Earnings Call: Q1 2020

May 7, 2020

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Killam Apartment REIT First Quarter 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Mr. Philip Fraser, President and CEO, you may begin the conference. Hello, and thank you for joining Killam Apartment REIT's Q1 2020 conference call. I'm here today with Robert Richardson, Executive Vice President Dale Noseworthy, Chief Financial Officer Aaron Cleveland, Senior Vice President of Finance and Nancy Alexander, Vice President of Investor Relations and Sustainability. Slides to accompany today's call are available on the Investor Relations section of our website under Events and Presentations. I will now ask Nancy to read our cautionary statement. Thanks, Phil. This presentation may contain forward looking statements with respect to Killam Apartment REIT and its operations, strategy, financial performance and condition. The actual results and performance of Killam Apartment REIT discussed in here could differ materially from those expressed or implied by such statements. Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Important factors that could cause actual results to differ materially from expectations include, among other things, risks and uncertainties related to the COVID-nineteen pandemic, general economic and market factors, competition, changes in government regulation and the factors described under Risk Factors in Killam's annual information form and other securities regulatory filings. The cautionary statements qualify all forward looking statements attributable to Killam Apartment REIT and persons acting on its behalf. Unless otherwise stated, all forward looking statements speak only as of the date to which this presentation refers and the parties have no obligation to update such statements. Thank you, Nancy. We are pleased to report strong operating and financial results for the Q1 of 2020. I want to first acknowledge that things have not been business as usual since the middle of March as we are all adjusting to the new norm during the COVID-nineteen health crisis. We will go through our Q1 financial highlights and then take the opportunity to give you a current business and operational update. We will also give an update on our acquisition and development progress before opening the call up for questions. I will now hand it over to Dale to take us through our Q1 results. Thanks, Phil. We achieved net income of $38,200,000 in Q1 and earned funds from operations of $0.22 per unit, a 4.8% increase from Q1 2019. AFFO was $0.18 per unit, up 12.5%. In addition to earnings growth, we had a strong start against our strategic priorities in Q1, increasing earnings from our existing asset base, maintaining a strong balance sheet and advancing our acquisition development pipeline to expand outside Atlantic Canada. Slide 4 highlights our Q1 financial performance. FFO and AFFO per unit growth was primarily attributable to strong same property performance, accretive acquisitions and contributions from the recently completed Frontier development in Ottawa. We're pleased with the performance of our same property portfolio with NOI up 6.1% and 160 basis point operating margin improvement. With strong fundamentals and our revenue enhancing programs, occupancy remained strong during the quarter at 97.2% and rental rates were up 3.4% across the apartment portfolio. As illustrated on Slide 5, overall operating expenses decreased 0.7% due to reduced utility and heating fuel consumption from both and energy efficiency projects installed in the past year. We also benefited from lower natural gas and heating oil pricing. Utility savings were partially offset by general operating cost increases due to inflationary cost pressures, increased insurance premiums and the growth in our leasing team in the last 12 months. Property taxes were up 4.1% with higher assessments. In addition to strong NOI growth, Killam realized lower interest rates on mortgage refinance during the Q1 with rates 70 basis points lower than on maturing debt and below our budget expectations. Slide 6 highlights our debt maturity profile, including average apartment mortgage rates by year versus prevailing CMHC insured mortgage rates. Subsequent to quarter end and the onset of COVID-nineteen, mortgage financing and renewals have progressed on schedule and with further interest rate savings. The average rate on our CMHC insured mortgage that's refinanced in Q2 to date is 1.7%. We continue to manage our balance sheet conservatively as highlighted on Slide 7. Debt as a percentage of total assets was 44.4% at March 31, and we have realized improvements in our debt service and interest coverage ratios. We're pleased to have expanded our credit capital flexibility over the last few years. This includes reduced debt levels across the portfolio, a pool of unencumbered assets of approximately 75,000,000 dollars 100,000,000 of capital available through two lines of credit. In addition, looking forward, we have approximately $40,000,000 in mortgage up financings expected during the remainder of 2020. I will now turn the call over to Robert, who will give more details on our operations and the impact of COVID-nineteen on our business. Thank you, Dale. Good morning, everyone. The past 8 weeks have certainly been demanding, but through it all, what stands out the most has been the commitment, compassion and cooperation of Killam's employees, what they have demonstrated every day in helping each other, our residents and our commercial tenants deal with COVID-nineteen as Killam maintains safe housing for more than 20,000 families. Killam's 650 employees are doing a superlative job managing through COVID-nineteen and a special shout out to our 3 52 frontline employees, specifically our resident managers and their assistants, our maintenance team members and our administrative staff that interact daily with our residents, suppliers and the public on a daily basis. We cannot ask for a more skilled employee group. Killam will maintain its vigilant cleaning and social distancing programs as we work to navigate the relaxing of closure mandates by the various provinces. Killam takes the health of its many stakeholders very seriously. And although we are pleased to date with our success in managing the virus, we know Canada and the world have a ways to go yet before anyone can relax. As Philip mentioned previously, Killam was well prepared to do its part in minimizing and eventually stopping the virus spread. Looking at Slide 9, Kim's long standing strategy remains unchanged. However, priority 1 at this time is keeping Killam's employees, residents and our commercial tenants and their customers healthy and safe as we refine our procedures and prepare our properties for the return to the new normal in the second half of twenty twenty. That said, Killam will simultaneously pursue opportunities to increase both funds from operations and net asset value where we can by increasing earnings from the existing portfolio, expanding the portfolio to diversify geographically, plus continuing to develop high quality properties in Killam's core markets. I want to touch on the key revenue drivers and operating initiatives that enable Killam to deliver consistently strong returns to its investors. For example, our strong same property net operating income performance is largely attributable to Killam's ability to grow its revenues. Slide 10 charts Killam's rental growth rates for the Q1 of each of the past 5 years. We have generated consistent revenue growth for the Q1 of each of the past 5 years, and most recently, Killam delivered 3.4% growth in Q1 2020, same property rental rates, 50 basis points better than Q1 2019. Killam's value proposition and market fundamentals remain strong as we achieved record high Q1 occupancy levels in many of Killam's markets. In this quarter, Killam posted 2.1% rental rate growth on renewals, 6.1% rental rate growth on new leasing and an impressive 28.4% rental rate growth on leasing of renovated units. Early trending during COVID-nineteen indicates that unit turnover has declined, and this is expected to temper Killam's ability to move rent to market as fewer units will be available for new leasing and Kilm's unit upgrade program. The market's trend in recent years has been to lower unit turnover. For example, 20 nineteen's unit turnover was 30.4%, 140 basis points less than fiscal 2018. So given COVID-nineteen this year, we estimate Killam's unit turnover may decrease by 3.5% to finish the year at plus or minus 27% turnover. Also, Killam's decision to assist its tenant base by suspending rental rate increases for April, May and until COVID-nineteen has been curtailed will put pressure on revenue growth. The exact impact on revenue due to fewer suites turning is unknown, but we will know more when we report for Q2 2020. For now, we are forecasting positive same property revenue growth for 2020. Further, we anticipate businesses business to be relatively normal for 2021, given the healthy rental demand in Killam's core markets. The demand for Killam's new and newly renovated rental units remains strong across the portfolio. After completing 304 renovated units in 2019, Killam's 2020 repositioning program targeted between 405 100 units as shown on Slide 11. Although 2020's number of repositioned units remains on track at this point, we have adjusted the annual target to be between 305 100 repositioned units, a wider spread given the uncertainty. Q1, we upgraded and repositioned 95 units with an average cost to upgrade of $25,000 and earned a 13% unlevered return. Clearly, many of Tilmor's residents prefer upgraded units and will pay for these upgrades. So, Killam will work diligently to meet this demand. Slide 12 highlights Killam's investment in its online operating and financial platforms and its preference to embrace technology in a traditional brick and mortar business. This is paying additional dividends in the age of COVID-nineteen. Our customer relationship management software launched in 2019 enables our leasing team to work remotely and use virtual showings to lease our available units. This CRM technology enabled Killam to deliver high quality service to our residents and prospective residents uninterrupted during this time. Operationally, online portals and mobile apps have seamlessly facilitated payment processing and enabled our accounting and property management teams to work remotely from their phones, tablets or their computer. Maintenance technicians received work orders on their mobile phones and have adjusted their priorities to focus on emergency work orders and other work that respects social distancing. Despite COVID-nineteen, we remain focused on key operating initiatives at Killam, including active management of expenses to optimize net operating income in conjunction with sustainability. Referring to Slide 13, we are prioritizing our capital expenditures while also embracing green projects and remain very focused on energy savings. These projects help minimize Killam's carbon footprint whilst mitigating the impact of expense increases from rising energy rates and other inflationary pressures. On March 31, 2020, we issued our 2019 ESG report, which can be found on our website. It was prepared in accordance with Global Reporting Initiative Standards. Further, Killten has independently measured its greenhouse gas emissions to provide a benchmark for future assessments. We are fully committed to ESG and are working on our second submission to the Global Real Estate Sustainability Benchmark Organization, better known as GRESB. I want to hand you back to Philip to provide an update on our April rent collections, acquisitions and our development pipeline. Thank you, Robert. As shown on Slide 14, we have 90% of the total amount of our revenue coming from apartment tenants, 4% from MHCs and 6% from our commercial tenants. As of yesterday, we received 97% of April's rent. Rent has been collected from 98.6 percent of our apartments, 98.2% of MHCs and 72% of our commercial revenue. We are working on rental deferral arrangements with a number of our commercial tenants and less than 50 residential tenants. While it is early, May rent collection is also looking favorable and in line with our April payment timeline. Many of our commercial tenants, retail in particular, have been especially hard hit with the closures of all non essential services across the country. Slide 15 shows a breakdown of our 739,000 square feet of our commercial portfolio, which is approximately 6% of our total projected annual revenue. Over the next few months, we intend to work with our tenants on an individual basis to find solutions for the non payment of rent. The commercial space consists mainly of 3 large assets Westbound Place 300,000 Square Feet, 50% interest in Charlottetown Mall 175,000 Square Feet and the Brewery Market 150,000 Square Feet. The brewery is a unique mixed use asset connecting to our 2 40 unit apartment building, The Alexander in Downtown Halifax. The other two assets, Westmount Place and Charlottetown Mall were acquired with a long term residential development potential. To date, we have collected 98.2 percent of April's MHC rent, which only leaves $17,000 that is still outstanding. We have also collected 72% of April's commercial rent, which leaves approximately $350,000 outstanding. With rental deferrals in place and ongoing discussions with our tenants, we expect to collect between 60% to 75% of this rent. Slide 16 summarizes our year to date acquisition activity showing $70,500,000 in Q1 acquisitions. We detailed Christie Point and 9 Carrington acquisitions during our February conference call. In March, we made 2 small purchases, a MHC in Shadyac, New Brunswick and a small apartment building in Halifax, adjacent to a property we own in downtown. Both were easily absorbed in our operating platform. On April 30, we purchased The Crossing at Belmont, a 156 unit property in Langford, BC. This property as seen on Slides 1820 was purchased for $60,000,000 This is Killam's 2nd apartment purchase in the Greater Victoria market. The bottom floor of each building contains retail space, which Killam did not purchase. The all cash yield is 4.4% and the building contains the mixture of 1 and 2 bedrooms with an average rent of $18.68 per month. Lease up started in the fall of 2019 and the property is currently 86% leased at $2.61 per square foot. The property has many amenities including a bike storage and repair area and a dog grooming station. Adjacent to the property is Belmont Market, a new grocery anchored retail center owned by Crombie REIT. Killam's development activity is a key cornerstone to our long term growth strategy. All of the developments progressed well in Q1, but construction activity began to slow in April. In the short term, our 4 development projects under construction will likely be impaired by temporary delays due to work slowdowns, labor shortages and potential delays in supply chain until provincial state of emergency orders are lifted. Slides 22 to 24 show renderings and progress photos of the Latitude, the second phase of the Ottawa project with RioCan. We broke ground in Q2 2019 on the Latitude and the expected completion date is still late 2021. Details and progress photos of our Shorefront development located in Charlottetown are shown on Slides 2526. We started pre leasing this asset in the past couple of weeks and have experienced very good demand for this new product in Charlottetown, anticipating a September 2020 opening. The K in Mississauga broke ground in late 2019 with renderings and progress photos on Slides 27 to 29. This 128 unit development has a $56,000,000 budget with an anticipated Fiberson all cash yield. Construction financing was secured in April and all the remaining development costs will be funded through this facility. COVID-nineteen has not yet impacted the estimated cost and we expect this project to be completed by early 2022. Slide 30 shows the Harley, a 38 unit building in Charlottetown that will be completed in Q4 of this year. Finally, Slide 31 shows our current development pipeline. Killam has 2 additional developments slated to break ground in 2020, but we do not anticipate commencing projects until the health crisis is over. To conclude, at Killam, we are confident that we have the asset base of great residential buildings, a growing MHC portfolio and commercial assets with residential development opportunities along with the people and operating platform necessary to execute on our strategy for the ongoing benefit of our unitholders. This concludes the formal part of the presentation and we will now open up the call for questions. Thank And your first question will be from Jonathan Kelcher at TD Securities. Please go ahead. Thanks. Good morning. Good morning. First, just to clarify on the amount outstanding on the commercial. So you expect to get 60% to 75 percent of the 350,000 currently outstanding? We expect that is our best estimate today in terms of being able to collect that in the future. Yes, that's the worst case that we're looking at. Okay. And then would that be so that would work out as I guess kind of 85% to 90% total when all is said and done? And would you expect that same sort of level for May June? Yes. I think that was our sort of estimate for the next 3 to 4 months as everything is in the state of emergency and lockdown and unopened. Okay. That's helpful. And then just on the Langford acquisition, is that 4.4% cap rate, is that stabilized or on the 88%? That's stabilized at 98%. Okay. And at the 260 square foot rent? At 261, yes. Okay. That's helpful. And then lastly, just what's the status of the Calgary development that you guys are committed to acquire? The status is that our developing partner Citex has broken ground and they're basically at the point where they're pouring the foundation of the underground parking. Okay. So that would that's obviously when would you expect to acquire that? I would expect to acquire that in either probably Q2 of 2021. Okay. And then the price still 55,000,000 dollars Yes. Okay. Thanks. I'll turn it back. Thank you. Thank you. Next question will be from Yohan Rodriguez at Raymond James. Please go ahead. Hi. Can you maybe just kind of classify or describe the commercial group that hasn't paid? Like what kind of businesses are they? Okay. We will and I think I'm going to have Rob, if you can start by maybe giving a little bit of color and I'll see if I can add anything more to it. Hi, Johan. The ones that aren't paying actually would be the smaller businesses, the independents, But we see that at Westmount would be some clothing stores, some food establishments, which are ones that are mandated to shut down. They're not able to pay and they don't have big reserves. The other one that's interesting in terms of a profile would be medical practitioners, which is a fair number of the people the businesses that are in Westmount as an example. And they've been asking for deferrals and we've been granting deferrals. We feel for the most part across the board, those that aren't paying and have been asking for deferrals and they're going to be able to pay and what the government's offering the small businesses, we see that as a good sign. And if you take a look at Charlottetown Mall, there's deferral agreements in place there with some of the bigger retailers pretty much across the board. So generally speaking, we see the quality of our tenant base is quite strong, but they are taking the opportunity to use deferral at this time. So we expect to get it back and our deal would be, we'd give 2 or 3 months of deferral and we'd look to recover that over the next year and we wouldn't charge any interest. Okay, great. Thanks. That's helpful. And then in terms of the portfolio mark to market, do you know what that would have been at the end of kind of Q1? And then I guess it would have shrunk in April May. Do you have a sense as to maybe what that would have been cut to? Dale? Yes, go ahead, Dale. Yes. So you're talking residential, I assume. Yes. Yes. So I mean, I think that it varies by market. I think we would have said in the past somewhere between 5% 20%, depending on the market, probably averaging somewhere around 12% to 15%. We've been digging into a lot of data in the last little while and interesting to see even on turns and looking at leases that have been signed in the last 6 weeks, we are still seeing some pretty strong mark to market numbers. So we're not seeing a lot of evidence right now that on turns, we've seen market rents drop in any big way. It certainly has varied by market. But in Halifax, for example, we've still seen some very some strong numbers similar to what we would have seen pre COVID. So, we're starting with a smaller base of numbers. But right now, I'd say indications are we do still have a mark to market and I'd put it somewhere, maybe it's averaging, maybe it's come down a few a little bit, but still, I'd say 10% ish, 8% to 10%. Okay. Okay, that's helpful. And then just lastly, what amount like what same property NOI growth do you think you can generate? Like if you're taking away rental increases and renewals, you've got turn and then expense compression. So what kind of SPNOI could you generate just with those 2? So, I mean, there's a big range we're looking at. Certainly, having we expect to even if we were flat on the renewals, we do expect to continue to get gains on turns at this point with the information that we're seeing. So with that and a strong start with strong Q1 numbers, I think that we feel we could do some positive top line growth. And on the expense side, again, those heating costs make a difference and seeing that savings in Q1 has helped. So I don't want to give a number, but based on the information that we're seeing, we would say we still expect to see top line growth and we are managing expenses as we always do to manage that. So after Q2, when we have a little bit more insight into what this could look like in the long term, we'll be prepared to give more of a forecast. But there's a range of sensitivities we're looking at, but right now, we think positive top line growth is still a very real possibility. Okay. Perfect. I'll turn it back. Really nice job guys. Thank you. Next question will be from Howard Leung at Veritas. Please go ahead. Good morning. Good morning. Good morning. Good morning. Good morning. I just wanted To dig into the rent collection that you had for the apartments in April and so far May seem to be pretty strong. I know you may not have the data, it might be difficult, but any idea of those tenants that you collected from, which ones are a big number of them on government assistance programs? Are some of them still employed? Like any kind of color you could give to that? Good morning, Howard. I think those are good questions. And I can start out with the first comment is that we collect almost 80% of our rents from PAPs, pre authorized payments. And then on any given month, whether it's been looking back at what we just accomplished in April and what we're going to the numbers are going to look like in May, we would have some number that would end up going through NSF. And that takes another 2 to 3 days after the 1st of the month to figure out for whatever reasons why the check didn't clear. And what I can say is that the trend on an average month versus last month versus what we just saw in the 1st 6 days of May, knowing that May was the 1st May was a February. So there was the weekend which kind of slows down the collection. We've seen a drop in NSF checks. So that's a nice positive trend. So that's the base of where we have the 80%. I think it's also important to highlight that since the beginning of Killam which is close to 20 years that is the percentage of rent that you get in roughly on the 1st day. And then throughout the next 3 weeks, if this was a normal month, we would collect the remaining 19.8% throughout the 3 weeks. So for maybe some people, they are surprised to hear that that normally there's a lot of rent that comes in depending on the payment at the end of the 1st week. A lot more comes in before 15th. And then surprisingly, we would have a bunch of agencies, for instance, the Newfoundland government, we have a number of tenants that the government pays and other agencies throughout the country and a lot of times their check comes in after 20th. So it's important to know that we know that that money is coming in. So back to your question which is really about do we have any transparency on the tenants that have maybe collecting this $2,000 and we really do not at the time. I mean what we do have is a bunch of not a bunch good data on the profile of our tenant base And I can get maybe Nancy to sort of give you a breakdown on that. But up until now or even today, we really do not see or have the ability to see who is collecting money from these government programs. And it's from our sort of viewpoint, it's basically it's just another month of collecting rent from our tenants. Right. That's really helpful. I guess If I could add something too, Howard. Sure. This is Robert. So what we saw the first of May is that our NSFs were less by about half than what we saw at the beginning of April. So that's a very encouraging sign. So I don't think that most of these most of our tenants are accessing a great amount of government assistance to make that rental payment. The trend is in a positive way. The other thing that's interesting to note from a deferral perspective, we report that we have no more than 50 of our tenants on rental deferral programs, that's 30 basis points of our tenant base. So it's very low. Some others have reported this week and their numbers are considerably higher. So again, we have a strong rental base that is paying the rent. Right. Yes. Yes. The deferrals were, I think you mentioned, less than 50 tenants. So it's a very low number. And I guess another kind of point that's interesting is when you gave a preliminary update, I think on the first just after the 1st week of April, the collection rate was already 93%. And then really over the next month, there was only an increase of kind of 5 percentage points to 98% for apartments. So I guess even in April, the majority tenants had paid the 1st week, right? And you probably based on where May is that you probably expect something similar? Exactly. Okay. I guess moving to the valuations, I just saw that for the best properties, they softened a bit and the part of that was because of higher bad debt and reduction of rental growth. Is that mainly on the commercial side? Or did you also write down some of the apartments as well? Dale, do you want to give that question either to Dale or Aaron? Yes. I'll start Aaron, but feel free to jump in. So I'd say we essentially may have left our value flat from Q4. A lot of those allowances, what we did take into consideration that was residential work that we're referring to. And we were looking at what do we expect our rent growth to be with the situation that we're in now with rent freezes on renewals was the big driver of our rent growth expectations that would have impacted our top line growth expectations. And as you mentioned, we disclosed an allowance for bad debt. So overall, we had we not seen COVID, we would have seen a fair value increase in our assets. But with those assumption changes that resulted in essentially a flat fair value of the portfolio from the year end. Okay, that's helpful. Thanks for this. I'll turn it back. Thank you. Thank you. And your next question will be from Troy MacLean at BMO Capital Markets. Please go ahead. Thank you and good morning. Just curious, Dale, you mentioned rent lifts have varied by market since this began. Can you give us any color on what you're seeing in Alberta? Sure. So the data that we're looking at now, the numbers full disclosure are pretty small because it's only a few weeks. I guess it's 5 weeks of data. So we're seeing an increase for our Calgary REIT portfolio of about 3% and just a very slight decline at Edmonton, I'd say essentially close enough to call it flat. And then just curious, do you know how much of your tenant base would be students or especially international students? So Nancy, do you want to tell? Sorry. Yes, I'll give that to Nancy. Hey, Troy, it's Nancy. Yes, we have about 15% or so of our total base of students. I don't know exactly how many of that is international students. But our student I can tell you our leasing trends right now, our student properties are doing quite well. We would have seen a decrease in turnover, but we also some decrease in leasing activity, but also some decrease in turnover. And what we're finding is the activity we have is really good quality activity, less what we call tire kickers and some really good traffic. So for example, a student building that we have, dollars 180,000,000 in London, Ontario is doing that. Leasing activity is compared and occupancy at this stage is at the same as it was last May. And so are a couple of our student buildings here in Halifax. Also just to give you a little color on that, April occupancy for apartments was better than last year's and MHCs was the same. So we're really with a good trend in May that occupancy as well overall will be better than May 2019. Thank you. Those are my questions. Good color. I'll turn it back. Thank you. Thank you. Next question will be from Matt Kornack at National Bank Financial. Please go ahead. Hi, guys. With regards to your geographic exposure, and I think someone hinted at it before, but obviously the federal welfare subsidy package that's been rolled out has disproportionate impact in areas where rents may be lower. But what are you thinking from a reopening standpoint in Atlantic Canada? I mean, Atlantic Canada has probably fared better with regards to this infection than other regions, but that subsidy is a near term tailwind in terms of people being able to pay rent. And I'm wondering how you think about the economy going forward? Hi, Matt. Sorry, your question you go ahead, Rob. That's okay, Phil. Go ahead. I can fill it in. I was just trying to understand his question first. Yes. I was just like the I mean, do you think Atlantic Canada is less exposed economically to this crisis? Obviously, there is going to be job losses generally, but are the industries that you have there likely to come back quicker? And I'd assume that because there has been less of a virus impact, you can reopen quicker. I'm not sure what the individual geographies are doing out there. But Quebec's trying to lead the way here and we'll see what happens. But generally speaking, economically, it doesn't seem like Atlantic Canada would be as exposed to some of the industries that have been hard hit. Well, I'm going to give you a couple of The The first part of your question as I understand it, I mean you're asking where we are whether it's Atlantic Canada versus the rest of the country about the overall economic impact or how we reopen the economy once potentially the restrictions get lifted probably in phases. And in terms of what it's going to look like in 12 months or 18 months from an unemployment point of view, I really don't know. But I do believe that the a lot of the large employers based in Atlantic Canada like the Irving Shipyard, once the restrictions are lifted that they can come back and start the work, all those people will be back employed. So there is a whole range of jobs like that with a large layoff, say in wherever it is up in New Brunswick in terms of the forestry. Those jobs are still there and waiting for the restrictions to be lifted and people will get back to work. So that's my kind of my first point and I don't think it's any different right across the country from that. It's just a matter of how in the staging that these jobs come back and one gets open. I think that there's from the residential point of view, we're quite comfortable with our assets and for people knowing they have to live somewhere that we will collect our rent and most people are prepared to sort of make sure that they have enough money for the necessities, food and shelter. The what's occupying management at Killam quite a bit and even though it's a very small part, we want to help out our commercial tenants whether they're in the base of or the 1st floor of an apartment building or for instance Westmount Plaza and then over in Charlottetown Mall. So in that I think will take time, but again most of those jobs will come back and the stores will reopen. And Raul, I'll give it to you to just to sort of add your thoughts to the question. Sure. Thank you, Philip. So we would have, in Atlantic Canada, the 4 major cities are all capitals of the provinces. And so therefore, we'd have a fair bit of government and we see that as a good base. They're all being paid, not been layoffs there and we'll see that. And then we're in Edmonton and we're in the nation's Napa Ottawa. So across the board, we will benefit from the employment in those cities from government agencies. So we see that as being one of our benefits. But overall, I mean specifically you asked about Atlantic Canada. Some made the point, I think that we have a number of big employees that will go back to work. Taking Halifax, for example, construction is a big part of how people are employed here. It's lots on the go. And we know that a lot of the people that work in that sector are able to go back to work. They can get distancing in a lot of cases. So I see that coming back fairly rapidly. So just a bit of a comment. Recently, the phrase has been record unemployment, record unemployment. And actually, I think that we should be more precise. It's record layoffs. These are not permanent job losses. And I think in any jurisdiction that a lot of people come back to work, but I think the media likes to put out there the phrase that these are record unemployment numbers. That's not true. I think when I think of unemployment, it's a permanent event, whereas I think the vast majority of what we're seeing here is a layoff situation. Fair enough. And I mean the federal government's bridge in terms of $2,000 a month per person goes a fair bit versus the rents that you're collecting on your apartments and nobody's going out to party or go to a bar these days. So they've got a little bit more disposable income to pay rent and groceries. And last question for me with regards to margins, are there incremental COVID related cleaning costs? And it sounds like energy costs have come down more than enough to offset that. But going into sort of lower consumption energy months, would you expect the cleaning and other costs related to COVID to maybe grind margins a little bit? We don't think that's going to grind the margins. Where we are spending some additional funds is actually on our frontline staff. So we would have given them a raise through this event and then we'll continue until we see our way through it. But other than that, I mean the cleaning costs, but it's not a material number and we have seen gains elsewhere. So I think my expectation is and our expectation is we should be relatively flat. And Erin, do you want to any more clarity on that? No, I think that covered it. Thanks, guys. All right. Thank you. Next question will be from Brad Sturges at IA Securities. Please go ahead. Hi, good morning. Just one quick question. With the reduced leasing traffic right now, does that mean you're seeing a better conversion rate just based on the type of traffic you're seeing right now as more perhaps being more of a necessity to make a move from a life circumstance or any color there would be helpful? Hi, Brad. It's Nancy. Yes, that's correct. You'd be seeing a better conversion ratio, so there's just less traffic. But there's been such demand in the last year, we would have had an abundant amount of traffic. Sometimes you don't need 5 applications to lease one unit, right? So what we're seeing now is a lot of really good quality. And the decline in turnover that we're seeing, especially with some of the properties, I guess, that are more focused on an older demographic. But we're also seeing reduced traffic, but reduced turnover is kind of going hand in hand with our occupancy in April May and forecasting out to look very comparable to what it was last year. Okay, great. Thank you. Thank you. Next is a follow-up from Howard. Please go ahead. Thanks for taking my follow-up. Just wanted to follow-up on the question earlier about the economic impact And just talking about some of the job losses, I'm wondering for tenants who are in more of the service industries or travel, there could be some more permanent layoffs. Any sense of how many of those tenants comprise of Killam's space? I can't think of anybody on the travel side to tell you the truth. I'm pretty sure and I've been down that list, none of it sounds so that maybe from that perspective. And what was the other one you had, Howard? The service jobs. So I guess like restaurants or Yes, we would certainly have restaurants. I can't say how many square feet or gross dollar amount is related to those tenants, but it wouldn't be a major number. But when I think of our portfolio and off the top of my head, it's not that big, so I can go through most of it. I would say to you it's ancillary, so it would be so we'd have some Chinese food in Monkeys, Italian. Across the board, we'd have a good mix. I'm not saying that none of them will find themselves in difficult times, but I don't think you're going to see that many. I really don't. That's great. And then just one more on turnover. You mentioned overall for the year turnover might be down. I think it was 3% to 4%. For April, what was the turnover, I guess, compared to year over year? I don't know if I missed it or I do know for the first since the start of this year that we are down above, I think so I think it was 7.8% with turnover for the 1st 4 months last year and this year it's about 6 point 1 or 2. So 1.1. I think Nancy you said 1.8. So 1.5. Yes, so it's not been that significant. Okay, great. Yes, those are my follow ups. Thanks. Thank you. And at this time, Mr. Fraser, we have no other questions, sir. Please proceed. I would like to thank everybody for participating today, and we look forward to the Q2 conference call that will be in early August. Thank you. Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.