Boardwalk Real Estate Investment Trust

TSX:BEI.UN

Earnings Call Transcript 2020-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust Third Quarter 2020 Earnings Conference Call. [Operator Instructions] This call is being recorded on November 13, 2020. I would now like to turn the conference over to James Ha. Please go ahead.

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

Thank you, Colin, and welcome to the Boardwalk REIT 2020 Third Quarter Results Conference Call. With me here today is Sam Kolias, Chief Executive Officer; Lisa Smandych, Chief Financial Officer; and Lisa Russell, Senior Vice President of Corporate Development. Note that this call is being broadly disseminated by way of webcast. If you 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 as well as supplemental information package.Starting on Slide 2, we'd like to remind our listeners that certain statements in this call and presentation may be considered forward-looking statements. Although the expectations set forth in such statements are based on reasonable assumptions, Boardwalk's future operation and its actual performance may differ materially from those in any forward-looking statements. Information that could cause actual results to differ materially from these statements are detailed in Boardwalk's publicly filed documents.I would like to now turn the call over to Sam Kolias.

[Sam Kolias, Chairman & CEO]

Thank you, James, and thank you, everyone, for joining us this morning. May we first start by sharing our thoughts, hearts and prayers for all affected by COVID-19. We remain ever mindful of the great need for healing, love and patience during this time. We are also ever mindful of the great sacrifice our veterans have made for the freedom we all have today as we honor all the lost lives and service this remembrance week. Boardwalk's top priority remains the health and safety of both our resident members and our Boardwalk team of heroes. Our Boardwalk family, our team, continues to adapt, evolve and emerge through this pandemic environment. We remain committed to providing our essential service of safe, affordable housing in all our markets and are so proud of our team who have been rewarded with record-high resident satisfaction scores, which, in turn, has delivered resilient and growing FFO results for our unitholders.Our FFO per unit remains the highest in the Canadian multifamily REIT sector. These results would not be possible without the integration and quick adoption of new technologies such as our resident member platform, Yuhu, introducing virtual showings, online payments and our significant in-house advances in robotic lead management automation. We are exceptionally driven to continually emerge, improve our NPS scores, drive our occupancy higher and increase our financial performance throughout this pandemic and well into the future.Slide 4. Building better communities continues to be at the heart of what we do. Our community programs have shifted to address the changing needs of our communities. Our residents have rewarded us with the highest NPS scores and our increasing market share is a testament that Boardwalk remains the choice housing provider in our markets.Continuing on to Slide 5. Boardwalk's portfolio of well-located, affordable homes provide an exceptional value proposition for current and future members. Of Boardwalk's 33,000 apartment units, approximately 62% are based in Alberta and 11% in Saskatchewan, with each of these provinces providing exceptional affordability with multi-decade low rents as a percentage of income, creating an opportunity for incentives to be reduced to help offset increasing noncontrollable expenses.Ontario and Québec represent 27% of Boardwalk's communities providing exceptional affordable average rents as well with opportunity for future revenue growth. Slide 6. Boardwalk's product diversification captures a much wider audience of resident members' needs, increasing the overall demand for Boardwalk communities. We provide 3 different branded communities: Boardwalk Living - Affordable Value, Boardwalk Communities - Enhanced Value and Boardwalk Lifestyle - Affordable Luxury. Currently, we have approximately 6% Lifestyle, 44% Communities and 50% Living suites across our portfolio. Each brand provides exceptional value at each price point grounded on some of the most affordable rents in Canada. Slide 7 and 9 -- through 9 highlight our most recent rebrand projects. Our design, asset management and operations teams work together to selectively and strategically identify each community rebrand or refresh. Our focus is to continue to deliver the best product, optimizing our capital allocation for our value-add program to our targeted resident member demographic, so we can continue to provide the most exceptional, elevated experience at an affordable price.The result is increased market demand, exceptional value and appealing returns with achievable market rental adjustments. Our results continue to reflect the success of the reengineering and redesign of our service, product quality, diversity and experience led by our design team and executed with our entire team's all hands on deck approach. Slide 10 illustrates some key operational metrics, which demonstrates our continued strong operational performance through the current competitive environment. Our team continues to optimize our revenues, balancing occupancy, occupied rent and the use of incentives. Occupancy has remained stable, a reflection of Boardwalk's strong product and value proposition, while occupied rents have begun to increase again from the self and government-imposed rent restrictions that have been eased.Slide 11 provides further details on new and renewal lease spreads to date. Our revenue optimization strategy through the current environment is focused on retention. New leasing spreads have improved from the onset of the pandemic as lead generation improves. With our current high occupancy and the lifting of rental rate restrictions, Boardwalk has reintroduced sustainable discount reductions on our renewals and continue to see success targeting inflationary adjustments. With many of our lease renewals negotiated 30 to 90 days in advance, our third quarter primarily reflects the rental rate restrictions over the summer months. With approximately 60% to 70% of Boardwalk's lease activity in the form of renewals, these sustainable discount reductions will provide resilience and growth in optimizing Boardwalk's revenue to offset increasing noncontrollable expenses. Slide 12. Our same-property results reflect the rental restrictions set forth at the beginning of the pandemic as well as increased noncontrollable expense line items such as property taxes and utilities. With continued focus on reducing our G&A, our controllable costs, our NOI overall sustained a positive growth of 0.5% for the quarter, 4.9% for the 9 months of this year and a slight decline in sequential revenue growth of 0.2%. These rental restrictions have now been lifted as of August and we are working together with our team to focus on sustainable rental discount reductions on our renewals.Slide 13. We continue to build on our track record with our tenth consecutive quarter of growth in FFO per unit. Our performance is the best reflection of our team's commitment to innovation, exceptional service and focus on performance. Thank you to our entire Boardwalk team.We would like to now pass the call on to Lisa Smandych, who will provide us with an overview of our financial results. Lisa?

[Lisa Smandych, Chief Financial Officer]

Thank you, Sam. On Slide 14, the Trust delivered strong FFO and AFFO growth, with FFO increasing by 5.6% from $35.8 million to $37.8 million for the 3 months ended September 30, 2020. AFFO increased by 9.7% from $29.8 million to $32.7 million, using an annualized maintenance CapEx estimate of $613 per apartment unit. For the 9 months ended September 30, 2020, FFO increased 6.7% from $98.8 million to $105.5 million, while AFFO increased 11.5% from $80.8 million to $90.2 million. Included in our year-to-date FFO and AFFO results is approximately $3.5 million for retirement costs.Slide 15 summarizes the Trust's monthly revenue collections from its resident members for the year-to-date 2020. Please note, collections are reported for the calendar month only and do not include revenue collected in subsequent months. 98.3% of October revenue was collected in October, which is consistent with the Trust's historic run rate. Though varying by province, city and site, prior to 2020, the Trust's historic bad debt expense was between 1% and 1.1% of total revenue. Thus far, in 2020, bad debt expense has been 1.3% of total revenue.During COVID, Boardwalk offered its resident members a deferral program for those who could demonstrate financial hardship. As at the end of October, there were approximately 50 participants in this program, which is down from 100 participants at the end of July. Additionally, the total deferred balance was approximately $47,000 at the end of October, also down from the $85,000 at the end of July.Slide 16 provides a summary of Boardwalk's available liquidity. The Trust is well positioned with approximately $86 million in cash and subsequently funded financings as well as an undrawn $199 million operating line. This approximate $286 million in liquidity provides the Trust with a flexible financial position in the current environment as well as providing the ability to take advantage of opportunities as they present themselves and as visibility improves.Slide 17 illustrates Boardwalk's mortgage maturity schedule. Our mortgages are well staggered, with approximately 99% of our mortgage balance carrying NHA insurance through the Canada Mortgage and Housing Corporation. This insurance remains in effect for the full amortization of the mortgage, and in addition to carrying the Government of Canada's backing provides access to low-cost financing with current estimated 5- and 10-year CMHC rates of 1.2% and 1.8%, respectively. The Trust's debt metrics continue to be strong with an interest coverage of 2.78 in the current quarter.Our progress on our 2020 mortgage maturities is presented on Slide 18. Boardwalk has been actively taking advantage of this current low interest environment to renew, forward lock as well as securing additional up financing from our mortgage portfolio. To date, we have renewed or forward locked approximately 83% of our 2020 mortgage maturities as well as secured $173.4 million in new financing at record-low interest rates, highlighted by some recently completed financings at interest rates less than 1%. Current underwriting criteria in our most recent submissions to CMHC and our lenders has remained in line with our historically conservative estimates.I would now like to turn the call to Lisa Russell, who will provide an update on our investments.

[Elizabeth A. Russell]

Thank you, Lisa. In addition to our operational focus and in line with Boardwalk's long-term strategy, Slide 19 summarizes our areas for future growth. These 4 levers include value-add capital improvement, acquisitions, development and dispositions of noncore assets and will allow the Trust to progress toward high-grading and geographically expanding our portfolio.Slide 20 summarizes our progress on our value-added improvements with an increased focus on common areas and amenities as well as more affordable suite renovations. Our measured approach to our value-add improvement program focuses in on best returns. The Trust continues to remain disciplined as we strategically invest in our communities. These renovations showcase the power of design and our ability to reposition assets across Canada.Slide 21 summarizes our recent acquisition of a 226-unit portfolio located in Kitchener, Waterloo and Cambridge. This portfolio allows us to gain operating efficiencies with our existing portfolio in this high-growth region and aligns with our strategy of high-grading and geographic diversification. Purchased at approximately a 4% cap rate, this portfolio has a significant mark-to-market opportunity over in-place rents. These low-density, private entrants townhome style units have an average suite size of over 1,000 square feet and are well positioned to provide homes for the changing needs of our resident members. On Slide 22, we are pleased to announce the unconditional sale of Boardwalk Manor, a 72-unit walk up in Regina. The asset transacted for $7.5 million and it's expected to close on November 16, 2020. The sale of this noncore asset is in line with the Trust's IFRS value and allows Boardwalk to continue to recycle capital towards accretive opportunities and achieve the Trust's strategic objectives.Slide 23 provides a brief update of our current and future development projects. Construction at 45 Railroad in Brampton continues on schedule. Completion of this 2-tower, 365-unit development is estimated to be in 2022 and 2023. In line with our long-term strategy of geographic expansion and high-grading our portfolio, the Trust acquired 2 future development sites in Victoria, the Capital City of British Columbia. We are excited to reenter the Victoria market where rental fundamentals are strong with low vacancy rates and an undersupply of rental housing, even during a pandemic.Government, tourism and a rapidly growing technology sector provide the economic foundation for this market. These 2 future prime development sites give Boardwalk a solid foothold in this growth market. The Carlisle Lands site is a land assembly in the gentrifying municipality of Esquimalt and was acquired for $12.9 million. Located across from the newly developed Esquimalt Town Square and Recreation Center, this prime development site will provide new rental housing in a growing and undersupplied market. This transaction closed on November 2. We anticipate entitlements and rezoning to be completed in 2022. This site will yield approximately 200 luxury affordable units. The second site we purchased is located in the growing municipality of View Royal. This zone piece of land was purchased for $14 million, conditions have been waived and is scheduled to close on November 23, 2020. We anticipate building approximately 250 units on this prime site which is located near Victoria General Hospital, a large retail plaza and provides quick access to both Downtown Victoria and Langford. These 2 sites provide the opportunity for Boardwalk to utilize its past experience and success in building accretive low-rise development. The Trust is excited to bring Boardwalk's brand of unique design and affordability to Victoria, while creating value for the Trust in our proven low-rise development program. We will progress through rezoning, entitlement and the design of all new development projects in 2021. For clarity, the Trust will not begin any new construction in 2021.I would now like to turn the call over to James.

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

Thank you, Lisa. Slide 24 illustrates the exceptional value opportunity Boardwalk's creating price represents when compared to recent multifamily transactions in the marketplace. As a basis of comparison, this slide utilizes Boardwalk's consensus 2020 NOI to illustrate implied valuation on a cap rate and per apartment door basis. Reported cap rates on transactions often have varying assumptions with some instances using a stabilized NOI, such as Boardwalk has in our current calculation of fair value, which utilizes a stabilized cap rate of 5.27%, as disclosed in our financial statements, and in other instances, reported cap rates on sales transactions have utilized an in-place NOI, similar to our consensus NOI estimates used here on this slide. As noted, Boardwalk's net asset value of approximately $60 per trust unit or $180,000 per apartment door is in line with recent transactions. Our current unit price of approximately $135,000 per apartment door, or a 6% cap rate on consensus NOI, presents an exceptional opportunity given the resilience of our operating performance and the industry's access to record-low debt financing.In addition to the exceptional value our Trust units currently represent, Boardwalk is well positioned to continue to deliver organic growth on the foundation of high affordability and unparalleled value in our essential housing products.As shown on Slide 25, core Alberta markets of Edmonton and Calgary remain resilient with stable occupancy, positioning us well to reduce incentives, sustainably on lease renewals, which represent the largest portion of our deal flow. In our Saskatchewan market, Boardwalk's focus on product quality, service and experience has gained market share. Our affordable and high-value offering Ontario and Québec markets remain near full occupancy. The Trust continues to focus on maximizing market rents upon turnover. Just a $25 increase in our monthly average in-place rent equates to approximately $0.20 in annual FFO per unit and represents a significant growth opportunity over the near and long-term as we focus in on optimizing our revenue and NOI, delivering quality, safe and affordable housing across Canada.Looking forward on Slide 26, Boardwalk's formula remains. With significant liquidity, 99% CMHC insured financing on our debt and access to debt capital that is near 1%, provides a significant tailwind in our financing costs. Boardwalk is on a strong financial foundation to weather any COVID-related uncertainties as well as execute on opportunities that arise. Our industry- low distribution payout ratio provides a recycling of cash flow for growth.Our organic growth opportunity remains a key priority, driving sustainable rental rate adjustments while maintaining high occupancy levels. Our controllable cost savings to date will continue to be a focus point as we aim to innovate and leverage our technology and energy efficiency programs. We look forward to sharing our progress and growth in our upcoming quarters and would like to open up the phone line for questions. Colin?

[Operator]

[Operator Instructions] And your first question comes from Jonathan Kelcher from TD Securities.

[Jonathan Kelcher, Analyst]

First question just on the incentives. And at the end there, James, you're talking about them coming down on renewals. How do you see incentives playing out as you go through the winter leasing season? And maybe contrast renewals versus new leasing?

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

Sure. Thanks, Jonathan. You're 100% right. That's a -- on renewal specifically, that is where our focus is, and that's no different over the last many years. We've 100% been focusing on retention within our portfolio. Today, on renewals, we're targeting very sustainable increases. We're talking a range of $20 to $50 on a net effective basis. Really, for the most part, especially in our Western Canadian market, these are in the form of incentive or discount reductions. Our team to date has seen great success with this. Again, some are lower, some are higher, but for the most part, we're falling within the $20 to $50 range.On new leases, our team is doing a great job of mining high occupancy. You see that on our leasing spread slide so far to date positioned with our high occupancy today of roughly just over 96%. We feel good about going into the winter months. So again, to your point, Jonathan, it's a combination of maintaining high occupancy, gaining that with new leases and continuing to get steady, sustainable increase on our renewals, which represents about 65% of our deal flow.

[Jonathan Kelcher, Analyst]

Okay. And then the -- on Slide 10, when it says the average incentive is $178. How -- like how -- can you remind us how that's calculated?

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

So that's the average incentive for those units that have incentives in place.

[Jonathan Kelcher, Analyst]

Okay. And then just switching gears, Victoria, going back to the BC market. Maybe talk about the decision to go there through development versus buying existing assets? And are you looking for existing assets there?

[Sam Kolias, Chairman & CEO]

So the big decision and pivot for Victoria, Jonathan, it's Sam, has been the significant success we've realized in our low-rise development in Regina and Calgary. We've created and realized significant value in that development program. So it's really exciting to secure prime locations in suburban areas in Victoria in town centers or right next door to a major hospital in Victoria. That provides us with brand-new, low-rise, affordable housing in a market that's very undersupplied.The other characteristics we looked at in those locations was very little apartment rental product supply in those suburban locations. And primarily, the housing choices there are very expensive single-family homes. So the relative value proposition between renting a brand-new, low-rise community and buying a single-family home is really exceptional. And Victoria has grown during the pandemic and has demonstrated one of the strongest population growth and continued rental demand in the country. So we're very excited as you can sense.

[Jonathan Kelcher, Analyst]

Yes. And what about existing assets or revenue-producing assets right now? Are you looking at any of those in Victoria?

[Elizabeth A. Russell]

Yes, Jonathan, we're definitely looking at those. It's going to be a combination. As we've clearly stated, we are going to be going through entitlements for the next couple of years on the development site and the developments will not start in 2021. That being said, we're currently looking at some existing assets right now on -- yes, on any value-add or newer supply that we do see in Victoria, but we're very excited to be in this market again.

[Operator]

Your next question comes from Neil Downey from RBC Capital Markets.

[Neil William Edward Downey]

I just have a couple of questions. One relates to, I'll call it, the cost side of the ledger. And your Trust expenses in the quarter, they were down materially from where they were earlier in the year, even excluding some one-off items. So can you maybe discuss how you see Trust expenses going forward and the sustainability of the expenses that were incurred in the third quarter?And secondly, I must get this all the way at once. On the subject of capital investments and improvement CapEx, we are approaching the end of 2020. So can you please provide an indication as to roughly what the total investment might be for the year? And as you look to 2021, do you think capital improvements will be the same, higher or lower? And as really a Part B to that CapEx question, what should we be thinking about in terms of the deduction that we take for R&M CapEx as it relates to our AFFO derivation?

[Lisa Smandych, Chief Financial Officer]

Thanks, Neil. It's Lisa Smandych. So I'll speak first to the administration expenses of the Trust costs. So as everyone can see, Q3 for us was a really clean quarter as it relates to all of our admin charges. As you pointed out, there were no retirement costs or severance adjustment in this quarter. We have commented on how we have been really maintaining and managing our headcount. So a considerable portion of those savings that you saw was a result of our wages and salaries and keeping on top of those expenses.During Q3, too, we were just really clean in terms of looking at accruals and those types to make sure everything makes sense. It's important to note that when we go into Q4, we will have some true-ups as it relates to year-end accruals based on knowing your actual results in comparison to some internal targets. So there may be some adjustments going into Q4 a little bit in comparison to that Q3 rate.As we move into 2021, I think our expectation would be our admin costs, including the deferred comp, would probably be about the $8.5 million to $9 million range per quarter moving into 2021. From a CapEx side, I don't know, Sam or James, if you would weather that one?

[Sam Kolias, Chairman & CEO]

Yes, Neil, it's Sam. Our trend is clearly down in our total CapEx spend. As per Slide 20, there is more demand for affordable, what we call, classic units. And our spend is really on our common area experience centers, which is a real fraction of the spend of our interior full-renovation suites. We are seeing a clear strong demand in affordability and in our Living brand. And coupled with a repositioned experience center in common areas, we're really differentiating ourselves versus our competition and gaining market share. So that trend in lower CapEx total spend will as we calculate on a 3-year moving average, and that will translate into a lower CapEx number because the total spend will be dropping as well. So I hope that answers the question.

[Neil William Edward Downey]

Okay. That's super.

[Sam Kolias, Chairman & CEO]

One thing we're spending a lot on is creative capital. And creative capital is really the brain trust of our entire team, and we're coming up with new ways to do things, and there's new savings all the time that all our associates are contributing. So we really have to give all credit to our team that continues to come up with amazing ways and ideas to do same old in different, more efficient, cost-effective ways.The other really exciting thing that we're doing, we just finished our trial with SmartRent, and that's our partnership with the major U.S. apartment REIT with real estate technology ventures and smart home technology, self-showing. We're scratching the surface as we install our first full community of smart technology. And that will introduce savings that are unparalleled at the U.S. We're very grateful to be partners with the most innovative U.S. REITs developing and creating.One of our new partners is Amazon, for example, in SmartRent. As soon as we put that technology together, amazon became a partner of ours very quickly. And so we're super excited with the technology. And again, we got to give kudos for our Yuhu platform. The automation or in-house development of our new robotic lead management system we created in-house. I can go on and on. And again, we're scratching the surface on the savings potential and the way we're revolutionizing and changing the way we serve in the multifamily communities.

[Operator]

Your next question comes from Howard Leung from Veritas Investment Research.

[Howard Leung, Investment Analyst]

I also want to ask about OpEx, the controllable side. What do you see for fiscal '21? And do you expect that to also offset some of the cost increases for the uncontrollable side?

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

Howard, it's James here. 100% great question. On the controllable expense side, I think we continue to see the benefit of that. You saw it here even in our most recent results here, with our Q2 results, offsetting some of the gains that we've had or the increases that we've seen in the noncontrollable side.Looking forward, in the next year, as Sam was just talking about, I mean, our team is looking for savings and innovating each and every day, uncovering as many rocks as we can. And so we're confident that our team will continue to find savings going forward. Obviously, we want to remain conservative and anticipate some inflation in items such as your standard items such as wages and salaries, et cetera. However, with what our team is doing and what our team has done over the last few years, looking at efficiencies, we're confident that this trend can continue.

[Howard Leung, Investment Analyst]

Okay. And then just -- I see that, I think, Edmonton and Calgary, they just had a spike this quarter for rental unit construction in Q3 in terms of completions. Can you speak to that and where you think if it will put any pressure on occupancies or rental revenue in the near term?

[Sam Kolias, Chairman & CEO]

So what we're seeing, it's Sam, is new supply is coming on about 1,000 units. And the pricing is stable. It's about $2.50 a square foot. And so we're seeing the new communities accept a lower absorption and a higher vacancy. And that is good news for everybody because the rental market is contiguous. It's interconnected. Everything is relative. And new supply is a price setter, and the rest of the market is a price taker. And so we're very pleased with the stability at about $2.50 and the affordability of the new supply that's out there. It's well below other levels in other centers in Canada.Affordability continues to be the leading variable in the United States. Our biggest data sampling and trends well before the pandemic, affordability was clearly a trend in major, more expensive cities in the U.S., and we're seeing this trend accelerate during the pandemic. And we're talking with Shopify employees in Calgary. We're talking with Amazon Web Services employees in Calgary. This work from home and from anywhere is accelerating. And Calgary has got the freshest air, cleanest water, most beautiful mountains. It's the Denver-like, and according to The Economist magazine, the fifth top best city to live in, in the world, and that's the only Canadian city that makes it on the top 5 list. And so it's the best kept secret, and it continues to grow. We're seeing that. Our results are reflecting that. And affordability is something that we've got the most of or one of the most of in the entire country.

[Howard Leung, Investment Analyst]

Right, great. So it doesn't sound like you're seeing a lot of pressure from new supply. And I guess that kind of relates to my next question about Brio. I think it's around 55% leased. And can you talk about your leasing strategy there? And I guess, it sounds like you're not -- you're also not competing -- you're not giving large incentives to lease that building?

[Sam Kolias, Chairman & CEO]

Correct. We're taking a more patient approach, where assuming a 12-month lease-up, we're well on target. We're over 50% occupied as we speak and on target to be fully occupied by the spring about a year after during a pandemic lease-up. And so again, our product is very unique, our unit size is very large. That's one thing we've learned is unit size matters, and it's something that's impossible to change. Once development is completed, the unit size stays the same.And so that decision to redesign that to smaller unit count and larger unit sizes has really helped us compete in that marketplace and actually gain market share from the newer, smaller condominium rentals in the area, and also the residential housing in the areas, approximately $1 million or just under some of the most expensive bungalows in the city or just in and around that area, providing a great alternative to a single-family home as well. And so we very carefully crafted that community, and it's showing in our performance.

[Howard Leung, Investment Analyst]

Okay. No, that's great. And then kind of my last question relates to capital recycling. So we've seen you buy some units in Ontario and BC at about -- it seems like about in the 4 cap. And then we're seeing some dispositions, mainly in Saskatchewan around a 6 cap. So I understand it's gradually high-grading your portfolio. But given that there's that spread between the different cap rates and most of your remaining Saskatchewan assets, I think, are levered, they're not unencumbered. Could there -- could you see any near-term headwinds to cash flows or NOI if you keep pursuing the strategy? And to what extent are you looking to dispose your Saskatchewan assets?

[Lisa Smandych, Chief Financial Officer]

So just for clarity, the sale that just transacted at 7.5% was closer to like low 4cap. So I'm not sure where the 6 cap is coming from. But the lower 4 cap is transacting and it's -- yes, we're not concerned.

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

So just to be clear, Howard, I mean the 6 cap that you're assuming you're referring to is our stabilized cap rate that we would utilize in Saskatchewan. For what Lisa is referring to is more of the in-place that's currently reflected there. And so as we redeploy that towards 4 caps in Ontario from a cash flow basis, especially with the mark-to-market that we have in Ontario, we believe we're accomplishing our strategic goals of high-grading and geographically expanding.

[Howard Leung, Investment Analyst]

Okay. Sorry. Yes, I thought the Boardwalk Manor was 6 cap, but you're saying it's closer to 4, 4.5?

[Sam Kolias, Chairman & CEO]

In-place. In-place 4s, what we're seeing is low 4s in-place going to 5 and 6 as incentives burn and as turnover happens in Ontario. What we're seeing in our Victoria is what we saw here in Calgary and Regina is the capital that we're going to have to use is our creative capital where we get in front of all the competitive buying and partner up with land assemblers, for example, that have been in that market for 10 years. And as a result, we're able to secure unique site and create the value and the equity that's required.And so our capital will be construction financing of the cost of the construction and then the value we create will be our equity. And it's exactly like the equity capital that we created through the value that we create in the development cycle and process. And we've created significant value on a smaller scale in Western Canada, in Alberta and Saskatchewan, with around 1,000 or 700, 800 units, and our equity capital is the value that we created. And these communities provide positive accretive FFO contributions to our bottom line, and we're going to continue to do that.We realize the timing of sales is critical to the acquisitions. And Lisa can needle a very fine thread through this and will continue to as she and our acquisition and disposition and development team have been doing over the last several years in a smaller scale. We're going to scale that up going forward and be more active on both, first and foremost, the disposition side, and timing our acquisitions at accretive level, so we can accelerate the geographic distribution of our asset mix.

[Howard Leung, Investment Analyst]

Right. And so I guess to that, should we expect more dispositions than in the Saskatchewan region?

[Sam Kolias, Chairman & CEO]

Yes, absolutely. Well, even in Alberta and more particular Edmonton. Our most highly concentrated market is Edmonton. And that's most likely where we will be most active. But we're going to be most active in Canada, where there's the bid and the best pricing. And we're going to be a lot more open-minded when it comes to the trading of our assets to accelerate our geographic distribution in our asset class.

[Howard Leung, Investment Analyst]

Okay. No, good to know. And just to confirm yes, so for kind of 4 caps in-place and after incentives burn, it will 5 to 6. Okay. Now got it.

[Lisa Smandych, Chief Financial Officer]

Yes, that's correct.

[Operator]

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

[Matt Kornack, Analyst]

Just wanted to quickly follow up on Howard's question with regards to capital recycling in Edmonton, in particular. Can you provide any commentary as to transaction activity in that market, what you're seeing and what you could potentially lighten up on there?

[Lisa Smandych, Chief Financial Officer]

Our transaction is going -- so there is some product in Edmonton right now. And there's -- from just talking to the brokers, there's lots of activity on the product that is in Edmonton and Calgary. In 2021, like Sam said, we're going to be really focused on transactions, not just in Edmonton, but in Western Canada. And -- yes, we feel like there's a lot of strong -- there's strong interest in talking to these different groups as we are right now.

[Matt Kornack, Analyst]

And pricing-wise, cap rates on in-place NOI, are you inside of what you're seeing in Saskatchewan? Or is it similar type pricing?

[Lisa Smandych, Chief Financial Officer]

Yes. It depends on the product, but similar type pricing. Definitely, we're right in line.

[Matt Kornack, Analyst]

Okay. On property taxes, they were up fairly significantly sequentially. And I think this was previously known. But as you look into 2021, it sounds like some municipalities are trying to hold off on passing through budget deficits related to COVID on to property owners. But what are your thoughts there? And then maybe more generally, can you speak to, I think, on OpEx this quarter, same-property year-over-year was up 3.6%. Is that a figure that you'd hope to attain? I know there's some onetime items in there like the carbon tax. But how should we think about OpEx growth going forward?

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

Matt, it's James. On the property tax front, absolutely, we're not looking to -- we're not anticipating the same pace of increase for 2021 as we would have seen this year in 2020. In fact, you're 100% right, even in Calgary, much of the media attention is around the potential of residential tax decreases, actually. Going forward, we'll have more visibility on that in the new year. We are hearing that there's likely some pressure on industrial property taxes here in Alberta. Multifamily, it sounds like we're -- we'd anticipate something that is closer to flat, if not even more inflationary as opposed to the double-digit tax increases we saw this year.With regards to other operating costs, you hit it bang on, Matt, the majority of our increases were a result of these noncontrollable increases like property tax, like insurance. When it comes to carbon tax, I mean, again, that is another item, where -- frankly, where we are seeing those increases. Again, we wouldn't anticipate the same pace of increase, but we will see those continue into 2021.

[Matt Kornack, Analyst]

So you'd hope for under the 3.6% potentially, if you're lucky into 2021. One other thing, just that $13.7 million of property tax, is that a good run rate figure? It kind of moves around a little bit, but presumably, that's the new basis.

[Sam Kolias, Chairman & CEO]

Yes. Barring future information that we see for 2021, again, we'll have more visibility on that in the new year. But for now, we'd say, yes.

[Operator]

[Operator Instructions] Your next question comes from Mike Markidis from Desjardin.

[Michael Markidis, Real Estate Analyst]

Just with the plan to accelerate your disposition program in Western Canada, and I apologize if I had missed this sooner, but I think you guys had -- or missed this earlier. I think you guys had 3 assets listed in Edmonton. I was just wondering if you could give us an update on that process.

[Lisa Smandych, Chief Financial Officer]

Sure. Yes, we've had a lot of interest in the assets, and we're actually at different stages of -- and under contract. So we can speak to it further next quarter. But yes, we've seen a lot of interest, and there's buyer from out east to private guys in the local market.

[Michael Markidis, Real Estate Analyst]

Okay. You would expect those transact early next year?

[Lisa Smandych, Chief Financial Officer]

Correct.

[Michael Markidis, Real Estate Analyst]

Okay. Great. And then just looking at your segmented revenue, clearly it was a tough -- one of the toughest quarters you've seen in a while. And you did have a sequential revenue decline in Alberta of about 1.5%. I realize you guys are getting more traction on the renewal increases as we move through 4Q. But just given what you're seeing in terms of leasing velocity and demand and understandably the visibility factor as low as it's probably been in a long time. Do you expect that will stabilize over the next couple of quarters? Or do you expect it will continue to be lower?

[Sam Kolias, Chairman & CEO]

So we're -- Mike, it's Sam. We're seeing between the $20, $50 discount reductions on renewals, which accounts for about 60%, 70% of our turnover. And so we will be seeing that reverse in the fourth quarter because we're seeing it as we speak in our renewals today. So our renewal agents are -- some -- and especially the communities that we've repositioned, we're going to see discount reductions more in the $60 to $80 range. And so we're seeing some of those, and we're going to see more of those as more of our repositioned communities come online. And so we're, as we speak, seeing an increase in our revenues as a result of the discount of our -- our reduction of our discounts flowing through again.

[Michael Markidis, Real Estate Analyst]

Okay. So I guess, the outlook would be reduction in average incentive, maybe you're giving up a little bit on new leases and then you would expect occupancy to remain relatively stable. That would be fair?

[Sam Kolias, Chairman & CEO]

That's what we're seeing as we speak, yes.

[Operator]

Your next question comes from Mario Saric from Scotiabank.

[Mario Saric, Analyst]

Just 2 questions on the disposition activity. Coming back to the 3 assets that are listed in Edmonton, can you highlight whether there's any debt on those 3 assets? Or are they free and clear on debt?

[Lisa Smandych, Chief Financial Officer]

There's currently debt on the assets that we're marketing. And -- but we're not marketing them free and clear, so there'll be debt assumptions with that.

[Mario Saric, Analyst]

Okay. And then more of a more bigger picture on dispositions. I think especially when you're looking at your Western Canadian assets, some of those assets or properties you've owned forever. So I'd imagine the tax basis on a lot of these assets is probably 0. Does the adjusted tax basis of the assets impact in anyway your ability to execute on your disposition program or the magnitude of that disposition program?

[Elizabeth A. Russell]

Mario, it's Lisa So basically, when we evaluate our distribution on a recurring quarterly, monthly basis, we do consider capital gains and recapture in our taxable income calculations. So we do allow for a pool within our distributions to allow for us to execute and sell our assets at their equity value. But you are correct, we will have to consider as any time we're evaluating any disposition, we have to look at the tax basis. And yes, some of those assets, which we've held for a longer period of time. You would expect that there would be a recapture in capital gain consequence. So we consider that when we evaluate our distribution on a quarterly basis.

[Sam Kolias, Chairman & CEO]

Mario, the other option we have is selling like and buying like, like our newer acquisitions that we purchased or developed, realize the gains that we've created, the cost base is much higher, and reinvest those gains into a different geographic region with like brand-new developed product as well. So it will be a like-for-like product in a different geographic region. And that's exactly how we can access capital internally. And it's a great, great way to -- again, our focus is internally generated free cash flow. That's why we reengineered our distribution to maximize the free cash flow available for us. And that our biggest primary source of capital will be free cash flow. Especially when our average rents are $1,183, everything is relative, everything. It's a whole lot different moving rents from $1,183 to $1,300, $1,400 on a relative basis, that's a big major percentage increase versus moving average rents from $1,500, $1,600 at the same percentage level. And that's really important to keep in mind that the growth, the organic growth is significant. And the reengineering to maximize the access of that free cash flow is significant. And that is going to fuel our growth going forward.

[Operator]

Your next question comes from Brandon Abrams from Canaccord -- or Brendon, sorry.

[Brendon Abrams, Analyst of Real Estate]

I hopped on late, so maybe I missed it. Just on the Victoria land purchases, can you just maybe reiterate what the expected development yield and also maybe price per suite once built out would be?

[Lisa Smandych, Chief Financial Officer]

Yes. For Victoria, right now, we're going through rezoning on one of the sites. So that will figure out density as we get closer. That will be likely further out in 2022. And as we progress through the rezoning process, we'll keep everybody up to speed. And for the Eagles Nest, it is a rezoned piece of land, and we're in really preliminary stages. We're just closing on this piece of land right now and working through it, but it will be close to like a 4.5% yield, about 4.5%.

[Sam Kolias, Chairman & CEO]

The development yield will be approximately 25%, and that essentially will be our equity into those developments and communities. And we've realized higher than that in our past developments, and depending on where the market is going over the next couple of years because right now, the market continues to improve and strengthen in the locations that were secured land in, and as a result, these, we believe, are realistic yields.The low-rise construction is another big difference and the advances that we've seen in low-rise construction is significant. And so the cost of low-rise is much, much lower than high-rise, and that contributes to the value that we can create in low-rise developments versus high-rise developments. We're very happy with our high-rise developments because we secured really low-price contracts several years ago, to be honest. So the low-rise construction we have in Brampton is very exciting because the legacy older product is not too far below what our total cost is going to be in Brampton with our partner that's doing an amazing job keeping costs down and securing these contracts a long time ago. So we're, again, very excited about the value that we can create in these new exciting opportunities.

[Brendon Abrams, Analyst of Real Estate]

Right. No, that's helpful. And maybe just on a similar tone, maybe as it pertains to capital allocation. Over the last year or 2, you've invested in a few development projects, some acquisitions outside of your core markets. And so obviously, the growth of the REIT and geographical diversification is paramount. But just in terms of unit buybacks and given where the stock is trading relative to perceived value. Do you have a view and your significant liquidity, maybe you could just remind us your view on unit buybacks and what -- I guess, what it would take to go into the market and support the stock.

[Sam Kolias, Chairman & CEO]

So our view on unit buybacks is the same as our view on capital allocation. We review that all the time. And we look at all options available to us. And so we -- you must have been in our Board meeting, we had a very, very heated discussion and talk about asset or kind of capital allocation and unit buyback. And we will continue to look at all sources and uses of capital allocation all the time.

[Operator]

Your next question comes from [ Li ] Chen from IA Securities.

[Liyan Chen]

Most of my questions were answered. So just really quickly for me. Just in regards to the Brampton and Mississauga projects. Have your projections on -- in terms of costs or yield on cost change at all in the near term?

[Lisa Smandych, Chief Financial Officer]

They haven't actually -- so for Brampton, we're 85% fixed cost. So we're secure with any construction fluctuations that we may have seen over the past 6 months. So no, everything is absolutely in line. And Mississauga, again, we're just going through rezoning. So that one is very, very preliminary.

[Sam Kolias, Chairman & CEO]

We watch the market all the time. And Brampton, we're surveying competitors. There's very little to no new supply in the Brampton market. And there is very little to no incentives as well in the Brampton market. Brampton market, we purchased that land on a square foot basis at just about -- just over $30 a buildable or close to $40 with entitlements.Very affordable contracts. The partner we have is the general contractor developer and has been in the construction and development business for decades. And we're very blessed to have them as a partner that secured really exceptional low-cost and proven good-quality trades to keep our costs under control. And so far, so good. They're doing an amazing job, and we're seeing great discipline in cost control, and we're on time, on budget, which is the good news on any new development.

[Operator]

Your next question comes from Joanne Chen from BMO Capital Markets.

[J. Chen]

Most of my questions have been answered as well, but maybe just a really quick one. I apologize if I missed this earlier, but with the rent freeze lifted, could you maybe provide some color on what sort of rent list that are you seeing now so far in, I guess, September and October?

[Sam Kolias, Chairman & CEO]

Sorry. What was that?

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

Joanne, yes, you're 100% right. Just on the rent freeze, the increase is post the rent freeze. And so the rental rate restrictions, both self and government imposed, for the most part, across our markets were lifted towards August here. And so since then on renewals, we've really been targeting sustainable discount reductions with our residents, right? So we've been targeting $20 to $50 discount reductions and getting them.With our renewal agents and the strategy and the approach that we take with our lease renewal, we're often negotiating lease renewals 30 to 90 days in advance. And so there was -- we're starting to see that benefit now in these current months, and we anticipate that we'll see those leasing spreads on renewals improve into the fourth quarter.

[J. Chen]

Got it. So you got $25 to $35 discount on reductions?

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

$20 to $50.

[Operator]

There are no further at this time. Please proceed.

[Sam Kolias, Chairman & CEO]

Thank you, Colin. We would like to end this call by thanking our amazing team of heroes and great leaders, loyal residents and all our stakeholders. It really is all about our amazing team of heroes, whose huge shoulders we stand. And as leaders, we continue to do everything we can to support continued growth and excellence. We really can't thank our amazing team and great leaders enough. We are pleased with our improving results on a foundation of exceptional value we continue to provide our resident members, our investors and all our stakeholders. Our home is much more than a place. The future is family, where love always lives. What can be more important when choosing where to call home. Thank you, again, everyone, for joining us this morning. And may God bless us all with healing, health and piece through all times. Thank you.

[Operator]

Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your line.