Q3 2024 Boardwalk Real Estate Investment Trust Earnings Call
Good morning, good afternoon ladies and gentlemen and welcome to the boardwalk Real Estate Investment Trust 3rd Quarter, 2024 earnings call. At this time, all lines are in listen only move.
Following the presentation, we will conduct a question and answer session. If at any time during this call, you require immediate assistance. Please press star zero for the operator. This call is being recorded on November 6th, 2024. I would now like to turn the conference over to Eric Bowers. Please go ahead.
Eric Bowers: Thank you Emily and welcome to the Boardwalk Reet 2024 3rd Quarter Results Conference Call.
Eric Bowers: With me here today are Sam Kolias, Chief Executive Officer, James Ha, President, Greg Tinling, Chief Financial Officer, Samantha Kolias Gunn, Senior VP of Corporate Development and Governance and Samantha Adams, Senior VP of Investments.
Eric Bowers: We would like to acknowledge, on behalf of BoardWalk, the treaties and traditional territories across our operations, and express gratitude and respect for the land we are gathered on today and we now know as Canada.
We respect Indigenous peoples and communities as the original stewards of this land. We come with respect for this land that we are on today for all the people who have and continue to reside here and the rich diversity of First Nation, Inuit and Métis peoples.
Eric Bowers: Before we get to our results, please note that this call is being broadly distributed by way of webcast. If you have not already done so, please visit bwalk.com slash investors where you will find a link to today's presentation, as well as PDF files of the trust financial statements, MD&A and quarterly report.
Eric Bowers: 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.
Eric Bowers: Although the expectations set forth in such statements are based on reasonable assumptions, BoardWalk's future operation and its actual performance may differ materially from those in any forward-looking statements.
Eric Bowers: Additional information that could cause actual results to defer materially from these statements are detailed in BoardWalk's publicly filed documents.
Eric Bowers: I would like to now turn the call over to Sam Kolias. Thank you, Eric. Starting on slide four, multifamily communities are an essential product and service.
Eric Bowers: A key word in community is unity, as reflected in our new diagram.
Eric Bowers: The most important part in a home is our family.
Eric Bowers: Our family is where our heart is, our heart is where love always lives, our true north. At the center of our being is redefining BFF, our Boardwalk Family Forever.
Eric Bowers: Welcome, everyone, to our BoardWalk Family Forever and to our Q3 2024 results.
Eric Bowers: Next slide, our culture, from our humble beginnings, 40 years ago in 1984, our resident members are at the top of our organization.
Eric Bowers: Our leaders put our team first and our team puts our resident members first. Guided by our golden rule, we have a peak performing customer service culture that creates exceptional results as we can see on our next slide six.
Eric Bowers: Our continued impressive performance with GAAP and non-GAAP measures increasing from the same quarter last year, same property rental revenue increased 9.5% and same property net operating income increased 13.5%.
Eric Bowers: Our operating margin increased by 230 basis points, as well as our property funds from operations per unit by 15.6%. I would like to now pass it over to Samantha Kolias-Gunn. Thank you so much, Sam.
Samantha Kolias-Gunn: We are extremely grateful for our team's exceptional performance and continued commitment.
Eric Bowers: to bringing our resident members home to love always.
Speaker Change: Continuing on to slide 7, rental market fundamentals are transitioning from unsustainable growth to a more sustainable, balanced position in our core markets. Our occupancy, retention, and demand for affordable rental housing remains high.
Eric Bowers: As a result of our self-regulation, we continue to provide Canadians with exceptional value.
Eric Bowers: Our economy continues to diversify, provide job opportunities, host world-class educational programs that attract skilled talent, offer an exceptional quality of life, and affordability.
Eric Bowers: Recently, Calgary has been chosen as a location for a new $750 million data center, highlighting the Alberta advantage in a most recent announcement.
Eric Bowers: Please refer to our appendix for more data on the enduring Alberta Advantage.
Eric Bowers: especially relative to the Canadian average of $23.09. Affordability continues to be in demand, as evidenced by our strong portfolio occupancy of 98%, and is a leading factor in interprovincial migration.
Eric Bowers: Premier Daniel Smith received a 91% approval rating for her support of public policy that is positive for economic growth and prosperity in Alberta.
Eric Bowers: The fiscal strength of Alberta and Saskatchewan jurisdictions will continue to attract employers, allow for innovation, and increase our productivity, contributing to a more stable economic environment.
Speaker Change: Our self-regulation has us well-positioned in a competitive market as we continue to strategically moderate our rental rates within a resident-friendly renewal rate band, resulting in greater stability in occupancy and reputation.
Eric Bowers: Strategic Repositioning, Unparalleled Customer Service, and Strong Family Values. We remain in a position to deliver stable performance.
Eric Bowers: This is what sets us apart.
Speaker Change: bringing you home to where love always lives.
Speaker Change: BoardWalk has made significant investments in its communities to improve value proposition and leasing performance.
Speaker Change: Past investments in upgraded fitness facilities, amenity rooms, and outdoor spaces provide high-quality communities in the affordable housing market segment.
Speaker Change: Thank you, Samantha. Slide 9 shows our key operational metrics with high occupancy, lower incentives, and higher occupied rents, resulting in higher revenues for Q3 2024 compared to the same period a year ago.
Speaker Change: This is a reflection of our key strategic decisions made to maximize free cash flow and diversify our product offering, yielding significant financial performance.
Speaker Change: Slide 10 shows leasing spreads on new and renewed leases within our self-regulated resident-friendly-centric model, keeping retention and referrals high and our turnover and expenses low.
Speaker Change: Year over year, we have seen improvement in our leasing spreads on renewed leases, while leasing spreads on new leases have decreased slightly, reflecting a rebalancing with new product coming online in Calgary, Alberta.
Speaker Change: We continue to prioritize maintaining occupancy and maximizing retention. This will continue to provide resident-friendly, affordable housing options in our core markets, while lowering our costs and steadying operational results. A win-win for all our stakeholders.
Speaker Change: Slide 11 illustrates our leverage reduction, highlighting our leverage metrics with respect to debt-to-total assets and debt-to-EBITDA.
Speaker Change: BoardWalk is naturally deleveraging as a result of our organic growth, resulting in improved debt metrics, with debt-to-total assets at 40% at September 30, 2024, compared to 43% at December 31, 2023.
Speaker Change: Debt to EBITDA of $10.31 at September 30, 2024 compared to $11.02 at December 31, 2023.
Speaker Change: Slide 12 shows continued strong and steady sequential rental revenue growth, including 2.6% growth in Q3 2024 compared to Q2 2024, a result of strong leasing spreads during a seasonally higher period from a leasing volume perspective.
Speaker Change: Moving to slide 13 for Q3 2024, same property net operating income increased by 13.5% compared to Q3 2023 and with revenue growth of 9.5%.
Speaker Change: For the nine months ended September 30th, 2024, same property net operating income increased by 13.7%, with revenue growth of 9.5%.
Speaker Change: Operating expenses increased by 2.6% for both Q3 2024 and the nine months ended September 30, 2024 due to higher wages and salaries as a result of inflationary adjustments at the beginning of the calendar year.
Speaker Change: Higher utilities from an increase in utility rates and higher property taxes.
Speaker Change: The team remains committed to ensuring focus and discipline when managing controllable operating expenses.
Speaker Change: Slide 14, Administration costs increased $0.8 million as compared to Q3 2023 and is consistent compared to Q2 2024.
Speaker Change: The year-over-year increase was driven by inflationary wage adjustments at the beginning of the year, an increase in software costs, including cybersecurity and new software to improve operating efficiencies,
Speaker Change: and an increase in our accrual for profit share and bonus considerations reflecting the Trust's outperformance in 2024 year to date.
Speaker Change: Comparing Q3 2024 to Q2 2024, administration costs were flat.
Speaker Change: With savings from our new customer service platform and travel costs related to BoardWalk participating in the Homes of Hope program in Q2 2024, offset from costs incurred by BoardWalk's annual scholarship program to children of associates and resident members, as well as a higher accrual for profit share and bonus considerations for outperformance.
Speaker Change: Deferred unit-based compensation increased due to an increase in the number of participants and the cost of the program, as well as unvested deferred units that vested automatically on the departure of the outgoing CFO.
Speaker Change: Slide 15 illustrates BoardWalk's mortgage maturity schedule. Our mortgages are well staggered with approximately 96% of our mortgage balance carrying NHA insurance through the Canada Mortgage and Housing Corporation.
Speaker Change: This insurance remains in effect for the full amortization of the mortgage.
Speaker Change: and in addition to carrying the Government of Canada's backing, provides access to financing at rates lower than conventional mortgages with a current estimated 5-year and 10-year CMHC rate of 3.07% and 4.107% respectively.
Speaker Change: Slide 16 highlights our 2024 mortgage program. To date, we have renewed or forward locked $352.8 million at an average rate of 4.29% and an average term of 6 years.
Speaker Change: Current underwriting criteria in our most recent submissions to CMHC and our lenders has remained in line with our historically conservative estimates.
Speaker Change: Unknown Speaker 00.00.00
Speaker Change: Slide 17 illustrates the trust's estimated fair value of its investment properties.
Speaker Change: Excluding adjustments for IFRS 16.
Speaker Change: which told $8.3 billion at September 30th, 2024, compared to $7.6 billion at December 31st, 2023.
Speaker Change: The increase in overall fair value compared to December 31st, 2023 is the result of increases in market rents at select sites and communities as market fundamentals improve, as well as the acquisitions of The Circle and the Brenda Apartments in Calgary, Alberta, and Dawson Landing in Chestermere, Alberta.
Speaker Change: while being slightly offset by an increase to capitalization rates.
Speaker Change: Current estimated fair value of approximately $239,000 per apartment door remains below replacement cost.
Speaker Change: In consultation with our external appraisers, the capitalization rates, or cap rates, used in determining Q3 2024 fair value were unchanged from Q2 2024, an increase from Q4 2023 from adjustments made to the Trust's Ontario assets in London and Kitchener-Waterloo-Cambridge markets.
Speaker Change: As it does every quarter, the Trust will continue to review completed asset sales transactions and market reports to determine if adjustments to cap rates are necessary. Most recent published cap rate reports suggest that the cap rates being utilized by the Trust for calculating fair value are within their estimated ranges.
Speaker Change: Slide 18 highlights our ESG initiatives. Using a disciplined capital allocation approach, we are focused on reducing emissions through reduced utilities consumption and therefore reducing utilities costs.
Speaker Change: while always promoting social and governance initiatives. We encourage our stakeholders to view our 2023 ESG report available on the Trust's website.
Speaker Change: I would like to now turn the call over to Samantha Adams to highlight our capital allocation and discuss our development pipeline.
Samantha Adams: Thank you, Gregg. Although no transactions were completed this quarter, we remain very focused on our capital recycling programs and our overall investment strategy.
Speaker Change: We currently have 19 identified projects, which include adding to or improving common area amenities, which will further enhance our revenue growth as well as add to resident satisfaction.
Speaker Change: When finished, we will have completed common area and amenity improvements of approximately 70% of our portfolio.
Speaker Change: In addition to our common area projects, we are continuing with our suite optimization program, which is the conversion of underutilized storage or administration spaces that can be converted to rental suites.
Speaker Change: We are currently assessing the feasibility of converting 36 such spaces.
Speaker Change: Slide 20 provides an update on our development pipeline.
Speaker Change: Forty-Five Railroad is approaching the final stages of stabilization.
Speaker Change: The two rental towers are approximately 89% leased, and we are currently marketing a commercial space, which is expected to be delivered in Q1 2025.
Speaker Change: This project has been delivered on time and on budget, and we are projecting a stabilized yield within our forecasted range.
Speaker Change: Our three Victoria area development projects continue to move forward.
Speaker Change: Aspire has a slightly revised targeted occupancy of Q1 2025, previously December of this year, for Building 1. The structure for Building 2 is nearing completion and is projected to meet our estimated completion date mid-2025.
Speaker Change: The Aspire is progressing on budget and is located adjacent to our existing Aurora community, which will allow for greater operational efficiencies once completed.
Speaker Change: The site for the Marin has moved through entitlements. We have received tender pricing and a review of our options is currently underway. Our Island Highway project has been officially rezoned and we are working through next steps as well.
Speaker Change: Marta Loop is our one acre land assembly in Calgary located in the heart of one of the city's most desirable and amenity rich neighborhoods.
Speaker Change: While currently in the pre-construction phase, we are in the process of selecting a consulting team and a project concept design. Our development will feature the cost-benefit of wood frame construction versus concrete, as well as larger suites that we believe will provide a differentiated product in the Marta Loop node.
Speaker Change: Thank you, Samantha, and thank you to our entire BoardWalk team, who many are on the line listening here today.
Speaker Change: Our focus on delivering the best quality and affordable communities is reflected in our strong operating performance.
Speaker Change: Our residents continue to choose BoardWalk as the place to call home and reward our team with high occupancy and high retention rates.
Speaker Change: With our strong track record of delivering value and growth to all our stakeholders, slide 21 highlights the exceptional value opportunity that our trust units represent today.
Speaker Change: Our current valuation equates to a 5.4% cap rate on trailing NOI.
Speaker Change: As seen on slide 22, recent transactions in our core markets have traded at cap rates significantly below this current valuation, despite the declining trend of interest rates today.
Speaker Change: Our track record of delivering strong and consistent FFO per unit growth across various economic conditions is highlighted on slide 23.
Speaker Change: Our resident-friendly approach is universal in all environments and has demonstrated the resilience and growth that our operating platform and communities provide.
Speaker Change: Our unique maximum cash flow retention policy provides increased flexibility to reinvest back into housing and compound growth for all our stakeholders.
Speaker Change: This is Position Boardwalk with a strong, solid financial foundation with strong interest coverage and continuous improvement to our best-in-class leverage metrics as shown on slide 24.
Speaker Change: Our strong balance sheet and significant liquidity uniquely positions BoardWalk to take advantage of opportunities that may arise, including investment in our value-add improvement program, as well as the acquisition and development of new communities to expand our portfolio on an accretive basis.
Speaker Change: Lastly, with the closing of our third quarter results, slide 25 provides an update to our 2024 financial guidance to reflect the strong results we have had to date.
Speaker Change: With our continued high occupancy, strong renewal spreads, and measured cost control to date, we are updating our guidance to increase the bottom end and tighten the overall range for the balance of the year.
Speaker Change: For 2024, we now anticipate same property NOI growth to range between 12.5% and 14.5%, and FFO per unit to range from $4.15 to $4.23.
Speaker Change: We look forward to introducing our 2025 guidance with our year-end results in February.
Speaker Change: Thank you again to our team for providing communities that our resident members are proud to call home. We would now like to open up the phone lines for questions.
Speaker Change: Thank you, ladies and gentlemen. We will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.
Speaker Change: Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Just one moment, please, for your first question.
Speaker Change: The first question comes from Fred Blondeau from Green Street, please go ahead.
Fred Blondeau: Thank you and good morning.
Fred Blondeau: First, I was wondering if you could qualify for us the new supply you're seeing in Alberta versus I guess the rest of Western Canada versus what you're seeing in Ontario and Quebec.
Speaker Change: However, when you look at that today for total housing units, you have 15,000 under construction in Edmonton. You have 23,000 total housing units under construction in Calgary.
Speaker Change: What that equates to is on a total housing stock basis, Edmonton that's roughly 2.5% of the total housing stock, Calgary would be a little bit higher than 3.5%.
Speaker Change: Some of the factors behind that, including relative affordability to major centers, we think are likely to continue.
Speaker Change: And then as well, from the demand side, well, the recent immigration plan announcement.
Speaker Change: does represent a risk on the demand side. We also know that Alberta has a lower concentration of non-permanent residents compared to other places in Canada.
Speaker Change: Hi Fred, it's James here. I'll just add to Eric's comments. We have to give our development community across the country a lot of credit here for stepping up and adding supply as our governments were asking for more of that supply and so we are seeing that in major markets across the country which is fantastic as we've said before in our past earnings calls.
Speaker Change: There is no shortage of housing at the top end of the rental market.
Speaker Change: If you can afford $3,000, $4,000 a month, there is no housing shortage for you. Where there is a housing shortage, however, is in the affordable space. Our rents are under $500 a month. Certainly, we are seeing a continued strong demand for high-quality, affordable housing.
Speaker Change: Thank you James and Sam and Fred, thank you for joining us today. We also have to give big credit to our policymakers in Alberta and Saskatchewan for keeping rent control out.
Speaker Change: So Credit Where Credit's Due, the best case example of how to promote and encourage incentive
Speaker Change: Investment is by keeping rent control out and Alberta, Saskatchewan continue to remain
Speaker Change: The best case examples of how that public policy especially works best.
Speaker Change: Oh, that's great. And so if you had to compare both in terms of new supply and, you know, the immigration, like the impact of the new immigration policies, Alberta versus Ontario and Quebec, what would be your observations at this stage?
Speaker Change: You know, affordability is almost like water.
Speaker Change: Essential, not optional.
Speaker Change: And so there's still average asking rents well above our occupied and our market rents.
Speaker Change: and so by necessity we're going to continue to see movement into more affordable regions like Alberta and Saskatchewan. The other big difference it's very hard to find a jurisdiction with balanced budgets and lower taxes.
Speaker Change: Those are proven public policies as well that attract companies, employment, investment, as we've seen in the data center of $750 million. We saw a $7.5 billion commitment and investment with BHP in Saskatchewan.
Speaker Change: and Mark. Thank you. Thank you.
Speaker Change: That's great, thank you. And maybe very quickly on the NY margin, would you see any potential for further improvements in the new year from here?
Speaker Change: Hi Fred, it's Gregg. Basically, for 2025, we're not providing guidance right now until we release our results in February for 2024, but our team is very focused on expense discipline, always looking for operational efficiencies and exploring technology initiatives to help manage our controllable costs where possible.
Speaker Change: That's great. Thank you.
Speaker Change: Thank you, Fred.
Speaker Change: Okay.
Speaker Change: And the next question comes from Dean Wilkinson from CIBC. Please go ahead.
Dean Wilkinson: Thanks, hi everyone. Probably a follow-on to Fred's line of questioning there. Maybe this is for my BFF, Sam.
Speaker Change: You know, there's been a lot made about the new immigration policy and I guess I'm from Missouri on that one, you know maybe this will be the first time in nine years that the numbers have been hit but Let's assume that we do go through them as James
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host
Speaker Change: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE®, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com, or can be ordered at www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA.
Speaker Change: made it more difficult? And how do you see that, say, over the next 12-24 months, in terms of trying to answer the supply side of the things, because I think that's probably where the answer lies.
Speaker Change: positive for our economic growth. So, so our economy, as we're seeing, is super important to Canadian and all voters. So that's a reminder.
Speaker Change: for all of us that we've got to do what's best for our economy, first and foremost. Second, with respect to the supply of more than enough more expensive housing, one of our public policies, which works instantly, is rent supports.
Speaker Change: Instantly, a Canadian with a smaller, more limited budget can access more expensive housing
Speaker Change: and and reduce that barrier to housing instantly. That targets Canadians that need help now.
Speaker Change: So, that would be a phenomenal best case example public policy to help Canadians that need more affordable housing today. Rent supports. We've always been a big advocate of that. With higher interest rates, with higher costs, we're still seeing high inflation.
Speaker Change: And inflation is on everybody's radar.
Speaker Change: Fiscal Balance.
Speaker Change: It's another proven public policy that combats inflation. We've got to get our spending under control. And this is why we're big advocates. On the limited budgets, we do have to be laser focused to the Canadians that need it most.
Speaker Change: And all those great colors.
Speaker Change: Sorry, Dean and our builders are really quick to adjust. We're already seeing having discussions.
Speaker Change: on how difficult it is to make the numbers work. With the higher cost, higher interest rates, higher underwriting requirements, it's getting really, really tough. And we're beginning to hear why and how can we build any more housing. There's more than enough of it in the higher end. We're seeing incentives and new delivered higher price rentals in Calgary in particular.
Speaker Change: Why build more expensive new rental housing?
Speaker Change: I guess because it's just that's what it costs, right? I think you're bang on on that. You almost sounded like you're running for office. You got my vote. I'll hand it back.
Speaker Change: And the next question comes from Jonathan Kelcher from TD Cowen. Please go ahead.
Jonathan Kelcher: Thanks. Just circling back on the new supply, you talked about 15,000 out of 1023 in Calgary. What sort of time frame would we expect that to come on over?
Speaker Change: Pricing? Time frame. Time frame? Time frame.
Speaker Change: Jonathan, it's Eric. Just one thing we have seen as well within that overall composition over time as homeownership has become
Speaker Change: a greater percentage of that under construction inventory be in the multifamily space. One impact of that is from a construction time frame point of view, it also takes longer to deliver.
Speaker Change: I would say, um,
Speaker Change: next year just based on what was started a couple years ago.
Speaker Change: but generally speaking and
Speaker Change: As Sam just alluded to, in Calgary in particular, our under construction amount actually peaked about six months ago, so we're starting to see that come down a little bit.
Speaker Change: Okay, and then that, I guess, that's...
Speaker Change: That peak, that's sort of what's hit you guys in Calgary a little bit on the on the Oxford front.
Speaker Change: Yeah, just as we pointed out in our October operating updates, again, talking about that new supply at that top end, you know, in Calgary specifically, there were just a couple of nodes where we saw an increase in competition and supply, primarily in downtown and the southwest pockets. Our team quickly adjusted and happy to report that our Calgary team in October, right after that operating update, did a great job of filling back up our unit.
Speaker Change: Okay, and then as part of that, did you guys start, were there any incentives? And I guess as we're a little bit of a softer market, maybe give your thoughts on whether or not incentives will increase going forward.
Speaker Change: Thank you.
Speaker Change: In Calgary, it was a very tactical approach where we increased our marketing efforts, increased our open houses, really just got back to basics in terms of
Speaker Change: As we pointed out in that October operating update, we did take a more conservative approach in terms of our market rent adjustments. And so new lease spreads in our Calgary portfolio in that month of October did come off from kind of the double digits that we were seeing down into the single digits.
Speaker Change: We are continuing to see strength and consistency in our renewal spreads.
Speaker Change: Renewal spreads remain in the upper end, in the high single digit mark in Calgary and Edmonton, and we're negotiating, you know, two, three, four months in advance, as we've talked about in the past. And so we are negotiating renewal spreads already into December in the early part of 2025.
Speaker Change: And that is certainly a credit to our strategic moderation, which creates that consistency and longer runway.
Speaker Change: Okay, thanks, I'll put it back.
Speaker Change: And the next question comes from Siram Srinivas from Cormac Securities. Please go ahead.
Siram Srinivas: Thank you, operator. Good morning, everybody, and congratulations on the good quarter.
Speaker Change: I just can't slide ten. I've seen the, you know, new leasing and granules spread across both the border as well as the border portfolio. Did you see a bit of a downward trend over there? What do you say? This is probably a function of that new supply or is it just purely seasonal
Speaker Change: Hi, it's James. A little bit of both, again, as we saw the new supply, a little more competition in our Calgary market. As you know, we believe that optimizing our revenues and operating performance is tied to occupancy, and so we are going to maintain high occupancy.
Speaker Change: As we pointed out, new lease spreads in October, we did take a more conservative approach. We did see those new spreads come down into the single digits, but our renewal spreads continue to remain consistent so far.
Speaker Change: That makes sense. And James, probably just going back to our discussion earlier for May 25, I know last time, I think last quarter, you did mention that you're confident on these spreads remaining strong next year. Is that something you probably affirm right now in terms of spreads remaining consistent next year?
Speaker Change: I'm sorry, could we repeat that? We heard 2025.
Speaker Change: Yeah, so essentially the new leasing and renewal spreads. I think last quarter or sometime in between, you know, we were discussing about the strength of these spreads heading into next year and I think you had mentioned that, you know, you do anticipate them being strong next year as well.
Speaker Change: You know, like we said, the demand for affordable housing remains high. I think our strategic moderation approach is going to continue to provide us strength on our renewals.
Speaker Change: We will formally provide our guidance for 2025 with our year-end results, but as we had said earlier, what we're seeing now is strengthen that renewal spread. Renewals remain within our high single-digit range into the early part of 2025.
Speaker Change: New leaf spreads in Calgary did come down, again,
Speaker Change: Edmonton continues to remain strong as we've also talked about in the past. We do see Edmonton becoming one of the best and strongest rental markets in the country and we're seeing that unfold today with new lease spreads that continue to be consistent in the mid to high single digits.
Speaker Change: Hi, it's Sam. We're also...
Speaker Change: We're also seeing the effects.
Speaker Change: Unknown Executive, Lisa Smandych, Sam Kolias, John Bowers, Unknown Executive, Lisa Smandych,
Speaker Change: approach on self-regulation. A lot of residents are coming back home to live with us, and a lot of residents and our competitors are coming because some of our competitors took a different approach when adjusting existing in-place residence rents.
Speaker Change: Goals are very high. We've moved them up from 70 to 80 percent.
Speaker Change: And so our focus on our resident members is really benefiting us right now. And word is getting out. That's what brand is reputation. And our residents make the best sales team telling their friends and family to come live with us.
Speaker Change: because we self-regulate and our residents experienced a different adjustment than some of our other competitors. So we're benefiting on that as well. And so, yeah, we're seeing a more balanced market.
Speaker Change: For sure, you know, the immigration from the levels we saw last year are absolutely lower and It's for good reason. There is just too much new immigration and we all agree
Speaker Change: on that. Now, going forward, we have to figure out what the right number is. We're going to continue to work with our community and our policymakers to make sure these adjustments are made on a win-win basis for everybody.
Speaker Change: That makes sense, Sam. Thank you so much. I'll turn it back.
Speaker Change: You sorry? I think I'm sorry.
Speaker Change: And the next question comes from Brad Sturgis from Raymond James. Please go ahead.
Brad Sturgis: Hey there.
Brad Sturgis: In recent quarters, you really highlighted the ability to do back-to-back turns and minimize vacancy. How do you see the moderating market conditions, at least in the short run, to impact that program or that efficient turn?
Speaker Change: Still very much focused on that, Brad. That is a huge differentiator of our platform.
Speaker Change: for that suite specifically, that's 8% vacancy on that suite, and we can't have that. Our team continues to be focused on back-to-backs. We have the platform that can execute on that. Our team, certainly, if I look over the past month, or October 31st, our team still did 125 back-to-backs in our Western Canadian portfolio. So that demand for affordable housing continues to be high.
Speaker Change: And does the thinking change at all around maybe incrementally pursuing a little bit more suite renovation activity or not at this stage?
Speaker Change: You know, a lifespan of, well, it's got a lifetime warranty, but let's call it 25 plus years. And so, a lot of that work has already been done, Brad, which provides us that ability to continue to focus on back-to-backs.
Speaker Change: If we do have a suite that is in need of a renovation, of course, we will make that investment. But as it stands right now, the big demand is for affordable housing, and so we're going to continue to focus in on matching that demand and providing that affordable housing to Canadians.
Speaker Change: Hi Brad, I just wanted to type in there and give our team, our design team, our procurement team,
Speaker Change: Thank you. My last question would be just on, you know, I think last quarter you talked about pursuing opportunistically some capital recycling in the portfolio and identified maybe some assets and I'm just looking for an update on that front.
Speaker Change: Hi Brad, it's Samantha Adams speaking. We continue to explore our opportunities in particular some of our non-core Edmonton assets and I can't say anything today but hopefully in the near term we'll be able to provide a better update but that remains our focus is looking at some of the non-core Edmonton assets.
Brad Sturgis: Okay, thanks a lot. I'll turn it back.
Speaker Change: Thanks, Brad.
Speaker Change: And your next question comes from Mark Markitis from BMO Capital Markets. Please go ahead.
Mark Markitis: Thank you all.
Speaker Change: Unknown Speaker 1. Okay. Unknown Speaker 2.
Mark Markitis: I guess non-commercial but residential mortgages and I'm just wondering if you guys have seen an uptick at all in move-outs due to home ownership in your portfolio.
Speaker Change: It's Sam, and yes, we have seen an uptick, and there has been evidence of demand of Canadians waiting for interest rates to come down, and yes, that has gone up.
Speaker Change: Yeah, we do have that in our appendix as well, Mike. Sorry, it's James. Slide 39 in the appendix of our conference call presentation, you can see that purchase to home is our second largest reason for move out.
Speaker Change: If I compare
Speaker Change: Year-over-year for the quarter, we had 412 move-outs for purchasing a home in Q3. That compares to 321, same period last year. So about 90 of our residents, 90 of our move-outs.
Speaker Change: left for purchasing a home, or 90 more, pardon me.
Speaker Change: Thanks for that. I guess you guys touched on it in terms of the amount of money you've spent on the portfolio since 2016. I know that affordability is in style.
Speaker Change: You know, how should we think? Acknowledging you've invested the capital in suites, was it just that you had under invested previously? Or was it that the competitive pressure was higher? Just trying to circle the square there in terms of what gives you confidence in the CapEx profile staying similar?
Speaker Change: Units.
Speaker Change: were what we describe as classic. And the upgrades are portable, carpet, lino.
Speaker Change: Upgraded cabinet fronts, doing everything we can to preserve the existing cabinets, but our full renovation program and our common area program was just evolving. Back in 2016, our average occupied rents were pretty close, not too far off, brand newly delivered.
Speaker Change: product back in 2016, because there was a big switch between condominiums repurposing to rental purpose-built. And so the supply of rental increased and
Speaker Change: high-quality brand-new rental that was originally designed intended for condominium and so we saw a big competitor in amenities
Speaker Change: and the full renovations.
Speaker Change: And in order to compete with that brand new supply, and because of our price differential, we decided to invest. It was also a really good time to invest because our costs were lower back then and our vacancy increased. So with that added vacancy, we saw a window of opportunity.
Speaker Change: And we did extremely well in that investment and that strategy. And so right now, where are we? Well, our occupied rents are way behind. They're so much lower than brand new. On a price per square foot, maybe they're $2 a foot.
Speaker Change: The brand new, we're seeing a peak at about $4 a square foot, come down a little bit in the mid threes, maybe they'll settle out at three and a quarter, but we've got a far ways to go between our existing occupied rents and brand new lead delivered rents. So that's the big difference today is the big gap and differential between our occupied and newly delivered rents.
Speaker Change: Great, and I guess, relatively speaking, your portfolio is more competitive today, just given the capital than it would have been back in 16, is that a fair assessment? You know, the big difference in our portfolio, and we do a lot of market shops.
Speaker Change: Size Matters!
Speaker Change: Space Matters.
Speaker Change: or lots of room.
Speaker Change: Understood, thank you. And just last one for me.
Speaker Change: I just wondered if you could remind us on a few things with Spectre Aspire, Building 1 and 2A, what the...
Speaker Change: total cost is for that development and then B, what the terms of the debt financing that project are just trying to get a sense of how to model in some of the potential dilution that you might experience through 2025 as Lisa occurs. Unknown Speaker
Speaker Change: Hey Mike, it's Samantha Adams speaking. We'll be providing that closer to completion because I don't believe we've provided that guidance just yet.
Speaker Change: and so far we're funding it with cash. There's no debt on it right now.
Speaker Change: So no debt, but there is capitalized interest, correct?
Speaker Change: Yeah.
Eric Bowers: So Mike, it's Eric here. So you can see on our financials, we do have a small nominal amount drawn on the construction line. So to be clear, there is a facility available for Aspire under the MLI Select program.
Mike: Yeah, yeah, no doubts on your ability to fund it. Just trying to, again, just trying to model in the dilution that we might experience. Thanks.
Speaker Change: Thanks, Mike.
Speaker Change: And your next question comes from Jimmy Shen from RBC Capital Markets. Please go ahead.
Jimmy Shen: Thanks Serge, to follow up on the rent spreads and I might have asked this before but are the renewal rents much lower than the rents that you're getting on new leases for comparable units?
Speaker Change: and if there is a gap, what would that gap look like?
Speaker Change: Yeah, I mean, generally speaking, there's going to be a gap because we've taken this strategic moderation approach for the last couple of years.
Speaker Change: And so when we put that together, when our retention teams take the opportunity to shop the market with our renewing residents, our feedback from our residents is that we continue to offer that exceptional value because they are rewarding us with that retention and continuing to get a win-win scenario there for both the residents.
Speaker Change: and for us, community providers.
Speaker Change: Yeah, so do you have a sense of what that gap would be, roughly?
Speaker Change: We can circle back on that, Jimmy. I just don't want to quote an incorrect number here.
Speaker Change: Okay, that's fine. Yeah, I'm just trying to get a sense of whether that gives you a bit of a buffer I suppose as you continue to get renewal right increases even in a flat market
Speaker Change: and others. Thank you for joining us. Thank you.
Speaker Change: Okay.
Speaker Change: And then my second question is really on your comment about interprovincial migration, which I guess could continue even if population isn't growing.
Speaker Change: If we see more vacancy or rent pressure in the more expensive markets,
Speaker Change: where people are coming from into Alberta. I guess, A, do you think that could happen? And then B, do you think if it does happen, whether that would actually impact the interprovincial migration numbers, especially for markets like Calgary, where rents are a little closer to the more expensive cities?
Speaker Change: Yes, everything is relative, Jimmy, it's Sam.
Speaker Change: and Unknown Speaker 0.0.0.0 Unknown Speaker 0.0.0.0
Speaker Change: But 10% off of $3,500 is still a rent over $3,000. And so, relative speaking, there's a long ways to go to rebalance the Canadian housing market between these larger centers and our core markets. Especially, Jimmy, our biggest market is Edmonton.
Speaker Change: That average Occupy grant is...
Speaker Change: One of the lowest in the country along with Regina and Saskatoon as well. So there's a long ways to go to equilibrium between the other more expensive cities in Canada.
Speaker Change: Okay.
Speaker Change: All right, great. Thanks.
Speaker Change: Thanks, Jimmy.
Speaker Change: And your next question comes from Kyle Stanley from Desjardins. Please go ahead.
Kyle Stanley: Thanks, morning everyone. Just kind of building on, I guess, some of the commentary about new and renewal leasing spreads, as we think about the market becoming, you know, a bit more competitive, how do you think, you know, retention versus turnover might progress across your portfolio?
Speaker Change: Colleagues, James, strategically, and Sam pointed to it earlier in one of his responses, we're strategically looking to increase our retention percentage.
Kyle Stanley: Okay, no, thank you, that's helpful. Just the last one, you know, we haven't touched on it today, but, you know, what type of external growth opportunities are you seeing in the market today? You know, can you talk about if you are seeing anything, your preference towards new build versus value add, or maybe geographies that you'd be targeting or avoiding?
Speaker Change: Hey, it's Samantha, Adam speaking.
Samantha Adams: So, we're taking an approach where we are looking for new to nearly new product. We're happy to take on some lease up risk.
Kyle Stanley: in the right location at the right price.
Kyle Stanley: In particular, new builds or newer builds, as Sam discussed earlier, to a better balance of two and three bedrooms, which we believe over the longer term provide better value, not just to BoardWalk, but to our resident members, giving everybody much greater flexibility in terms of their housing choices. So again, we remain focused on our core markets. We completely believe in the strength of Calgary and Edmonton and Saskatoon, as an example, but actively exploring opportunities in all major markets across Canada.
Kyle Stanley: Look, I'm a fan of moving fast for the right opportunity, but I'm not a fan of moving fast for the wrong opportunity. So we're going to be, we remain very selective, and we're going to be responsible stewards of our unit holders' capital. So when it's the right opportunity, we'll move.
Speaker Change: Okay, understood. Thank you very much. I'll turn it back.
Speaker Change: And your next question comes from Matt Kornack from National Bank Financial. Please go ahead.
Matt Kornack: Hey guys, you have historically been really good on controllable costs, but in light of kind of this change in immigration, potentially a tighter labor market, do you expect maybe a bit of cost creep on R&M and things like that? Or is there still some slack in the system at this point?
Speaker Change: As far as like 2025 goes and the latest announcements, the team is very focused on expenses and again like we said it lots of times and you know we're very committed to operational efficiencies where we can find them and exploring technology initiatives to help control costs where we can.
Kyle Stanley: We talked a little bit, I think, on our last earnings call about...
Kyle Stanley: Some of the initiatives that we have underway like our virtual assistant and reducing our call center costs, those still have a huge opportunity to go through to some of our community offices, and so that's just one small example of the type of innovation and opportunities that we have.
Kyle Stanley: We will always stay focused on innovating and keeping down the controllable portion of our operating expenses. We have to give our team a ton of credit. Each year over the last several years, we've continued to beat that. We will aim to do the same going forward.
Speaker Change: Okay, makes sense. And then just quickly, it was interesting commentary about Alberta having fewer temporary foreign workers.
Speaker Change: Within our portfolio there there's not a lot of obviously there's going to be you know some in the rental market in itself but within our portfolio there's there's not a huge number of that.
Speaker Change: Alberta, I believe the stats came from BMO Economist.
Speaker Change: Our proportion of population that are temporary residents in Alberta is already at that 5% target.
Speaker Change: It's likely not going to be split on a regional basis, but this is another reason why Alberta is going to have an advantage here, where our proportion of temporary residents is already lower, you know, on a student basis.
Speaker Change: I believe we're below allocation at a federal level for international students.
Speaker Change: On the interprovincial side, Alberta has been a winner on interprovincial migration over the last couple of years because of that Alberta advantage that Samantha had in her prepared remarks.
Speaker Change: We've had the lowest taxes in the country, we've had affordable housing, we have job availability, all of those conditions still exist and so we are optimistic that Alberta is going to continue to be a winner here on a relative basis.
Speaker Change: Perfect. Thanks. Appreciate the context.
Speaker Change: I'm gonna try.
Speaker Change: At this time, we have no more questions. I will turn the call back to Sam Kolias for closing remarks.
Speaker Change: Thank you, Emily. As always, if there are any further questions or comments, please do not hesitate to contact us.
Speaker Change: With gratitude, we would like to thank our extraordinary team, lawyer residents, CMHC, our lenders, and of course our unit holders from far and wide and local.
Speaker Change: It really is all about our BFF, our BoardWalk family forever, whose huge shoulders we stand and as leaders we continue to do everything we can to support continued growth and extraordinary. Really can't thank our extraordinary team and great leaders enough.
Speaker Change: We're pleased with our improving results on a foundation of exceptional value service and experience. We continue to provide our resident members, our investors, and all our stakeholders.
Speaker Change: Home is where our heart is, our heart is where our family is, and our family is where our love always lives.
Speaker Change: Welcome home to Love Always, Our Future is Family. What can be more important than choosing where to call home?
Speaker Change: We honour all our fallen heroes during this upcoming remembrance, and lest we forget the life sacrifice for the freedom we have. God bless us, and now, more than ever, grant us all peace. On this big day for our great friendly neighbours, God always bless America.
Speaker Change: Ladies and gentlemen, this concludes the conference. You may now disconnect your lines.