Q3 2020 Boardwalk Real Estate Investment Trust Earnings Call
Good morning, ladies and gentlemen, and welcome to the Boardwalk Real estate investment Trust third quarter 2020 earnings Conference call. At this time all lines are in listen only mode. Following the presentation. We will conduct a question and answer session. If at any time. During this call you require immediate assist.
Please press star zero for the operator this call's being recorded on November 13, 2020, I would know like to turn the conference over to James total. Please go ahead.
Thank you, calling on and welcome to the Boardwalk reached 2023rd quarter results Conference call with me here today and staff Cohen Chief Executive Officer.
The Spanish Chief Financial Officer, and Mr., Russell Senior Vice President of <unk>.
Note that this call and being probably disseminated.
If you're not if you have not already done. So please visit you walked on call Slash investors, where you will find a link to today's presentation as well as PD.
And the trust financial statements and DNA and supplemental information package.
Starting on slide you, we'd like to remind our listeners that certain statements on this call and presentation may be considered forward looking statements.
The expectations set forth and such statements are based on reasonable assumptions boardwalk future operations and its actual performance may differ materially from those and any forward looking statements and.
Information that could cause actual results to differ materially from these statements are detailed in boardwalks publicly filed documents I would like to now.
I'll turn the call over to sample.
Thank you James and thank you everyone for joining us this morning.
Maybe first start by sharing our thoughts hearts and prayers for all affected by COVID-19, we remain ever mindful of the great need for healing loved and patience during this time.
We're also ever mindful of the great sacrifice, our veterans have made for their freedom. We all have to date as we honor all the lost lives and service this remembered suite.
Watch top priority remains the health and safety of both our resident members and our boardwalk team up here.
Boardwalk family, our team continues to adapt and evolve and emerge through this pandemic environment.
We remain committed to providing are essential service safe affordable housing and all our markets and are so proud of our team who have been rewarded with a record high resident satisfaction scores, which in turn on has delivered resilient and growing Epo results for our unit holders.
Our FFO per unit remains the highest in the Canadian multifamily REIT sector.
These results would not be possible without the integration and quick adoption of new technologies, such as our resident member platform, you, who introducing virtual showings online payments and are significant in house advances in robotics lead management pardon me.
Sure.
We are exceptionally driven to continually emerge improve our NPS scores driver occupancy higher and increase our financial performance throughout this pandemic and well into the future.
Slide four building better communities continues to be at the heart of what we do.
Community programs have shifted to address the changing needs of our communities are.
Our residents have rewarded us with the highest NPS scores and our increasing market share is a testament that boardwalk remains the choice housing provider and our March.
Continuing on to slide five boardwalk portfolio of well located affordable homes provide and exceptional value proposition for current and future resident members on.
Boardwalk 33000 apartment units approximately 62% are based in Alberta, and 11% and says catch on.
Each of these provinces, providing exceptional affordability with multi decade low rents as a percentage of income, creating an opportunity for incentives to be reduced to help offset increasing non controllable expenses on.
Jerry on Quebec represent 27% of boardwalk communities, providing an exceptional affordable average rents as well with opportunity for future revenue growth.
Slide six boardwalk product diversification captures a much wider audience of resident members' needs increasing the overall demand for boardwalk communities, we provide three different branded communities.
And walk living affordable value boardwalk communities enhance value and boardwalk lifestyle affordable luxury.
Currently we have approximately 6% lifestyle, 44% communities and 50%, leaving suites across our portfolio. Each brand provides exceptional value at each price point grounded on some of the most affordable rents in Canada.
Slides seven to nine.
Through nine highlights our most recent rebrand projects, our design asset management and operations teams work together to selectively and strategically identified each community rebrand or refresh our focus is to continue to deliver the best product.
Optimizing our capital allocation for our value add program to our targeted resident member demographic. So we can continue to provide the most exceptional elevated experience at an affordable price.
The result is increased market demand.
Optional value and appealing returns with achievable market rental adjusted.
Our results continue to reflect the success of the reengineering and redesign of our service product quality diversity and experience led by our design team and executed with our entire teams all hands on deck approach.
Slide 10 illustrates some key operational metrics, which demonstrates our continued strong operational performance to the current competitive environment.
Our team continues to optimize your revenues balancing occupancy occupied rent and the use of incentives on.
You can see has remained stable a reflection of boardwalk strong product and value proposition well occupied rents have begun to increase again from the cell and government imposed rent restrictions that have been east.
Slide 11.
Provides further details on new and renewal lease spreads today are.
Revenue optimization strategy to the current environment is focused on retention.
New leasing spreads have improved from the onset of the pandemic as lead generation improves with our current high occupancy and the lifting of rental rate restrictions boardwalk has reintroduced sustainable discount reductions on our renewals and continue to see success targeting.
Insulation area adjustments with many of our lease renewals negotiated 30 to 90 days and advance our third quarter, primarily reflects the rental rate restrictions over the summer months.
With approximately 60% to 70% a boardwalk lease activity in the form of renewals. These sustainable discount reductions will provide resilience and growth and optimizing boardwalk revenue to offset increasing non controllable expenses.
Slide 12, our same property results reflect the rental restrictions set forth at the beginning of the pandemic as well as increased non controllable expense line items, such as such as property taxes and utilities with continued focus on reducing our G and H Arkansas.
Rollable costs are in Hawaii overall sustained a positive growth a 0.5% for the quarter.
4.9% for the nine months of this year and a slight decline and sequential revenue growth of 8.2%. These.
These rental restrictions have now been lifted as of August and we are working together with our team to focus on sustainable rental discount reductions on our renewals.
Slide 13, we continue to build on our track record with our 10th consecutive quarter of growth and AFFO per unit.
Performance is the best reflection of our team's commitment to innovation exceptional service and focus on performance.
Thank you to our entire boardwalk team.
We would like to now pass the call on to leases manage who will provide us with an overview of our financial results Lisa.
Thank you Sam on Slide 14, the trust delivered strong fall and and so gross with Epicel and increasing by 5.6% from 35.8 million to 37.8 million for the three months ended September Thirtyth 2020, and.
AFFO increased by 9.7% from 29.8 million to 32.7 million using an annualized maintenance capex estimate of $613 per apartment units.
For the nine months ended September Thirtyth 2020 episodes increased 6.7% from 98.8 million 205.5 million well and AFFO increased 11.5% from 80.8 million to 90.2 million included in our year to date, AFFO and and so for results is approximately.
3.5 million for retirement costs.
Slide 15 summarizes the trust monthly revenue collections from its resonant members for the year to date 2020 <unk>.
Please note collections are reported for the calendar month on me and do not include revenue collected and subsequent months.
98.3% of October revenue was collected in October which is consistent with the trust historic run rate.
Oh varying by Province City and site prior to 2020, the Trust's historic bad debt expense was between 1% and 1.1% of total revenue.
Thus far in 2020 bad debt expense has been 1.3% of total revenue.
During cobot Boardwalk Boardwalk offered its resident members on referral program for those who could demonstrate financial hardship and.
At the end of October there are approximately 50 participants in this program, which is down from 100 participants at the end of July I.
Additionally, the total deferred balance was approximately 47000 at the end of October also down from 85000 at the end of July.
Slide 16 provides a summary of boardwalks available liquidity.
Trust is well positioned with approximately 86 million and cash and subsequently funded financing as well as an undrawn 199 million dollar operating line.
Its approximate to 86 million and liquidity provides the trusts with a flexible financial position and the current environment as well as providing the ability to take advantage of opportunities as they present themselves and just visibility improves.
Slide 17 illustrates boardwalk mortgage maturities schedule, our mortgages are well staggered with approximately 99% of our mortgage balance carrying any change strength through the counted on mortgage and housing Corporation.
This insurance remains in effect for the full amortization of the mortgage and in addition to carry and the government of Canada backing provides access to low cost financing. The current estimated five and 10 year, assuming she rates of 1.2% and 1.8% respectively.
The trust debt metrics continued to be strong with an interest coverage of 2.78 and the current quarter.
Our progress on her 2020 mortgage maturities is presented on slide 18 Boardwalk has been actively taking advantage of this current low interest environment to when you afford luck as most secure and securing additional financing from our mortgage portfolio to date, we have renewed our forward locked approximately 83% of our 2020.
Mortgage maturities and suppose secured 173.4 million and new financing and record low interest rates highlighted by some recently completed financing interest rate less than 1%.
Current underwriting criteria and our most recent submissions to see me she and her lenders has remained in line with our historically conservative estimates.
I would now like to turn the Colts and Lisa Russell, who will provide an update on our investments.
Thank you Lisa in addition to our operational focus and and mine with boardwalks long term strategy slide 19 summarizes our area for future growth.
Before leavers include value add capital improvement acquisitions development and dispositions of non core assets and will allow the trust to progress toward high grading and geographically expanding our portfolio.
Slide 20 summarizes our progress on our value added improvements with an increased focus on common areas and amenities as well as more affordable suite renovations.
Our measured approach to our value add improvement program focuses in on best returns.
The trust continues to remain disciplined as we strategically invest in our communities.
These renovations showcase the power of design and our ability to reposition assets across Canada.
Slide 21 summarizes our recent acquisition of a 226 unit portfolio, located and Kitchener, Waterloo and Cambridge. This portfolio allows us to gain operating efficiencies with our existing portfolio and its high growth region and aligns with our strategy of high grading and geographic diversification from.
And just at approximately a 4% cap rate. This portfolio has a significant mark to market opportunity over in place rents.
These low density private and Trent count Homestyle units have an average suites over a thousand square feet and are well positioned to provide homes for the changing needs of our resident members.
On slide 22, we are pleased to announce the unconditional seal a boardwalk manner, and 72 unit walkup and read China.
Asset transacted for $7.5 million and it's expected to close on November 16th 2020.
The sale of this non core asset is in line with the trust I and I FRS value and allows boardwalk to continue to recycle capital towards accretive opportunities and achieve the trust strategic objectives.
Slide 23 provides a brief update of our current and future development projects construction at 45 Railroad and Brampton continues on schedule completion of this two tower 365 unit development is estimated to be in 2022 and 2023.
In line with our long term strategy of geographic expansion and high grading our portfolio. The trust acquired to future development sites into Victoria, The capital City of British Columbia, We are excited to reenter the Victoria market, where rental fundamentals are strong with low vacancy rates and an undersupply of rental housing even during.
Pandemic.
Government tourism and a rapidly growing technology sector provide the economic foundation for this market.
These two future Prime development sites give boardwalk a solid foothold in this growth market.
The Cardinal and site is alive and assembly and the Gentrifying municipality of Esquimaux and was acquired for $12.9 million.
Located across from the newly developed Esquimaux Townsquare and Recreation Center. This crime development site will provide new rental housing in a growing and undersupplied market.
This transaction closed on November 2nd, we anticipate entitlements and rezoning to be completed and 2022.
This site will yield approximately 200 luxury affordable units.
The second site. We purchased is located in the growing municipality and the Royal does zone piece of land is purchase for 14 million conditions have been waived and is scheduled to close on November 20, Threerd 2020.
We anticipate building approximately 250 units on his prime site, which is located near Victoria General Hospital, a large retail plaza and provides quick access to both downtown Victoria and Lankford.
These two sites provide the opportunity for boardwalk to utilize its past experience and success and building a creed of low rise developments. The trust is excited to bring boardwalk brand of unique design and affordability to Victoria, while creating value for the trust in our prove and low rise development program.
We will progress through rezoning entitlement and the design of all new development projects and 2021 for clarity the trust will not begin any new construction and 2021 and.
I would now like to turn the call over to James.
Thank you Lisa.
Slide 24 illustrates the exceptional value opportunity boardwalk skirt trading price represents when compared to recent multifamily transactions in the marketplace.
As a basis of comparison, the slide utilizes boardwalk consensus 2020, and on wide illustrate implied valuation on a cap rate and per apartment door basis.
Reported cap rates on transactions, often have varying assumptions with some instances using stabilized NOI such as boardwalk has and our current calculation on fair value, which utilizes a stabilized cap rate of 5.27% as disclosed in our financial statements and and other instances reported cap rates on sales transactions have utilized and in place and on line.
Similar to our consensus and Hawaii estimates used here on this slide.
As noted boardwalk net asset value of approximately $60 per trust unit were $180000 per apartment door is in line with recent transactions.
Our current unit price of approximately a $135000 per apartment or a 6% cap rate on consensus on a Y presents and exceptional opportunity given the resilience of our operating performance and the industry has access to a record low debt financing.
In addition to the exceptional value. Our trust units currently represents boardwalk is well positioned to continue to deliver organic growth on the foundation of high affordability and unparalleled value and are essential house and products.
As shown on slide 25, boardwalks coral Burger markets on Edmonton, and Calgary remained resilient with stable occupancy positioning us well to reduce incentives sustainably on lease renewals, which represent the largest portion of our deal flow.
And our stature and market boardwalk focus on product quality service and experience has gained market share.
Affordable and high value offering, Ontario, and Quebec markets from a near full occupancy and.
Trust continues to focus on maximizing Merck from runs on turnover.
Just a 25 dollar increase and our monthly average and place rent equates to approximately 20 cents and annual AFFO per units and represents a significant growth opportunity over the near and long term as we focus and on optimizing our revenue and then on <unk>, and and Hawaii, delivering quality safe and affordable housing across Canada.
Looking forward on slide 26, boardwalks Formula remains.
With significant liquidity, 99% see Macy's CMHC insured financing on average debt and access to debt capital that is near 1%.
Provides a significant tailwind and our financing costs boardwalk is on a strong financial foundation to weather any corporate related uncertainties as well as execute on opportunities that arise.
Our industry low distribution payout ratio provides a recycling of cash flow for growth.
Our organic growth opportunity remains a key priority driving sustainable rental rate adjustments, while maintaining high occupancy levels are.
Our controllable cost savings to date, we'll continue to be a focus point as we aim to innovate and leverage on technology and energy efficiency programs.
We look forward to sharing our progress and growth and our upcoming quarters and we'd like to open up the phone line for questions Colin.
Thank you, ladies and gentlemen, and we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone you will hear a three tone on prop acknowledging a request and your questions. What we polled on the order. They are received should you wish to decline from the polling process. Please press star followed.
Two if you're using a speaker phone please lift the handset before pressing any Q1 moment for your first question.
And your first question comes from John.
Jonathan Clutter from TD Securities Jonathan. Please go ahead.
Thanks.
Good good morning.
And John first first question just on.
Incentives and a d. and their James you're talking about them coming down on on renewals on do you see and Sandoz playing out as.
As you go through the winter leasing season, and made it and troughs renewals versus new leases.
Sure Thanks, Jonathan you're 100% REIT that's a.
On renewals, specifically that is where our focus is and that's.
No different over the last many years weve on 100% and focused on on retention within our portfolio today on renewals were targeting very sustainable increases were talking and we're talking a range of $20 to $50 on and net effective basis really for the most part, especially on our western Canadian market. These are in the form and sent.
Different discount reductions.
Our team to date has seen great success with this again some are lower some are higher but for the most part we were falling within the 20 to $50 range on new leases.
Team, two and a great job of maintaining high occupancy you see that on our leasing spreads slide so far to date, a position with our high occupancy today and roughly just over 96%.
Feel good about going into the winter months, So again to your point, Jonathan its combination and maintaining high occupancy.
Gaining that with new leases and continuing to get a steady sustainable increases on our renewals, which represents about 65% of our deal flow.
Okay, and then B on slide 10, what <unk>, what it says you average incentives on $178 how like how.
Just how that's calculated.
So thats the average incentive for those units that have incentives in place.
Okay.
And then just switching gears Victoria.
Going back to the PC market.
And maybe.
And part about the decision to go go there through development versus buying existing assets and and are you looking for.
Just the assets are.
So the big decision and pivot for Victoria, Jonathan Sam.
It's been sick.
Significant success, we've realized in our low rise development in China, and Calgary, Weve created and realized significant value in that development program. So it's really exciting to secure prime locations in suburban.
Areas and Victoria.
And in a town centers or right next door to.
A major hospital and Victoria.
That provides us with brand new low rise affordable housing in a market thats very undersupplied and the other characteristics, we looked at and those locations with very little apartment rental product supply in those suburban locations and and price.
I merely the housing choices there are very expensive single.
Single family home, so the relative value prop.
Proposition between renting a brand new low rise community and buying and single family home is really exceptional and net and and Victoria has grown during the pandemic and has demonstrated one of the one of the strongest.
And population growth and continued rental demand in the country.
And were very excited as you can as you can sense.
Yeah and what.
And what about just what about.
Existing assets or revenue producing assets right now are you looking at any of those and and Victoria.
Yeah, John it's and we're definitely looking at those it's going to be a combination and as we.
Clearly stated we are going to be going through and had them and for the next couple of years on the development side and at the developments will not start and 2021.
That being said, we're currently looking at some existing assets right now on.
Yes on bell and any value add on your supply that we do see and Victoria, but we're very excited to be in the market again.
Okay. That's helpful. Thanks.
Thanks, Jonathan.
Your next question comes from Neil Downey from RBC capital markets. Neil. Please go ahead.
Hi, Thank you good morning, everyone.
Couple of questions one relates to a cold the cost side of the ledger and.
Your trust expenses in the quarter they were down materially.
From where they were earlier in the year EBITDA, excluding some some one off items.
So can you maybe discuss.
How do you see trust expenses going forward and the sustainability.
Of the expenses that were incurred in the third quarter.
And secondly, I guess, we'll get all the way at once.
On the subject of capital investments and improvement Capex.
We are approaching the end of Twentytwenty. So.
Can you please provide an indication as to roughly what the total investment might be for the year and as you look to Twentytwenty. One do you think.
Capital improvements will be the same higher or lower and.
And is that really a part b to that Capex question.
What should we be thinking about it in terms of the deduction that we take for aren't M. Capex as it relates to our CFO derivation.
Thanks Lisa.
Lisa and it so I'll speak first to the administration expenses or the trust cost. So as everyone can see on Q3 for us as a really clean quarter as it relates to Oliver admin charges.
In and out there were no retirement cost for severance adjustment and this quarter.
We have commented on how we have been really maintaining and managing our headcount. So a considerable portion of those savings that you saw was a result of our wages and salaries and keeping on top of those expenses. During Q3. Two we were just really clean in terms of looking at accruals and those types of adjustments to make sure everything makes sense. It's important to note and when we go into Q4.
And we will have some true ups as it relates to your and accruals based on knowing your actual results in comparison to some and and internal targets. So there may be some adjustments going into Q4, a little bit and in comparison to that Q3 rates on as.
As we move into 2021, I think on our expectation would be our admin costs, including the deferred comp would probably be about the $8.5 million to $9 million range per quarter and moving into 2021.
From a capex side, I don't know Sam or James that he would rather that one.
Yes, Neal and Sam our trend is clearly down in our total capex.
Spend as per slide 20, there's more demand for affordable, what we call classic units and and our sales.
Spend is really on our common area experienced centers, which is on a real fraction of the spend.
Our interior full renovation suites, we are seeing a I clear and strong demand and affordability and in our living on brand and coupled with.
Hi, a repositioned.
Experience center and common areas.
We're really differentiating ourselves.
Versus our competition and gaining market share so that trend.
Trend and a lower Capex total spend will as as we calculate our capex on a three year moving average and and that will translate into a lower capex number because the total spend will be dropping as well so I hope that answers.
Question.
Okay. That's super Thank you so much.
And.
One one thing we're spending a lot on.
His creative capital.
And creative capital is is.
Really the brain trust of our entire team and we're coming up with new ways to do things and and theirs.
There's new savings all the time that all our associates are contributing so we really have to give all credit to our team that continues to come up with amazing ways and ideas to do the same old same old and different more efficient cost effective ways. The other.
Really exciting.
Thing that we're doing we just finished our trial with smart rent and that's our partnership with the major U.S. apartment Reits with real estate technology ventures, and smart home technology self showing we're scratching the surface as we and.
All our first full community of smart technology and that will introduce savings that are on parallel that the U.S., we're very grateful to be partners with the most innovative us reach.
Developing and creating one of our new partners is Amazon for example, and smart rent.
And as we put that on a check.
Technology together and.
Amazon became on a partner of ours on very quickly and so we're super excited with the technology and again, we got to give kudos for our you who platform.
The automation our in house development of our new robotic lead management system, we created in house.
I can go on and on and again, we're we're scratching the surface on on the savings potential and the way we're revolutionizing the changing the way we serve.
In the multifamily communities.
Your next question comes from Howard long from Veritas invest.
Investment Research Howard. Please go ahead.
Good morning.
And I also wanted to ask about Opex and be controllable side, what do you see for fiscal 21, and do you expect that to also.
Offset some of the cost increases for the on controllable side.
Hey, Howard it's James here, 100%, Great question on the and controllable expense side I think we continue to see the benefit of that you saw last year.
And in our most recent results here with us.
Offsetting some of the gains that we've had are the increases that we've seen in the non controllable side.
Looking forward into next year's and was just talking about I mean, our team is looking for savings and and and beating each and every day.
And covering as many rocks as we can and so.
We're confident that our team will continue to find savings going forward.
Obviously, we want and we want to remain conservative and anticipate some inflation and items such as your standard and such as wages and salaries et cetera. However, you know with what our team is doing and what our team has done over the last few years looking at efficiencies.
And that this trend can come and continued.
Okay.
And then just a assets.
I see that I think Edmonton and Calgary, They just had a spike this quarter from rental unit construction and Q3 in terms of completions can you speak to that and where you think you know if they'll put any pressure on occupancy and rental revenue in the near term.
And what we're seeing at Sam is new supplies coming on about a thousand units and and the pricing is stable. It's about 250 on a square foot and so we're we're seeing the new communities.
Except a lower absorption and a higher vacancy and that that is good news for everybody because the rental market is contiguous it's interconnected everything is relative and.
And and new.
Supply is a price setter and the rest of the market as a price taker and and so we're very pleased with the stability at about $2.50 and the affordability of the new supply that's out there it's well below.
Other levels and other.
Centers in Canada.
Affordability continues to be the leading variable in the United States our biggest day.
On the sampling and trends well before the pandemic affordability was clearly a trend in major more expensive cities in the U.S. and we're seeing this trend accelerate during the pandemic and we're talking with with Shopify employees in Calgary.
We're talking with Amazon Web services employees in Calgary. This work from home and from anywhere is accelerating and Calgary Scott The Freshest Air Cleanest water most beautiful mountains, its the Denver like on and according to the economist magazine.
The top best city to live and in the World and that's the only Canadian city that makes it on the top five list and so it's.
It's the best kept secret and it continues to grow we're seeing that our results are reflecting that and affordability.
Affordability is is.
On something that that we've.
We've got.
The most offer one of the most up and the entire country.
Right right. So it doesn't sound like you're seeing on blood pressure from new supply and and they get you know that kind of relates to my next question about about Breo I think it's about 55% leased and can you talk about your leasing strategy, there and I guess it sounds like you're not you're also not competing you're not getting large incentives to lease that building.
Correct, we're taking a more patient approach where.
Assuming a 12 month lease up we're well on target were over 50% occupied.
As we speak and on target to be fully occupied by the spring about a year after during a pandemic lease.
Lease up and and so again, our product is very unique our unit size is very large that's one thing we've learned.
Unit size matters, and it's something that's impossible to change once a developments completed the unit size stays the same and so that decision to redesign that to smaller unit count and larger unit sizes is.
Really helped us compete and that marketplace and actually gain market share from the newer smaller condominium rentals in the area and also that residential housing and the areas approximately a million dollars or just under some of the most expensive bungalows and the city or.
Just in and around that area is providing a great alternative to a single family home as well and so we we very carefully crafted on.
That community and it's showing in our performance.
Okay, No that's great.
And then kind of my last question relates to capital recycling. So we've seen you know we've seen you buy some on some units and Ontario and BC.
But you know it seems like about a four cap and.
Then we are seeing some disposition, mainly and catch you want around a six cap and so.
So yeah, you know I understand scratching hybrid in your portfolio on but given that there is that spread between the different cap rates and and most of the remaining cash what assets I think are leveraged so they're not unencumbered could there could you see any near term headwinds you know to cash flows and ran and why if you keep pursuing the scratchy yet and to what extent are you looking to this.
Bose your sales catch on assets.
So just for clarity I think.
Sales at just transacted at seven and a half was.
Most are too low four cap, so I'm not sure where the six cap is coming from but the lower four cap is at is transacting and it's yeah. We're not concerned so just to be clear Howard I mean, a six cap and your I'm, assuming you're referring to is our stabilized cap rate that we would utilize and just cash.
And on you know for what leases.
Lisa is referring to is a more.
That's correct.
Lucky there and so as we redeploy that force for caps and Ontario from a cash flow basis.
Especially with the Mark to market that we have and Ontario, We believe we're accomplishing.
And high grading and geographically spec.
Okay, sorry, I I thought the boardwalk manner whats the spokesman six got but you're saying, it's a it's closer to afford or now in place and placed force. What we're seeing is low fours and place going to five and six as incentives burn and as turnover happens in Ontario.
What we're seeing in our Victoria's what we saw here and Calgary and read China is is the capital that that we're going to.
And I have to use as our creative on the capital where we get in front of all the competitive buying and partner up with land Assemblers. For example that have been in that market for 10 years and as a result, we're able to secure a year.
Oneq sites and create the value and the equity that's required and so on our capital will be on construction financing.
The cost of the construction and then the value we create will be our equity and it's exactly like the the on equity capital that we created through the use of value that we create and the development cycle and process and we've created significant value on a smaller scale.
In Western Canada, and Alberta insists catch on with around a thousand or are seven 800 units and our equity capital is the is the value that we create it and these.
Communities provide positive.
Creative and FFO contributions to our bottom line and we're going to continue to do that we realize the timing of sales is critical to the acquisitions and Lisa can needle.
Very fine thread.
Through this and we will continue to as she and our acquisition and disposition and development team have been doing over the last several years in a smaller scale, we're going to scale that up going forward and be more active on both on both first and foremost the disposition side and timing on acquisitions.
Net at a creed of.
Level, so we can accelerate the geographic.
And geographic distribution of our assets.
Right and so I get to that to that should we expect more disposition plan and that's it's got one region, absolutely well and even then Alberta and more particular, Edmonton or most highly concentrated market as Edmonton and and and.
And that that's most likely where we will be most active but we're going to be most active in western Canada, where there's the bid and the best pricing period and and.
We're going to be a lot more open minded when it comes to the trading.
Of our assets to accelerate our geographic and.
Different.
Distribution and our inner asset class.
No good to know and and just to confirm assets for kind of four four caps and and placement after incentive spare and they'll be five to six okay. Okay. Thanks.
Yes, that's correct.
Your next question comes from Matt core back.
From National Bank financial Matt. Please go ahead.
And it's just wanted to quickly follow up on Howard's question with regards to capital recycling and and Edmonton and particular can you provide any commentary as to.
Transaction activity in that market, what you're seeing and and what you could potentially laying up on there.
Our transactions going so there's there and some product and Edmonton right now and there's from just talking to the brokers, there's lots of activity on the product that.
Isn't Edmonton, and and and Calgary and 2021 like Sam said, we're going to be really focused on on transactions not just in Edmonton, but in Western Canada and yeah. We feel like there's there's a lot of strong there's strong interest.
And talking to these different groups as well as we are right now.
And pricing wise cap rates on and place and Hawaii.
[music] inside of what you're seeing and its just got drawn or is it similar type pricing.
Yeah, it depends on the product, but similar type pricing and definitely we were right in line.
And on and on property taxes, they were up fairly significantly sequentially and I think this was previously known <unk>, but as you look into 2021 and it sounds like some municipalities are trying to hold off on passing through budget deficits.
Related to coal that.
Pace of increase for 2021 is we would've seen this year and 2020, and fact, you're 100% right, even and Calgary much of the media attention is around the potential of and.
Residential tax decreases actually.
Going forward, we'll have more visibility on that and the new year. We are hearing that they're slightly some pressure on industrial property taxes here in Alberta.
Multifamily it sounds like we're.
We didn't pay something that is closer to flat if not even more inflationary as opposed to the double digit tax increases we saw this year.
With regards to other operating costs.
And a bang on match the majority of our increases were a result of these non controllable increases like property tax bike insurance.
And when it comes to carbon tax and again that is another item where.
Frankly, where we are seeing those increases again.
We wouldn't anticipate the same pace of increase but we.
We will see those continue into 2021.
Really early Amy.
So you'd hope for under under the 3.6% potentially if you're if you're lucky and to 2021 and one other thing just can that 13.7 million and property taxes that a good run right figure it kind of moves around a little bit, but presumably that's the new basis.
Barring future information that we see for 2021 and again, we will have more visibility on that and the new year, but for now we see us.
Okay.
Thanks, Matt.
Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by one. Your next question comes from Mike Our Caddis from day to our desk like please go ahead.
Hi, everyone just with me plan to accelerate your your disposition program and Western Canada, and I apologize if I missed the sooner, but I think you guys had or Mrs. Earlier, I think you guys had three assets listed in and Edmonton I was just.
And can give us an update on that process.
And yeah, we've had a lot of interest and the assets and we're actually and different stages of and under contract.
We can speak to it and further next quarter, but yeah, we've seen a lot of interest and.
There is there's buyers.
From out east to private guys and.
And the local market.
Okay. So you would expect those transact early next year.
Right and.
Okay, great and.
And then just.
Looking at your your segmented revenue clearly it with a cup one of the toughest scores and I've seen in awhile.
And you did have a sequential revenue decline and Alberto about 1.5%.
Realize you guys are getting more traction on the the renewal increases as we move through for queue, but.
Which is given what you're seeing in terms of leasing velocity and demand and understandably the the the visibility factors, but as long as it's probably been and a long time and you expect that will stabilize over the next couple of quarters or do you expect to continue to can we go over.
And where.
Might get Sam we're we're seeing.
Between the 20th 50 dollar.
A discount reductions on renewals, which accounts for about 60, 70% of our turnover and and so we will be seeing that reverse in.
And the fourth quarter, because we're seeing it as we speak in our renewals today. So so our renewal agents.
Art and some.
And and especially the communities that we've.
Repositioned, we're gonna see.
Discount reductions.
More in the 60.
60 to 80 dollar range and and so we're seeing some of those and we're gonna see more of those as more of our Ah reposition communities come online and and so.
We're we're as we speak C a.
Increase and our revenues as a result of the discount of or.
A reduction of our discounts.
Flowing through again.
Okay. So I guess the outlook would be uhm reduction and average incentive maybe you're giving up a little bit on new leases and and you would expect occupancy to remain relatively stable that'd be good.
That's what we're seeing as we speak cash.
Okay, Great. That's helpful. Thank you.
Mike.
Your next.
And it comes from <unk> from Scotiabank Mario Please go ahead.
Oh, Thank you and good morning, just two two questions on me with physician activity coming back to the.
And the three off and put her listed and amendment and can you highlight whether it loose and gutermuth three assets or a newspaper from cleared that.
There is currently that on the assets that we're marketing and and but we're not we're not mark Kingdom free and clear so there there'll be that assumption with that.
Okay.
And then more of a more of a bigger picture on the physician.
Especially when you're looking at your what's your team and some of those assets so properties.
You go on forever and sort of origin the tax basis on a lot of these assets is probably zero.
Goes adjusted.
Junk food tax basis and would be awesome.
And and.
And parked in any way.
Your ability to execute on your technician program or.
The magnitude of that technician program.
Hi, Marion and police and Great question, So basically when we evaluate our distribution on a recurring currently monthly basis, we do consider capital gains and recapture in our taxable income calculations. So we do allow for a pool within our distributions to allow for us to execute and sell our assets out their equity.
<unk> and but you are correct, we will have to consider anytime.
Anytime reevaluating any disposition, we have to look at the tax bases and yes, some of those assets, which accounts for a longer period of time, you would expect that there would be a recapture and capital gain consequence to be considered when we evaluate our distribution on a quarterly basis on.
Mary on the other option, we have is selling like and buying like like our newer acquisitions and that we purchased or developed.
Realize the gains that we've created the cost base is much higher and reinvest those gains into a different geographic region with like brand new developed product as well so it'll be on like for like product in a different geographic region and that.
And that's exactly how.
And we can access capital and.
Internally and and it's and.
And it's a great great.
Way too.
Again, our focus is internally generated three cash flow, that's why we re-engineered our distribution to maximize the free cash flow available for us and that's our biggest primary source of capital will be free cash flow, especially when our average rents are 1100 $83.
Everything is relative everything it's a whole lot different.
Moving rents from 11, and 83 213 1400 on a relative basis, that's a big major percentage increase versus moving average rents from 15 $1600 at the same percentage level and that's really important to keep in mind that the girl.
Both be organic growth is significant and the and the reengineering to maximize the access of that free cash flow is significant and that that is going to fuel our growth going forward.
Okay. Thank you for calling.
Your next question comes from brand and.
Abrams from Canaccord are Brendan sorry. Please go ahead.
Hi, good morning, and helped on late so maybe I missed it just on the Victoria.
And purchases.
Can you just.
Maybe reiterate what the expected development and yields and also maybe price per sweet once.
Once built that would be.
Yeah, So for Victoria right now, we're going to rezoning on one of the sites so that well, we'll figure out and density as we get closer and that'll be likely further out in 2022 and as we progress through the refining process will keep everybody up to speed and for the Eagle had the Eagles nest Idiot every.
Oh, and pizza land and we're in really preliminary stages.
We're just clothing on a piece of land right now and working through it but it'll be close to like a fart on and a half years.
Four and a half by.
By the development yields.
Will be approximately 25% and that that essentially will be our our equity and.
And into those developments and communities and we realized higher than that.
And our past developments and depending on where the market's going over the next.
Couple of years, because right now the market continues to improve and strengthen and in the locations that that were.
Secured land and and as a result.
These these we believe.
R R.
Are realistic.
<unk> <unk>.
The low rise construction is another big difference and and the.
Advances that.
That we've seen and low rise construction.
And.
He is significant and so the cost of low rise is much much lower than high rise and and that contributes to the value that we can create and low-rise developments versus high rise developments, we're very happy with our high rise developments because.
We secured really low price contracts.
Several years ago to be honest, so the low-rise construction, we have and brown and is very exciting because the.
Legacy older product is not too far below what are total cost is going to be and Brampton with our partner, that's doing and amazing job.
Keeping costs down and securing these contracts a long time ago. So.
So were again very excited about the value.
That we can create and these new exciting opportunities.
Right No. That's that's helpful and maybe just on a similar tone maybe.
Maybe as a as it.
Pertains to capital allocation and over that.
Series, two you've invested and few development projects.
Some acquisitions outside of your core markets and and Ah. So obviously the growth of the Reed and geographical diversification is.
Is paramount, but just in terms of unit buybacks and given where the.
The stock is trading relative to perceived value.
Do you have a view and and your significant liquidity, maybe you could just.
Remind us.
Are you on unit by box and.
And what I guess, what it would take to go onto the market and and some.
Part of the stock.
So our view on unit buybacks is the same as our view on capital allocation. We review that all the time and we look at all options available to us and and so we.
You you must have been and our board meeting we had a very.
Very heated discussion and and.
Talk about asset R capital allocation and unit buyback and and we will continue to look at all all all.
All sources and and uses of capital allocation all all the time.
Okay, that's great I'll turn it over and thank you.
And spreading.
Your next question comes from Bleach and from I, a security is Lee.
Lee. Please go ahead.
Hi, Good morning, most of my questions were answered. So just really quickly for me just the and <unk> in regards to the Brampton and messes saga projects have your projections on in terms of costs are you hold on cost channel on on and your term.
And they haven't actually sales are Brampton, where 85% fixed costs. So we're secure with and.
Any construction and fluctuations that and.
Mainly may have seen over the past six months and so now everything is absolutely and line and asked Mississauga again legislature rezoning. So that one is very very preliminary.
We watched the market.
All the time and and Brampton.
We're serving.
Competitors.
There's very little to no new supply and the Brampton market and there is very little to no incentives as well and the and the Brempt and market rammed market.
We purchased that land on a square foot basis, and just about just over $30. A buildable are close to 40 with entitlements.
Very affordable contracts the partner we have is.
The general contractor developer and has been and the construction and development business for decades and and.
We're very blessed to have them as a partner.
That secured really exceptional low cost.
And prove and good quality trades to keep our costs under control and so far so good they're doing and amazing job and and.
And we're seeing great uhm discipline and cost control and we're on time on budget.
Which is the good news on any new development.
Okay, great, Thanks for calling and I'll take I'll turn it back.
Hopefully.
Your next question comes from Joann Chien from BMO capital markets Dwem. Please go ahead.
Hi, and good morning, and most of my questions have and answered as well, but maybe just a real quick one on I apologize and I missed this earlier, but.
You know what they're on the run free and lifted uhm and could you maybe provide some color on on what sort of right. Let's day are you seeing now and so far and I guess September and October.
Sorry, what was that I joined yeah on your 100% rate is just on the rent freeze, okay increases poster and freeze and so.
And the rental rate restrictions, both self and government imposed for the most part across our markets were lifted towards August here.
And so since then on renewals, we've really been targeting sustainable discount reductions with our residents range. So we've been targeting 20 to 50 dollar discount reductions and getting them.
With our renewal agents and and and the strategy and and approach that we take with our lease renewals were often negotiating lease renewals 30 to 90 days in advance and so there was.
Starting to see that benefit now and these current months and we anticipate that and it will see those leasing spreads on renewals improved on the fourth quarter.
And can I can say is that 25, <unk> <unk> discount on Retouches.
$20 to $50 price, so I'm, sorry that I'm sorry, that's on that okay. Yeah mm nope, sorry, that's all I had I had I'll I'll kind of on it thanks very much good.
Alright.
There are no further questions at this time. Please proceed.
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