Boardwalk Real Estate Investment Trust

TSX:BEI.UN

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, ladies and gentlemen. And welcome to the Boardwalk Real Estate Investment Trust Second Quarter 2023 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 Friday, August 11, 2023.

I would now like to turn the conference over to Eric Bowers, Vice President of Finance and Investor Relations. Please go ahead.

[Eric Bowers, Vice President of Finance and Investor Relations]

Thank you, Julie. And welcome to the Boardwalk REIT 2023 second quarter results conference call. With me here today are Sam Kolias, Chief Executive Officer; James Ha, President; and Lisa Smandych, Chief Financial Officer. 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 and MD&A.

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, Chairman & CEO]

Thank you, Eric and welcome everyone to our Q2 2023 conference call. Starting on slide 4, our performance with our GAAP and non-GAAP measures and FFO per unit profit, net asset value and unit holder equity, all seeing an increase from the same quarter of the prior year or December 31, 2022. Slide 5, our culture from our humble beginnings 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. Slide 6. our strategy to create value for our stakeholders begins with our people. We are so grateful for our extraordinary team who continues to innovate and deliver our places, home for our resident members where love always lives. In turn, this leads to leading earnings performance, which we believe will continue to result in strong total returns for our stakeholders.

Our strategic focuses are significant organic growth from utilizing our proven team and platform that focuses on operational excellence to optimize NOI growth, when we pair this with the current improvement in apartment rental fundamentals on a solid foundation of some of the most affordable rents in Canada. We are well positioned to continue to accelerate on our organic growth trend. Accretive capital recycling focuses on opportunistic investment into acquisitions, development and investment into our own high quality existing portfolio with a tactical unit buyback when appropriate. Those opportunistic investments combined with our operational optimization have positioned Boardwalk for increasing asset values within Boardwalk’s diversified and high quality multifamily portfolio.

Our solid financial foundation provides flexibility on our balance sheet with our growing free cash flow and with CMHC insurance on 96% of our financings, which provides access to low cost mortgage capital with reduced renewal risk. Slide 7, we are delivering solid growth, Boardwalk’s existing exposure to strong rental demand, non price controlled markets with record immigration significant organic growth, as Alberta has some of the most affordable rents in the country with limited new supply versus demand from both international and interprovincial migration. 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 in migration into our core, Alberta markets.

Our largest market, Edmonton ended last month of July, with 14 available units to rent, contributing to our solid performance. Apartment rental fundamentals continue to improve with higher revenues as a result of inflationary adjustments, coupled with essentially no new incentives on new and renewing leases. All of our markets have near full occupancy and strong apartment rental fundamentals. Slide 8, shows the significant magnitude and scale on a historic level of all-time record high in migration into our largest region, Alberta, from both interprovincial and international migrants calling Alberta home. This significant migration reflects the affordability that Alberta provides relative to other provinces coupled with higher job vacancies. Slide 9 shows interprovincial migration sources into Alberta for current year 2016 and 2006. Mostly interprovincial migrants are coming from Ontario and Quebec, with a big increase from BC reflecting on migration into more affordable housing in Alberta from higher housing costs in Ontario and BC.

Slide 10 shows strong overall employment growth in Alberta, along with how diversified new jobs are helping with the diversification of the Alberta economy. Slide 11 show some headlines that reflected diversifying economy for Alberta. Alberta's economy remains strong. In addition, there are many major projects under development in the province of Alberta which will further promote more job opportunities in the future. Slide 12, shows our large presence in affordable and non-price controlled markets. With Alberta and Saskatchewan representing 62.1% and 10.3% of our portfolio respectfully. Boardwalk has the highest concentration of non-price controlled apartments amongst our public peers. Boardwalk’s current mark-to-market, which includes a reduction of incentives, averages $169 per suite, and equates to approximately $66 million of revenue opportunity.

Slide 13, shows our high affordability as defined by CMHC in our core, Edmonton and Calgary markets, with rents well below 30% of median rental household income. To the right of the affordability chart is a graph which shows occupied rents in Alberta are still tracking below both Alberta and Canadian CPI Index inflation. There remains a significant gap between occupied rents and the changeover consumer price index over the last eight years. Boardwalk rents continue to provide exceptional value versus consumer price index over the last eight years. Slide 14, shows the graph on the left which shows significant imbalance between strong demand for emigration versus supply or new builds with demand or migration accelerating further in our core Edmonton and Calgary marketplaces, far outstripping new supply. To the right, a graph showing how high construction costs remain along with persistent higher interest rates.

Slide 15, shows high occupancy as a result of strong apartment rental fundamentals in all our key markets. Move-outs versus last year are also dropping as our retention and value proposition increases. It is important to compare same month over previous month last year because of seasonality. Slide 16 shows our key operational metrics with high occupancy, lower incentive, higher occupied rents, resulting in higher revenue for the quarter. Slide 17, shows steady net new and renewal rental rates with our resident friendly centric renewal rate ban 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 stakeholders.

Slide 18, shows a 2.3% sequential quarterly revenue gain, an increase from 1.6% previous quarter, as we discussed last quarter would increase this quarter reflecting rental market adjustments, higher occupancy and no more use of incentive on renewals. We'd 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, Chief Financial Officer]

Thank you, Sam. Moving to slide 19, for Q2 2023, same property net operating income increased by 12.5% as compared to Q2 2022, with revenue growth of 8.6%. For the six months ended June 30 2023, same property net operating income increased by 13% with revenue growth of 8.5%. Edmonton, the Trust's largest market saw revenue increased by 9.3% in Q2 2023, and 9.1% for the six months ended June 30 2023. Operating expenses increased by 2.7% in Q2 2023, and 2.3% for the six months ended June 30 2023, primarily the result of increased wages and salaries, insurance costs, utilities as a result of higher rates and property taxes. Of note, Calgary expenses increased due to higher wages and salaries, as well as increased electricity costs, while Saskatchewan expenses increased due to inflationary pressure on wages and salaries, repairs and maintenance and increased prices for most utilities.

The team remains committed to ensuring focus and discipline when managing controllable operating expenses. Slide 20, administration costs increased by $1.8 million in Q2 2023, as compared to Q2 2022, however, only increased $200,000 as compared to Q1 2023. The increase was attributable to larger bonus accruals recorded in Q2 2023. As a result of performance, as well as increases in software as a service cost and the cost of professional fees. Preferred unit based compensation increased due to an increase in the number of participants as well as the cost of the programs, noting that historically the highest deferred unit based compensation expense is in Q2.

Slide 21, illustrates Boardwalk’s mortgage maturity schedule, our mortgages are well staggered with approximately 96% of our mortgage balance, carrying [inaudible] insurance to 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 five year and 10 year CMHC rates of 4.8% and 4.4%, respectively. Though current interest rates are above the Trust maturity rates, the Trust maturity curve remains staggered, reducing the renewal risk in any -- pardon me the renewal amount in any particular year.

Lastly, the Trust has an interest coverage of 2.88 in the current quarter. Slide 22 summarizes our 2023 mortgage program. Overall, we have renewed or forward locked $225.8 million as well as secured $41.6 million in new financing at an average rate of 4.42% and an average term of five years. Included in these financings is $106 million of conventional mortgage financing, which were renewed on shorter terms to allow for them to be replaced with CMHC financing upon next renewal. In addition, the Trust obtained $46.5 million of CMHC financing at 3.89% and a seven year term for its acquisition of The View in Victoria, British Columbia. Current underwriting criteria in our most recent CMHC submissions 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 $42 million in cash and subsequently funded financings as well as an undrawn $196 million operating line. This approximate $239 million in liquidity provides the Trust with a flexible financial position.

Slide 23, illustrates the Trust estimated fair value of its investment properties, excluding adjustments for IFRS 16, which totaled $7.4 billion as of June 30 2023, as compared to $6.8 billion as of December 31 2022. The increase in overall fair value is the result of increases in market rents of select sites and communities as market fundamentals improve as well as the Victoria acquisition. Current estimated fair value of approximately $215,000 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 Q2 2023 fair value were unchanged from both Q1 2023 and Q4 2022. As it does every quarter, the Trust will continue to review completed asset sales transaction and market reports to determine if adjustments to cap rates are necessary. Most recent published cap rate reports suggest that the cap rates being utilized by the Trust for tackling store value are within their estimated ranges.

I would now like to turn the call to James Ha to highlight our capital allocation, developments and the Trust exceptional value. James?

[James Ha, President]

Thank you, Lisa. Our maximum cash flow retention strategy remains key to our ability to opportunistically invest and compound returns for our stakeholders. And as a result, our growing cash flow is increasing our available capital for deployment towards growth. While also furthering improving our leverage metrics, larger opportunities that may arise CMHC insured mortgage financing continues to represent an attractive source of capital. Continue to seek opportunities for growth with our focus today on our value add capital improvement program, strategic and accretive acquisitions, continuing our new development and undersupplied housing markets and if warranted, an investment in our normal course issuer bid.

For the quarter, we are pleased to share an update on our capital deployment starting on slide 25, which provides an update to our progress on our value add, repositioning and renovation program. Our common area and amenity renovations have positioned our communities to offer the best value, service and experience to our resident members, and are a key contributor to Boardwalk success in both competitive as well as strong market conditions. For 2023, our team is targeting 11 common area and amenity renovations to further enhance our portfolio and product offering resulting in over 60% of our total suites benefiting from our repositioning program. In addition, our suite renovation program continues to be opportunistically used to improve and enhance our offering for residence. Boardwalk’s existing vertically integrated platform provides us with the unique ability to quickly and cost effectively complete these renovations. With limited availability and the current strong demand for housing, our ability to reduce days vacant are a significant differentiator of our Boardwalk communities. Low availability in our markets and additional initiative we are undertaking is the conversion of existing storage and administrative spaces in our communities into rental suites. This initiative aligns with our platform optimization, and to date, we have added 10 units to the market. By investing in small renovations to turn suites from administrative use back into rentable units, we will add much needed additional housing in our communities. We are currently under construction for an additional 10 units, and are in the early stages of assessing feasibility on up to an additional 60 units in Alberta.

On slide 26, we provide an update to our ongoing development pipeline to add much needed housing in supply constrained markets. We are pleased to share that the lease up of the first tower of our 45 railroad developments is complete with 100% occupancy and rental rates at the upper end of our original expectations. Our team continues to progress on construction of the second tower and is scheduled for delivery in the fourth quarter. This project remains on time and on budget.

Our Victoria development pipeline presents an opportunity for the Trust to add and contribute housing units while also creating strong value for our stakeholders. Buyer is our first of three developments in Victoria, excavation now complete we are now constructing our foundations for this 234 unit development, which is located adjacent to our existing Aurora community that remains fully occupied. This development will continue to scale our Victoria presence alongside our existing communities, which includes our recently disclosed acquisition of The View, which closed at the end of April. Slide 27, highlights the exceptional value that Boardwalk’s Trust units represent at yesterday's trading price which implies a value of approximately $190,000 per apartment door. This compares favorably to the substantive transactions that have occurred in the external market. Our NAV has increased alongside our strong NOI growth, and is estimated to be approximately $80 per Trust unit, which equates to just $215,000 per apartment door and represents an exceptional opportunity relative to market pricing and remains well below the increasing cost of replacement.

On slide 28, Boardwalk’s trading price equates to an attractive 4.9% cap rate on our trailing NOI. This valuation provides a significant spread to the current cost of mortgage capital and transactional cap rates in the private market. Favorable fundamentals, strong leasing trends, and leading NOI growth in our portfolio. This cap rate represents exceptional value and growth for our stakeholders.

Moving to slide 29, our second quarter operating performance continues to be strong, with results for the first half of the year, finishing on the upper end of our original forecast range, with continued to strengthen revenue, confirmation of property tax and insurance expense for the balance of the year, as well as our progress on our platform optimization to manage controllable costs, we are pleased to announce an update to our 2023 guidance.

For the year, the Trust is tightening and upwardly revising our 2023 same property NOI growth range now to 11.5% to 14% and FFO per unit guidance of $3.42 to $3.54 per Trust unit. Our Boardwalk team is committed to leading in transparency, and we'll continue to update our stakeholders in the event of any change in conditions that may materially impact our forecasts. On slide 30, our Board of Trustees has confirmed our monthly cash distribution of $1.17 per Trust unit on an annualized basis for the next three months. Our distributions have increased alongside our growing cash flow while maintaining our industry low payout ratio, providing significant cash flow of reinvestment, and positioning Boardwalk with ample capital for growth.

Lastly, on slide 31, we continue to work toward our ESG goals and targets working together to positively impact our communities. For an update on our initiatives for the year, our latest ESG report can be found on our website, the bwalk.com/investors. This concludes the formal portion of our presentation and we would be happy to answer any questions. Julie?

[Operator]

[Operator Instructions]

Your first question comes from Sriram Srinivas from Carmax Securities.

[Unidentified Analyst]

Thank you, operator. Good afternoon team Boardwalk, just looking at the leading spreads that have been pretty positive over the last couple of quarters. How should we be thinking about these spreads because of lower incentives versus leasing spreads because of strong market fundamentals.

[James Ha, President]

Hi, Sai, it’s James here. Leasing spreads are certainly a combination of both, both incentives and market rent changes. If we look at lease renewals, we're effectively as Sam said in his prepared remarks. Lease incentives are effectively being eliminated on lease renewals, we are always taking a balanced and flexible approach with our residents. Hence the strategic moderation that we're undertaking. And today we are in our targeted zone of 7% to 9% on renewals in Alberta. On new leases, it's pretty tough to find any incentives in the marketplace. In fact, we're rarely seeing them anywhere, certainly across our portfolio, or in the marketplace anywhere in Alberta. And so, on the new lease fronts, we're starting to see market rent growth. You've seen that in Calgary and we're starting to see that in Edmonton now as well.

[Unidentified Analyst]

That’s good color, James, thanks for that. And obviously looking at incentives, it's huge. You guys have done an amazing job of bringing that down year-over-year. If you were to think of this from a steady state stabilize perspective, how should you be thinking about incentives?

[James Ha, President]

Yes, incentives, Sai, if we look, if we look back through time, incentives really have been a very short term line item through past periods, for the most part incentives on a normalized basis. We certainly would expect that to come down into the low single digits really just a closing tool that our team would use from a leasing front.

[Operator]

Your next question comes from Dean Wilkinson from CIBC.

[Dean Wilkinson, CIBC]

Thanks, afternoon or morning or whatever time it is. One question multiple parts, Sam or James. We've done some work in our economics team showing that majority if not all of the individual investors in the condo market are effectively underwater right now. Are you finding that there is not just migration of people but perhaps migration of capital going into your market that may in future start pushing up pricing around sort of condo investment and what could be the potential and I'm assuming positive follow on to multifamily from that dynamically? Are you seeing anything there? Or is it just a little too early to call that as a tailwind right now?

[Sam Kolias, Chairman & CEO]

Thank you, Dean. It’s Sam. We are seeing increase in condominium, multiple listing sale prices and that has been a long time coming and that absolutely reflects the ability to buy two for one condo in Alberta versus one in Toronto or Vancouver for that matter. And the economics is much better and the affordability and lower cost makes the numbers work. We're not really seeing much supply versus the emigration and the household formation. And so it is adding supply. And it's important for investors to provide that capital to builders that are completing condominiums and new supply whether that new supply goes into ownership or rental, it's much needed. And it’s too late and too little right now, with respect to the demand that we're seeing. So we're pleased investors are coming to Alberta and realizing the opportunity on individual condominium investments. But it's not having much of an effect on our average occupied rents of about $1.44 square foot versus the new that is approximately $3 a square foot. And so there are rental units available they are typically brand new, and they're 100% more in rents, typically than are occupied in place rents are. So it is helping, it's just more expensive and not at the price that most renters are looking at and can afford.

[Dean Wilkinson, CIBC]

So I guess by extension, from that, one could potentially infer that creates an argument for lower cap rates in your markets as you go forward.

[Sam Kolias, Chairman & CEO]

Well, with our double digit NOI growth that is exceptional growth versus other regions and the rent in place, versus the rent in new developments and new rentals of approximately 50% less, shows that we've got quite a few years ahead of us to be able to close that gap. And construction costs continue to rise. And interest rates are high. And so the costs of new supply are increasing as well. So we're trying to hit a moving target that keeps going higher and higher with respect to new supply and housing. That's why we continue to be advocates of lower taxes and capital grants for more affordable housing that most folks are looking for.

[Operator]

Your next question comes from Jonathan Kelcher from TD Cowen.

[Jonathan Kelcher, TD Cowen]

Hi, there. Your strategy of moderating rents on new leases. When did you guys start that and what's kind of the thought process behind that?

[Sam Kolias, Chairman & CEO]

It started in the 90s, when we took a much different approach and more marketplace approach were in the 90s. We essentially marked our rents to whatever the market would bear period and we would take a much different more marketplace approach and in the 90s, we made some very significant rental adjustments which became big lessons on our brand, our reputation and both our brand reputation are priceless. And our resident members are on top of our organization and we learned very quickly how expensive it is to lose residents that are long term to increase that turnover to upset residents. There was a lot of lessons in the 90s that we learned as well as rent control and regulation pressures that we were seeing and meeting with our government in the 90s. We were really faced with a very simple choice to self-regulate, or have government regulations enter into the 90s and we put up our hand and agreed back in the 90s with our government leaders at that time to self-regulate. And that's where really our self-regulation came in. It's first and foremost it's pro resident, it’s pro brand, our reputation. And it's about affordable housing, no matter what the economic cycle we're in, we have learned in our strategic planning, and sessions that there's always demand for affordable housing period, no matter what economic cycle, so we want to stay affordable, because there's always demand for that. And that's a little bit of history, and maybe that's a little bit too much.

[Jonathan Kelcher, TD Cowen]

No, that's good, I get that. And that probably most of what you said probably relates to renewals. But it's more on the turnover. But I guess some of the same arguments apply to that.

[Sam Kolias, Chairman & CEO]

So on the turnovers our mark-to-market is too low, right. Our competition is renting for higher than our mark-to-market. Why? We get on any kind of availability 100 phone calls the first day and clearly that's a lot more demand than the one unit or two that we have in each one of our communities. So clearly that price is too low, we agree. We are leaders in providing affordable housing. And we're still doing exceptionally well, compared to relative to any other multifamily provider, or REIT, our growth is exceptional. So everything is relative, we're really in a great position to provide exceptional value for our residents, and top peer performance and financial results for unit holders really, really is a win-win for everybody. And we want to do that for the next several years.

[Jonathan Kelcher, TD Cowen]

Okay, so bill does a little buffer and you do get it on renewables. My second question is just on the expense growth, same property expense growth overall pretty good at 2.7%. But there was a pretty wide variance. You did call out some of the high ones Calgary and Saskatchewan but the Edmonton portfolio is down 1% year-over-year, can you maybe give us a little bit of color on why that was and the outlook over the next couple of quarters.

[Lisa Smandych, Chief Financial Officer]

Hi, Jonathan. Specific to Edmonton, I would say Edmonton was our biggest opportunity where the optimization of our platform that we spoke of made the most sense, right, so Edmonton had the most to gain in terms of filling up that occupancy. And consequently, that allowed us to really look at how we can optimize our platform in the tighter market. Just to provide sort of more overall color. We certainly are as we move through the remainder of the year. To James's point in his prepared remarks. We have more color on our insurance numbers and our property tax numbers. So when we look at total rental expenses, all buckets included, we're anticipating an increase of about 1.5% to 3.5% on a same store basis.

[Jonathan Kelcher, TD Cowen]

For Q3 and Q4.

[Lisa Smandych, Chief Financial Officer]

That'll be the full year, the full year, year-over-year same property.

[Operator]

Your next question comes from Mario Saric from Scotiabank.

[Mario Saric, Scotiabank]

Hi, thanks for taking the call. Just a clarification question for James on the incentive, mentioned that it could come down to low single digit in kind of a steady state normal environment. Are you referring to single digit incentive per suite? So like, for example, for the portfolio today, it's about $44. I think for Alberta, it's about $61 per suite, you referring to those numbers coming down to single digits or the percentage of rent that you're referring to.

[James Ha, President]

Yes, we're talking more just generally speaking, when we're talking about incentives, we see them coming down into the million dollars, a million dollar across our portfolio mark for the entire year. It's really an irrelevant figure if we look back into past periods where our anticipation is really, it's only used just as a very selective closing tool for our residents or pardon me for our leasing team. Incentives certainly are trending towards us. Really not using it as a topic of discussion in our future reporting.

[Mario Saric, Scotiabank]

Got it. Okay. Thanks for clarifying. And then my second question comes to the rent moderation that you've highlighted, like based on your analytics. Is there an impact to occupancy? Like, is there a relationship there such that if, for example, you chose not to moderate rents? What would your estimated impact occupancy be, if any? Or is it a completely aside of that, and it's just simply more of a qualitative decision to make?

[Sam Kolias, Chairman & CEO]

Thank you, Mario. It’s Sam. And we did take a much different approach again in the 90s. And we engineered a much lower occupancy and much higher rental rates. And so the law of supply and demand is not a theory, it's a law and price are a variable in those two lines -- in those other two variables. And so when we adjust price to anything, demand falls, and occupancy falls, turnover increases. All sorts of negatives happen. And for the most part, our expenses are fixed. So whether or not we're at full occupancy, we're going to pay our property taxes, it's very similar to the airline service providers is, is these fixed costs are there and the higher the occupancy, the higher our NOI, at the higher our margins and profitability, it makes more sense for us to have full occupancy or near full occupancy. And we're almost at 100%, close to 99%. And that really is reflecting our higher margins that continue to grow, because every incremental dollar that we realize on the top line with fixed expenses almost entirely goes directly to our bottom line in our margins. And we've been advocates of high occupancy, because we've been focusing on NOI not top revenue growth and the revenue models in the past, fail to keep in mind reputation, brand, retention, all these super important factors, in almost all other products and service providers retention, and customer satisfaction is paramount. And that's why it's paramount with us. And they are always will be. And that's why our profitability and our performance is doing as well as it is, is because we're taking a very resident focused, centric approach. And seeing how those benefits. The bottom line, it really does make a difference when any product and service provider focus in on really important purpose, like bringing folks home to love always. And people are the most important asset, our places and our planet, you know what? Profit takes care of itself at the end of the day.

[Mario Saric, Scotiabank]

Okay, now, just trying to get a sense because you mentioned, you did mention that your new lease spreads are probably lower than what they could be relative to competitors. I wasn't sure if there was like a sensitivity there where if you pick the nearly spread were consistent what appears on the impact outcomes, it could be 50 basis points or 100 basis points or 10 basis points. So just trying to get a sense of that magnitude.

[Sam Kolias, Chairman & CEO]

Sorry, Mario, we're quite a way off to what really the market is when looking at rent faster and just seeing and hearing from our sites, how quickly everything rents, we're quite a way off to where the market is and what the availability is. There's a big shortage of rentals in the $2 a square foot range and are in place is $1.44 or $1.50. So we're quite a way off and that's why we rent as fast as we are and our occupancies as high as it is.

[Mario Saric, Scotiabank]

Okay, it makes sense. And then more of a qualitative question. If you look at your markets, clearly, you give us the numbers on a market by market basis in terms of NOI growth, rent growth, and so on and so forth. But if you're looking on the ground today, from a trend perspective, how would you rank your kind of top three markets in terms of relative strength, and then kind of the market or to where it's not as strong on a go forward basis.

[Sam Kolias, Chairman & CEO]

Our ball at our ball is Edmonton. The optional value in Edmonton rents still, and our average occupied rents in Edmonton are relative, very low. And so there's really significant opportunity given the scale and size of our Edmonton communities and team, we've got exceptional growth in Edmonton versus where we were coming from over the last few years. All the rest of our Alberta, Saskatchewan, core markets are in great relative position with respect to where rents are in new developments, and where rents are with our competitors. And so there's a pretty big gap even as for our slides between the consumer price index, we're still quite behind inflationary expenses, and what's important for everybody to keep in mind, and many of our residents have given us credit, and go back to 2015. And say you know what? Rents are pretty well, the same as they were in 2015, for some of our residents, and our residents are very grateful for that, and express their gratitude. So considering inflation over the last eight years has been pretty significant, even at 2% or 3% times eight years that's 25%. And so it's really important to keep that timeline and look at rents over the last eight years and plot it against inflation, and see how far behind our rents still are, Mario. They're tracking way below whatever the consumer price index of all other services and products that have kept up the consumer price index.

[Mario Saric, Scotiabank]

Maybe just one last follow-up sticking to Edmonton and given the Oilers playoff run is still a bit fresh. I won't use hockey as the analogy. If we switch to baseball, like what inning would you say the rent growth picture in Edmonton is in today.

[James Ha, President]

Hey, Mario, it's James, I would say I'd say early innings second or third inning if it's going to be a nine inning game. We're just getting to that point. If you look back, I know the revenue print was strong this quarter at 9%. We're just getting started to Sam's point affordability. Nowhere else in the country do we have the same affordability as Edmonton does today.

[Sam Kolias, Chairman & CEO]

Mario, just some feedback from our onsite teams. We're seeing folks in cars. We're getting net promoter scores thanking us for renting a new resident an apartment because they are moving out of their car. They no longer have to sleep in their car and what we're really recommending folks in Calgary especially because there's just no apartments that are vacant physically you can move into and very few in Edmonton market wide. We're recommending renters that are looking for apartments in Calgary and moved to Edmonton. And Edmonton, there's still availability there, it's disappearing. Like we mentioned, there was 14 available units left last month. There's about 100 and some the 11th of the month. By the end of the month, there's just around 150- 200 left to go in Edmonton. It's not an advertisement, but availability is still best in Edmonton and affordability. That's why we believe Edmonton has the biggest upside still.

[Operator]

Your next questions come from Gaurav Mathur of iA Capital Markets.

[Gaurav Mathur, iA Capital Markets]

Thank you. Good afternoon, everyone. And just going back to your prepared remarks, James, we're just trying to get some color on the transaction market. And I'm just wondering if you've seen any opportunities in the Alberta market where it makes sense to allocate capital to at this time.

[James Ha, President]

Hey, Gaurav. i's James, good afternoon. We're certainly looking for opportunities, this interest rate environment, and with the delays that we're seeing at CMHC are certainly slowing things down and touch. Our team is busy out there pounding the pavement, looking for opportunities, similar to what we purchased last quarter, like The View in Victoria, are looking for opportunities where we might be able to work on our relationships, we know in our relationships, where newly developed or newer apartment buildings are potentially coming to the market where we can step into a cost basis that was from two or three years ago, and lean on our expertise to deliver and provide great units to our residents and create value that way. And so, again, our team is looking for opportunities like that. There are some transactions, some opportunities in our Calgary and Edmonton markets with which similar to one of our peers who was speaking to a transaction in Edmonton, we look forward to seeing more and more details on that as transactions come through this summer.

[Gaurav Mathur, iA Capital Markets]

Okay, great. And then just switching gears to the administration costs, one of the line items that did stand out was that increase in software, the service fees? And my question is as a team, you have invested in technology initiatives across the platform. How should we think about capital savings and value that's been generated over the next few quarters?

[Lisa Smandych, Chief Financial Officer]

Yes, hi, Gaurav. It’s Lisa, I think I mean, this is where you're largely -- where you're going to see those savings from technology investments are in our operating expenses. So for example, I mean, a little bit of those platform innovations that we're looking at the first step, as we discussed, was really just making sure that our asset management teams for the right number of associates, but now as they move forward, it's how can these technologies help further optimize those platforms? So I mean, the intention is over sort of the short to medium term, that's what's going to help us keep expenses to inflationary or just below inflationary increases as we move into future years.

[Gaurav Mathur, iA Capital Markets]

Okay, great, fantastic. And my last question on this on the balance sheet, around looking at your mortgage maturity is coming up in 2024. That's a sizable chunk. And even though your ladder is very well staggered, just could you walk me through how you're thinking through refinancing versus the repayments at this point.

[Lisa Smandych, Chief Financial Officer]

We're taking a similar approach to what you would have seen in 2023, so that our focus always remains on ensuring that mortgage maturity curve stays staggered. So as we did note, in our prepared remarks in 2023, we did have some shorter term loans as a result of our conventional financing. So when we moved to 2024, I think we will be looking a little bit at the longer end of the curve, similar to what we're doing for the remainder of 2023. But again, it will focus really on staggering that mortgage maturity curve, to James's point about just some of the delays we're seeing at CMHC, making sure we're well in front of that. We don't anticipate now that we're aware that it's taking longer. We'll work closely with CMHC in our lenders to make sure we're in front of that timeline.

[Operator]

Your next question comes from Mike Markidis from BMO.

[Mike Markidis, BMO Capital Markets]

Hi, everybody. James, just following on the comment you made about finding opportunities from developers and buying it at a cost base from two to three years ago. Does that imply that you're buying at cost? Or are you saying buying at a profit margin over and above a cost base from two to three years ago?

[James Ha, President]

Like every opportunity Mike is going to be variable dependent on each of those opportunities. But if we look at The View, acquisition from April, again, I mean, it'd be pretty tough to build that product today at that price that we were able to acquire it at. The yield that we were able to step into on that one was quite high. And again, if we can find more opportunities like that, we're happy to take advantage of those.

[Mike Markidis, BMO Capital Markets]

Okay, thanks for that. And then I appreciate that your free cash flows are growing very significantly. And you're probably going to tell me that you look at opportunities and reevaluate your portfolio on ongoing basis. But are you guys seriously considering recycling capital in any of your markets today?

[James Ha, President]

We don't have anything in the marketplace at this time, Mike. I mean, as you can see from our NOI growth, every one of our assets in our core markets is producing exceptional NOI growth today. And so if there's again, if there's an -- we'll remain opportunistic. If there is a solid bid, we'll look at that. But we're also happy to keep these assets and grow the cash flow [inaudible].

[Sam Kolias, Chairman & CEO]

All right, so [inaudible].

[Mike Markidis, BMO Capital Markets]

Yes, sorry go ahead, Sam.

[Sam Kolias, Chairman & CEO]

Thank you, Mike. We are and have been, and will continue to sell our older communities and recycle into newer communities. And that is what we're front ending on the new communities that we're buying and seeing 20% NOI growth or 18% NOI growth in our northern Alberta regions, which going forward will help provide the capital to pay for these newer communities that were high grading and renewing our communities by doing and that's something we'll always do.

[Operator]

Your next question comes from Matt Kornack from National Bank Financial.

[Matt Kornack, National Bank Financial]

Hey, everyone. Just quickly, going back to the administrative expenses, Lisa, appreciate the color that you provided there, can you give a sense just how that will kind of develop over the next few quarters? And just in terms of the investment versus eventual savings? How we should think of it?

[Sam Kolias, Chairman & CEO]

Yes, I think I mean, the big focus will be sort of largely, the technology side, I think will really come into play sort of 2024-2025 It's all part of our large platform optimization. In full transparency, Matt, I don't -- I can't say I can get down to specific numbers, but the goal is using that technology to make sure we stay below inflationary pressures. Boardwalk always done that. That's been our focus and our discipline, and we will continue to do that. So I think that's where you're going to see that technology benefit will help us keep us below inflation.

[Matt Kornack, National Bank Financial]

Okay, and then just I mean, for G&A itself inclusive of non-cash compensation, this quarter was a little bit high relative to Q1. But should we look at an average of the two or is Q1 a better proxy for kind of the balance of the year?

[Lisa Smandych, Chief Financial Officer]

I would say Q2 was a better proxy if I had a choice. And I think the important consideration as we move through the latter half of the year is that outperformance that we're seeing from the team that could impact a bit our bonus accrual is going forward. So if anything, I would yes, I would lean more towards the Q2 number moving forward when you're looking at your run rate.

[Matt Kornack, National Bank Financial]

Okay. Fair enough. And then, with regards to the leasing side of things, have you seen a change in tenant type that the -- and make us underlying income of the tenants coming in as a result of the tighter market? Or is it kind of the same people that are just making more because there's been wage inflation?

[Sam Kolias, Chairman & CEO]

Thanks Matt. It’s Sam, absolute increase in our demographics and quality of our resident members. That's reflective of great jobs that are available, and opportunities here. And so we're seeing a definite increase. Why? When there's so many applications, presents and prospects really work hard in making sure their credit, their jobs, their referrals, and references are all super strong, because everybody's aware how competitive our market is. And so it absolutely is increasing the quality of our residents where we're seeing marketing improvement in that.

[Matt Kornack, National Bank Financial]

Yes. That makes sense. And then it's been touched on a few times, but I just wanted to kind of clarify, I mean, your quarterly annualized market rent growth was something like 18% in this quarter, and hence the spread, mark-to-market spread widened. Are you going to take a similar approach as you're taking on renewals to the new leasing in terms of putting kind of a fixed number out there or is it again depending on the tenant suite, et cetera, property by property.

[James Ha, President]

Hey, Matt. It’s James. On the market rent growth similar to guess what Sam was saying on the strategic moderation, the pace of those rent adjustments will also be moderated as well and that's how we're going to accomplish this longevity and sustainability of this new lease rent spread growth and so there will be some lumpiness with that. But again, watch for a moderation of the pace on those market rent adjustments.

[Matt Kornack, National Bank Financial]

So it's not going to be Ontario style rent control, but it'll be Boardwalk style rent control.

[James Ha, President]

It's going to be about sustainability and a win-win scenario for residents, for stakeholders, for everybody involved.

[Operator]

There are no further questions at this time. I will turn the call back over to Sam for closing remarks.

[Sam Kolias, Chairman & CEO]

Thank you, Julie. As always, if there are any further questions or comments, please do not hesitate to contact us. With gratitude, we'd like to thank our extraordinary team, loyal residents, CMHC, our lenders, our unit holders, and all our stakeholders really is all about our people 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 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, 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. God bless and grant us all peace.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining. And you may now disconnect your lines. Thank you.