Thank you for standing by. This is the conference operator. Welcome to the Nexus Industrial REIT Q2 2019 conference call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Kelly Hanczyk, CEO. Please go ahead, sir.
I'd like to welcome everyone to the 2019 second quarter results conference call for Nexus REIT. Joining me today is Robert Chiasson, Chief Financial Officer of the REIT. Before we begin, I'd like to caution with regard to forward-looking statements and non-GAAP measures. Certain statements made during this conference call may constitute forward-looking statements which reflect the REIT's current expectations and projections about future results. During this call, we will be discussing non-GAAP measures. Please refer to our MD&A in the REIT's other securities filings, which can be found at sedar.com for cautions regarding forward-looking information and for information about non-GAAP measures. The second quarter of 2019 was another excellent quarter for the REIT. We continued on our path of completing acquisitions which are accretive to AFFO per unit to drive unit holder value without raising equity in the public markets.
Our recently completed accretive industrial transaction has reduced our payout ratio to approximately 80%, while keeping our debt to gross book value conservative at 51.7%. We expect this trend to continue throughout the year. From a leasing perspective, the overall portfolio ended the quarter at approximately 94.8% occupancy, down slightly from the previous quarter. This is mainly the result of the termination of a 26,400 sq ft struggling tenant in Le Centre de Victoriaville, Quebec, in June of this year. We have replaced this tenant with a strong covenant in The Brick, who are currently in a fixturing period, and rent will begin in mid-October of this year. We've had strong leasing this summer, and we'll see the occupancy number increase through the next few quarters.
Notably, the last remaining full-floor vacancy, representing 9,277 sq ft, half this amount at our interest at 2045 Rue Stanley, has a binding deal with the Quebec government in an additional space of 5,000 sq ft, which again, half of this amount at our interest, has just received an offer from one of our existing tenants looking to expand. This will take occupied and committed space at Stanley to over 95%. Both leases will begin in 2020 and will further enhance the REIT's cash flow next year. In addition, one of our largest expiries in the portfolio at Place 400 in Saint John, New Brunswick, representing approximately 57,000 sq ft and expiring in December of this year, is also renewing.
In Richmond, B.C., we are close to finalizing plans to move forward with the phase two development, which would see existing 16,000 sq ft industrial tenant vacate and be replaced with two new tenants at a significant lift in rental rates. This phase should hopefully begin in the fall and be completed in early 2020, creating a significant lift in the value of the property. In addition, zoning would allow for a phase three with the ability to add additional sq ft in the future if we decide. We've also identified with our partner, Sandalwood Management, potential future value add sites in and around the greater Montreal area. On the disposition front, we continue to list for sale two of our smaller properties in Montreal, which represents approximately CAD 6 million-CAD 6.5 million in value.
On the acquisition front, we are in late stages of a negotiation on a purchase and sale agreement to firm up another deal which would be settled entirely in units. This would allow us to place debt on the property on favorable terms, which would provide cash we could use to complete additional acquisitions later in the year. We've been patient and have laid the groundwork for the future. Our industrial holdings account for approximately 47% of our NOI. Our payout ratio continues to be low and continues on a downward trend since inception, giving us flexibility for the future. We have remained conservative in our approach to our debt to gross book value. Our portfolio is strong, and with the excellent leasing performance we have had over the summer, it'll put us into an even stronger financial position in future quarters.
Bob will speak more to the specific debt renewals, but once again, on a positive note, successful renewal of this year's expiring debt will result in significant savings. Our unit holder base is diverse with extremely strong support from institutional holdings. We have value add opportunities that we will be moving forward with that will further lift our NAV per unit, and we have identified potential future growth areas within our existing portfolio. Finally, we continue to prove we can successfully complete acquisitions that are accretive to AFFO per unit. The future is bright for Nexus REIT. I'm going to now pass it over to Robert Chiasson to review the financials.
Thanks, Kelly. Our portfolio continues to deliver consistent results. Same-store NOI was up by approximately CAD 100,000 quarter-over-quarter. We had a few tenants turn over in the quarter, and while our occupancy was slightly lower quarter-on-quarter, our committed occupancy was stable and we'll see replacement tenancies contribute to NOI in future quarters. Interest expense in the second quarter included a CAD 578,000 debt repayment fee that was associated with debt that was assumed on acquisitions completed in 2017. This amount has been removed from normalized FFO and normalized AFFO. NOI was bolstered by the completion of a 9.3% capped rate acquisition at the beginning of the quarter, which contributed to reducing our quarter-on-quarter AFFO payout ratio from 81.5% to 80.5%.
Increasing quarter-on-quarter AFFO per unit by 1.3%. Looking to the balance sheet, our debt to total assets was 51.7% at June 30th. The average remaining term on mortgage debt increased from 2.59 years at March 31st to 3.66 years at June 30th. We will see further growth in the remaining term as we renew additional debt. We've extended the term on our credit facility and are finalizing renewal, which is expected to be priced in the low 3% range. In April, we completed CAD 37 million of 5 to 10-year term mortgage refinancing at rates between 3.67% and 3.87%. Bond yields continue to be at relatively low levels, and swap rates are also trending lower, boding well for terms that we may be able to get for refinancing. I'll now pass it back to Kelly.
Thanks, Robert, now I'll open up the call to any questions.
Thank you. We will now begin the question and answer session. To join the question queue, you may press star then 1 on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star then 2. We'll pause for a moment as callers join the queue. The first question comes from Brad Sturges, who's with iA Securities. Please go ahead, sir.
Hi there. Good afternoon.
Hey, Brad.
Just on Richmond phase two, sounds like some good news there. Just want to get a little bit more color on the scope of work and what your CapEx budget would be for phase two.
It's a little bit premature. There's three phases to it. One is dealing with the existing tenant, which we're in the process of. Two is the two new tenancies, which we're currently pricing out what that fit up would be. When I'm looking at it, I don't have the CapEx number, but I would roughly say it's probably in the CAD 5 million-CAD 7 million range. Outside work on the building, bringing it more in line with the existing phase one from a color perspective and some cleanup of the exterior. Not a whole renovation here. It's more of a tenant fit up with some cleanup of the outside. That's one portion of it. Then, finalizing two new deals with the two new tenants. We're in the process of that. It's a little bit of a puzzle, but it's going very well.
Hopefully, in the relatively near future, I can make a bigger announcement and give more detail.
In terms of theoretical timing, it would be potentially early next year when this could commence?
When I look at it, I think we would probably look to commence late fall of this year, if all goes well, and be done relatively early next year.
Okay. With the tenants in place by mid-next year then? Is that the time?
I'd probably say by the end of the first quarter.
Okay. The rent lifts you're speaking to, is that similar to what you've been thinking about in the past or what you've achieved so far in phase 1?
I would say yes. The rent level looks pretty good right now. We're still in negotiation, so I don't want to kill that for me. It is pretty strong and I guess would be in the same range as the phase 1.
Okay. It sounds like you got the Rue Stanley leased up now, potentially. Just give a context of when in 2020 would that potential lease start?
Yep
Talk about the rent profile versus what you've been able to do so far in the building.
The government tenant, that would start, I believe, March. I think it's March 1st. The other one for the 5,000 square footer, I believe, is May, after fit up and work we have to do. The good thing about the government deal, it is effectively an as-is deal. From a CapEx standpoint, there's really nothing for us to do, which is significant, which lent to a very solid NER for us on that one. They range in the, I call it, the CAD 14-CAD 20 range per square foot.
Okay. Last question before I turn it back. Just on the Sandalwood value add review, can you give a little bit more color or the context of what the potential opportunities you're seeing within Quebec that would fit into that opportunity with Sandalwood?
Yeah, absolutely. It's very early in the process. I sat with the head of Sandalwood, and we just had a discussion and started to look at different areas. We have ability to, in one very solid site, to build multi-family or condo and add density there. Another one, we've had some interest from a retirement side of things. Very early stages, but we're just looking for the future, what opportunities lay in the portfolio.
I guess intensification opportunities are the main.
Absolutely.
Okay.
Got it. Yeah.
I'll turn it back. Thank you.
Okay. No problem, Brad.
Once again, if you'd like to ask a question, please press star then one. The next question comes from Alex Avery, who's with Desjardins Capital Markets. Please go ahead, sir.
Hi there, and good afternoon. You mentioned in the press release that you have a property that's currently under advanced negotiations. I was just wondering if you could give us some color as to the dollar amount and maybe the geographic location.
Sure. It's out west, we're in negotiations still. I'll give you in between CAD 15 million and CAD 20 million range.
Okay, great.
Yeah.
You mentioned CAD 5 million-CAD 7 million of CapEx relating to the phase 2 development there. Does that include the space that's currently tenanted by Wärtsilä?
That's the site we're looking at, yeah.
Yeah. Okay. Moving along, I have the question on the weighted average cap rate. I saw it moved up slightly, and that was due to an increase to the higher end of the range from 9.5 to 10.1. Is that related to specific properties or just kind of specific locations?
It's primarily related to the acquisition we completed in the quarter.
Oh, okay.
We purchased properties in Blackfalds, Fort St. John, Estevan, and Medicine Hat.
Okay, great. Last one for me before I turn it back. The NOI at Rue Stanley was negatively impacted by the repair and maintenance expense there. I was just wondering if that would be recoverable.
A portion of it will be, and it's treated as a CapEx receivable. A portion of it may not be, but for the most part, it should be recoverable.
Okay. Sorry, actually one more. What was the management fee included in NOI this quarter?
We're relatively consistent. We don't have any additional CapEx or lease increase, so off the top, I don't have the number, but I can get back to you on that.
Okay, great. Thanks a lot. I'll turn it back.
Thank you.
Once again, if you have a question, please press star then one. We have a follow-up question from Brad Sturges with IA Securities. Please go ahead, sir.
Hi there. Just did I hear that correctly that there was a little bit of lease termination income during the quarter or?
No.
No, there wasn't. Okay.
No, there wasn't.
Okay, perfect. Thank you.
Okay, no problem.
Once again, if you have a question, please press star then one. There are no further questions at this time. I would like to turn the conference back over to Kelly Hanczyk for any closing comments.
Well, I'd like to thank everyone for calling in, and I look forward to our next results call, where I think you'll can see significant announcements over the next, probably by the next quarter. Look forward to chatting again. Thanks.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.