Boardwalk Real Estate Investment Trust (BOWFF) Q4 2022 Earnings Call Transcript

Boardwalk Real Estate Investment Trust (OTCPK:BOWFF) Q4 2022 Earnings Conference Call February 21, 2023 1:00 PM ET

Company Participants

Eric Bowers - VP, Finance & IR

Sam Kolias - CEO

Lisa Smandych - CFO

James Ha - President

Conference Call Participants

Jonathan Kelcher - TD Securities

Mike Markidis - BMO Capital Markets

Gaurav Mathur - iA Capital Markets

Jimmy Chen - RBC Capital Markets

Matt Kornack - National Bank Financial

Dean Wilkinson - CIBC

Mario Saric - Scotiabank

Operator

Good afternoon, ladies and gentlemen, and invited to nan Boardwalk Real Estate Investment Trust Fourth Quarter 2022 Earnings Conference Call. At this time, each subordinate lines are successful a listen-only mode. Following nan presentation, we will behaviour a question-and-answer session. [Operator Instructions] Also statement that nan telephone is being recorded connected Friday, February 24, 2023.

And I would for illustration to move nan convention complete to Eric Bowers. Please spell ahead, sir.

Eric Bowers

Thank you, Sylvie, and invited to nan Boardwalk REIT 2022 4th fourth results convention call. With maine present coming are Sam Kolias, Chief Executive Officer; James Ha, President; and Lisa Smandych, Chief Financial Officer. Please statement that this telephone is being broadly disseminated by measurement of webcast. If you've not already done so, please sojourn bwalk.com/investors, wherever you will find a nexus to today's presentation, arsenic good arsenic PDF files of nan Trust's financial statements, MD&A, and supplemental accusation package.

Starting connected Slide 2, we would for illustration to punctual our listeners that definite statements successful this telephone and position whitethorn beryllium considered forward-looking statements. Although nan expectations group distant successful specified statements are based connected reasonable assumptions, Boardwalk's early cognition and its existent capacity whitethorn disagree materially from those successful immoderate forward-looking statements. Additional accusation that could origin existent results to disagree materially from these statements are elaborate successful Boardwalk's publically filed documents.

I would for illustration to now move nan telephone complete to Sam Kolias.

Sam Kolias

Thank you, Eric, and welcome, everyone to our Q4 2022 convention call.

Starting connected Slide 4, our capacity pinch our GAAP and non-GAAP measures of FFO per unit, nett plus value, and portion holder equity and adjacent worth of finance properties each seen an summation from nan anterior year, pinch nan objection of profit arsenic a consequence of non-cash accounting adjustments for adjacent worth comparative to nan anterior year. Slide 5, Our 2022 FFO per portion maturation is astatine 6.5% from nan anterior year, reflecting stronger flat rental fundamentals successful our halfway markets.

Slide 6. Our strategy to create worth for our stakeholders originates pinch our people. We are truthful grateful for our bonzer squad who continues to innovate and present our places, location for our resident members. In turn, this leads to starring net performance, which we judge will proceed to consequence successful beardown full returns for each our stakeholders. Our strategical focuses are important integrated maturation from utilizing our proven level that focuses connected operational excellence to optimize NOI growth. When we brace this pinch nan existent betterment successful flat rental marketplace fundamentals connected a coagulated instauration of immoderate of nan astir affordable rents successful Canada, we are good positioned to proceed to accelerate connected our integrated maturation trend.

Accretive superior recycling focuses connected opportunistic finance into acquisitions, developments, and finance into our ain high-quality existing portfolio pinch a tactical portion buyback erstwhile appropriate. These opportunistic investments mixed pinch our operational optimization person positioned Boardwalk for expanding plus values wrong Boardwalk's diversified and high-quality multifamily portfolio. Our coagulated financial instauration provides elasticity connected our equilibrium expanse pinch our increasing free rate travel and pinch CMHC security connected 96% of our financings, which provides entree to low-cost owe superior pinch reduced renewal risk.

Slide 7. We are delivering coagulated growth. Boardwalk's existing vulnerability to beardown rental request non-price controlled markets pinch grounds migration important integrated maturation arsenic Alberta and Saskatchewan person immoderate of nan astir affordable rental rates successful nan state pinch constricted caller proviso versus request from some world and interprovincial migration. Rising liking rates making homeownership much costly and rising building costs are each widening nan spread betwixt our replacement costs of our assets and our existent evaluation.

Construction levels successful our halfway markets stay debased comparative to anticipated family formation. Our largest marketplace Edmonton is now complete 98% occupancy contributing to our coagulated performance. Apartment rental fundamentals proceed to amended pinch higher revenues arsenic a consequence of inflationary adjustments coupled pinch fundamentally nary caller incentives connected caller and renewal leases. All our markets now person precocious occupancy and beardown flat rental fundamentals.

Slide 8 shows an all-time grounds precocious successful migration into our largest region, Alberta from some interprovincial and world migrants calling Alberta home. This migration reflects nan affordability that Alberta provides comparative to different provinces, coupled pinch higher occupation vacancies. Slide 9 shows grounds full employed successful Alberta on pinch really diversified caller jobs are helping pinch nan diversification of nan Alberta economy.

Slide 10 shows immoderate headlines that bespeak a diversifying system for Alberta. Some economists foretell Alberta will debar recession. In addition, location are galore awesome projects nether improvement successful nan state of Alberta, which will further beforehand much occupation opportunities successful nan future.

Slide 11 shows our ample beingness successful affordable and non-price controlled markets, pinch Alberta and Saskatchewan representing 62.4% and 10.4% of our portfolio, respectively. Boardwalk's existent mark-to-market, which includes nan simplification of incentives averages $138 per suite and equates to astir $54 cardinal successful gross opportunity. Slide 12 shows occupied rents successful Alberta are astatine a akin level successful Q3 2015. There remains a important spread betwixt occupied rents and nan changeover user value scale complete nan past 8 years.

Slide 13 shows our precocious affordability successful our halfway Edmonton and Calgary markets pinch rents good beneath 30% of mean rental family income. This descent besides shows really precocious request is pinch elevated migration successful our halfway markets versus debased comparative caller supply.

Slide 14 shows precocious occupancy arsenic a consequence of beardown flat rental fundamentals successful each our cardinal markets. Move-outs versus past twelvemonth are besides dropping arsenic our retention increases. Slide 15 shows our cardinal operational metrics pinch precocious occupancy, little incentives, higher occupied rents, resulting successful an acceleration of revenues for nan 4th and year.

Slide 16 shows dependable nett caller and renewal rental rates. Year-over-year we person seen a important improvement. New lease spreads are strategically moderated to support providing resident-friendly affordable lodging options successful our halfway markets, while steadying operational results, a win-win for each our stakeholders.

Slide 17 shows a 2.2% sequential quarterly gross summation accordant pinch nan 2.3% and 2.2% from nan past 2 quarters, reflecting beardown flat rental fundamentals done our wintertime play for each our markets.

We would for illustration to now walk nan telephone connected to Lisa Smandych, who will supply america pinch an overview of our portfolio performance, equilibrium sheet, and repositioning results. Lisa?

Lisa Smandych

Thank you, Sam. Moving to Slide 18. For Q4 2022 aforesaid spot nett operating income accrued by 5.9% arsenic compared to Q4 2021 pinch gross maturation of 6.7%. Edmonton, nan Trust's largest markets saw gross accrued by 6.2% successful Q4 2022 arsenic compared to Q4 2021. Operating expenses accrued by 8% successful Q4 2022, chiefly nan consequence of accrued wages and salaries, utilities, and spot taxes. These accrued costs were a consequence of accrued wages and salaries for a premium paid to landscaping associates during nan wintertime months, arsenic good arsenic accrued inferior costs arsenic a consequence of our statement renewals for earthy state and electricity. For nan twelvemonth ended December 31, 2022, aforesaid spot nett operating incomes accrued by 3.8% arsenic compared to nan anterior year. Positive gross maturation successful each provinces was offset by an summation successful operating expenses, mostly nan consequence of inflationary increases successful costs.

Slide 19. Consistent pinch anterior years, successful fiscal 2022 pinch precocious ostentation and costs pressures, nan Trust remained disciplined and focused connected managing its controllable expenses contempt increases successful non-controllable costs resulting successful a level separator year-over-year for nan full Boardwalk portfolio. As nan Trust looks forward, guidance is projecting beardown separator improvement, arsenic gross maturation accelerates and nan Trust remains disciplined pinch its disbursal management.

Slide 20 illustrates Boardwalk's owe maturity schedule. Our mortgages are good staggered pinch astir 96% of our owe equilibrium carrying an [NET] (ph) security to nan Canada Mortgage and Housing Corporation. This security remains successful effect for nan afloat amortization of nan mortgage. And successful summation to carrying nan Government of Canada's backing provides entree to financing astatine little rates than accepted mortgages pinch nan existent estimated five-year and 10-year CMHC rates of 4.25% and 4%, respectively.

Though existent liking rates are supra nan Trust's maturing rates, nan Trust maturity curve remains staggered reducing nan renewal magnitude successful immoderate peculiar year. Despite increases successful liking rates, owe financing continues to beryllium a debased costs of superior disposable to nan Trust. Lastly, nan Trust has an liking sum of 2.94 successful nan existent quarter.

Slide 21 summarizes our 2022 owe program. Overall, we renewed $460 cardinal arsenic good arsenic secured $300 cardinal successful caller financing astatine an mean complaint of 3.4% and an mean word of 5 years. As antecedently disclosed, included successful nan renewal magnitude was nan conversion of our Brio building indebtedness into nan CMHC insured mortgage. Current underwriting criteria successful our astir caller submissions to CMHC and our lenders has remained successful statement pinch our historically blimpish estimates.

Slide 22 summarizes our 2023 owe maturities. Overall, we person renewed our forward-locked 9.6% of our 2023 owe maturities, while besides securing $7.4 cardinal successful financing. Of nan $42.2 cardinal we renewed, $28.2 cardinal represents accepted mortgages. The Trust was capable to get charismatic pricing from nan lender for this accepted debt. Moving to nan correct of nan slide, we supply a summary of Boardwalk's disposable liquidity. The Trust is good positioned pinch astir $60 cardinal successful rate and subsequently funded financings, arsenic good arsenic an undrawn $196 cardinal operating line. This approximate $256 cardinal successful liquidity provides nan Trust pinch a elastic financial position.

Slide 23 illustrates nan Trust estimated adjacent worth of its finance properties. Excluding adjustments for IFRS-16, which totaled $6.8 cardinal arsenic astatine December 31, 2022 arsenic compared to $6.4 cardinal arsenic astatine December 31, 2021. When excluding acquisitions of $0.2 billion, and superior finance of $0.1 billion, nan remaining flimsy summation successful wide adjacent worth arsenic a consequence of increases successful marketplace rents arsenic prime sites and communities arsenic marketplace fundamentals improve. The existent estimated adjacent worth of astir $199,000 per flat doorway remains good beneath replacement cost.

Moving to Slide 24. In consultation pinch our outer appraisers, nan capitalization rates aliases headdress rates utilized successful determining Q4 2022 adjacent worth were unchanged from Q4 2021. As it does each quarter, nan Trust will proceed to reappraisal completed plus income transactions and marketplace reports to find if adjustments to headdress rates are necessary. Most caller published CAPREIT reports from some CBRE and Altis propose that nan headdress rates being utilized by nan Trust to protect [indiscernible] adjacent worth are wrong their estimated ranges. In addition, nan Trust headdress rates utilized successful estimating adjacent worth remained astatine a affirmative dispersed to liking rates.

Slide 25 provides a summary of nan recycling of rate travel towards value-add improvements. We person completed astir 32% of full suite improvements while besides completing 54% of our full portfolio communal areas and amenity spaces by nan extremity of fiscal 2022. Our attraction is to proceed to present nan champion merchandise optimizing our superior allocation for our worth adhd programme to our targeted resident personnel demographic. So we tin proceed to supply nan astir exceptional elevated acquisition astatine an affordable price. The consequence has accrued marketplace demand, exceptional value, and appealing returns pinch sustainable marketplace rent adjustments.

Slide 26 illustrates our stabilized renewal return for Southpointe Plaza located successful Regina, Saskatchewan. With a return of 15%, which exceeded our soul hurdle complaint of 8%. Our renovations proceed to garner affirmative Resident Member testimonials, driving referrals and higher occupancy.

I would now for illustration to move nan telephone to James Ha to item our acquisitions developments and nan Trust's exceptional value. James?

James Ha

Thank you, Lisa. Starting connected Slide 27. We item nan accretive acquisitions that were made passim nan year. In 2022, Boardwalk acquired 458 suites crossed beardown rental markets, which added to our clustering strategy, while besides high-grading our portfolio. Each acquisition has integrated into our level and our attraction connected customer work and merchandise value has resulted successful thriving communities wherever we are proud to service and supply nan residents, our residents nan spot we telephone home.

On descent 28, we supply an update to our ongoing improvement pipeline to adhd overmuch needed lodging successful proviso constrained markets. Currently nether lease up is nan first building of our 365-unit improvement called 45 Railroad. The first building features 176 units and received occupancy licence successful nan 4th fourth of 2022. In our first 4 months of leasing, we person rented 45% of our full suites astatine rental rates supra our original expectations. Our squad continues to advancement connected building of nan 2nd building and is scheduled for transportation successful nan 4th fourth of 2023. This task remains connected clip and connected budget.

Our Victoria improvement pipeline presents a scaled opportunity for nan Trust to adhd and lend lodging units, while besides creating beardown worth for our stakeholders. Aspire is our first of 3 developments successful Victoria. Excavation is underway astatine this first improvement for this 234 units, which is located adjacent to our existing Aurora Community that remains afloat occupied pinch beardown rental request for immoderate units that go available.

Slide 29 provides our stakeholders pinch our existent and comparative position connected sources and uses of capital. For sources of capital, our strategy of retaining rate travel done our minimum distribution argumentation provides Boardwalk pinch maximum elasticity and increasing internally generated rate flow. CMHC owe financing, though higher successful costs than a twelvemonth agone besides continues to correspond an charismatic root connected a comparative basis. Each of these superior sources tin beryllium utilized to money opportunities specified arsenic our Value Add Capital Improvement Program and finance successful our ain high-quality portfolio done our NCIB, strategical and accretive acquisitions and caller developments successful undersupplied lodging markets.

Since nan re-inception of our NCIB successful November of 2021, Boardwalk has purchased and canceled complete 875,000 Trust units astatine an mean value of astir $52 per Trust unit. This equates to an finance of complete $45 cardinal and we proceed to position this arsenic an charismatic usage of capital, particularly erstwhile recycling proceeds from non-core plus sales. Our squad will proceed to update our position of superior sources and uses, connected a comparative and regular basis.

Slide 30 highlights nan exceptional worth that Boardwalk's Trust Units correspond astatine our existent trading value that implies a worth of astir $180,000 per flat door. This compares favorably to nan less but substantive transactions that person occurred successful nan outer market. Our NAV of $71 per Trust portion equates to $199,000 per flat doorway and represents an exceptional opportunity comparative to marketplace pricing and remains good beneath nan expanding costs of replacement.

On Slide 31. Boardwalk's existent trading value equates to an charismatic 4.9% headdress complaint connected our trailing NOI and provides a important dispersed to nan existent costs of owe superior and transactional headdress rates successful backstage markets. With our beardown leasing trends and accelerating NOI maturation successful our portfolio, this headdress complaint represents exceptional worth and maturation for our stakeholders.

Moving connected to Slide 32. And arsenic we bespeak connected our 2022 performance, we are pleased to decorativeness our twelvemonth pinch 3.8% aforesaid spot NOI maturation and FFO per portion of $3.13, successful statement pinch our revised guidance and besides successful statement pinch our original guidance contempt nan headwinds that accrued volatility successful galore of our costs items. We cannot convey our full Boardwalk squad capable for everyone's efforts successful delivering our merchandise and work of exceptional and affordable lodging to our Resident Members and for their continued committedness to invention and ratio successful our operations. Our acceleration of operating capacity successful nan 2nd half of 2022 has positioned Boardwalk good for continued beardown maturation into 2023.

This is reflected successful nan preamble of our guidance connected Slide 33. As shown connected nan slide, beardown gross maturation and continued subject connected controllable expenses are projected to consequence successful SP NOI maturation to scope from 8.5% to 12.5% for fiscal 2023. This beardown NOI maturation is anticipated to summation FFO per portion to scope from $3.25 and $3.45 per Trust unit. And much than offset higher liking rates successful owe renewals that person occurred past twelvemonth and those anticipated for 2023. Our Boardwalk squad is committed to starring successful transparency and we'll proceed to update our stakeholders successful nan arena of immoderate alteration successful conditions that whitethorn materially effect our forecast.

With this and connected Slide 34, our Board of Trustees has confirmed an 8.3% summation to our monthly rate distribution to $1.17 per Trust portion connected an annualized basis. Our distributions person accrued by 17% successful nan past 2 years and aligns pinch our increasing rate flow, while maintaining our industry-low payout ratio providing important rate travel reinvestment and positioning Boardwalk pinch ample superior for growth.

Lastly, connected Slide 35, we are excited to stock an update connected our continued ESG committedness pinch our 4th yearly ESG and 2022 Annual Report successful nan coming weeks. We look guardant to sharing a fulsome update connected really Boardwalk is putting nan [wheat] (ph) into ESG.

This concludes nan general information of our position and we'd now for illustration to unfastened up nan telephone statement for questions. Sylvie?

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] And your first mobility will beryllium from Jonathan Kelcher astatine TD Securities. Please spell ahead.

Jonathan Kelcher

Thanks. Good afternoon. First mobility conscionable connected nan Q4 same-property expenses that up 8% and I cognize you talked a small spot astir it, but possibly springiness america a small spot much colour connected what really turn that?

Lisa Smandych

Yes. Hi, Jonathan. It's Lisa. So to accordant carnivore pinch my speaking notes, we -- arsenic we had anticipated, we did spot an summation successful our utility's costs erstwhile we comparison Q4 2022 to Q4 2021. That was chiefly a usability of those contracts we said to that rolled off. So we had an energy statement renew successful Alberta arsenic good arsenic immoderate of our state contracts successful Saskatchewan, truthful that was a portion of it. The different broadside did travel a small spot from nan wages and salaries wherever we person offered our landscaping and associates a premium for nan wintertime months. That was really a portion of helping pinch our snowfall removal programme and conscionable ensuring we person benignant of each hands connected platform for that. And truthful those were nan superior -- those are nan 2 drivers and a small spot spot taxes year-over-year.

Jonathan Kelcher

Okay. So it sounds for illustration astir of that would travel into Q1 arsenic good then?

Lisa Smandych

We will spot immoderate of it successful Q1. Yeah. And that's been considered successful our guidance range.

Jonathan Kelcher

Okay and past conscionable connected nan beardown maturation successful renewals successful Alberta successful January astatine 8%. Like, should we deliberation astir that arsenic fundamentally conscionable eliminating incentives connected nan renewals aliases are you pushing a small spot much than that?

James Ha

Hey, Jonathan, it's James. Certainly producing incentives continues to beryllium nan biggest opportunities that we person present today. What we are seeing is, continued beardown lodging fundamentals and we are seeing nan marketplace commencement to spot increases successful marketplace rents arsenic well, ourselves included astatine a sustainable pace. As you look done for anybody who tracks our rents connected our website, we are seeing immoderate dependable marketplace rent adjustments that person precocious conscionable occurred. And truthful we're seeing some of those hap and that's what's really driving nan gross maturation here, Jonathan is nan catch-up successful nan highly affordable rents that we person present successful Alberta done inducement reductions that it's happening quickly arsenic good arsenic nan marketplace rent growth.

Jonathan Kelcher

Okay. And do you deliberation that benignant of 8.5%, 9% full gross maturation for Alberta, do you deliberation you tin transportation that done astir of -- astir of 2023, is that what's benignant of driving nan 10% aforesaid spot NOI growth?

Sam Kolias

Yeah. It’ll beryllium nan operation of both, truthful Jonathan arsenic we're seeing pinch our sequential gross maturation and we printed 2% positive 3 quarters successful a row. Looking astatine our leasing spreads, we're surely continuing to way that direction. And so, we're optimistic arsenic Lisa pointed out. That beardown SP NOI maturation guidance that we person surely which characteristic require continued beardown gross maturation pinch which we're assured successful delivering.

Jonathan Kelcher

Okay, thanks. I'll move it back.

Operator

Thank you. Next mobility will beryllium from Mike Markidis astatine BMO Capital Markets. Please spell ahead.

Mike Markidis

Hi there. Thanks for taking my questions. First off, conscionable wanted to circle backmost to nan remark on, I deliberation it was 1 of your slides, conscionable talking astir separator description from here. It was a beautiful beardown connection and I'm judge of it long-term. Maybe you could conscionable remark successful position of what you're expecting successful 2023 versus 2022?

Lisa Smandych

Yeah. Hi Mike, it's Lisa again. I think, coupled pinch nan speech we conscionable had astir that gross opportunity. So we do consciousness that erstwhile we move into 2023, mostly that gross opportunities what's going to lead to nan short-term separator description , specifically to 2023. As we move, we will proceed to beryllium disciplined connected nan disbursal broadside and looking astatine our level invention and really we tin optimize our platform, but circumstantial to 2023, that gross broadside is surely what will time off that separator description .

Mike Markidis

Okay, convey you. That's helpful. Quick 1 here. Just connected Railroad. Good leasing momentum. Do you hap to person disconnected nan apical of your caput nan mean rent per foot?

James Ha

Just complete $3, Mike.

Mike Markidis

Okay. $3. Thanks. And past conscionable past 1 for me. More of a high-level question. Just rubbing backmost connected your sources of and costs of superior that costs are a batch higher. I deliberation you're astatine 425 aliases 430 connected five-year indebtedness and your banal astatine $49 astatine an implied headdress connected a trailing basis. So possibly it would beryllium arguably $47-ish connected a guardant basis. So I cognize we're not location yet and it's, you're dealing successful absolutes but erstwhile does that -- erstwhile does that -- if we were to spot nan costs of nan implied headdress complaint successful your banal spell beneath that, really would you guys still beryllium reasoning astir sources of superior and cost?

James Ha

Mike, yeah, I think, conscionable to clarify, I deliberation that would spell nan different way, pinch nan maturation that we person $49 connected a trailing ground [Multiple Speakers]

Mike Markidis

Yes, convey you.

James Ha

But I deliberation -- I deliberation I cognize wherever you're going pinch nan question. And astatine nan extremity of nan day, nan astir important portion of our superior backed strategy is our minimum distribution argumentation and nan increasing rate flow, right? We are unsocial and a cardinal differentiator of our business is that minimum distribution argumentation aliases besides known arsenic a maximum rate travel retention policy. And truthful that provides america nan elasticity successful superior to return advantage of opportunities that whitethorn coming themselves.

CMHC indebtedness and nan situation pinch sharing our position connected superior sources and uses, that has to beryllium comparative arsenic well. And so, yes, nan costs of CMHC financing has accrued from this clip past year. But it still remains little than nan costs of different sources of superior arsenic you constituent out. At nan extremity of nan time for america arsenic we deliberation astir imaginable uses of capital, we're looking for awesome opportunities that are accretive to those sources.

So hopefully that provides a small spot of penetration into really we deliberation astir imaginable opportunities and wherever those deployment opportunities come. Today it will reiterate this though location nan biggest opportunity is double-digit same-property NOI maturation successful our integrated portfolio arsenic per our guidance and that is wherever we are 100% focused today.

Mike Markidis

Great. Thanks very much. I'll move back.

Operator

Thank you. Next mobility will beryllium from Gaurav Mathur astatine iA Capital Markets. Please spell ahead.

Gaurav Mathur

Thanks you, and bully afternoon, everyone. Just 1 point connected nan same-property NOI growth, would you beryllium capable to supply your thoughts connected turnover rates and really you're reasoning astir that versus what -- erstwhile you're comparing it to 2022?

James Ha

Hey, Gaurav. It's James present again. Turnover rates, I mean 1 of nan unsocial again differentiators of our portfolio and our geographies is that, 70% of our portfolio is non-price controlled, right? And truthful arsenic a consequence of that, historically we do person higher turnover successful our markets comparative to regulated markets. Again, 1 of nan downsides of rent regularisation successful nan marketplace. But moreover pinch that, we person seen a 20% to 30% diminution successful soul orders complete nan past respective months. Fortunately for us, we do attraction successful connected our resident friends argumentation and are very elastic pinch our residents successful position of our lease renewals always. But pinch that, contempt -- included successful that is that diminution successful turnover that we are seeing beautiful good crossed nan country.

Gaurav Mathur

Okay, great. And conscionable very quickly connected that. As you are seeing rental maturation crossed nan portfolio, is that meaningfully benignant of changing your rental income ratio for nan tenants aliases is that mostly wrong nan humanities norms?

James Ha

Hey, Gaurav. [indiscernible] supply a descent connected that, and if we conscionable jump complete to Slide 13. Our largest and halfway markets. This is comparative -- shows rental rates comparative to mean renters' family incomes. And you will find location that our halfway and largest markets successful Alberta proceed to beryllium nan astir affordable successful nan country. And so, nan bully news coming arsenic we look astatine nan occupation vacancies and occupation availabilities and we look astatine income data, we proceed to spot inflationary maturation location arsenic well. And truthful contempt nan beardown spreads that we're getting done inducement reductions and now done marketplace rent increases, affordability continues to beryllium precocious present successful Alberta. And truthful from an affordability standpoint, I deliberation location nary amended spot to beryllium and that's a immense logic why we're seeing nan outsized migration we are [indiscernible].

Sam Kolias

[indiscernible] Sam Kolias. And we really person to accent our best-case illustration of Alberta Saskatchewan and policymakers keeping our marketplace free is perfectly nan logic we person nan astir affordable rents successful nan country. Three markets nutrient that astir competition, that astir choices for renters, and that astir affordable rents arsenic a result. We really, really person to each retrieve that arsenic voters that are responsible to a ballot successful spot policymakers that create policies, that create much affordable lodging for each Canadians is ace important to support that successful mind.

Gaurav Mathur

Great, convey you. And conscionable nan past mobility here. When you deliberation astir superior allocation decisions going forward, is location a pecking bid betwixt nan acquisition pipeline improvement and nan usage of nan NCIB?

James Ha

Hey, Gaurav. It's James. Great question. We see superior allocation decisions each azygous day. We're analyzing and assessing nan market. We're watching our equity valuation successful nan nationalist marketplace arsenic well. And looking astatine wherever to champion spot that capital. I'd say, enactment tuned arsenic you've seen pinch our way record. We are rather disciplined successful position of really and wherever we're allocating capital. We are looking for nan champion places to create worth for stakeholders. And so, we'll proceed to measure and look for unsocial acquisitions for illustration we did successful 2022. At nan aforesaid time, we besides person nan opportunity to return advantage of discounted banal that has an astonishing maturation floor plan going forward.

And truthful enactment tuned. We'll support everybody updated, but we'll measure this each and each time and support everybody posted pinch our quarterly results.

Gaurav Mathur

Fantastic. Thank you for nan color. I will move it backmost to nan operator.

Operator

Thank you. Next mobility will beryllium from Jimmy Chen astatine RBC Capital Markets. Please spell ahead.

Jimmy Chen

Thanks. So, conscionable wondering if you could talk a spot astir nan finance marketplace aft pricing headdress complaint trends. I did conscionable announcement connected your Slide 30, you've sewage Chelsea Estates there, a adjacent successful Calgary, conscionable looked for illustration nan value has travel down a decent amount. I conscionable wonderment if you could talk successful wide aliases possibly specifically astir that plus arsenic well?

James Ha

Hey, Jimmy. Yeah, Chelsea Estate was a awesome acquisition. We cognize nan purchaser well. That transaction was really negotiated respective months ago, successful nan summer. The transaction was -- nan plus was tied up earlier it really sewage to nan market. Again, awesome acquisition. When we look astatine nan saccharine operation for that building, they are smaller units than what we person successful comparable areas, and a saccharine operation that is much geared towards ones and twos. But I'd opportunity that's a awesome acquisition.

When we look astatine different transactions that person besides occurred. If you look done that slide, Slide 30. There person been fewer, but location are substantive transactions that if we look and comparison that comparative to our NAV and past discussions pinch our appraisers presents rather good for NAV.

Sam Kolias

Jimmy, it's Sam Kolias. It's really important to support successful mind nan quickly changing NOIs successful our Edmonton and Calgary communities arsenic a consequence of vacancy fundamentally disappearing on pinch incentives. This is going to importantly impact and amended nett operating incomes. When it -- erstwhile nan nett operating income improved significantly, keeping headdress rates astatine a precocious 5% is going to spot importantly higher income arsenic a consequence of importantly higher nett operating incomes. So this is taking spot arsenic we speak. Buyers look astatine nett operating income connected a trailing basis. So it's going to amended complete nan adjacent respective quarters. We're going to spot important NOI improvements successful each communities crossed Alberta arsenic a resulting important improving income that will let our purchasers to entree higher owe amounts pinch important increases successful NOI. And truthful we're seeing this alteration very quickly arsenic we speak and we'll beryllium seeing that successful income successful nan upcoming quarters arsenic well.

Jimmy Chen

Right. So are you getting nan consciousness that these group are trying to get up of nan NOI maturation and are you getting nan consciousness that location is simply a small spot much liking successful nan marketplace coming because of nan very logic you conscionable mentioned?

Sam Kolias

There is notable much liking successful nan marketplace and organization providers are seeing a large improvements successful NOIs. And truthful location is this increasing bid asks dispersed arsenic a result, nan consciousness that our marketplace has importantly improved and truthful expectations are going to beryllium higher for sellers and buyers are going to person to measurement up reflecting nan improved flat rental fundamentals, NOIs, and evaluations that travel through.

Jimmy Chen

Okay. And past conscionable a follow-up connected nan guidance. So successful position of nan gross growth, I think, based connected your comment, it sounds for illustration you would contemplate removal of incentives, but besides a small spot of marketplace rent growth, is that fair? I conjecture nan apical extremity of nan guidance would connote that you're seeing a spot of marketplace rent growth.

James Ha

We are perfectly seeing marketplace rent growth, Jimmy, that has -- that has started arsenic well.

Jimmy Chen

Okay. And that is successful your guidance?

James Ha

That's correct.

Jimmy Chen

Okay. Okay, convey you.

Operator

[Operator Instructions] And your adjacent mobility will beryllium from Matt Kornack astatine National Bank Financial. Please spell ahead.

Matt Kornack

Hey, guys. With regards to CapEx, nan 2023 budget, I mean it's a marginal summation complete 2022 but fixed your commentary astir turnover coming down and besides tighter marketplace conditions, do you person a consciousness arsenic to whether that will successful clip inclination little aliases what is -- what does nan allocation astatine this constituent for that worth adhd capital?

Lisa Smandych

Hi, Matt. It's Lisa. So yeah, you are correct. When we looked astatine our 2023 superior budget, location is simply a somewhat decreased superior -- sorry, [indiscernible] superior and a small spot for wage. Where nan superior attraction will beryllium for nan 2023 superior fund is mostly looking astatine projects that were really thief wide NOI growth, truthful we're looking astatine things that will bring a batch of operating disbursal efficiencies, power efficiency, truthful looking astatine immoderate of those ESG initiatives, arsenic good arsenic conscionable nan continuing spot of our repositioning program. So wherever that repositioning and communal areas tin bring america rates of return higher than moreover what we're seeing successful nan market, that will beryllium nan focus. But mostly driven, I would opportunity it's from benignant of an ESG and operating disbursal savings constituent of view.

Matt Kornack

Okay, perfect. That's helpful. And past pinch regards to proviso deliveries, possibly if you could speak to benignant of wherever deliveries are astatine this constituent for worldly that whitethorn person been started erstwhile liking rates were low, and you person a marketplace that would astir apt beryllium much inclined to spot a small spot of supply, fixed really beardown nan fundamentals are, but evidently liking rates are high, and it's difficult to make capacity activity connected thing existent property wise these days. But tin you springiness america a consciousness arsenic to really you spot proviso benignant of trending successful Calgary and Edmonton?

James Ha

Great question, Matt. We do people and to stock lodging CMHC nether building data, it's successful our Appendix Slide 47 for Edmonton and Calgary specifically. And arsenic you'll spot there, we are seeing an summation successful purpose-built rental starts slightly. I mean, you're coming disconnected of rather a debased based connected that. But we're seeing an almost nonstop proportionate diminution connected nan condominium side. And truthful if we look astatine full lodging nether supply, it has accrued a touch successful position of nether construction. Those deliveries, mostly speaking, single-family homes tin get delivered successful 4 months aliases less, but arsenic we know, condominiums aliases intent built rental often return 2 to 3 years to build. We cannot build that accelerated enough. I mean ft organization maturation that we person and you saw that successful nan astir caller quarter, complete 50,000 group successful Alberta. We are quickly seeing immoderate excess inventory get mopped up here.

And truthful pinch nan large migration targets that we person nationalist present immense charismatic demographics and modular of surviving that we person present successful Alberta. That's attracting caller migrants present arsenic well. We would expect fundamentals to stay rather beardown and patient successful our halfway Alberta housing.

Sam Kolias

And Matt, it’s Sam. The higher liking rates are making it very, very difficult to warrant immoderate caller proviso going forward. And truthful that is simply a limiting facet on pinch lodging and nan higher costs of renewals and nan adaptable rates that many, galore homeowners are facing connected liking complaint renewals immoderate homeowners are seeing owe costs spell up by 100% and we're seeing homeowners waste and travel backmost to nan rental much affordable lodging option.

And truthful we're seeing request pickup locally arsenic well, because of nan precocious liking rates having an effect connected affordability and caller proviso and building of some not only homes and condominiums, but caller rentals arsenic well. The value constituent arsenic good of caller improvement erstwhile they are coming online surely are different value complaint than our mean product. We do person our manner merchandise that provides moreover much affordability comparative to that value point, but erstwhile compared to our surviving and communities brands, again, we proceed to connection nan astir affordable and exceptional lodging for Albertsons successful Canadians.

Matt Kornack

Sorry. Go ahead.

James Ha

[Multiple Speaker] Your move Sam.

Sam Kolias

We really want to constituent retired nan improvements that we're making successful our communal areas and our beautiful group that are creating beautiful spaces, we conscionable can't stress really overmuch of a immense quality this is making successful our marketplace stock and nan request for our communities and nan feedback we're proceeding from our Resident Members and caller leads arsenic good really bespeak nan lead that we are in, arsenic a consequence of nan unthinkable activity that our creation and in-house vertically integrated building teams together are creating spaces that are for illustration caller astatine acold beneath caller rental rates.

And truthful we're highly competitory and supply beautiful communities astatine ace affordable rate. So we are really, really grateful for our squad and everything our squad is doing successful this area, and we're seeing it successful our results and our bottommost lines expanding arsenic a consequence of our awesome efforts. Go up [indiscernible]

Matt Kornack

Yeah, I deliberation we impute thing for illustration little than a $1.50 a quadrate ft for rents for your portfolio successful position of, I mean, moreover debased emergence stick-built type purpose-built rental, could you springiness america a consciousness for illustration you can't present thing that wherever it would make consciousness astatine that rent level, I presume successful immoderate marketplace crossed Canada.

James Ha

No. To Sam’s point, I mean, nan costs of building connected wood framework positive liking costs and carrying costs. I mean we request rents that are overmuch higher than that.

Matt Kornack

Fair enough. Okay, acknowledgment guys.

Sam Kolias

Thank you truthful much. Matt.

Operator

Thank you. Next mobility will beryllium from Dean Wilkinson astatine CIBC. Please spell ahead.

Dean Wilkinson

Thanks. Hi, everyone. Just looking astatine your indebtedness maturities, it looks for illustration you went a small shorter-term connected nan $42 cardinal that came up successful January. How are you guys reasoning astir benignant of nan remainder of nan twelvemonth looking astatine complaint versus term? And are you benignant of purposefully opportunity looking astatine a shorter word pinch a position that rates mightiness beryllium a small much favorable two, 3 years out.

James Ha

Hi, Dean, it’s James. I tin touch connected that. As Lisa pointed retired successful her prepared remarks, those were unique, those surely aren't going to beryllium nan [indiscernible] equilibrium of our maturities. Two of those mortgages were accepted mortgages specifically successful [indiscernible], we're really conscionable going done nan process of a method renewal connected our lease -- onshore lease that's there, that is really now complete. And truthful that gives america nan opportunity to spell to CMHC, but fixed that that maturity occurred successful January, location was a bully opportunity pinch our lending partner location who had charismatic pricing connected nan short extremity of nan curve for america to return advantage of a small spot shorter long there, knowing that we'd for illustration to move that complete to CMHC. And so, we'd opportunity for nan equilibrium of our maturities this year, I deliberation that's going to beryllium much of nan exception. As we cognize successful our flat abstraction present successful Canada, nan astir liquid position are 5 and 10. And going forward, akin to what we do each year, number 1 privilege is to create that bully ladder and our owe maturity curve and we'll proceed to do that for 2023.

Dean Wilkinson

Great. Sam, I could not work together pinch you much connected nan rumor of nan rent controls and free markets and each of nan bully things that travel pinch that. Do you person immoderate consequence of a fearfulness that fixed what you're being capable to execute connected renewals that possibly immoderate elements of nan provincial authorities commencement beating nan drum connected looking astatine rent power aliases is that conscionable nary touch benignant of situation.

Sam Kolias

The grounds is very clear and our policymakers get each nan in installments for keeping our markets free and having nan astir affordable lodging and rentals successful nan state arsenic a result. And so, it's success, we are getting occurrence and policies that complete nan past respective decades person provided nan astir affordable spot to unrecorded successful Canada. And so, everything that we perceive -- nan truth sets america free, it gets retired and champion lawsuit examples really thief and getting that accusation retired and support spreading nan truth. And that useful best, that provides nan astir affordable housing. The much we dispersed nan truth, nan amended for each Canadians and that's what we're moving tirelessly doing is putting together information and champion cases and keeping our past occurrence successful mind beforehand and center. So we tin proceed to person policies that will proceed to supply awesome affordable places to unrecorded for Canadians.

And so, yes, we really can't dispersed this accusation capable and we've sewage to proceed to put facts guardant and look astatine nan past and spot what useful and make judge our voters and we nan group recognized what's champion and make judge that we are voting for policymakers and leaders that bespeak nan information and champion lawsuit examples truthful that we tin proceed to move forward, wherever we're statement agnostic and for argumentation that works, and we're politically agnostic arsenic good wherever we deliberation policies are much important for each of america to attraction connected versus politics. And we're focusing successful connected group and supporting people, not peculiar parties that support awesome policy. So we're group and argumentation focused and that's what we really each person to beryllium arsenic voters to beryllium rather honorable and focusing connected group that beforehand bully policies for each Canadians.

Dean Wilkinson

Got it. Thanks. I admit it.

Sam Kolias

Thank you truthful much, Dean.

Operator

Next mobility will beryllium from Mario Saric astatine Scotiabank Please spell ahead.

Mario Saric

Hey, bully morning. Just circling backmost to nan guidance, I now we talked astir benignant of nan topline and expenses, but are you benignant of consenting and capable to benignant of break down nan 12.5% same-store NOI guidance by same-store gross and same-store expense? Is location a meaningful quality betwixt those two?

James Ha

Why don't we commencement pinch nan expenses. That's –

Lisa Smandych

Yes. So overall, Mario, we tin stock that from an disbursal perspective, erstwhile we're looking astatine Total Rental Expenses, truthful each of them combined. I would propose that nan guidance scope would say, those expenses will astir apt beryllium betwixt 4% to 5%. So, possibly somewhat little than 4% and somewhat little than 5%, but overall, that 4% to 5% would beryllium what that scope would consider.

Sam Kolias

Good news pinch our Edmonton policymakers announcing a much equitable spot taxation for multifamily communities, recognizing multifamily communities supply nan astir affordability. for nan astir susceptible residents [Edmontoniance] (ph) and truthful we person to springiness a large outcry retired to our Edmonton policymakers municipally that voted down adjustments to spot taxes for multifamily communities and that was a bully news and reflects that our policymakers are looking astatine what creates much affordable lodging and implementing it into spot taxation arsenic well.

James Ha

And conscionable to grow connected that. If anybody has missed it. City Council successful Edmonton has voted and opted to destruct nan different residential taxation rate, which is simply a premium taxation complaint that was applied to apartments comparative to single-family housing. And so, that will -- that use will hap complete nan adjacent 5 years and guarantee that nan metropolis remains competitory to different municipalities, arsenic good arsenic helps guarantee rents stay affordable wrong that city. And truthful that is simply a use for nan spot taxation line, that is going to beryllium dispersed complete nan adjacent 5 years. It doesn't sound for illustration it's going to commencement this year. And to Lisa’s point, 4% to 5% crossed each disbursal items will proceed to tighten that arsenic clip goes connected and arsenic we activity done nan year.

But, Mario that gives you an denotation of benignant of really we're reasoning astir gross arsenic good pinch nan 8.5% to 12.5% same-store NOI guidance. And again, you tin benignant of spot it pinch our leasing spreads and existent occupancy to spot what that gross build shapes retired to.

Mario Saric

Great. That's very bully color. Thank you for that. And then, like, erstwhile we're looking astatine nan 8.5% to 12.5%, it seems for illustration you're beautiful comfortable pinch nan disbursal broadside of things. So is it adjacent to opportunity that those continuation of nan leasing spreads that you're seeing now. That's nan superior wildcards aliases facet that's driving nan 400 ground constituent spread betwixt nan debased extremity and nan high.

James Ha

I mean, it's a operation of both. I mean, expenses arsenic we each learned successful 2022 much volatility beryllium and that volatility continues to persist into 2023. And so, surely this early successful nan year. want to supply room connected either sides that we tin surely meet our expectations, some internally and externally.

Sam Kolias

Mario, it's Sam Kolias. What mightiness beryllium adjuvant and is adjuvant for everyone is 2 widen perspective. And to spell backmost to nan 3rd 4th of 2015 and look astatine wherever user value scale and our rents were backmost 7 years ago. Going forward, our rents are 25% below. We haven't kept up pinch ostentation complete nan past 7 years. So adjusting those are catching up to conscionable user value scale requires much than a 25% accommodation which we will not do quickly and we will perfectly do gradually and we will proceed to beryllium flexible. But complete those 7 years, we tin look backmost and opportunity our rental rates person fundamentally tracked ostentation and grown single, low-single digit percent arsenic a percent of our 2015 rents.

And so, complete a longer position brands really travel user value index. And so, we're really successful a drawback up mode. And arsenic a result, we proceed to supply exceptional affordability because our rents are truthful acold beneath nan user value scale that we've seen since 2015. So we person exceptional affordability and room for accommodation and really catch-up complete nan adjacent respective years.

Mario Saric

Got it. Okay. and past conscionable 1 past one, possibly Sam, going backmost to your remark connected notable marketplace liking successful Alberta assets. Some of your peers person highlighted a beautiful beardown penchant for buying caller products aliases caller building arsenic opposed to old. In position of your comment, are you seeing an adjacent magnitude of request for older merchandise that possibly has built successful incentives that group are trying to get up of aliases is it mostly benignant of focused connected nan caller constructions?

Sam Kolias

We're seeing request from section organization providers and income and purchases from much section providers, simply because our position and position arsenic section providers, gives america a overmuch bigger penetration arsenic to nan maturation opportunities present successful nan westbound versus different geographic regions correct now. So correct now, it's much section request and talking pinch realtors yesterday, location is simply a batch much liking from immoderate different buyers arsenic well. More inbound inquiries, we'll hold and spot arsenic acold arsenic nan income and transactions that return spot complete nan adjacent fewer quarters. We do spot higher nett operating income producing higher income per portion going forward, simply because of nan mathematics and besides nan maturation imaginable arsenic well.

Our maturation and our in-place rents are truthful overmuch little than different regions, it really is difficult to find rents beneath $2,000 for a 2 chamber successful Canada correct now. And so, we arsenic good person replacement costs delta betwixt our income prices and replacement costs and we're building [Rockup] (ph) successful Victoria for $400,000 a unit. And we're seeing waste that beneath $200,000 a door, astir $200,000 a door, that’s 50% beneath replacement costs. And truthful that spread is much meaningful successful nan West than it is different region. And so, each those factors will and are resulting successful higher expectations, which will consequence successful higher transaction prices present successful nan future, adjacent future.

Mario Saric

But I conjecture nan 1 differentiation Alberta is -- nan use of caller building elsewhere doesn't see rent control, right. So you tin complaint what you want, aliases what nan marketplace will carnivore connected some turnover and renewal, that's not needfully nan lawsuit successful Alberta. So erstwhile you -- hypothetically if you're allocating superior to Alberta going guardant successful position of outer growth, what do you spot arsenic a amended worth coming buying existing merchandise aliases caller construction.

Sam Kolias

We're seeing nan biggest opportunity of what we heard earlier. Our mean rent per quadrate ft arsenic a $1.50. We're seeing locomotion up betwixt $2.50 and $2.75 and past actual astatine $3 plus. And truthful we're amended is location maturation opportunities pinch respect to rent astatine a $1.50 a quadrate foot, astir half of what it requires of caller construction. When amended maturation is location than Alberta, that is nan question, we're asking, because we're having a existent difficult clip uncovering anyplace that's amended than what we person correct now correct here.

Mario Saric

Okay. That's it from me. Thank you.

James Ha

Thank you truthful much, Mario.

Operator

Thank you. And astatine this clip we person nary further questions registered. So I will move nan telephone backmost complete to Sam Kolias.

Sam Kolias

Thank you truthful much, Sylvie. As always, if location are immoderate further questions aliases comments, please do not hesitate to interaction us. With gratitude, we'd for illustration to convey our bonzer team, loyal residents, CMHC, our lenders, our portion holders and each our stakeholders. It really is each astir our group whose immense shoulders we guidelines and arsenic leaders, we proceed to do everything we tin to support continued maturation and extraordinary. We really can't convey our bonzer squad and awesome leaders enough. We are pleased pinch our improving results connected a instauration of exceptional value, work and acquisition we proceed to supply our Resident Members our investors and each our stakeholders. Welcome location to emotion always. Our early is family. We tin beryllium much -- what tin beryllium much important erstwhile choosing wherever to telephone home.

Thank you again everyone for joining america this morning. God bless america and assistance america each piece.

Operator

Thank you, sir. Ladies, ladies and gentlemen, this does so reason your convention telephone for today. Once again, convey you for attending. At this time, we do inquire that you please disconnect your lines. Have a bully weekend.