Good morning. My name is Sylvie, and I will be your conference coordinator today. At this time, I would like to welcome everyone to the Minto Apartment REIT 2020 second quarter financial results conference call. Note that all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star then number two. Before we begin, I want to remind listeners that certain statements about future events made on this conference call are forward-looking in nature. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially.
Please refer to the cautionary statements on forward-looking information in the REIT's news release and MD&A dated August 11th, 2020, for more information. During the call, management will also reference certain non-IFRS financial measures. Although the REIT believes these measures provide useful supplemental information about its financial performance, they're not recognized measures and do not have standardized meanings under IFRS. Please see the REIT's MD&A for additional information regarding non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Thank you. Mr. Waters, you may now begin the conference.
Thank you, Sylvie, and good morning, everyone. I'm Michael Waters, Chief Executive Officer of Minto Apartment REIT. Julie Morin, our Chief Financial Officer, is also with me this morning. I'll begin the call by discussing key highlights from the second quarter. Julie will review our financial and operating results in detail, and then I'll provide an update on our COVID-19 response and discuss our business outlook. After that, we'll be pleased to take questions. I'm very pleased to say that Minto Apartment REIT's business has demonstrated continued strength amidst the disruption created by COVID-19. While our second quarter results were impacted by a reduction in demand for furnished suites, we are still generating solid rental growth across most of our portfolio. Our rent collection in the quarter and subsequent to quarter end has been consistent with pre-pandemic cycles, and we maintain strong liquidity.
Given our solid performance and positive business outlook, we're pleased to announce yesterday that the Board of Trustees has approved a 3.4% increase to the monthly cash distribution. This reflects our strong track record of AFFO growth, our low AFFO payout ratio, while prudently managing liquidity during this period of economic uncertainty created by COVID-19. One of the biggest priorities is growing our earnings and cash distributions. We're pleased to be increasing our distributions for the second consecutive year since our initial public offering. This increase takes our monthly distribution to an annualized level of CAD 0.455 per unit. The increase is effective for our August 2020 distribution, which will be paid on September 15th. Turning to our Q2 performance, it was another quarter of strong operating results for the REIT.
We generated year-over-year growth in revenue and NOI of more than 26%, while NOI margin improved by 20 basis points to 63.9%. We continue to generate solid organic rent growth in all of our markets except Alberta. We had an average gain of 9.1% on new leases signed during the quarter. While this is lower than pre-pandemic levels, it continues to highlight the strength of the Toronto, Ottawa, and Montreal rental markets. We also renovated 50 suites during the quarter through our repositioning program, which improves asset quality, reduces future repair costs, and drives strong rental growth and asset value. As I mentioned on our last conference call, we've adapted our operations to support the health and safety of our employees and residents and minimize the spread of COVID-19.
As provinces gradually lift pandemic restrictions, we're continuing to adhere to Health Canada guidelines on personal hygiene and social distancing. As I'd indicated, our rent collections have not materially changed during the pandemic. Approximately 2.5% of tenants have entered into deferred payment plans, and the vast majority of residents on these plans are current. We've also maintained high occupancy throughout this period. More than 97% of our available unfurnished suites were occupied at the end of the second quarter. While we are pleased with our performance, we recognize that economic uncertainty is elevated and could remain so for a prolonged period. Accordingly, we are maintaining a strong balance sheet and liquidity position. Our total liquidity of approximately CAD 193 million represents a liquidity ratio of 23%. This puts us in a strong competitive position as we continue to execute on our strategy during these challenging times.
I'll now invite Julie to discuss our second quarter financial and operating performance in greater detail. Julie?
Thanks, Michael. Turning to slide four. Here, we have broken out same property results, both including and excluding furnished suites. As Michael noted, demand for furnished suites was significantly reduced in the quarter as COVID-19 resulted in reduced business travel, corporate relocations, and general restrictions on non-essential travel. You can see the impact quite clearly in the two sets of same property figures. We reported same property portfolio revenue, which excludes the impact of acquisitions of CAD 20.8 million, excluding furnished suites in the second quarter, and CAD 22.6 million with furnished suites.
Those numbers represent an increase of 3.1% and a decline of 0.9%, respectively, from the comparable results in Q2 last year. The year-over-year increase, excluding furnished suites, was due to higher rents achieved on new leases and higher revenue earned from repositioned suites. These positive impacts were offset by the reduced occupancy of our furnished suites when those suites are included. Total revenue in the quarter increased 26.3% year-over-year to CAD 31.3 million from CAD 24.8 million in Q2 last year. The increase was mainly due to the contribution from the five property acquisitions completed subsequent to March 31st, 2019, as well as higher rental rates, partially offset by lower demand for furnished suites. Same property NOI in Q2 2020 was CAD 13.2 million excluding furnished suites, and CAD 14.2 million with furnished suites. Those figures represent an increase of 4.5% and a decrease of 1.7%, respectively, from Q2 2019.
The increase in same property NOI for the unfurnished portfolio primarily reflects higher rental rates, partially offset by increases in insurance premiums and property taxes. The decline in total same property NOI, inclusive of the furnished suites, reflects the impact of the lower demand for those suites. Same property NOI margin for the unfurnished portfolio was 63.5%, an increase of 90 basis points from 62.6% in Q2 last year. With the furnished suites included, same property NOI margin was 62.9%, a decline of 40 basis points from 63.3% in Q2 2019.
Total NOI in the second quarter increased 26.8% to CAD 20 million from CAD 15.8 million last year due to the impact of the property acquisitions completed subsequent to March 31st, 2019, partially offset by the lower revenue from furnished suites. NOI margin was 63.9%. As Michael noted, that's an increase of 20 basis points from 63.7% in Q2 last year.
FFO was CAD 12.7 million in Q2 2020, an increase of 29.6% from CAD 9.8 million in Q2 last year, primarily due to the positive NOI variance. AFFO increased 31.4% to CAD 11.1 million from CAD 8.4 million last year. This primarily reflects the higher FFO, partially offset by an increase in maintenance capital expenditure reserve as a result of the REIT's increased capital. AFFO per unit increased to CAD 0.1879, compared to CAD 0.1855 in Q2 last year. We declared cash distribution in the second quarter of CAD 0.11 per unit, resulting in an AFFO payout ratio of 58.5%. Cash distributions were approximately CAD 0.1025 per unit in Q2 last year, resulting in an AFFO payout ratio of 55.2%. As of June 30th, 2020, our same property portfolio consisted of 4,552 suites, with an average monthly rent of CAD 1,511 per unfurnished suite and an occupancy rate of 96.9%.
Average monthly rent increased by CAD 77, or 5.4%, compared to CAD 1,434 at the end of Q2 last year. Average monthly rent increased by CAD 11, or 67 basis points, compared to Q1 2020. Occupancy of our unfurnished suite portfolio, excluding those held for repositioning, was 99% as of June 30, 2019. The total portfolio, including acquisitions, consisted of 7,243 suites as of June 30, 2020, with an average monthly rent of CAD 1,609 per unfurnished suite and an occupancy rate of 97.2%. Average monthly rent increased by CAD 170, or 11.8%, compared to CAD 1,439 at the end of Q2 2019. Occupancy at the end of Q2 last year was 98.7%. Turning now to our operating expenses on slide five. Beginning with the same property portfolio, property operating cost of CAD 4.2 million declined by 1.1% from Q2 2019 due to lower repair, maintenance, and furnished suite costs.
Property taxes increased by 5.7% to CAD 2.6 million due to higher assessments and changes in tax rates, especially on our Calgary properties. Utilities expenses were CAD 1.7 million, a decline of 4% from Q2 last year. That was primarily due to lower consumption, which resulted from milder weather and our implementation of green initiatives. On the right side of the chart, we have provided the operating expenses for the total portfolio. We had property operating costs of CAD 5.7 million, property taxes of CAD 3.5 million, and utilities expenses of CAD 2.1 million in the second quarter. These figures represented increases of 26.9%, 30.8%, and 13.9%, respectively, from Q2 2019, reflecting the impact of property acquisitions we completed subsequent to March 31, 2019. The pandemic has triggered changes to our operating costs. Cleaning costs have increased while repair and maintenance costs have declined because of lower suite turnover.
There has been no overall material impact on NOI margins to date arising from the pandemic. On slide six, you will find our revenue analysis. We have broken down our gain to lease activity in Q2 2020, along with our estimate of the gain to lease potential for the portfolio. Beginning with the upper chart, we signed 339 new leases during the second quarter upon suite turnover. The average rent on these suites increased by 9.1%, from CAD 1,469- CAD 1,602. As a result, the REIT generated an annualized incremental revenue gain of approximately CAD 467,000. We generated strong double-digit rent growth in the Toronto and Ottawa markets, despite the economic disruption in the quarter. Rent growth was positive but somewhat slower in Montreal, and we had slightly negative gain to lease in Alberta, where low oil prices are continuing to negatively impact the economy.
The number of new leases signed in Q2 2020 was lower than the 435 we signed in the same quarter last year. That reflects the impact of COVID-19. Typically, the second and third quarters of the year represent the peak leasing season, while there is relatively less leasing activity during the winter period. The lower chart shows the gain to lease potential that we estimate in our portfolio as of June 30th. We believe we can generate approximately CAD 13.4 million of annualized incremental revenue growth by bringing rents in 6,745 suites to market level. The gain to lease potential is very attractive in all of our markets, apart from Alberta. In Alberta, many of our competitors are offering leasing incentives, which is decreasing the effective rental rates. We have done the same in order to remain competitive.
Turning to slide seven, we are planning some adjustments to our portfolio in order to adapt it to the current environment. With demand for furnished suites declining due to COVID-19, we will respond by adapting our furnished suite count. As you can see on the chart, our furnished suite inventory has already declined by 18 suites or 7% since Q4 last year. We will reduce it by another 13 suites in the second half of 2020 through conversions to unfurnished suites in our Montreal and Alberta properties. We also plan to reposition 39 furnished suites at our Roehampton property in Toronto to be leased on an unfurnished basis in Q1 next year, once the pilot suite test program is completed this fall.
As a result of these measures, we expect to have approximately 187 furnished suites at the end of Q1 2021, down by 27% from 257 we had in Q4 2019. Moving to slide eight, we have a summary of our repositioning activities for the quarter. We renovated a total of 50 suites in Q2, or 32 at the REIT's proportionate ownership share. The average cost per renovation was slightly below CAD 40,000 a suite. The average annual rental increase following reposition was CAD 3,142 per suite, generating an average annual unlevered return of 8%.
Our repositioning activity slowed in Q2 owing to the restrictions on residential construction imposed by the Ontario and Quebec provincial governments during the quarter. We resumed our program after the restrictions were lifted, subject to scheduling to maintain social distancing and the availability of contractors. On slide nine, you can see the current status of our repositioning program.
We have close to 2,000 remaining suites to renovate across several of our properties. Minto Yorkville, Leslie York Mills, and High Park Village in Toronto, Carlisle and Castle Hill in Ottawa, Rockhill in Montreal, and our Edmonton portfolio. We expect to reposition approximately 100-150 suites in the second half of 2020, or approximately 50-100 at our ownership share, subject to the availability of suite turnover. However, we have put our repositioning activities in our Edmonton portfolio on hold. We will revisit the program after market conditions improve in Alberta. Turning to slide 10. We are also evaluating the repositioning potential of five additional properties. Haddon Hall and Le 4300 in Montreal, Roehampton in Toronto, and Castleview and Skyline in Ottawa. These properties have a cumulative 1,085 potential suites to renovate.
We have completed test suites at Haddon Hall and Le 4300, as well as Castleview and Skyline. At Roehampton, we see the opportunity to reposition and lease currently furnished suites as unfurnished beginning next year, as I previously discussed. The repositioning program is a central part of our growth strategy. It represents the single best risk-return profile of all of our investment opportunities, generating strong net asset value growth at the expense of modest near-term earnings dilution. A benefit of this program is that it's highly flexible, with relatively small capital commitments and short project durations. It is easy to speed up or slow down repositioning depending on market conditions. We recently did both as a result of the pandemic. I also want to point out that we have a high volume of repositioning in progress.
That generates valuable efficiencies in terms of procurement, repeatable design concepts, and lessons learned that can be deployed on other projects. Moving to slide 11. We are also focused on generating organic growth through intensification and development. As I noted on our last conference call, construction of the Fifth and Bank project in Ottawa's Lees neighborhood is well underway. You can see the updated photo on the bottom left of the slide. Demolition of the existing structures and excavation are complete. The site crane has been erected, and the raft slab has been poured. We advanced financing to an affiliate of Minto Properties for this redevelopment project, and we will have an exclusive option to purchase it upon stabilization at 95% of the fair market value.
We are also pursuing development approvals for intensification at Richgrove and Leslie York Mills properties in Toronto, and rezoning approvals for the intensification at High Park Village, also in Toronto. Combined, these projects could add over 1,200 suites to the REIT's portfolio. Turning now to our debt financing and liquidity on slide 12. Strong liquidity and a healthy balance sheet are key priorities for us. We have a conservative leverage ratio and a highly balanced debt maturity schedule, with no material repayments due until 2022. As of June 30th, 2020, the weighted average term to maturity on our fixed-rate debt was 5.67 years, with a weighted average interest rate of 3.07%. Approximately 86% of our debt is fixed rate and 69% is CMHC insured. Debt to gross book value is 39.5% as of June 30th, and total liquidity from our cash reserves and credit facilities was CAD 193 million.
I'll now turn it back over to Michael.
Thanks, Julie. Moving to slide 13. I'd now like to discuss the impact of COVID-19 in a little more detail, as well as our response. Overall, we're in a strong position. We've made the necessary adjustments to our operations in order to mitigate the spread of the virus. We continue to monitor the situation closely, we can implement further adjustments very rapidly if needed. As Julie noted, government restrictions on construction activity have been eased, enabling us to resume capital projects. This is crucial to driving organic rent growth through repositioning. Rent collections have remained very strong, with a small volume of deferral requests. We're committed to helping our tenants through these difficult times, we'll work with residents suffering from payment challenges on a case-by-case basis. I'm also pleased to note that leasing has been solid during the summer.
We signed 120 new leases in July at rates that were higher than the expiring rates in all of our markets. The average gain to lease for the portfolio was over 10% during the month of July, which was an improvement over the second quarter. However, our suite turnover rate is currently below historical levels due to COVID-19, and we think it could remain relatively low during the crisis and recovery period before returning to normal. Finally, we're managing our treasury extremely carefully to ensure we have strong liquidity. We can't predict how long this crisis will last or how the provinces in which we operate could be impacted if there are additional waves of the virus. It is in our interest to be prudent and make sure we're prepared for any eventuality. Now I'll conclude with our business outlook on slide 14.
Because of COVID-19, the world looks a lot different today than it did only a few months ago, but our long-term strategy hasn't changed. We've found ways to execute on our strategy throughout the pandemic, and we will continue to do so as restrictions continue to be lifted. We will capitalize on gain to lease opportunities in our portfolio. It's encouraging to see that the rental markets have remained so robust in all of our markets, apart from Alberta. The underlying long-term fundamentals supporting multi-family real estate in urban markets continues to be very strong. We're confident that gain to lease will be a source of strong organic growth for the foreseeable future. We're also excited about the value we're creating from repositioning.
It was unfortunate that we had to bring this program to a temporary halt during the quarter due to COVID-19, but it's now moving ahead briskly and we're excited about the opportunities to add additional properties into the program, as Julie noted. We are exploring potential property acquisitions in our target urban markets across Canada. Our corporate development team is always hard at work, and the pandemic could create attractive opportunities. However, our priorities at this time are ensuring the health and safety of residents and staff while maintaining our strong liquidity. As always, we are in close contact with the Minto Group and expect that the relationship will continue to be an important source of growth for the REIT. In addition, we'll ensure that environmental, social, and governance criteria remain central to our business strategy.
We have an ESG steering committee in place that is currently working on a detailed assessment of our business with the goal of reporting annually on performance against ESG targets. That reporting could begin next year. That concludes our presentation this morning. Julie and I would now be pleased to answer any questions you may have. Operator, please open the line for questions.
Thank you, Mr. Waters. Ladies and gentlemen, as stated, if you do have a question, please press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. Should you wish to withdraw your question, simply press star followed by two. If you're using a speakerphone, we ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you do have a question.
Your first question will be from Jonathan Kelcher at TD Securities. Please go ahead.
Thanks. Good morning.
Hi, Jonathan.
First question, just on lease renewals and the increases. You guys, along with basically everybody else, paused those during the pandemic. Can you maybe give us your thoughts on bringing those back, how that's going to work, when you're going to start, stuff like that?
Yeah. During the second quarter, we continued to issue rent increases on renewals, but we did not collect rent increases. Beginning on August 1st, we began collecting those increased rents. You would begin to see higher actual collections on renewals beginning August 1st. The same goes for above-guideline increases as well.
Okay. That work-
The reason for that, Jonathan, is it preserved the anniversary dates of those tenancies.
That is across the board, your whole portfolio, you are sort of back to normal in terms of increases on renewals.
Correct. Yeah.
Okay. That's good. Secondly, on the decline in occupancy, is that a function of demand, or is that just you guys pushing or trying to maximize rents on turnover?
Well, we-
What can we expect going forward, I guess?
Well, we remain focused principally on growing NAV. To some extent, that means maintaining our rate as much as we possibly can and suffering, as a consequence, perhaps higher vacancy, lower occupancy as a consequence in the short term until market conditions change. I think that what we've seen is turnover drops. We talked a little bit about that, and I expect that we'll see that continue to remain low for the next period of time. Leasing certainly was very slow at the beginning of Q2, and it slowly picked up through the summer. As I mentioned, our July leasing activity was stronger than what we had seen in sort of the latter months of Q2.
I think it's partly a function that we're probably philosophically more driven to maintaining rate, driving NAV, versus more of an occupancy sort of approach, which others might employ.
Okay. kind of 97% ± is kind of something to look at over the balance of the year?
Yeah, I think that's probably a fair comment. Q2 and Q3 are traditionally the highest leasing quarters. As you go into Q4, you tend to see it drop a little bit. We strategically accept a little bit more vacancy at certain points in the year to position us for stronger leasing periods. As you get into softer quarters, typically what we'll do is we'll look to adjust our pricing a little bit to ensure that we're able to capitalize on the volume that is available. I think high 90s is certainly the target. 97% ± is an area that I expect we'll be in for a little bit.
Okay. Then just lastly on the occupancy, is that fairly consistent across your portfolio, or are there one or two properties that are impacting the overall occupancy?
You've got some that are going to be stronger than others. I would just say for reference, Jonathan, that last year, in the period subsequent to the IPO and up till sort of the end of Q3 2019, we had sort of unusually high occupancy. Market conditions were so strong. That's always a comparison point. 97%, 98% is probably more normal occupancy for us in terms of how we position and think about yield management and driving rate. We went from unseasonably high to slightly lower at the bottom of our range. Thinking about our portfolio now, I'd say the areas where it's probably softest, obviously, probably not without any great surprise, Alberta, but specifically Edmonton, where we've had lower occupancy. That's probably the softest part of our portfolio right now.
Okay. That's helpful. I'll turn it back. Thank you.
Thanks, Jonathan.
Thank you. Next question will be from Brendon Abrams at Canaccord Genuity. Please go ahead.
Hi. Good morning. Maybe just focusing on the furnished suite segment. The REIT's taken the decision to, I guess, suspend the offering in Montreal and Alberta and also at Roehampton. Maybe a two-part question. Just wondering what type of data points or trends you would need to see going forward to make adjustments to the two remaining properties, being Yorkville and Minto One80five, in terms of adjusting the furnished suite offering there. Secondly, maybe more specific on Roehampton. If you have an estimated maybe cost per suite in terms of repositioning, and also the estimated loss of NOI or incremental NOI by converting the suites.
I'll take your first question. On the furnished suite demand picture, typically what we're looking for is lead traffic and indicators that would suggest that the demand from the furnished segment would be substantially accretive to sort of unfurnished. Typically, Brendon, what you see with furnished is you obviously generate a very significant increment over the unfurnished rate, but at the expense of typically higher vacancy. We do look at advanced demand indicators, inquiries, bookings obviously. A lot of the corporate segment that we have, we tend to get a fair bit of advanced notice, we have a tendency to sort of see early on kind of where trends are coming. Every property is different. Yorkville and One80five, our two strongest properties from a furnished segment perspective, are motivated by sort of different drivers. Yorkville, for example, has a very strong movie segment.
One80five traditionally has a stronger government-oriented segment. We tend to have larger demand from groups like Global Affairs Canada, for example. What we look for as well would be things that would be more episodic. Border opening would be very significant for us, particularly at Yorkville. Changes in the movie segment in Yorkville, particularly, very significant. All the normal demand metrics and indicators, inbound call volumes and things of that nature, would be probably supplemented with stuff that is, as I say, more episodic, like the border stuff. Hopefully that addresses that question. I'll just go to the second question first before reverting. You'd asked about Roehampton. At this stage, we do not yet have pricing.
Our process is typically to take suites offline to expose behind drywall and mechanical spaces, let our trades get in there, do a renovation on something like two to four test suites. Through that process, we would go through a value engineering exercise with our trades to fine-tune our design and spec levels. Only at that stage would we have enough information to give a better, more accurate estimate of costing. If you think about some of the other Toronto-based projects in the past, Leslie York Mills and High Park, we've typically been in the CAD 30,000 per suite, but it obviously varies tremendously based on property, on suite type, et cetera. Hopefully that addresses your question.
Yeah, no, that's good color and helpful. Maybe just turning to the Toronto market specifically. I know market rents look to have dropped, I mean, it was very slight, but dropped quarter-over-quarter after a long period of sustained and strong increases. I'm just wondering, you have six properties in that market. I'm wondering if you're seeing any differences in market rents between segments. What I mean by that is if you looked at maybe your more affordable properties being Richgrove and Martin Grove versus Yorkville and Roehampton at the high side, and High Park and Leslie maybe somewhere in the middle. If you could just provide any color on where you're seeing the most adjustments maybe by rent range.
Sure. This quarter, we supplemented our disclosure. The very last page of the MD&A, we provided a breakout by market to provide the average rent per square foot. Overall, you can see the overall portfolio about CAD 1.90 per square foot. Toronto specifically, CAD 2.30, and that's heavily skewed by Minto Yorkville, which is quite a bit higher. Excluding Minto Yorkville, it would probably be just slightly over CAD 2 a square foot.
Our rent levels, I'd say, are actually fairly modest if you were to compare them to condo, which would be typically, if you look at an Urbanation report, recent ones are sort of showing condo rents at sort of CAD 3.00, CAD 3.20, CAD 3.25 a square foot. We're principally competing with purpose-built rental for most of the buildings, Yorkville being the exception. I would say that our Toronto properties are quite resilient. It is a diverse portfolio.
We have assets in there, such as our Martin Grove project that has an affordable rental component there that's always full, and there's 204 suites there that are at rents that are established relative to a discount to the CMHC average. I think that at the other end of the scale, of course, you have Minto Yorkville, which in the Yorkville market has tended to be quite resilient in that sort of higher-end segment. It tends to be very sub-market to sub-market driven, Brendon. We look at and we price our product on a weekly basis, we're always looking to see trends in where the competition is at. From a segment perspective, I think that you look at some of them at Leslie York Mills, for example, very family-oriented. That obviously is going to act and feel a little differently than, say, some of the other properties.
I'd say that overall, I think that we've seen very strong and resilient performance across the entire Toronto portfolio. A lot of questions were asked about the competition coming from Airbnb and condo product, and we frankly just have not seen it because we are not competing head-to-head against that. As I say, condo CAD 3.25 a foot. Our portfolio in Toronto around CAD 2.30, excluding Yorkville, probably more like just over CAD 2.00. Both that condo and Airbnb is pitched at an entirely different price point. I don't know if that addresses your question.
Yeah. No, that's good color. I'll turn it over. Thanks.
Thanks, Brendon.
Thank you. Next question will be from Sairam Srinivas at BMO Capital Markets. Please go ahead.
Hey, Michael and Julie. Thanks for the time this morning. My first question is on the Alberta market. Are you seeing competitors over there being aggressive on either incentives or lowering rents?
In terms of Alberta, firstly, of course, it's an unregulated market. We tend to see adjustments both on the downside and on the upside very much more quickly than what we're seeing elsewhere in, say, more regulated markets, Ontario, Quebec. What we've seen is that the competition and the markets in Alberta have seen discounting and incentives pretty much across the board. We have certainly adopted the same approach to remain competitive. We do develop our retention strategies for properties in that market that are based on length of stay, so that when we are looking at tenants where their tenancies are maturing, of course, we are looking at that and developing approaches to ensure that we do maintain retention there for sure.
Alberta is definitely a tricky market as you would've seen in the quarter with the results that we posted that we had actually negative gain to lease in Q2.
Michael, thanks for the color. In the near term, do you see any kind of recovery in that softness coming out of that market or do you think that's going to be a while before that happens?
It's a great question. Obviously Alberta is dealing with COVID, but also with lower oil and gas prices. We have seen oil prices begin to move back up over the last several weeks. It as a market tends to be more, I'll say, unregulated generally. Typically less restrictions through the COVID period. Obviously we're bullish long-term on Alberta and Calgary and Edmonton in particular. I think it's hard to say exactly when we'll see a full-throated recovery to that market. I think it's too early to call.
Fair enough. Probably taking a step back and looking at the overall portfolio, what would you say would be the proportion of units probably being rented out to students as such?
I think from a perspective of the portfolio, we have fairly small exposure to students. In fact, I think there's just one property in Ottawa that has a meaningful student population, but it's not a big part of our rent roll for sure. It hasn't maybe impacted us maybe as it may have others.
Fair enough. Thanks, Michael. That'll be all for me. I'll turn it back.
Thank you.
Thank you. Next question will be from Mike Markidis at Desjardins. Please go ahead.
Hi there. Just a couple quick ones for me. Just want to make sure I understand. I think you said 2.5% of your tenant base was in the deferral program, and I guess that was a 50% deferral. It wasn't a full deferral, if I remember correctly, which brings you pretty close to 99%. Outside of that, I think you noted your collections were consistent historically. Would that mean that you didn't really see any meaningful uptick in delinquencies outside of that program?
Yeah. Correct. I think we, like most multi-res probably, Collections had never been an issue. Historically, our bad debt expense would've been around 25 basis points. When the crisis erupted, we began tracking collections in a way we never had before, and tracking them day by day, and comparing them to previous periods. What we could see is that there was really no discernible difference in our collection patterns, pre and post-pandemic. Our collections in Q2 were 99% plus. June collections were very strong at that level and July also. I think that both on the res side, and on the commercial side, which is tiny, I think we've generally done very well. I think we were all looking back in March and worrying about April 1, and then worrying about May 1, and then June 1.
It all turned out, I think, to actually be a very minor issue as it related to our portfolio. Collections were very strong and as I say, no discernible difference to what we had seen pre-pandemic.
Okay, great. With respect to the furnished suite contribution, you talk about how your portfolio velocity's picking up in the unfurnished. Just curious what you've seen in terms of the activity in the furnished suite side in July?
We are seeing some encouraging signs in terms of lead traffic and inquiries. I think as I mentioned earlier to one of the other questioners, some of the things that we'll be looking for will be an uptick in business travel, and certainly we're seeing hotel occupancies begin to pick up. I think we'll look to see a meaningful change in air travel border restrictions loosening, an increase in the entertainment business. By that I mean the movie filming business. There are segments like the government relo segment in Ottawa that sort of move to a different rhythm, and sometimes that is countercyclical. Those are all the things that we'd be looking for. As I say, at this stage, it's sort of mildly encouraging, but I think we can anticipate that Q3 will continue to be a fairly soft quarter for furnished suites.
That's been our response through Q2 and over the next couple of quarters, would be to trim furnished suite inventories. We like the business, obviously, in a market where there is strength. It's a very effective yield management tool. It's the kind of segment that we can bring online and offline very quickly. We'll be looking for those demand indicators, and we'll shift our approach quickly as those indicators merit.
Okay, great. Last one from me. I know you've been, maybe not the right term, but almost militant with respect to your core focus on the acquisition side. I think some of your peers have been getting enthused with the amount of deal flow and velocity that they're seeing in terms of acquisition opportunities now and heading into the back end of the year. I'm just curious, just with your focus, if you're experiencing the same thing, or if most of this product would be sort of more in the outlying areas.
Well, there've been a number of deals announced. The investment transaction market went to a dead stop for about three months, and then beginning in June, we began to see more deals come to market in major centers. What we've seen is that the competition for those deals has been very intense. Large numbers of bids, aggressive bidding. We maintain, I think, a stance that is fairly cautious around acquisitions. I think that we're going to be looking at our growth strategy probably in the way that we have traditionally in the past. Looking for properties where there are organic growth opportunities with gain to lease potential. Maybe there's some intensification potential, a repositioning potential. Certainly, the deals that we've looked at in the last six or eight weeks have some elements of those, but we've seen, as I say, very strong demand and aggressive bidding.
We maintain essentially a very cautious approach. We don't get paid for doing deals. We get paid to deliver NAV per unit growth. So we want to be careful about what we're adding to that portfolio. I think more and more in the current environment, we're seeing some of these existing properties trade at cap rates, I think that would indicate that maybe the gap between public and private valuations is, if anything, is maybe widened. I think that the strategic relationship we have with the Minto Group might be a larger source of our growth. Whether it's developing properties or acquiring assets from Minto or the Minto pipeline, those might be opportunities for us to add really high-quality assets at cap rates where there's a meaningful spread to what the development yield would be.
I think people will see when some of these deals get announced that the private market has not gone away. It's at pre-COVID levels or maybe even beyond that from what we can see on some of the transactions so far.
Thank you.
Thank you. Your next question will be from Matt Logan at RBC Capital Markets. Please go ahead.
Thank you, and good morning.
Hey, Matt.
Michael, now that we're five or six months into the pandemic, can you talk about any of the key lessons or takeaways for the business going forward? Has there been any change to your preferences by region, whether it's new or old buildings or perhaps by sub-market?
Well, one of the things that came to mind for me and what we sort of adopted very quickly was probably an acceleration of the digitization of our business. Moving to a virtual selling process, I think would've taken years to get to but for the crisis, both ourselves and the competition. I think from probably the meat of your question is sort of markets and where we'll be focusing our growth. I think through the crisis, and certainly we saw it with U.S. peers, the top tier of U.S. REITs like Essex and others, was that major urban centers were looked at with concern. Certainly, I think that was certainly some of the inquiries we got through the quarter and immediately subsequent to quarter and some of the feedback was how are urban markets going to fare?
I think our view very strongly is that as a species, we've been urbanizing for more than four millennia, and cities remain the center of commerce, of innovation, of education, of healthcare. People will continue to gravitate to cities. Having core urban locations close to those attractions and transit and other things will continue to be locations that will be more resilient over time and generate higher value growth. From our perspective, I think we're not shaken off our investment strategy. We will continue to focus on urban locations, core markets. As I say, I think perhaps more of that growth may come through development and the relationship with Minto Group and its pipeline because I think at this stage, we may see that the investment market for existing properties has pushed valuations even further than where they were pre-COVID.
I think we may see more advantages to development, but that's not really a change in strategy. It's just possibly adapting to where the private market valuation for apartments is right now.
Certainly with Minto also being a home builder, are there any read-throughs from that segment of Minto's business regarding the kind of urban-suburban divide?
Well, I think it's a great question, Matt. We've been seeing through the crisis, I think very strong, surprisingly strong both resale and new home markets in Canada's major centers, and I'll talk about Ottawa and Toronto particularly. We saw very strong sales. Our sales centers have been busy. I think what we were all looking for was a bellwether GTA urban high-rise condo sales launch. We did see a couple in the quarter. One that we tracked very closely was a development by CentreCourt, 199 Church Street. They went to market about three weeks ago, and our read on that was that their progress on pre-sales was actually quite strong at very high pricing, well over CAD 1,300 a foot. That's obviously a market the Minto Group, the private side, is very active in.
We rejoiced a little bit to see that kind of activity. Of course, that's where the strategic relationship probably generates its value in that the Minto Group's land pipeline, urban settings where sites are strong candidates both for condo but also for rental. I think that's certainly an area that we'll be doubling down and focusing on.
For developers who perhaps aren't as well capitalized as Minto, would there be any opportunity to acquire what would've been a condo site and perhaps build rental with the Minto Group?
We've seen prices on development sites drop ever so slightly from where they were pre-COVID. We were seeing sites well in the high 200s per GFA pre-COVID. We're starting to see a couple sites come to market. We've seen some of that pricing come down a little bit. There are some opportunities. I think that was something we were looking for, whether there were developers or landowners that maybe not as well capitalized or unable to proceed with development, and whether there might be some opportunities spring loose from that. There's several that we're monitoring right now and hopeful that on the private side that we might see some more opportunity come forward.
Thanks, Michael. I appreciate the color. That's all for me.
Thanks, Matt.
Thank you. Ladies and gentlemen, as a reminder, if you do have a question, please press star followed by one on your touch-tone phone. Your next question will be from Matt Kornack of National Bank Financial.
Hi, guys. Just two quick ones for me. One on the furnished suite side. Has the performance been driven by higher vacancy, or are you taking lower rents to fill the furnished suites? The second question with regards to it sounds like you're pushing through the rent increases, but maybe not collecting that rent today. How is that being accounted for in your aggregate rental figures?
I'll deal with the first one. The furnished suite demand has just been lower. That's obviously impacting vacancy for sure, and to a lesser extent, rate. Rate for sure is being impacted as well. It just sort of goes hand in hand with the vacancy. We sort of look at the spread over unfurnished, and what that's generating. As it relates to rent increases, as I indicated, we, throughout the crisis, provided rent increase notices, but with a cover note that we would not be collecting those rent increases. From an accounting perspective, we just simply reflected the net amount, the amount that we were actually collecting. We were not grossing it up and then taking an offsetting expense in OpEx. Julie, maybe you could add some further color to that.
Yeah. Essentially, it was a nothing from an accounting perspective, as Michael mentioned. We didn't gross up the revenue and then apply a write-off or a discount as promo or anything like that. No gross up of revenue and no implications on our OpEx either.
Matt, by issuing those notices, we preserve the anniversary dates in those tenancies, which obviously translates to valuation ultimately. We've maintained the flexibility to actually begin collecting when market conditions permit it. Obviously, we'll continue to work with tenants who are struggling. We'll do that on a case-by-case basis as opposed to sort of a more blanket approach.
Just out of curiosity, let's say my rent was up for renewal in April, and if I couldn't have my rent, and you told me what the increase was going to be like in August. Will I have to pay the higher rent, or do I pay the higher rent a year from April?
No, starting on August 1st, you would be paying that higher rent.
Okay, great. Thanks, guys.
Thanks, Matt.
Thank you. At this time, Mr. Waters, we have no other questions. Please proceed.
Thank you, Sylvie. That concludes our call this morning. Thank you for joining us and for your interest in Minto Apartment. We look forward to speaking with you again after we report our third quarter financial results. In the meantime, we wish you all good health and hope you enjoy the rest of the summer. 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.