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Edited Transcript of NVU.UN.TO earnings conference call or presentation 10-Mar-17 5:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Northview Apartment REIT Earnings Call

CALGARY Mar 10, 2017 (Thomson StreetEvents) -- Edited Transcript of Northview Apartment REIT earnings conference call or presentation Friday, March 10, 2017 at 5:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Todd Cook

Northview Apartment REIT - President & CEO

* Louise Elsey

Northview Apartment REIT - Corporate Secretary

* Leslie Veiner

Northview Apartment REIT - COO

* Travis Beatty

Northview Apartment REIT - CFO

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Conference Call Participants

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* Jonathan Kelcher

TD Securities - Analyst

* Mario Saric

Scotiabank - Analyst

* Dean Wilkinson

CIBC World Markets - Analyst

* Jenny Ma

Canaccord Genuity - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen. We would like to welcome everyone to the Northview Apartment REIT fourth-quarter and year-end conference call.

(Operator Instructions)

Mr. Todd Cook, President and CEO of Northview Apartment REIT, you may now begin your conference.

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Todd Cook, Northview Apartment REIT - President & CEO [2]

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Thank you, Melanie. Good afternoon, ladies and gentlemen. Thank you for joining us for the 2016 year end conference call.

Joining me today is Leslie Veiner, our Chief Operating Officer, Travis Beatty, our Chief Financial Officer, Louise Elsey, our Corporate Secretary. The webcast of today's conference call, including the presentation slides for the first time ever, can be accessed by visiting our Investor Relations section of our website under Presentations or through the web link located in our most recent financial results media recent release. We will begin the conference call after Louise reads our brief cautionary statement as outlined on slide 2. Louise?

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Louise Elsey, Northview Apartment REIT - Corporate Secretary [3]

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Thank you. 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 conditions.

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 Securities filings. All forward-looking statements speak only as of today, March 10, 2017, and the parties have no obligation to update such statements. Thank you.

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Todd Cook, Northview Apartment REIT - President & CEO [4]

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Thank you, Louise. Yesterday, we released the year-end financial results for 2016. Diluted FFO per unit was CAD0.49 for the quarter and CAD2.21 for 2016. Excluding non-recurring items related to insurance proceeds and the impact of the Fort McMurray wildfires, diluted FFO per unit was CAD0.48 for the quarter and CAD2.14 for the year.

Looking back over the last year, there were several significant accomplishments as listed on slide 3. We successfully integrated the 2015 transaction of almost 14,000 multi-family units, including the internalization of most of the Ontario portfolio.

We executed on the 2016 strategic objectives. Specifically, we delivered on the value creation initiatives, in line with our expectations, creating almost CAD2.8 million in annualized NOI growth and CAD50 million in asset value or CAD0.88 per unit of NAV growth. We completed CAD49 million in non-core asset sales during the year, and another CAD23 million so far this year.

As advertised, we used to proceeds for leverage reduction. That, coupled with the CAD75 million equity raise completed in October, our leverage was reduced by 270 basis points, putting us ahead of schedule on this front. And the last strategic priority for us was to maintain our long-term sustainable distributions.

Talking quickly to the operating results, the trends that we saw throughout the first three quarters of the year continued in the fourth quarter. Geographically, our diversified and balanced portfolio across the country is performing as expected.

Northern Eastern Canada, with the exception of some weakness in Newfoundland and Labrador and Central Canada are performing well and delivering organic growth. Western Canada, principally Alberta and Northeastern BC, not surprisingly, remained soft. I will turn the call over now to Leslie to provide more details on our operating results.

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Leslie Veiner, Northview Apartment REIT - COO [5]

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Thank you, Todd. I will now provide an update on how we are performing in our residential hotels and commercial portfolios. Starting with an update of the transaction that was completed in the fourth quarter of 2015.

Overall, we are pleased with the progress being made on the four value creation initiatives that were identified at the time of the transaction and shown on slide 4. In 2016, we successfully internalized almost 7,600 units in Ontario, and generated savings of CAD2.1 million on an annualized basis, higher than our original estimate. Management is currently assessing the timing for the internalization of the remaining externally managed regions, and expect some of these regions to be internalized by the fourth quarter of 2017.

In 2016, we completed the renovation of 268 units in the high-end renovation program, achieving an average return of 15% which was in line with our set out targets. Other value-creation initiatives, including below-market rents, sub metering and above guideline increases were on target for the year. Overall, we generated an annualized NOI increase of CAD2.8 million from value-creation initiatives completed in 2016, in addition to the annualized internalization cost savings of CAD2.1 million.

Moving on to the residential operating performance in the fourth quarter. Our performance was in line with our expectations in most regions throughout the country. The continued stability in Ontario, Northern Canada, Nova Scotia, New Brunswick and Southern BC markets, together with our continued focus on managing controllable expenses has helped offset the impacts resulting from poor economic conditions in our resource-dependent markets.

Looking at slide 5, I will now provide some background on the performance of our markets starting in the West. The weak economy in Alberta and Northern BC continued to impact vacancy in the fourth quarter. Management's focus on reducing controllable expenses, as well as getting some higher rents on short-term leases in some regions helped to offset the vacancy loss in the fourth quarter.

Occupancy on Fort McMurray improved another 3.7% in the fourth quarter, and we have started to see improvements in Grande Prairie, Dawson Creek and Chetwynd. We do not expect to see further improvements in Fort McMurray until the second quarter when construction for the rebuild ramps up. Our Fort McMurray team has an aggressive marketing plan in place in anticipation of the expected influx of workers to the city. The struggling economy continues to impact occupancy in Lloydminster and Saskatoon.

The West has shown encouraging occupancy improvements in early 2017, with occupancy in some markets improving in the first quarter. Although I must caution that some of this improvement is through an increase in short-term rentals, particularly in Northern BC which is benefiting from an influx of workers for the pipelines.

As shown on slide 6, Ontario occupancy declined marginally in the quarter compared to the third quarter, however remained stable throughout 2016. Occupancy in Ontario is impacted by the high-end renovation program which requires a unit to be vacant for 30 days while renovations are being completed. In the fourth quarter, we had 59 units being renovated that impacted vacancy.

Expenses were higher in the quarter mainly due to repairs and maintenance and bad debts which were incurred as we looked to reposition a few underperforming properties in the Kitchener-Waterloo region, the benefits of which we are starting to see in the first quarter of 2017. We expect that the Ontario market will continue to be a stable performer, and expect that the impacts of the high-end renovation program will result in improved operating metrics over time.

Slide 7, in Atlantic Canada, occupancy decreased slightly from the third quarter to 92%. The softness in the region is predominantly attributable to the rental market in St. John's, which has softened due to weaker local economic conditions, opening of recently built student housing and the impact of secondary suites or basement apartments. Our team in St. John's has been using incentives and reducing market rents to offset vacancy, as well as implementing an aggressive lease renewal program for existing residents.

Management expects this weakness to continue through the first quarter of 2017. The performance of the Nova Scotia and New Brunswick portfolios acquired in the transaction has provided increased stability in the Atlantic Canada region.

Moving to slide 8, in our Northern Canada our overall occupancy declined slightly in the quarter to 94%. The decline is mainly due to the slight decrease in occupancy in Yellowknife and Inuvik.

Yellowknife is seeing some economic challenges, mostly in the mining industry, and the government also continues to lay off employees. We are constantly reviewing rents, and have several incentives in place to help improve occupancy. In Inuvik, two major projects, the road to Tuk and the RCMP detachments, are winding down which has had an impact on vacancy in the fourth quarter. Nunavut continues to be a strong performing region with high rents and stable vacancy.

Finally on slide 9, our Quebec market occupancy improved over 4% in the fourth quarter. The major improvement was at our large complex in Saint Laurent; the rest of the province continues to be at or near market occupancy. We feel we're starting the year in a good position, and should see improvements as we enter the busy rental season in Quebec.

Moving on to hotels and commercial. Our Execusuite and hotel operations had a strong performance in fourth quarter, representing 3% on our total NOI. NOI from commercial operations, which represents 11% of total NOI, was in line with the prior year.

Commercial occupancy was 96% at December 31, 2016 compared to 97% in 2015. The increase in vacancy was mainly due to a lease expiring on a warehouse in Fort Nelson during the fourth quarter. I'll now turn the call to Travis to review the financial results.

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Travis Beatty, Northview Apartment REIT - CFO [6]

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Thanks, Les. As shown on slide 10, we reported diluted FFO of CAD2.14 per unit for 2016 and CAD0.48 for the quarter excluding non-recurring items. Contributing to the decrease in FFO per unit from the comparative periods was lower operating performance in natural resource-based markets, higher interest expense from additional mortgages and dilution from the October equity offering.

Our distributions remain at CAD1.63 per unit on an annualized basis which are sustainable long term. For 2016, the diluted FFO payout ratio excluding non-recurring items was 77%.

During 2016, we achieved a fair-value increase of CAD54 million. The largest portion of this was from Ontario, which had an increase of CAD46 million due to cap rate compression and rent increases.

We continue to have success with our in-house development. Our two newly developed properties in Alberta had a fair-value increase of CAD9 million.

First, the Airdrie development had a write up of 8% from development cost, and the Calgary development had a write up of 15% from development costs during 2015. Across the remainder of the portfolio, there was a fair-value increase in Atlantic Canada, Northern Canada and Quebec of CAD34 million offset by a fair-value decrease in resource-based markets of CAD35 million in 2016.

Moving on to slide 11, we made significant progress in the second half of 2016, reducing debt to gross book value by 270 basis points from the CAD75 million equity offering and CAD72 million of non-core asset sales completed to date. At December 31, 2016, our debt to gross book value was 57.5% compared to 60.2% at June 30, 2016.

Leverage reduction for the near to mid term will be achieved through growth in asset values, driven by a successful execution of the VCIs and developments. Northeast coverage ratios are expected to remain strong. Our debt service coverage ratio is at 1.7 times, and our interest coverage ratio is 2.98 times.

Onto slide 12, the 2017 refinancing interest rate is projected to be higher than the current CMHC rates due to number of conventional mortgage renewals expected to occur in 2017. We continue to evaluate our capital structure to take advantage of low interest rates where possible.

Looking ahead, we have sufficient liquidity will allows us to support external growth. We are well positioned financially as we head into 2017. I'll now turn the call back over to Todd.

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Todd Cook, Northview Apartment REIT - President & CEO [7]

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Thanks, Travis. Moving on to developments in slide 13.

We completed our 261-unit development in Northeast Calgary ahead of schedule. We have seen reasonable demand, with over 100 units leased and committed today. Our timing of the lease up are generally in line with our pro forma expectations.

I believe the high-quality rental accommodation along with our recently completed developments in Airdrie will provide long-term value for our unit holders. As Travis mentioned, our developments generated CAD9 million in net asset value lift which translates into about CAD0.16 per unit in NAV.

Construction is well underway on our 36-unit development in Cambridge Bay. We expect this development to be completed in the second quarter, and have pre-leased 26 of the 36 units. We are currently in the process of finalizing our development plans for 2017 and will provide additional disclosures in our Q1 reporting.

Moving on to slide 14. As we completed 2016, we moved on to setting our 2017 strategic priorities, reflecting the success of our 2016 and our focus on unit holder value creation. The first is organic growth opportunities. We continue to create both FFO and net asset value growth for our unit holders through organic growth within the portfolio.

Our focus remains on the execution of our defined value-creation initiatives as well as expense and revenue management throughout the entire portfolio. We have maintained our investments in the portfolio, and are well-positioned to take advantage of gains that are to be had in Western Canada as they arise.

Secondly, managing leverage. Our long-term debt to gross book value target is in the 50% to 55% range. With a significant reduction in leverage achieved in 2016, our near- to mid-term leverage reduction will be achieved through improvements in asset values driven by the value-creation initiatives and developments as previously mentioned.

Third is our capital deployment. We're moving into more of a capital recycling mode in 2017. We will continue to identify non-core assets, however we will use all or a portion of the proceeds to acquire well-located assets with FFO and NAV growth potential.

We're looking to continue to look to Ontario for future development opportunities. After more research, we have narrowed down the opportunities from the transaction to around 100 units in the short term. In addition to planning for these units, we're looking to recycle some of our Western Canada focused land bank into opportunities in Central and Eastern Canada.

In conclusion, I would like to thank our investors for their support throughout 2016 and look forward to the upcoming year. We are pleased to deliver total unit holder return of almost 24% in 2016 in the face of the economic headwinds we faced in our Western Canadian markets.

We remain committed to our ultimate goal of creating value for our unit holders, and our strong, experienced team will continue to work hard on our 2017 strategic objectives to deliver on that goal. Thank you for your time, and I will now turn the call back to Melanie for questions.

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Questions and Answers

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Operator [1]

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Thank you.

(Operator Instructions)

The first question is from Jonathan Kelcher or TD Securities. Please go ahead.

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Jonathan Kelcher, TD Securities - Analyst [2]

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Thanks. Good morning.

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Todd Cook, Northview Apartment REIT - President & CEO [3]

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Morning, Jon.

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Jonathan Kelcher, TD Securities - Analyst [4]

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First on the Calgary development, it sounds like it is leasing up at the pace you expected. How about on the rent side? Are you getting your pro formas on that?

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Todd Cook, Northview Apartment REIT - President & CEO [5]

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We are about [100] below are pro forma rents on that, Jon.

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Jonathan Kelcher, TD Securities - Analyst [6]

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Okay. Our you -- will that put you closer to the bottom end of the cap rate range then? Is it within the range still?

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Todd Cook, Northview Apartment REIT - President & CEO [7]

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Yes, it's a little below, it's in the probably [6%] to [6.5%] cap is the range at the current rents.

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Jonathan Kelcher, TD Securities - Analyst [8]

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Okay. Then how long do you think it will take to lease that up?

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Todd Cook, Northview Apartment REIT - President & CEO [9]

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I'm thinking by the third quarter. The first building opened October 1 and the last building opened December 1. So in the first six months, we're getting in that 40% range, so I think as we get into higher demand season, which is the spring and summer, I think we will be there by the fall.

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Jonathan Kelcher, TD Securities - Analyst [10]

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Okay. And then just switching gears. The high-end renovation program, how much did you guys spend on that in 2016?

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Leslie Veiner, Northview Apartment REIT - COO [11]

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We spent about CAD6 million on the program.

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Jonathan Kelcher, TD Securities - Analyst [12]

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Okay. And do you expect to spend a similar amount in 2017?

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Leslie Veiner, Northview Apartment REIT - COO [13]

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Yes, it would be similar to maybe a little bit higher. We're hoping to get a little bit higher -- more penetration. I think we did 268 units in 2016, we would like to do more.

It's obviously dependent on turnover. But the average cost to do the renos for this year will pretty much be in line with what it was lost, yes it could be a similar amount if not a little higher if we get more completed.

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Jonathan Kelcher, TD Securities - Analyst [14]

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Okay. And then finally, you said you were hoping or looking at internalizing the rest of the property management by the end of this year. What would prevent you from doing that?

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Leslie Veiner, Northview Apartment REIT - COO [15]

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Nothing specific. We are doing a [yard] upgrade at the moment which we want to completed before we bring all those additional properties onto our systems. But they are currently being well-managed right now, so it's just a matter of when the timing is right for us.

So there's nothing that prevents us from -- that specifically that would prevent us from doing it. The management contracts have a 30- or a 60-day notice period. So there is no hindrance in that regard either.

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Travis Beatty, Northview Apartment REIT - CFO [16]

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The other thing, Jon, is when we for those regions, we took the management fee down from what was in pre-existing. So we took some of that savings off the table last year when we completed the transaction.

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Jonathan Kelcher, TD Securities - Analyst [17]

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So even when you do bring it in it won't be the same bang for the buck that you got with the Ontario stuff you did last year?

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Leslie Veiner, Northview Apartment REIT - COO [18]

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Ontario is always going to be the biggest synergies coming out of Ontario internalization. So it won't be as significant for the [risk]. And that was one of the main reasons why we obviously focused on getting Ontario done first.

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Jonathan Kelcher, TD Securities - Analyst [19]

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Okay, thanks. I will turn it back.

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Todd Cook, Northview Apartment REIT - President & CEO [20]

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Thanks Jon.

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Operator [21]

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Thank you. The following question is from Mario Saric of Scotiabank.

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Mario Saric, Scotiabank - Analyst [22]

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Hello, good morning.

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Todd Cook, Northview Apartment REIT - President & CEO [23]

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Hello, Mario.

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Mario Saric, Scotiabank - Analyst [24]

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Maybe speaking to the VCIs and I guess it's slide 3 or slide 5 in your investor presentation. So your five-year plan, your targets NOI growth is CAD14.3 million. In 2016 you did about call it 20% of that, so that makes sense.

But in terms of future trajectory, should we think about 20% completion on that CAD14.3 million per year? Or is it going to ebb and flow over time?

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Travis Beatty, Northview Apartment REIT - CFO [25]

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That's what were aiming for, Mario. Like [Louise] said, it was a five-year program. The two pieces are the high-end rental and the sub metering are the -- or the below market rents, they are subject to turnover. So as long as the turnover continues at the current rates, which I expect they would, that is what we are aiming for.

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Mario Saric, Scotiabank - Analyst [26]

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Okay. Then you highlighted both, I think it's what, a [CAD16,000] per door spend on the high-end rentals on average. When we look at the CAD14.3 million of potential NOI upside in totality, what kind of spend should we think about on that figure over time?

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Leslie Veiner, Northview Apartment REIT - COO [27]

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The major spend is on the high-end renovation program. The other initiatives don't really attract [our RX] spend. The [AGRs] are obviously tied into-- the AGRs that we're showing here was tied into CapEx that was already spent on the buildings before the transaction was completed.

There will be other AGRs coming through, but that will be driven off our CapEx that we spend in the future years. The sub metering program does not have a big capital outlay. There's a few buildings where we have some capital costs, but for the most part, the meters are all installed and not at our cost. So the main capital spend is in respect to the high-end renovation program.

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Travis Beatty, Northview Apartment REIT - CFO [28]

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An just as I look at it simply, Mario, if we're doing call it [300] a year and if you're spending CAD15,000 to CAD20,000 you're at CAD4.5 million to CAD6 million a year in projected spent on that.

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Mario Saric, Scotiabank - Analyst [29]

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Right. So if I just simply do the math, on the high-end renos you're getting roughly what a 15% unlevered return. So if there isn't a ton of incremental capital required to achieve remaining call it CAD8.5 million, you're looking at unlevered return on the entire amount. That is material, that's pretty significant.

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Travis Beatty, Northview Apartment REIT - CFO [30]

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That's why we like the program.

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Mario Saric, Scotiabank - Analyst [31]

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Got it, okay. And then just maybe on the sub metering program. I noticed the units outstanding, I think they have declined quarter to quarter, they used to be closer to 7,000. Is that primarily because of dispositions or has something changed there?

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Leslie Veiner, Northview Apartment REIT - COO [32]

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Sorry, what has declined?

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Mario Saric, Scotiabank - Analyst [33]

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The initial five-year target for number of units for the sub metering program. I believe it was closer to 6,900, and it's come dow to 5,200.

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Leslie Veiner, Northview Apartment REIT - COO [34]

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So I guess there was some -- when we looked at the portfolio, we have relooked at some of the buildings. So this number now reflects the buildings where we have meters installed or where will have meters installed in fairly short timeframe.

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Mario Saric, Scotiabank - Analyst [35]

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Okay. So would that be --?

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Leslie Veiner, Northview Apartment REIT - COO [36]

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It's not going to affect the overall savings that we are hoping to generate from the program.

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Mario Saric, Scotiabank - Analyst [37]

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Would that be indicative of maybe changing market fundamentals?

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Leslie Veiner, Northview Apartment REIT - COO [38]

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Yes, one has to be sensitive to the market with the sub metering, and you need to obviously be cognizant of what competitors are doing. But we do want to try and get as high a penetration as we can, because as you can appreciate, the hydro costs do continue to go up.

And I think we -- at current hydro rates, we save on average between CAD40 and CAD45 a month per unit if the unit is sub metered. If hydro costs go up like most people are predicting they are, then that amount is obviously going to go higher.

So we do want to try and get as much penetration as we can. But you're right, you do have to also have to be cognizant of what's happening in particular markets.

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Mario Saric, Scotiabank - Analyst [39]

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Okay. And just to clarify once again, on the below-market rent, so the CAD5.2 million of NOI upside. The expectation is for very little additional CapEx to be spent in order to achieve the rental to market.

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Todd Cook, Northview Apartment REIT - President & CEO [40]

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That's correct. That's the normal CapEx on suite turns, Mario. So it's the normal paint/carpet that type of thing.

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Mario Saric, Scotiabank - Analyst [41]

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Okay. And then my last question on the development side. I think, Todd, you noted it sounds like you might be trying to swap some land position in the West to concentrate more on Ontario.

Can you give us some color in terms of the thought process behind that? It that a call that Alberta may be structurally a bit more depressed over the medium term than you would have anticipated a year ago or two years ago?

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Todd Cook, Northview Apartment REIT - President & CEO [42]

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Most of the land we acquired has been over the last three years and it was very Western Canada focused. So I believe there is a strong opportunity to take our program to the east where we are anxious to do that.

So probably look at the opportunities. I still think in the long and medium-term there is still room for us to develop in the west. (technical difficulty) I'm getting anxious to get going in the east, so we are just going to look at doing something we think we can do more near term.

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Leslie Veiner, Northview Apartment REIT - COO [43]

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And, Mario, I think you should do that as a rebalancing. We're not getting out of the West. We're going to keep a portion of our portfolio that is currently west, so I would just consider this a rebalancing.

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Mario Saric, Scotiabank - Analyst [44]

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Got it, okay. And have you disclosed where the 100 units in the near term in terms of development are going to be?

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Todd Cook, Northview Apartment REIT - President & CEO [45]

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No, we have not. And no, I'm not.

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Mario Saric, Scotiabank - Analyst [46]

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I thought I would provide a little bit of a pause there to see if --. (laughter)

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Leslie Veiner, Northview Apartment REIT - COO [47]

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I know where you're going, we'll talk. It is still fairly preliminary. It's dealing with the municipalities in Ontario is a little different than what we're used to. So we're working our way through it.

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Mario Saric, Scotiabank - Analyst [48]

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Got it. Okay, thank you.

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Todd Cook, Northview Apartment REIT - President & CEO [49]

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Thank, Mario.

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Operator [50]

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Thank you.

(Operator Instructions)

The following question is from Dean Wilkinson of CIBC. Please go ahead.

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Dean Wilkinson, CIBC World Markets - Analyst [51]

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Thanks. Morning, everybody.

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Todd Cook, Northview Apartment REIT - President & CEO [52]

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Morning, Dean.

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Dean Wilkinson, CIBC World Markets - Analyst [53]

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Hopefully last question on the high-end renos. Leslie, is that five-year target of 1,754 [units] still the bogey that you are going after?

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Leslie Veiner, Northview Apartment REIT - COO [54]

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That's correct, yes.

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Dean Wilkinson, CIBC World Markets - Analyst [55]

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So that would -- it's a given that you did 268 this year imply that maybe something closer to 400 a year is what we could expect. Obviously subject to the availability.

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Leslie Veiner, Northview Apartment REIT - COO [56]

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Yes, we are hoping to get higher turnover and we have also expanded the program in terms of we now are testing it in some additional properties. So we still starting to hit the 1,750 over the five years.

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Dean Wilkinson, CIBC World Markets - Analyst [57]

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And you've expanded it. Is that likely then a number that could grow?

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Leslie Veiner, Northview Apartment REIT - COO [58]

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I would not want to say committed to growing. I they're expanding because we would've liked to have seen higher penetration last year, but it's not all within our control. So I think the expansion is initially is to help us get to that target, but that's not just saying five years time it stops.

The program will continue. So it could very well be higher than the 1,700 if you look beyond a five-year horizon. But the 1,700 is what we're targeting in the initial five years and but bringing more properties into the mix. If we are just trying to manage the annual penetration and hopefully get to that number.

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Dean Wilkinson, CIBC World Markets - Analyst [59]

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Right, so bringing the more properties in, it doesn't necessarily mean you'll do more just perhaps that --.

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Leslie Veiner, Northview Apartment REIT - COO [60]

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We'll do more, but it would be over longer than a five-year period.

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Dean Wilkinson, CIBC World Markets - Analyst [61]

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Longer than a five-year period, and then the 1,700 is more attainable with a larger base to work off of. Okay, that's clear.

I guess we're three weeks away from the end of Q1, and I know you cannot directly answer the question. But where is the occupancy looking like it's going to trend towards at the end of the month?

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Leslie Veiner, Northview Apartment REIT - COO [62]

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We actually see -- it's been pretty pleasing. We've seen occupancy guidance in a number of markets, particularly in Northern BC. We have seen some pretty big gains, although as I said when I was going through the formal part of the presentation, just caution that a lot of that is short-term rentals. Although we're not having to discount the rents but they are short term, one to three months.

But we have seen some renewals, so there's been quite a bit of pick up there. We've been fairly pleased with our occupancy in Montreal. Where I think it was significantly better in Q1 than where we were in Q1 of 2016.

Grand Prairie is also showing some improvement, Ontario is fairly stable. It hasn't got worse, I think it's maybe slightly better. Then we continue to run in line with expectations out east.

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Dean Wilkinson, CIBC World Markets - Analyst [63]

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Okay. And fair to say then, let's call it the legacy issues of the Montreal assets, are probably behind us now and that, that turn is perhaps made around the corner?

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Leslie Veiner, Northview Apartment REIT - COO [64]

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We hope so, yes.

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Dean Wilkinson, CIBC World Markets - Analyst [65]

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Okay, perfect. Then the last one for me just on the other property income line. Is CAD13 million a year a good estimate if we back out the Fort McMurray from 2016 and run with that number?

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Travis Beatty, Northview Apartment REIT - CFO [66]

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Yes. There's nothing unusual in that one other than the adjustments.

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Dean Wilkinson, CIBC World Markets - Analyst [67]

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Just those adjustments. Okay, perfect. That's it for me. Thanks, guys.

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Todd Cook, Northview Apartment REIT - President & CEO [68]

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Thank, Dean.

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Operator [69]

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Thank you.

(Operator Instructions)

The following question is from Jenny Ma of Canaccord Genuity.

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Jenny Ma, Canaccord Genuity - Analyst [70]

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Thank, good morning. I don't know if it's a little early, but with regards to the intensification opportunity in Ontario. Would you be willing to give us an idea of where your thinking is on costs and the expected return, particularly as it compares to the Alberta developments?

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Todd Cook, Northview Apartment REIT - President & CEO [71]

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It's a bit early for that, Jenny.

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Jenny Ma, Canaccord Genuity - Analyst [72]

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Okay.

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Travis Beatty, Northview Apartment REIT - CFO [73]

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We are going through the process. We still believe we're in that 100 to 200 basis points above purchase cap rates. But we are not downtown GTA developers, so we are looking in our existing markets. But it's a bit early to jump on that.

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Jenny Ma, Canaccord Genuity - Analyst [74]

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Okay. That's fair. And then also with regards to the value creation count that you use and the assumed cap rate, the 5.5%. What is the basis for that, and is that representative of where the cap rate might be for your Ontario portfolio given that most of these VCIs come from that portfolio?

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Travis Beatty, Northview Apartment REIT - CFO [75]

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So the 5.5% came from -- that was the average cap rate for the True North portfolio and the Starlight PSP portfolio when we acquired it in 2015. So that is where the 5.5% came from.

Cap rates have declined a little more than -- we've seen the cap rate compression in Ontario. So I'd say our Ontario cap rates are a bit lower, and the details are in the financials in the tables there. So we use the 5.5% for that calculation just to not change too many variables.

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Jenny Ma, Canaccord Genuity - Analyst [76]

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Okay, great. That's helpful. Thank you very much.

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Todd Cook, Northview Apartment REIT - President & CEO [77]

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Thanks, Jenny. Take care.

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Operator [78]

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Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Mr. Cook.

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Todd Cook, Northview Apartment REIT - President & CEO [79]

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Thank you, Melanie, and thank you, everyone, for your interest and your time today. We look forward to talking to you in a couple months with Q1. Have a good day.

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Operator [80]

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Thank you. The conference has now ended. Please can disconnect your lines at this time. We thank you for your participation.