.

Okay, thank you. And The Kay, where did that name come from?

Take a look at our Board. The Board Chairman is a gentleman named Robert Kay.

Okay. There we go.

Thanks.

And you’ve been there from the beginning.

Yes.

Again, I’ll just make one comment – light comment from Neil’s last point. We didn’t spend $30,000 with a consultant coming up with that name.

But again, I would like to thank everybody for listening today, and we will see you back here in November for Q3. Thank you.