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Edited Transcript of NVU.UN.TO earnings conference call or presentation 8-Nov-19 7:00pm GMT

Q3 2019 Northview Apartment REIT Earnings Call

CALGARY Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Northview Apartment REIT earnings conference call or presentation Friday, November 8, 2019 at 7:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Phonsavath

Northview Apartment Real Estate Investment Trust - Corporate Financial Planning & IR Manager

* David Travis Beatty

Northview Apartment Real Estate Investment Trust - CFO

* Leslie M. Veiner

Northview Apartment Real Estate Investment Trust - COO

* Todd R. Cook

Northview Apartment Real Estate Investment Trust - President, CEO & Trustee

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Conference Call Participants

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* Brendon Abrams

Canaccord Genuity Corp., Research Division - Analyst of Real Estate

* Dean Mark Wilkinson

CIBC Capital Markets, Research Division - Director of Institutional Equity Research

* Frederic Blondeau

Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research

* Jonathan Kelcher

TD Securities Equity Research - Analyst

* Mario Saric

Scotiabank Global Banking and Markets, Research Division - Analyst

* Yashwant Sankpal

Laurentian Bank Securities, Inc., Research Division - Real Estate Investment Trust Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to Northview REIT Third Quarter 2019 Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference to your speaker today, Todd Cook, Chief Executive Officer. Please go ahead, sir.

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [2]

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Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us for the third quarter conference call. Joining me today is Leslie Veiner, our Chief Operating Officer; Travis Beatty, our Chief Financial Officer; and Andrew Phonsavath, our Finance Director of Corporate Planning and Investor Relations.

The webcast of today's conference call, including the presentation slides, can be accessed by visiting the Investor Relations section of our website under Events & Presentations or through the web link located in our recent financial results media release. We will begin the conference call after Andrew reads a brief summary of our cautionary statement, as outlined on Slide 2. Andrew?

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Andrew Phonsavath, Northview Apartment Real Estate Investment Trust - Corporate Financial Planning & IR Manager [3]

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Thanks, Todd. Today's conference call and presentation may contain forward-looking information with respect to Northview Apartment REIT, among other things, its current expectations of future results, performance, prospects and opportunities, operations, strategy and condition. The actual results and performance of Northview discussed herein could differ materially from those expressed or implied by such statements. Important factors that could cause actual results to differ materially from expectations include, among other things, general economic and market factors, competition, changes in government regulation and other risk factors described in security filings. All forward-looking statements speak only as of today, November 8, 2019, and the parties have no obligation to update such statements.

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [4]

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Thank you, Andrew. Yesterday, we released our financial results for the third quarter. Before we get into the detailed commentary, I'll take you through the highlights. Diluted FFO per unit was $0.57 for the third quarter, down slightly from $0.58 in 2018. We continue to deliver strong same-door NOI growth, led by Ontario. Accompanying this was NOI contributions from acquisitions and newly developed properties. These increases were slightly offset by the dilutive impact of the equity issued over the past 12 months and the disposition of noncore assets.

Staying with revenue growth, we saw an increase in total revenue by 6.3% as a result of portfolio growth and same-door revenue growth of 2.2%. We are on track with the execution of our growth strategy through both acquisitions and development. We completed a strategic acquisition of a concrete building in Halifax, Nova Scotia, for $12.5 million that comes with opportunities for high-end renovations. This is on the continuation of deploying the proceeds from June '19 equity offering of just over $91 million and the noncore asset sales completed this year.

On the development front, we commenced a new project in Iqaluit, and our other 2 development projects are progressing as planned. More on that call later. And finally, we continue to deliver on our high-end renovation program, completing just over 500 units as of Q3 year-to-date, with returns just over 26% and 5,700 units remaining in the program.

I'll turn the call over to Les to add some color on the operations for the quarter. Les?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [5]

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Thanks, Todd. I'll now provide an update on how we performed in our multifamily, commercial and execusuites portfolios. Starting with multifamily, we achieved positive same-door NOI growth of 4.4%, which is now the 11th consecutive quarter of positive growth. All our regions reported growth with Ontario, which accounts for approximately 40% of the REIT's multifamily NOI, once again recording the strongest same-door growth at 8.3%. After 2 quarters of negative same-door growth, mainly due to the effects of the prolonged colder weather, Northern Canada reported positive same-door NOI growth of 4.6%.

We continue to focus on our sustainability initiatives and have allocated capital, which we expect to deploy over the next 4 to 5 years on projects including energy, water, waste and systems upgrades that are expected to result in a reduction in our operating cost once completed. We have committed approximately $3 million on these projects in 2019 with an expected payback of approximately 2.5 years and anticipate spending similar amounts over the next 3 to 5 years on sustainability initiatives, with targeted paybacks of under 3 years.

Moving to our regions. In Ontario, on Slide 5, average market rents have increased 5.3% since the third quarter of 2018. Rents on turnover increased 16.4% in the quarter, and year-to-date, we have seen rents on turnover increase 15.7%. The Ontario rent increases on turnover continued to outperform the portfolio average, which was 7.1% in the quarter and 6.7% year-to-date. We estimate that in-place rents in Ontario are currently between 15% and 20% below current market rents.

Operating margins in Ontario increased 130 basis points, as we benefited from the acquisitions of newer properties with higher average rents and also lower operating costs. We completed 213 high-end renovations in Ontario in the third quarter, bringing the year-to-date units completed to 514, which puts us on track to complete a similar number of high-end renovations that we did in 2018. More details are available later on Slide 10.

Moving on to Western Canada on Slide 6. The region again had slightly positive same-door NOI of just under 1%. The resource-dependent markets in Northern Alberta and Northern BC, which accounts for approximately half of the NOI in the region, had 2.3% negative same-door NOI growth and continues to see challenges. While overall occupancy in these markets is flat year-over-year at 80%, fundamentals remain weak, and we are not anticipating any material improvement looking ahead to 2020.

Fort McMurray continues to be a challenging market. The town recently announced that only 47% of the rebuilds from the fire have occurred, and business licenses are down 20% since 2015. We continually monitor the market and have been aggressive with incentives and market rent reductions to maintain our current occupancy levels. The southern markets in BC and Alberta had same-door NOI growth of 4.6%, and the occupancy of 95% was largely in line year-over-year. The second phase of our Calgary Vista project, which was completed in April, is currently 70% leased, and we have been pleased with the progress to date. We expect the property to stabilize in early 2020.

Moving to Atlantic Canada on Slide 7. The region reported same-door NOI growth of 2.9%. AMR grew 2.9% compared to the third quarter of last year, and occupancy was higher in all our major Atlantic Canada markets compared to the same quarter last year. The 81-unit property in Dartmouth had suffered extensive damage in a fire in the second quarter of 2018. We opened in August, and we have leased all but 3 units with rents 15% to 20% higher than those in place prior to the fire.

Labrador City has been a pleasant surprise for us this year, with occupancy at 84.6% for the quarter compared to 70.8% in the same quarter last year and has continued to improve subsequent to quarter end. The improvement is as a result of the reopening of the iron ore plant, which has brought more jobs into the area.

Moving on to Slide 8. Our Northern Canada region was back on track in the quarter, with 4.6% same-door growth and improved operating margins of 71% compared to 64% in the second quarter and 270 basis points higher than the same quarter last year.

In Yellowknife, our expense management plan implemented at the end of the first quarter is starting to show, with controllable expenses now more in line with expectations. We're also currently repositioning one of our properties in Yellowknife with returns expected to be in the 20% to 25% range once completed.

Iqaluit remains an extremely strong market for the REIT with no vacancy and a current wait list of over 200 people. We are currently redeveloping a site in Iqaluit that we previously operated as a hotel and the 30 rental units and 5,900 square feet of commercial space is expected to be ready for occupancy in the first quarter of next year with high demand already being shown for these rental units.

Finally, in Québec, we reported a second consecutive quarter of positive same-door NOI growth and a 0.8% increase for the quarter, following 2 consecutive quarters of negative growth. This was as a result of higher rents and lower expenses. Year-over-year, we have seen a small decline in occupancy in Montreal as we are undergoing a large suite renovation program, which has resulted in suites being off-line for longer periods. And we also had higher turnover in the current period.

As shown on Slide 10, we completed our high-end renovation on 514 units in the 3 quarters of 2019, achieving a rate of return of 26.5%, which will result in an annualized NOI increase of $1.9 million. We have expanded the program by 1,000 units since the first quarter of 2019, following the decision to reposition 2 properties in London and another in St. Catharines. With approximately 5,700 units remaining suitable for the program, we expect to be able to maintain our current pace of renovations through 2020. We expect to spend approximately $13 million and on track to complete 700 units this year.

Now turning to our commercial and execusuites operations on Slide 11. Same-door NOI declined 3.6%, largely due to the performance of our properties -- execusuite properties in Yellowknife and St. John's, which have both been impacted by new supply, which has resulted in lower occupancy at the properties. In our 2 main commercial markets, Yellowknife and St. John's, market conditions remain challenging. Notwithstanding, same-door NOI in our commercial portfolio is flat in 2019, and we have successfully leased 80% of our 2019 renewals, and we expect to renew approximately 95% of our renewals by year-end.

I'll now turn the call to Travis to discuss the financial results.

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [6]

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Thanks, Leslie. As shown on Slide 12, we have several improvements in financial metrics since last year. This includes total revenue and NOI are up by 6.3% and 7.6%, respectively. NOI margin is up by 70 basis points. Diluted FFO on a total dollar basis is up 6.6%. These improvements are the result of same-door NOI growth and NOI from acquisitions and our recently completed developments in Calgary and Canmore.

FFO per unit increased by $0.01 or 1.7%. This was mostly driven by a 7.2% increase in units outstanding from the June equity offering and the disposition of noncore assets. During the quarter, trust admin was 4.6% of total revenue, consistent with the same period of 2018 at 4.5%. Cash flow from operating activities increased by $4.3 million to $45 million during the third quarter of 2019. This is mainly from changes to noncash working capital of $5 million. Our distribution remains at $1.63 per unit on an annualized basis, which is sustainable long term.

Moving on to Slide 13. At September 30, our debt to gross book value was 51.9%, a decrease of 270 basis points from the same period last year and an improvement of 120 basis points from the second quarter of 2019. This is a result of fair value increases on investment properties in the third quarter of 2019. We had a fair value increase of $122 million on investment properties in the quarter, translating into $1.75 of NAV per unit. The majority was from ongoing strong performance of $88 million and $33 million from cap rate compression, primarily driven by Ontario. Since 2017, we have achieved cumulative fair value increases of $462 million. These increases demonstrate that organic growth along with cap rate reductions is contributing to our NAV growth.

We have made significant progress over the last 2 years as a result of organic growth, equity offerings, fair value increase on investment property partially offset by internally funded development growth. Our leverage is at the lowest since 2015, and we remain committed to a leverage target of 50% to 55%. Interest and debt service coverage ratios continue to remain strong.

Now on Slide 14. At September 30, 2019, our weighted average interest rate was 3.02%, slightly lower than previous year. During the quarter, we completed $223 million of mortgage refinancing, excluding short-term financing for multifamily properties with a weighted average interest rate of 2.41% and an average turn to maturity of 8 years. All-in CMHC rates were relatively flat quarter-over-quarter. However, spreads have continued to widen on 10-year money, up about 10 basis points since the second quarter.

Despite the recent upward trends in spreads, our all-in rates remain attractive and should provide interest saving opportunities for the remainder of 2019 as we refinance maturing debt at 3.33% to the current CMHC rates of around 2.4% to 2.6%. Currently, approximately 85% of Northview's multifamily debt is CMHC insured, and we look to steadily increase this as we retire conventional blanket mortgage debt and convert maturing conventional mortgages to CMHC insured. At September 30, 2019, we have 2 operating facilities with total credit limit of $230 million and a maximum borrowing capacity of $199 million. At September 30, we had $73 million in availability.

Our current developments have longer lead time and larger overall cost, which puts more pressure on our balance sheet. With the recent equity offering and available liquidity, Northview is well positioned to support its strategic growth, and we look forward to further progress.

I will now turn the call back to Todd.

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [7]

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Thank you, Travis. Moving on to Slide 15; our external growth activity for the quarter in a little more depth. We continue to execute our growth strategy with focus on strengthening our portfolio in strong and growing markets. This summer, we started a new development in Iqaluit. It's a redevelopment on the site of the former Navigator Inn. It consists of 30 units with 5,900 square feet of commercial space, cost is approximately $10 million and has an expected yield of 9% to 9.5%. This development is identical to the Saputi building completed in 2018, which is 100% occupied today. We've now finished the framing and electrical, and maintenance is 50% complete. Initial occupancy expected to be in the first quarter of 2020.

The first phase in Kitchener, Ontario, is well underway with the required excavation completed to date, and the foundation has been built for the building. The precast concrete installation is scheduled to start late in the fourth quarter. Phase I will have 233 units with a cost of $73 million and is planned to be completed in early 2021, with a stabilized cap rate of around 5.5%.

The first phase in Nanaimo is progressing. The retaining wall and excavation is close to -- excavation is close to 70% complete. We're nearly complete in receiving permitting with the only permit outstanding is the building permit, and that's expected to be completed by the end of this month. This development will also be completed in 2 phases, with the first phase consisting of 140 units, $35 million in cost and is planned to be completed in mid-2021.

On the acquisition front, we closed on the $12.5 million strategic acquisition of a mixed-use property in Halifax. This building is well-located in the south end of downtown, near the waterfront with numerous universities with opportunities to complete high-end renovations.

In early October, we also closed on a brand-new 60-unit building built in 2018 for $17.5 million in Langford, BC. This brings our cumulative acquisitions completed year-to-date to $94 million.

Consistent with our strategic plan, we continue to identify noncore assets for capital recycling. During the quarter, we completed a noncore disposition of a small piece of our portfolio in Moncton, New Brunswick, consisting of 112 units for just over $5 million. And over the last week, we also disposed of our portfolio in Medicine Hat, which is 1 building with 92 units for just over $10 million. Year-to-date, we have disposed of $36 million of noncore assets.

In conclusion, the results are in line with our expectations. We're executing on both our organic growth strategy and external growth through both developments and acquisitions. We continue to review our growth opportunities as they arise but expect to keep the modest pace of acquisitions for the remainder of the year as previously advertised.

Thank you for your time. And I'll now turn the call back to the operator for the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question will comes from the line of Fred Blondeau from Echelon Wealth Partners.

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Frederic Blondeau, Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research [2]

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Just in terms of the apartment portfolio occupancy now at 92.5%, what should we expect for the end of 2019 and next year? I guess what I'm trying to see here is, in your opinion, what would be the optimal occupancy for that portfolio today? `

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [3]

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It obviously differs across our markets. We'd like -- we hope to see -- if I go through the markets in Québec, we'd like to see that tick up a few points and stabilize close to 94%, 95%. Northern Canada has been pretty stable, going back the last 5, 6 quarters, and it's 97%, 97.5% -- 96%, 97%. And I think that's a -- you're not going to see any sort of material movement either way there. Atlantic Canada, we run -- on average, we've been running at 4%, 5% vacancy for the last 5 quarters. Again, you might see a small improvement there. But I think, just given the markets we're in in Atlantic Canada, that's -- you'll see occupancy in that region.

Western Canada, sort of -- we talk about the north and the south. We've held our occupancy at around 80% in Northern BC and Northern Alberta over the last 12 months. And I think just given the market conditions in a lot of those communities, if we can hold our occupancy at that level, we're doing well. So Western Canada occupancy, maybe there's a little bit of upside still, but that will come from Southern Alberta and Southern BC although we're running much higher in that region.

And then Ontario, we've been around 96 -- 96.5% to 97% over the last 5 quarters. Again, in Ontario, part of it is that we're trying to -- one of the challenges we're facing is declining turnover. And we obviously look to turnover to help keep up the sort of the momentum with the high-end renovation program. So we don't mind a little bit of turnover and vacancy there so that we can continue to effect that program. Again, I wouldn't expect to see any material movement in the occupancy. They're up or down in Ontario. I think it's kind of the 96.5%, 97.5% would be where it will maintain.

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Frederic Blondeau, Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research [4]

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That's great color. And just on the Québec portfolio, what -- could you remind us what's going on there? What's the dynamic at this stage?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [5]

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Our Québec portfolio. So we have one very large complex in the market. We have -- we're in the process of renovating, I think it's 60 or 70 units, which is obviously taking time. We've had some challenges just with contractors and just trying to get that work done. But we are -- once we've completed that, we're hopeful that you'll start to see the occupancy improve. We're pretty much in the lower end of the market in Québec with average rates around $800, I think. So you'd probably start to see an improvement moving into the second quarter of 2020.

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Frederic Blondeau, Echelon Wealth Partners Inc., Research Division - MD & Head of Real Estate Research [6]

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Okay. Okay. And lastly, in terms of your expected development yields, I'll say it should be 5% to 5.5% range for your Kitchener project?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [7]

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It's Todd, Fred. I think it depends on rent. I mean, we're talking leasing up, starting 15, 18 months from now. So that's -- it's a fair bit out. But if I look at our costs, we've got just about 90% of the contracts fixed. So I think we're in good shape on the cost side. So I think the good result is 5.5%. And I think in the downside, it's in the 5% range. So I think we're pretty comfortable with those -- with that range.

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Operator [8]

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And our next question will be from the line of Dean Wilkinson from CIBC.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [9]

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Todd, just looking at the balance sheet, you guys have done a lot of wood chopping to get it down into the low 50% range. But now you've got, call it, close to $100 million of either development CapEx and let's assume that the high-end renovation program sort of runs similar to 2020 as it did in 2019. Should we expect the leverage to perhaps tick up a little in the next couple of quarters as that capital goes out and then there would be maybe a valuation catch up down the road? Or how are you thinking about leverage the next 4 to 6 quarters?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [10]

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I think you sort of nailed that, Dean. We're looking forward to say, like, we're probably going to have $100 million or $100 million and change a steady ongoing piece. So you're kind of going to have almost, call it, a permanent uptick in the leverage, 100 basis points maybe. That's just there because we're internally funding. And then you'll see some lumpy -- when we do the takeout, we raise equity in future equity offerings to take that out, then you'll see the bump up and down. So I wouldn't expect any significant [limp]. So we're around 52%. So you might flop between the 52% to 53%, but that's kind of where -- it's a comfortable place for us right now. So I think that's where we see it going over the next couple of years.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [11]

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Right. And as you put the money into the development, it just -- it stays at a cost basis, right? Like, you don't hit a milestone and mark that up, like you'll do that on stabilization of fee income generating...?

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [12]

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Yes, Dean, it's Travis. Yes, on the new developments, we wouldn't take the fair value gain until it's turned over to occupancy. It might be before it's stabilized, if we have a financing appraisal or something like that. But during the construction phase, we won't take any gains on those.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [13]

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Okay, fair enough. So we know what to look for there. So that does actually lead into the second part of that question. So looking at the cap rates and the compression you've had there, it looks like the range has sort of -- it's wide, 3.25% on the low end, 13% on the high end, has stayed the same in the past couple of quarters. So I guess mathematically, it's fair to assume that the skew of the portfolio has shifted more towards the low end of that capitalization range. So your NAV adjustment has become a little more sensitive to those NOI changes than it has historically been.

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [14]

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Yes, all of that is true. The 3.25% we see is in the GTA. But we had a few properties at that 3.25% in previous quarters. So we didn't reduce any of those GTA properties below the 3.25%, but we did find evidence of cap rate compression in the Toronto market ...

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [15]

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For some of the other stuff, yes.

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [16]

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We had at mid- to high 3s.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [17]

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Yes. No, that makes sense to me. And last one for me. Just on the same-property NOI growth in Toronto -- or Ontario, geez, they're the same thing, aren't they? Center of the universe. The $300,000, the property tax, is that a prior period adjustment? Or is that for in the year? Like what I'm trying to get at is is that 8.3% reflective of a bit of a catch-up? And is the actual number closer to 6.4%? Or is that an adjustment for 2019 taxes, specifically?

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [18]

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It's -- that number includes property taxes, not just from 2019. The appeal that we had, portions of it went back to 2016. So it is a catch-up. So we had a little over $300,000, I think, in the rebate that we earned in 2019, which was from prior periods as well. But we will see some savings going forward, not $300,000 a quarter, but some of the results of the appeals, I mean, the property tax expense will be lower on a run rate basis.

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Operator [19]

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Our next question will come from the line of Jonathan Kelcher from TD Securities.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [20]

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First, on the new Iqaluit development, can you maybe remind us about the Navigator Hotel? Was that generating income?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [21]

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Off and on it was. We took it off-line from generating income I think in about 2015. We had -- maybe '16, we had leased it to the -- we had stopped running it as a hotel, and we had a 3-year lease with the folks that were doing the airport development, and that ended in '17, I think, Les? And then last -- at the end of -- 12 months ago, we tore it down because it was sitting empty, and it just -- it was becoming a fire hazard. So it hasn't shown any income for the last 12, 18 months.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [22]

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Okay. That's good. And then just on the sustainability project that you highlighted in your prepared remarks. Is there like a 3-year payback to me sounds like pretty good investment. Is there any way of accelerating and putting more than $3 million a year into that?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [23]

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We're in the -- we started this program at the -- we started scoping it at the beginning of this year. And we're in the process of identifying and have identified the projects that we'll take on in 2020. So it does take time to -- it's not like we're sitting there now with $20 million to spend, and it's going right [at our quicker]. I mean if we can accelerate it, we will because, obviously, the returns are very attractive in the face of rising energy costs. The quicker we can do some of these initiatives, the better. But that's just sort of our best estimate in terms of the run rate, in terms of keeping track with -- keeping up with the pace at which we identify and putting the capital to work. But to -- you make a valid point, but if we can accelerate it, we will, but that's kind of our best guess as to how we'll be spending it over the next couple of years at the moment.

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [24]

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Jon, I'd look at it this way. It's sort of like the high-end rental program. If we can get the suites and if we can get the projects and we can scope them and get them pieced, then we'll accelerate when we can.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [25]

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Okay. So a lot of this is in-suite stuff?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [26]

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No, it's everything. I mean, we just completed a major boiler renewal program in Montréal. We put in -- I think we just spent $1 million on new boilers at the complex. It just got completed. We've done -- we're looking at -- we've done a lot of lighting retrofit. So it's a mixture of projects. So in fact, there's probably more outside the suites than in the suites.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [27]

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Okay. And then just on the high-end rental program and the vacancy or the occupancy in Ontario, generally speaking, like how many units -- like, the 96.6% includes whatever units you have out for your high-end rental program, right? You don't exclude them or anything?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [28]

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That's correct.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [29]

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Okay. And what would that? Would that be roughly 100 basis points of that -- of the vacancy each quarter?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [30]

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I'm not sure it's that much. It's probably maybe 25 to 50 because we try to keep the downtime to 30 days. So it's -- it doesn't have as [bigger] impact on your vacancy as you think. It's -- I think it's about 25 to 50 basis points.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [31]

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Okay. And then the rest would just be you trying to push rents as much as you can in the face of...

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [32]

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That's correct. Just remember, we don't have -- I mean, we're pretty diversely spread across Ontario. So not all markets are as strong as others. So that's -- that weighs into what you're probably looking at our vacancy in Ontario and say maybe it's looking a little bit higher than our peer group. I think we are -- we don't have a lot of core GTA product. We're sort of from Sarnia all the way to Ottawa and we're in some smaller markets as well, which tend to run at a little bit higher vacancy at times.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [33]

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Okay. And then just lastly, there's 3 or 4 larger portfolios on the market. Are you guys looking at those and how do you feel about that?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [34]

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We've looked at them. It's about all I can say. We know them as do everyone -- every multifamily peer you're going to talk to in the next week or 2. Whether we bid or we're successful, I don't know. I mean, what we're seeing is a whole lot of non-REIT bidders coming in unconditional on these things. And that is just something we don't do. And the cap rates are being driven lower. So we're looking at them, but I'm not -- I'm uncommittal as to whether you'll see a successful announcement. But as always, you've got to look at most things that come across your desk.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [35]

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Okay. So either way, it's going to be good for your IFRS value.

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [36]

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It likely won't be bad.

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Operator [37]

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And our next question will come from the line of Mario Saric from Scotiabank.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [38]

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Just maybe following up on the previous question in terms of the IFRS cap rate coming down. So is it fair to say that the activity in the market today that hasn't closed was not a driver of the Ontario cap rate change during Q3?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [39]

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That's correct.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [40]

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Got it. Okay. And then on the high-end rental program, it's a small point, but it looks like it went up $3 million, the targeted spend in 2019 to $13 million. How do you reconcile that with the notion that turnover is coming down in Ontario? So I'm just wondering whether the scope of program is changing?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [41]

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Yes, because what we've done we've got 3 fairly large properties that we brought into the program in early 2019. The one in St. Catharines had high vacancy, and we were keeping the vacancy because we wanted to reposition the building. We have another property in London, which is 666 units, which, again, we had more units there that we could -- that we were bringing into the program. So the turnover, it's more of a challenge to us. The closer you get to the GTA, our turnover is sort of more -- is higher in London in St. Catharines. So because of the diversity of the portfolio within Ontario to date, that's what's enabled us to keep up the pace of the renovations, and that's why you've seen the spend spike.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [42]

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Okay. And then -- yes, that's good. On the utility side -- I guess, it was partially addressed at the start of the call in terms of some of the initiatives. The utility costs were up 12.5% year-over-year, in part because of higher Ontario electricity costs. We haven't touched on the submetering program in a while. But is there anything that's changed there that may increase the velocity of the submetering initiatives going forward relative to the past couple of years?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [43]

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I mean, we obviously continue with the program. The challenge is that, again, when units turn a lot of the times, it's units that have already been -- had already been submetered. You really need to get to the units that haven't been submetered. And we haven't taken the position where we've gone in and imposed submetering on sitting tenants. We've tended to wait until the units have turned. So we obviously continue to focus on increasing the penetration, but a lot of it depends on the type of turnover that you're getting.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [44]

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Okay. And then maybe shifting gears to the rent growth on turnover, which seems to be getting stronger from already pretty good numbers. How do you see that evolving over the next year? And do you track rent to household disposable income to understand whether affordability is at all becoming an issue for your tenant base? Or do you still see a lot of room to push rent if underlying wage growth is at 2% to 3% or 2% to 4%?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [45]

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Yes. I mean, most of the rent lift on turnover is coming in Ontario. The other markets, the rent lift on turnover is a lot more modest and reflective of conditions in those markets. To date, we're obviously pushing rents as aggressively as we can. And it hasn't been that -- we haven't seen a lot of resistance. In fact, our rent lifted turnover in Ontario has crept up over the last 5 quarters. We were at 12%, 12.6% back in Q3 of 2018, and it's sequentially increased a little bit each quarter. So at the moment, we're not seeing much resistance.

But to your point, I mean, there is going to come a time when affordability starts to play a factor. But -- and obviously, a lot of this higher rent growth is being driven by the high-end renovation program. So it's -- you're getting it because you're putting a -- it's a different product offering once you've completed the renovation. So it's -- there's that driving it as well. So I think at a point in time when you start to get further into the high-end renovation program and you're going to be doing less units on an annual basis, we'll start to see the rent lift on turnover will start to decline.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [46]

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Right. Are there any markets in Ontario of yours where you're seeing, like, particularly accelerating strong underlying rent growth or demand growth?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [47]

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Obviously, in the GTA, and that's where we've got our lowest turnover, and that's where we've got the biggest gain to market, if we can get that -- get the turnover up. And in the other markets, it's just been -- it's been consistent. We've been surprised actually with -- we didn't think some of these markets we'd be getting the rate increases that we are through the program. And it's pretty consistent, the returns, we're averaging 25% return on cost. And you're seeing that sort of across the board. It's not like some markets are higher and some lower. On average, we're getting similar results in all our markets across Ontario.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [48]

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All right. Okay. And then, I guess, when we pull it all together, this quarter, your same-store NOI growth was 4%, almost 4.5%. For the year, it's trending in the 3% range or so. Given the strong rent growth and [customer] initiatives on the cost side, like what would you consider to be a reasonable growth target for next year or maybe perhaps even a stretch target if things go really well?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [49]

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First, I have to say, you know we don't give guidance. So I can't tell you that. And then I'm going to make my lawyers cringe and give you guidance. Just kidding.

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Mario Saric, Scotiabank Global Banking and Markets, Research Division - Analyst [50]

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Is there anything like macro-wise, when you look at how the portfolio has performed this year? And expenses do move around quarter-to-quarter and whatnot, but generally from a revenue perspective, macro-wise, is there anything that you're seeing that is -- could potentially dissipate the type of growth that you've seen this year?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [51]

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Yes. I don't see anything macro-wise that's going to change the -- on the revenue side. As Les said in his remarks, the northern part of Western Canada is flat to good result. But outside of that, I think that's fine. On the expense side, I think we're going to see the -- we're going to see pressures, but I think the rent increase will offset that. Just remember, the first couple of quarters, we had a higher expense grind with the colder weather in the north. So that's sort of the high-level thoughts on those pieces.

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Operator [52]

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And our next question will come from the line of Yash Sankpal from Laurentian Bank.

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Yashwant Sankpal, Laurentian Bank Securities, Inc., Research Division - Real Estate Investment Trust Analyst [53]

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One of your peers mentioned earlier this week or last week that their suite renovation program is -- they are able to do that across their entire portfolio. That is Eastern Canada, Ontario. And they are saying that any building that is 10 years or older, they are able to apply that program there. Are you guys seeing something like that? And are you thinking of expanding your program across your portfolios, especially in Eastern Canada?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [54]

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We always -- we're always looking at opportunities outside of Ontario. Obviously, the focus has been Ontario to date. But as an example, we've just done a -- we're in the process of doing a repositioning in Yellowknife, where we had -- the housing authority was in a long-term lease where there hadn't been rent increases since 2002. And I think it was 30 units, which we've -- which we've now relocated them to other properties, and we're in the process of doing high-end renovation in that market. And I think we're going to see like potentially 40%, 50% increases in the rents.

So we do look at -- we are looking outside. I think when you made reference to somebody -- to one of our peers is having success all around, I think you need to see what markets, what type of -- what the type of buildings you have. But we do look at it all the time, and you will see some -- you will see other high-end renovations happening in other markets. We also -- we have a program underway in the Nanaimo obviously not to the same extent as in Ontario. But over time, it definitely is a focus of ours and something that we do look at regularly.

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Operator [55]

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(Operator Instructions) Our next question will come from the line of Brendon Abrams from Canaccord Genuity.

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Brendon Abrams, Canaccord Genuity Corp., Research Division - Analyst of Real Estate [56]

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Maybe just sticking with the IFRS values in Ontario, Travis, can you maybe just remind us how projected stabilized NOI is calculated? And I guess the basis of my question is, if in-place rents in Ontario are what you estimate to be 15% to 20% below market, do you use closer -- is the projected NOI closer to the in-place today? Or would it be closer to, if you mark the portfolio to market, obviously that would imply -- if not, that would imply maybe some upside from these levels even?

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [57]

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Yes. The baseline NOI that we use for our IFRS is like a 1-year rolling NOI forecast. So we would not be marking that to market. We would only assume the 1-year NOI would capture a very small portion of the loss to lease because we know turnover is declining. And we know even of the units that do turn, some of those are, in fact, more likely to be the units that are close to market. So the projected NOI does not really capture much of the loss to lease.

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Brendon Abrams, Canaccord Genuity Corp., Research Division - Analyst of Real Estate [58]

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Right. Okay. That's helpful. And maybe just in terms of the disposition front, Todd, just given -- I know you guys have been disposing of assets opportunistically, but just given kind of the high valuations and extreme appetite for apartments right now in Canada, is there a temptation, I don't know if that's the right word, but to accelerate that program a little bit to recycle capital just given where the market is right now?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [59]

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That's an ongoing question we talk about as a group. The answer is we talk about it. To date, we've taken the point of saying we're going to do very pointed dispositions, and it's -- there's a number of factors that fit in, and it's future CapEx. It's has the value been maximized? Is there a location? That sort of piece. So there's a number of factors. To date, we haven't looked at a large portfolio thing. It doesn't mean we won't. But the 2019 program doesn't reflect that plan.

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Operator [60]

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And I'm not showing any further questions at this time. I would now like to turn the call back over to Todd Cook for any closing remarks.

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [61]

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I'd like to thank everybody for your time and interest. We always appreciate engaging. So look forward to talking to you sometime in February. Enjoy the rest of your day. Cheers.

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Operator [62]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.