Thank you for standing by. This is the conference operator. Welcome to the Nexus REIT Q1 2018 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, Chief Executive Officer. Please go ahead, sir.
Thank you. Welcome, everyone. 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. Also, during this call, we will be discussing non-GAAP measures. Please refer to our MD&A and 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. 2018 is turning out to be another really strong growth year for the REIT. Today, we have closed and waived conditions on approximately CAD 76 million of acquisitions, which represents CAD 27.9 million in new equity being issued to vendors of these properties at a premium to our current trading price.
One of our recently announced transactions, located at Savage Road in Richmond, B.C., which closed subsequent to the quarter end, is expected to provide the REIT with a significant value creation opportunity in the near future. Phase two of expanding on the Multi Kids Sports Mall concept is currently being planned out. On the operations front, we have hired a new Vice President of Eastern Canada, Joe Arminio. Joe has significant experience in the Quebec market and brings many years of REIT experience along with him. From a leasing perspective, the overall portfolio, excluding 2045 Rue Stanley, ended the quarter at approximately 94.5% occupancy. 2045 Rue Stanley ended the quarter at 53% occupancy.
Committed space in this property currently sits at approximately 68%, with 4,244 sq ft commencing to pay rent on June 1st, 7,613 sq ft commencing to pay rent on November 1st, and 6,130 sq ft commencing December 1st. We're getting close on the three additional deals, representing approximately 11,000 sq ft. This would take us up to close to about 78%, if we're lucky on getting these. The Sandalwood portfolio remains consistent with our underwriting at approximately 90.4% occupancy. The former Edgefront portfolio continues to perform well and continues with 100% occupancy since its inception. In the former Nobel portfolio, occupancy sits at 94.5% at the quarter end. Vacancy is mainly concentrated in five assets. 10330 Côte-de-Liesse remains a challenge for us, and a new mandate with a national broker is being prepared for the property.
On the acquisition front, we are in advanced negotiations on two additional properties, representing approximately CAD 25 million of new real estate and approximately CAD 12.5 million of units in the REIT being issued to the vendors at a premium to our current trading price. If we're successful in completion of these acquisitions, it would bring our total new equity issued to vendors for the year to approximately CAD 40 million. I'll now hand it over to Rob Chiasson to review the financials.
Thanks, Kelly. We came into Q1 2018 off strong Q4 2017 results. In the fourth quarter, we had a total of approximately CAD 400,000 of management fees included in income. Included in that figure were construction management fees that were approximately CAD 160,000 higher than those earned in Q1 2018. Percentage rents in the first quarter were approximately CAD 100,000 lower than the fourth quarter of 2017. Most tenant sales thresholds are met for percentage rents towards the end of the calendar year. While the majority of the REIT's approximately 500 leases are triple-net, we do have some government and other leases that are gross, and utilities and snow removal costs for the quarter were up seasonally by approximately CAD 500,000 as compared to Q4. Our general and admin expense for the first quarter was down CAD 236,000 as compared to Q4.
As mentioned in our last call, a full year's bonuses were accrued and expensed in Q4 2017 as compared to one quarter's expense in Q1 2018. In the quarter, the REIT adopted the RealPAC definitions of FFO and AFFO, which were published in February of 2018, which provided guidance with respect to adjustment for stock compensation. As a result, the REIT's FFO and AFFO were adjusted downward by approximately CAD 50,000 in the quarter. Q1 2018 AFFO per unit was CAD 0.046 per unit, down from CAD 0.048 per unit for Q4 2017, and the AFFO payout ratio for the quarter was up slightly to 86.2% compared to 83.6% for Q4. Debt-to-total assets was down to 53.7% compared to 55.2% for Q4 2017. I'll now pass it back to Kelly.
Thanks, Rob. I'll now open up the line to answer any questions that you may have.
We will now begin the question and answer session. To join the question queue, you may press star then one 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 two. We will pause for a moment as callers join the queue. The first question comes from Brad Sturges of Industrial Alliance Securities. Please go ahead.
Okay.
Okay, that's good.
Just starting off with your commentary on, I guess a few of the more challenging assets in the Nobel portfolio. You've hired an external broker. Would you be potentially considering selling those assets, or is it mainly a focus right now on trying to improve the leasing of the occupancy levels of those assets?
Yeah, I think right now we're looking at leasing them up as quick as possible. There's a couple of them in particular, in Mascouche and Côte-Saint-Luc are a little bit of a challenge. Two more at Richmond. It has 10,000 sq ft vacant that came from a restructuring of leases and moving people around to accommodate an expansion. It's a very in-demand industrial building, so I don't imagine that unit's going to stay along there. The Mascouche and Côte-Saint-Luc, I think our focus will be on filling them up and then we'll have a good hard look at them as whether they stay in the portfolio going forward or what we do with them. I would think, down the line, once we've stabilized them a little more, we would possibly look to that.
Okay. When you look at the rest of the portfolio, you've had a couple of small asset sales out west. Just curious to get your thoughts besides those assets you're looking to lease up first. Are there other potential asset sales at this time? Or is it more just focused on the acquisition growth part of the equation, I guess?
Yeah, I think a little bit of both. We talked it at a board level yesterday, coming up with an asset recycling plan. I think by the next quarter, we'll target maybe three or four additional assets that we would look at potentially divesting of later in the year.
Do you have a ballpark at this stage of what the proceeds would be from those three or four assets?
I think it's until we pinpoint them. I don't think we'll be talking. It wouldn't be.
It's a modest amount is what you're saying.
Yeah, it would be smaller.
Okay.
Smaller.
With the sports complex in Richmond, B.C., obviously working on plans for phase 2, at this stage, what's the potential timeline where we could start to see work at the property?
It's a little too early to tell. I just got a plan for phase 2 the other day, so I have to review it in my meeting with the group next week. It looks exciting of the ability to add on to the properties, almost conjoin them as you would say, and then that would be the phase 2 additional square footage, and then the phase 3 would be to deal with the larger property. We have an existing tenant there, but I think down the line, whether it's a year or a year and a half, in phase 3, we would look at possibly taking back that space and continue on with the program. That all still has to be worked out.
Definitely the phase two is something we're looking at, as soon as I'm comfortable with the plan and everything that we've created there, we'll take it to the board for approval. It's exciting because I think the rendering and the plans that I've seen are starting to look very exciting, I think the value creation opportunity there is going to be very large.
Okay, great. Thank you.
Once again, as a reminder, if you'd like to ask a question, please press star then one. The next question comes from Steven Boyer of Echelon Wealth Partners. Please go ahead.
Hi, good afternoon.
Hi. Hey, Steven.
Hi. I was just wondering, would it be possible for you to give us the cap rate on the Nisku and Regina acquisitions?
Yeah. I believe the Regina was about a 7.5, and I think Nisku was a 7.2.
Okay, good. Also more generally speaking, what do you see in terms of the cap rate environment right now?
It's all over the place. It depends on where you're looking, what you're looking at. If you're looking at Class A office downtown or Montreal, it's getting costly. The things we have been looking at and been completing, I would call them off market, it's a little different. I'd say in Montreal, anywhere in the office, you're in the six caps. Forget the Vancouver area. It's insane cap rates. Alberta, depending on the property, you've got anywhere in the six cap all the way up to nine cap. It depends on the location and where you're looking.
Okay, great. In terms of your current acquisition pipeline, do you see further opportunities within the Ascend portfolio? Notably in regards to the 24 co-owned properties.
I'll answer that with a very big, it's possible. I don't know the timing yet, but we have discussed it briefly, the concept, the idea. We're quite a ways off on still having to try to figure out what something would look like. I don't know if that's in a year, two years, three years, but we have a very strong relationship with the owner, and for me, they've been a great operator for us, and it's definitely something that we're interested in.
Okay, great. Perfect. Finally, just regarding the Richmond property, Kelly, I know you mentioned that it's still very soon to give some color on the timeline, but can you give us an expected stabilized cap rate on this property at this point, or is it still too soon, again?
We purchased that at 6.5% cap rate. That's our going-in cap rate based on the existing tenancies. Then in terms of the returns of the phase 2, we have done some modeling, but until we finalize phase 2, we will be adding GLA, and essentially in phase 3, as Kelly mentioned, converting the industrial tenant to the sports Ballers concept, which would mean increased rents per square foot. There's still a few moving targets. To quantify the total returns of phase 2 and phase 3 is probably a bit premature, but we did buy it at 6.5 cap based on in place.
Right. Okay, perfect. That was it for me. Thank you.
Thank you.
The next question comes from Himanshu Gupta from GMP Securities. Please go ahead.
Good afternoon, guys.
Hey, Himanshu.
Hey, just to follow up on the Richmond property, I know you mentioned 6.5% going in cap rate and too early to tell the returns. How much CapEx is expected to be spent in the redevelopment over the time?
I would say about CAD 15 million-CAD 20 million.
CAD 15 million-CAD 20 million. This includes in terms of adding the GLA on the existing property?
Yeah. I call it three phases. There's the original phase 1, that was the original building. Phase 2, it would be a structure to combine the two together, phase 3 would be the redevelopment of the existing industrial building with sports facility in it. That would be somewhere in the CAD 15 million-CAD 20 million for the entire project.
Got it.
Phase 2, phase 3.
Yeah. In terms of timelines, probably 12 to 18 months. Is that reasonable or?
Yeah. From a pure operation standpoint, we have to look at it and we have to approve the plan. We have to go for permits and that type of thing. I would imagine once we're in play that we'd be looking at maybe a late fall, winter, or first quarter of next year. I would think kind of where we would be ready to go.
Okay. Got it. Just switching gears on the quarter one performance. My question is regarding the sequential drop in NOI. I understand the asset and construction management fee of around CAD 200,000 was in quarter one NOI numbers. It was not in Q4. The drop is actually CAD 450,000 somewhat. Can you break it down? How much was seasonal factors? How much was that lower percentage rents? How should we model it going forward?
Yeah. I'd call it approximately CAD 100,000 of percentage rents, and there was CAD 170,000 adjustment or true up on straight line rents. That doesn't fall to AFFO because it gets added back. There was a straight line rent adjustment that accounted for CAD 170,000, CAD 100,000 of percentage rents. There was some seasonality. There were some other smaller items that added up. For example, there was some bad debt expense in Q4 that was recovery in Q1. Those are the big items within there.
Okay. That's helpful. I guess one just final question on 2045 Rue Stanley. I know you're working towards the lease up. Are we still expecting CAD 900,000 of annualized NOI once the asset is fully stabilized?
Yes.
Okay. Awesome. I'll turn it back. Thank you.
Thank you.
There are no more questions at this time. This concludes the question and answer session. I would like to turn the conference back over to Kelly Hanczyk for any closing remarks.
Well, I want to thank everyone for calling in, and I look forward to our next results call next quarter.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.