Earnings Call: Q4 2018

Feb 13, 2019

Good morning, ladies and gentlemen, and welcome to the Killam Apartment REIT 4th Quarter 2018 Financial Results Conference Call. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. I would now like to turn the meeting over to your host for today's call, Philip Fraser, President and Chief Executive Officer. Please go ahead, Mr. Fraser. Thank you. Good morning, and thank you for joining Killam Apartment REIT's Q4 year end 2018 conference call. I'm here today with Robert Richardson, Executive Vice President Dale Noseworthy, Chief Financial Officer Aaron Cleveland, Vice President of Finance and Nancy Alexander, Senior Director of Investor Relations and Performance Analytics. 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 for 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 their 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 very strong year for Killam. We achieved net income of $136,000,000 compared to $115,000,000 in 2017 and earned funds from operations of $0.94 per unit, a 4.4% increase from $0.90 per unit in 2017. We realized historical high occupancy across our portfolio and achieved our largest year of acquisitions with $315,000,000 in assets acquired across the country. We were successful in achieving majority of our strategic targets for the year as summarized on Slide 4. Based on strong top line revenue growth, same property NOI has increased by 5% compared to Q4 2017 and a 4.8% for the year, reaching the upper range of our same property NOI guidance for the year. We purchased $113,000,000 of properties in 2018, well in excess of our revised 2018 target of $225,000,000 Of the assets acquired, approximately 7% are located at the side of Atlantic Canada and Killam generated 27% of its NOI from Alberta and Ontario in 2018. The Alexander, our most recent completed development in Halifax, opened in September and reached substantial completion in October, is now 100% leased. In December, we acquired the remaining 50 percent ownership in The Alexander. I will now ask Dale to recap our financial results. Thanks, Phil. Before covering the details of 2018, I'd like to recap Killam's growth over the past 5 years. A summary of Killam's financial performance for this period is included on Slide 5. Killam has achieved steady improvements in all its key financial metrics over this period. NOI has increased at a compound annual growth rate of 12.5%, FFO per unit has grown by a compound annual average of 6.8% and Killam has reduced its AFFO payout ratio to 84%. Leverage and liquidity have also improved with debt to total assets trending downward and increased capital resources available to fund acquisitions and development growth. Year end 2017 debt and liquidity results reflected temporary increase in liquidity following the closing of the November 2017 equity raise and the subsequent acquisition of 3 properties in December 20 17 without debt. Mortgages were placed on these assets in early 2018. Debt to total assets of 49.8% presented at year end 2018 are on a more sustainable basis. 2018 full year results are also included on this slide. Killam generated FFO per unit of $0.94 4.4 percent growth from 2017. AFFO per unit was up 5.6% in the year. This was driven by increased earnings from strong same property results and contributions from recent acquisitions, partially offset by an increase in the average number of units outstanding and increased interest expense, including increased amortization of deferred financing costs. Amortization of deferred financing costs was up in 2018 and in Q4 specifically due to the timing of recognition of CMHC premiums linked to refinanced mortgages. We've updated our accounting note on prepaid CMHC insurance premiums. CMHC premiums are amortized over the amortization period of each loan. On refinancing, older unamortized premiums that don't relate to the new refinanced mortgage are written off in the period of the refinancing. Chillon uses a mix of refinancing options with CMHC, often with the previous CMHC insurance continuing to benefit all or a portion of the new mortgage on refinancing. There are times when we may maximize the mortgage on a financing and also begin a new amortization period. Under this scenario, although a portion of the original CMHC insurance premium may be applied as a credit to the new premium, a portion of the older premium that has not been fully amortized will be written off with the start of the new mortgage. During Q4, Killam expensed approximately $1,800,000 of CMHC insured premiums related to previous refinancings. As disclosed in the MD and A, we expect amortization of deferred financing costs to decrease to approximately $2,500,000 in 20.19 compared to $4,400,000 in 20.18. Partially offsetting the timing of recognition of deferred financing costs, Killam recorded $1,100,000 of revenue in Q4 related to the recognition of forgivable government loans used to fund affordable housing units, as noted on Page 16 of the MD and A. Netting these 2 non recurring entries, net income and FFO were reduced by approximately $700,000 in Q4 and for the year. Highlights of Q4 operating results are included on Slide 6. Same property revenue was 3.1% ahead of Q4 2017 due to strong leasing activity in Killam's core markets. Operating expenses were a modest 0.1% higher than Q4 2017. In total, Killam's same property NOI increased 5% in Q4 and Killam generated FFO per unit of $0.23 4.5 percent ahead of Q4 2017. Turning to Slide 7 and Killam's full year results. Overall occupancy and rental rate growth continues to trend higher. The 2.7% increase in rents achieved this year is 90 basis points ahead of last year and the highest average rent rate increase since 2012. We've also reduced rental incentives, which are down 43% year over year. Same property expense growth is up 1.6% for the year as shown on Slide 8. Savings were realized in utility and heating costs due to lower natural gas prices in Ontario as well as reduced consumption as Killam benefits from efficiency projects installed in the last 2 years. These savings were offset by inflationary increases and timing of general operating expenses. Property tax expense remained relatively flat as rising property assessments were offset by successful tax assessment appeals. Jones' debt metrics are highlighted on Slide 9. Slide 10 highlights our debt maturity profile, including average apartment mortgage rates by year versus prevailing CMHC insured mortgage rates. Killam benefited from lower interest rates on refinancings in 2018, but we expect to refinance apartment maturities in the next 12 months at slightly higher rates than the weighted average interest rate on maturing debt of 2.82%. We are using a combination of 5 10 year terms on debt refinancing and to date have been more heavily weighted to 10 year debt. Year to date, we have refinanced $30,000,000 of debt, representing 18% of our refinancing for the year at a weighted average term of 8.1 years 1 years, sorry, and a weighted average rate of 3.08%. As shown on Slide 11, through acquisitions, developments, capital investments and appreciation of existing properties, Killam's real estate portfolio has grown to $2,800,000,000 in value. This, along with strong fundamentals and cap rate compression, translated into $135,000,000 in fair value gains in 2018. I'll now turn the call over to Robert, who will provide details on our operating performance this quarter. Thank you, Dale, and good morning, everyone. As shown on Slide 12, Kilmer remains focused on increasing funds from operations and add asset value by executing on its 3 key strategies: increasing earnings from the existing portfolio, expanding the portfolio and diversifying geographically through accretive acquisitions with an emphasis on newer properties and thirdly, developing high quality properties in Killam's core markets. I will focus on Killam's operating performance for 2018 along with our strategic revenue and expense management initiatives before turning the call back to Philip to discuss our development pipeline and recent acquisitions. Killam's existing $2,800,000,000 portfolio includes 15,900 apartment units, 5,400 rental sites and 37 manufactured home communities and 500,000 square feet of commercial space. We are committed to maximizing unitholder value and Slide 13 highlights the creative and innovative programs Killam employs to achieve its FFO and net asset value growth goals. Top line growth combined with expense management remains a key priority. But sorry, excuse me, but additional metrics that are more subjective such as superior customer service, technology gains and enhanced analytics are also critically important. Killam seeks continuous improvement and provides the tool to enable its staff to perform efficiently. Slide 14 details Killam's strong same property rental rate growth and property occupancy results by market for 2018. Following an impressive 2017 that posted higher than average rental rate growth and occupancy gains, Killam successfully maintained this momentum throughout 2018 to again deliver better year over year rental rate growth in all its core markets. Rental rate growth for new tenant leasing was up 5.3 percent year over year, a 190 basis point improvement over 2017. Rental rate growth for renewing tenants, which represents approximately 2 thirds of our apartment portfolio, delivered an average rental rate gain of 1.7%, a 70 basis point gain versus 2017. Halifax, Killam's largest market, is one of 4 Killam markets that reported same property rental rate increases of 7.4% or greater on new leasing, plus a better than 2% improvement for renewing tenants. Overall, Killam's management and leasing team generated record high occupancy for both the Q4 and full year 2018. Killam reported a 20 basis points to 160 basis points improvement in all markets except for 2. Both St. John's and Calgary continue to be impacted by low oil prices. However, despite the fact that both St. John's and Calgary recorded occupancy dips of 120 basis points and 40 basis points respectively, both markets reported improvement in same property net operating income, up 70 basis points for St. John's and up a strong 5.1 percent for Calgary. The chart at the bottom of Slide 14 highlights that Charlottetown remains better than 99% occupied and we expect this trend to continue given the higher rates of international immigration and very little new multi residential supply in the PEI market. Overall, Killam reported consolidated same property occupancy of 97.1% in 2018, 50 basis points better than 2017. Market demand for quality rental units continues undiminished and Killam's portfolio was well positioned to capture additional rental rate growth. In response to this opportunity and as highlighted on Slide 15, we accelerated our suite repositioning program in 2018 to $3,000,000 Successfully renovating 170 units. This represents an increase of $2,000,000 from the $1,000,000 invested in up to upgrade 47 units in 2017. The repositioned units completed in 2018 earned an average return on investment of 14%. This from average monthly rental rate increases of $2.53 We recognize the significant return opportunities from repositioning units and we are accelerating this program. In 2019, we have budgeted 300 plus repositionings and should generate an aggregate $900,000 in additional net operating income from these upgrades. An in-depth review of our almost 16,000 multifamily units identified 3,000 additional units we're repositioning. We estimate we can complete work from the 3,000 units within 6 to 7 years and earn an estimated $9,000,000 in additional NOI. This $9,000,000 in additional earnings should translate into approximately $170,000,000 of organic net asset growth. The portfolio average cost to reposition a unit is approximately $20,000 or a total of $60,000,000 to reposition these 3,000 units. Hand in hand with suite upgrades, we also completed upgrades to the related buildings common areas, complementing the suite renovations and resulting in a more thoroughly repositioned property. Slide 16 through 20 highlight examples of the type of unit and common area renovations completed in 2018 for 32 properties within our portfolio. As presented during the last two quarterly conference calls, today we will highlight 3 new properties where we have performed upgrades. Slide 17 profiles our Garden Park property in Halifax. Built in 1980, this mid rise building has 246 units and is located at the corner of Spring Garden Road and Cathedral Lane in the heart of downtown Halifax. Garden Park's excellent location supports the investment in updated higher end units and we've been doing this for the past 3 years. In 2018, a $22,000 investment focused on kitchen, bathroom and flooring upgrades generated an average rental rate increase of $2.35 per month, equating to a 14% return on investment. As well, we updated Garden Park's main lobby entrance and gym as shown on Slide 18. Garden Park is well positioned to remain competitive for the next 10 to 15 years. Slide 19 shows our 50 year old Park Street property in Dartmouth. This 239 unit mid rise, mid market asset is a case study in the value of investing $21,000 in new kitchens, bathrooms and flooring to earn average rental increases of 24% or $2.20 per month to generate a return on investment of 13%. Our 3rd property profile is on Slide 20 and highlights Spring Garden Terrace in Halifax. This 201 unit property has a prominent location on Spring Garden Road, adjacent to Halifax Public Garden and is within walking distance to all urban amenities. Constructed 55 years ago, Spring Garden Terrace offers large rental suites and has excellent views of the city's south end skyline. Over the past 5 years, Killam has invested $6,300,000 to return this asset to its former prominence. Upgrades include new balcony railings and glass panels, new windows and brickwork as required, an upgraded exterior entrance, including a new canopy for anesthetics and hand railings. With facade in hand, more recently, we have been updating the corridor and common areas along with the suites. An investment of $18,000 per unit on kitchen, bathroom, yes, flooring, and an increase in rental rate of $2.30 per month or 18% for an overall 20% return on investment. Since each of these three properties has little to no vacancy, we reposition those units as they turn and with experience repositioned units are now offline an average of only 28 days. In conjunction with driving revenue growth, Killam manages expenses to further optimize net operating income. As shown on Slide 21, Killam is currently entering year 3 of its 5 year $25,000,000 energy efficiency plan focused on energy savings, such as the installation of ultra low flow toilets, LED lighting retrofits and heating system upgrades. These projects help mitigate the impact of expense increases. To date, we have invested approximately $10,000,000 in energy projects and have achieved a 20% return or a 5 year payback. In 2019, we have 123 projects planned for a total investment of $4,900,000 which should earn an estimated $1,100,000 of annualized savings for a 4.6 year payback. Slide 22 highlights Killam's focus on technology as we continue to leverage and develop our operating and financial platforms to help maximize growth and earnings. We employ leading edge processes to better service and engage our residents, prospective tenants, employees and suppliers. Killam's investment in its property management platform, including the education of our skilled staff, enables Killam to integrate new and innovative technologies as our business continuously evolves. All Kill employees have smartphones or tablets that deliver faster response times to our tenants' inquiries, enhance staff efficiencies and reduce paperwork, all saving time and money. We implemented mobile maintenance work orders, property inspection apps and are currently fully integrating our front end online leasing, marketing and customer relationship software. On our Q3 conference call, we mentioned that we were in the pilot stage with our front end CRM software and expect to be fully operational by the end of Q1 2019. We are well on our way with this target and currently we are at 47% of our portfolio online today. As Slide 23 shows, this investment is benefiting all stakeholders. The CRM tool will give Killam the ability to deliver the high quality service our tenants and prospect of tenants have come to expect and deserve as Killam maximizes rental opportunities and further reduces vacancy. We ensure our clients have the ability to book appointments and complete applications from the comfort of their home. With more of the data entry being driven by our tenant prospects, our leasing teams can focus on delivering exceptional customer service. As well, having real time access to this data is key to ensuring Killam can rapidly analyze its markets and make informed and more accurate operating decisions. Already, as illustrated on Slide 24, we're using analytics to make timely decisions regarding employee engagement, marketing sources, leasing conversion ratios and traffic trends. Before turning the call back to Philip, I want to quickly touch on the strong multi residential fundamentals in our key markets. The Halifax, New Brunswick and Ontario markets performed very well in 2018, delivering both excellent occupancy and NOI growth. Occupancy in the maritime and Ontario markets remain strong given increased immigration, economic growth and home affordability constraints, especially in the GTA. We have included Slides 36 to 38 in this presentation for additional information on our key markets. I'll now hand you back to Philip to provide an update on our recent acquisitions and new developments. Thank you. Thank you, Robert. Slide 25 details our acquisition activity for the year. Nearly 70% of the capital deployed in 2018 was in Alberta and Ontario as Killam continues to execute on its strategy of increasing the portion of NOI generated outside of Atlantic Canada. Slide 26 charts the 2018 acquisitions by both segment and region. We acquired $210,000,000 or approximately 750 units in apartments across the country with an average age of 18 months. Our $80,000,000 Westbound acquisition in Waterloo will be focused around the future multi residential development opportunity of that property. Dollars 4,700,000 was spent on 2 NAC properties that we absorbed with our existing operating platform in Ontario and Nova Scotia. And lastly, Killam doubled its development pipeline in 2018 with $27,700,000 in land for future development in the Kitchener, Waterloo, Calgary and Charlottetown markets. As previously mentioned on the Q3 call, we purchased a new Edmonton asset, the Trio, in the last quarter of 2018, as shown on Slide 27. This property consists of 2 4 story apartment buildings located in Northwest Calgary. The 158 Unit property was acquired for a purchase price of $39,000,000 representing an all cash yield of 4.9%. The property is also located adjacent to the Killam's recently announced 10% interest in the 13.6 Acre Nolan Hill development. On the development front, we completed 2 developments in 2018: Faginaw Park, a 94 Unit 7 Storey Building Located in Cambridge and The Alexander, a 240 Unit Building in Downtown Halifax. Slide 28 illustrates the leasing activity for these two developments, and we are pleased to report both are 100% leased as of January 2019. Details of The Alexander and photos are included on Slide 29. Killam had a 50% interest in this project and increased its ownership 100% in late December with the purchase of the remaining 50% interest for $44,500,000 Progress is on track with our frontier development in Ottawa, a project we are co developing with RioCan as detailed on Slides 3031. The first phase of the 23 storey tower, 2 28 unit building will have geothermal heating and separately metered water, increasing our operating margins and reducing our environmental footprint. The building is on schedule to be completed in Q2 of 2019. Pre leasing started on December 28, 2018, with the tenant prospects that have filled out a pre qualifying survey online. Formal marketing started last week and the full campaign begins in early March with digital social targeted ads, local billboards, transit and Cineplex theater ads. We have 60 units pre leased as of today. We are in design and approval stages for the 2nd phase of this project at 208 Unit Building and expect a completion date for Q3 2021. We are excited to have built in ground on our new development in Charlottetown PEI in Q4, as shown on Slide 32. The 5 story building will contain 78 units with underground parking overlooking downtown Charlottetown on the waterfront. The average size of the units will be ten 20 square feet with amenities that include a gym, social room and a library. The project's budget is $20,800,000 with an anticipated all cash yield of 5.6 percent. As shown on Slide 33, Silver Spirit II, our 128 unit development in Mississauga, is expected to break ground on Q2 of this year. Construction will take 24 months with a $49,000,000 budget with an anticipated all cash yield of 5.25 percent, approximately 175 basis point premium over the current market cap rate. Finally, we continue to advance our development pipeline. A full list of our development pipeline is included on Slide 34. It is worth noting that 70% of Killam's future development pipeline is outside Atlantic Canada as we continue to grow our presence in Ontario and Alberta. To finish, 2018 has been a banner year for Killam on many fronts, with strong operating and financial performance. Our focused strategy is leading to increased earnings, a stronger balance sheet, more geographic diversification one of the highest quality apartment portfolios in Canada. In 2019, we will continue to grow the portfolio accretively, accelerate our suite renovation program and execute on our energy efficiency plans and technology innovations. This concludes the formal part of the presentation. And we will now open up the call for questions. Your first question comes from Lorne Kalmar with TD Securities. Your line is open. Thanks. Good morning. Good morning. Just quickly on the suite upgrade. Is Slide 16 the targeted properties for 2019? Or are they in different markets? Oh, they're all different markets. Really, when we look at our targets, it's across the portfolio, different provinces, different markets. Yes, that's just an example. That's just an example. Got your example. So where are you guys targeting for this upcoming year? There? Yes. Would it largely be Halifax or Ontario or? Hawaii, it's really all over. So it's kind of if you look across our portfolio, we've got some happening in across New Brunswick, St. John's as well, Partridgeon, yes. London, Ontario, PEI, yes, all over. So we would have worked on 37 properties last year. And so it will be similar it will be a broad swipe of the portfolio. Really, we're reaching out to our property managers to look to them for feedback within their properties where they think the opportunity lies and that's been really successful so far. What we tended to do and what we'll continue to do is as units turn, we do the big renovations. So nothing is offline and it's across the portfolio. Okay. Now turning to developments, I saw you guys push back the a couple of the Alberta developments from last quarter. What was the rationale behind that? And will that impact sort of where you guys are looking for acquisitions going forward? I think you're correct in assuming that we are actually still going through all the sort of design and planning approval for Calgary, but there is a sort of committed pause on it relative to seeing where that market is going. And then same with Edmonton. It doesn't preclude us really looking for good opportunities in the existing sort of acquisition sort of market. But the development ones in the air are sort of like just slowing it down a bit and seeing where that part of the market is going. So to answer the second part of that question is we are still looking at existing properties. And depending on the opportunity, the pricing and also gauging where we are with the current market conditions in Alberta. Okay. And then just quickly on the Frontier for Phase 2, who's the development manager on that project or that phase of the project? Well, I think it's both of us, but obviously RioCan was the lead on the first one and we are both heavily involved in it. And it will be the same construction company overseeing it with the same architect. Okay. And then just finally on the Halifax market, you guys had, I think, better metrics than you did in Ontario. Do you see yourself being able to push rents even further than the 3% plus you guys got this year? It will be similar, I think. I don't know if we can surpass this year's performance, but it's a strong, it's a tight market here. There's lots going on and we like the chances. Yes. But we say that every year. All right, guys. Thanks so much. I'll turn it back. Your next question comes from Dean Wilkinson with CIBC. Your line is open. Thanks. Good morning, everybody. Hi, Dean. Good morning, Dean. Phil, just a question on the debt and as you look forward on that. I mean, every time we turn around and we say interest rates are going up, they come back down again. You look at the 2019 maturities, you're probably flat to 5 year. Is there a thought in and I know that it elevates the risk in maybe going shorter term on that and seeing what happens? And then secondarily, when you look out to 2020, where there's probably a bigger gap, is there an ability to rate lock that right now or you're just at the whim with the market as it comes up? Bill, hand out the call over to Chris. I'll just say that, so I mean, we're working closely to see to watch that trending and monitoring opportunities to potentially be able to lock that in, be it through hedging or re blocking with lenders. So I mean, we have our eye on it. We haven't there are some we can lock in even a few weeks, a couple of months before. So we're talking about that. We haven't executed on anything beyond kind of a shorter term lock in, but we are exploring options. I guess it's just a reality we're all facing, right? Rates are Right. From any historical point of view, the spread between the 5% and the 10% is so small currently. And where rates were November, December and where they are today, it still makes a lot of sense to look at that 10 year money versus even the 5. So it depends on the asset right now. But it's something that we spend a lot of time on every asset you look at. So and still from a historical point of view, these are still very cheap rates. For sure. I guess maybe a secondary question to that is when you look at these assets that the new ones you're building in Mississauga that would be valued probably at a 3.5 cap, which is a number that 5 years ago we all would have probably thought as lunacy, but now that's the world. Would that be something that you would look being a lot shorter term on a debt maturity just because, 1, it's the spread and 2, the ability to roll into higher rates, particularly given that, I guess, that new build is not going to be rent controlled? Yes. But again, you're going to try to build to a 5 plus with full upside on the rents on a yearly basis for the next few years. So if you can lock in, if you can somehow, depending on where it is, but you got to float it through the construction phase, but depending on how fast you can get it over, that 10 year is still one of the sort of the strongest attractions in terms of locking in your debt. Yes. Okay, fair enough. And just looking at the 2019 capital improvement budget, let's call it $57,500,000 as the midpoint of where you bracketed that. Would sort of $14,000,000 of that similar to 2018 be sort of just the straight up maintenance CapEx at $900,000,000 change per unit? Or do you think that number changes? No, I think that's a very good estimate on how it will come out. Okay. And then when we look at the remaining, call it, $43,500,000 I'm assuming that the return on that is probably going to be a little more back end loaded. And I guess the question I had is how much of that $43,500,000 goes into the curb appeal and the building envelope upgrades? And do you get the same return on that? Or should we be thinking of that $43,500,000 maybe not coming in at a mid teens kind of return, but maybe closer to sort of a 10 to 12? Percent? Go lower. Yes, when you spread it out, I think some are going to be high, some are lower. Yes, 10% is a good estimate. We tend to want to always do a minimum of 10, and we've been successful in that, but that's a good range. And some are harder to measure when we're talking about reclining buildings, for example, where we're modernizing the look, but to measure how much of our rental growth is linked to that versus suite rental and other things. So it's hard to measure the return on some of those, especially when we're like about the current appeal and actual return. Yes. That makes sense. Okay, I will hand it back. Thanks, everyone. Thank you. Your next question comes from Brad Sturges with Industrial Alliance. Your line is open. Hi, there. Just in terms of the same property guidance of 3% to 5%, turnover rates did decline a little bit year over year. I guess, within that guidance range, what are your expectations for turnover rates in 2019? Essentially, pretty similar. I mean, even in terms of a change, I think any change is pretty small when we see about 33% to 32% if it gets down to 30. Percent? Amazing, how consistent it's been over the years. And so it's down a little bit, but I don't see it changing materially. So I think it's 30% to 33% onethree. Okay. Specifically with St. John's, obviously, the occupancy was a little bit, I guess, weaker year over year there, but the market, at least according to CMHC, is starting to see some declines in the vacancy rates. Just can you walk through maybe the dynamics you're seeing there in the market right now and maybe expectations for this year? So the news out of St. John's these days is there's a lot more offshore work on the go and there's I think it's the Orphan Basin that's been a big push Hebron's coming on and they may have a record number of wells being drilled this summer. So things are looking better in the market for sure. But the other two factors are like, again, as we talked about our teams from a leasing perspective and how we're doing it. We're quite excited about the new leasing personnel or the new folks we have over in St. John's that will help drive up the Austin City plus we have basically quite a capital focused on both assets this year as well. Okay. So an area of opportunity for sure. Then lastly, just target of $100,000,000 in acquisitions this year, taking a little bit more of a pause, I guess, on development opportunities in Alberta. Just walk through what you're seeing in terms of opportunities at the moment. Good question. I mean, going from west to east, there's still quite a bit of the new product that's available both in Calgary and Edmonton. It's just about trying to figure out where it really is relative to the purchase price. And then again, what is the actual asset in terms of its local sort of neighborhood and what are the dynamics. So there's a product there if you're willing to buy it at this time. Ontario is hasn't changed. It's very, very competitive. We've got some opportunities that we're looking at, some, maybe some long shots. But most of our focus is on our own sort of development pipeline because again, if you can get it and get it approved and get ready to build, it's pretty exciting from that point of view, from a growth point of view. And then it never really surprises me anymore the opportunities that sort of are in all our local markets here with some pretty good sort of visibility on a couple of assets that make a lot of sense for us because of our location, our size and proximity to where we own assets today. So it's quite robust. Your next question comes from Mario Saric with Scotiabank. Your line is open. Hi, thank you. I just want to maybe delve back into the same store NOI targets, both for 2019 and then I guess the longer term that you disclosed. In terms of 2019, can you give us a sense in terms of how the revenue growth compares to the expected expense growth within that 3% to 5%? Or maybe you asked differently at the midpoint of, let's say, 4% are you expecting margin or further margin expansion in 'nineteen? I think that we do expect some improvement in margin in 2019. And I think that top line, I think that could look pretty similar to, I think, 2018 is a good kind of proxy for what we hope to be able to do. On the expense side, we have some opportunities for efficiencies, but we also have some cost pressures in some of the initiatives we're taking on from a technology perspective and from a leasing perspective, those do add some costs. So factoring that in as well comes into play. So I think somewhat similar to this year is for what we're seeing today, a good starting point. Okay. And then maybe on the longer term side, what are some of the parameters that kind of go into that kind of 3% target? Is it kind of historical average? How did you get to the 3%? Well, just I think for a long time we talked to and now we recognize based on the fundamentals now should fundamentals shift wildly in the long term that might change, but based on certainly, we will continue to drive revenue. But when we look at expenses, there are inflationary pressures and we would expect that to continue. Every year, we're going to look for how to do things better. But property taxes, there's some in there that it's hard to know what's going to happen, right? We can do all the tax assessment reductions, go for them, but we don't always see them. So insurance costs, there's things that are things happen in the market that cause those to rise. So we're going to be doing various initiatives to manage expenses, but recognizing that over time, there are also pressures that are going to cause expenses to go up. So I guess what we're trying to say is that we expect that all the initiatives we have underway to our growth expectations are higher than they were a few years ago. Got it. Okay. And then I think, Robert, you mentioned that the rent growth on turn in Halifax was 7.4% for 2018. With that type of rent growth, what we're seeing in other parts of the market is some increasing concern about affordability, tenant affordability. Are you seeing any signs of kind of tenant affordability coming up within the portfolio today? One last feeling at our average rent, I can't remember exactly for Metro, but for Halifax, but it's about around $1,000 to $10.50 So that's affordable. So across the portfolio, we would be very affordable. And what's interesting, I think using Dartmouth as an example, we were able to move rents there $2.20 a month on reposition units and good uptake. So there is an appetite in the market for units that are renovated and the way we have it in our buildings that we're doing it on turns. So there's ones that are at lower rates of similar units and there's ones that are higher rates. If you want a higher you want a unit that's renovated, you can spend pay more per rent. So I think we're addressing it across the board. Okay. And then just in terms of the CRM implementation, you highlighted that 47% of the portfolio is under the new system. I recognize that it's really early days, but has anything really kind of stuck out to you in terms of direct revenue drive coming from the 47% of the portfolio? Are you seeing that you're not seeing any other 53%? Hey, Mario, it's Nancy. We are rolling live in the last 5 to 6 weeks. So this is the very early stages. We're just going region by region. Ottawa is going live today. But things that we have seen, this data has really allowed us to see some opportunities to really see trends of really target sources and stuff like that and try to make sure that we're maximizing our leasing hours and our opportunities, like we hadn't seen before. So it honestly, I would say, is very early to actually pinpoint and quantify trends that we've seen, but it's very exciting to see even early data of what we can do with it. The one thing I will add to, like Newfoundland, we were talking about Newfoundland and that's one that's been live for a few weeks. So to be able to see the detailed traffic in terms of number and calls and number of e mail showings and start to track that stuff where before it was delayed and more of a manual process for reporting that. Now it's all being captured. So very quickly being able to see what campaigns, what marketing sources work, what's really driving that traffic. There's really good traffic too that allows that conversion leasing ratio and that close ratio to increase. Okay. Mariano, that's a question that's right up Nancy Valley. She's a Quants girl. And she gets very excited about all those numbers coming. I don't know how she can sleep at night, she's there. But Mario, just as what Nancy said, one of the key points was the marketing source of where all the leads come from. And that is so important in terms of where you spend your marketing dollars. So this is sort of stuff that it's a lot of data to absorb, but it gives you such sort of clarity in terms of what you're doing and it's pretty interesting. It's important. The other interesting part of it is the hours. So for our leasing staff, their hours are quite flexible and they're younger and they I think they're I know they're enjoying it because I asked the question of them, but it enables us to address between 10 and 7, which is when the calls are coming in, whereas before we kind of had a more centralized leasing activity that was kind of over at 5 It didn't complete yet. 10:7 at night. Yes, yes. Yes, 10:7. Yes, 10:7 at night. Yes. So that's interesting. I think it makes us better able to address those leasing inquiries. Okay. I'll make sure I'll ask the same question 3 months from now. Yes, please. Last question maybe for Phil, just on the comment on the ease back on the construction in Alberta. Are you seeing any change in terms of attitude towards construction financing in the province? We aren't. But again, for the projects that we're doing or planning to do out there, we wouldn't be at the stage to actually go and sort of say our typical sort of construction financing. But I would like to believe that we would be a good risk relative to Schedule A Banks to sort of give us construction for our developments. Your next question comes from Mike Markidis with Desjardins. Your line is open. Hi there. Good morning. Just following up on the comments you made on Alberta, Phil, and just putting a pause button on the developments that you have planned there. Would that have also changed at all either your appetite or your pricing expectations on what you'd be willing to pay for a new build or a new acquisition of a new build relative to say where you would have been 3, 6, 9 months ago? It's a good question. I mean, I don't know if I've really thought of it like that because, again, when you're the purchases from last year were sort of at the turn at the time in the market looking, competing against other buyers and being very happy to sort of buy the assets we did, especially the buy in Edmonton, where in the last number, the last 2 or 3 months, we've seen some pretty good leasing activity in the right direction in terms of leasing, finally leasing that up 100%. So the slowdown really comes with what we thought and where the market was going in 2018 from a positive sort of trend that everything was getting better, getting better. And then all of a sudden, again, kind of hitting a pause and a stop where oil went down through November December. And sort of the word still is that there could be a little bit more pain from a job creationjob sort of destruction in the next few months. And that really has given us the pause to sit there and say, you know what, let's just we can wait, we can afford to wait as opposed to really going 100%. Okay. And then, so I guess taking extrapolating from that commentary on the development side, would that be mean that your pricing on what you'd be willing to buy today would be a little bit higher in terms of the cap rate you'd be or the price or lower price per door in terms of what you'd be looking to acquire? Again, I don't think from a pure acquisition point of view, I mean, it's still we're still trying to get the best price out of some of these sort of potential sellers. And it's just negotiation. And it's dependable when we go in there and look at these assets and kind of see what they really are. So I find it kind of hard to even answer that question exactly what you're asking other than nothing's really changed on the acquisition front. It's a different sort of beast in itself in terms of the activity and the interest in Alberta. It's still it's quite strong. Okay. The I just noticed you guys had a couple of small Ottawa property sales that you're going to close, it looks like in April. Did you guys have offhand the 2 properties or the number of units and the disposition metrics attached to that those two sales? Sorry, what was the last part of that question? Dispensary metrics, just in terms of price per door and disposition yield. Price per door, I think it's 14.8%, and there's 135 units combined between the 2 of them. And the sort of the sales cap is about 4.6%. Okay. And then just last question for me before I turn it back. I know The Alexander was 100 leased by the end of the year. Just for a modeling perspective, do you guys have a sense of what the average in place occupancy would have been for the quarter? For Q4? Q4, yes. At the end of the quarter? No, well, just during the quarter. Just trying to model any incremental contribution as we go forward. It's probably You know what, people were moving in every single week. Alexander, 60% maybe for the quarter, like a little over like a little bit higher? Well, it ended 100% occupied. Okay. So it's not it's an occupied net. If you have information on the call, we can check that out. Okay. Sounds right. Thanks. That's it for me. Thank you. Your next question comes from Matt Kornack with National Bank Financial. Your line is open. Hi, guys. Just to follow-up on Alexander, while you're checking that information also in terms of the capitalized interest, can you give us a sense as to when that would have come off? And also, were there any incentives offered in terms of lease up that would have been expensed during the beginning? Just again, margins wise, I know these projects can be negative NOI contributors in the beginning. And then obviously, as they lease up, they contribute, but that would be helpful information as well. And then question wise, with regards to just going back to the 7% turnover spread for Halifax, and maybe you can broaden this out to the rest of the portfolio as well. But driving that, I assume a portion of it is the suite renovation program. But could you give a sense as to what you're getting in terms of rent increases on turnover if you're just painting an apartment and sprucing it up versus we know what the numbers are on the renovation program? Okay. Well, let's target your let's get your Alexander questions first. So you first had asked when do we stop when do we stop capitalizing, so it would have been end of September. So for Q4, there's no capitalized interest associated with that. That would have been fully expensed. In terms of the average occupancy This was Mike's question. For Q4. Was 78%. 78 percent as economic. And in terms of incentives, we did not offer incentives on the lease up of The Alexander. So it's we're just fully booking revenue less vacancy essentially is what hits the top line. Is there anything else on The Alexander? I think that was it. Yes. Yes. And then The question is about All of the rents, what are we getting if we're just Yes, without having the 170 units that we would have done renovations on. It's really asset with the asset. That's such a small you know what, it's a good product, I'll bet you it's all the 6. Because those ones while they were high, there just weren't that many of them. You think about it, because 30% of 2016 is like the new leasing aspect of it. So that's 4,500 units for a round number. So 100 yes, so 6% anyway. I would say 6.5%. So I guess the question is renewal spreads and I guess we're just talking about Halifax and I only have the aggregate number, but those have moved significantly as well. I mean, you're approaching 2% on renewal. But is there a view that you can push that renewal spread higher as well if you're getting that type of increase? Yes. We think there is an opportunity to be able to move those renewal rates in a market where we're operating in with occupancy as high as it is. Yes, we should be able to do that. And there's no CapEx or limited CapEx associated with that. So that's pretty good. Rarely is it that there's no CapEx, but there's limited CapEx. Sometimes it's paid just to tidy up. And then with regards to the funding of The Alexander, I guess one more question there. Is there a permanent mortgage in place on that property yet or not? And I think if not, will it take out some of the construction financing that's still extending? The construction sorry, Matt, the construction will get flipped to take out, and it's with CMHC as we speak. Okay, perfect. That's great. Thanks, guys. Great. Thank you. Your next question comes from Yash Sankpal with Laurentian Bank. Your line is open. Good morning. Good morning. Have you disclosed your development budget for 2019 anyways? No, we haven't because we're still working on that in terms of what we're actually going to end up doing. Would you be able to give us a rough range? Well, I guess when you look at cash flow, so are you looking to try to track cash flow specifically? We're just, I'm trying to understand how much you're going to spend during the year on? Yes. I guess I asked for cash flow because for Frontier, for example, where we've got construction financing in place, we will have spend, but we've got construction financing to fund that. So that's the existing one. The existing. No, that's what I meant. So I mean, the potential list of them really is the existing one that we're doing, finishing up the frontier over in PEI, where we put in our equity and that's going in the ground now. So there's probably, again, I don't have in front of me, dollars 2,000,000 or $3,000,000 more of cash before we start drawing on a construction facility. And then potentially, Phase 2, which will be, well, the equity is partly funded by the land that we own there in Ottawa with RioCan. There will be a bit of cash coming out of that for a few months. And then if we get Mississauga running, again, we own the land. So that's a good chunk of the equity. Would it be roughly $50,000,000 How much? 50,000,000,000 50? No. That will be too much? I mean, that would be roughly no more than $15,000,000 to $20,000,000 Of cash, in terms of cash. Yes. Yes. Yes. All right. Your commercial NOI, was there anything seasonal in Q4 or do you think that is a good run rate? I think it is a good run rate because with Westmount, for example, now we have our new tenant at Westmount. But just to highlight on that, we I don't know if you saw in the MD and A, we disclosed that we are doing some work on the brewery market. So we will see a temporary decrease in commercial revenue and NOI next year as we set up part of that asset for some new tenants. So we disclosed that we expect NOI actually FFO relating like after interest relating to that asset to go down by about $500,000 in 2019. And that's in anticipation of some, well, perhaps maybe you can provide some comments on that, but some good growth from some new tenant leasing and activity in that product. So that's the one thing when you model out commercial, just be aware of that brewery market, but there is some disclosure in the MD and A around that. Yes. So we have a tenant there that's vacating 50,000 feet for a round number and they're paying $9.32 a foot net and we're looking at new deals that are round number $14 And we have currently spoken for of the 50,000 feet, we have 15,000 feet with another 12,000 feet looking very probable. So we're making good headway on the leasing and we have lots of inquiries. So we should be in good shape. We won't have a fully let by the end of 2019, but we'll have before we end the year, I think we'll have 60% or 70% of it leased. So good activity. Okay. Thank you. And just one last question. In your IFRS valuation, you disclosed your apartments and MSC cap rates. What cap rate do you use for your commercial? I know it's a small percentage, but just want to So commercial, we tend to look more of a discounted cash flow metric. So from a cap rate perspective But again, one of them would have been just that year was an appraisal. So that's well over 3 quarters of it. You're right. What's not by far the biggest piece? Yes. All right. That's it for me. Thank you. Thank you. There are no further questions at this time. I will now turn the call back over to the presenters. Thank you very much for listening and participating today, and we look forward to giving you an update in May for the Q1 results. Thank you. This concludes today's conference call. You may now disconnect.