Killam Apartment REIT

TSX:KMP.UN

Earnings Call Transcript 2020-Q2

[Operator]

Good morning. My name is Sylvie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Killam Apartment REIT Second Quarter 2020 Financial Results Conference Call. [Operator Instructions]Mr. Philip Fraser, President and CEO, you may begin the conference.

[Philip D. Fraser, President, CEO & Executive Trustee]

Hello, and thank you for joining Killam Apartment REIT's Q2 2020 conference call. I am here today with Robert Richardson, Executive Vice President; Dale Noseworthy, Chief Financial Officer; Erin Cleveland, Senior Vice President of Finance; and Nancy Alexander, Vice President of Investor Relations and Sustainability. Slides to 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.

[Nancy Alexander]

Thanks, Phil. This presentation may contain 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 discussed in here could differ materially from those expressed or implied by such statements. Such 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 expectations include, among other things, risks and uncertainties related to the COVID-19 pandemic, general economic and market factors, competition, changes in government regulations, and the factors described under Risk Factors in Killam's annual information form and other securities regulatory filings. The cautionary statements qualify all forward-looking business attributable to Killam Apartment REIT and the persons acting on its behalf. Unless otherwise stated, all forward-looking statements speak only as of the date of which this presentation refers, and the parties have no obligation to update such statements.

[Philip D. Fraser, President, CEO & Executive Trustee]

Thank you, Nancy. We are pleased to report solid operating and financial results for the second quarter of 2020. During the quarter, it was not business as usual, as we prepared, supported, and adjusted to the evolving safety protocols that were put in place. Today, Dale will take us through Killam's Q2 financial highlights, and Robert will take the opportunity to give you a current business and operational update. I will then conclude with an update on our acquisition and development progress before opening the call up for questions.I will now hand it over to Dale to take us through our Q2 results.

[Dale Noseworthy, Chief Financial Officer]

Thanks, Phil. Killam had a successful second quarter, increasing the earnings from our existing portfolio, maintaining a strong balance sheet, completing our second BC acquisition, and advancing our development pipeline. Slide 3 highlights our Q2 financial performance. We achieved net income of $21.5 million and earned funds from operations of $0.26 per unit, a 4% increase from Q2 2019. AFFO at $0.22 per unit was up 10% over Q2 last year. In addition, same-property NOI increased 2.7%, and our operating margin improved by 70 basis points. Although we experienced deceleration in rental revenue growth, due to the waiving of rental increases following the onset of the COVID-19 pandemic, we are pleased to report 1.6% growth in same property revenue.Killam's key revenue levers are charted on Slide 4. The weighted average apartment rental increase was 2.9% this quarter. With strong fundamental persisting, occupancy remained strong at 96.8%, and incentive offerings were flat. On the expense side, we recorded a slight uptick in bad debt expense of 20 basis points across the apartment portfolio, following an increased allowance for doubtful accounts.As illustrated on Slide 5, overall operating expenses decreased 0.3% in Q2. This reduction was driven by reduced consumption of heating fuels for energy efficiency projects, decreases in natural gas pricing, and a decrease in electricity costs, as we transition to have fewer units with electricity included as part of the monthly rent. These utility expense savings were partially offset by modest increases in general operating expenses and higher property tax assessments.Looking forward, Killam expects to continue to feel the impact of COVID-19 in the second half of the year, mainly due to the waiving of rental increases in July, a delay in the distribution of rental increase notices to tenants, and a reduction in revenue at Killam's seasonal resorts, due to delayed openings and social distancing restrictions. Despite these constraints, demand for units is strong, and occupancy levels remain consistent with 2019. Overall, we're expecting modest NOI growth during the second half of the year. In addition to solid operating performance, Killam realized lower interest rates on mortgages refinanced during Q2, and mortgage renewals progressed on schedule. The weighted average interest rate on CMHC-insured mortgages refinanced in Q2 was 1.57%, 39 basis points lower than the weighted average rate on the maturing debt. Slide 6 highlights our debt maturity profile, including average apartment mortgage rates by year versus prevailing CMHC-insured mortgage rates. Based on current CMHC-insured mortgage rates of between 1.4% and 1.6%, we expect to continue to refinance at lower rates for mortgages maturing during the remainder of 2020.We continue to manage our balance sheet conservatively, as highlighted on Slide 7. Debt as a percentage of total assets was 45.3% at June 30. We entered the pandemic with a strong balance sheet, and have further enhanced our position with the closing of the recent $69 million equity raised and subsequent repayment of the outstanding balance on our line of credit. With $100 million of liquidity, we have acquisition capacity of over $200 million and flexibility in the year ahead. Our current debt to total asset ratio, post the closing of the equity raise, is approximately 43.9%.I will now turn the call over to Robert, who will give more details on rent collection, key revenue, and operating initiatives.

[Robert G. Richardson, Executive VP & Trustee]

Thank you, Dale. Good morning, everyone. I would like to begin today by acknowledging the dedication and hard work of Killam's employees during the second quarter. Faced with very challenging operating conditions, our employees provide an exemplary service and focused on the health and safety of Killam's 22,000 resident families and its stakeholders, such as commercial tenants, their customers, and service providers. Using vigilant cleaning and physical distancing protocols, Killam's employees successfully managed the spread of the virus, keeping everyone healthy and safe. In recognition of the selfless dedication of Killam's 350 frontline employees, starting March 16, 2020, Killam paid its frontline staff an average of $2.50 more per hour. We will continue to pay this $2.50 per hour premium until August 15, 2020, when we will reduce the premium to $1 per hour for the foreseeable future. Canada has done well to minimize the spread of the virus, and ideally, we will soon be in a position to reopen the economy nationwide. Killam's prepared to do its part in managing the spread of COVID-19. For example, Killam topping up its supply of face masks, latex gloves, and disinfectant, in case the anticipated second wave of infections should occur. We are optimistic the broader acceptance of face masks in public, combined with the public's heightened understanding regarding hygiene and social distancing standards, means we can collectively adapt to manage potential virus outbreaks. Rent collection has been top of mind for Killam, its investors, and stakeholders during Q2 2020, as detailed on Slide 8 in the upper left-hand pie chart. 90% of total revenue is earned from apartment tenants, 4% from MHCs, and 6% from commercial tenants. As noted in the blue bar charts, monthly rent collection has been impressively high this quarter. Apartment and MHC rent averaged 99% collected, commercial rents averaged 78% collected and combined, the overall average rent collected totaled 98.6%. Throughout Q2 2020, 90% of all rents were collected in the first week of each month, consistent with pre-COVID collection rates. The fact is, 80% of tenants rents are directly deposited into Killam's bank account via pre-authorized payments. Interestingly, physical distancing limits resulted in a significant increase in online tenant payments throughout Q2 2020, compared with the same quarter in 2019. For July 2020, Killam collected more than 99% of July's apartment and MHC rents.As earlier highlighted, rent collection for Killam's commercial tenants average 78% in Q2 2020. The July 2020 commercial rents collected total 84%, likely related to increased business openings since early June when COVID restrictions were relaxed in most provinces. The pie chart on the right-hand side shows the breakdown of the commercial rent collection for Q2 2020. Killam's participating in the Canada Emergency Commercial Rent Assistance program, also known as CECRA. Simply put, the Canadian government will pay 50% of an eligible commercial tenant's gross rent for 3 months, and possibly 4 months, provided the landlord, Killam in this case, waives 25% of the tenant's gross rent for the same period. Killam has 35 tenants eligible and participating in the CECRA program, and the Q2 costs for Killam totaled $115,000.As well, Killam has in place or is working on rent deferral arrangements for a number of our commercial and residential tenants on a case-by-case basis. Typically, Killam has agreed to defer rent for up to 2 months, and then in the third month after the deferral ended, the tenant starts paying equal monthly installments for the next 12 months to 24 months to repay the deferred amount. Further, Killam has waived any interest charges on the deferred rent.Looking at Slide 9, Killam's long-term strategy remains unchanged to increase stakeholders value by increasing funds from operations and net asset value. This is accomplished by focusing on 3 key priorities. One, increased earnings from the existing portfolio; two, expand the portfolio and diversify geographically through accretive acquisitions with an emphasis on newer properties; and number three, the development of new high-quality properties in Killam's core markets.Slide 10 charts Killam's rental rate growth in the second quarter of each of the past 4 years. Having doubled rental rate growth from 2017 to 2019 from 1.6% to 3.2%, Killam was on track to add to this trend in Q2 2020. However, with the decision to suspend collection of rent renewal increases for Q2 this year due to the pandemic, Q2 2020's rental rate growth, although a healthy 2.9%, was 30 basis points lower than 2019 Q2 results. This cost Killam $150,000 in lost revenue. Rental rate growth on turns, which we will discuss more on the next slide, was a healthy 5.9% this quarter.Looking ahead to Q3 2020, Killam made the decision to waive collection of renewal increases for July, but started collecting renewal increases beginning August for all of its 15 properties. The majority of these 15 properties are located in Alberta and Newfoundland, and Killam plans to start collecting renewal increases at these addresses, effective September 1, 2020. During the pandemic lockdown, March 15 to May 31, Killam chose to suspend delivery of rental increase notices for future months, given the stresses already being faced by our tenants. The impact of this decision will be lower renewal rate growth in the third and fourth quarters of 2020. The percentage of Killam's apartment units not renewing has consistently averaged 33% for many years. But during the past 2 years we noticed fewer units were turning as markets tightened and average rents on units that turned increased. This is especially true in the rent controlled Ontario market. Killam's 2019's apartment portfolio turnover rate was 30.4%, 140 basis points less than fiscal 2018. Based on current data, we estimate Killam's unit turnover may decrease 350 basis points to finish 2020 with a 27% turnover rate.The chart on Slide 11 highlights Killam's portfolio average in-place rent compared to the market rental rate for the last 19 months, all on a dollar per square foot basis. In-place rent is the average monthly rent Killam tenants pay, excluding any vacant units. Market rent is the average rent being achieved by Killam on leases to new tenants during that same month. As can be seen with this chart, the opportunity exists to collect a healthy $0.20 to $0.25 per square foot mark-to-market rent increase across Killam's apartment portfolio. Said another way, Killam's current monthly rent can move 15% to 20% or roughly $200 per unit. Annualized, this equates to $39 million in mark-to-market rent potential. At a 5% cap rate, that is $780 million in increased value. Killam monitors its mark-to-market opportunities by region, in conjunction with occupancy and any incentive offerings to assess the relative strength of each market and adjust Killam's rents accordingly. Demand for Killam's new and newly renovated rental units remains strong across the portfolio, and work on these units continues without delay. After completing 300 repositioned units in 2019, Killam's 2020 program is projected to complete between 450 and 500 units, as shown on Slide 12. Year-to-date, 275 units have been repositioned at an average cost of $20,000 per unit, earning a 13% unlevered return on investment. Having recently assess our portfolio, we are confident there are 5,000 additional units available for repositioning, thereby delivering impressive earnings growth and accelerating returns for Killam's unit holders. Killam value proposition and market fundamentals remain strong. Slide 35 through Slide 37 in the appendices of this presentation details our financial performance for each of our markets. The majority of the markets were very strong, with a particular shout out to our New Brunswick and Nova Scotia portfolios for leading NOI growth with 5.9% and 5.6% growth this quarter.There were 2 markets that reported negative NOI growth this quarter that I would like to expand on. The Ottawa market experienced a notable decrease in property revenues during the first half of 2020. Its 330 basis points decline in occupancy was principally driven by a newly completed competitor that came to market in Kanata, adjacent to Killam's William's Court portfolio. The new product has now been absorbed. However, COVID-19 has slowed new leasing traffic. Killam also experienced higher than average vacancy at 2 additional Ottawa properties in Q2 2020, and I'm pleased to report both were fully leased in July. Killam's Newfoundland properties realized a decline in same property revenue, as occupancy was 350 basis points lower during the quarter. Lower occupancy in the region is due to the economic pressures that have been further compounded by COVID-19 issue in St. John's, reduced activity in the offshore oil sector, as well as pressure on other natural resource sectors. Killam's operating expenses were also higher than normal in Newfoundland, due to an increase in staffing costs related to expanding the property management and leasing teams, as well as higher insurance premiums. Expense management remains at top of mind at Killam, and our investment in energy efficiency continues to pay dividends, and the 2020 projects are progressing well.Please turn to Slide 13. Killam has invested approximately $20 million in efficiency projects over the past 4 years, including installing 11,500 low-flow toilets. This annually saves 700 million liters of water. Lighting retrofits at approximately 90 properties generates annual savings of 3.7 million kilowatt hours. And many boiler installation and thermostat upgrades. Photovoltaic solar panel installations at Killam has been a big focus over the course of this summer. Slide 14 shows the new installs at our Quinpool Court property in Halifax. We have 11 solar array installs in progress across various properties in Halifax and Charlottetown. This $1.3 million total investment should produce 800 megawatt hours of green energy annually, while simultaneously delivering $150,000 in annual expense savings, generating an 11.5% unlevered return. These projects help reduce Killam's carbon footprint, while mitigating the impact of expense increases from rising energy rates and other inflationary pressures.I will now hand you back to Philip to provide an update on our progress on our development projects and recent acquisitions.

[Philip D. Fraser, President, CEO & Executive Trustee]

Thank you, Robert. Slide 15 summarizes Killam's year-to-date acquisition activity of $130.5 million. The second quarter acquisition of the Crossing at Belmont was detailed during our May conference call. Slide 16 shows the $60 million, 156-unit property, which is our second apartment purchase in the Greater Victoria area of BC. This project is still in the lease-up phase, and is currently 90% leased at roughly $2.60 per square foot. We anticipate having it fully leased by the end of the year.With the funds from the equity offering that we closed last week, we currently have $100 million of available liquidity. We are pleased with the $130 million in acquisitions we were able to complete prior to the COVID-19 pandemic, and we will continue to seek accretive acquisitions and grow our portfolio geographically. Overall, Canadian real estate transaction activity was down in Q2. The ability to complete future acquisitions in the second half of 2020 will depend on the status of the health crisis we are facing across the country and the lifting of travel restrictions.As shown on Slide 18 and Slide 19, Killam's development activity is a key cornerstone in our long-term growth strategy. We have a proven record of building energy-efficient high-quality properties in our core markets over the last 10 years. Development activity progressed in Q2, with construction activity back to normal in late May and early June. The temporary delays, due to work slowdowns, labor shortages, and delays in the supply chain have been modest. We currently have 5 developments underway today, plus Nolan Hill development in Calgary. We also have the newly announced 169-unit Luma project, our latest 50-50 joint venture with RioCan. Renderings of each project are shown on Slide 20.With a 50% interest in 2 Ottawa projects and a 10% interest in a Calgary project, we have a total of 624 units or $235 million in developments underway. Our shorefront development, located in Charlottetown, is close to completion, and tenants are scheduled to move in during September. We started pre-leasing during Q2, and we are 25% pre-leased to date. We expect good demand for our building in Charlottetown because the overall market has less than 1% vacancy. The solar photovoltaic panels installation on the roof is expected to produce 110 megawatt hours annually, which fully offsets Killam's electricity consumption.Slide 23 shows 10 Hurley, a 38-unit building in Charlottetown that is expected to be completed in February of 2021. The Nolan Hill development, located in Calgary, is shown on Slide 24. Killam has a 10% interest in this development, with a commitment to acquire the remaining 90% interest in this 3-building, 233-unit complex upon completion in Q1 2021. This project broke ground during Q4 2019, and this progressing along very quickly. The acquisition price upon completion is $55 million, and Killam will begin pre-leasing in Q4 2020. Slide 25 and Slide 26 show renderings and progress photos of the Latitude, the second phase of the Gloucester City Centre project with RioCan. We are currently 40% complete, and the construction concrete structure is up to the penthouse level of this 20-story building. The expected completion date is still late 2021.The Kay in Mississauga broke ground in late 2019, with the renderings and progress photos on Slide 27 to Slide 29. This 128-unit development has a $57 million budget, with an anticipated 5% all-cash yield. Construction financing was secured in Q2, and all the remaining development cost will be funded through this facility. Construction is back on schedule since late May, early June, anticipating completion in Q4 2021. On July 30, Killam acquired a 50% interest in the parcel of land from RioCan to jointly develop a 168-unit apartment building adjacent to their grocery-anchored Elmvale shopping center in Ottawa. We then subsequently invested $9.8 million to reflect our portion of the construction cost to date. The development cost for Killam's 50% interest is budgeted to be $44.3 million. We broke ground on our 169-unit development, known as Civic 66, in Kitchener at the beginning of July, as shown on Slide 31. The budget for this development is $69.7 million, with an anticipated all cash yield in the range of 4.75% to 5%. We expect it to take 24 months to build, with a completion target for mid-2022.Finally, Slide 32 shows our current development pipeline. To conclude, we acknowledge that the next few quarters will be challenging for all of us, as we navigate the ever-changing economy and COVID-19 pandemic. We have great people, a solid operating platform, and a high-quality asset base that will continue to produce increased earnings and value for our unit holders.This concludes the formal part of the presentation, and we will now open up the call for questions.

[Operator]

[Operator Instructions]. And your first question will be from Jonathan Kelcher at TD Securities.

[Jonathan Kelcher, Analyst]

If we go to Slide 11, the 20% bump in the mark-to-market, that's what you're achieving right now in July?

[Dale Noseworthy, Chief Financial Officer]

So, that's comparing the rent per square foot that we're getting on leases in July versus our average in-place rents for the portfolio. So, that 20% -- it doesn't mean that we are getting 20% lift. It means that the difference between our in-place rents and what we have achieved overall on a per square foot basis is 20%.

[Jonathan Kelcher, Analyst]

Okay. That's a blend of I'm assuming repositioned properties and just normal turnover?

[Dale Noseworthy, Chief Financial Officer]

Yes.

[Jonathan Kelcher, Analyst]

Okay. And then on the repositioning for 2021, would 500 sort of plus units be the target again, or do you think you can do more than that?

[Philip D. Fraser, President, CEO & Executive Trustee]

I think we'll use that -- 500 would be a safe number for 2021.

[Jonathan Kelcher, Analyst]

Okay. Is that [indiscernible] 2 units or is it -- is there anything else there?

[Philip D. Fraser, President, CEO & Executive Trustee]

Sorry, Jonathan. You cut out there. Can you say that again, please?

[Jonathan Kelcher, Analyst]

Is just doing 500 a function of only -- you only think you might be able to get to the 500 units that you'd want to do? Or is there anything else that would prevent you from doing more?

[Philip D. Fraser, President, CEO & Executive Trustee]

We don't know at this time. So, our thinking is that 500 is a good number, just based on what we're seeing this year and how we roll into 2021. So, I think as a working number, that's the number. But if things open up materially, we'd be happy to do more.

[Jonathan Kelcher, Analyst]

Okay, fair enough. And then lastly, just on the expense savings, utility and fuel savings, are you able to quantify how much of that was lower prices versus how much of that is due to some of the energy saving initiatives that you guys have undertaken over the last few years?

[Dale Noseworthy, Chief Financial Officer]

I'd say that fairly large part is the pricing. Certainly, we are benefiting from the consumption savings. But when you look at, especially in Nova Scotia and New Brunswick, pricing has been a fairly large part of that saving year-over-year.

[Operator]

Next question will be from Troy MacLean at BMO Capital Markets.

[Troy Raymond MacLean, Analyst]

Good morning, everyone. Now that you're passing on rate increase again, is that something you're seeing most competitors do in most of the markets you operate in?

[Robert G. Richardson, Executive VP & Trustee]

I couldn't speak to that. I don't think we've seen their numbers, frankly. And so, I would suspect it would be similar to what it's been in the past. Yes, they're passing some on, but we don't know definitively how much or who is doing it. But we're not being isolated or -- the word I'm looking for is -- we're not hearing back from those that are renting from us that that is a problem. There's good market acceptance for the increase, so that tells us it's probably fairly broad.

[Troy Raymond MacLean, Analyst]

And if there were a large second wave or the lockdown became enhanced again, would you forego rent increases again? Or is this something that we would just move past and you're going to keep it going?

[Philip D. Fraser, President, CEO & Executive Trustee]

I don't think we can answer that question, depending -- only because we really don't know what the next sort of wave is going to look like and how shut down the economy is going to be. It's hard to imagine that we're going to go through this absolute lock down for 2 months to 3 months when we know that if everybody just stayed inside for 2 weeks, it would really sort of move the curve down a lot, and plus, the increased usage of masks.

[Troy Raymond MacLean, Analyst]

And then, same property NOI would have been 5% in the quarter without the impact of COVID. Is that a good target for the second half of this year, what Killam can achieve in same property NOI?

[Dale Noseworthy, Chief Financial Officer]

I think we've guided that it will be modest NOI growth in the second half. So, those impacts on the rent increases, I mean, they do carry over into Q3. And during Q2, we did not deliver rent increases, which take a few months to come into effect. So in fact, in terms of our actual rent growth, Q3, we will likely feel more than we did in Q2 because of the delay in those deliveries, even though the freeze is coming off. So, I think that is higher than what we would expect based on the modest NOI growth.

[Operator]

Next question will be from Howard Leung at Veritas Investment Research.

[Howard Leung, Investment Analyst]

I just wanted to dive into some of the regional differences you've outlined for same property. Seems interesting across the country. There's key differences. I guess I want to start with maybe St. John and Newfoundland. That looks like one of the weaker areas. Are you seeing the employment affect any other regions? Or is that really the hardest hit region, which is affecting your occupancies and rent growth?

[Robert G. Richardson, Executive VP & Trustee]

So the 2 oil-related economies are certainly feeling it. And so, we're seeing that in St. John's. We're seeing it in Alberta, as well. But what I would say, just to highlight that, the last couple of weeks in the St. John's market in particular, we're seeing an increase in leasing activity. So, we're happy to -- we're signing the leases double digits. So, that's good news, and hopefully that train can continue.

[Dale Noseworthy, Chief Financial Officer]

Just to add too, in Alberta, when we look outside the downtown core, we have a fair bit of -- seeing some good numbers in our suburban markets outside of Calgary and Edmonton, as well.

[Howard Leung, Investment Analyst]

And I guess just on Calgary, the MD&A mentioned that there's some more rental incentives being put in place. So, for your properties, how many months of incentives are we talking about, and what are you seeing your competitors doing there?

[Dale Noseworthy, Chief Financial Officer]

When we talk about that, it's just a few properties. And we're looking at approximately 1 month of incentive. But we do keep an eye on what our peers are doing, so that could change, depending on circumstances.

[Howard Leung, Investment Analyst]

Okay, that makes sense. And then I guess the last part is on Ontario. The Ottawa piece, I think you broke out pretty clearly. For the London piece, I guess there's the one [ current ] property that you mentioned that had the uptick in occupancy. And are you seeing an improvement in leasing activity, I guess now in the beginning of August?

[Robert G. Richardson, Executive VP & Trustee]

Very much so, yes. It's moving in the right direction. We think we'll be fine there.

[Howard Leung, Investment Analyst]

Okay, that's great. And I think just for Halifax, maybe if you could just add some color into a pretty strong increase in the average rents, that would also be helpful.

[Robert G. Richardson, Executive VP & Trustee]

The market is strong here in Halifax, and we're seeing it across the board, occupancy staying high. So, the market continues to be strong. No [ risks ] at this point of open supply, so we're happy to report that. And demand is there.

[Operator]

Next question will be from Matt Kornack at National Bank.

[Matt Kornack, Analyst]

Are you seeing any difference at this point in terms of people's preference for low-rise versus high-rise, or urban versus suburban performance? I mean your portfolio seems like it's performing pretty well generally, but any inclination that there is a change in preference because of the current virus on that type of exposure?

[Robert G. Richardson, Executive VP & Trustee]

We haven't heard any reports to that effect, actually, Matt, from people preferring low-rise to high-rise. That's not something that's been communicated.

[Matt Kornack, Analyst]

Okay. No, that's good to know.

[Dale Noseworthy, Chief Financial Officer]

Are you asking generally or [indiscernible]?

[Matt Kornack, Analyst]

I mean, presumably, there have been themes that people have been pushing in terms of the urbanization, the idea that people would be afraid of being in a high-rise because of elevators and higher density. But it sounds like you're not seeing that within your portfolio.

[Philip D. Fraser, President, CEO & Executive Trustee]

And again, a big part of that would be is we really do not have a lot of product in sort of the large 6 urban centers in Canada, especially the Montreal, Toronto, and Vancouver markets. And I think you're hearing that from those markets when the average sized building could be 300 units, 400 units in 30 stories to 40 stories. So, we're fortunate I guess today that ours is more suburban and in sort of the mid-sized markets.

[Matt Kornack, Analyst]

And Atlantic Canada has done particularly well case-wise, so that's positive for sure. On development, I don't know, Nancy, if you can send something after this or provide just a bit of color, but do you have a cost incurred to date on these projects, just from a modeling standpoint to know what remains to be spent on each of the assets? And then on development financing, any change in lender approach to this? I assume multifamily is still a pretty sought-after asset class, but wondering considering you've done something recently in this space, whether the approach of lenders has changed at all.

[Philip D. Fraser, President, CEO & Executive Trustee]

The approach from lenders has not changed with regards to construction financing for our developments, and I guess what you're looking for is probably the equity of the cash remaining for the developments because you put your money in first and then its construction financing for the remaining 75%.

[Matt Kornack, Analyst]

Right. Yes, no, it's just -- I mean cash out to complete the remainder of the projects, so that we can essentially just a little mini DCF to see with the embedded value is if we subtract the cost to complete out of what would be fair value. That would be helpful.

[Operator]

[Operator Instructions] And your next question will be from Yash Sankpal at Laurentian Bank.

[Yashwant Sankpal, VP & Equity Research Analyst of REIT]

I have 2 small questions. First, on Slide 4, your apartment bad debt expense. So, I see your Q2 number has not moved much. It looks like it is in the range you have seen in the past. So, is it fair to assume that there is nothing else? It's just -- especially from the -- as compared to the last year, is that just the normal thing?

[Dale Noseworthy, Chief Financial Officer]

Say that -- we would have seen a slight increase in our allowance for doubtful accounts this quarter. But as you will have seen from our collections, which are strong, it is very much in line with what we have seen historically. So, I can confirm we did -- we took more allowance. But overall, it's not a significant change from previous years.

[Yashwant Sankpal, VP & Equity Research Analyst of REIT]

Okay. And on Slide 8, your commercial rent collection, can you explain the difference between the provision deferred and then outstanding rents?

[Dale Noseworthy, Chief Financial Officer]

So the provision is what we look at from -- we look for what's outstanding. If you think about outstanding return to be collected, you could put those outstanding and the provision together. And then we look at the expectation of collectability of that pool, and we would have separated those out and taken allowance or a provision for those that we thought were at high risk of either not being able to collect or some future abatement that needed to come with those commercial tenants. The outstanding rent to be collected would be ones that are outstanding. There is no deferral agreement in place. And we expect to be able to collect. The deferred or those that we have been working with those commercial tenants and we have deferral agreements in place, so we will be collecting the rent that related to the period in Q2 in future months, and we have those agreements in place.

[Yashwant Sankpal, VP & Equity Research Analyst of REIT]

So, those deferrals are something you did on your own? They are not part of the CECRA program?

[Dale Noseworthy, Chief Financial Officer]

The CECRA's separate; correct.

[Robert G. Richardson, Executive VP & Trustee]

The 8% there.

[Operator]

[Operator Instructions] And at this time, Mr. Fraser, we have no other questions.

[Philip D. Fraser, President, CEO & Executive Trustee]

I would like to thank everybody for participating today on our Q2 conference call, and we look forward to being back here for the results of Q3 in early November. Thank you.

[Operator]

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.