Boardwalk Real Estate Investment Trust

TSX:BEI.UN

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust First Quarter 2021 Earnings Conference Call. [Operator Instructions] A reminder that this call is being recorded on May 14, 2021. And I would like to turn the conference over to Mr. James Ha. Please go ahead, sir.

[James Ha, Vice President of Finance & Investor Relations]

Thank you, Sylvie, and welcome to the Boardwalk REIT's 2021 First Quarter Results Conference Call. With me here today is Sam Kolias, Chief Executive Officer; Lisa Smandych, Chief Financial Officer and Lisa Russell, Senior Vice President of Corporate Development. Note that this call is being broadly disseminated by way of webcast. If you've not already done so, please visit bwalk.com/investors where you will find a link to today's presentation, as well as PDF files of the Trust's financial statements, MD&A as well as supplemental information package.Starting on Slide 2, we'd like to remind our listeners that certain statements in this call and presentation may be considered forward-looking statements. Although the expectations set forth in such statements are based on reasonable assumptions, Boardwalk's future operation and its actual performance may differ materially from those in any forward-looking statements. Information that could cause actual results to differ materially from these statements are detailed in Boardwalk's publicly filed documents. I'd like to now turn the call over to Sam Kolias.

[Sam Kolias, Chairman & CEO]

[Audio Gap] re-engineered for growth through pandemic conditions, our results reflect we have adapted, we are evolving and are emerging with a focus on our organic growth, optimizing our revenues, reducing our controllable costs, and seeing market gains with our brand renovation and reposition communities. Strong demand growth is reflected by record population in Alberta in Q1, a return of post-secondary students, immigration and increasing demand for affordable housing. Our focus on quality service and experience is reflected by strong resident retention, community engagement initiatives and world-class resident member experience, measured by our record high net promoter score. Our geographic expansion is providing accretive results from economic and geographically diversified markets. Our combination of acquisitions and development provides us with exciting opportunities for the post-pandemic transition.Our next slide highlights Boardwalk's national portfolio and reflects on record affordability levels at current rental rates that provide for a sustainable growth opportunity across all our markets. Our most affordable markets are our largest Edmonton and Calgary market. Slide 5 illustrates how Boardwalk is capturing market share by outperforming in both occupancy and average rental rate.Slide 6. Our Q1 2020 operating results reflect positive NOI growth in our Quebec, Saskatchewan and Ontario markets. A drop in NOI for our Edmonton and Calgary markets due to the slower winter months last year and further lockdowns with vacancy troughing in the first quarter, and occupancy in revenues rising into the second quarter.Slide 7 shows our rent change on new and renewal leases, and how the use of incentives for new rentals has increased to drive higher occupancy and revenues. Sustainable rental rate adjustments on renewal are offsetting increases in our non-controllable expenses. Renewals are typically 60% to 70% of our monthly lease activity.Slide 8 shows strong rentals for January, February, March and April, as we continue to gain occupancy with more rental than move outs in each month. To date, May continues to be very strong with many renters coming from home ownership, new migrants to Alberta and with new resident members moving out of competitors' smaller apartment units into our larger 2, 3 and 4-bedroom units.Our Slide 9 provides key operational metrics, which reflect our incentives, occupied rent and number of associates essentially flat. Our Q1 revenue is slightly lower as a result of the lower Q1 occupancy. Since February, our monthly occupancy has increased 100 basis points. As we head into our strong summer rental season, the occupancy and revenue trend for all our markets is positive.Slide 10, our Boardwalk brand. Boardwalk's product diversification captures a much wider audience of resident member’s needs, increasing the overall demand for Boardwalk communities. We provide 3 different branded communities, Boardwalk Living, affordable value; Boardwalk Community, enhanced value and Boardwalk Lifestyle, affordable luxury. Currently, we have approximately 6% Lifestyle, 44% Communities and 50% Living suites across our portfolio. Each brand provides exceptional value at each price point, grounded on some of the most affordable rents in Canada.Slides 11 through 17 highlight our rebrand communities, and examples that yields on cost for some of our rebrand projects, as well as upcoming 2021 exciting community upgrades. To date, we have completed approximately 34% of total portfolio common area and 47% including the completion of 2021 project and amenity improvements, as well as 25% of total suite improvements.Slide 12. Our design team, in-house renovation team and contractor partners continue to move mountains as illustrated by our very exciting community improvements in Northern and Southern Alberta, Saskatoon, Regina, Kitchener, Montreal and Quebec City.Slide 13 illustrates some beautiful renderings and plans for our large West Edmonton Village community.Slide 14 showcases beautiful renderings and plans for our complex, low down conversion from a senior to multifamily community and renamed L'Astre.Slide 15 shows our rendering of a new exterior lobby experience center amenities and hallways for King's Tower in Kitchener, just down the street from the Google headquarters. There are also renderings of Greentree village in West Edmonton.Slide 16 shares our stabilized renovation return for Wimbledon, Edmonton, up 10.4% and has exceeded our 8% internal hurdle rate. Our renovations continue to garner positive resident testimonials, driving referrals and occupancy higher.Slide 17 features are efficient renovation at Sandford Apartments in London, Ontario, with a strong yield on cost of 18.2%. We would like to now pass the call onto Lisa Smandych, who will provide us with an overview of our financial results. Lisa?

[Lisa Smandych, Chief Financial Officer]

Thank you, Sam. On Slide 18, [indiscernible] the Trust delivered strong FFO and AFFO growth, with FFO increasing by 5.5%, from CAD 31.5 million to CAD 33.2 million for the 3 months ended March 31, 2021. AFFO increased by 9.1% from CAD 22.7 million to CAD 24.8 million, using an annualized maintenance CapEx estimate of CAD 1,012 apartment unit.During the recent quarter, the Trust completed a thorough review of its capital investment program, with a focus on defining its value add and maintenance CapEx activities. The results of this review is summarized on Slide 19, with the Trust anticipating total capital investment of CAD 3,980 per suite in 2021, as compared to CAD 3,402 incurred in 2020. The Trust defines value-add capital investments as those investments which focus on increasing the productivity of the property, with the goal of increasing net operating income through revenue growth and/or decreasing operating expenses. Value-add investments include, building improvements and common area renovations, as well as suite upgrades and technology initiatives, all with the goal of supporting NOI growth.For fiscal 2021, the Trust anticipates to incur CAD 2,968 per suite on value-add investments. Maintenance capital expenditures include those expenditures that are incurred to maintain and sustain the existing earning capacity of our property. Using a 3-year rolling average as a reserve, the Trust estimates to spend CAD 1,012 per suite on maintenance CapEx in 2021. Please note, the 2020 results presented were calculated using the same methodology as just described, as well as noting that significant judgment is required to determine whether a capital expenditure is needed to maintain versus increase the earning capacity of an asset.Slide 20 summarizes the Trust's monthly revenue collections from its resident members for the past year. Please note, collections are reported for the calendar month only, and do not include revenue collected in subsequent months. 98.7% of April revenue was collected in April, which is consistent with the Trust's historic run rate. For the quarter ended March 31, 2021, bad debt expenses totaled CAD 1.2 million or approximately 1% of rental revenue, which is in line with our pre-pandemic bad debt rates.Slide 21 provides a summary of Boardwalk's available liquidity. The Trust is well positioned with approximately CAD 94 million in cash and subsequently funded financings, as well as an undrawn CAD 199 million operating line. This approximate CAD 294 million in liquidity, provides the Trust with a flexible financial position in the current environment, as well as providing the ability to take advantage of opportunities as they present themselves.Slide 22 illustrates Boardwalk's mortgage maturity schedule. Our mortgages are well staggered, with approximately 99% of our mortgage balance carrying NHA insurance through the Canada Mortgage and Housing Corporation. This insurance remains in effect for the full amortization of the mortgage, and in addition to carrying the Government of Canada's backing, provides access to low cost financing with current estimated 5 and 10 year CMHC rates of 1.7% and 2.5% respectively. With current rates well below the Trust's maturing rates, mortgage financing continues to be one of the lowest costs of capital available to the trust. The Trust's debt metrics continued to improve with an interest coverage of 2.82 in the current quarter.Slide 23 summarizes our progress on our 2021 mortgage maturities. To date, we have renewed or forward locked approximately 35% of our 2021 mortgage maturities as well as secured CAD 42.6 million in new financing at low interest rates. Additionally, we financed a recent acquisition for CAD 32 million and an interest rate below 2%. Current underwriting criteria in our most recent submissions to CMHC and our lenders has remained in line with our historically conservative estimates. I would now like to turn the call to Lisa Russell, who will provide an update on our investments.

[Elizabeth A. Russell]

Thank you, Lisa. Starting on Slide 24. We are pleased to announce the acquisition of Aurora, a newly constructed 114 unit community, which is well located in View Royal, an established and growing municipality in Victoria British Columbia. Built in 2019, this community was purchased for CAD 48 million at an approximate cap rate of 4 1/4, and is currently 100% occupied. Aurora offers spacious living with average suite sizes over 840 square feet. This community is surrounded by natural park and walking trails. Aurora is nestled between one of our future development sites and the Victoria General Hospital, which will provide future operational efficiencies, and complements our reentry into the Victorian market. This acquisition represents the Trust's ongoing commitment towards the execution of its long-term strategy to geographically diversify in high-growth markets.Moving on to Slide 25. The Trust is also excited to announce the acquisition of Mountain View Estates, a well located 81 unit community in the picturesque resort town of Banff, Alberta. This world-renowned tourist destination surrounded by the beautiful Rocky Mountains has historically attracted over 4 million tourists a year, and has proven to be remarkably strong despite the impact of COVID-19. Parks Canada offers a non-participating 42-year land lease, which was recently renewed and expires in 2060. Mountain View Estates consists of 3-bedroom town homes, and 2-bedroom apartment units, offering its residents expanse of living space of over 930 square feet on average. This community is surrounded by breathtaking views of the National Park, and sits on an under-developed 8-acre parcel of land. Mountain View Estates was purchased for CAD 24 million at an approximate cap rate of 5%. This new acquisition will add operating efficiencies to our existing Banff portfolio. Throughout the pandemic, Mountain View Estates has maintained high occupancy rates, showing the resilient nature of this unique tightly-held under-supplied market. With a large mark to market over in-place rents, as well as future development potential, this value-add acquisition presents the Trust a significant value creation opportunity.Slide 26 provides a brief update on our current and future development projects. 45 Railroad in Brampton, Ontario is the Trust's only development project currently under construction. Work on the 2-tower, 365-units project continues to move forward on time and on budget. We anticipate the first tower to be delivered in late 2022. The Mississauga, Ontario development site which Boardwalk holds a 50% interest in, received rezoning approval in April, and is subject to a 20-day appeal period. The partnership is excited to achieve rezoning and to proceed with maximizing this development opportunity.In addition to our Eastern Development projects, the Trust has 2 future development sites in Victoria, BC. Rental fundamentals in this market remains strong with low vacancy rates and demand outpacing the supply of rental housing. These 2 prime development sites supplemented by our recent acquisition, gives Boardwalk a solid foundation in this high-growth market. The first site, Eagle's Nest which is located in View Royal, is zoned for approximately 250 rental units. We are working through permitting with a potential construction start in 2022. The second site, The Marin has received positive feedback from the initial consultation with the community, and application for rezoning has been made. We anticipate rezoning to be completed in 2021. These development sites provide the opportunity for Boardwalk to utilize its past experience and success in building accretive low-rise developments. The Trust is excited to bring Boardwalk's brand of unique design and affordability to Victoria, while creating value for the trust in our proven low-rise development program.Before I turn the call over to James, and wrap up my last conference call at Boardwalk, I would like to take a personal moment to thank Sam and [indiscernible] They are industry leaders and shared a vision over 30 years ago, which has truly transformed the Canadian multifamily real estate sector. Starting from a 16-unit company in Calgary, evolving into a REIT, which today owns and operates over 33,000 apartments across Canada. Sal, it has been an honor and my privilege to work with you over the years. You are brilliant, inspirational and have been a mentor and friend to me throughout my career at Boardwalk. As well, I'd like to send my gratitude to my team as well as our entire Boardwalk family, my industry friends, Board members, analysts and shareholders. I look forward to following the continued success of the company. I would now like to turn the call over to James.

[James Ha, Vice President of Finance & Investor Relations]

Thank you, Lisa. And thank you for everything. Slide 27, illustrates the exceptional value Boardwalk's current trading price represents when comparing to recent transactions in our core markets. CAD 37 per trust unit equates to approximately CAD 142,000 per apartment door. Boardwalk's high quality well located portfolio has an estimated NAV of approximately CAD 175,000 per apartment door, and compares in line with recent market transactions and well below the increasing cost of replacement.Utilizing 12 -- trailing 12-month property NOI, on Slide 28, Boardwalk's current trading price equates to an attractive 5.75% cap rate, and is a significant spread to the cost of available mortgage capital, as well as recent capitalization rates seen in major markets in Canada.As shown on Slide 29, each of Boardwalk's core markets present unique opportunities to accelerate on our trend of organic growth as we near the end of the pandemic. Our Alberta and Saskatchewan portfolio provides an opportunity to gain on occupancy while targeting sustainable incentive reductions on lease renewals. Our affordable and high -value offering Ontario and Quebec markets remain near full occupancy. Trust continues to focus on achieving sustainable AGI increases for community improvements and optimizing rental rates when units turn over. Just a CAD 25 adjustment in our monthly average in-place rents or a 2% improvement to our occupancy, each equate to approximately CAD 0.20 in annual FFO per unit, and represents a significant growth opportunity over the near and long-term, as we continue to optimize our revenue and NOI.Slide 30 shows a summary of our progress on our objectives. Through this pandemic, our competitive advantage, disciplined approach and resident-friendly focus has been rewarded with continued growth in FFO per unit of 4.8%, compared to the first quarter a year ago, which preceded the pandemic. Our accretive capital allocation, combined with our gains in occupancy since February, have positioned us to grow revenue sequentially through the year and in advance of the return of post-secondary students, immigration and a new post-pandemic environment.Slide 31 provides some highlights from our recent ESG report, while Slide 32 provides measurable objectives, the Trust has set for the year. The Boardwalk team is proud to highlight our continued focus on ESG by continuing to provide our essential service of affordable housing to Canadians, and striving to improve how we can further improve on our environmental and social impact, while enhancing our already top-rated governance practices. We look forward to updating our stakeholders on our progress towards our measurable objectives in the coming quarters. We would now like to open up the phone line for questions. Sylvie?

[Operator]

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

[Jonathan Kelcher, Analyst]

First just Lisa congrats on your retirement. We will miss you in the analyst community here.

[Elizabeth A. Russell]

Thank you very much. Jonathan. I appreciate it.

[Jonathan Kelcher, Analyst]

First, just on the Edmonton market. I guess in the report -- in your quarterly report, you talk about new supply making the market a little bit more competitive. You did see occupancy tick up in April. Do you think you're through the worst of the new supply, the competition from that?

[Sam Kolias, Chairman & CEO]

Jonathan, it's Sam. The MLS statistics in Edmonton shows a very, very strong absorption of listings and a drop of inventory. Our rentals are very, very strong in May, during a full lockdown. And so, the difference between this lockdown and the last lockdown is, we are experiencing super strong rentals. Now the good news, in our market surveys, everybody is experiencing this strong demand for rentals in Edmonton in Calgary. Our rentals and Edmonton today are outpacing rentals in Calgary. We are on track to absorb much more units in Edmonton, because we have more units to absorb in Edmonton than Calgary. And so, Calgary's occupancy has risen very, very well. Edmonton's following through on a really strong note, and we're seeing population movements into Alberta through other sources, like the MLS listings that are on Edmonton Real Estate Board, live data, Calgary Real Estate Board. Record high sales in both those markets, and when we asked our contacts, homebuilders, over 50% are new migrants coming to Canada, and citing Alberta is the most affordable place in Canada to move to, and as a result, they're coming, bringing their families, buying homes, renting with us and moving to Alberta, during a pandemic.

[Jonathan Kelcher, Analyst]

Okay. And I guess in your opening comments, you said May continues to be very strong. I guess that's across the board, you certainly, said that in Edmonton. So is it fair to say that new leasing is outpacing move-outs again in May?

[Sam Kolias, Chairman & CEO]

Significantly, significantly, and we're in a full shutdown. So we're extremely pleased with how rental is doing, and one word describes our team, extraordinary. There is no other word to describe our team and the efforts we're all making. And really, the Alberta market is absolutely turning around. There is lots of evidence -- again, both on the Edmonton Real Estate Board and the Calgary Real Estate Board, live MLS data, there are a lot of people moving back to and to Alberta as we speak.

[Operator]

Next question will be from Brendon Abrams at Canaccord Genuity.

[Brendon Abrams, Analyst of Real Estate]

Maybe just a follow up on Jonathan's line of questioning. Seems like you're seeing a strong demand so far in May, on the leasing front. Occupancy did tick up or increase in March and April, but coincided with higher incentive use. What's the current incentive use, maybe in Edmonton and Calgary, and what do you expect that to look like over the next few months during the high leasing season?

[Sam Kolias, Chairman & CEO]

Thank you, Brendon. What we're seeing in, let's go to Saskatoon and Regina for example. When we hit 99%, 100% occupancy in most of our communities or availability at 1%, we saw an essential evaporation of incentives for new rentals. In Saskatchewan, with our occupancy as high as it is, we're not seeing incentives like we were, and we're gaining on new lease rates and renewals of course. And so as we build up and many communities in Calgary and Edmonton are seeing much less incentives because our occupancy is much higher, and so several of our communities in Calgary, are over 98% occupied, and in Edmonton, we're seeing absorption and rentals, that our availability at the end of the month, will be much, much lower than it has been the entire year and certainly at the end of last year. So as our occupancy moves up to over 97%, 98% overall, that's when we will be seeing incentives come down on new rentals, in Alberta. And we believe that is on track for the strong summer and fall months. We're already seeing slight drops overall in incentives, but again, we look at the overall revenue gain -- the net revenue gain is positive and not -- that's the reason we continue to use incentives on new rentals in Edmonton and in Calgary to gain on occupancy, because its opportunity lost if we leave an apartment empty, and that revenue is gone for good if we lose that opportunity. And that's the reason we use this methodology, and it absolutely drives our NOI higher. When vacant unit is essentially all paid for, because of our expense nature, typically all fixed expenses, any dollar to the top line goes right to the bottom line, because most of our expenses, if not all are fixed. And that's why we use this occupancy and focusing on occupancy so much.

[Brendon Abrams, Analyst of Real Estate]

Right. Okay. Just as you were flipping through the slides there, in the opening remarks. I noticed West Edmonton Village is going through a rebranding. I think it's either your largest or second largest asset. Can you just provide some more color there in terms of what you're planning to do? Is it just the amenities building or is it the interior suites as well, and the projected cost of the overall project, and what you see as a return profile for the property.

[Sam Kolias, Chairman & CEO]

So the renovations as per the pictures that we have provided is including an amazing amenity. Because of the size of that community, approximately 1,173 units, it is our largest community in the West. Nun's Island is the largest community we have, and that's in Nun's Island. We're also doing common areas, because we find the return on doing common areas is the highest, and it's a phenomenal community, the scale of the community, the diversity of that community, the location of the community, we've identified it as a prime candidate to reposition. And our target's 8%, the budgets -- again, they're being finalized, we're actually doing an amazing job keeping our prices under control and securing materials in this inflationary commodity, inflationary environment that we find ourselves in, and again, our target is a minimum of 8%. We're very confident we're going to get at least that by renovating that phenomenal community, and it will really provide unique value proposition, given the scale and the amenities that we are providing and brushing up, that will really stand out in that community. And as a result, we're very confident that the returns that we'll realize will be very, very significant and beat our 8% target. Sorry, the budget is between CAD 2 million to CAD 2.5 million.

[James Ha, Vice President of Finance & Investor Relations]

Brendon, it's James here. Just to add to Sam's comments there, obviously, with the community that's over 3,100 apartment units and very much like other communities that we've renovated in the past, not a -- a small rental rate adjustment is all it takes for us to accomplish those returns. And so as we target those rental rate adjustments on those common areas, we do anticipate that we're going to be able to obtain yield on cost well above that 8% target.

[Brendon Abrams, Analyst of Real Estate]

Right. Okay. Maybe I thought you guys were just going to be building a whole brand new amenities building. But given the projected cost, it seems like that's not the case.

[Sam Kolias, Chairman & CEO]

Thank you, Brendon. Again, what we have been saying is, the use of our eyedropper when it comes to the use of our capital is very, very focused, concentrated and it must provide a great value proposition for everybody. Thank you.

[Operator]

Next question will be from Matt Logan at RBC.

[Matt Logan, Analyst]

Sam, it certainly seems like you're eyedropper approach to deploying capital is paying off, and the company is doing a good job of controlling the controllables. Could either you or maybe Lisa talk about where you see the NOI emerging trending this year, and give us a few examples of that capital conservation within the operating side of the business?

[James Ha, Vice President of Finance & Investor Relations]

Sure, Matt. Sorry, it's James here. Just to get started on the operating margin front. Our team is doing a fantastic job, to your point, Matt, on the operating cost control, on the -- specifically on the controllable cost front. As everybody remembers on the non-controllable side, we faced some significant increase in second half of 2020, specifically in property taxes and insurance. We haven't yet lapped those expenses. Good news is coming forward into the third quarter in the second half of the year, and we should get more color on this in the coming weeks. On the property tax front, there is some potential good news there relative to last year, especially where we faced 20% tax increases in Calgary, and high single-digit tax increases in Edmonton. Those are tax increases that we aren't anticipating continuing into this year. And so, with the revenue builds that Sam spoke of, that weren't creating gain into the spring and into the summer, that combined with lapping those expenses should provide some stability on margins going forward.

[Matt Logan, Analyst]

And if we were to build off of Brendon's question with respect to the incentives, they were CAD 9.4 million in the quarter. Based on what you've seen to date, how should we think about the burn off over the next 12 months? Is that a 2% to 3% reduction? Is that a 5% reduction? Any general color would be appreciated.

[James Ha, Vice President of Finance & Investor Relations]

Sure. Yes, on the incentives -- when we think about the incentives going forward, you see our pace on lease renewal. That's been where our focus is, and on retention, we've seen success in sustainably reducing those incentives. Our team continues to target through this environment, conservative numbers, right? CAD 20, CAD 30, CAD 40, CAD 50 adjustments, and seeing success with that. To Sam's earlier point, as occupancy continues to gain, that's going to position us to reduce those incentives on new leases. If we look back to pre-pandemic map, certainly we believed in retention and continuing sustainable adjustments going forward. So if I look at pre-pandemic, we were adjusting our incentives on a 4% to 8% basis. Again, continuing to target CAD 40, CAD 50, CAD 60, CAD 70 incentive reductions pre-pandemic. I think that's fair to say in terms of our targets going forward to build that sustainable revenue growth for the coming years.

[Matt Logan, Analyst]

And maybe if we turn to the transaction market. Wondering where, assets are trading in your core Edmonton and Calgary markets, either on a cap rate or price per suite. And if we take a look at where your stock is trading, would it make sense to perhaps sell a few assets and buy back units?

[Elizabeth A. Russell]

So I'll just take the first part of the question, and then probably James will jump in. So for transactions, it's been relatively quiet in Calgary. There has been a couple of transactions in 2021 in Edmonton and the caps ranging around a 4 to 4.5 range. And probably on a door price between about CAD 170,000 to CAD 180,000 on that kind of a transaction. James, if you want to add some color on.

[James Ha, Vice President of Finance & Investor Relations]

Yes, Matt, I think you've seen us being quite active in terms of trading assets, so paring on core assets and using that capital and recycling it into geographic expansion opportunities. Much like we did this quarter with our Banff and Victoria acquisitions, which are very accretive to our bottom line. You can still continue to see us do that. To your point, in the past, we have certainly taken that opportunity to pair non-core assets and repurchase stock. Today, much of the non-core asset sales are being redeployed into geographic expansion opportunities that are providing great accretion to our bottom line.

[Elizabeth A. Russell]

And just to add to that, right now we currently have 3 sales in Edmonton under contract, and we'll be able to give more color in that in August.

[Matt Logan, Analyst]

Excellent. And maybe one last one from me, before I turn it back. I don't know if I missed this, but can you tell us where the occupancy stands today in May? Is that up at all from April at 95.7%?

[James Ha, Vice President of Finance & Investor Relations]

Yes, we'll continue to -- we'll provide that update Matt, in the coming months, specifically with our regular operational updates through this pandemic. Our availability is lower though, aa Sam pointed out, rentals are continuing on the same pace relative to move-outs, as we've seen in the last few months. That availability is much lower than that occupancy.

[Operator]

Our next question will be from Howard Leung at Veritas Investment.

[Howard Leung, Investment Analyst]

I just wanted to ask about the recent move-ins that you're seeing. Are they seasonally different from what you've seen in the last year? In terms of the composition is the tenants, you've talked about some of them being from outside Alberta. Can you just give a little more color on that?

[Sam Kolias, Chairman & CEO]

Sure. Thank you, Howard. When we asked our team where folks are coming from, some are selling homes and moving back into rentals, because of the current economic situation. So we're seeing local demand from home or condominium ownership back into rentals. Foreign and migrants moving to Alberta, coming back to school, setting up for the fall early, going through the quarantine, going through all the rules and regulation that we have that's going to take longer, and also preparing for the fall because of the expectation that leaving -- finding an apartment in the last minute in the summer, is going to be a very tough situation, given that the -- as we all have discussed, the double cohort having this and last year's classes come back in the summer time. So there is a lot of [ keeners ] already coming back. Then, we ask our team, space and size really makes a big difference, and so our larger units, we hear from our team are very attractive. Residents moving out of the smaller one and studio apartments and smaller apartments in the marketplace to our larger 2-3-4-bedroom formats that we talked about. Our average unit size is a 2-bedroom unit size, just under 900 square feet, and so the larger spaces is really helping. The other phenomenon that we have seen and many others have discussed is the suburban locations. When we do our market shops, there is high absorption in the new product, very quick filling up of new supply and that continues to drive demand into our low-rise, low-density suburban locations, where [ folks ] and new residents are looking for communities that they can walk to their apartment units, not take elevators. And so there is difference and a change in preference to lower-density communities, and that's why we're seeing a really high occupancy, especially in our town homes. And so that, that's the trends we're seeing.

[Howard Leung, Investment Analyst]

And I guess as a follow-up to that, we have heard there is a gap between the suburban and urban properties for many [indiscernible] What would you think for you for your portfolio, the delta is in terms of occupancy between your buildings in the core versus in the suburban area?

[Sam Kolias, Chairman & CEO]

Approximately 200 or 300 basis points, 2% or 3% is the delta. And we have to give a lot of credit to our teams for repositioning our urban and core communities. And really, the improvements that we've made in our core really has helped us outpace the competition, especially the brand new high-rise when we pulled and surveyed in the downtown cores, has the highest vacancy, because of both price and small size. That is where the highest vacancy is, and we do not have any downtown new development high rise concrete communities, that we've developed and -- there'll be find, everything is now filling up. Again, the demand for housing overall, is very strong. And again our Slide 8, the rental jump out on our Slide 8, on the right hand side and our rentals are jumping out in May again. And again, we're in a full lockdown, is what we're in the middle of. And we are renting -- I'd like to use the word like hot cakes. I don't really know any other word to describe it, though. We talk to our competitors, all the time. They're seeing the same thing.

[Howard Leung, Investment Analyst]

Yes, it looks like there is a big surge in rentals there. I guess my last one is on incentives. It's -- looking at your deck, it looks like the average incentive last quarter was CAD 175,000 over unit. I guess running the numbers, it's implied that the number of [ free ] months, there is about 1.2. How many free months of rent are you offering lately, I guess in their incentives and how -- has it been declining from, let's say the past year?

[James Ha, Vice President of Finance & Investor Relations]

Howard, it's James here. The incentives really vary from community to community as you know. You're right, on average that is approximately where we're at. You compare that with our leasing spread slides deduce really those incentives are ranging anywhere from zero in Saskatchewan, where we are effectively zero availability through 2 to 3 months in some of our communities that might temporarily have higher availability today. But on average, yes, in that 1 to 1.5 month range, Howard would be fair. Again on lease renewals is where we're targeting and seeing success in reducing those incentives as well.

[Operator]

Next question will be from Joanne Chen at BMO.

[J. Chen, Director of Equity Research]

Apologies if I missed this earlier, but just wanted to check in on -- in terms of obviously very good control, but on the expense side. Just wondering what the runway is for more opportunities throughout 2021.

[James Ha, Vice President of Finance & Investor Relations]

I'd say, Joanne on controllable expense our team is doing a fantastic job and continuing to do so. I'd like to see us continue to maintain that. And I think our team can do so. We're, again, we may get some reprieve on some of our non-controllable expenses this year. And so keep an eye out for property taxes, we're watching that very closely. I will get more color on that in the coming weeks, maybe Lisa can just touch on insurance. That's a place where we might see.

[Lisa Smandych, Chief Financial Officer]

Yes, I would say from an insurance side, we're a little bit more cautious there. I would love to share, James's optimistic, that we might see property tax, but unfortunately, on the insurance side, capacity is still an issue in the insurance space. So we're just entering into our renewal period as we speak and so we'll probably -- we're a bit cautious, I'd say on the insurance side. But again, insurance is, roughly 3% to 4% of our total operating expenses. So not a big cost, however big -- we sometimes do you see some larger increases on that line.

[J. Chen, Director of Equity Research]

Got it. And I guess just one last one. With respect to occupancy, great to see you continue to climb through tail-end of the quarter, and obviously into April as well. Do you see the same magnitude of that improvement over the next few months?

[Sam Kolias, Chairman & CEO]

Its Sam, Joanne, and with vaccinations and with all the evidence that we're seeing in the United States with the CDC announcement, the other day, saying that double vaccers will not require masks, thank god the vaccinations work. And so we're well on our way. God bless America for helping Canadians out on vaccination supply, and it's awesome to see how many are open to getting vaccinations, and how effective vaccinations really, really, are. They do work and we're well on our way to reopening, like Great Britain like United States. And so the evidence is overwhelming, and our premier, our health advisors', premier move in Saskatchewan put out a opening plan together that's very clear. Saskatchewan has the lowest unemployment rate in the country of Canada right now, and is in a great position, an example of how we all can reopen and look to a more typical living that we used to have and share our smiles that we're all looking so forward to do. And so we're very happy with the evidence and the science, and how other nations are coming through the pandemic and crushing COVID.

[Operator]

Next question will be from Mario Saric at Scotiabank.

[Mario Saric, Analyst]

Maybe a couple of specific questions with respect to the rent change on priorities in May. I recognize that it's only half a month so far but it does seem occupancy is trending in the right direction. You have a sense of what the 2.1% lease renewal and negative 4.7% that was disclosed for April would be in May as well?

[James Ha, Vice President of Finance & Investor Relations]

Hey, Mario, it's James. Likely fairly on the lease renewal side, consistent. On the new lease side, it's early here but to Sam's point earlier, our availability is quite down. So I would expect that to potentially come in. We'll keep everybody updated with our release in the coming months.

[Mario Saric, Analyst]

Okay. And then maybe shifting gears to the property taxes Q1 versus Q4. They were down about CAD 1 million quarter-to-quarter. I think in your disclosure you highlighted some potential savings in Quebec with some near-term COVID related initiatives and then a disposition in Saskatchewan as well that helped. Can you maybe reconcile the million dollar decline quarter-over-quarter and how much of that you think is sustainable versus onetime-ish in nature?

[James Ha, Vice President of Finance & Investor Relations]

Mario. It's James again. Yes, I would say most of that was related to that successful tax appeal that we received in the first quarter in Quebec. Likely for Q2, we're likely to see a property tax number that's somewhere in between where you saw the first and the fourth quarter. That said, as we mentioned earlier, the third quarter is when we would anticipate our new bills come in, especially in Western Canada and fingers crossed, we're looking forward to seeing where that comes in, and certainly anticipating something that is much better than what we saw this time last year.

[Mario Saric, Analyst]

And when the optimism, just to clarify, so if we look at your Q3 20 property tax total of CAD 13.7 million. I know there's been some portfolio mix changes since then. But in terms of the potential change, is it simply a deceleration in the expected growth rate in areas like Alberta or could you see actual flat or lower property taxes year-over-year?

[James Ha, Vice President of Finance & Investor Relations]

Well, we're hoping for the latter there, Mario. Again, we won't know for certain for another few weeks here. But keep in mind, we think of Edmonton and Calgary, Calgary specifically facing 20% tax increases last year, even flat. 20% over 2 years is a significant increase. So we'll keep everybody posted. Again, fingers crossed, but we would be looking for the latter on that in Western Canada.

[Mario Saric, Analyst]

Got it. Okay. And my last question just relates to about market supply growth. There is various metrics out there, but do you internally, based on the metrics that we look at in Calgary and Edmonton in particular, can you give us a sense of what the expected development -- rental development completions in '21 are as a percentage of the existing inventory in both Calgary and Edmonton?

[James Ha, Vice President of Finance & Investor Relations]

Yes, I think from a development supply standpoint, the good news in terms of more urban projects, in other words not on the outskirts of the city. We can count many of those projects on our fingers here. Through the pandemic, we've seen as our development community slowed down significantly in terms of starting new construction. That really provides us this opportunity, as Sam was mentioning, as we see this return, as we see students come back, as we see immigration come back. We really are setting ourselves up for a very quick rebalancing of the housing market. In terms of the actual deliverables, we have that information in our investor presentation in the appendix, and we can certainly point you to reference that. But we're fairly comfortable with the supply deliveries that are anticipated over the next 12 to 24 months.

[Sam Kolias, Chairman & CEO]

Mario, the other thing, everybody is seeing is the double and triple-digit commodity and resource inflation, that we're seeing triple-digit with lumber, for example. In our discussions with again, a large homebuilder seeing approximately a 35% increase in construction costs. And so replacement value, we're seeing our wood replacement costs go up to CAD 300,000 to CAD 400,000 per unit. And then our concrete high rise at about CAD 600,000 a unit. Comparing that to our CAD 140,000 a door, we're in phenomenal shape. There is a huge moat around our products and our cost base is unbeatable, right now. We are in a very strong, solid position as a result of the huge increases in commodity prices and resource prices that we're seeing right now.

[Mario Saric, Analyst]

Got it. I don't have the appendix in front of me, but would it be fair to say when we factor in expected condo completions as well in both Calgary and Edmonton, as a percentage of the existing inventory, would it be fair to say that you're sub 3% in terms of supply growth?

[Sam Kolias, Chairman & CEO]

Yes. We do have that in our appendix, and as James noted, when we drive around the new supply and development is shrinking. And our new developments are getting very difficult to justify, given how low rents continue to be. It's just a big, big squeeze to develop anything, given how low rents still are. And our appendix is, Page 59 is the Edmonton new construction and that's backward looking, but when we look out and drive around there is fewer and fewer new developments going on. So the cranes' moving to other cities with higher rents and better economics.

[Mario Saric, Analyst]

I guess the rising construction costs should benefit that supply growth for lack thereof of 2 to 3 years from now in terms of completions. I was just more interested in and what we're starting pre-pandemic and what's going to come out -- come onto the market coming in at sixth for performance.

[Sam Kolias, Chairman & CEO]

Agree 100%. Just want to follow up with the West Edmonton. Rental adjustment is between $10 and $14. Because we have approximately 1,173 units there, we only require a $10 to $14 adjustment for all the improvements that we're doing there in our common areas. I just wanted to follow that up. Thanks.

[Operator]

And at this time, I would like to turn the call back over to Sam.

[Sam Kolias, Chairman & CEO]

Thank you, Sylvie. As always, if there are any further questions or comments, please do not hesitate to contact us. With gratitude, we would like to thank our amazing team of heroes, our great leaders, loyal residents, CMHC, our lenders and all our stakeholders. It is really all about our amazing team of heroes whose huge shoulders we stand and as leaders, we continue to do everything we can to support continued growth and extraordinary. We really can't thank our amazing team and great leaders enough. Because this is the last conference call that Lisa Russell will be attending, as our Senior VP of Corporate Development, giving over 25 years of extraordinary service, we would like to say a very special thank you Lisa, and wish her and her family all of God's choicest blessings for her retirement, and thank her for her huge shoulders she has provided us to keep standing on. We remain very blessed to have her in our BFF or Boardwalk Family Forever. Thank you so much, Lisa.We are pleased with our improving results on a foundation of exceptional value, we continue to provide our resident members, our investors and all our stakeholders. Our home is much more than the place. Our future is family, where love always live. What can be more important when choosing where to call home? Thank you again, everyone, for joining us this morning, and may God bless us all with healing, health and peace through all times.

[Operator]

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