Good morning. My name is Brittany, and I'll be your conference operator today. At this time, I would like to welcome everyone to Killam Apartment REIT's second quarter 2019 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press star, then the number 2. Thank you. Mr. Philip Fraser, you may begin your conference.
Thank you. Good morning, and thank you for joining Killam Apartment REIT's Q2 2019 conference call. I'm here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; Erin Cleveland, Vice President of Finance; and Nancy Alexander, Senior Director of Investor Relations. Slides to accompany today's call are available on the Investor Relations section of our website under Events and Presentations. I will now ask Nancy to read our cautionary statement.
Thanks, Phil. This presentation contains forward-looking statements with respect to Killam Apartment REIT and its operations, strategies, financial performance, and conditions. The actual results and performance of Killam Apartment REIT could differ materially from those expressed or implied in such statements. These statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Important factors that could cause actual results to differ materially from those expressed include, among other things, general economic and market factors, competition, changes in government regulations, and factors described in the Risk Factors section of Killam's annual information form and other securities and regulatory filings. This cautionary statement qualifies all forward-looking statements attributable to Killam and the persons acting on its behalf. Unless otherwise stated, all forward-looking statements are as of the date of this presentation, and the parties have no obligation to update such statements.
Thank you, Nancy. I am pleased to report another quarter of solid operating and financial growth for Killam. We achieved net income of CAD 82.8 million, which was fueled by organic NOI growth, acquisitions and developments, and fair value gains on our portfolio. We earned funds from operations of CAD 0.25 per unit, in line with Q2 2018. We are on track with our financial plan and expect to show FFO per unit growth in the second half of the year. We have made headway on our strategic targets in the first half of the year, as summarized on slide four. Based on strong top-line revenue growth and continuing management of expenses, same property NOI increased by 3.7% compared to Q2 2018, and 4% year-to-date. This is in the range of our same property NOI growth targets for the year. Q2 was busy with acquisitions.
We closed CAD 136 million of assets in Toronto, Calgary, Charlottetown, Moncton, and Fredericton, with another CAD 9 million expected to close in the next week. Of the assets acquired, approximately 53% are located outside Atlantic Canada, and we are expected to meet our target of earning a minimum of 30% of our 2019 NOI outside this region. Our 50%-owned Ottawa development, Frontier, opened on June 1st and is already 75% leased. Our development activity in Ontario continues to progress, with work underway at both the second phase of Frontier development and our development in Mississauga. I will now ask Dale to recap our financial results.
Thanks, Phil. Slide five shows our Q2 2019 and year-to-date financial results. Killam generated FFO per unit of CAD 0.25 in Q2 and CAD 0.45 year-to-date, in line with our 2018 results. Increased NOI from strong same-property performance and contributions from recent acquisitions and developments was offset by the short-term equity dilution from the timing of deployment of funds raised for acquisitions and CAD 0.7 million of timing differences and one-time costs. This includes CAD 0.2 million of non-recurring marketing costs associated with the lease-up of the Frontier and CAD 0.5 million of timing differences in energy and natural gas costs, which are expected to reverse in Q4.
In order to shorten our monthly close process, as well as refine the accuracy of our monthly utility expenses and allow for improved analytics, we recently moved to recognizing actual utility bills in the month they are received, i.e., a month delayed, versus setting up accruals on a monthly basis. This means in Q2 2019, utility expense reflects bills from March to May, versus April to June in Q2 last year. The increased expense from March to June is approximately CAD 500,000. This will flip in Q4 when we expense bills from September to November versus October to December. Please note we made adjustments to the 2018 same-property results to ensure comparable periods. We're pleased with the performance of our same-property portfolio. The trend of high occupancy and increasing rental rates continues.
As illustrated on slide six, overall rental rate growth was up 3.2%, 80 basis points higher than Q2 last year, and double the 1.6% average rental rate growth we achieved in Q2 2017. With higher rental rates, improved occupancy, and low incentive offerings, Killam achieved revenue growth of 3.5%. Robert will provide further details on increased rental rates later in the call. As shown on slide seven, operating expenses increased 3.1% in the quarter. Higher natural gas prices, coupled with increased fuel consumption as a result of colder spring temperatures, contributed to this increase, with apartment utility costs up 4.3%. General operating expenses and property taxes were up in the 2%-3% range in the quarter and year-to-date, and in line with our expectations. Killam's debt metrics are highlighted on Slide 8. Total debt as a percentage of total assets was 47.7%.
Killam's interest coverage ratio was 3.21 times. Normalized debt to EBITDA decreased to 10.35 from 10.62 at year-end 2018. Slide nine highlights Killam's debt maturity profile, including average apartment mortgage rates by year versus prevailing CMHC-insured mortgage rates. Based on current market rates, we expect to refinance maturing debts through the remainder of 2019 at interest rates well below existing levels. Approximately 84% of our apartment mortgages are CMHC insured, with a weighted average interest rate on all mortgage debt at 2.95%. The portfolio has a weighted average term to maturity of 4.6 years. As shown on Slide 10, through acquisitions, developments, capital investment, and appreciation of existing properties, Killam's real estate portfolio has grown to CAD 3.1 billion in value. We are acquiring and developing high-quality assets in prime locations.
This, along with strong demand for multi-family residential assets, has translated into compression in the weighted average cap rate of our portfolio, including a 10 basis points tightening since year-end for our apartment portfolio and 114 basis points compression in the MHC portfolio. This decrease in cap rate, coupled with strong revenue growth, is reflected in CAD 97 million of fair value gains so far in 2019, CAD 30 million of which is attributable to the MHC. I'll now turn the call over to Robert, who will provide details on our operating performance.
Thank you, Dale, good morning, everyone. As shown on Slide 11, Killam continues to execute its strategy to increase the value of our business by increasing funds from operations and net asset value based on three key priorities: increase earnings from the existing portfolio, expand the portfolio and diversify geographically through accretive acquisitions, with an emphasis on newer properties. Number three, the development of high-quality properties in Killam's core markets. I will focus on Killam's operating performance year-to-date and our key revenue initiatives that drive our growth before turning the call back to Philip to discuss new developments, our development pipeline, and recent acquisitions. Slide 12 highlights the key areas we use to achieve funds from operations and net asset value growth goals. With a robust and seasoned development program, Killam adds new high-quality, energy-efficient units to our portfolio each year.
We are fortunate to work with like-minded joint venture partners, such as RioCan REIT, that complement Killam's skill set and deliver accretive growth opportunities. We continue to acquire assets across the country, targeting newer properties where possible to decrease our portfolio's average age. Our commercial mixed-use acquisitions these past two years have focused on retail developments with intensification opportunities. Dispositions of misaligned or non-core assets are done so we can more profitably reinvest the sale proceeds. This past quarter, we sold two properties in Ottawa and have recycled that capital. Killam's portfolio is comprised of 16,000 apartment suites, 5,400 MHC suites, and three-quarter of a million sq ft of commercial space. In the next several slides, I will discuss our operating results, detail two value-enhancing programs, namely our suite and building upgrade program and our technology investments, all designed to maximize unitholder value.
Slide 13 shows Killam's same-property rental growth and property occupancy results by market for Q2 2019. In addition to the strong occupancy already noted, we are pleased with Killam's apartment portfolio's 3.2% average rental rate growth. As shown, Killam has delivered impressive same-property rental growth in virtually all markets, save for Edmonton. The value of geographic diversification is evident when you see Saint John, New Brunswick leading Killam's rental growth parade with a 4.4% increase this quarter, followed closely by the GTA and Cambridge region, which reported a 4% increase. The Halifax, Ottawa, Moncton, Calgary, and London markets' rents were up 3.2% or better this quarter. Rental rate growth for new tenant leasing was 5.6% in Q1, a 120-basis point improvement over last year.
Rental rate growth for renewing tenants, which represents approximately 70% of our apartment portfolio annually, delivered an average gain of 2%, up 40 basis points over Q2 2018. We see additional opportunities to move rents for renewing units higher in coming months and quarters to recognize the better market conditions and Killam's value proposition. Slide 14 graphs the rental rate trends over the past two years. Strong market fundamentals and Killam's rent optimization program have generated notable increases in rental rates on unit turns. We have earned a healthy 20-basis point uptick each and every quarter for the past six quarters as we rolled out our revenue-enhancing programs. For Q2 '19, we delivered a 30-basis point increase in average same-property rental rates to 3.2%.
Market demand for Killam's quality rental units continues across the country, and in response to this opportunity and as highlighted on Slide 15, we have been accelerating our suite repositioning program. For 2019, we are targeting 300-plus repositionings that should generate an aggregate CAD 1 million in additional NOI. With 186 new repositions completed or underway year-to-date, we are executing to plan. Far in 2019, the average monthly rental increase for repositioned units is CAD 280 per unit, generating an unlevered return of 13% on an average investment of CAD 26,000 per unit. Given these stellar returns, in 2020, we will bolster Killam's unit repositioning program to complete 400 and perhaps 500 repositionings. Slide 16 highlights the result of an upgraded and repositioned unit at our Westminster property in London, alongside pictures showing the unit prior to the upgrade.
We identified 3,000 additional units for repositioning and estimate we can complete this work within six to seven years to earn an estimated CAD 10 million in additional NOI. This translates into approximately CAD 200 million in organic net asset value growth. In conjunction with driving revenue growth by repositioning units, we also invest in common area upgrades to ensure the curb appeal and property amenity spaces have the same look and feel as the upgraded apartments. Slide 17 includes pictures of the upgrades at our 233-unit Quinpool Tower property in Halifax. We have invested CAD 4.5 million to upgrade the exterior cladding, plus took the opportunity to install superior insulation and all-new windows. Today, Quinpool Towers is not only more aesthetically pleasing, it is more energy efficient, thereby decreasing Killam's carbon footprint and driving higher FFO per unit.
In 2020, we will construct a two-story, 2,000 sq ft tenant lounge at the building's entrance to complement the updated signage, corridors, and common areas. Stay tuned. Slide 18 highlights new amenity upgrades at our 84-unit Torbay Road property in St. John's and our 198-unit Quinpool Court asset in Halifax that are being completed along with the unit upgrades. Killam's more recent investment embraces technology for its online property management platform, enabling Killam to integrate new and innovative technologies as our business continuously evolves. Slide 19 highlights the program Killam uses to better serve its tenants and optimize NOI. We rolled out mobile maintenance work orders, property inspection apps, and fully integrated our front-end online leasing, marketing, and customer relationship software. This gives Killam the ability to optimize rental opportunities, reduce vacancy, and deliver high-quality services to our prospects and tenants. As well, we have real-time access to this data.
Having real-time access to this data is key to ensuring we can rapidly analyze our markets, our tenants, prospects, vendors, and better enables Killam to make informed and more accurate operating decisions. Slide 20 shows examples of how we use analytics to make timely decisions regarding employee hours, effectiveness of marketing sources, leasing conversion ratios, and traffic trends by property, neighborhood, day, and by the hour. I will now hand you back to Philip to provide an update on our mixed-use redevelopment project we are working on in downtown Halifax, our recent acquisitions, and new developments. Thank you.
Thank you, Robert. Slide 21 shows the Brewery Market, a unique historic complex in downtown Halifax. This 158,000 sq ft commercial property was purchased with two adjacent development sites in March 2015. We built the 240-unit Alexander apartment building on the largest of the two development sites next to the Brewery Market, which has turned out to be an exceptional apartment building with commanding views of the harbor, high-quality finishes, and amenities. The Brewery Market has a mixture of office and retail tenants. From the initial purchase, the intent was to integrate the two development sites with the commercial complex and maximize long-term earning potential. In Q2 2019, a planned tenant turnover at the Brewery Market provided Killam with an opportunity to redevelop the vacant space and attract a more diverse tenant base at higher net rents, which complements the increased residential density in the area.
As shown on slides 22 and 23, currently, we have committed occupancy of 84% and expect to be fully re-leased in 2020. New leases have averaged CAD 1,420 per square foot, 44% higher than the old rent for the 31,000 square feet already re-leased. NOI in 2019 is expected to be CAD 0.5 million lower compared to 2018. However, this is expected to be more than offset by long-term NAV growth and an estimated increase of CAD 750,000 in NOI for 2020. We have good leasing activity on the other commercial space in the adjacent buildings, 6,000 square feet in The Alexander, 5,800 square feet in the Benjamin Warehouse, an additional 1,800 square feet in the Alexander Keith Building that is either in its initial lease-up or current rental rates are below market. In addition, The Governor, the proposed remaining residential development, is expected to start in Q1 2020.
Slide 24 details our acquisition history. Killam acquired CAD 135 million in Q2, with an additional CAD 9.2 million expected to close in mid-August. We now have exceeded our minimal acquisition target of CAD 100 million for the year and will continue to look for accretive opportunities to add to our portfolio. Slide 25 shows our acquisition of a 50% interest in the Charlottetown Mall from RioCan REIT that closed in May. This 352,000 sq ft retail complex features a stabilized, grocery-anchored, enclosed mall located on 32 acres in the heart of PEI's busiest retail node. Charlottetown Mall is a dominant shopping center in the province and capitalizes on superior frontage, high traffic flows and visibility on Charlottetown's busiest north-south intersection. This property is well located, surrounded by retail, residential neighborhoods, apartment complexes that we own, and the University of PEI. This complex provides an attractive all-cash yield of 6.7%, with multi-residential development potential.
Killam and RioCan are working together to redevelop the retail operation by relocating tenants in the older portion of the mall to a newer section, which will provide room for residential development. As shown on slide 26, the large surface parking lot surrounding the mall offers a compelling future multi-res opportunity. Current zoning and development bylaws allow for significant new retail and multi-res development on the site. The current zoning could accommodate the potential development of up to 300 units in approximately 100-unit buildings, four or five stories, as indicated in the red rectangles on the slide. This development may require the demolition of some of the underutilized portions of the existing mall. Slide 27 shows our recent purchase asset in Fredericton, which has been easily absorbed in our strong operating platform.
It is a four-story new concrete apartment building containing 59 units and 48 underground parking stalls for a purchase price of CAD 8.3 million. The building was designed with the intention of catering to seniors, with a full-care senior facility directly next door to the building. The building is conveniently located in a developing neighborhood close to retailers including Walmart, Canadian Tire, and Atlantic Superstore. The all-cash yield is 5.8%, and the building is 100% leased. In June, Killam acquired the remaining 50% interest in two assets, Grid 5 in Calgary and Silver Spear in Mississauga, from our partners for CAD 70 million, as shown on slide 28. The purchase price of the apartments represents an all cap rate of approximately 4.2% and is in line with Killam's IFRS fair values for the existing interest. The purchase also includes CAD 4 million for the remaining 50% interest in the development site.
Slide 29 shows a 127-unit residential and 45,500 square foot commercial portfolio located in the fast-growing neighborhood of Dieppe that Killam purchased for CAD 28.9 million in June. This property in the Moncton area consists of three four-story residential apartment buildings, a mixed-use building with retail on the ground and residential on the top floor, and an IGA-anchored grocery store. The purchase also included 2.5 acres of vacant land for future residential development. The buildings are relatively new and in excellent condition. The residential buildings were completed between 2011 and 2017. Currently 99% occupied, with an average rent of CAD 1,143 per unit. The mixed-use concrete building was completed in 2019, and the grocery store in 2007. Slide 30 shows Lian Street asset, a new four-story wood frame apartment building in Fredericton, New Brunswick, that will close next week. The purchase price of the 48-unit building is CAD 9.25 million.
The all-cash yield is 5.4%, and the building is currently 100% occupied. Slides 32 and 33 show the Frontier in Ottawa, our latest completed development, which opened on June 1st. Frontier was completed on budget and on schedule and is already 75% leased. We expect to be fully leased by the end of the year. The expected yield on this development is approximately 5.25%, a healthy 125 basis points above the current cap rate. This has resulted in a CAD 9.2 million fair value gain to date on our 50% ownership, with another CAD 2 million to CAD 3 million expected once stabilized. Slide 34 shows the second phase of the Gloucester City Centre development, Latitude, next to Frontier. We broke ground in Q2 on this 209-unit project, and the expected completion is in late 2021. Our Charlottetown development, shown on slide 35, is progressing on schedule.
The five-story building will contain 78 units with underground parking overlooking downtown Charlottetown on the waterfront. The average size of the units will be 1,000-plus sq ft, with amenities that include a gym, social room, and a library. The project's budget of CAD 20.8 million has the anticipated all-cash yield of 5.6%. Slide 36 show progress pictures of this project. As shown on slide 37, site preparation work is underway at our 128-unit development in Mississauga, which will now be called The Kay. That's K-A-Y. Construction will take 24 months with a CAD 49 million budget, with an anticipated all-cash yield between 5% and 5.25%, which is an approximate 179 basis points premium over the current market cap rate. Finally, we continue to refine and advance our development pipeline. A full list of our pipeline is included on slide 38.
It is worth noting that two-thirds of Killam's future development pipeline is outside of Atlantic Canada as we continue to grow our presence in Ontario and Alberta. To conclude, we are pleased with Killam's strong operating and financial performance. We embrace innovative ways to accelerate revenue growth, manage our operating expenses, and create value for our unitholders. Our focus strategy is leading to increased earnings, a stronger balance sheet, more geographical diversification, and one of the highest quality apartment portfolios in Canada. This concludes the formal part of the presentation, and we will now open up the call for questions.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order that they are received. Should you wish to decline from the polling process, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Mark Rothschild from Canaccord. Please go ahead.
Thanks. Good morning, guys.
Good morning, Mark.
At the Frontier, you obviously did well with rents and we see the fair value gains. To what extent have rising costs been an issue with development returns, and does that impact at all the values we should see going forward? I'm looking at the Latitude where you're forecasting or projecting an expected yield of 5.2% and wondering how that relates with the rents that you're getting at Frontier.
Mark, I think it's a good question. You got to kind of look at it again. Think about that every development that you start with, there's a planning process. You basically prepare your budget, you go to tender, and then all the pricing is fixed. There is a period when it's like from looking over a period of time. At that point, when you finish a development, that pricing is basically 18 to 24 months historically in terms of what the pricing was to build it. Fast-forward, like you're asking, pricing has gone up since we started the first phase of Frontier. With that, we fully expect, because of where we are with rental rates on the first phase, that the second phase will be higher rents on a per square foot basis.
Therefore, even with increased development costs, your yields are still within that range of where they were in the first one.
For the Latitude, for the 5.2%, that assumes better rents than what you're getting at Frontier.
That's right.
Okay, fine. In regards to cap rates, if you're buying new in Fredericton at 5.8%, and you're assuming in Ottawa, the value for, let's say, for Frontier or Latitude would be 4%, is that what you'd consider now the proper spread between a smaller market like Fredericton and a newer property in Ottawa? Maybe if you can just expand on how it relates to how it compares to the IFRS values cap rates you're using.
No, I don't think it's like in the smaller markets like a Fredericton or Moncton, there is a bit of that. Again, I think we're also drawing strongly on our relationships to be able to buy these assets as opposed to they're not being fully marketed. The larger the market, the more all properties are fully marketed, and therefore, there is where cap rates are today.
Okay, great. Thank you.
Yep.
Your next question comes from Jonathan Kelcher from TD Securities. Please go ahead.
Thanks. Just going back to the Frontier. The 75% leased, is that in-place or leased?
I think in-place is.
Occupancy is about 62%, yeah.
59%, 60% today.
Oh, like, yeah, occupied.
Occupied.
Okay. Was there any NOI in Q2 from it?
No
sort of loss, I guess?
Yeah.
Yeah.
That's it. Yeah.
Okay. The CAD 80,000 in gains per unit, which obviously a big number and another CAD 20,000 or so to go, sounds like. Is that just a function of rental rates being above pro forma?
Yes.
Okay. Just I guess sort of back to Mark's question, the cost for Latitude is about 25% higher. Is that really just a function of where construction costs have gone over the last couple of years, or is there something more specific?
Again, we're in early stages of that development. Nothing has gone out to tender. That is a real pre-budget, budget. We have nothing sort of nailed down from a cost.
It does have more underground parking.
Yeah
which is more expensive. Underground parking is actually quite expensive, so that's factored into that value too.
Okay. That might answer my next question, because for Silver Spear, that's about CAD 35,000 a door less than Latitude. Would that be with no underground parking, or is there something else there?
The underground at Latitude is 3 levels. The underground at Silver Spear is, I think, just 1. Again, it depends on also the Mississauga development is our typical sort of Cambridge-Waterloo construction. It's the sort of the tilt-up, whereas Ottawa is poured in place with a crane.
Just on the Brewery Market, how much money are you putting into that to improve the NOI there, if anything?
Yeah. It would be something like around CAD 4 million. It might go a little higher.
Okay, thanks. I'll turn it back.
Thanks.
Your next question comes from Mike Markidis from Desjardins. Please go ahead.
Yes. Good morning, everybody. Your CapEx excluding development, so just on the rental portfolio this year, I think is at CAD 27 million, CAD 28 million for the first half, and I think it tends to be a little bit back-end loaded. Is it possible for you to provide an annual range of where you would expect that CapEx budget to come in?
Yes, for pub-
I think we included that actually in the MD&A.
CAD 60 million-CAD 65 million.
CAD 65 million. Excellent. Sorry for missing that.
CAD 60-CAD 65, Mike.
Might actually be a little bit-
Yeah.
Yeah.
Got it. Okay. Thank you. That's great. Just with respect to your progress on rental rate growth, both on turn and renewal, you guys are getting really good traction there. I do also note that your CRM was only implemented in March. I guess my question would be, do you expect that the progress that you've had, I think Rob specifically said that you'd be expected to do better than 2% going forward. I was just wondering if you could give us a sense of how much more you're expecting and how quickly on that program.
I think it's hard to narrow down on a number, but I think that, as you mentioned, that CRM is still relatively new, and we are not yet maximizing the full potential of it. As we've highlighted in the call, we were already capturing a lot of data, but there are a few more layers to really try to maximize the growth. I'd say it's safe to say we expect to be able to maximize revenues more than we have been with that. It's hard to quantify what exactly that's going to look like.
Trend keeps going higher, just not sure if it accelerates or.
Well,
stays the same pace.
would expect we may see some acceleration. I think it's going to be market by market. There's going to be some markets where we're really able to capture where the demand is super strong, and those will accelerate.
Okay. No, I got it. That's fine. Last one here is just, Phil, wondering if you could provide any thoughts. I think, as the last sort of six to nine months has progressed, originally it was sort of moratorium on development to Alberta. You did buy Grid 5, but that was, I guess, a partnership JV deal. Given what you're seeing in Alberta today, I was just wondering if you could give some additional thought in terms of if you expect to acquire more assets in Alberta in the near future, or if you're looking for the portfolio to strengthen there first.
I think the answer is we're looking to see what we have there strengthened, sort of stabilized in terms of not only the occupancy, but our staff out there. Still with an eye on looking for opportunities. In the next few months, there's nothing on the horizon.
Okay. I guess, you've been kind of flattish on the rental rates there, which, in this market, is probably a good outcome. I just noticed that there's a lot of cost pressure out there as well. Is that related to the turnover of suites and staff that you mentioned there, or?
Sorry.
Yeah, no, I think year-over-year, we certainly staffed up there compared to what we had last year from a leasing staff perspective and also kind of more administration there as well.
Okay. Is that sort of the new run rate going forward, or you expect some of that to be transitional?
I think it would be the new run rate go forward.
Okay. That's great. Thanks very much.
Thank you.
Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. Your next question comes from Yash Sankpal from Laurentian Bank. Please go ahead.
Good morning.
Hi, Yash.
Morning.
Just wanted to explore your NOI margins. They came down 60 basis points lower than last year, I understand part of that was because you have started accounting your expenses differently. Do you think your margins will keep expanding over the next two to three quarters?
I think as we keep moving those rents up and managing those expenses down, that we've seen that trend of the margin expansion over the last little while, and I think if we keep on the trend that we've been on, it's reasonable to expect that those will continue to increase.
Yeah. We've invested a lot of money in energy-saving initiatives, so we're seeing some gains there. We're moving the rents higher, so we're seeing gains there. They're working both in our favor on the margin side.
We're looking for efficiencies across our expense portfolio to see how we can continue to deliver the same product and quality at the most efficient price. The goal is to continue to move those margins up.
That's great. I was wondering if you could talk about your Edmonton market, in terms of what you're seeing in general in the market in terms of.
We're seeing more-
Occupancy.
Yeah. What we're seeing there, we're seeing actually a little more vacancy with our tenant base. We're leasing, but we're also seeing the people move. That market seems to be a bit in transition right now, and we know that the work in the new oil field is not as strong as it was. We think it's short term, but we don't really know exactly how the trend's going to proceed.
Yeah. Of the two properties, the 474 units are one that's downtown is actually trending positively in terms of occupancy. We're getting there. It's almost to the level where we want. Whereas the other one, a little bit more suburban, that has had about a 50% turnover on a yearly basis, we are sort of still seeing movement in there. The focus is to get there with good staffing that we have and a little bit more attention from head office that we think we'll be able to improve that over the next quarter to two quarters.
We're doing some upgrades in terms of the amenity space as well. That's being undertaken this fall, so we'll deliver on that front. They should come around.
It is interesting to see the turnover rates, as Phil mentioned. When you look for our portfolio overall, which is about 30% and as high as the high 40s to 50 in Alberta and then low, we're in the teens, I think, in the Cambridge and GTA area. Really, it's an interesting just difference in the market, but the turnover is definitely higher for our assets out west compared to the norm.
Are those your property-specific issues?
No, I'd say those are market issues.
specific. Okay.
Yeah.
No, those are for the area. It's not just our property. We monitor it closely.
All right. Just one more question. If you could give us your development budget for the rest of 2019 and 2020.
I think off the top of our head, we don't have that. I mean.
Like actual cash, looking for cash.
Are you talking cash or just overall? Because I mean.
Just cash, like how much you expect to spend on your development projects.
Yeah. Towards the end of the year, probably between CAD 10 million and CAD 12 million, which would be a large amount related to Silver Spear when that gets going before construction financing kicks in. In 2020, it would probably be in, yeah, the CAD 10 million-CAD 15 million range. Shorefront, for example, construction financing's expecting to start to kick in soon. From a net cash flow perspective, that's one asset that the cash will be offset by financing. Even with Silver Spear, because the value of the land and some of the development costs up front, it's pretty quick when we expect those construction financings to kick in.
All right. Thank you.
Thank you.
Thank you.
Your next question comes from Brad Sturges from IA Securities. Please go ahead.
Hi there. Just one quick one on the repositioning program. I was just looking at the potential total investment for the program over the next several years. Looks like the budget or potential total investment has increased a bit from last quarter. Just curious to know if that's a change in the type of work you're thinking on, the type of work that might be done within the suites, or is that just baking in a little bit more cost escalation?
Yeah. There's a bit of inflation impact there. It depends. It's across the board. We have some units that are in the low 20s, some in the higher 20s, but it's costing around CAD 26,000 to do one, so that's the costing. It's a very competitive market out there for labor.
Is that where you're seeing the most pressure right now in terms of labor, or is it some of the other material costs?
It's both. Material costs, there's an inflation impact there, and the labor is an interesting one.
Yeah.
It's interesting to note that even with those higher costs, we're getting some very healthy rent increases, too. When we look at the return on both, we're still staying around the same, we're still targeting the same type of return.
Yeah.
Yeah.
13% so far this year, all cash. It's a pretty nice cap rate.
Yeah. Okay. Thank you.
Thanks, Brad.
Your next question comes from Neil Downey from RBC Capital Markets. Please go ahead.
Hi. Good morning. In Dieppe, how long, or what's the remaining lease term rather, on the co-op IGA store and the gas bar? Are those leases flat, or are there any escalators over time?
Eight years with renewals, and flat for the eight years.
Okay. Thank you. The Kay, where did that name come from?
If you take a look at our board, the board chairman is a gentleman named Robert Kay.
Okay. There we go. Thanks.
He's been there from the beginning.
Yep.
Yeah.
One click.
There are no further questions at this time. Please proceed.
Yeah. Again, I'll just make one comment, a light comment from Neil's last point. We didn't spend CAD 30,000 with a consultant coming up with that name. Again, I would like to thank everybody for listening today, and we will see you back here in November for Q3. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.