© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is Britney, and I'll be your conference operator today. At this time, I would like to welcome everyone to Killam Apartment REIT Second Quarter 2019 Financial Results Conference Call. [Operator Instructions] Mr. Philip Fraser, you may begin your conference.
Thank you. Good morning and thank you for joining Killam Apartment REIT's Q2 2019 Conference Call. I'm here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; Erin Cleveland, Vice President of Finance; and Nancy Alexander, Senior Director of Investor Relations.Slides that accompany today's call are available on the Investor Relations section of our website under Events and Presentations. I will now ask Nancy to read our cautionary statement.
Thanks, Phil. This presentation contains forward-looking statements with respect to Killam Apartment REIT and its operations, strategies, financial performance and conditions. The actual results and performance of Killam Apartment REIT could differ materially from those expressed or implied in such statements. These statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. Important factors that could cause actual results to differ materially from those expressed include, among other things, general economic and market factors, competition, changes in government regulations and factors described in the Risk Factors section of Killam's annual information form and other securities and regulatory filings. This cautionary statement qualifies all forward-looking statements attributable to Killam and the persons acting on its behalf. Unless otherwise stated, all forward-looking statements are as of the date of this presentation and the parties have no obligation to update such statements.
Thank you, Nancy. I am pleased to report another quarter of solid operating and financial growth for Killam. We achieved net income of $82.8 million, which was fueled by organic NOI growth, acquisitions and developments and fair value gains on our portfolio. We earned funds from operations of $0.25 per unit, in line with Q2 2018. We are on track with our financial plan and expect to show FFO per unit growth in the second half of the year. We had made headway on our strategic targets in the first half of the year, as summarized on Slide 4. Based on strong top line revenue growth and continuing management of expenses, same property NOI increased by 3.7% compared to Q2 2018, and 4% year-to-date. This is in the range of our same property NOI growth targets for the year. Q2 was busy with acquisitions. We closed $136 million of assets in Toronto, Calgary, Charlottetown, Moncton and Fredericton with another $9 million expected to close in the next week. Of the assets acquired, approximately 53% are located outside Atlantic Canada and we are expected to meet our target of earning a minimum of 30% of our 2019 NOI outside this region. Our 50% owned Ottawa development, Frontier, opened on June 1 and is already 75% leased. Our development activity in Ontario continues to progress with work underway at both the second phase of Frontier development and our development in Mississauga. I will now ask Dale to recap our financial results.
Thanks, Phil. Slide 5 shows our Q2 2019 and year-to-date financial results. Killam generated FFO per unit of $0.25 in Q2 and $0.45 year-to-date, in line with our 2018 results. Increased NOI from strong same property performance and contributions from recent acquisitions and development was offset by the short-term equity dilution from the timing of deployment of funds raised for acquisitions and $0.7 million of timing differences and one-time costs. This includes $0.2 million of nonrecurring marketing cost associated with the lease up of the Frontier and $0.5 million of timing differences in energy and natural gas costs, which are expected to reverse in Q4. In order to shorten our monthly close process, as well as refine the accuracy of our monthly utility expenses and allow for improved analytics, we recently moved to recognizing actual utility bills in the month they are received i.e., a month delay versus setting up accruals on a monthly basis. This means, in Q2 2019, utility expense reflects bills from March to May versus April to June in Q2 last year. The increased expense from March to June is approximately $500,000. This will flip in Q4 when we expense bills from September to November versus October to December. Please note, we made adjustment to the 2018 same property result to ensure comparable period. We're pleased with the performance of our same property portfolio. The trend of high occupancy and increasing rental rates continues. As illustrated on Slide 6, overall rental rate growth was up 3.2%, 80 basis points higher than Q2 last year and double the 1.6% average rental rate growth we achieved in Q2 2017. With higher rental rates, improved occupancy and low incentive offerings, Killam's achieved revenue growth of 3.5%. Robert will provide further details on increased rental rates later in the call. As shown on Slide 7, operating expenses increased 3.1% in the quarter. Higher natural gas prices, coupled with increased fuel consumption as a result of colder spring temperature contributed to this increase, with apartment utility costs up 4.3%. General operating expenses and property taxes were up in the 2% to 3% range in the quarter and year-to-date and in line with our expectations. Killam's debt metrics are highlighted on Slide 8. Total debt as a percentage of total assets was 47.7%. Killam's interest coverage ratio was 3.21x and normalized debt-to-EBITDA decreased to 10.35 from 10.62 in the year at year-end 2018. Slide 9 highlights Killam's debt maturity profile, including average apartment mortgage rates by year versus prevailing CMHC-insured mortgage rates. Based on current market rates, we expect to refinance maturing debt through the remainder of 2019 at interest rates well below existing levels. Approximately 84% of our apartment mortgages are CMHC-insured with a weighted average interest rate on all mortgage debt at 2.95%. The portfolio had a weighted average term to maturity of 4.6 years. As shown on Slide 10, through acquisitions, developments, capital investments and appreciation of existing properties, Killam's real estate portfolio has grown to $3.1 billion in value. We are acquiring and developing high-quality assets in prime locations. This, along with strong demand for multifamily residential assets had translated into compression in the weighted average cap rate of our portfolio, including a 10 basis point tightening since year-end for apartment portfolio and 114 basis point compression in the CMHC portfolio. This decrease in cap rates, coupled with strong revenue growth, is reflected in $97 million of fair value gains so far in 2019, $30 million of which is attributable to the MHC. I'll now turn the call over to Robert who'll provide details on our operating performance.
Thank you, Dale, and good morning, everyone. As shown on Slide 11, Killam continues to execute its strategy to increase the value of our business by increasing funds from operations and net asset value based on 3 key priorities: Increase earnings from the existing portfolio, expand the portfolio and diversify geographically through accretive acquisitions with an emphasis on newer properties, and number three, the development of high-quality properties in Killam's core markets. I will focus on Killam's operating performance year-to-date and our key revenue initiatives that drive growth, before turning the call back to Philip to discuss new developments, our development pipeline and recent acquisitions. Slide 12 highlights the key areas we use to achieve funds from operations and net asset value growth goals with a robust and seasoned development program, Killam adds new high quality, energy-efficient units to our portfolio each year. We're fortunate to work with like-minded joint venture partners such as RioCan REIT that complement Killam's skill set and deliver accretive growth opportunities. We continue to acquire assets across the country targeting newer properties where possible to decrease our portfolio's average age. Our commercial mixed-use acquisitions these past 2 years has focused on retail development with intensification opportunities. Disposition of misaligned or noncore assets are done, so we can more profitably reinvest the sales proceeds. This last quarter, we sold 2 properties in Ottawa and have recycled that capital. Killam's portfolio is comprised of 16,000 apartment suites, 5,400 MHC suites and 750,000 square feet of commercial space. In the next several slides, I will discuss our operating results, detail 2 value-enhancing programs namely, our suite and building upgrade program and our technology investments, all designed to maximize unitholder value. Slide 13 shows Killam's same property rental growth and property occupancy results by market for Q2 '19. In addition to the strong occupancy already noted, we're pleased with Killam's apartment portfolios 3.2% average rental rate growth. As shown, Killam has delivered impressive same property rental growth in virtually all markets, save for Edmonton. The value geographic diversification is evident when you see Saint John, New Brunswick leading Killam's rental growth parade with a 4.4% increase this quarter, followed closely by the GTA and Cambridge region, which reported a 4% increase. As well, the Halifax, Ottawa, Moncton, Calgary and London markets rents were up 3.2% or better this quarter. Rental rate growth for new tenant leasing was 5.6% in Q1, a 120 basis point improvement over last year. Rental rate growth for renewing tenants, which represents approximately 70% of our apartment portfolio annually, delivered an average gain of 2%, up 40 basis points over Q2 2018. We see additional opportunities to move rents for renewing units higher in coming months and quarters to recognize the better market conditions and Killam's value proposition. Slide 14 graphs the rental rate trends over the past 2 years. Strong market fundamentals and Killam's rent optimization program has generated notable increases in rental rates on unit turns. We have earned a healthy 20 basis point uptick each and every quarter for the past 6 quarters as we rolled out our revenue enhancing programs. For Q2 '19, we delivered a 30 basis point increase in average same property rental rates to 3.2%. Market demand for Killam's quality rental units continues across the country. And in response to this opportunity and as highlighted on Slide 15, we have been accelerating our suite repositioning program. For 2019, we are targeting 300-plus repositioning that should generate an aggregate $1 million in additional NOI. With 186 new repositions completed or underway year-to-date, we are executing to plan. So far in 2019, the average monthly rental increase for repositioned units is $280 per unit, generating an unlevered return of 13% on an average investment of $26,000 per unit. Given these stellar returns, in 2020, we will bolster Killam's repositioning program to complete 400 and perhaps 500 repositionings. Slide 16 highlights the results of an upgraded and repositioned unit at our Westminster property in London, alongside pictures showing the unit prior to the upgrade. We have identified 3,000 additional units for repositioning and estimate we can complete this work within 6 to 7 years to earn an estimated $10 million in additional NOI. This translates into approximately $200 million in organic net asset value growth. In conjunction with driving revenue growth by repositioning units, we also invest in common area upgrades to ensure the curb appeal and property amenity spaces have the same look and feel as the upgraded apartments. Slide 17 includes pictures of the upgrades at our 233-unit Quinpool property in Halifax. We have invested $4.5 million to upgrade the exterior cladding, but plus took the opportunity to install superior insulation and all new windows. So today, Quinpool tower is not only more aesthetically pleasing, it's more energy-efficient, thereby decreasing Killam's carbon footprint and driving higher FFO per unit. In 2020, we will construct the 2-storey 2,000-square-foot tenant lounge at the building's entrance to complement the updated signage, corridors and common areas. Stay tuned.Slide 18 highlights new amenity upgrades at our 84-unit Torbay Road property in Saint John and our 198-unit Quinpool Court asset in Halifax that are being completed, along with the huge upgrades. Killam's more recent investment embraces technology for the online property management platform enabling Killam to integrate new and innovative technology as our business continuously evolves. Slide 19 highlights the program Killam uses to better serve its tenants and optimize NOI. We rolled out mobile maintenance work orders, property inspection app and fully integrated our front-end online leasing, marketing and customer relationship software. This gives Killam the ability to optimize rental opportunities, reduce vacancy and deliver high-quality services to our prospects and tenants. As well, we have real time access to this data. Having real time access to this data is key to ensuring we can rapidly analyze our markets, our tenants, prospects, vendors and better enables Killam to make informed and more accurate operating decisions. Slide 20 shows examples of how we used analytics to make timely decisions regarding employee hours, effectiveness of marketing sources, leasing conversion ratios and traffic trends by property, neighborhood, day and by the hour. I will now hand you back to Philip to provide an update on our mixed-use redevelopment project we're working on downtown Halifax, our recent acquisitions and new developments. Thank you.
Thank you, Robert. Slide 21 shows the Brewery market, a unique historic complex in downtown Halifax. This 158,000-square-foot commercial property was purchased with 2 adjacent development sites in March 2015. We built the 240-unit at Alexander apartment building on the largest of the 2 development sites next to the Brewery market, which has turned out to be an exceptional apartment building with commanding views of the harbor, high-quality finishes and amenities. The Brewery market has a mixture of office and retail tenants. From the initial purchase, the intent was to integrate the 2 development sites with the commercial complex and maximize long-term earning potential. In Q2 2019, a planned tenant turnover at the Brewery market provided Killam with an opportunity to redevelop the vacant space and attract a more diverse tenant base at higher net rent, which compliments the increased residential density in the area. As shown on Slides 22 and 23, currently, we have committed occupancy of 84% and expect to be fully released in 2020. New leases have averaged $14.20 per square foot, 44% higher than the old rent for the 31,000 square feet already released. NOI 2019 is expected to be $0.5 million lower compared to 2018. However, this is expected to be more than offset by long-term NAV growth and an estimated increase of $750,000 in NOI for 2020. We have good leasing activity on the other commercial space in the adjacent buildings, 6,000 square feet in The Alexander, 5,800 square feet in the Benjamin warehouse and an additional 1,800 square feet in the Alexander Keith building, that is either in its initial lease up or current rental rates are below market. In addition, the Governor, the proposed remaining residential government, is expected to start in Q1 2020. Slide 24 details our acquisition history. Killam acquired $135 million in Q2 with an additional $9.2 million expected to close in mid-August. We now have exceeded our minimum acquisition target of $100 million for the year and we'll continue to look for accretive opportunities to add to our portfolio. Slide 25 shows our acquisitions of a 50% interest in Charlottetown Mall from RioCan REITs that closed in May. This 352,000-square-foot retail complex features a stabilized grocery-anchored enclosed mall located on 32 acres in the heart of PEI's busiest retail node. Charlottetown Mall is a dominant shopping center in the province and capitalizes on superior frontage, high-traffic flows and visibility on Charlottetown's busiest intersection. This property is well located surrounded by retail, residential neighborhoods and property complexes that we own in the University of PEI. This complex provides an attractive all-cash yield of 6.7% with multi-residential development potential. Killam and RioCan are working together to redevelop the retail operation by relocating tenants in the older portion of the mall to a newer section providing room -- which will provide room for residential development. As shown on Slide 26, the large surface parking lot surrounding the mall offers a compelling future multi-res opportunity. Current zoning and development bylaws allow for significant new retail and multi-res development on the site. The current zoning could accommodate potential development of up to 300 units and approximately 100-unit buildings, 4 or 5 stories as indicated in the red rectangles on the slide. This development may require that the demolition of some of the underutilized portions of the existing mall. Slide 27 shows our recent purchase asset in Fredericton which has been easily absorbed in our strong operating platform, is a 4-story new concrete apartment building containing 55 -- 59 units and 48 underground parking slots for a purchase price of $8.3 million. The building was designed with the intention of catering to seniors with a full care senior facility directly next door to the building. The building is conveniently located in a developing neighborhood close to retailers, including Walmart, Canadian Tire, Atlantic Superstore. The all-cash yield is 5.8% and the building is 100% leased. In June, Killam acquired the remaining 50% interest in 2 assets: Grid 5 in Calgary and Silver Spear in Mississauga from our partners for $70 million as shown on Slide 28. The purchase price of the apartments represents an all-cash rate -- an all cap rate of approximately 4.2% and is in line with Killam's IFRS fair values for the existing interest. The purchase also includes $4 million for the remaining 50% interest in the developing sites. Slide 29 shows a 127-unit residential and 45,500-square-foot commercial portfolio located in the fast-growing neighborhood of Dieppe that Killam purchased for $28.9 million in June. This property in the Moncton area consists of 3, 4-story residential apartment buildings, a mix-used building with retail on the ground and residential on the top floor and an IGA-anchored grocery store. The purchase also included 2.5 acres of vacant land for future residential development. The buildings are relatively new and in excellent condition. The residential buildings were completed between 2011 and 2017, currently, 99% occupied with an average rent of $1,143 per unit. The mix-use concrete building was completed in 2019 and the grocery store in 2007. Slide 30 shows Lian Street assets, a new 4-story wood-frame apartment building in Fredericton, New Brunswick that will close next week. The purchase price of the 48-unit building is $9.25 million. The all-cash yield is 5.4% and the building is currently 100% occupied. Slides 32 and 33 show the Frontier in Ottawa, our latest completed development, which opened on June 1. Frontier was completed on budget and on schedule and is already 75% leased. We expect to be fully leased by the end of the year. Expected yields on this development -- the expected yield on this development is approximately 5.25%, a healthy 125 basis points above the current cap rate. This is the result of a $9.2 million -- this has resulted in a $9.2 million fair value gain to date on a 50% ownership with another $2 million to $3 million expected when stabilized. Slide 34 shows the second phase of the Gloucester City Centre development, Latitude, next to Frontier. We broke ground in Q2 on this 209-unit project and the expected completion is in late 2021. Our Charlottetown development, shown on Slide 35, is progressing on schedule. The 5-story building will contain 78 units with underground parking, overlooking downtown Charlottetown on the waterfront. The average size of the units will be 1,000-plus square feet with amenities that include a gym and social room and a library. The project's budget of $20.8 million has the anticipated all-cash yield of 5.6%. Slide 36 shows progress purchase of this project. As shown on Slide 37, site preparation work is underway at our 128-unit development in Mississauga, which will now be called The Kay. Construction, that's Kay, that's K-A-Y, construction will take 24 months with a $49 million budget with an anticipated all-cash yield between 5% and 5.25% and -- which is approximate [ 179 ] basis points premium over the current market cap rate. Finally, we continue to refine and enhance our development pipeline. A full list of our pipeline is included on Slide 38 and is worth noting that 2/3 of Killam's future development pipeline is outside of Atlantic Canada as we continue to grow our presence in Ontario and Alberta. To conclude, we are pleased with Killam's strong operating and financial performance. We embrace innovation, innovative ways to accelerate revenue growth, manage our operating expenses and create value for our unitholders. Our focused strategy is leading to increased earnings, a stronger balance sheet, more geographical diversification and one of the highest-quality apartment portfolios in Canada. This concludes the formal part of the presentation and we will now open up the call for questions.
[Operator Instructions] Your first question comes from Mark Rothschild from Canaccord.
The Frontier, you obviously did well with rents and we see the fair value gain. To what extent that rising costs been an issue with development return, does that impact at all the values we should see going forward, and I'm looking at the Latitude where you're forecasting or projecting an expected yield of 5.2%, and wondering how that relates with the rents that you're getting at Frontier?
Mark, I think it's a good question and you got to kind of look at it again. Think about that, every development that we start with, there's a planning process. You basically prepare your budget, you go to tender and then all the pricing is fixed. So there is a period when it's, like from looking long over a period of time, at that point, like so when you finish a development, that pricing is basically 18 to 24 months historically in terms of what the pricing was to build it. So fast forward, like you're asking, pricing has gone up since we started the first phase of Frontier. And with that, we fully expect, because of where we are with rental rates, on the first phase, that the second phase will be higher rents on a per square foot basis and therefore, even with increased development costs, your yields are still within that range of where they were in the first one.
So for the Latitude, for the 5.2%, that assumes better rent than what you're getting at Frontier?
That's right.
Okay. Fine. And then in regards to cap rates, if you're buying new in Fredericton at 5.8% and you're assuming in Ottawa, the value for, let's say, for Frontier or Latitude will be 4%, is that what you consider now the proper spread between a smaller market like Fredericton and a newer property in Ottawa and may be if you can just expand on how it relates to where you -- how it compares to the IFRS value cap rates you're using?
No. I don't think it's like in the smaller markets like a Fredericton or Moncton, there's a bit of that. And again, I think we're also drawing strongly on our relationships to be able to buy these assets as opposed to we're not being fully marketed. The larger the market, the more the whole properties are fully marketed and therefore, there is where cap rates are today.
Your next question comes from Jonathan Kelcher from TD Securities.
Just going back to Frontier, the 75% lease, is that in place or leased?
I think in places...
Occupancy is about 52%, yes.
It's about 59%, 60% today.
Yes. Occupied.
Occupied.
Okay. Was there any NOI in Q2 from it or just sort of that [ 0.2 ] is sort of loss, I guess?
Yes. That's it. Yes.
Okay. And the $80,000 in gains per unit it's obviously, a big number and another $20,000-or-so that goes outside. Is that a function of where rental rates being above pro forma?
Yes.
Okay. And then just, I guess, sort of back to Mark's question. If the cost for Latitude is about 25% higher, is that really just a function of where construction cost has gone over the last couple of years, or is there something more specific to...
Again, we're in early stages of that development. There's nothing has gone out to tender. So that is a real pre-budget, budget. We have nothing sort of nailed down from a cost.
It does have more underground parking, which is more expenses. Parking is -- underground parking is actually quite expensive. So that's factored into that value, too.
Okay. And then that might answer my next question because for Silver Spear, that's about $35,000 more or less and Latitude, is with no underground parking, or is there something else there?
The underground at Latitude is 3 levels. The underground at Silver Spear is I think is just one. So there's -- and again, it depends on also the Mississauga development. It's our typical sort of Cambridge Waterloo construction. It's the sort of the tilt up, whereas Ottawa is poured in place with a crane.
Okay. And just on the Brewery market, are you putting -- how much money are you putting into that to improve the NOI there, if anything?
Yes. So it would be something, like for a round number, $4 million or a little higher.
The next question comes from Mike Markidis from Desjardins.
Your CapEx, excluding developments or just on the rental portfolio share, I think is at $27 million, $28 million for the first half and I think it tends to be a little bit back-end loaded. Is it possible for you to provide an annual range of where you'd expect that CapEx budget to come in?
Actually, in the MD&A.
$60 million to $65 million.
$65 million. Excellent. Sorry, for missing that.
$60 million to $65 million, Mike.
$60 million is the lowest price.
Got it. Okay. That's great. Just with respect to your progress on rental rate growth, both on turn and renewal, you guys are getting really good traction there. I do also note that your CRM was only implemented in March. And I guess, my question would be, do you expect that the progress that you've had, I think Rob specifically said that you expect it to do better than 2% going forward. Just wondering if you can give us a sense of how much more you're expecting and how quickly on that program?
I think it's hard to narrow down on a number, but I think that as you mentioned, that CRM is still relatively new, and we are not yet maximizing the full potential of it. As we've highlighted in the call, we're already capturing a lot of data but there are a few more layers to really try to maximize the growth. So I think, safe to say, we expect to be able to maximize revenues more than we have been with that, it's hard to quantify exactly how that's going to look like.
So trend keeps going higher, just not sure if it accelerates or...
Well we expect -- we may see some acceleration. I think it's going to be market by market. So there's going to be some markets where we're really able to capture where demand is super strong and those will accelerate and yes, so.
Okay. No. I got it. That's fine. And last one here year is just, Phil, wondering if you could provide any thoughts, I think these last sort of 6 to 9 months has progressed, originally it was sort of moratorium on development Alberta. You did buy Grid 5 but that was I guess, a partnership JV deal. Just given what you're seeing in Alberta today, just wondering if you could give us some additional thoughts in terms of you could expect to acquire more assets in Alberta in the near future or if you're looking for the portfolio to strengthen there first?
I think the answer is we're looking to see what we have there strengthen, sort of stabilized in terms, of not only the occupancy, but our staff out there. And then -- but still with an eye on looking for opportunities. But in the next few months, there's nothing on the horizon.
Okay. And, I guess, rental, you've been kind of flattish on the rental rates there, which in this market is probably a good outcome. I just noticed that there's a lot of cost pressure out there as well. Is that related to the staff -- turnover of suites and staff that you mentioned there?
I'm sorry.
Yes. No. I mean, year-over-year, we certainly staffed up there compared to what we had last year from a leasing staff perspective and also more administration there as well.
Okay. And so is that sort of the new run rate going forward, or you expect some of that to be transitional?
I think it will be the new run rate going forward.
[Operator Instructions] Your next question comes from Yash Sankpal from Laurentian Bank.
Just wanted to explore your NOI margins that came down 60 bps lower than last year, and I understand part of that was because you have started accounting your expenses differently. But do you think your margins should keep expanding over the next 2 to 3 quarters?
I think as we keep moving those rents up and managing those expenses down that we've seen that trend of the margin, the expansion over the last little while, and I think if we keep on the trend that we've been on, it's reasonable to expect that those will continue to increase.
Yes. We invest a lot of money in energy-saving initiatives, so we're seeing some gains there. And we're moving the rents higher, so we're seeing gains there. So they're working both in our favor on the margin side.
Yes and we're looking for efficiencies across our expense portfolio to see how we can continue to deliver the same products and incur quality at the most efficient price. So the goal is to continue to move those margins up.
That's great. I was wondering if you could talk about your Edmonton market in terms of like what you're seeing, in general, in the market in terms of occupancy.
Yes. What we're seeing there, we're seeing actually a little more vacancy with our tenant base. We're leasing but we're also seeing the people move. So that market seems to be a bit in transition right now. And we know that the work in the oil field is not as strong as it was. So we think it's short term, but we don't really know exactly how the trend is going to proceed.
Yes. The 2 properties, 474 units are one that's downtown is actually trending positively in terms of occupancy. So we're getting there almost to kind of the level where we want, whereas the other one, a little bit more suburban, that has had about a 50% turnover on a yearly basis. And we are sort of still seeing movement in there, but the focus is just to get there with good staffing that we have and a little bit more attention from head office that we think we'll be able to improve that over the next quarter to 2 quarters.
We're doing some upgrades in terms of the amenity space as well, that's being undertaken this fall, so we'll deliver on that front. It should come around.
But it is interesting to see the turnover rates, as Phil mentioned. When you look for our portfolio overall, which is about 30% and it's high, it's the high 40s to 50 in Alberta and then low -- we're in the teens, I think, in Cambridge and the GTA area. So really, interesting just difference in the market, but the turnover is definitely higher for our assets out west compared to the norm.
So are those your property specifications or they're like...
No. I'd say those markets at -- those are for the areas, it's not just our property. We monitor it closely.
All right. And just one more question. If you could give us your development budget for the rest of 2019 and 2020.
I think off the top of our head, we don't have that. I mean, we're...
Actual cash.
Cash or just overall because...
Just cash and how much you expect to spend on your development projects.
Yes. Towards the end of the year, probably between $10 million and $12 million that will be a large amount related to the Silver Spear when that gets going before construction financing kicks in. And then in 2020, it'll probably in, yes, the $10 million to $15 million range. Cost upfront for example construction financing is expecting to start to kick in soon, but from a net cash flow perspective that's one asset that the cash will be offset by financing and even with Silver Spear, because the value of the land and some of the development cost upfront, it's pretty quick when we expect the construction financing to kick in.
Your next question comes from Brad Sturges IA Securities.
Just one quick one on the repositioning program. I was just looking at the potential total investment for the program over the next several years, it looks like the budget or potential total investment has increased a bit from last quarter. Just curious to know if that's the change in the type of work you're thinking on -- the type of work that might be done within the suites or that's just baking in a little bit more cost escalation?
Yes. So there's a bit of inflation impact there, but it depends. It's across-the-board. We have some units that are in the low-20s, some in the higher 20s but it's costing around $26,000 to do one. So that's the costing. It's a very competitive market out there for labor.
Is it that where you're seeing the most pressure now in terms of labor, or is it some of the other material costs?
It's both. Material costs are -- there's an inflation impact there and the labor is an interesting one.
It's interesting to note that even with those higher costs, we're getting some very healthy rent increases, too. So when we look at the returns on both, we're still staying around the same -- still targeting the same type of return.
So 13% so far this year, all cash, it's a pretty nice cap rate.
Your next question comes from Neil Downey from RBC Capital Markets.
In DF, how long or what's the remaining lease term rather on the co-op IGA store and the gas bar and are those leases flat or are there any escalators over time?
Eight years with renewals and flat to the 8 years.
Okay. And The Kay, where did that name came from?
If you take a look at our board, the Board Chairman is a gentleman named Robert Kay.
There we go.
He's been here from the beginning.
There are no further questions at this time. Please proceed.
Again, I'll just make one comment, a light comment from Neil's last point. We didn't spent $30,000 for the consultant coming up with that name. But again, I would like to thank everybody for listening today, and we will see you back here in November for Q3. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and ask that you please disconnect your lines.