Canadian Apartment Properties REIT's CEO Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 9.13 | About: Canadian Apt (CDPYF)

Canadian Apartment Properties REIT (OTC:CDPYF) Q2 2013 Earnings Conference Call August 8, 2013 10:00 AM ET

Executives

David Williams – Corporate Director

Thomas Schwartz – President and Chief Executive Officer

Mark Kenney – Chief Operating Officer

Maria Amaral – Chief Accounting Officer

Scott Cryer – Chief Financial Officer

Analysts

Jonathan Kelcher – TD Newcrest

Mario Saric – Scotiabank

Heather C. Kirk – BMO Capital Markets

Michael Smith – Macquarie Securities

Jimmy Shan – GMP Securities

Matt Kornack – National Bank Financial

Alex Avery – CIBC

Operator

Good morning, ladies and gentlemen. Welcome to the Canadian Apartment Properties Real Estate Investment Trust Second Quarter 2013 Conference Call. Please be advised that this call is being recorded.

I would now like to turn the meeting over to Mr. David Mills. Please go ahead, Mr. Mills.

David Mills

Thanks, Paul. Before we begin, let me remind everyone that the following discussion may include comments that constitute forward-looking statements about expected future events, and the financial and operating results of CAPREIT. Our actual results may differ materially from these forward-looking statements, as such statements are subject to certain risks and uncertainties, discussions concerning these risk factors, the forward-looking statements, and the factors and assumptions on which they are based can be found in CAPREIT’s regulatory filings, including our Annual Information Form and MD&A, which can be obtained at SEDAR.com

I’ll now turn things over to Tom Schwartz, President and CEO.

Thomas Schwartz

Thanks, David. Good morning everybody and thank you for joining us today. Along with Scott Cryer, our CFO, I’ve invited Mark Kenny, our Chief Operating Officer and Maria Amaral, our Chief Accounting Officer to join me and participate in this call.

Our second results clearly showed the significant and accretive contribution being made by our record portfolio growth over the last two years, as well as the success of our property management programs.

You can see on Slide 3, our revenues were up 22% through the first six months of 2013, generating a 23.3% increase in net operating income. Same property NOI was up 5.5% for the six-month period and up a very solid 7.1% in the second quarter. Our NOI margin also improved up to 57.9% from 57.2% last year. The second quarter NOI margin was a very strong 60.7%.

Normalized funds from operations, the key measure of our performance, rose 33.2% and was highly accretive as NFFO per unit was up 13.7% despite the 17% increase in our unit outstanding. With this strong performance, our NFFO payout ratio also improved significantly to 73.2% for the first six months of the year from 81% last year.

We are very proud that we also continue to outperform the overall Canadian Apartment market. As you can see on Slide 4, very strong vacancy rates over the last three years consistently at or near economically full levels have significantly been better than our peers. With the fundamentals of our business remaining strong across all of our geographic markets, we have clearly proven our property management programs are having a material and positive impact on our record performance.

We see this track record of high occupancies continuing in the future and also believe these nearly fully occupancies will contribute to further increases in average monthly rents going forward. You can see the positive impacts of our management programs on Slide 5 with average monthly rents increasing across all segments of our residential portfolio resulting in an overall 2.8% increase. This increase is despite the lower rent guidelines and increases in Ontario and BC this year.

Occupancies were strong at 98.4% essentially full occupancy for the total portfolio. Looking ahead, demand remains strong in all of our markets. We see occupancies remaining stable at these nearly full levels and we believe that average monthly rents will continue to increase over time.

Slide 6 details how our average rents are performing on suite turnover and on lease renewals. As you can see, we continue to build solid growth in average monthly rents, although at slightly slower pace than last year due to the lower rent guidelines this year in Ontario and BC.

One of the main reasons for our rent growth in excess of the guideline increase is our ongoing successful application for above guideline increases for properties where we’ve invested in capital improvements. Maria, will have more to say about our AGI application shortly. We are also very proud of how we are improving the performance in our stabilized portfolio as you can see on Slide 7.

Increases in operating revenues combined with a decrease in our operating cost resulted in same property NOI up a very strong 5.5% through the first six months of 2013. In the second quarter same property NOI was up 7.1%, very strong performance for CAPREIT.

Looking ahead we are confident this strong organic growth will continue. Market fundamentals are sound across the country and our innovative energy and cost control programs are generating significant benefits.

I’d now going to turn things over to Mark to discuss how we are increasing our ancillary revenues as well as our progress on sub-metering in our portfolio.

Mark Kenney

Thanks, Tom. As Slide 8 shows we generated a solid track record of growing our ancillary revenues with a strong 5.8% increase through the first six months of the year and a 6.9% increase in the second quarter.

As CAPREIT acquires new properties, we implement where possible our national and regional agreements for laundry, cable, Internet, parking and rooftop antennas. In addition to adding value some of these revenue generating programs also provide higher levels of service for our tenants. Better laundry facilities, higher quality Internet and cable, day care and car sharing facilities make CAPREIT an attractive proposition for potential residence.

Turning to our sub-metering program on Slide 9, we are making good progress on converting our apartments into sub-metered units where the tenants pay for their own hydro. We were able to convert 466 suites in Q1 and 467 suites in Q2. As of June 30, we converted approximately 35% of the total 15,000 into recently sub-metered suites to tenant pay hydro. We have approximately 9,752 suites left to be converted.

Since the introduction of his program, we’ve had success with slightly increasing rents on turnover. This coupled with average hydro savings between $40 and $50 per month is helping to drive our NOI margin higher.

I will now turn the things over to Maria to discuss the AGI program and our enhanced technology platform.

Maria Amaral

Thanks Mark. As Tom mentioned another reason we are achieving solid rent increases on renewals is our successful program of applying for above guideline increases as detailed on Slide 10.

During second quarter CAPREIT successfully settled four applications ranging from 1.1% to 6.4% for once a three year and file one new application for an increase of 7.7% over three years. Impacting 2013 revenue there are 25 approved applications representing approximately 17.8% of Ontario suites and sites at the time of filing. There are further nine applications outstanding representing 6% of the Ontario portfolio.

In addition, we are currently in the process of reviewing another possible 10 to 15 applications for filing. Over the last few years, we have been enhancing our technology platform and we are now beginning to see significant benefit from these investments as can be seen on Slide 11, including upgraded system infrastructure, which has improved stability, performance, and scalability and integrated ERP system which increases efficiency of information, processing and eliminates multiple entry, improved operational and financial information which leads to timely decision making based on most current information.

With the foundational systems in place, there is opportunity to leverage enabling technologies to bring further efficiencies. Over the next few quarters, we will be adding further enhancements which will contribute to our ability to manage our growth without significant increases in overheads. These enhancements include a fully integrated procurement system, a mobility platform enabling greater productivity in the field and an invoice management system with approval workflow and scanning capabilities.

I will now turn things over to Scott for his financial review.

Scott Cryer

Thanks Maria. As Tom mentioned at the outset, our results this year have been very strong driven by our portfolio growth and our successful operating initiative.

As you can see on slide 13, operating revenues were up 22.7% in the quarter, primarily due to the contribution from acquisitions completed in 2012 and a strong organic growth.

NOI increased 26% due to the solid revenue growth as well as the strong 7.1% increase in same property NOI, resulting from our proven operating programs such as our energy efficiency programs.

Our NOI margin improved significantly to 60.7%, up from 59.1% last year. You can also see that despite the 15% increase in the weighted average number of units outstanding, our growth was highly accretive with NFFO per unit up at strong 18.7% and our NFFO payout ratio also greatly improved to 58% from 78.8% in last year’s second quarter.

Slide 14, details the results for the first six months of 2013, again with strong operating revenues, up 21.9%. NOI increasing 23.3% and a very strong NOI margin at 57.9% up from 57.2% last year. And again despite an approximately 17% increase in the weighted average number of units. NFFO per unit was up 13.7%, with NFFO payout ratio, also improving at 73.2% from 81% in the first six months of last year.

We continue to maintain a strong and flexible financial position as shown on slide 15. Coverage ratios remained very strong with interest coverage continuing to exceed 2.5 times, and the improved debt service ratio well within our guidelines.

We continue to maintain approximately $140 million of properties that are not encumbered by mortgages and secure only the acquisition operating facility. Our weighted average interest rate declined further at quarter-end and we continue to focus on extending our debt maturities with the use of 10-year term mortgage debt, while more recently attempting the balance on maturity profile with the U.S. of various duration mortgages.

Total mortgage refinancings are $427.3 million were closed or committed during the quarter, including $247.3 million for renewals of existing mortgages and $180 million for additional top up financing. This represents a large majority of our planned financing for 2013. The average term to maturity for these financings was 9.7 years, with the weighted average interest rate up 2.92%, considerably lower than maturing rates.

We continue to expect to raise between $575 million and $625 million in total mortgage renewals in the financing of this year.

Our mortgage maturity profile remained well balanced at quarter-end, as shown on slide 16. And we continue to focus on extending our debt maturities in this low rate environment, but we use various duration mortgages to achieve this.

With significant maturities and top up potential over the next three years, we should have the opportunities to take advantage of what is still historically low interest rate environment. However, as rates have begun to rise more rapidly, we may use this opportunity to balance our maturity profile for the years 2016 through 2020 with some shorter duration mortgages.

With over 94% of our mortgages being CMHC-insured, we continue to have a large and diverse group of lenders willing to work with us. As we continue to convert assumed mortgages on a number of the properties that we acquired in 2011 and 2012, the CMHD-insured mortgages we see this percentage climbing. Currently the 10 year estimated current market interest rate is approximately 3.45% and 5 year estimated market rate is around 2.6%.

I will now turn things back to Tom to wrap things up.

Thomas Schwartz

Thanks, Scott. Before we wrap up and take your questions, I want to briefly review our recent announcement of those CAPREIT’s acquisition of properties in Dublin, Ireland. As you can see on slide 18, we will be requiring 338 apartment suites in four properties in the beautiful and historic city of Dublin, Ireland. The properties are modern. It was built between 2006 and 2008 and were originally constructed for owner occupiers. Currently occupancy stands at 93%. More details about each of our Dublin properties can be found in the appendix to this slide deck.

We will be paying about €42.7 million for the properties which is about CAD$59 million and we will be actively hedging the highly accretive cash flows from the properties going forward. Most importantly we will immediately put our own people in Dublin and setup an operational division to manage these new properties and any others that we may acquire in the future.

We believe the transaction provides a significant and accretive growth opportunity for CAPREIT as you can see on Slide 19. The Dublin rental market has a significant demand-supply imbalance with a real shortage of quality rental properties available. Study showed that the Dublin supply is less than half of the market demand at this time. Today there are fewer rental properties available than at anytime since the market peak in 2007 when average monthly rents were increasing at double-digit rates.

The Dublin rental market has also remained relatively strong through the recession of the past few years with strong overall occupancies and rent up 5% in the first quarter of 2013, compared to the same quarter of last year. There is also a distinct lack of large professional property managers in Dublin, and we are very confident that our professional improvement approach to the market will payoff and increase our occupancies and higher rents in the quarters ahead.

Slide 20 shows that the number of suites available for rents in Ireland continues to fall. Nation-wide, there were fewer than 11,000 suites available in April of 2013, down almost one-third of in last year. With this decline in supply, rents nationally were 2.7% higher in the first quarter of 2013, compared to last year’s first quarter.

Rents were also up approximately 1% over the fourth quarter of 2012, the first time since 2007, there have been three consecutive quarterly increases in rents and in the Dublin market, rents were 5% higher in the first quarter of 2013 than the prior year; much better performance than the rest of the country.

Turning to Slide 21, you can see that the rental market in Dublin is very strong. And, the only region in Ireland where demand significantly exceeds supply. In fact, there are fewer properties available for rent today than any point since early 2007. In 2007, renters in Dublin could choose among 4,000 available units. Today fewer than 2,000 units are available for rent in Dublin.

Adding further to the supply constrained there was very little new supply coming to the market. With this population growth there are approximately 10,000 new households created every year in Dublin, but only about 5,000 of the new properties are coming on the market annually. As a result, we believe demand will continue to exceed supply in Dublin for many years.

Slide 22 shows average monthly rents across the six key regions in Greater Dublin. Clearly market rents are well off their highs at the end of 2007, but recently they have been demonstrating improvement. Rent inflation is now above 4% across the Dublin region and as high as 6% in the central areas of the City.

In summary, we are very confident it is a great time for us to invest in Dublin. We see a significant opportunity to grow cash flows with occupancies an average monthly rents rising. By leveraging our team and our experience, we believe we can bring a new and effective professional approach to property management in this important market.

We are acquiring the properties of excellent values and very strong cap rates. The properties are also quite new and modern requiring minimal capital expenditures. And finally, the transaction will be immediately and significantly accretive to CAPREIT’s NFFO and we will actively hedged our new euro-denominated cash flows.

Looking ahead following our record results in 2012, we see 2013 as another strong year for CAPREIT. First, we will see a full year's contribution from the record acquisitions completed in 2012. The positive impact has already been seen in our first quarter results. Property revenues will also continue to benefit from our near full occupancy levels and consistent increases in our average monthly rents.

Our ancillary revenue programs continued to grow as we introduce new and innovative programs with our new properties. Our NOI margins will remain strong. Particularly as we realized the benefit of our state-of-the-art purchasing and energy management programs at the properties acquired during 2012. We also believe our portfolio will continue to grow. So far this year we have completed the purchase of 773 apartment suites in Calgary and Toronto as well as our new properties in Dublin. To close at the end of August, and we expect we will at least achieve our normal target of acquiring between 1,500 and 20,00 suits for the full year.

We remained confident in our ability to meet our growth targets because of our strong liquidity position as you can see on Slide 26. Strong top-up potential on our mortgage portfolio will easily allow us to fund our CapEx program and should create incremental acquisition capacity throughout the year.

As of June 30, our liquidity position of approximately $81.9 million could provide for future acquisitions of roughly $270 million, while still maintaining our conservative debt ratios and we continue to maintain $141 million of properties which are unencumbered.

With our continuing record performance we were very pleased with the increase of our monthly distributions of our Annual Meeting in June to an annualized distribution of $1.15 per trust unit, the tenth increase in our 15 history as a public company.

Looking ahead, the future looks very bright for CAPREIT and we look forward confident in our ability to continue enhancing unit holder value in the years to come. We have proven our ability to capitalize on continuing strong fundamentals in the Canadian apartment business through all economic cycles. We believe we have one of the strongest balance sheets in the business and fiscal prudence will remain a key priority at CAPREIT.

We are very confident in our team. We have the right people in the right positions to manage our growth for years to come and finally we have demonstrated that our business strategy is working and we will continue to build on the solid performance generated over the last 15 years.

The main message today is that CAPREIT has a very exciting future and we look forward to sharing our results with you in the coming quarters. Thanks again and we will all now be pleased to answer any questions you may have.

Question-and-Answer Session

Operator

Thank you. We will now take questions from the telephone lines (Operator Instructions) The first question is from Jonathan Kelcher from TD Securities. Please go ahead.

Jonathan Kelcher – TD Newcrest

Thanks, good morning.

Thomas Schwartz

Good morning Jonathan.

Michael Stein

Good morning Jonathan.

Jonathan Kelcher – TD Newcrest

Congrats on the good quarter.

Thomas Schwartz

Thank you.

Jonathan Kelcher – TD Newcrest

On Dublin, how big an opportunity do you see this being for you guys over the next couple of years? I'm guessing you are not just doing one acquisition there.

Thomas Schwartz

No. We think there is decent growth opportunity that will never be a material part of CAPREIT’s portfolio, but it’s a unique opportunity. There is a market recovery taking place. Dublin as a city is a very, very strong market as I’ve said in our presentation, demand far outstrips supply. We are getting really great accretive returns. Culturally quite frankly, I’m more comfortable there than I am in the U.S. It’s British Commonwealth. It’s a society very, very much like ours and they’ve gone through a lot of economic distress, which has pushed most of these buildings in the hands of distressed lenders that are being auctioned.

These buildings were all built for ownership. They don’t have a dedicated rental sector there. We’re probably the first professional property manager to step in for that market, and that’s always recognized and as these distressed lenders liquidate these properties through auctions, that’s where our opportunities will come from. Now what I can assure you is they’re highly accretive to CAPREIT and we’ve done a lot of research in that market and you have heard me talk about stability being the key to our business in Canada, and before we even stepped our foot seriously into that market, we got comfortable. The stability as strong as what we see here toady.

Jonathan Kelcher – TD Newcrest

Okay. So as a percentage of your portfolio, it would be sort of 5% would be top out?

Thomas Schwartz

That would be awfully high.

Jonathan Kelcher – TD Newcrest

Okay. That’s fair enough. And in terms of the cap rate on the acquisition, are you able to tell us what it is?

Thomas Schwartz

Yeah, I mean I think we’ll give you a little bit. We are very proud of what we’ve done there. Let’s say, it’s significantly in excess of 7%.

Jonathan Kelcher – TD Newcrest

Okay, so between 7% and 8% would be fair?

Thomas Schwartz

Significantly, yeah, I mean that’s fine.

Jonathan Kelcher – TD Newcrest

Okay, thanks. I will turn it back.

Thomas Schwartz

Thanks, Jonathan.

Operator

Thank you. The next question is from Mario Saric from Scotiabank. Please go ahead.

Mario Saric – Scotiabank

Hi, good morning.

Thomas Schwartz

Good morning, Mario.

Mario Saric – Scotiabank

Just coming back to Dublin, I think in the press release, you indicated that you are considering potentially using a different vehicle for those assets going forward. How do you think about the structure of the ownership of the assets and future growth (inaudible)?

Thomas Schwartz

Good question. At this point, they are sitting in CAPREIT, but I mean you read it, you read it prudently we said that, because we want to leave our options opened and it’s possible we may make a decision that we want to spin this off into a separate vehicle, and we want to let the market know that that’s a possibility. We are a committed Canadian REIT, and as I answered Jonathan’s question, this is not going to become a significant part of our portfolio.

Mario Saric – Scotiabank

Okay, so is that decision influenced by the rate of asset growth going forward or…

Thomas Schwartz

I think in the end influenced by a number of things, maybe we are very early into this, we haven’t even closed our first acquisition. Mark is just busy setting up a management operation over there that will be a very typical CAPREIT regional office, and let’s stay tuned quarter-to-quarter.

Operator

Thank you. The next question is from Heather Kirk from BMO Capital Markets. Please go ahead.

Heather C. Kirk – BMO Capital Markets

In terms of the sort of bidding process on this, I'm just wondering whether there was a lot of activity, and who sort of the other bidders would have been on the Dublin acquisition?

Thomas Schwartz

It was extremely active. We know there were multiple, multiple bidders on the first round. We made the second round, may narrowed it down to four. We were one of the bidders, there was another significant bidder who is a large apartment owner in let’s call in California, and we know that one of the very, very well known American private equity funds was one of the fourth, and the fourth one was actually a strong local company that is a developer and could become an owner of the rental apartments. So that it’s international competition.

Heather C. Kirk – BMO Capital Markets

And did you consider, I mean you mentioned that there weren't really a lot of professional managers in the market. Would there have been anyone that would've been a possible local partner? And did you – was that considered and if tossed aside, just wanted to get your thoughts about risk management and the like?

Thomas Schwartz

Yeah, we always look at that. And as you we’ve even entered certain markets in Canada like Quebec for a partnership because the one-time we weren’t comfortable operating their sales. This one was the reverse of the opportunities because there is no professional operators in the market. They didn’t even have a rental sector they have a – their rentals have been in the past, what's known as buy to let market which is equivalent in Canada that small investors buying condominium and renting them. What happens here is that all of these and these are high quality buildings.

We have build this basically condominiums for ownership, when the economy in Ireland and the rest of Western Europe declined around 2008, these buildings the people that brought them didn’t close, the lenders had to foreclose the government stepped in back stopped lenders, so lenders realize there is no market to sell them because they weren’t prepare to issue mortgages, so they started leasing them up and really the receivers became the operators of the buildings, so we are buying from receivers who are operating as receivers and that’s why as professional operators we see so much potential here.

Operator

Thank you. The next question is from Michael Smith from Macquarie. Please go ahead.

Michael Smith – Macquarie Securities

Thank you, Tom, how long have you been looking in Ireland?

Thomas Schwartz

To be honest Michael, we saw the first opportunity there well over a year ago, we looked at that. We didn’t make a decision. We said this is interesting. These are incredible looking building. They were built for ownership.

They are selling at really high cap rates and we’ve just kind of being monitoring it and then we decided that we were comfortable, we studied it, I mean in answer to, kind of have this question before we look to other local people that are going to compete with us, other appropriate partners in the market and we just saw this year that it was wide open and we jumped in, we bid in this auction and we were successful.

Michael Smith – Macquarie Securities

Okay. Now, you’ve talked about the demand significantly exceeding the supply and population growth. what’s driving that?

Thomas Schwartz

It’s interesting. When we hear about the distress in Ireland and certainly its distress, but the stress is outside of Dublin and when you visit Dublin that’s the thriving city like London or Paris, there’s lots of jobs there because of the friendly tax structure they created, all the multinationals are there with a head office.

So we so Amazon’s head office, we saw Google’s head office, State Street which does fund management has over 6,000 people there and that’s where the market is. And there’s a real shortage and what’s interesting is we announced with this acquisition that it’s 93% occupy today. A month and a half earlier, when we started looking, it was 88% occupied.

So the receivers who don’t do as good a job as we’ll do, took it from 88% to 93%. We think we can run the cap rate building pretty much full occupancy.

Operator

Thank you. The next question is from Jimmy Shan from GMP Securities. Please go ahead.

Jimmy Shan – GMP Securities

Hi. Just going back to double it again, so a couple of questions there. So obviously the investment scope has changed and what other markets did you consider or are potentially considering now that you have sort of gone into overseas market? And then secondly, so what risk do you see an obviously it’s a very strong rental market today, but what’s the downside scenario here, if any?

Thomas Schwartz

I guess first question as we look at all opportunities, but we have not seriously looked at anything else outside of Canada other than what we have disclosed in the market. In terms of risks, I mean there is nothing that’s risk free, Canada isn’t risk free, we’re pretty comfortable again that in the foreseeable future, demand will exceed the supply here.

We are also comfortable there is lots of rooms for rent growth, again there is no professional operators in the market. they haven’t fine tuned their rents the way we have, and we are also comfortable that we’re going to able build the portfolio to an economic size, because there is enough options coming up in the next year or couple of years, that we think we can build a really well balanced portfolio there.

Jimmy Shan – GMP Securities

Can we extrapolate from this that just turning to the AMC portfolio that you are currently managing that under the right circumstances that would be something you would entertain, bringing onto CAPREIT?

Thomas Schwartz

Again we look at all opportunities Jimmy, if we were doing that now, we certainly be telling you about it, again it’s not on deck right now.

Operator

Thank you. the next question is from Matt Kornack from National Bank Financial. Please go ahead.

Matt Kornack – National Bank Financial

Good morning guys, just turning back to Canada here.

Thomas Schwartz

Thank you.

Matt Kornack – National Bank Financial

Your rent increases on turnovers were pretty impressive compared to Q1 and given where Ontario guideline rents are going in 2014, do you think turnover has become an increasingly the driver for rent growth going forward?

Thomas Schwartz

I am going to let Mark answer that question?

Matt Kornack – National Bank Financial

Okay.

Mark Kenney

We are very, very proud of the results obviously there is a point they try to make sub-metering as on top of the rent growth that we’re seeing we’re also taking the high growth exposure off the balance sheet, so that’s good. The market is strong and as Tom said we are platform is working in all cylinders. We are able to access the market properly and we feel really good.

Matt Kornack – National Bank Financial

Great, thanks and just one last question; in terms of cap rates have you seen any movement to-date, I know its early days in the interest rate uptick, but just wondering if it's funneling down into the markets in Canada?

Thomas Schwartz

No, but we are seeing the first signs there is more properties available than we have seen in years, and this is because all of the greedy people who wanted to catch peak realized they've missed it and they have all come to the market once, so there is a time element for adjustments and I think we are in that time element now.

Operator

Thank you. The next question is from Mario Saric from Scotiabank. Please go ahead.

Mario Saric – Scotiabank

Hi, sorry, two really quick follow-ups. With respect to Canada, Maria, I believe you mentioned that you are looking at 10 to 15 additional applications or AGI applications. Can you give me a sense as to what percentage of the Ontario portfolio that represents?

Maria Amaral

Mario, we are just literally assessing, so I don’t have any particular, but there are 10 to 15 based on the capital expenditures that we have done, so we are still in the early stages of assessing them.

Mario Saric – Scotiabank

Okay, would these include any abnormally large or small buildings that you can think of?

Maria Amaral

Again there are – we assess them individually. It’s very early stages.

Mario Saric – Scotiabank

Okay. And then maybe a question for Scott; just on the CMHC announcement a couple days back with respect to limiting the amount insured per insurer to $250 million, can you just talk about what implications you think that may have for the overall mortgage costs going forward as far as spreads are concerned?

Scott Cryer

Yeah. We are obviously quick to reach out to our lenders as well and the short answer is, business is normal, and I think a lot of that has to do with them being balance sheet type lenders, and I think the only potential impact maybe some type of trickle down effect from some of the other large pools in some of the residential side as far as the availability, but it does seem like it’s going to have any impact right now, but we will keep you up to date as we start to hear different things from lenders.

Operator

Thank you. The next question is from Alex Avery from CIBC. Please go ahead.

Alex Avery – CIBC

Thanks I have one quick question on Dublin and then one on I guess Canada. On the Dublin, it sounds like it's a very interesting opportunity. You've outlined all sorts of different elements that make it very attractive relative to Canada. But I am just curious how it is that you came across that opportunity with a broker that just lagged it to you or trip that someone took there?

Thomas Schwartz

Remember we see lot’s of opportunities all over the world, most of which we don’t look at, but we are a pretty well recognized department company, so – I mean we’re magnate for deals from all over. This actually tied into a relationship between somebody at CAPREIT and somebody in Ireland. So there was a very strong tie to this particular opportunity.

Alex Avery – CIBC

Okay. And just turning to the sub-metering and rental rate increases on turnover. I think originally when you’d set out on the sub-metering exercise and then sort of the rough target was to hopefully maintain rental rates and offload the hydro cost. You seem to have done pretty well on rental rate increases on suite turnover. But I was wondering if you could just break it out into the ones who’ve switched over to the sub-metering to the tenants, where you able to hold flat rents or was there actually some sort of an increase as well.

Mark Kenney

It’s Mark. Alex, we’re actually being able to increase rents. Our original projections were the goal let’s try to hold, but as I said the demand is great, the platform is operating and we just attribute to the quality of the portfolio. The CAPREIT portfolio continues to be one of the best quality portfolio in the markets recognizing it. So we’ve been able to push it, and we think there is more room to go the where we have tested, are seeing very, very strong results.

Operator

Thank you. (Operator Instructions) The next question is from Michael Smith from Macquarie. Please go ahead.

Michael Smith – Macquarie Securities

Thank you, I've just got two more questions. First, on the Dublin acquisition, in the press release it says that the all rental suites are modern, fully furnished. Is that unique to this property, the fully furnished part, or is that just the way the market is in Ireland?

Mark Kenney

That is the way the market is and we questioned that when we started to looking at this. And again remember this is the market if you are a labor and it has been created by receivers. So they started furnishing these units, people rent them, furnish, obviously when we get ourselves established there we are going look at, should we make some changes, but at this point we will continue with the furnished units and again everything we are buying has really good quality furniture in it.

Michael Smith – Macquarie Securities

Okay, secondly, what are your thoughts on the recent announcements on CMHC limits?

Mark Kenney

We’ve obviously questioned that very, very carefully, because that is very much our lifeguard and we are highly confident there are not going to be any changes that would affect CAPREIT.

Michael Smith – Macquarie Securities

Just in terms of the limits and what have you, that's more directed towards…

Mark Kenney

In any manner what’s so over.

Michael Smith – Macquarie Securities

Okay. All right thank you.

Mark Kenney

Okay, thanks Mike.

Operator

Thank you. There are no further questions registered at this time. I would now like to turn the meeting back to MR. Schwartz.

Thomas Schwartz

Okay. I want to thank you everybody for their participation. And as always, if anybody has any additional questions give myself or Scott or Maria and Mark a call. We are always interested in giving as much information as we can and thank you all for your support.

Operator

Thank you. The conference is now ended. Please disconnect your lines at this time and we thank you for your participation.

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