Boardwalk Real Estate Investment Trust

TSX:BEI.UN

Earnings Call Transcript 2024-Q1

[Operator]

Good afternoon, ladies and gentlemen. Welcome to the Boardwalk Real Estate Investment Trust First Quarter 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on May 8, 2024.I would now like to turn the conference over to Eric Bowers, VP of Finance and Investor Relations. Please go ahead.

[Unknown Executive]

Thank you, Ludy and welcome to the Boardwalk REIT 2024 First Quarter Results Conference Call. With me here today are Sam Kolias, Chief Executive Officer; James Ha, President; Lisa Smandych, Chief Financial Officer; Samantha Kolias-Gunn, Senior VP of Corporate Development and Governance; and Samantha Adams, Senior VP of Investments.We would like to acknowledge on behalf of Boardwalk, the treaties in traditional territories across our operations and express gratitude and respect for the land we are gathered on today, and we now know as Canada. We respect indigenous peoples and communities as the original stewards of this land. We come with respect for this land that we are on today for all the people who have and continue to reside here and the rich diversity of First Nation, Inuit and Métis peoples.Before we get to our results, please note that this call is being broadly distributed by way of webcast. If you have not already done so, please visit bwalk.com/investors, where you will find a link to today's presentation as well as PDF files of the Trust's financial statements, MD&A and quarterly report.Starting on Slide 2, we would like to remind our listeners that certain statements in this call and presentation may be considered forward-looking statements. Although the expectations set forth in such statements are based on reasonable assumptions, Boardwalk's future operation and its actual performance may differ materially from those in any forward-looking statements. Additional information that could cause actual results to differ materially from these statements are detailed in Boardwalk's publicly filed documents.I would like to now turn the call over to Sam Kolias.

[Sam Kolias, executive]

Thank you, Eric, and welcome, everyone, to our Q1 2024 conference call and especially a very warm welcome to our new Senior Vice President, Investments, Samantha Adams and our new Corporate Counsel, Nandini Somayaji.Starting on Slide 4. Our continued strong performance with our GAAP and non-GAAP measures of FFO per unit profit and net asset value and unitholders' equity seen an increase. Slide 5, our culture from our humble beginnings 40 years ago in 1984, our resident members are at the top of our organization. Our leaders put our team first and our team puts our resident members first. Guided by the golden rule, we have a peak performing customer service culture that creates exceptional results.I would like to now pass it over to Samantha Kolias-Gunn.

[Samantha Kolias-Gunn, executive]

Thank you so much, Sam and congratulations to our team, our Boardwalk family on a huge accomplishment of our 40-year anniversary, celebrating 40 years of love always.Continuing on to Slide 6, our strategy to create value for our stakeholders begins with our people. We are extremely grateful for our extraordinary team who continue to innovate and deliver our places, homes for our resident members where love always lives. Our strategic focuses are best-in-class organic growth from our strategic decision made several years ago to implement a distribution policy, which maximizes free cash flow, reinvestments back into our communities, leverages our proven team and platform to deliver the best service and value to our resident members, which results in optimized NOI growth.When we pair all of this with the improvement in apartment rental market fundamentals in our core nonprice controlled markets on a solid foundation of some of the most affordable rents in Canada, we are well positioned to continue to deliver best-in-class organic growth. Accretive capital recycling focuses on opportunistic investment into acquisitions, dispositions or sale of noncore assets, development and investment into our own high-quality existing portfolio with a tactical unit buyback when appropriate, to also increase free cash flow.Our solid financial foundation provides flexibility on our balance sheet with our laddered mortgage renewal approach and CMHC insurance on 96% of our financing, this continues to provide us stability and access to low-cost mortgage capital with reduced renewal risk, compelling value from our strategic decision to diversify our product offering into 3 distinct brands, affordable living, enhanced value community and affordable luxury lifestyle.Slide 7. We continue to deliver leading growth. Boardwalk's existing exposure to strong rental demand nonprice control markets with record migration, significant organic growth as Alberta has some of the most affordable rental rates in the country with limited new supply versus demand from both international and interprovincial migrations. Our solid financial foundation and partnership with CMHC allows us to provide some of the most affordable rents in Canada. With rising interest rates, making homeownership more expensive and rising construction costs, all widening the gap between our replacement cost of our assets and our current valuation.Construction levels in our core markets remain low relative to anticipated household formation with record-high migration into our core Alberta market. All of our apartment rental fundamentals continue to improve with higher revenues as a result of our value-add program and inflationary adjustments, coupled with essentially no new incentives on new and renewing leases. All of our markets have near 99% occupancy with increasing operating income.Slide 8 shows the significant magnitude and scale on a historic level of continued all-time record high migration into our largest region, Alberta from both interprovincial and international migrants. This significant migration reflects the affordability that Alberta provides relative to other provinces.Slide 9 shows interprovincial migration sources into Alberta for the current year 2016 and 2006. Most in the provincial migrants are coming from Ontario and Quebec with a big increase from BC, reflecting a migration into more affordable housing in Alberta from higher housing costs in Ontario and British Columbia.Slide 10 shows continued strong overall employment growth in Alberta, along with how diversified new jobs are helping with the diversification of the Alberta economy. Alberta continues to provide outsized employment growth relative to other Canadian markets.Slide 11 shows Alberta's leading economic growth, resulting in significant increases in provincial revenue, placing Alberta in one of the strongest fiscal budget positions in the country.Slide 12 shows our large presence in affordable and nonprice controlled markets with Alberta and Saskatchewan, representing 62.3% and 10.2% of our portfolio, respectively. Boardwalk has the highest Canadian concentration of nonprice control departments amongst our public REIT peers. Boardwalk's current mark-to-market, which includes the reduction of incentive averages $202 per suite and equates to approximately an $80.2 million revenue opportunity.Slide 13 shows our high affordability as defined by CMHC in our core Edmonton and Calgary markets with rents still below 30% of median rental household income. To the right of the affordability chart is a graph, which shows the relative higher affordability in Alberta versus Canada and Canadian CPI indexed inflation.Slide 14 reflects supply constraints relative to demand. The graph on the left shows the significant imbalance between strong demand or population growth versus supply or new builds in the yellow block in gray with demand or migration accelerating further in our core Edmonton and Calgary marketplaces, far outstripping new supply. The green circle on the graph represents estimated demand equilibrium for the current 37,000 total housing units under construction. To the right, another graph showing how high construction costs remain along persistent higher interest rates.Slide 15 shows a continued downward trend on year-over-year turnovers. Occupancy continues close to 99% as a result of strong apartment rental fundamentals and our leading diversified product offering in all our key markets.Slide 16 shows our key operational metrics with high occupancy, much lower incentives versus last year, higher occupied rents resulting in higher revenues for the quarter, reflecting our key strategic decisions made to maximize free cash flow and diversify our product offering, yielding significant financial performance.Slide 17 shows steady net new and renewal rental rates within our self-regulated resident-friendly centric renewal rate band, keeping retention high, our turnover and expenses low. Year-over-year, we have seen a significant improvement. Existing lease spreads or renewals are strategically moderated to keep providing resident-friendly affordable housing options in our core markets, while lowering our costs and steadying operational results, a win-win for all our stakeholders.Slide 18 shows a strong 1.8% sequential quarterly revenue gain compared to a 1.6% sequential quarterly revenue gains last year.We would like to now pass the call on to Lisa Smandych, who will provide us with an overview of our portfolio performance and balance sheet. Lisa?

[Lisa Smandych, executive]

Thank you, Samantha. Moving to Slide 19. For Q1 2024, same-property net operating income increased by 13.5%, as compared to Q1 2023 with revenue growth of 9.4%. Alberta, the trust's largest region saw revenue growth of 11.1% as compared to Q1 2023. Operating expenses increased by 3.5% in Q1 2024, primarily due to higher wages and salaries as a result of inflationary adjustments at the beginning of the calendar year and higher utilities from an increase in utility rates.Of note, the cold spell experienced in Alberta during January 2024 did result in additional overtime hours for Boardwalk's associates as well as some repairs and maintenance charges. The team remains committed to ensuring focus and discipline when managing controllable operating expenses.Slide 20. Administration costs increased just over $400,000 as compared to Q1 2023 and were approximately flat to Q4 2023. The increase was driven by inflationary wage adjustments at the beginning of the year and an increase in software costs, including cybersecurity as well as increases in professional services, such as legal, tax and government relations. Deferred unit-based compensation increased due to an increase in the number of participants, as well as the cost of the program.Slide 21 illustrates Boardwalk's mortgage maturity schedule. Our mortgages are well staggered, with approximately 96% of our mortgage balance carrying NHA insurance through the Canada Mortgage and Housing Corporation. 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 financing at rates lower than conventional mortgages with the current estimated 5-year and 10-year CMHC rates of 4.4% and 4.5%, respectively. Though current interest rates are above the trust maturing rates, the trust maturity curve remains staggered, reducing the renewal amount in any particular year. Lastly, the trust has an interest coverage of 2.84 in the current quarter.Slide 22 highlights our 2024 mortgage program, which includes approximately $18.8 million, which was overheld from December 2023 at the previously in-place interest rates. To date, we have renewed or forward locked $152.5 million at an average rate of 4.5% and an average term of 5 years. Current underwriting criteria in our most recent submissions to CMHC and our lenders, has remained in line with our historically conservative estimates.Moving to the right of the slide, we provide a summary of Boardwalk's available liquidity. The Trust is well positioned with approximately $183 million in cash and subsequently funded financings, as well as an undrawn $196 million operating line. This approximate $379 million in liquidity provides the Trust with a flexible financial position.Slide 23 illustrates the Trust's estimated fair value of its investment properties. Excluding adjustments for IFRS 16, which totaled $8 billion as of March 31, 2024, as compared to $7.6 billion as at December 31, 2023. The increase in overall fair value is the result of increases in market rents at select sites and communities as market fundamentals improve, as well as the acquisition of the Circle in Calgary, Alberta, while all being offset slightly by an increase to capitalization rates. Current estimated fair value of approximately $231,000 per apartment door remains below replacement cost.Moving to Slide 24. In consultation with our external appraisers, the capitalization rates or cap rates used in determining Q1 2024 fair value were increased from Q4 2023. Upward adjustments remain the Trust Ontario assets in London, Kitchener and KWC. As it does every quarter, the trust will continue to review completed asset sales transactions and market reports to determine if adjustments to cap rates are necessary. Most recent published cap rate reports suggest the cap rates being utilized by the trust for calculating fair value are within their estimated ranges.Next slide. In addition to seeking external growth opportunities through strategic accretive acquisitions and the continuation of our development pipeline in undersupplied housing markets, our value-add capital program is increasing our organic growth opportunity.Slide 25 provides an update on our capital deployment specific to our value-add repositioning and renovation program. Our common area and amenity renovations position our communities to offer the best value, service and experience to our resident members and are a key contributor to Boardwalk's success in both tight as well as competitive market conditions.For 2024, our team is planning to complete 19 common area and amenity refresh projects. Our suite renovations are used opportunistically as our focus has increased to more back-to-back turnovers were suites that are vacated on the last day of the month are turned and ready for our new resident member within 24 hours. By focusing on completing more back-to-back, we eliminate vacancy and ensure that housing is immediately available in markets where it is needed the most. This past month ends, our team successfully completed over 200 back-to-back.With low availability in our markets, our teams are also making progress on the creation of suites from existing storage and administrative spaces. To date, we have added 24 suites to the market and are currently under construction for an additional 19 suites. Our recent equity raise in December provides the Trust with strong liquidity and the opportunity to accretively deploy capital to create and compound value for our stakeholders.On Slide 26, we summarized the use of our $240 million net proceeds. First, we utilized approximately $70 million to close our acquisition of the Circle in Calgary, which was announced in conjunction with our capital raise. The circle is a recently constructed 295 suite community located in the Calgary South Health Campus and provides increased operating synergies for our cluster of assets in the area. The Circle has an ideal suite mix and includes large unit sizes.We negotiated the forward sale of this community in May 2022 for a purchase price of $263,000 per apartment door and are now at 94% occupancy. We are anticipating a 7.75% stabilized cap rate on this community. In addition to the $70 million investment in the Circle, approximately $57 million was deployed towards the repayment in full of Boardwalk's portion of its construction facility related to the 45 Railroad development in Brampton. The trust interest rate on the construction facility was approximately 6.6% in the period prior to our repayment.The balance of proceeds from our capital raise have been invested in short-duration term deposits that are currently yielding over 5%, and as such, earning interest, while the trust is actively negotiating accretive acquisition opportunities. We look forward to sharing an update on these in the coming months.I would now like to pass the call to Samantha Adams to discuss our development pipeline. Samantha?

[Unknown Executive]

Thank you, Lisa. On Slide 27, we provide an update to our ongoing development pipeline to add housing in supply-constrained markets. We are pleased to share that the lease-up of the second tower of our 45 Railroad development is progressing well with over 50% of units in the second tower now leased. This project was delivered on time and on budget, and we are projecting a stabilized yield at the upper end of our forecasted range.With 45 Railroad nearing completion and stabilization, we are pleased to announce the acquisition of a land development site located in Marda Loop in Calgary. Marda Loop is one of Calgary's most desirable and amenity-rich neighborhoods and this site is located in the heart of the community. We've waived our conditions and are anticipating closing on the land in mid-June for a purchase price of $12 million or approximately $80 per buildable square foot. Our concept plan will feature the cost benefit of wood frame construction with larger suites and will provide a differentiated product in the Marda Loop node that will attract strong rental rates.For our Victoria development pipeline, Aspire is the first of 3 projects, and we are proceeding to framing on the 234 unit development, which is located adjacent to our existing Aurora community that remains fully occupied. The Aspire development is progressing on budget and will allow us to continue to scale our Victoria presence.As we consider our current portfolio and development opportunities, Slide 28 highlights the exceptional growth in value that Boardwalk Trust units represent. Boardwalk's current trading price equates to approximately $200,000 per apartment door and compares favorably to recent transactions and remains well below the increase in cost of replacement.I would now like to turn the call over to James.

[James Ha, executive]

Thank you, and welcome to our team, Samantha. Our current valuation represents exceptional value alongside our strong runway for continued earnings growth. With favorable fundamentals, strong leasing trends and leading NOI growth, we are pleased to update our guidance on Slide 29. Our performance in the first quarter was on the upper end of our expectations, and are a reflection of all our team's dedication and efforts in creating value for all our stakeholders.With leasing spreads continuing to be within our targeted range and our focus on maintaining high occupancy into the summer months, we are pleased to revise upwards, the bottom and top end of our same-property NOI range to 11% and 14% and FFO per unit range to $4 and $4.20 per trust unit. As always, we intend to further update and tighten our guidance range as the year progresses. Our team is committed to leading in transparency, and we'll continue to update our stakeholders in the event of any changing conditions that may materially impact our forecast.On Slide 30, we have confirmed our next 3 months distributions, which are a 23% increase from the same period last year. Our distributions have increased alongside our growing cash flow, while maintaining our industry low payout ratio, providing significant reinvestment for growth. We continue to maintain our minimum distribution policy with our payout ratio of 33%, representing one of the lowest in the sector.Lastly, on Slide 31, we are proud to have published our 2023 ESG report. Highlights include over $16 million invested in energy efficiency upgrades as well as a 15.8% reduction in our Scope 1 and Scope 2 emissions from 2019. Our social initiatives continue to focus on enhancing experience in the communities we serve, and our governance continues to be recognized for our leadership in transparency and disclosure. We cannot thank all our stakeholders enough for a great start to 2024, and thank you again to our Boardwalk team for your continued dedication and commitment in serving all our stakeholders.Thank you and we would be happy to answer any questions. Operator?

[Operator]

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Jonathan Kelcher with TD Cowen. Your line is open.

[Jonathan Kelcher, analyst]

Thanks. Good morning. First question just on acquisitions. You guys obviously have lots of liquidity. And I think, Lisa, you touched on that you guys are negotiating. What are you seeing in terms of opportunities? And what markets are you most looking at?

[James Ha, executive]

Hey Jonathan, it's James here. From an acquisition standpoint, as Lisa had in our prepared remarks, we are focused on looking for unique opportunities, not dissimilar to the deals that we've done fairly recently. If you look at the acquisitions that we've made over the last few years, they've all been similar or have rhymed and that it's been primarily newer products where we've been able to bring in our value add, whether that's through taking duration or taking lease up. But in exchange for that, buying great assets that are in great locations with great cap rates, so we continue to be active in negotiating and sourcing these acquisition opportunities, and we look forward to providing and sharing an update with our stakeholders as we move from negotiation into an unconditional -- from a negotiation to a nonconditional standpoint.

[Jonathan Kelcher, analyst]

Okay. And geographic markets?

[James Ha, executive]

Yes. Look, if you look at our results and look at our results across various geographies, it is clear where we are seeing the best opportunities. And that best opportunity right now is in Western Canada and specifically in highly affordable, nonprice controlled markets. And so with the platform that we have a platform that is built to optimize in that type of environment, we absolutely like markets like Alberta and Saskatchewan, again, not dissimilar to our most recent acquisitions.

[Jonathan Kelcher, analyst]

Okay. And then just turning to development. I guess when Marda Loop closes, you'll have 3 potential new ones. Do you expect to break ground on any of the 3 this year?

[James Ha, executive]

We continue to go through the entitlement processes or rate. So that's the Marin and Island Highway. We continue to progress through Aspire. But as our stakeholders are aware, our 45 Railroad project is pretty well complete. We are going to lease up, and that is going to fall off of pipeline and moving into our stabilized portfolio. Our development pipeline, we want to remain consistent. We have the right platform to keep 1 or 2 developments on the go at any given time. And that will be our continued focus here. And so as we get through entitlements, we will decide on the economics and when the appropriate start date on those will be once that time comes, Jon. We're really excited about Marda Loop -- doesn't know Marda Loop is an absolute A+ location in Calgary, in 5 minutes in downtown. There are other opportunities there that we've looked at in the past, but sadly haven't had the right type of product that's been built that suits what we believe would be the best product for longevity. And so we are looking to build larger units to Marda Loop and bring a unique product to that submarket, not unlike what we did in Northwest Calgary with Brio. That has been a very successful project, I think, for us. And we've shared this with our stakeholders in the past for development where it could be very attractive is when we can combine the unique attributes of having wood-frame construction costs with concrete like rents. Marda Loop is one of those unique locations in Calgary where we can provide that.

[Jonathan Kelcher, analyst]

Do you have a rough estimate of what cost per unit might be on a wood frame right now in Calgary?

[James Ha, executive]

It's really early, Jonathan. And our team is going through massing and planning as we speak. We hope to be able to share that in the coming months. It's a little bit too early for us to pin that number to structure, Jonathan.

[Jonathan Kelcher, analyst]

Okay. I'll turn it back. Thanks.

[Operator]

Your next question comes from the line of Mike Markidis from BMO Capital Markets. Please go ahead.

[Michael Markidis, analyst]

Thanks operator. Good afternoon team Boardwalk. Just firstly, on the revised same-property growth that look of 11% to 14%. Would you be able to give us some guidepost between the revenue and OpEx components of that, please?

[Lisa Smandych, executive]

Hi Mike, it Lisa. I hope you're well. Certainly, from a revenues perspective, we would be looking more -- in comparison to our original guidance, we would probably be performing closer to the mid to higher end of our guidance. And so, that we're likely looking at revenue growth sort of in the high 8% to perhaps the mid-9% from a guidance perspective. From an operating expense side, appreciating some of the expenses that we did see in Q1 coming from that gold style in Alberta. Our expense range for all of our expenses would be sort of that 2% to 5% roughly in line with where we started the year out.

[Michael Markidis, analyst]

Okay. So high is the mid-9s on RAB, 2% to 5% on OpEx is the parameters?

[Lisa Smandych, executive]

Approximately.

[Michael Markidis, analyst]

Yes, roughly. Okay. Got you. Got you. Okay. So I mean, just looking at your expanded mark-to-market, it seems like rent growth, market rent growth in certain markets, particularly that menthol stands out as sort of catching up, maybe lagging a little bit here. I know you got to get through the summer leasing season, and I know we're still focused on 2024. But I guess my question is, based on what you guys are seeing today, if you look out to 2025, is there -- what are your thoughts with respect to whether or not the -- your ability to drive a similar level of revenue growth will sustain itself or whether or not that starts to moderate?

[James Ha, executive]

Hi Mike, it's James here again. I think we certainly our moderated approach has that goal of elongating the similar path that we've been taking, right? And so if you look at last year on the revenue front or certainly on the leasing spread front. It's fairly similar to what we're delivering here now today. And so, when we're targeting 7% to 9% on renewals, when we're targeting 10% to 15% on new leases and recognizing that, I think it was in Samantha's prepared remarks, we certainly are seeing strong population growth into Alberta, and we're seeing some constraints on supply. So with that -- with that in mind, we certainly are targeting similar leasing spreads moving into 2025 at this juncture. When we look at the supply picture and what's under construction today, again, I think this was in Samantha's prepared remarks, and we have 37,000 total housing units under construction right now in Calgary and Edmonton. I'm not sure that that's all going to get delivered this year. But even in spite of that, our population growth continues to far exceed that. And so that should continue to provide us the ability for these more sustainable adjustments that we've been providing last year, that we're providing this year, and that will aim to provide for next year as well. Sorry, Mike, I was just going to add. Affordability continues to be extremely high. Rent relative to incomes are in the mid-20s. Again, that is some of the lowest in the country. And so certainly, being able to balance both of those provides us that ability to continue the strong revenue path.

[Michael Markidis, analyst]

Got it. Thank for that. Okay. Last one for me. I just want to make sure I'm understanding the accounting and I guess, the potential flipping contribution from 45 Railroad. So with the repayment of the portion of the construction facility, was that -- that -- was that a pay down at the JV level? Or did you guys basically take back a note to offset that impact in your income statement elsewhere?

[Lisa Smandych, executive]

Yes. It's going to be the latter, Mike. So basically, everything is being accounted for growth. For the equity accounted investment in the actual partnership itself. The partnership itself still has the full debt, which then Boardwalk towards 50% of. And then on the -- we then have an interest income on the balance sheet, the loan receivable for the amount being paid by the partnership back to us, which results in that related party note as well.

[Michael Markidis, analyst]

Got it. Okay. And that was that -- did that take effect -- was that an effect for the entire quarter? Or was it a partial quarter?

[Lisa Smandych, executive]

More or less, yes. I think we paid it off to January 7, January 6. So yes, pretty much the whole quarter.

[Michael Markidis, analyst]

Okay. Got you. And then just from an NOI perspective, I know the interest cost was definitely into the contribution from the JV, and I know it's an offset, so we'll have to dig into that. But just from an NOI perspective, when you look at where 45 Railroad is at currently versus where there is upside in the rest of the lease-up. What would sort of be that delta right now?

[Lisa Smandych, executive]

Sorry, are you asking on the accounting side or just where we're seeing how the JV is actually performing on an NOI performance?

[Michael Markidis, analyst]

Well, I guess I think -- I don't know, I may have missed. I think you may have taken away sort of the detailed JV disclosure on the revenue and expenses. But if you didn't, I missed it, I'll go back and look. But just getting a sense of where the NOI for the project was in Q1 and then sort of mean we can get to the stabilized level, but what that -- just trying to get a sense of the upside versus what was booked in this quarter.

[Lisa Smandych, executive]

Certainly, yes. So you are correct, Mike. We did -- given the immaterial nature of the note, we did take out the JV note in Q1. So overall, because we are still in lease-up of that tower 2, that JV would have had a slight loss considering that would have been the interest cost that is currently incurring. From a net operating income perspective, we did see a little bit of seasonality on the revenue side just at Q1 month to month, but we are sort of -- we are progressing within our budget and forecast for that asset.

[Michael Markidis, analyst]

Okay. So was it flat or negative NOI this quarter? Was it positive? Just trying to get a sense.

[Lisa Smandych, executive]

I want to say it was right around flat. So I think the way I would look at it, I guess, is we're moving through the year, you would have seen a loss on the JV in Q1. I think you could anticipate similar loss sort of for the first half. And then once that asset becomes closer to stabilization, it will turn to positive. But overall, in the context of the year, I would expect a slight loss on the asset overall for the year.

[Michael Markidis, analyst]

Right. But taking into effect the interest income, your contribution is effectively the unlevered yield that you get on your portion of stabilizing.

[Lisa Smandych, executive]

That's correct.

[Michael Markidis, analyst]

Okay. That is very helpful. Thank you very much. I'll turn it back.

[James Ha, executive]

Thanks, Mike.

[Operator]

Your next question comes from the line of Sairam Srinivas with Cormark Securities. Your line is open.

[Sairam Srinivas, analyst]

Thank you. Good morning, good afternoon, everybody. Just looking at -- maybe probably line on Johnson's line of questioning. When you look at the acquisition game and you look at the acquisition market, and all the vendors that are coming up with these targets, what's driving the opportunities in the market? Is it more of maybe developers kind of finding it difficult to actually pay down their loans and essentially trying to get out of projects? Or is it more organic opportunities that would normally be in here maybe a year ago?

[James Ha, executive]

Hey Sai, it's James. Certainly, in the acquisitions market, interest rates are tough, right? I mean higher interest rates certainly make it much more difficult for many groups. I mean I think of, again, some of the opportunities that we've had with our past acquisitions, and that has provided that opportunity for us to come in. And so -- every deal is different. Everybody has their own circumstances. But even within our own projects, when you have higher carrying costs for construction, Lisa just talked about paying down our portion in full at 45 Railroad where we were paying Lisa, our interest rate at 45 Railroad was.

[Lisa Smandych, executive]

Our last payment was 6.6%.

[James Ha, executive]

6.6%, and that's under our full covenant as well. And so, higher interest rates certainly make it tougher. Hopefully, that answers your question, Sai.

[Sairam Srinivas, analyst]

It does, it does. And maybe just kind of shifting gears to the operations things. Do you guys track the amount of time it actually takes to maybe lease a unit? And has that actually changed from, let's say, a year ago or 2 ago to now?

[James Ha, executive]

Sai, I would say in the marketplace right now, and you can see it in our occupancy number, we are running pretty well at max occupancy. We actually think it could be better. Today, we're turning over units, as Lisa had mentioned, within 24 hours. That's a huge focus for us, and that's how we can get vacancy to 0, right? If we think of days vacant, in that case, Lisa was speaking to those 200 back-to-backs that we were doing, vacancy on those units is zero. If a unit is sitting vacant for 2 weeks, slide 2 out of 52, that's 4% vacancy on that unit. And so, our goal here is to take that the number of days vacant to 0. We do continue to see some strong wait list in a lot of our communities, and that's resulting in us being able to maximize this occupancy, and we'll continue to aim to maintain that high occupancy through the summer, if not even improve it by doing even more back-to-back.

[Sairam Srinivas, analyst]

That's really encouraging. Thanks for apology and I'll turn it back.

[James Ha, executive]

Thank you, Sai. I do just want to operate it before we jump in, I do want for the purpose of the transcript. I think we had said the circle was 7.75% cap rate to be clear and as per the slide, that is a 5.75% cap rate on the circle per Slide 26. thank you.

[Operator]

Your next question comes from the line of Jimmy Shan from RBC. Your line is open.

[Jimmy Shan, analyst]

Thanks. I wondered if you had any general comment on how you think the limits on nonpermanent residents, how that will impact rental demand going forward?

[Unknown Executive]

Hi Jimmy, it's Eric. I can comment on that one. So I think a couple of things. There's still some clarity we need on that announcement in terms of how that looks regionally. I think we'll get a lot more clarity on that in the fall. But generally speaking, I think a couple of things that really worked to Alberta's advantage, number one. We do have a significant interprovincial migration flow of around 55,000 people a year. James touched on that a little bit in his remarks, but some of the factors leading to that, including the affordability, we see being a continued trend going forward.Also, I guess, on that nonpermanent resident front, we still have a significant shortage on the supply side. So to date on that, we've seen some pretty limited response from a supply perspective and some of the other measures that are being proposed under the budget and other announcements are going to take a lot of time to flow through the system. So that is all to say that over the next few years here and beyond, we see that being a pretty limited impact over the medium term to our demand side of the equation.

[Jimmy Shan, analyst]

If the population growth now returns to that equilibrium, as you pointed out, that 90,000 to 100,000 population growth that you have in one of the slides versus the 150,000, 200,000 has been last year. In that environment, would -- do you think you'd still be able to push through the type of rent growth that we've seen?

[Unknown Executive]

I think part of the beauty of our strategy right now on the self-operation side of the new leasing spreads and renewals is that by design, we are looking to elongate that revenue run rate over time. So I think for us, a more sustainable demand supply picture in the long run is actually a good thing to maintaining our long-term affordability, and that's part of the reason why we take the self-moderation approach in the first place.

[James Ha, executive]

I'll just add to that, Jimmy, it's James. Again, we'll point back to affordability. Rent relative to income in the mid-20s, where else can you get that in the country right now? Calgary and Edmonton are continuing to see strong draws. I heard yesterday that Alberta is calling campaign is running a gain in that we're incentivizing trade workers to come to Alberta. And so again, when we look at that attractiveness of Alberta, if we look at the affordability, if we look at the high lifestyle, if you look at the low taxes, I think Alberta continues to see the benefits of that. And as a result of that backdrop, we are confident that we can continue to see this growth going forward, especially knowing that, to Eric's point, we are elongating this runway with our own moderation.

[Jimmy Shan, analyst]

Okay. And then just last one, I just wanted to confirm something as well, Samantha Adam, it's good to connect with you again. But as I recall, Samantha has well experienced in the US, you tell me if I'm reading too much into it, but I'm assuming you're not looking to make acquisitions in the US?

[Unknown Executive]

Jimmy, it's nice to connect with you as well. No, today, our focus remains solely on our core markets, I think as James and Samantha and everyone here has already alluded to. So that will be the focus going forward.

[Jimmy Shan, analyst]

Okay. Thank you.

[Operator]

Your next question comes from the line of Matt Kornack with National Bank. Please go ahead.

[Matt Kornack, analyst]

Hey guys. Just given your approach and pushing rents over a longer period of time, have you seen turnover come down in the portfolio as a result of the bigger mark-to-market for people to move elsewhere? And then maybe just qualify the type of turnover you're seeing in the portfolio at this point and where tenants are going.

[James Ha, executive]

Hey Matt, it's James. Turnover in our Alberta, Saskatchewan portfolio, actually, countrywide, we have seen turnover decline. We can go west to east here in BC. We've seen that turnover decline into the mid-teens, Keep in mind, we do have a newer product in BC in Alberta and Saskatchewan that turnover has come down to 25% to 30%. That is down from 35% to 40% a couple of years ago and by design, right? Turnovers cost money. And so for us, and this is much different in a nonregulated market or a nonprice controlled market is, hey, we as community providers want our residents to stay with us. And so as a result of that as a result of the lower targeted spreads that we're providing for renewals, the increased sustainability that we're providing our residents that are staying with us, we're also benefiting from that lower turnover. And so part of it is by design, Matt. The other part of it as well is, again, most community providers in Alberta and Saskatchewan, I figured this out as well and are looking to retain their residents. In Ontario, our turnover has declined to high single digits to low double digits. And similarly, in Quebec, our turnover is down into the 10% to 15% range.

[Matt Kornack, analyst]

Just with regards, I mean, in the past, when Albert has been hot, labor costs have increased. You've said 2% to 5% expense growth, but are you expecting that, that dynamic returns? Or is the oil and gas industry is not maybe as proactive on hiring people at this point, so maybe you won't see as much growth in wages, just interested on that front.

[Lisa Smandych, executive]

When we're contemplating that 2% to 5%, Matt, that's -- I mean that's looking specifically where we're seeing Boardwalk's costs in terms of sort of utilities, insurance, some of our controllable expenses. I don't think we're at disjuncture we're not forecasting a required wage adjustments that we'll set in the province. I mean, we would agree with you that Alberta does have some of the highest incomes across the country. And certainly, sometimes that does -- the energy sector can lead where those wages come from. But at this function, we're not forecasting requiring a wage adjustment within our 2024 calendar year.

[Matt Kornack, analyst]

Fair enough. And then lastly, on the CapEx budget for 2024, it looks like you're allocating a little bit more to kind of common areas. Is that -- I mean, I would think at this point, you don't really have to allocate much to get people to rent, but what's the justification for kind of incremental expense there? Or is it just inflation and the cost to kind of renovate? Thanks.

[Lisa Smandych, executive]

Yes. It's using that, to your point, geared more from the inflation side of what those common area improvements will cost. That's not to be said that -- I mean, we will make sure that there is that incremental return above and beyond what the market will already give us from an organic growth perspective when we pursue those common area renovations. So should, to your point, do we need to do them or not, we're only doing them if that incremental return above what the market is already giving us is available.

[Matt Kornack, analyst]

And then presumably, similarly on suites, you're doing the minimal that needs to be done, given how competitive the market is at this point?

[Lisa Smandych, executive]

At this point, really focusing on those back-to-backs, trying to keep our vacancy or our vacancy as low as we can, occupancy as high as we can. Should the suite, of course, if the suite turns over and it requires more than just a normal back-to-back. We will, of course, make that investment because we can then drive the rent up again on that suite. But again, everything is very disciplined in details in terms of what level of renovation we do, ensuring that the return is there should we do it.

[Matt Kornack, analyst]

Great. Thanks for the color.

[Operator]

Your next question comes from the line of Dean Wilkinson with CIBC. Please go ahead.

[Dean Wilkinson, analyst]

Thanks. Hi everyone. I don't know if this is Sam or James or jumble. You can't open a paper or turn on a TV in the last 6 to 8 weeks without hearing another housing announcement, housing announcement, housing announcement. And it seems to have pressured, not just you but your peers. Is there anything in what you've seen read or heard that would actually fundamentally change the strength of the dynamic of not just you, but the entire housing supply-demand imbalance that we're currently seeing.

[Sam Kolias, executive]

Dean, its Sam. And the only thing we learned from history is we don't learn from history because in the 60s and 70s, our taxes for housing was much, much lower. And our capital cost allowance was much, much higher -- we're going to commend our policymakers for increasing capital cost allowance from 4% to 10%. It was 20%. And then the MER was 200%. And that's when we build more housing than demand and rents dropped probably 30%, 40%. And that's not the policy that we're recommending. But 10% is a start and lowering our taxes is a proven public policy, and we asked the question, why do we want to increase taxes on something we need more of? And as voters, we have to keep asking that question. We've got to look at the past, learn from history and keep decreasing taxes on housing because that's really the biggest, most expensive part of housing over the last several years is our taxation.

[Dean Wilkinson, analyst]

Tax on all of us, yes. So do you think that the concept of affordable housing and new supply are potentially at cross purposes to each other? Like you're in the market, you're building. And I've talked to James a lot about this, and I think that you'd be ecstatic if you could build something for 450,000 or 500,000 a door. It just seems like there's -- the math is strained.

[James Ha, executive]

Yes. The huge opportunity here, Dean, is that we have an existing portfolio where average rents are $1,400 a month. That is some of the most affordable rents that you'll find in the country. So again, to Sam's point, I mean, we certainly applaud some of the policy initiatives, including the affordable acquisition fund, which presents a great opportunity for us to keep existing affordable housing, affordable while providing some opportunity for those same community providers to recycle that capital and add more supply into the housing market. Now what's maybe taking a step back on that is the capital gains increase, which it's one step forward, one step back. But again, to Sam's point, a great way to incentivize more housing is to lower taxes on it.Capital grants are great for the not-for-profits. And we have a community that still provides affordable housing in Spruce Ridge, Southwest Calgary, where we entered into a partnership, 50-50 between ourselves and the province and feds on community where 50% was provided the capital and that capital helps amortize and subsidize rents for the next 20 years. And so we're in our 13th year on that community, providing affordable rents and amortizing that 50% capital grant. So that's another great example. Litec in the United States, low-income housing tax credits that provide this similar type of capital. We saw that again in the '50s when our veterans came back from the second world war and the '60s, we were in the exact same situation and our housing was very, very difficult to find very expensive given the ratio of housing versus wage and salaries. And so we've been here before, and there are great ways providing affordable housing. We just got to bring back what we did. It was a long time ago, 30, 40, 50 years, not everybody remembers what happened back then.But it sure worked. And it's you're working in the United States, in Texas, Florida, capital gains in some instances, is 0%. Lower taxes, lowering the prices, it's the law of supply demand. It's not a theory. The more we lower price of anything, the demand goes up. And our Alberta government, it's in a surplus. We lower taxes. And guess what? We're making more tax revenue in Alberta than we've ever, ever made. It's the law of supply and demand. It's not a theory and it's very difficult to explain that, but we need to keep rewinded and repeating that and lower taxes works when it comes to more affordable housing.

[Dean Wilkinson, analyst]

Firm your lips to Reagan years, I couldn't agree more. Thanks for that, Sam. Thanks, everybody.

[James Ha, executive]

It's a good point. Reagan brought it in. He did bring that home and it worked. It worked?

[Operator]

Thank you. [Operator Instructions] Your next question comes from the line of sorry -- please go ahead. There are no further questions at this time. I would like to turn it back to Sam Kolias for closing remarks.

[Sam Kolias, executive]

Thank you so much, Ludy. As always, if there are any further questions or comments, please do not hesitate to contact us. A big huge thank you to Lisa Smandych, for her 16 years of service, inspiration and leadership, we are so blessed to have her in our Boardwalk family forever and wish her well in her future.With gratitude, we would like to thank our extraordinary team, loyal residents, CMHC, our lenders and of course, our unitholders. It really is about our BFF, our Boardwalk family forever, whose huge shoulders we stand. And as leaders, we continue to do everything, we can to support continued growth in extraordinary. We really can't thank our extraordinary team and great leaders enough. We are pleased with our improving results on a foundation of exceptional value service and experience. We continue to provide our resident members, our investors and all our stakeholders. Home is where our heart is, our heart is where our family is and our family is where love always lives. Welcome home to love always. Our future is family, what can be more important when choosing where to call home.Thank you again, everyone, for joining us this morning, Godless and now more than ever, grant us all piece.

[Operator]

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.