Q4 2021 Boardwalk Real Estate Investment Trust Earnings Call
Good morning, ladies and gentlemen, and welcome to the Boardwalk Real estate investment Trust fourth quarter 2021 earnings Conference call. At this time all lines are in a listen only mode, but following the presentation. We will conduct a question and answer session. If at any time. During this call you require me to assistance. Please press star zero for the operator.
Also note that this call is being recorded Friday February 22, 2022, and I would like to turn the conference over to Mr. Eric Powers. Please go ahead Sir.
Thank you Sylvie and welcome to the Boardwalk creep 2021 and fourth quarter results conference call.
With me here today is Sam Coleus, Chief Executive Officer, Lisa mandates Chief Financial Officer.
James talk President and Rick and head of acquisitions. Please note that this call is being broadly disseminated by way of webcast. If you have not already done. So please visit be walk dot com and vet slash investors, where you will find a link to today's presentation as well as PDF files of the Trust's financial statements.
M DNA as well as supplemental information package starting on slide two we would like to remind our listeners that certain statements in this call and presentation may be considered forward looking statements, although the expectations set forth in such statements are based on reasonable assumptions boardwalks future.
And its actual performance may differ materially from those in any forward looking statements additional information that could cause actual results to differ materially from these statements are detailed in boardwalks publicly filed documents.
I would like to now turn the call over to Sam Coleus. Thank you, Eric and welcome everyone to our Q4 conference call starting on slide four our strategy continues to deliver strong results with our profit per unit net asset value and unit holder equity and fair value of investment properties all.
Seen increases over the last four years slide five our Q4 2021 <unk> per unit growth is 11, 9%.
Our 2021 F F O at $2.94 is up seven 3% versus last year.
Oh for unit three.
Three year compounded annual growth rate is 10%.
Six our strategy to create value for our stakeholders begins with our people. We are positioned and are so grateful for our amazing team, who continues to innovate and deliver our places homes for our resident members in turn this leads to leading earnings performance, which we believe will continue to pursue.
<unk> and strong total returns for our stakeholders.
Our strategic focus is our significant organic growth from utilizing our proven platform that focuses on operational excellence to optimize NOI growth.
When we pair this with the current improvement in apartment rental fundamentals, we are well positioned to accelerate our organic growth trend.
Accretive capital recycling focus is an opportunistic investment into acquisitions development and investment into our high quality existing portfolio with a tactical unit buyback. These opportunistic investments combined with our operational optimization have positioned boardwalk to increasing asset.
Values within boardwalks diversified and high quality multifamily portfolio, our solid financial foundation provides flexibility on our balance sheet with our growing free cash flow and with CMA Z insurance on 98% of our financings, which provides access to low cost mortgage capital.
With reduced renewal risk.
Slide seven.
We are in the right place at the right time, delivering solid growth boardwalks existing exposure to strong rental demand unregulated markets with increased immigration significant organic growth as Alberta, and Saskatchewan that some of the most affordable rental rates in the country with limited new supply versus.
Demand in both international and inter provincial migration.
Declining inventories of homes rising home prices and rising construction costs are all widening the gap between our replacement costs of our assets and our current evaluation.
Construction levels remain low relative to historical levels and the stronger demand for housing.
Interest rates with CMA C insured mortgages continued to be low cost source of capital to pursue accretive opportunities.
Slide eight in addition to the positive impact that higher commodity prices are providing to our western Canadian markets. There has been a steady stream of investment in job, creating announcements from the emerging technology and energy sectors.
As of the most recent data over 88000 jobs are now vacant and available in Alberta, which is approximately 30% growth in job vacancies since April 2021.
Slide nine shows strong economic momentum with job and wage growth from the most recent statistics, Canada release, Alberta, and Saskatchewan remain the only self regulated markets in Canada.
<unk> Mark to market, which includes the reduction of incentives averages $147 per month, and equates to a significant $55 million revenue opportunity.
Slide 10.
Our markets and portfolio provides some of the most affordable rents in Canada, when comparing to average incomes and.
In addition average projected population growth in our markets are outpacing new supply leading to strong apartment rental and housing market fundamentals are available supply and affordability are a great opportunity for new and existing Canadians looking for a new affordable.
<unk> to call home.
Slide 11 shows our retention is increasing with decreasing turnovers and a steady occupancy of approximately 96% as per our appendix slide 35, we are seeing more move ins from out of town as more Canadians moved back to Alberta and Saskatchewan.
Slide 12 shows our key operational metrics with our actual occupancy of approximately 96% incentives continued to drop occupied rent continues to increase with vacancy loss increasing slightly in the slower winter season, resulting in steady revenues.
Slide 13 shows continual improvement and net rental rates, new leases saw slightly higher incentives during our slower winter season, and renewals continue to see an improvement reflecting an increase of inflation.
Our total portfolio, new and renewal leases remained steady during the slower winter season and through the fifth Covid wave.
Year over year, we have seen a significant improvement.
With restrictions easing we are seeing growing strength in our apartment rental fundamentals positioning us to capture a significant mark to market opportunity.
We would like to now pass the call onto leased this mandate will provide us with an overview of our portfolio performance operating margins balance sheet and repositioning results Lisa.
Thank you Sam moving to slide 14, despite a fifth wave of Covid and our historical slower season, we experienced continued revenue momentum with sequential revenue growth of two 3% in Q4, 2021 as compared to Q3 2021 with stable occupancy and net effective rents increase.
We expect this positive sequential revenue growth to continue.
Our Q4 2021 quarterly operating results reflect positive NOI growth of three 4% with positive growth in all our major markets with the exception of Quebec, and Quebec same property NOI growth was negative however, when excluding the seniors community last thread, which is recently repositioned to a conventional multifamily assets.
Same property NOI growth was down 1% in Quebec compared to Q4 2020.
For fiscal 2020 , one NOI grew by 1% as a result of slightly lower revenues year over year offset by a decrease in operating expenses with improved NOI growth in both Q3 and Q4 of 2021. The trust is forecasting positive NOI growth in 2022 as discussed later in this presentation.
On slide 15, consistent with prior years its fiscal 2021 the press remained disciplined and focused on managing its controllable expenses. Despite increases in non controllable costs, resulting in margin improvement of 50 basis points in 2021.
Supply has resulted in declining controllable expenses year over year, and when coupled with our revenue growth potential will allow margins to continue to improve.
Slide 16 illustrates boardwalks mortgage maturity schedule, our mortgages are well staggered with approximately 98% of our mortgage balance carrying any change durrance to the Canada mortgage and housing Corporation.
Insurance remains in effect for the full amortization of the mortgage and in addition to carrying the government of Canada's backing provides access to low cost financing with the current estimated five year CME C rate of two 5%.
At current rates below the trust maturing rates mortgage financing continues to be a low cost of capital available to the trust.
Slide 17 summarizes our 2021 mortgage program overall, we renewed $354 8 million as well as secured $152 6 million in new financing and interest rates lower than the maturing rate.
Slide 16 summarizes our 2022 mortgage maturities to date, we have renewed our forward locked approximately 9% over 2022 mortgage maturities as well as secured 42 million in new financing at low interest rates, which included converting our construction loan on breo to assume ichi insured mortgage.
Current underwriting criteria in our most recent submission to see me T and our lenders has remained in line with our historically conservative estimates.
Moving to the right of the slide we provide a summary of boardwalks available liquidity. The trust is well positioned with approximately $106 million in cash and subsequently funded financings as well as an undrawn $199 million operating line.
This approximate $306 million in liquidity provides the trust with a flexible financial position as well as providing the ability to take advantage of opportunities as they present themselves.
Slide 19, the trust debt metrics continue to improve with an interest coverage ratio of two point 97 in the current quarter. This continuous improvement is the result of strong financial performance led by cash flow growth, coupled with low cost debt financing.
Slide 20 illustrates the trust estimated fair value of its investment properties, excluding adjustments for Ifr 16, which.
Which totaled $6 4 billion as at December 31, 2021, as compared to $5 9 billion as at December 31, 2020, the increase in overall fair value is largely the result of decrease in cap rate market transactions throughout 2020 , one as well as discussions with our external appraisers supported cap rate compression of 20.
Five basis points and the majority of our western Canadian markets with.
With the Ontario portfolio, we recognized cap rate compression of 50 basis points through 2021, while the majority of our Quebec portfolio, which includes our land leased assets also experienced cap rate compression of 50 basis points.
Current estimated fair value of approximately 190000 corridor remains significantly below replacement cost.
Slide 21 provides a summary of the recycling of cash flow towards value add improvements to date, we have completed approximately 29% of total suite improvements. While also completing 45% of our total portfolio common areas and amenity spaces. 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 of increased market demand exceptional value and appealing returns with sustainable market rent adjustments.
Slide 22 illustrates our stabilized renovation returns for Greenbrier apartments, located in Regina, Saskatchewan and ratio gardens in Calgary, Alberta with returns of 23% and 10%, respectively, which have exceeded our internal hurdle rate of 8%. Our renovations continue to garner positive resident member testimonials driving referrals.
Higher occupancy I would now like to turn the call to Rick and Ed to discuss our acquisitions development and dispositions Rick.
Lisa Bye.
By year end Boardwalk has offered us opportunistically invested $72 million to acquire two communities highlighted on slide 23.
Both mountain view of states and bounce and Aurora and Victoria were acquired in Q2, 2021 and are performing in line with expectations. Boardwalk is currently in discussions with the municipality of Bam to review the opportunity to utilize the excess land located on the at the site to develop more housing for this under.
Supplied market.
We're also continues to operate at full occupancy and provide a base of operation for Boardwalk and the city Victoria is a market that the trust continues to be active in sourcing accretive and opportunistic opportunities to expand.
Slide 24 provides a brief update on our active development pipeline.
Our Brampton development continues to progress on time and on budget with anticipated delivery of the first tower of the 365 unit Marquis community in the fall of 2022.
Our aspire development is directly adjacent to our Aurora acquisition in Victoria, and now has a submitted development permit.
We continue to progress on entitlements at our second development in Victoria area named the Marin.
Our expectation for yield and cap rate remain unchanged.
Slide 25 provides a summary and update of our active capital recycling through the sale of noncore assets. In addition to the three non core sales. The trust completed in 2021 in Edmonton and SaaS Batoon Boardwalk has completed the sale of our 50% interest in.
The sandalwood development site in Mississauga.
I would like to now turn the call over to James Hart.
Thanks, Rick.
As we look forward to 2022 slide 26 provides our stakeholders with our current view on sources and uses of capital.
From a source standpoint, we believe that our growing internally generated cash flow low cost mortgage financing.
As well as equity from noncore asset dispositions currently represent the most attractive sources of capital.
These sources can be used to fund attractive and accretive capital allocation opportunities such as our continued focus on platform innovation, our value add capital improvement program, New development opportunistic acquisitions and the investment in our own high quality portfolio at a discount to intrinsic value through our normal course.
Issuer bid.
Since November of 2021 Boardwalk has invested approximately $31 million in buybacks and has been an excellent use of proceeds from recent noncore asset sales.
Our team will continue to update its view of capital sources and uses on a regular basis and as market conditions change.
Slide 27 provides detail on the exceptional value at boardwalks current trust units represent.
Our current trading price implies a value of approximately $170000 per apartment door and compares favorably to recent department transactions.
Alright, nap of $67 per trust unit equating to $190000 per apartment door represents an exceptional opportunity relative to market pricing and remains well below the increasing cost of replacement.
Utilizing trailing 12 months property NOI on slide 28, boardwalks current trading price equates to an attractive 4.9% cap rate and is a significant spread to the cost of available mortgage capital as well as recent capitalization rates seen in transactions in our markets.
With continued sequential revenue and NOI growth in boardwalks portfolio. These cap rates represent an attractive option and the potential for the trust you continue to invest in our own high quality portfolio.
Slide 29 provides a review of our 2021 performance relative to our expectations and guidance since our reintroduction of guidance earlier. This year, we have revised our performance estimates upwards in the third quarter and.
And as we report our full year results are proud to deliver on the strong results that aligned with our upwardly revised ranges with second half same property NOI growth of three 1% and ethical per unit of $2.94.
As we look forward to the new year Boardwalk is introducing its 2022 operating and financial guidance on slide 30.
For fiscal 2022, the trust is anticipating same property NOI growth of between three and 7% and ethical per unit performance of between $3 and three.
And $3 18.
Our team is committed to leading in transparency and will update our stakeholders in the event of any change in conditions that may materially impact or forecast.
On slide 31 Boardwalk is pleased to announce an 8% increase to our monthly per unit distribution to nine cents per trust unit per month, and equating to $1 eight per trust unit on an annualized basis.
Trust continues to have an industry low payout ratio, providing significant cash flow reinvestment.
<unk> us with ample capital for growth.
As we continue to grow our free cash flow our distributions will also continue to grow alongside.
And lastly on slide 32, our third annual ESG report will be published towards the end of March and will include updates to our new and ever improving initiatives, including details from our 2021 grasp score of 69 information on our new internal certification program called B well.
Our new rides scholarship program.
And a further governance update including our recent strong governance scores.
This concludes the formal portion of our presentation I would now like to open up the phone line for questions Sylvia. Thank you Sir.
Ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by one on your Touchtone phone you will then hear a sweet home prompt acknowledging your request and should you wish to withdraw your question simply press Star followed by two and if you're using a speaker phone. We do ask that you. Please lift the handset before pressing any keys.
And your first question will be from Jonathan culture at TD Securities. Please go ahead.
Thanks, Good morning.
Good morning, Jonathan.
First question just on the guidance the same property NOI guidance.
Are you guys thinking about the top line of thought in terms of occupancy growth versus generating higher rental rates.
Yeah, I think hey, Jonathan its James from an occupancy growth standpoint, and as you can see in our disclosures.
Pretty well all of our markets have seen a strong tightening in terms of housing conditions. The one place where we do have a significant opportunity for occupancy growth is in our northern Alberta portfolio.
Our team is optimistic certainly with the traffic that we've seen since the slower.
Slower winter months in December and January that were affected and impacted by.
Our fifth wave as well as the exceptionally cold weather. The month of February has actually seen a strong pickup in terms of foot traffic and we are anticipating occupancy build from there.
In terms of leasing spreads Jonathan.
And you can see that in our in the conference call and Sam spoke to it in his prepared remarks, we're seeing strong momentum pretty well across the portfolio.
Renewals are positive across the board, including Northern Alberta.
We continue to see positive momentum on that going forwards. Our retention teams are doing a fantastic job.
Performing from a leasing spread standpoint, and really reducing those incentives in all of our markets new leasing spreads.
Positive again pretty well in every market with the exception of northern Alberta, However, our northern Alberta leasing spreads have moved.
Better than they happened in the past, we're seeing slight negative leasing spreads on your renewals and pardon me on new leases, however, completely offset by our performance on renewals today.
Okay.
It's helpful and then I guess on the top end.
Obviously it implies some some margin expansion can you maybe give us your thoughts on how you think expense growth will go for prop.
Property taxes utilities and operating costs.
Yeah, Hi, Jonathan it's Lisa.
So focusing I guess first on the operating cost, which is the majority of our controllable expenses.
So the majority of those we've budgeted I'm going to call. It a more normalized inflationary expense, we're going to we're going to lean on our internal team, we're going to lean on our warehouses to try to keep all of those costs in line with our typical standard inflation rates.
<unk> continued to benefit from the work we've done in the past in those line items and continue to maintain that focus from a non controllable expense standpoint, our insurance remains a little bit of a headwind. It still is a supply constrained market will continue to work hard to try our best that we still have all of our tenant insurance to try to keep those premiums as long as possible utilities perspective.
Whether it is always the unknown factor I would say so that's always the challenge what we do do is we do hedge our utilities as much as possible. So the good news from a hedging perspective as the hedge we had in place for Western Canada. In 2021 remains in place for 2022. So utilities would you expect there will be a little bit of an increase there, but nothing hopes.
Felipe two material it will of course depend on what the weather does for us and lastly from a property tax perspective perspective, we're looking at more standard inflationary increases there so a normalized property tax increases.
Okay.
Thanks for that and then Sam just on the.
Capital allocation and the dividend increase.
Is that in keeping still I guess, the 8% is it keeping in line with your sort of minimum payout.
Should we really think about future dividend growth.
I'm here from here out and in line with <unk> growth.
Yes, Jonathan a minimum payout equals maximum retention of free cash flow, which we all agree is the lease cost of capital and it gives us an advantage.
Deploying that in opportunistic.
Opportunities that maximize the return of that free cash flow and so going forward. We will continue to adjust as our returns are realized from our free cash flow and our investments.
And our profit continues to increase then of course, our distribution will continue to increase too.
To offset the taxable portion of our profitability.
Okay.
That's it for me thanks.
Thank you Jonathan.
And your next question will be from Dean Wilkinson at Cie.
Please go ahead.
Thanks, Good morning, everybody.
Monte dei.
Congratulations James that some pretty big arms to Phil.
Just on that pad distribution increase to clarify Jonathan's question. There. So is that one O eight figure you've set it up is that the taxable portion or did you kind of put a bit of a buffer in there.
Yeah.
Hi, Deane, it's Lisa as you know we always we do look at disposing some of our noncore assets and that's a key area for us taking those equity proceeds to be able to redeploy elsewhere. So within whenever we're looking at our distribution. We do allow for some room for a potential capital gain on sale. So it is our taxable income plus the portion for capital gains.
Okay. So there was so if you do do any recycling, we shouldnt expect any sort of a special distribution.
From that.
And unless it.
As always we're opportunistic so should there be an opportunity that would allow us to potentially look at a different noncore asset disposition that would be the only reason why I sort of similar to what happened in 2021, where opportunities presented themselves to allow us to dispose March but no right now at this juncture the plan would be to stay within that regular distribution.
Got it and you can only sell Windsor ones. So that's out of the way say I'm just talking about the Edmonton market.
You guys are on the ground there you've got you've got a large workforce and have yourselves you'd see a lot of stuff.
How is the employment market shaping up there given what we're seeing and the strength of the price of oil and how do you think that flows through to vacancy in the burnt off her incentives.
In Edmonton for Ya.
Right now, we're seeing an acceleration of rentals in Edmonton, reflecting the job opportunities and the 88000 empty jobs that require a filling in Alberta statistics.
Historically, what we see is a pickup in employment in Calgary had office.
Staff White collar and then the big trickle down into field services, and the and the Blue collar workforce demographics of Edmonton and so we're just starting to see that as we speak and our rental so far.
Versus move outs are the largest in Edmonton most of our absorption that we're seeing this month is happening in Edmonton is actually the bulk of the.
Rentals about move outs.
Okay, that's encouraging.
And then the last question for me just comes back into the into the <unk>.
Yes.
How do you guys look at because the debt that you've got rolling over this year there could be some savings if you go short.
But you could take your duration out longer than the 3.8 years. If you kind of walk you down at Cannes, and who knows what rates are going to do going forward.
I was thinking about term versus weighted average cost of debt right.
Right now.
Hey, Deane, it's James Yeah from our standpoint priority one always is to build a nice ladder for a maturity curve and as a function of bad I think you'll see us strategically select various terms along the way we are to your point seeing some very attractive pricing on the shorter end.
<unk> seems to be very attractive less than five year money.
Even more so all that said you know on the long end. If you look at our maturity curve. There is an opportunity for us to do a lot more 6789 10 years I think similar to past years, you'll see us continue to build out that ladder and take advantage of this current rate environment when when it exists.
Great. That's it for me I will hand, it back to give some others a chance thanks guys. Thanks.
Thank you Dean.
Our next question will be from Stanley at <unk> Bank. Please go ahead.
Thanks, Good morning, everyone.
And talking about your your 2022 capital budget calls for about 100, 100 ish million dollars of value add capital spending I'm. Just wondering can you talk a little bit about where you expect that capital to be deployed throughout the year.
Yeah, Hi colleagues Lisa.
So a value value add perspective, I guess just to remind you that we define value add as.
Basically anything that enables operating cost savings or a revenue growth opportunity. So within that capital budget, you will see that we do break out sort of the major categories that where that spend would be value add projects would include anything from envelope worked windows work all of our common area renovations and repositioning programs.
Suite upgrades on the majority of our suites, whereas the full renovation of our partial renovation.
Does that help answer your question or do you want a bit more details on that.
No no I think that's good.
Makes sense.
And then just one other one I came from the remarks from the presentation just looking at the.
The bank's assets and.
You mentioned that you're in discussions with the municipality about potentially tend to find the site wondering if there's you know its still I understand probably still very early in that process, but just wondering if theres any more information you can provide them on the potential opportunity there.
We're very happy at Fam speaking with our discussions with <unk> and the discussions that bath needs more housing and our discussion with the city planners are recognizing the real need for more housing inbounds all.
Throughout the the Alberta economic.
Correction over the last five years back was very strong and reflects that our international.
Market and during Covid reflected a domestic.
Tourist market and so it's very resilient marketplace and it continues to show strong growth fundamentals that.
Reflect the desperate need of new housing and more housing in that market. So so we are very pleased with our discussions so far it's going to take some time and and.
We'll keep everybody posted with with how that comes along because.
We really want to focus in on that opportunity.
Okay, Great. That's a that's helpful. That's it for me I'll turn it back thanks.
Thank you.
Next question will be from Mario Sorry Scotia Bank. Please go ahead.
Hi, good morning.
Alright.
First off I just want to clarify.
Northern Alberta expansion, presumably that includes everything.
Commercial support park and the discussion was that correct.
Correct, yes, okay.
So coming back to the guidance.
Great.
Probably a bit more color in terms of within that 3% to 7% step up here why what the same property revenue in the same property expense.
Growth rates look like.
Hey, Mario it's James.
As you know we provide formal guidance on that same property NOI line. All of that said I think Lisa did a fantastic job just earlier, you're providing that detailed breakout on the expense side given those two components are we can we can wager with that revenue.
Looks like kind of from that bottom to that top end you know generally speaking you know where.
That build out looks like something from 3% to 6%.
So it's sort of 3% to 6% on the cardboard.
Yes, Mark.
I'm sorry.
Okay perfect.
And then coming back to Edmonton.
That's encouraging to hear some of the absorption commentary.
From Sam when.
When we look at that sequential revenue growth.
Line item.
How far incurred 22 do you think.
Any kind of sequential revenue growth and data point for us to Oh.
Or do you think it'll take for it to exceed our portfolio average.
Mario It Sam where we're seeing.
Significant opportunity for R. R International migrants in new Canadians coming in.
Because of the opportunity that Edmonton presents our new Canadians.
<unk> availability and empty suites now.
We're seeing.
A great.
Cooperation by all levels of governments and nonprofits to.
Alright.
Provide.
Outsized or a disproportionate share of new Canadians homes in Edmonton. This is a very significant opportunity for Canadians and all of us and we're just starting to see.
At the beginning of that migration as we speak we've and our team has significant discussions with all levels of government and not for profits to make sure everybody is aware of this opportunity and we're just starting to see the fruits of that and those efforts are now and it's a win win for them.
Everybody getting new Canadians out of motel rooms into permanent housing, which is a big benefit as well the new Canadians are really strong in language and skills we need.
A bigger workforce here too so it so it's a win win in many ways.
We're starting to see.
Pickup in capital spending.
From our major producers, both Suncor and Canadian natural have announced a $1 billion more in spending just just over the last month or so and their announcements and we're seeing even though port Merck Fort Mcmurray is a very small market of ours were sick.
We're seeing as we speak a significant pickup in demand in rentals in Fort Mcmurray right now are our manager and Fort Mac Marcia is over the top happy with all the rentals that were seeing in Fort Mac and and we're very very pleased with that so.
Timing.
We think it'll be sooner sorry for the long answer but to wrap it up we think the absorption will be sooner right now Edmonton John track for about 100 rentals.
To absorb approximately which is which is approximately 1%.
Edmonton.
Vacancy is approximately 7% and so a 6% to 7% and so a 1% drop this month and over the next several months in our stronger seasonal.
Period.
Is something that we are expecting and seeing as we speak and that will give us significant additional revenue by increasing our occupancy where our occupancy can increase most in that center Edmonton marketplace.
We have currently approximately 800 apartment units, which.
Each reps represent a significant revenue opportunity.
For us when we fill those those empty units.
Got it and maybe.
We've come back to your question or your comment on integration, Sam if I could pick a point like when I look back over time.
Edmondson as a percent of Joe's point, where international migration to Canada.
There are about 4% to 5%, 4% and 20 more than 5%.
Five years in your discussions with the government and any sense on is there a target level, where that 5% can go to our cause.
Or is it possible for it to double or.
Is it was or moving.
Our discussions with all levels of government has to work together and make sure. We're all on the same page to increase that simply because there are homes available and where we're getting the message out in the news out its good news.
Some of the most affordable homes in the country as well it fits within the grants and.
The benefits that that new Canadians are accessing are able to access as well and so Edmonton presents a great opportunity to.
Welcome and provide homes for new Canadians and and is the big part.
Of how we are part of the solution.
In an increasing affordable housing and in Canada.
So one last question and then I'll turn it back.
Part of the challenge.
New supply.
<unk>.
Do you have do you have a sense.
In terms of where the occupancy level.
And that new supply.
Differently today relative to six months ago.
Oh yeah.
We always are active in shops, and and we visit our new communities all the time.
Calgary is impressive.
Impressive.
Absorptions pretty high Edmonton suburban still again pretty high the challenges in Edmonton or in the downtown core steel and the small apartment sizes, even though the.
The rental rates are affordable the unit sizes are very small and so we've got a big advantage and our repositioning program that are designed in our in house capital teams have upgraded and repositioned our older larger sized communities into like new communities and and it's really.
Tough to compete with us with a very small.
New unit and so that's the only pocket of a vacancy that were seen struggling.
As far as new supply is concerned right now.
Okay, Thanks, and congratulations to James and we had our own your appointments.
Thank you Mario.
Next question will be from Howard Liang at Fair enough investment research. Please go ahead.
Hi, Thank you so much I wanted to.
Turn the questions to the sources and use of our capital table, because I find them very helpful.
Starting with the I want to start with value add capex.
So you guys have all come a long way and.
I see now that the almost half of your common area Dara or renovated.
And you know almost a third of your sweep.
When you think about it.
And there the renovations are giving good returns when you think about.
Your plan going down the next three to five years.
Is the plan to have 100% of your common areas.
And if they did or is there at some point now that youre going to slow down and maybe the value add capex, that's not going to be as attractive in terms of returns you know what.
What's your thoughts on that.
Hey, Howard it's James here.
For common areas I mean, it's been an exceptional investment that we've made as you've seen in some of our examples in terms of the yields that we're getting for those investments.
In terms of the scope that we have I think we've found a great formula in terms of update.
Updating and high grading those commentaries are residents appreciated it really provides that ability for us to incrementally reduce those incentives to drive occupancy and outperformed from an occupancy standpoint, and really stand out relative to our peers and our competition and so from our standpoint as long as there continues to be a mark.
<unk> four that improved product will continue to invest there.
As it stands today is in our outlook certainly for the next.
Several years, we believe that we're going to continue to have that opportunity to do so.
Okay makes sense and I guess near term.
Inflationary pressures, you're you're not seeing that really ticked down.
These returns.
Hi, Howard is Lisa I think that's one of those areas, where we've highlighted a lot how much we benefit from our vertical integration in our warehousing abilities. So yes. There is inflationary pressure. However, we often use our in house team to do that work and so we can avoid all that contractor cost and contract. Your margin. In addition to that we just make sure to have.
We byproduct in bulk so benefit from pricing advantage by buying in bulk and the ability to to warehouses.
Don't get me wrong, we always monitor it we always monitor the price inflation and make sure we try to get the best price possible, but so far we have been fortunate to have our vertical integration program.
Makes sense.
And then going back to the.
The use of the capital.
A table that.
The debt the debt pay down right now it looked it at low in terms of return and you know given the rates they're still.
It still seems like it makes sense. If we can kind of think about a year or two from now you know if we are kind of an eight.
The rate hike cycle, you know at what point do you think you know.
And maybe there is no clear breakeven, but at what point do you think that it might be.
And to pay down some debt.
Hey, Howard It's James I think you know from our standpoint, it's very difficult to answer that one single item in isolation right because it's relative to other allocation opportunities and that is part of our strategy to be opportunistic in terms of allocating that capital to drive <unk> growth to drive NAV growth on a per unit basis.
To that end to your point right now debt financing continues to see attractive interest rates.
Our team is sourcing great places to look for allocation opportunities such as our buyback as we highlighted and so from that at this point you know Howard will continue to monitor this will continue to update this on a quarterly basis as well.
And inform and share with our stakeholders, our view and thoughts in terms of where where it's best to allocate capital.
Makes sense, yes.
It's all relative thanks, that's it for me I'll I'll turn it back and congrats James and when were on the appointment.
Thank you Robert Thank.
Thank you Howard.
Our next question will be from Joanne Chen at BMO capital markets. Please go ahead.
Hi, good morning.
And congrats again Jim.
Ladies just going back on.
Now for a couple of times in Hawaii, but on the C&I growth target to 7%.
What is it possible for you to kind of breakdown.
Kind of a girl by region, where you see.
Kind of the higher areas.
That's where it could probably in the higher end of that range.
Hey, Joanne maybe I can start it's James here.
You know certainly outside of the scope of our kind of formal guidance again that same property NOI on a portfolio basis as you're aware, we will stick all of that said and Sam touched on this a little bit earlier from a region to region standpoint, if we look at leasing spreads on renewals were positive across the board.
You will see it and you see it in a conference call slide or that presentation.
Good news our team like we had mentioned earlier, we're starting to see some improvement on that across the board.
New leasing spreads were positive again pretty well across the board with the exception of our northern Alberta portfolio, which we are starting to see some improvement there. The biggest opportunity. We have is that occupancy in northern Alberta as well as fundamentals continue to improve I think we're gonna be able to close that gap there and so you know from a regional Bray.
Down I think hopefully we've given you enough color to be able to discern how we're thinking about each of those regions.
Yes.
It is helpful.
And then just shifting gears I guess on the capital recycling front or do you see even more opportunities within 2022, especially with where pricing is right now and on the flip side of that I guess.
Look can we deploy that capital on the.
The acquisition is front end work, which markets do you see the most attractive opportunities right now.
Hey, Joanna this is James again, again, I'll start and maybe a little bit.
On the recycling front.
Certainly we're going to remain opportunistic with that I think you've seen us be fairly consistent with that over the last two three years you know.
Pairing opportunistically paring some of our noncore assets with unique allocation opportunities, where we've been very clear in terms of.
How attractive we believe an investment in our own portfolio is here today, and so again, depending on the opportunity from our standpoint, we will look to recycle capital.
When appropriate and as appropriate, but I would say the trend that we've seen over the last two three years certainly.
Outside of any any exceptional opportunity may be.
The likely norm going forward.
Okay.
Oh, well that is very helpful. Most of my questions have been asked so I will turn it back. Thank you very much.
Thank you Joanne.
Next question will be from Matt Mccormack of National Bank Financial. Please go ahead.
Hi, guys.
Just a follow up on the Capex side of the equation, because I think given the nature of the Alberta market and a lack of rent control theres less of a kind of push to mark to market on turnover and maybe less of an inclination in a tight market to spend money on suites is that is that a fair.
View that.
As things tighten you may actually see Capex go down because you can get mark to markets in and do it in normal course as opposed to trying to get the highest rent from the best tenant day one.
Matt It Sam.
Historically, we've learned.
Prudent to provide great product and service and and it's challenging when the market tightens to be able to renovate because the demand is.
As is.
Challenging for.
Getting suites are renovated given that the strong demand and it's really the answer is a balance and the good news is the materials that we've been using over the last several years and all the improvements that we have made are making our turns a lot lot quicker.
With the laminate flooring that we have in the cabinet.
The material that is more durable.
These turns are going to last for many many years and it really depends on the existing shape up the unit to make sure our product is always.
Up to snuff and and competitive and renewed.
Asset preservation is a big focus as well.
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As our vice President of asset management.
Management will will attest to so it's a balance it's a it's a tough question.
To answer.
Because really it is driven by by the market.
Forces first and foremost and secondly by the qualitative.
<unk> levels that we wanted to uphold our communities at and it's Super important for us to continue to preserve our assets and maximize the value to our resident members that in turn then maximizes retention satisfaction and increases R. R.
Performance and profitability and return.
Fair enough.
And then just on the cadence of the same property NOI growth I think give a bit of a weaker comp in the first half of the year given there was some allocation on the property tax side.
Got alleviated in the back half of the year, but it generally is your thought process that the market continues to improve over the balance of the year.
That when you're comping sort of the the harder comps towards the second half of the year that at that point you'll have.
Occupancies and improving market rent.
I think so Matt sorry, I'm, just trying to reframe that cadence that you had suggested but from our standpoint again, starting the year here December and January as we look.
Look at the weather that we had we look at the seasonal slowdown that we had you mean, let's be honest foot traffic was.
Quite slow in December and January its tough to compete with winter it was exceptionally cold in Western Canada.
For several weeks in December and January .
But the good news is that as you saw with our occupancy number.
Our turnover also declined quite substantially as well, but that has put us into a pretty good position coming into February here as I mentioned, we are seeing occupancy bills weakening.
We continue to see that positive momentum on on lease renewals and so I think the cadence of that year.
Year over year same.
Same property NOI growth will be similar to what you had suggested there again you know property taxes as Lisa mentioned, we're not anticipating anything much more than inflationary at this point.
But the comp periods for that second half of 2021 was.
It will be more difficult to compare against.
Okay. It makes sense and then I haven't traveled in a while but I'm looking forward to the stampede.
Winter standpoint, we had a fair bit of snow in Ontario, and Quebec.
And I think one of your peers is going to have higher snow removal costs.
Alberta weather wise from a cost standpoint in Q1 other than colder weather is there additional R&M around snow removal.
Yeah at this time, Matt I mean, nothing to guide or no additional news to share on that again, our vertical integration at least you talked about our internalization certainly helps to mitigate.
Call. It the surge type costs I think that is one of the huge biggest benefits of our operational platform.
Again from a utility standpoint, it was X just exceptionally cold in January is all good news February has been quite mild.
And the 14 day outlook for March out here looks looks good.
You guys are doing better than us snowing at the moment. Thanks.
Thanks for that.
Okay.
Next question will be from Jamie Shen at RBC capital markets. Please go ahead.
Yeah, just a couple of quick ones from me.
In terms of the <unk> and the fact that the renewal rate.
Higher than this rate.
Does that is that really just a function of bankers.
Burning up I'm, just trying to understand what does that actually telling us okay.
Yeah.
Yeah, Hey, Jamie I think for us, there's a little bit of seasonality with it as we look at it right now I mean again, we mentioned in the winter months and this winter with the fifth fifth wave certainly it was a little bit slower.
I think the spring summer here will be telling Jimmy as you know are we get into a busier spring summer leasing season.
See a lot of traffic again, we have good visibility in terms of what those renewal spreads are going to look like.
Our new leasing again pretty well all of our markets are seeing quite balanced housing conditions and.
From our standpoint, I think going forward into the spring summer will will likely see some improvement on that as well through through the discount reductions.
Okay.
And then in terms of the move ins that you're seeing particularly in Edmonton.
Have a sense of where the majority of people are coming from are they still within the province.
And discernible trend there.
It's Sam.
It's pretty pretty diverse there there is.
A higher.
Out of town and slide 35, and Edmonton for example.
That shows and we keep track and ask our new resident members, if they're out of province, or not and so that that has picked up.
And especially before the fifth wave and especially now after the fifth wave and so the cold weather and the fifth.
<unk> did impact.
The out of town.
Demand.
Slightly and we're seeing that pick up now and we're.
We're doing really really well this month as we discussed.
Most of our absorption for the for the.
Month is going to be from Edmonton.
Of approximately 100 units, which is 1% and that's pretty significant absorption over a one month period and that is in February .
And.
The first part of February still we experienced the tail end of the fifth wave and a little bit of cold weather in February as well and so we're very pleased with the demand we're seeing right now in Edmonton.
And are especially discussions with the not for profits in all levels of governments that we're all working very well together to.
A welcome our new Canadians home to Edmonton, where there is the has.
The CMA surveys and our data shows the biggest opportunity to move into vacant homes today and into very affordable baked.
Bacon homes today, so that that we are very happy to be able to provide.
And it's a win win win for everybody.
Yeah.
Okay.
Okay. Thank you.
Thanks, Jimmy.
Thank you and at this time, we have no further questions. So I would like to turn the call back over to Sam Collier. Please go ahead.
Thank you so much operator as always if there are any further questions or comments. Please do not hesitate to contact us with gratitude, we'd like to thank our amazing team of heroes are great leaders loyal residents CMA sea, our lenders our unit holders and all of our stakeholders. It really is all about our people.
<unk> huge shoulders, we stand and as leaders we continue to do everything we can to support continued growth and extraordinary we really can't thank our amazing team and great leaders enough congratulations to the well deserved promotions of James Hall, our new President and Leonora, David our senior VP.
Operations.
We are pleased with our improving results on a foundation of exceptional value. We continued to provide a resident members our investors and all our stakeholders. Our home is much more than a place or a location or future family, where love always lifts.
It can be more important when choosing where to call. Paul. Thank you again, everyone for joining us This morning, God bless us and grant us all piece.
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 have a good weekend.
Uh huh.
Yes.
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Yeah.
Okay.
Okay.