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Edited Transcript of NVU.UN.TO earnings conference call or presentation 9-Aug-19 2:00pm GMT

Q2 2019 Northview Apartment REIT Earnings Call

CALGARY Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Northview Apartment REIT earnings conference call or presentation Friday, August 9, 2019 at 2:00:00pm 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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* Dean Mark Wilkinson

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

* Jonathan Kelcher

TD Securities Equity Research - Analyst

* Michael Markidis

Desjardins Securities Inc., Research Division - Real Estate Analyst

* Yashwant Sankpal

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

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Northview Apartment REIT Q2 2019 Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Todd Cook, President and CEO. Mr. Cook, you may begin.

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

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Thank you, Josh. Good afternoon, ladies and gentlemen, and thank you for joining us for our second 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.

A 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 shortly after Andrew reads a brief summary of our cautionary statement as outlined on Page 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 here, and 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, August 9, 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 second quarter of 2019. Before we dive into our detailed comments on the second quarter, I'd like to give you the highlights.

Diluted FFO per unit was $0.52 for the second quarter, down slightly from $0.55 in 2018. We continue to drive strong top line growth across all regions as well as solid same-door NOI growth, particularly in Ontario. This drove our same-door NOI growth accompanying NOI contributions from acquisitions and newly developed properties. The decrease from 2018 is primarily due to 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 of almost 10% as a result of portfolio growth and same-door revenue growth of 3.1%. We are executing on our growth strategy both through acquisition and developments. We've completed a strategic acquisition of a newly built luxury rental complex in Guelph, Ontario from Starlight, which continues to enhance the quality of our portfolio. This was on the back of our equity issuance in June of just over $91 million, which included $5 million in Class B units issued directly to Starlight.

On the development front, we're excited to have commenced 2 development projects during the second quarter, but more on that later. And finally, we continue to deliver on our high-end renovation program, completing just over 300 units in the first half, with returns just over 25%. We also identified additional opportunities within the existing portfolio to expand the program with now 5,800 units remaining.

I'll turn the call over to Leslie now 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, for the 10th consecutive quarter, we achieved positive same-door NOI growth of 3.3% with all regions except Northern Canada achieving positive results. Ontario, which now accounts for approximately 40% of the REIT's multifamily NOI, had the strongest same-door growth of 11.8%. This is the third consecutive quarter of double-digit same-door NOI growth in Ontario and is reflective of the continued strong demand for rent accommodation in the province and the success and increased returns from our high-end renovation program.

Northern Canada same-door NOI was impacted by lower revenue in Yellowknife and high utilities with the prolonged colder weather that stretched into the second quarter. As discussed in the first quarter call, we are focused 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 system upgrades that are expected to result in a reduction in our operating costs once completed.

The $2 million that we budgeted to spend on projects in 2019 is now being committed with favorable paybacks. The initial projects include LED lighting, heat sensors and water monitors. We anticipate the capital we allocate to this initiative to increase in 2020 and beyond as we look to invest $20 million to $25 million on sustainability initiatives over the next 5 years.

Moving to our regions. In Ontario, on Slide 5, average market rents have increased 6.5% since the second quarter of 2018. Year-to-date, we have seen rents on turnover in Ontario increased by 15.2%, which is well above our portfolio average of 6.6%. We completed 165 high-end renovations in Ontario in the second quarter and achieved an average rent increase of $316 on the units that we rented, an improvement over the $283 we achieved in 2018. While we have seen a slowdown in turnover, particularly within the GTA over the last 12 months, we are still targeting to complete a similar number of high-end renovations as last year, and I'll give more details a little later on Slide 10.

Moving on to Western Canada on Slide 6. We had a slightly positive same-door NOI due mostly to higher revenue. Western Canada continues to be a tail of the north and the south with the predominantly resource-dependent markets in Northern Alberta and Northern BC, which represents approximately 15 -- 51% of the NOI in the region, not performing as well as their southern counterparts.

Occupancy in the northern markets was 80.6%, which is slightly ahead of the same period last year, while occupancy in the southern region was 94.4%, also largely in line with the same period last year. We expect these occupancy (inaudible) remain relatively flat for the remainder of 2019.

Fort McMurray continues to be challenging with more businesses shutting down and residents relocating for job opportunities. We have aggressive incentives in place and have reduced some market rents. The second phase of our Calgary Vista project, which was completed in April, is currently 59% leased. With 4 to 5 months into leasing, we are pleased with the progress to date and have achieved expected rents with no incentives.

Onto Atlantic Canada on Slide 7. We improved performance in the second quarter, saw positive same-door NOI growth of 6% following 2 consecutive quarters of negative same-door growth. We did see AMR growth of 2.4% compared to the second quarter of 2018. Occupancy was higher in all our major Atlantic Canada markets compared to the same quarter last year and operating cost were lower.

Results continued to be impacted by one of our properties in Dartmouth that had suffered extensive damage in a fire in the second quarter of 2018. The property reopened on August 1 and is currently 84% leased with rents on average 15% to 20% higher than those that were in place prior to the fire.

Moving on to Slide 8, our Northern Canada region was again impacted by high utilities in the quarter with a prolonged colder weather across the region. Yellowknife continues to be our biggest challenge in Northern Canada with a slowdown in the economy, resulting in higher vacancy and some expense challenges. We have seen an improvement in vacancy in the first month of the third quarter, and we hope to see this continue through the year.

Iqaluit remains an extremely strong market for the REIT with little or no vacancy, although it, too, felt the impact of higher operating costs this quarter. We are currently redeveloping a site in Iqaluit that we previously operated as a hotel, and the 30 rental units and 5,800 square feet of commercial space is expected to be completed in the fourth quarter.

Finally, in Quebec, we reported a 5.1% increase in same-door NOI growth for the quarter, following 2 consecutive quarters of negative same-door growth. This was as a result of both higher rents and lower expenses.

As shown on Slide 10, we completed high-end renovations on 301 units in the first half of 2019, achieving a rate of return of 25.4%, which will result in an annualized NOI increase of approximately $1.1 million. We have expanded the program by 1,000 units since the first quarter of this year following the decision to reposition 2 properties, one in London and one in St. Catharines. With approximately 5,800 units remaining suitable for our high-end renovation program, we expect to complete a similar number of units into the foreseeable future. Currently, we have, out of about 8,000 units identified as suitable for our program, 5,800 units remaining.

Now turning to our commercial and execusuite operations on Slide 11, where we were essentially flat with same-door NOI in the quarter. Commercial same-door NOI was flat with occupancy increasing 130 basis points to 90.6%, and execusuites was impacted by lower revenue at the execusuites property in Yellowknife, which saw slow demand following the completion of the new hospital project last year and the addition of new supply in the market. Overall though, the execusuites have been performing well. With the exception of Yellowknife, occupancy was up in all our markets compared to the same period last year.

Our commercial portfolio continues to be impacted by soft market conditions in Yellowknife and St. John's, although we have today been successful in renewing expiring leases. We have 157,000 square feet renewing this year, of which approximately 68% has already been renewed, and we expect to renew the balance on terms similar to the expiring leases.

I will now turn the call over to Travis to review 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 9.7% and 10.4%, respectively; NOI margin is up by 40 basis points; diluted FFO on a total dollar basis is up by almost 6%. These improvements are the result of same-door NOI growth and NOI from acquisitions and our recently completed development in Calgary and Canmore. FFO per unit decreased by $0.03 or 5.5%, this was mostly driven by a 12.3% increase in the number of trust units outstanding from the 91.3 million equity issuance and the disposition of noncore assets.

Cash flow from operating activities decreased by $18.7 million to $15 million during the second quarter of 2019 compared to the second quarter of 2018. This was mainly due to a decrease in noncash working capital of $22 million, offset by an increase in NOI of $5 million and insurance proceeds received of $2.2 million. Our distribution remains at $1.63 per unit on an annualized basis, which is sustainable long term.

Moving on to Slide 13. At June 30, 2019, our debt-to-gross book value was 53.1%, a decrease of 200 basis points from the same period last year and an improvement of 130 basis points from the first quarter of 2019. This is a result of the successful equity offering and fair value increases on investment properties in the second quarter of 2019.

We had a fair value increase of $28 million on investment properties in the quarter. The majority was for Ontario driven by same-door NOI increase of almost 12%. For the past 2 years, since 2017, we've achieved accumulative fair value increases of $340 million. These increases continue to demonstrate that organic growth is contributing to our NAV growth.

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

Now onto Slide 14. At June 30, 2019, our weighted average interest rate was 3.16%, slightly lower than the previous year. During the quarter, we completed 41 -- $49 million of mortgage refinancing, excluding short-term financing for multifamily properties with a weighted average interest rate of 2.32% and an average term to maturity of 6.6 years.

In the quarter, we also completed $89 million of short-term financing, which will be replaced with longer-term financing in the remainder of 2019. We completed $114 million of new mortgage financing subsequent to quarter end at rates of 2.2% to 2.5%. Interest rate movements continue to trend downward and should provide interest-saving opportunities in the remainder of 2019 as we refinance maturing debt at 3.81% to currently lower CMHC market rates.

Currently, approximately 80% 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.

Our amortization of fair value of debt continues to decline, which is expected to have the effect of increasing financing expenses over the second half of 2019 and into 2020 and '21. At June 30, 2019, we had 2 operating credit facilities with a total limit of $230 million and a maximum foreign capacity of $200 million. We currently have $96 million undrawn on these facilities.

Our next phase of developments will have longer development lead time and larger funding requirements, which puts more pressure on our balance sheet compared to previous shorter development time lines. 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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Thanks, Travis. Moving to Slide 15. Looking at our external growth activity for the quarter, we continued to execute our growth strategy with a focus of strengthening our portfolio in strong and growing markets. Our Canmore development has reached stabilized occupancy, and we are excited to have completed the second phase of the Vista development in Calgary, which, as Les mentioned, is close to 60% leased today.

We have 2 new projects under development, one in Kitchener and the other in Nanaimo, BC. We're excited to have commenced our first development in Ontario this year. The total cost of the project is approximately $115 million with a stabilized cap rate between 5% and 5.5%. It will consist of 363 units and 2 concrete mid-rise buildings. The first phase is underway in Kitchener and it will have 233 units, and the cost of this phase will be $73 million. We plan to have this completed in early 2021.

We also started the first phase of our Nanaimo development at the end of the second quarter. This development will also be completed in 2 phases with the first consisting of 140 units at roughly $35 million and is planned to be completed in mid-2021. The total project cost for the Nanaimo development is $65 million. It will have 251 units and a rough cap rate of 6.25%.

On the acquisition front, we closed the $53 million strategic acquisition in Guelph, Ontario from Starlight. This property is newly built, 161-unit apartment complex with a cap rate of almost 4.5%. This strategic acquisition was funded by the $86 million equity offering in June and $5 million of Class B units issued to Starlight.

We continue to look for acquisition opportunities and have close to an additional $30 million, which we expect to close by the end of the third quarter. We also continue to expand our land held for future development with the purchase of an additional parcel of land in Ajax, Ontario, adjacent to what we've acquired in the previous quarter.

During this quarter, we also completed the noncore disposition of our portfolio in Saskatoon, which consisted of 240 units for $19 million. Consistent with our strategic plan, we continue to identify noncore assets for cap recycling from time to time.

So wrapping up our formal comments. Our top line revenue continues across the portfolio, driving solid same-door NOI growth. Our Ontario portfolio remains the leader in generating same-door NOI growth. We remain confident that expenses in the north are coming back in line with expectations for the second half of this year.

And while we continue to review acquisition opportunities, we're not finding the same volume of attractive assets that we saw in the last couple of years. We remain committed to delivering solid returns for our unitholders through our proven NAV creation strategies.

So thank you for your time, and I'll now turn the call back to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Mike Markidis with Desjardins.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [2]

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Just on the normalization of Northern Canada, Todd, can you give us a greater sense of what normalization is? I mean obviously, the first half of this year was quite acute from a weather perspective. I guess weather, I would imagine, is not a big driver in 3Q, so last year's margin for Northern Canada probably could be a good guide. But what about Q4? Was last year, the fourth quarter, was it unseasonably mild or was it still colder? I'm just trying to get a sense of what the -- how to compare it to last year as we go forward.

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [3]

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I think if you look at the margins from last year, it's probably -- that's for the second half, that's probably what you're looking at. There wasn't anything spectacular in the fourth quarter. It was -- and for us, it really -- they got cold in late January, February of this year, and it just carried on a bit longer. And then that just has that trickle on effect of increasing your maintenance expenses and repair, so that's really what it is. But the additional expenses on our end is back into the normal territory. So I think if you look at the back half of '18, you're probably okay.

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [4]

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I think the historic has been -- yes, the historical margins are probably a good indicator.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [5]

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Okay. That's fair. Just with respect to the AMR stats that you provided and thanks for that, pretty healthy growth in varying regions, wondering if you could just comment a little bit or maybe you don't have it at the tip of your finger, but in the future, if you could provide the turnover rates by region, that would be helpful as well. I'm not sure if you have some high-level commentary in that regard?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [6]

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Yes. So the -- I mean we are just -- I mean turnover is becoming more of a challenge for us in Ontario. Obviously, in some of the other markets, we prefer lower turnover just because it is in the more volatile markets. And pleasingly, we did see some lower turnover in Western Canada. But obviously, in Ontario, we like higher to keep the turnover up because it helps us keep up the penetration with the high-end renovation program.

So if you look at Ontario turnover, it is, for the second quarter, we were at 23%, which is probably about 10% down from a year ago. And then it's pretty consistent. At most markets, we've seen a decline in turnover, most of the markets, particularly where we're doing the high-end renovation program because that also tends to be the markets where there's high demand. And then, obviously, the closer you get to the GTA, the turnover is even lower, but it's been fairly flat over the last 3 quarters in the GTA, sort of between 16% and 18%, and that's probably about 5% lower than it was if you go back to Q2 of last year.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [7]

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Okay. And just to clarify, when you say 23% in the second quarter, you mean 23% of the leases that were expiring in the second quarter were turned?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [8]

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Yes.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [9]

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Okay, got you.

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [10]

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Yes. Mike, that's an annualized number, right?

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [11]

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Sure. Okay. Got you. Okay. And then just flipping over to the east side, the GTA, the Ajax. So my guess, Todd, you got 3.5 roughly acres there now adjacent. Is that something that's transit-oriented or is it close to the GO line? Or is it somewhere else in the city?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [12]

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It's on the south side of the 401, pretty close to -- it's close to sort of downtown Ajax where there's been a lot of development, and it's quite close to our existing property there as well.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [13]

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Okay. And is that something that you're -- is it -- there's a zoning that has to happen? Just trying to get a sense of when you might be ready to progress on that one.

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [14]

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We're -- I think late next year is our -- is when we expect to get through. I think the zoning is -- the zoning has got do some municipal work that needs to be done to get it going. But I think late 2020 is our expected time line. But we'll -- as we get further in the planning process and the -- working through the city, we'll have a more -- better update towards the end of the year.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [15]

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Okay. So it's possible that, that could be part of your development spend in 2021, it sounds like the kind of...

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [16]

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Yes.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [17]

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Okay. Got you. Last one for me before I turn it back. Travis, I was a little surprised to see your interest expense actually up quarter-over-quarter just given that your -- you had the equity offering and some debt paydown at towards the end of the quarter.

You made some comments with respect to some short-term financings and also the impact of the, I guess, the burn-off of the fair value adjustments on debt. Could you just give us a little bit more color? Trying to figure out what the rate -- run rate is now with respect to that line item, assuming no other investment.

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

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Yes. Yes, we saw some of those comments, Mike, so we're trying to back calculate how you guys might come up with your interest expense. So we have the amortization of fair value of debt in 2018 was almost $4 million. And this year, it's only going to be $2.5 million, so both the annual numbers. So I'm not sure if you're accounting for that decline when you look at financing expenses.

We did do some short-term financing, as you saw in Q2, which might have pushed the numbers up slightly relative to what you might have expect. We replaced most of that already in July, we did $113 million at $2.2 million to $2.5 million. So that might help your run rate going forward.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [19]

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Okay. And then you've got 2 -- you said $2.5 million is the amortization that you have this year.

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [20]

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Yes.

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Michael Markidis, Desjardins Securities Inc., Research Division - Real Estate Analyst [21]

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Just in terms of the burn-off going forward, what does it look like in 2020, 2021?

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [22]

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It goes down to $1.4 million in 2020 and $1 million in 2021.

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Operator [23]

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And our next question comes from Dean Wilkinson with CIBC.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [24]

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I'm probably the first who's going to kick off a bunch of questions on the renovation program. A couple of years into it now, you've obviously proved out the success and it's working and you're being able to maintain that sort of mid-20% return level. Given that you've sort of booked another 1,000-or-so units in there, I mean it looks like you got about an 8-year runway on that.

Is there any way that you can accelerate that program? Unlike -- some of your other peers have gone a little more aggressive with that and effectively kind of emptying out of a building and just turning it and take the hit, but then come back with a bigger bump there. Or do you think you're just really constrained by the grind and turnover and it's going to be 500 to 600 per year?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [25]

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I -- we don't have any plans to empty out old buildings, that's -- we've looked at it, but it's not -- we're going to stick with the turnover because it is a pretty select program where we're only down for 30 days on that, and maintaining this level of 600, 700 units is working for us. So that's really where we're going to stay the course on that.

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

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Yes. And I think as well our program because it's unique in that we haven't got -- there's very few buildings. We've got a whole building that's like, how are we going to go do it again now? So a lot of the buildings are already into the program. So it's difficult to empty out and that becomes a little more challenging. But I think we're comfortable with the pace.

Obviously, if turnover continues to be a challenge and it -- and we find that it's starting to slow things down, we'll look at some options. But even those options are becoming a little tougher because just with a very short tight supply, people are realizing it's not that easy just to move and take a payment or whatever and go find somewhere else to look because even -- whatever path they get, it -- you can burn through it pretty quickly.

So it's not as easy as just putting some incentives to get people to...

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [27]

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To get them to go, yes.

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

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(inaudible) talk about. So we are looking at some other things, but it's not a sort of a concerted sort of program or effort to start really trying to get people to move so that we can up the numbers significantly.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [29]

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Yes. It's just you get so much bang for the buck on it. Is it possible to do it while they're -- if they stay in place?

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

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I think you'll run -- you'll potentially run into some issues under -- with rent control if it's done in the same unit under the same lease.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [31]

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Under the same lease, too, yes, they'd capture it. You couldn't get an AGI, I guess.

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

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Yes.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [33]

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Okay. Well, I mean, it is what it is. That's good though. Just a question, Travis, on the insurance settlement, was that all damage or was there any business interruption in there?

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [34]

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Yes. Most of that is down. It's -- I don't think there's any BI in that.

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Dean Mark Wilkinson, CIBC Capital Markets, Research Division - Director of Institutional Equity Research [35]

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Okay. So it's 100% to be backed out then is kind of where I was going with that, yes.

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

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Yes.

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Operator [37]

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(Operator Instructions) Our next question comes from Jonathan Kelcher with TD Securities.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [38]

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First question, Todd, you talked about $30 million of acquisitions you expect to close by the end of Q3. Where would those be?

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

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They're in Canada. I'm not going to expose that. The cap rate's somewhat similar to the 4.5% we did in Q2.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [40]

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Okay. That's kind of where I was going with it.

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [41]

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I knew that.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [42]

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Okay. And Saskatoon, what was the cap rate on that and when in the quarter did it close?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [43]

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It closed in early June, I think. And the cap, I think it was close to a -- depends how you did the math on that. We sold it at about a 5%, 5.5% cap. It's not downtown.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [44]

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Okay. And then you've got another $10 million or so assets held for sale. Would that -- does that sort of -- your leverage is kind of where you want it to be? Would that sort of end your disposition program?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [45]

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No. I'd say the -- I would say, Saskatoon and then the one that's in the held for sale. This wasn't about reducing our leverage. This is -- we identified the buildings that, in our view, had a higher CapEx grind or we weren't able to grow in the market or we weren't going to get the rent.

So if you go back to the Saskatoon property, it's 240 units. It's a dozen buildings, small units. Actually, it might be 20 buildings. Anyway, small buildings, not a lot of upside given on location. So we tested the market. We got a price that we're happy with. So that's what led to that piece. And then the rest is the same sort of thing.

So we're not selling these assets for leverage reduction. This is really seeing what we -- they just don't fit with whether the location strategy or future growth or the CapEx piece.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [46]

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Okay. So could you -- would you be thinking about that as something that would continue on like pruning noncore or fully valued assets?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [47]

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Yes. Yes, I would say it's not going to be a huge part of the program. But I think if you're going to see $20 million, $30 million, $40 million a year, I think that's what we're seeing. And you might see some 1 year, you might see none. It sort of really depends on what we get when we test the market.

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Jonathan Kelcher, TD Securities Equity Research - Analyst [48]

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Okay. And where does Guelph sit right now in terms of occupancy?

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Leslie M. Veiner, Northview Apartment Real Estate Investment Trust - COO [49]

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The new property, I believe it's full as of beginning of September or before.

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Operator [50]

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And our next question comes from Yash Sankpal with Laurentian Bank.

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Yashwant Sankpal, Laurentian Bank Securities, Inc., Research Division - Analyst of Real Estate Investment Trust [51]

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I was wondering if you could give us your development budget for 2019 and 2020.

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [52]

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I mean, I think we're going to spend about $60 million in 2019 and probably a little bit more in 2020, depending on how many projects we start.

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

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Actually, the current projects, just...

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [54]

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Like the 2 projects we've just started are the Kitchener and the Nanaimo piece and they're about $130 million, a little bit less on the total budget for those, and they take us into 2021. So we're -- I said I think we're probably in that $50 million for the rest of this year and then probably a little bit higher next year.

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Yashwant Sankpal, Laurentian Bank Securities, Inc., Research Division - Analyst of Real Estate Investment Trust [55]

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Sorry, you said $60 million or $50 million?

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David Travis Beatty, Northview Apartment Real Estate Investment Trust - CFO [56]

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$60 million is probably a good number for this year, yes. And then it's -- the budget for those 2 projects is about $110 million. So we're going to spend the balance next year, but it's likely that we're going to commence some other developments next year as well. So if you want to capture the full spend, we're going to be closer to $80 million or $90 million next year. But all we have left that we've announced so far would be the balance of Nanaimo and the Kitchener development.

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Yashwant Sankpal, Laurentian Bank Securities, Inc., Research Division - Analyst of Real Estate Investment Trust [57]

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Got it. And could you maybe tell us how much that Ajax project will cost you? Roughly -- a rough number, will you?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [58]

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It's early, Yash. We're still in the planning phases. So that's -- we're not -- I'm not prepared to. It's too early in the stage to say what that is, but...

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Yashwant Sankpal, Laurentian Bank Securities, Inc., Research Division - Analyst of Real Estate Investment Trust [59]

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Okay. And how about your dispositions? Are you looking to sell properties in any other markets?

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [60]

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We continuously review our assets for properties that as we -- as I just talked to Jon about -- that we've reached maximum value or we don't like the future CapEx or the market. So the answer is yes, where it's a continuous process, but no, it's not a material culling of the portfolio. And Yash, we also look at markets where we only have a few hundred units in one city so that we can get out of that city altogether and just focus on fewer centers.

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Operator [61]

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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 further remarks.

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Todd R. Cook, Northview Apartment Real Estate Investment Trust - President, CEO & Trustee [62]

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I'd just like to thank everybody for your interest and questions and attending our call, and we look forward to talking to you over the next few months and formally in November for our Q3 results. So thanks, and have a great day.

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Operator [63]

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Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone, have a wonderful day.