Killam's (KMPPF) CEO Philip Fraser on Q2 2017 Results - Earnings Call Transcript

| About: Killam Properties (KMPPF)

Killam Properties, Inc. (OTC:KMPPF) Q2 2017 Earnings Conference Call August 10, 2017 11:00 AM ET

Executives

Philip Fraser - President and CEO

Dale Noseworthy - CFO

Robert Richardson - EVP

Bob Jenkins - Director, IR

Analysts

Mark Rothschild - Canaccord Genuity

Jonathan Kelcher - TD Securities

Heather Kirk - BMO Capital Markets

Richard Liu - Scotiabank

Brad Sturges - Industrial Alliance

Jimmy Shan - GMP Securities

Operator

Good morning ladies and gentlemen, and to the Killam Properties REIT Second Quarter 2017 Q4 Financial Results Conference Call. After the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time. Please note, that this call is being recorded today, August 10, 2017, at 11:00 Eastern daylight time.

I would now like to turn the meeting over to your host for today's call, Philip Fraser, President and Chief Executive Officer. Please go ahead, Mr. Fraser.

Philip Fraser

Thank you. Thank you for joining Killam Apartment REIT’s Q2 2017 conference call. I'm here today with Robert Richardson, Killam’s Executive Vice President; Dale Noseworthy, Killam's Chief Financial Officer; and Bob Jenkins, Killam's Director of Investor Relations. Slides to accompany today’s call are available on the Investor Relations section of our web site under Events and Presentations.

I will now ask Bob to read our cautionary statement.

Bob Jenkins

This presentation contains forward-looking statements with respect to Killam Apartment REIT's operations, strategy, 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.

Philip Fraser

Thank you, Bob. I will start today's call with an update on our progress towards our 2017 strategic targets. I will then ask Dale to take us through the financial highlights for the quarter. Robert will review the initiatives that we are working on, to maximize NOI and through revenue growth and expense management. I will then conclude the call with details on our recent acquisitions and an update on our development.

Turning to slide 3; we are well on track to achieving our strategic goal targets for 2017. Same property NOI for the first six months of the year grew by 2.4%, and we expect to end the year near the midpoint of our 1% to 3% growth target. As I will describe later in the call, we have been very active on the acquisition front, and that exceeded our targets for total transactions and geographical diversification. Additionally, our three development projects are progressing on schedule. As Dale will elaborate upon, we have also delevered our balance sheet and are near the 50% debt-to-asset target.

I will now ask Dale to recap our financial performance for the second quarter.

Dale Noseworthy

Thanks Phil. Highlights of our Q2 results are shown on slide 4. We generated FFO of $0.23 per unit, consistent with Q2 2016. AFFO per unit was up 5.6% for the second quarter of 2016.

Strong earnings growth in the quarter from lower interest expense, same property NOI growth and contributions from acquisitions in Killam's [indiscernible] development were offset by a 19% increase in units outstanding. We issued $170 million of equity over the last 14 months, to redeem $104 million of convertible debentures and to fund acquisitions in development.

The timing of deployment of a portion of the funds raised and the proceeds from the April sale to apartment buildings, impacted per unit growth in Q2, as the capital was not fully deployed until July. Further, we will not realize the benefit of our development investments until the projects are completed. We expect the equity we have invested in our three active developments, to add approximately $0.04 in annual FFO per units, once the properties are fully leased up.

Slide 5 summarizes these and year-to-date results. For the six months ended June 30, 2017, FFO per unit was up 2.4% and AFFO was up 6.7%. The graph on two of our key debt metrics, total debt to total assets and the interest coverage ratio, highlight the improvements we have made in strengthening our balance sheet in the last year and a half.

Debt as a percentage of assets have fallen from 56.5% at year end 2015 to 50.4% at the end of Q2, nearing our longer term target of less than 50%. Growth in NOI and the elimination of our most expensive debt, with a redemption of the convertible debentures, are translated to improved interest coverage ratio, to 3 times from 2.3 times a year and a half ago.

As a 12 month rolling metric, we expect to see the interest coverage ratio improve through to the end of Q1 2018, until the 5.4% tranche of convertible debentures roll off the trailing 12 months interest expense.

Turning to slide 6, same property revenues were up 1.7% during the first six months of 2017, due to a 1.6% rise in the average apartment same property rental rate, and a 40 basis point increase in same property apartment occupancy. MHCs also performed very well this quarter, with 3.5% top line growth, largely due to increased revenues from our seasonal properties.

Strong results in Nova Scotia, New Brunswick, and PEI offset modest quarter-over-quarter revenue, reductions in Alberta, Ontario and St. John's. The Ontario market remained strong, with same property rent up 2.7%, the strongest across our portfolio. However, occupancy was negatively impacted in the quarter by the expiry of our rental guarantee at the Kanata Lakes properties, following our acquisition of the last two buildings in the complex in March, and an uptick in vacancy at three other properties.

The impact of the loss of the rental guarantee in Kanata is a one quarter factor. Through taking over leasing of the entire 739 unit complex in March, occupancy has improved to 97% from 89% in April.

Overall, demand for apartments is strong, driven by demographics, population growth, affordability compared to home ownership and economic growth in our core markets.

As shown on slide 7, relatively flat total operating expenses also contributed to 3% NOI growth in Q2. Same property expenses increased by only 30 basis points, a 4% increase in property taxes due to higher assessments and increased insurance premiums, were almost fully offset by lower gas prices in Nova Scotia and water saving, due to reduced consumption, following the installation of additional low flow water fixtures across the portfolio over the last year.

During Q2 2017, Killam realized the benefit from lower interest rates on mortgages refinanced during 2016 and the first half of 2017, contributing to a 5% reduction in same property mortgage interest expense.

Slide 8 highlights our debt maturity schedule, including average apartment mortgage rates by year, versus current CMHC-insured mortgage rates. We continue to generate interest expense savings, by refinancing maturing mortgages at lower rates.

During Q2 2017, we have refinanced $37 million of maturing mortgages, with $50 million of new debt, at a weighted average interest rate, 148 basis points lower than the rate of maturing debt. We expect to continue to refinance at lower rates during the remainder of the year and into 2018.

Not included in the chart on slide 8, are our MHC mortgages coming up for renewal. During the next six quarters, we have $25 million of MHC debt maturing, at a weighted average interest rate of 4.35%, also above current mortgage rates on MHCs of approximately 3.5%.

I will now turn the call over to Robert, who will provide an update on our strategic priorities.

Robert Richardson

Thank you, Dale. Good morning everyone. As shown on slide 9, Killam remains focused on increasing the value of its business with three key strategies; increasing earnings from existing operations, expanding the portfolio and diversifying geographically through accretive acquisitions, with an emphasis on newer properties, and the development of high quality properties in Killam's core markets.

I will highlight a number of steps we are taking to improve earnings at our existing operations, before turning the call back to Philip, to discuss recent acquisitions in our new development.

On slide 10, we detail Killam's same property revenue and NOI growth by market for the first six months of 2017. As Dale mentioned, our revenue growth is driven by the economies of the regions, where we have experienced strong economic and rental rate growth across the maritimes, with the oil-focused markets of Calgary and St. John's, having been impacted somewhat by broader decline in oil prices.

The Ontario markets are stronger than slide 10 would indicate. As Killam's results for Ontario in the first half of 2017 were impacted by the expiry of the rental guarantee at Kanata Lakes, as Dale has already explained. We are confident, our Ontario operations are stabilized and will perform well for the second half of 2017.

As shown on slide 11, Killam's total portfolio was generating higher rental increases on unit turns compared to tenant renewal. The average rental increase for new leasing on unit turns was 2.6% for the 12 months ending June 30, 2017, versus a modest 1% increase in rents for tenants renewing their leases over the same period.

Although, Killam typically expects to earn higher rents when renting the new tenants to recover the cost of unit upgrades and the movement of market rates. In fact, Killam earned a 1% average rental increase for renewing tenants, highlights an excellent opportunity for Killam to increase top line growth. Killam will continue to monitor this metric and anticipates an improvement in rental rate growth for renewing tenants.

Our 2017 capital budget for unit turns is $11 million, and we expect to generate on average, an all-cash return on investments of 10% or better. In particular, we'd like to renovate properties, where we can achieve higher rents on repositioning units. For example, our Garden Park property, shown on slide 12, is where we have renovated 58 of 246 units, investing approximately $21,000 per unit and generated returns averaging 15%. Once renovated, these units lease up immediately.

Slide 13 provides an example of our recently acquired Spruce Grove property in Calgary that we purchased in January 2017. Part of our investment thesis for this property, is the opportunity to move rents significantly, by investing capital to modernize and update the units. So far, our lease completed four units, and have achieved a return of 15% on the capital invested.

Another focus regarding additional returns from our existing portfolio, is expense management. As shown on slide 14, utility and energy expenses are the areas with the biggest paybacks and a priority focus for Killam. The goal is to reduce energy intensity current rate of $1.40 per square foot to $1.10 per square foot by 2021. This $0.30 per square foot cost reduction translates into an estimated $4.3 million in net savings, which should more than offset rising energy rates, and mitigate other operating cost pressures.

We plan to invest $3.5 million in these projects during 2017, having already invested $2.7 million so far in the first six months of 2017, on ultra low-flow toilets, lighting electrofits and heating efficiency projects, such as gas and water controllers. These projects are estimated to generate $700,000 in annualized savings, with an average payback period of four years.

Including energy investments in 2016, by the end of 2017, Killam will have invested a total of $5.1 million or approximately 20% of this $25 million energy optimization program.

I will now hand you back to Philip to provide details on our acquisition and new development activity in the quarter.

Philip Fraser

Thank you, Robert. We are pleased with the acquisition and development activity in the second quarter. We have invested $12 million in land for development, and agreed to acquire approximately $100 million for the newly constructed apartment buildings. Our three active development projects are progressing on schedule.

In early April, as shown on slide 15, we acquired a development side in the Cameron Heights neighborhood of Edmonton. We acquired the adjacent site in late June, and in total, we have invested $4.1 million or $830,000 per acre, in this site, which we are planning to build 190 units.

We acquired the Benjamin Weir House on April 19, consolidating our ownership of the block, where we are building the Alexander and have plans to construct the Governor. This property has a historical building, with 6,000 square feet of office space, that is fully leased, as shown in slide 16.

More importantly, as shown on slide 17, ownership of this property will speed up the construction of The Governor on the lot's Southwest corner, and allows us to properly integrate the buildings into a connected community, with the historical Bury market.

As previously announced, we entered in an agreement with RioCan in mid-April to partner on a development of a four tower complex in Gloucester, Ottawa, and a abutting is the new Blair LRT station. The first phase, a 222-unit tower is now underway, with footings largely in place, as shown on slide 19.

Upon the end of the quarter, we closed on a 134 units on Innovation Drive in Halifax on July the 4th. The purchase price of $31.6 million represents $236,000 per unit. Slide 20 provides an overview of the property and slides 21 through 23 show a unit in common areas at the properties.

We also committed to purchase our first apartments in Edmonton, agreeing to acquire a 296-unit development in two phases. Details of these properties are shown on slide 24 and exterior and interior photos are included on slides 25 through 27. These buildings are located in Sherwood Park, a suburb in the city's East End. In total, we will invest $67.5 million or $228,000 per door. We have been evaluating the Edmonton market, since we committed to investing in Alberta in 2014. We believe that now is a good time to invest, as the market has stabilized, after a number of years of low oil prices. These properties, in particular, are located in close proximity to shopping, recreation and public transit to Downtown Edmonton, and are well built with amenities in underground parking.

The first two buildings will close in mid-August and we expect to take ownership of the other two in October of this year. These acquisitions are consistent with our strategy for expanding the portfolio and diversifying geographically through accretive acquisitions, with an emphasis on newer property.

Including the Spruce Grove in Kanata Lakes acquisition in the first quarter, we have added $180 million of assets in 2017, over double our target of $75 million. 79% of these properties are located outside Atlantic Canada, and we expect 24% of our NOI to come from outside Atlantic Canada after the close, compared to 21% today.

We are continuing to progress on the Alexander in Saginaw Park development. Details of the Alexander and progress photos are included on slides 28 to 30. The buildings, a 55 unit podium is almost complete with our first tenant scheduled to move in during October, with the remainder of the building to open, when the tower is complete in late Q1 2018.

We recently participated in Halifax's Doors Open, where we had over 1,200 people toward the model suites, which are shown on slide 13. The response was very positive. About 76% of the podium units that will be available in October, 42 out of the 55, are currently leased. In total today, 40% of the building has been pre-leased.

Details and photos of Saginaw Park are included on slide 31 to 33. We are on track to open by the spring of 2018. We are starting formal leasing now and we expect to fill a number of the units from our wait list at the adjacent Saginaw Gardens. We see strong demand for this building and expect to have the building fully occupied within six to nine months of the completion of construction.

With two of our three developments nearing completion, we are looking to start on the next projects in our pipeline. A full list of our development sites is included on slide 34.

Slide 35 includes the artist rendering of Phase 2 of our Mississauga, Silver Spear project. We are going through the final planning approval and expect to receive the go-ahead to break ground later this year. With the equity component of this project already invested in the land, we expect the rest of the development funding to come primarily from construction finance. Construction is expected to take 18 to 24 months from the day we break ground.

We have all the required approvals in place to begin construction at Carlton Terrace, and expect to start construction in the early 2018. Slide 36 shows the rendering of this project.

Looking out to 2018, the focus will be The Governor, the next phase of the Alexander, Bury market. A rendering is included on slide 37.

Finally, we are working on the building design for a recently purchased Cameron Heights site in Edmonton.

As I mentioned at the start of the call, I am pleased with the progress we are making against our priorities. Our focus strategy is leading to increased earnings, a stronger balance sheet, capital flexibility and one of the highest quality apartment portfolios in Canada. We look forward to providing an update on our progress in the upcoming quarters.

We will now turn the call over for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. And your first question comes from the line of Mark Rothschild with Canaccord. Mark, your line is now open. Please go ahead.

Mark Rothschild

Thanks and good morning. With the expansion into Edmonton, as you continue to grow in Alberta, should we view Alberta in particular as the market, where you are looking to expand, or is it just that you are finding deals there? And maybe you speak more about national, what other markets we could see you in over the next year?

Philip Fraser

Hi Mark. I think we have been seeing for a number of years, that outside of Atlantic Canada, we have four markets that we are currently in. In Ontario, again, Ottawa, GTA, the Kitchener-Waterloo area and London, and we have also contained for a number of quarters, that the two markets that we like outside of Ontario, consist of Edmonton and Calgary. And so right now, those are the markets that we are only concentrating on and looking for opportunities.

Mark Rothschild

Okay. And what developments, you are taking on projects in a number of different cities, and could we see you doing development into GTA? It seems to be a hot market right now, and definitely different [indiscernible] looking at on building properties in Toronto?

Philip Fraser

Yeah. For everything we are looking at, it seems the least likely to actually be building Killam downtown GTA. It almost seems to be that we have better opportunities with better returns, slightly outside like the Mississauga. We'd looked at stuff in Cooksville. We love to be in Milton, we love to be in Guelph. But the downtown is a different sort of -- competitive sort of issues, in terms of starting out.

Mark Rothschild

So I guess, that was including in my question, Mark, such as Mississauga and Milton in both markets. Are you having any success in finding opportunities there? Is that something you are actually planning and pursuing?

Philip Fraser

I look at that as part of GTA, and I think there are opportunities for us in the next couple of years in those markets, and we are just working through inquiries, looking at sites, talking to people.

Mark Rothschild

Great, thanks. And then just lastly, obviously, you have had pretty good same store NOI growth. When you look at the smaller markets in Atlantic Canada that you are in -- is the expectation for consistent similar same store NOI growth, does it vary compared to the larger markets? And I just want to understand, if there is any thought to exiting some of the smaller markets, where you may not have the same type of scale?

Philip Fraser

Well I think, the easier part of the answer is, we are not contemplating exiting any of the markets that we have been in, since day one in Atlantic Canada. And from a scale point of view, every one of these markets were at least 1,000 units, which does give us a fairly good platform. Really then, you look out about what's the real economic growth behind these markets from a provincial point of view. And what we have seen in the last three or four quarters, New Brunswick is picking up. We have been quite, sort of bullish and consistently telling the market that PEI has been very strong for well over a couple of years. And Halifax is doing very well. I mean, the market that is suffering a little bit in our backyard, Atlantic Canada, is St. John's, and that's sort of expected, relative to sort of a lower price of oil. But again, they have got huge opportunities in the future, where that's going to go with the next phases of all their offshore oil development. And so, we still see a very bright future in that market.

Mark Rothschild

Great. Thank you very much.

Philip Fraser

Thanks.

Operator

Your next question comes from the line of Jonathan Kelcher with TD Securities. Jonathan, your line is now open. Please go ahead.

Jonathan Kelcher

Thanks. Good afternoon. Just looking at the acquisitions, first on the Innovation Drive one, the 5.2% cap rate, is that in place occupancy or is that stabilized?

Philip Fraser

That would be stabilized, but we are only two units below what would be stabilized. And that's again, consistent with everything we have ever seen in our lifetime, in terms of -- once you put the property under contract, the couple of months in between is always a little bit of a movement. But we expect to have that fully up and leased within the next few months.

Jonathan Kelcher

Okay. And at Edmonton, these are obviously new construction. Is there any revenue or income guarantee on that, or is that the 5.25, is that something that's going to build to over a year or so?

Philip Fraser

Well the first one is well into the 90s, from a leasing point of view. The second one is, this is an agreement that we are -- it's going to be well over 70% leased, which we are quite comfortable leasing up the remaining units, once we take it over.

Jonathan Kelcher

Okay. And then pro forma, the acquisitions, what's your leverage going to look like?

Philip Fraser

Well, we assumed the mortgages on innovation and we are basically on the two with Edmonton, it's basically what CMHC sort of underwrite them too. But they might be numbers between 65 and 70.

Jonathan Kelcher

Okay. I was asking more of your whole portfolio, like you are just over 50% now, this will take you up a little bit? I know, your longer term goal is to get sub-50%?

Philip Fraser

I mean, this takes us up a little bit.

Dale Noseworthy

It will be around -- approximately around 52% with those.

Jonathan Kelcher

Okay. And I guess, just one on the operating side, you talked, and Rob, I think it was you, that talked about an opportunity on renewing rents. What market -- are there any markets that are better or worse on the renewals and what percentage increase are you targeting?

Robert Richardson

Yeah. So some markets are a little stronger than others, Jonathan, for sure. And Phil touched on it already, and St. Johns will be a market, that it's not easy in that market to move rents as it is, compared to Halifax, for example, where the market is very strong, so we are moving rents [indiscernible] there.

So where to go? I used to think that I can maybe get something like 3% on my renewals, just to push them hard. But truth is, I think we can get another 50 basis points, take it from 1 to 1.5, and then if that was spectacular, that might get to 2. But I am kind of -- I think a win for us, if we talk this time next year, I'd like to see us seeing a 1.5 minimum, pushing 2% increase on the renewal.

And I can tell you, I mean, on our portfolio, we have quite a few properties that are near or 100% occupied, so we know we have the ability. I was talking to some of the people I work with here, and I have to tell you to communicate. I have to find a way to make the point to my resident manager and to my property managers, but we are going to get that done.

Jonathan Kelcher

Okay. In Ontario, are you getting the guideline increases?

Robert Richardson

Yeah, certainly yeah. We are getting the guideline increase, but they are refined. and so that's -- it's a funny thing. When you think about rent control, and when you have guideline increases, as you get to roll them through every year, it's a steady consistent increase and the market just accepted. And mind you, the market is more or less, 98% to 99% occupied, right?

Jonathan Kelcher

Yes.

Robert Richardson

But in other markets that are more competitive, you don't get that luxury of putting through a next year for Ontario, that's 1.8%.

Jonathan Kelcher

Yes.

Robert Richardson

That will happen.

Jonathan Kelcher

Okay, thanks. I will turn it back.

Operator

Your next question comes from Heather Kirk with BMO Capital Markets. Your line is now open.

Heather Kirk

Good morning. You may have answered this to Jonathan's question, but the 575 unlevered going in yields on the Edmonton acquisition, is that assuming 95% lease-up or that's what's the current occupancy?

Robert Richardson

That would be assuming probably 97% lease-up.

Heather Kirk

Okay. And I just wanted to ask you about the -- about the disclosure on the upticks on renewals versus turnover was interesting. Have you looked at sort of what this has trended like long term for your portfolio, and what the sort of typical historical average has been?

Robert Richardson

We subtracted quite closely and we turned our attention to it with more intensity recently. But we just talked about going back five years and have that information. So I don't have it for you right now Heather.

Heather Kirk

Okay. And just wanted to touch also on -- what your thinking is, with respect to in fleet renovations? And I guess the questions I have are, how do you determine, I think one of the examples was $21,000 a suite. How do you determine, how much you are going to put in, how much time does it take you to turn a suite? And when you look at that package versus the return, do you include other items like lobby upgrades and things like that in the return calculation?

Robert Richardson

On the unit turns, we don't actually include the lobby as part of that. Where we are aware of it as an overall cost of the building. So when we do our calculations, we include it then. In terms of how [indiscernible] done, every unit is somewhat unique. Actually, the building that we are talking about, with the $21,000 Garden Park. Those are fairly homogenous. So we have got quite a system there, that we know more or less through the day, how long it will take to do the renovation. So that's well figured out.

Heather Kirk

And how long would it normally take to completely turn a suite?

Robert Richardson

Realistically, it probably depends. The [indiscernible] involved is going to make it little longer. But I would say, between two and three weeks. You can do some of them. But a $21,000 turn, you couldn't get that done much more quickly than a couple of three weeks.

What we have now, I will give you an example. We have a -- the company that supplies our cabinet, they come wrapped in cellophanes, like the holding is on a pallet. So that's one entire unit sitting there. So our contractor can go down in the garage, pick up the pieces, bring it up, and it's all there good to go. So that type of systematic approach really does help us with it. And further, I will give you -- one of the apartments we profile here was Spruce Grove. In Calgary, we are shipping out these palletized new kitchens to the units from here. And so, we check the pricing, we figure what we can do. We have the supplier. This is what we want. They deliver it and it gets shipped out in a container. And that's how we are doing it. So we are looking to control costs that way, and we are also looking to expedite returns.

Heather Kirk

And so, do you have a minimum return requirement, like they look like they are about 15? Would you sort of say, below 15, we won't do it.

Robert Richardson

No, it could go. It could go below 15. The minimum we tend to work with, is a 10% all cash return on unit turns. More or less universally across the board, and oftentimes, we will exceed that. When we are going to do our renovation, like a redevelopment like we are doing in these two, Spruce Grove and Garden Park. We tend to go up a little higher, because the market will pay more that level of renovation.

Heather Kirk

Okay, thanks that's very helpful. I will pass it over.

Robert Richardson

Thank you.

Operator

Your next question comes from the line of Richard Liu with Scotiabank. Richard, your line is now open. Please go ahead.

Richard Liu

Hey guys. So looks like you are tying your 2017 SPNOI guidance to 2% from 1.3 last quarter, and were able to achieve 2.4% year-to-date. Could you just walk us through which previous [indiscernible] was, you feel you have better visibility on today? And what factors you feel might result in second half SPNOI being a bit lower than the 2.4% you delivered in the first half?

Dale Noseworthy

I'd say, certainly the occupancy gains that we experienced in Q2, they were better than we had budgeted and our outlook so far, when we look at -- well we know what July looks like, but from an occupancy perspective, and we have a fair bit of insight into August on the occupancy. So those factors certainly come into play. As well as some other expense savings we are aware of. One example is, as it relates to our insurance, that we have secured at those costs, so we have a little more insight into some of those. So all those factors are coming in. I would say, the biggest one is the top line and the occupancy, and a little more that we are getting on the rental rate growth.

When you talk about the variables, I think that we have been hit with surprisingly high costs sometimes in the past, in December on the heating. Although, we are not anticipating that this year, that is always a risk. So we take that into consideration when we are doing our target. As well as the timing of RNM, certainly some of those costs kept are currently year-to-date, a little bit below budget. Some of it is going to be timing, some of it is -- we are going to maintain those savings. So that's the other factor, I think that can come into play.

Richard Liu

Okay. So when you say occupancy, any color on which markets, or --?

Dale Noseworthy

Really, I'd say across the board, we are seeing occupancy improvements.

Richard Liu

Okay. I guess my next question is, so it looks you achieved solid 60 bps increase in Halifax occupancy quarter-over-quarter. Could you just give us a little more color on, how the occupancy is trending so far in Q3, versus the 96.3 same property Q2 2016 occupancy? And if you could provide any color on demand/supply trends you see in the market, would be great.

Dale Noseworthy

In Halifax, specifically?

Richard Liu

In Halifax, yeah.

Dale Noseworthy

So to your first question was, that the outlook in Q3 versus Q3 last year, is that what you are asking?

Richard Liu

Yeah, so far.

Dale Noseworthy

Yeah. I'd say for the first half of Q3, we are looking ahead of last year in Q3. September is, well we even had really great numbers last September, so we are working hard to meet, hopefully exceed those, but I'd say year-to-date, we are beating September. The push is on. So I'd say, when you look at balance [indiscernible], we are probably even to a bit ahead. Actually, probably a bit ahead overall for the quarter on occupancy.

So when you look at supply and demand, I'd say that, we -- it builds. The market is strong. We know, there is certainly a fair number of units under construction, but the new units are being absorbed quickly, surprisingly quickly.

In turn, the demand is strong for people that are selling their homes and downsizing. We see that the Innovation Drive units that we bought is a prime example of a lot of the new developments that have happened in the market over the last number of years. People moving from their bigger homes and looking for that bigger space, and those units are -- we have only had that building a month, and the demand is very strong. So it's one example of -- lot's of people looking for that population growth, economic growth, all those factors. So CMHC hasn't provided any firm updated guidance on where they see vacancy, but one comment I did receive is that, they did note how fast things are leasing up, in terms of the new building, and we are seeing that across the portfolio.

Philip Fraser

I think CMHC has come out and said that they are looking to change their forecast for vacancy increases in the Halifax market in particular They have seen it and they are attracting it and it's going well.

Dale Noseworthy

And we are seeing it. The demand is strong for our units.

Philip Fraser

I think also, the affordability in this market is one of the key things. When you take a look at a new building, that rents at about $300, $330 a foot, if you are in the burbs, and you get downtown at $210, $220. But for the quality of the housing, it's a very developed market for constructing new projects, and there is tremendous market acceptance.

Dale Noseworthy

And I would say, this time last year, when we were doing the budgeting and we were looking at new completions coming on, we certainly would have budgeted for a little bit more vacancy, and we have come in below budget. So the market is going to be very resilient.

Philip Fraser

I think the preleasing we are seeing at the Alexander is very impressive. We find ourselves with 40% of that project, which is 96 units on the 240 in total. So that's already preleased.

Richard Liu

Okay, perfect. That was great. I will run [ph] back. Thanks guys.

Operator

Your next question comes from the line of Syed Kowar [ph] with RBC Capital Markets. Your line is open.

Unidentified Analyst

Hi. I just had one question. For the Waybury Park & Tisbury property, who is the developer for that property at Edmonton?

Philip Fraser

You know what, I don't have that in front of me, I am sorry. But I can give it to you there in a follow-up call.

Robert Richardson

It's our trade secret. Special contact.

Dale Noseworthy

Well we can follow-up that information.

Unidentified Analyst

Okay, thanks.

Operator

Your next question comes from the line of Brad Sturges with Industrial Alliance. Brad, your line is now open. Please go ahead.

Brad Sturges

Hi, just a couple of quick questions. Following up on the Edmonton acquisition and certainly you are seeing, or you have been a little bit more successful in terms of getting a couple of deals across the line, in terms of acquisition. Just curious to see or understand if, you are seeing a little bit more deal flow coming from maybe some of the developers in Alberta at this stage, maybe stabilize their assets and are now looking to monetize that, or has it really just been more opportunities to transaction so far?

Philip Fraser

I think it's a bit of both, what you just said. I mean, we have been out there enough times, looking at it, with all the pipeline, a project that was being built for maybe from merchant builders or sort of the condo group of developers that wanted to build some rental, and you talk to these to see if they are interested in selling. So over the last two or three years, we have watched a number of these projects start, being built, sold to other sort of organizations, and right now, there is opportunities for Edmonton in particular, and The Street sort of knows that we like. We like the southwest of the city, where we bought the land, Cameron Heights. We like the downtown Edmonton sort of [indiscernible] right around it, and we like Sherwood Park. So when we look at those areas, we see other opportunities as well.

Then in Calgary, I mean, you have got an incredible growing multi-res area, just outside the CBD, like 12th and 17th, and then you have got a couple of nodes [ph] up in the Southwest and down in the southwest, that are pretty attractive as well.

Brad Sturges

Okay. And it sounds like, your expectation is, you could see a little bit more come to market, that could maybe fit into your wheelhouse and could be interesting opportunities, depending on --

Philip Fraser

Yeah I mean, it's currently in the market, it's already there. [indiscernible] look at our own. We are looking at land and then, figuring out exactly the best way to sort of develop that product.

Brad Sturges

Great. Thank you.

Operator

[Operator Instructions]. Your next question comes from the line of Jimmy Shan with GMP Securities. Jimmy, your line is now open. Please go ahead.

Jimmy Shan

Thanks. Hey guys, couple of questions; so first one is on, when I compare the innovation drive property with the Sherwood Park property, I mean, the numbers look very similar on a price per door and on a average rent per month, and even the stabilized cap rate look relatively close. But those two markets are obviously at different points in the cycle. So I was just curious as to how you think about, how you underwrote the sort of the more longer term risk-return profile of those two acquisitions? I guess another way is, which one would you like to do more of, with the --

Philip Fraser

That's a good question, and here is the way that we would have approached this. Halifax is our largest market. So as we have, over the years, developed our own nodes in the complete city, what we have experienced firsthand, is there has been tremendous growth in the claim development, Bedford sort of area. And what we see, is that that's a lot of growth in suburbia, Metro Halifax. And the Innovation Drive is a perfect example of where the product has moved. We don't own anything in the Larry Uteck, down around the old BlackBerry office complex, which is a very large growth area in Bedford. And so when we looked out and said, what are we missing in our portfolio?

We are missing that above average size, brand new four story concrete building; because we were getting a lot of inquiry as well, I want to move out there, their whole sort of subset of amenities from shopping, from retail, what do you have Mr. Killam? And we didn't have any product to provide. And so, we looked around and Innovation Drive is in a growing area, in Bedford, next to multiple single family subdivisions, brand new fourplex wings, a large emerging office node, that will have up to 1 million square feet. Quite close to Larry Uteck area as well.

And with an average size of 1,500 square feet and $1 square foot rent, it's part of the market that we didn't have, and that's why we are attracted to that property.

Jimmy Shan

That makes sense.

Philip Fraser

On the flipside, at Edmonton, we are building a base from scratch with nothing, in one of the best sort of neighborhood markets is Sherwood Park. There is this project and there was four, five others that are being developed, all around, lot's of retail, built-up, single family, mature neighborhoods, and it's just -- it's sort of a very easy sort of concept to look at and say, will multifamily work in this location, and the answer is yes. Does it need our sort of investment yield returns? Yes, and we liked it. I mean, basically, this project is 296 units, that's close to 400 underground parking stalls.

Jimmy Shan

Okay. So I guess, if I were to put words in your mouth, if it weren't for the, kind of let's call it the strategic consumer, a strategic fit of innovation drive within your portfolio offering, that you probably would be doing more of Sherwood Park?

Philip Fraser

Absolutely.

Jimmy Shan

Okay. And then, in terms of the land, the building at Edmonton, I mean, obviously, you haven't operated in Edmonton before, and just sort of, how do you think about -- what gives you the confidence, sort of in your ability to develop in Edmonton and successfully bringing that product, especially given the state of the market?

Philip Fraser

Well again, I mean, we are going to have experience operating, leasing the product before we come to the point, where we are going to put a shove in the ground in Edmonton. But again, when you are looking out there, there is lots of sort of general contractors we have been talking to. We know what kind of a design we are looking at. We would sit there and say well, the product that we have been successful on, four storey wood frame with underground parking, what do we do different in Ontario/Atlantic Canada. So we think there is a few things that we would bring to the product, that is not being offered out there.

So I mean, the confidence to be able to build, building 50 units to start or 70 units. I think we have that, and we can do that in any market in Canada that we choose.

Jimmy Shan

Okay. Thank you.

Philip Fraser

Thanks.

Operator

There are no further questions at this time. I will turn the call back over to you. Mr. Fraser.

Philip Fraser

Well once again, I'd like to thank everybody that participated today, and we look forward to releasing our third quarter results in early November. Thank you.

Operator

Thank you ladies and gentlemen. This concludes today's conference call. You may now disconnect.

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