Boardwalk Real Estate Investment Trust

TSX:BEI.UN

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust Third Quarter 2024 Earnings Call. [Operator Instructions] This call is being recorded on November 6, 2024. I would now like to turn the conference over to Eric Bowers. Please go ahead.

[John Bowers, executive]

Thank you, Emily, and welcome to the Boardwalk REIT 2024 Third Quarter Results Conference Call. With me here today are Sam Kolias, Chief Executive Officer; James Ha, President; Gregg Tinling, Chief Financial Officer; Samantha Kolias-Gunn, Senior VP of Corporate Development and Governance; and Samantha Adams, Senior VP of Investments.

We would like to acknowledge on behalf of Boardwalk, the treaties in traditional territories across our operations and express gratitude and respect for the land we are gathered on today, and we now know is Canada. We respect indigenous peoples and communities as the original stewards of this land. We come with respect for this land that we are on today for all the people who have and continue to reside here and the rich diversity of First Nation, Inuit and Métis Peoples.

Before we get to our results, please note that this call is being broadly distributed by way of webcast. If you have not already done so, please visit bwalk.com/investors, where you will find a link to today's presentation as well as PDF files of the Trust's financial statements, MD&A and quarterly report.

Starting on Slide 2, we would like to remind our listeners that certain statements in this call and presentation may be considered forward-looking statements. Although the expectations set forth in such statements are based on reasonable assumptions, Boardwalk's future operation and its actual performance may differ materially from those in any forward-looking statements. Additional information that could cause actual results to differ materially from these statements are detailed in Boardwalk's publicly filed documents. I would like to now turn the call over to Sam Kolias.

[Sam Kolias, executive]

Thank you, Eric. Starting on Slide 4. Multifamily communities are an essential product and service. A keyword in community is unity as reflected in our new diagram. The most important part in a home is our family. Our family is where our heart is, our heart is where love always lives, our true north. At the center of our being is redefining BFF, our Boardwalk Family Forever.

Welcome, everyone, to our Boardwalk Family Forever and to our Q3 2024 results. Next slide, our culture from our humble beginnings 40 years ago in 1984, our resident members are at the top of our organization. Our leaders put our team first, and our team puts our resident members first. Guided by our golden rule, we have a peak performing customer service culture that creates exceptional results as we can see on our next Slide 6.

Our continued impressive performance with GAAP and non-GAAP measures, increasing from the same quarter last year, same-property rental revenue increased 9.5% and same-property net operating income increased 13.5%. Our operating margin increased by 230 basis points as well as our property funds from operations per unit by 15.6%. I would like to now pass it over to Samantha Kolias-Gunn.

[Samantha Kolias-Gunn, executive]

Thank you so much, Sam. We are extremely grateful for our team's exceptional performance and continued commitment to bringing our resident members home to love always. Continuing on to Slide 7. Rental market fundamentals are transitioning from unsustainable growth to a more sustainable balanced position in our core markets. Our occupancy, retention and demand for affordable rental housing remains high. The recent immigration announcements aim to balance our Canadian housing market further as average asking rents in Canada remain much higher than Boardwalk's occupied average rents. As a result of our self regulation, we continue to provide Canadians with exceptional value.

Our economy continues to diversify, provide job opportunities, host world-class educational programs that attract skilled talent, offer an exceptional quality of life and affordability. Recently, Calgary has been chosen as a location for a new $750 million data center, highlighting the Alberta advantage in the most recent announcement. Please refer to our appendix for more data on the enduring Alberta advantage. Our average occupied rents of [ $1,493] for 2-bedroom apartments are attractive especially relative to the Canadian average [ $2,309 ]. Affordability continues to be in demand as evidenced by our strong portfolio occupancy of 98% and is a leading factor in interprovincial migration.

Premier Danielle Smith received a 91% approval rating for her support of public policy that is positive for economic growth and prosperity in Alberta. The fiscal strength of our Alberta and Saskatchewan jurisdictions will continue to attract employers, allow for innovation and increase our productivity, contributing to a more stable economic environment. Our self regulation has us well positioned in a competitive market as we continue to strategically moderate our rental rates within a resident-friendly renewal rate band resulting in greater stability in occupancy and reputation. Paired with our strong financial foundation, minimum distribution policy resulting in maximum reinvestment and free cash flow, strategic repositioning, unparalleled customer service and strong family values, we remain in a position to deliver stable performance. This is what sets us apart. Bringing you home to where love always lives.

Slide 8 illustrates our amazing renovations and value, representing exceptional quality at an affordable price. Boardwalk has made significant investments in its communities to improve value proposition and leasing performance. Past investments in upgraded fitness facilities, amenity rooms and outdoor spaces provide high-quality communities in the affordable housing market segment. We would like to now pass the call on to Gregg Tinling, who will provide us with an overview of our quarter results, strong balance sheet, fair value and ESG.

[Gregg Tinling, executive]

Thank you, Samantha. Slide 9 shows our key operational metrics with high occupancy, lower incentives and higher occupied rents, resulting in higher revenues for Q3 2024 compared to the same period a year ago. This is a reflection of our key strategic decisions made to maximize free cash flow and diversify our product offering, yielding significant financial performance.

Slide 10 shows leasing spreads on new and renewed leases within our self-regulated, resident-friendly centric model, keeping retention and referrals high and our turnover and expenses low. Year-over-year, we have seen improvement in our leasing spreads on renewed leases, while leasing spreads on new leases have decreased slightly, reflecting a rebalancing with new product coming online at Calgary, Alberta. We continue to prioritize maintaining occupancy and maximizing retention. This will continue to provide resident-friendly, affordable housing options in our core markets while lowering our costs and steady operational results, a win-win for all our stakeholders.

Slide 11 illustrates our leverage reduction, highlighting our leverage metrics with respect to debt to total assets and debt to EBITDA. Boardwalk is naturally deleveraging as a result of our organic growth, resulting in improved debt metrics with debt to total assets at 40% at September 30, 2024, compared to 43% at December 31, 2023, and debt-to-EBITDA of 10.31 at September 30, 2024, compared to 11.02 at December 31, 2023.

Slide 12 shows continued strong and steady sequential rental revenue growth, including 2.6% growth in Q3 2024 compared to Q2 2024, a result of strong leasing spreads during a seasonally higher period from a leasing volume perspective.

Moving to Slide 13. For Q3 2024, same-property net operating income increased by 13.5% compared to Q3 2023 and with revenue growth of 9.5%. For the 9 months ended September 30, 2024, same-property net operating income increased by 13.7% with revenue growth of 9.5%. Alberta, the Trust's largest region saw revenue growth of 10.6% in Q3 2024 and 10.9% for the 9 months ended September 30, 2024, as compared to Q3 2023 and the 9 months ended September 30, 2023, respectively.

Operating expenses increased by 2.6% for both Q3 2024 and the 9 months ended September 30, 2024, due to higher wages and salaries as a result of inflationary adjustments at the beginning of the calendar year, higher utilities from an increase in utility rates and higher property taxes. The team remains committed to ensuring focus and discipline when managing controllable operating expenses.

Slide 14. Administration costs increased $0.8 million as compared to Q3 2023 and is consistent compared to Q2 2024. The year-over-year increase was driven by inflationary wage adjustments at the beginning of the year, an increase in software costs, including cybersecurity and new software to improve operating efficiencies and an increase in our accrual for profit share and bonus considerations, reflecting the Trust's outperformance in 2024 year-to-date.

Comparing Q3 2024 to Q2 2024, administration costs were flat with savings from our new customer service platform and travel costs related to Boardwalk participating in the homes of hope program in Q2 2024, offset from costs incurred by Boardwalk's annual scholarship program to children of associates and resident members as well as a higher accrual for profit share and bonus considerations for outperformance. Deferred unit-based compensation increased due to an increase in the number of participants and the cost of the program as well as unvested deferred units that vested automatically on the departure of the outgoing CFO.

Slide 15 illustrates Boardwalk's mortgage maturity schedule. Our mortgages are well staggered, with approximately 96% of our mortgage balance carrying NHA insurance through the Canada Mortgage and Housing Corporation. This insurance remains in effect for the full amortization of the mortgage, and in addition to carrying the government of Canada's backing, provides access to financing at rates lower than conventional mortgages with a current estimated 5-year and 10-year CMHC rate of 3.07% and 4.107%, respectively. Current interest rates are above Trust maturing rates. The Trust maturity curve remains staggered, reducing the renewal amount in any particular year. Lastly, the Trust has an interest coverage of 2.91 in the current quarter.

Slide 16 highlights our 2024 mortgage program. We have renewed or forward locked $352.8 million at an average rate of 4.29% and an average term of 6 years. Current underwriting criteria in our most recent submissions to CMHC and our lenders has remained in line with our historically conservative estimates.

Slide 17 states the Trust's estimated fair value of its investment properties, excluding adjustments for IFRS 16, which totaled $8.3 billion at September 30, 2024, compared to $7.6 billion at December 31, 2023. The increase in overall fair value compared to December 31, 2023, is the result of increases in market rents at select sites and communities as market fundamentals improved as well as the acquisitions of the Circle and the Brenda apartments in Calgary, Alberta and Dawson Landing in Chestermere, Alberta, while being slightly offset by an increase to capitalization rates.

Current estimated fair value of approximately $239,000 per apartment door remains below replacement cost. In consultation with our external appraisers, the capitalization rates or cap rates used in determining Q3 2024 fair value were unchanged from Q2 2024, an increase from Q4 2023 from adjustments made to the Trust Ontario assets in London and Kitchener Waterloo, Cambridge markets. As it does every quarter, the Trust will continue to review completed asset sales transactions or 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 calculating fair value are within their estimated ranges.

Slide 18 highlights our ESG initiatives. Using a disciplined capital allocation approach, we are focused on reducing emissions through reduced utilities consumption and, therefore, reducing utilities costs while always promoting social and governance initiatives. We encourage our stakeholders to view our 2023 ESG report available on the Trust's website. I would like to now turn the call over to Samantha Adams to highlight our capital allocation and discuss our development pipeline.

[Samantha Adams, executive]

Thank you, Gregg. Although no transactions were completed this quarter, we remain very focused on our capital recycling programs and our overall investment strategy. Slide 19 illustrates the prudent deployment of our free cash flow to repositioning and value-add capital improvements at our existing communities. We currently have 19 identified projects which include adding to or improving common area amenities, which will further enhance our revenue growth as well as add to resident satisfaction. When finished, we will have completed common area and amenity improvements of approximately 70% of our portfolio.

In addition to our common area of projects, we are continuing with our suite optimization program, which is the conversion of underutilized storage or administration spaces that can be converted to rental suites. We are currently assessing the feasibility of converting 36 such spaces. Each project we undertake is evaluated individually, and we target at least an 8% return on cost, providing an accretive return on our capital.

Slide 20 provides an update on our development pipeline. 45 Railroad is approaching the final stages of stabilization. The two rental towers are approximately 89% leased, and we are currently marketing the commercial space, which is expected to be delivered in Q1 2025. This project has been delivered on time and on budget, and we are projecting a stabilized yield within our forecasted range. Our 3 Victoria area development projects continue to move forward. Aspire has a slightly revised targeted occupancy of Q1 2025, previously December of this year for Building 1.

The structure for Building 2 is nearing completion and is projected to meet our estimated completion date mid-2025. The Aspire is progressing on budget and is located adjacent to our existing Aurora community, which will allow for greater operational efficiencies once completed. The site for The Marin has moved through entitlements. We have received tender pricing and a review of our options is currently underway. Our Island Highway project has been officially rezoned, and we are working through next steps as well. Marda Loop is our one acre land assembly in Calgary, located in the heart of one of the city's most desirable and amenity-rich neighborhoods.

While currently in the preconstruction phase, we are in the process of selecting a consulting team and a product concept design. Our development will feature the cost benefit of wood frame construction versus concrete as well as larger suites that we believe will provide a differentiated product in the Marda Loop node. I would now like to turn the call over to James Ha to discuss our track record of creating value.

[James Ha, executive]

Thank you, Samantha, and thank you to our entire Boardwalk team, who many are on the line listening here today. Our focus on delivering the best quality and affordable communities is reflected in our strong operating performance. Our residents continue to choose Boardwalk as the place to call home and reward our team with high occupancy and high retention rates. With our strong track record of delivering value and growth to all our stakeholders, Slide 21 highlights the exceptional value opportunity that our Trust units represent today. Our current valuation equates to a 5.4% cap rate on trailing NOI.

As seen on Slide 22, recent transactions in our core markets have traded at cap rates significantly below this current valuation despite the declining trend of interest rates today. Put more simply, our current valuation equates to $203,000 per apartment door, again, well below recent transactions that do not reflect our Boardwalk quality and also represents a significant discount to replacement costs. Our track record of delivering strong and consistent FFO per unit growth across various economic conditions is highlighted on Slide 23.

Our resident-friendly approach is universal in all environments and has demonstrated the resilience and growth that our operating platform and communities provide. Our unique maximum cash flow retention policy provides increased flexibility to reinvest back into housing and compound growth for all our stakeholders. This has positioned Boardwalk with a strong, solid financial foundation with strong interest coverage and continuous improvement to our best-in-class leverage metrics, as shown on Slide 24.

Our strong balance sheet and significant liquidity uniquely positions Boardwalk to take advantage of opportunities that may arise, including investment in our value-add improvement program as well as the acquisition and development of new communities to expand our portfolio on an accretive basis.

Lastly, with the closing of our third quarter results, Slide 25 provides an update to our 2024 financial guidance to reflect the strong results we have had to date. With our continued high occupancy, strong renewal spreads and measured cost control to date, we are updating our guidance to increase the bottom end and tighten the overall range for the balance of the year.

For 2024, we now anticipate same-property NOI growth to range between 12.5% and 14.5% and FFO per unit to range from $4.15 to $4.23. We look forward to introducing our 2025 guidance with our year-end results in February. Thank you again to our team for providing communities that our resident members are proud to call them. We would now like to open up the phone lines for questions. Emily?

[Operator]

[Operator Instructions] The first question comes from Fred Blondeau from Green Street.

[Frederic Blondeau, analyst]

First, I was wondering if you could qualify for us the new supply you're seeing in Alberta versus, I guess, the rest of Western Canada versus what you're seeing in Ontario and Quebec?

[John Bowers, executive]

Fred, it's Eric. Thank you for the question. So just starting -- we tend to look at that, Fred, from a total housing stock approach. So what I mean by that is we have seen some increased supply in particularly in Calgary over the last year or so in certain pockets. However, when you look at that today for total housing units, you have 15,000 under construction in Edmonton. We have 23,000 total housing units under construction in Calgary. However, on a total housing stock basis, both cities have approximately 600,000 dwellings. What that equates to is on a total housing stock basis, Edmonton, that's roughly 2.5% of the total housing stock. Calgary would be a little bit higher than 3.5%.

However, a couple of things within that, that are important to keep in mind are on the demand side of the equation, strong differentiator for Alberta is the interprovincial migration that we have been seeing over the last number of years. Some of the factors behind that, including relative affordability to major centers, we think are likely to continue. And then as well from the demand side, while the recent immigration plan announcement does represent a risk on the demand side, we also know that Alberta has a lower concentration of nonpermanent residents compared to other places in Canada.

[James Ha, executive]

Fred, it's James here. I'll just add to Eric's comments. We have to give our development community across the country, a lot of credit here for stepping up and adding supply as our governments were asking for more of that supply. So we are seeing that in major markets across the country, which is fantastic. As we've said before in our past earnings calls, there is no shortage of housing at the top end of the rental market. If you can forward $3,000, $4,000 a month, there is no housing shortage for you. Where there is a housing shortage, however, is in the affordable space. Our rents of under $1,500 a month. Certainly, we are seeing a continued strong demand for high-quality affordable housing.

[Sam Kolias, executive]

Thank you, James. It's Sam and Fred, thank you for joining us today. We also have to give big credit to our policymakers in Alberta and Saskatchewan for keeping rent control out. So credit where credits due, the best case example of how to promote and encourage incent investment is by keeping rent control out. And Alberta and Saskatchewan continue to remain the best case examples of how that public policy especially works best.

[Frederic Blondeau, analyst]

All right. Great. And so if you had to compare both in terms of new supply and immigration like the impact of the new immigration policies, Alberta versus Ontario and Quebec, what would be your observations at this stage?

[Sam Kolias, executive]

Affordability is almost like water where migration becomes essential, not optional. And so there's still average asking rents well above are occupied and our market rents. And so buying necessity, we're going to continue to see movement into more affordable regions like Alberta and Saskatchewan. The other big difference, it's very hard to find a jurisdiction with balanced budgets and lower taxes. Those are proven public policies as well that attract companies, employment, investment, as we've seen in the data center of $750 million. We saw a $7.5 billion commitment investment with BHP and Saskatchewan. And so it's the best jurisdiction that our policymakers -- and again, we give credit to our policymakers in Alberta, Saskatchewan to make that critical balance between capital and labor, both are essential to economic prosperity.

[Frederic Blondeau, analyst]

That's great. And maybe very quickly on the NOI margin, would you see any potential for further improvements in the new year from here?

[Gregg Tinling, executive]

Fred, it's Gregg. Basically, for 2025, we're not providing guidance right now until we release our results in February for 2024. But our team is very focused on expense discipline. Always looking for operational efficiencies and exploring technology initiatives to help manage our controllable costs where possible.

[Operator]

And the next question comes from Dean Wilkinson from CIBC.

[Dean Wilkinson, analyst]

Probably a follow-on to Fred's line of questioning there. Maybe this is for my BFF, Sam. There's been a lot made about the new immigration policy. And I guess I'm from Missouri on that one. Maybe this will be the first time in 9 years that the numbers have been hit. But let's assume that we do go through them. As James rightly points out, there's no shortage of supply at the high end.

How do you think the industry, and maybe you're part of this, bridge the gap between the lack of affordable and new affordable housing? And are the economics of what's happened with the yield curve and interest rates and things like that over the past month or so, made it more difficult? And how do you see that, say, over the next 12, 24 months in terms of trying to answer the supply side of the things because I think that's probably where the answer lies.

[Sam Kolias, executive]

Well, Dean, you bring up great points with respect to the challenges. Even in Great Britain, a great example of targets being very difficult and missed as far as reducing immigration targets. And it's great public policy. We all can agree positive migration is positive for our economic growth. So our economy, as we're seeing, is super important to Canadian in all borders. So that's a reminder for all of us that we've got to do what's best for our economy, first and foremost.

Second, with respect to the supply of more than enough, more expensive housing, one of our public policies, which works instantly is rent supports. Instantly a Canadian with a smaller, more limited budget can access more expensive housing and reduce that barrier to housing instantly. That targets Canadians that need help now.

So that would be a phenomenal best case example, public policy to help Canadians that need more affordable housing today, rent supports. We've always been a big advocate of that. With higher interest rates, with higher costs, we're still seeing high inflation. And inflation is on everybody's radar. And how we combat that fiscal balance. It's another proven public policy that combats inflation. We've got to get our spending under control. And this is why we're big advocates on the limited budgets, we do have to be laser-focused to the Canadians that need it most.

And our builders -- sorry, Dean, and our builders are really quick to adjust. We're already seeing having discussions on how difficult it is to make the numbers work. With the higher cost, higher interest rates, higher underwriting requirements, it's getting really, really tough. And we're beginning to hear why and how can we build any more housing. There is more than enough of it and the higher end. We're seeing incentives in new delivered higher price rentals in Calgary, in particular. So why build more expensive new rental housing?

[Dean Wilkinson, analyst]

I guess, because it's just -- that's what it costs, right? I think you're bang on, on that. You almost sounded like you were running for office, you got my vote.

[Operator]

And this question comes from Jonathan Kelcher from TD Cowen.

[Jonathan Kelcher, analyst]

Just circling back on the new supply, you talked about 15,000 [indiscernible] in Calgary. What sort of time frame would we expect that to come on over?

[John Bowers, executive]

So Jonathan, it's Eric. Just one thing we have seen as well within that overall composition over time as homeownership has become less affordable relative to rental is we have seen a greater percentage of that under construction inventory be in the multifamily space. One impact of that is from a construction time frame point of view, it also takes longer to deliver. I would say we're likely on an overall basis to see slightly higher completions for total housing units next year just based on what was started a couple of years ago. But generally speaking, and as Sam just alluded to, in Calgary, in particular, our under construction amount actually peaked about 6 months ago. So we're starting to see that come down a little bit.

[Jonathan Kelcher, analyst]

Okay. And then that, I guess, that peak that's sort of what hit you guys in Calgary a little bit on the occupancy side?

[James Ha, executive]

Yes. Just as we pointed out in our October operating update, and again, talking about that new supply at that top end. In Calgary specifically, there were just a couple of nodes where we saw an increase in competition and supply, primarily in downtown and the Southwest pockets. Our team quickly adjusted and happy to report that our Calgary team in October, right after that operating update, did a great job of filling back up our units with very small adjustments to our rental rates. So again, happy to report that we're maintaining that high occupancy and a testament to that strong demand for affordable high-quality housing.

[Jonathan Kelcher, analyst]

Okay. And then as part of that, did you guys start -- were there any incentives? And I guess, as we're a little bit of a softer market, maybe give your thoughts on whether or not incentives will increase going forward.

[James Ha, executive]

In Calgary, it was a very tactical approach where we increased our marketing efforts, increased our open houses, really just got back to basics in terms of showing and demonstrating the value that we have within our communities. As we pointed out in that October operating update, we did take a more conservative approach in terms of our market rent adjustments. And so new lease spreads in our Calgary portfolio in that month of October did come off from kind of the double digits that we were seeing down into the mid-single digits. We are continuing to see strength and consistency in our renewal spreads.

Renewal spreads remain at the upper end and the high single-digit mark in Calgary and Edmonton. And we're negotiating 2, 3, 4 months in advance, as we've talked about in the past. And so we are negotiating renewal spreads already into December and the early part of 2025. And that is certainly a credit to our strategic moderation, which creates that consistency and a longer runway.

[Operator]

And the next question comes from Sairam Srinivas from Cormark Securities.

[Sairam Srinivas, analyst]

Congratulations on a good quarter. Just looking at Slide 10, as I've seen the new leasing and annual spreads across both Alberta as well as the broader portfolio, you do see a bit of a downward trend over there. Would you say this is probably a function of that new supply? Or is it just purely seasonal in nature?

[James Ha, executive]

Sai, it's James. A little bit of both, again, as we saw the new supply, a little more competition in our Calgary markets. As you know, we believe that optimizing our revenues and operating performance is tied to occupancy, so we are going to maintain high occupancy. As we pointed out, new lease spreads in October, we did take a more conservative approach. We did see those new spreads come down into the single digits. But our renewal spreads continue to remain consistent so far.

[Sairam Srinivas, analyst]

That makes sense. And James, really just going back to our discussion earlier for 2025. I know last time, I think last quarter, you did mention that you're confident on these spreads remaining strong next year. Is that something you'd probably affirm right now in terms of spreads remaining system next year?

[James Ha, executive]

I'm sorry, Sai, could we repeat that? We heard 2025.

[Sairam Srinivas, analyst]

Yes. So essentially, the new leasing and renewal spreads, I think last quarter or sometime in between, we were discussing about the strength of these spreads heading into next year. And I think you had mentioned that you do anticipate them being strong next year as well. Is that something you would probably see now as well considering new supply? Or is that something you probably pivot from?

[James Ha, executive]

Like we said the demand for affordable housing remains high. I think our strategic moderation approach is going to continue to provide us strength on our renewals. We will formally provide our guidance for 2025 with our year-end results. But as we had said earlier, what we're seeing now is strengthen that renewal spread. Renewals remain within our high single-digit range into the early part of 2025. New lease spreads in Calgary did come down, again, as we focused on maintaining our high occupancy done that. Edmonton continues to remain strong. As we've also talked about in the past, we do see Edmonton becoming one of the best and strongest rental markets in the country, and we're seeing that unfold today with new lease spreads that are -- continue to be consistent in the mid- to high single digits.

[Sam Kolias, executive]

Sai, it's Sam. We're also seeing the effects of the reduction in immigration, and that's why we updated everybody in our most recent update. And so there's just more time for residents. There's more competition selection, and we're doing extremely well on that regard, just because of our approach on self regulation. A lot of residents are coming back home to live with us. And a lot of residents in our competitors are coming because some of our competitors took a different approach when adjusting existing in-place resident rents to market rents right away.

And our self-regulated approach, especially with our existing residents, resident friendly. Our retention goals are very high. We've moved them up from 70% to 80%. And so our focus on our resident members is really benefiting us right now and word is getting out. That's what brand is reputation. And our residents make the best sales team, telling their friends and family to come live with us because we self-regulate and our residents experienced a different adjustment than some of our other competitors. So we're benefiting on that as well. And so yes, we're seeing a more balanced market for sure.

The immigration from the levels we saw last year are absolutely lower. And it's for good reason. There is just too much new immigration, and we all agree on that. Now going forward, we have to figure out what the right number is. We're going to continue to work with our community and our policymakers to make sure these adjustments are made on a win-win basis for everybody.

[Operator]

And the next question comes from Brad Sturges from Raymond James.

[Bradley Sturges, analyst]

There. Just, I guess, following on the same line of questioning around leasing. In recent quarters, you really highlighted the ability of new back-to-back turns and minimize vacancy. How do you see the sort of the moderating market conditions, at least in the short run to impact sort of that program or that sort of efficient turn?

[James Ha, executive]

Still very much focused on that, Brad. That is a huge differentiator of our platform. As we've all talked about in the past, having a sweet bake in even for 1 month, one over 12 for that suite specifically, that's 8% vacancy on that suite, and we can't have that. And so our team continues to be focused on back-to-back. We have the platform that can execute on that. our team, certainly, if I look at over the past month or October 31, our team still did 125 back-to-back in our Western Canadian portfolio. And so that demand for affordable housing continues to be high.

[Bradley Sturges, analyst]

And does the thinking changed at all around maybe incrementally pursuing a little bit more suite renovation activity or not at this stage?

[James Ha, executive]

It depends. It depends on the opportunities that are there, what we're hearing from residents. And don't forget that we have made significant investment over the last many years, not only to our common areas, but to our suites as well. And so when we talk about suite investments, we've done a lot of that work, right? We've replaced carpets, put in LVT flooring. That LVT flooring has lifespan, it's got lifetime warranty, but call it, 25-plus years. .

And so a lot of that work has already been done, Brad, which provides us that ability to continue to focus on back-to-back. If we do have a suite that is in need of a renovation, of course, we will make that investment. But from -- as it stands right now, the big demand is for affordable housing. And so we're going to continue to focus in on matching that demand and providing that affordable housing to the Canadians.

[Samantha Kolias-Gunn, executive]

I just wanted to pipe in there and give our team, our design team, our procurement team, our small cap team much credit for increasing the efficiency of those renovations when necessary and our operations team for identifying there is that demand for those suite renovations. So as James pointed out, we have significant investments in our suites. But if there is that need to renovate and there is the demand, we can look very efficiently with efficient costs.

[Bradley Sturges, analyst]

Okay. That's quite helpful. My last question would be just on -- I think last quarter, you talked about pursuing opportunistically some capital recycling in the portfolio and identified maybe some assets, and I'm just looking for an update on that front.

[Samantha Adams, executive]

Brad, it's Samantha Adams speaking. We continue to explore our opportunities in particular, some of our non-core Edmonton assets. And I can't say anything today, but hopefully, in the near term, we'll be able to provide a better update. But that remains our focus is looking at some of the non-core Edmonton assets.

[Operator]

Your next question comes from Mike Markidis from BMO Capital Markets.

[Michael Markidis, analyst]

Thank you, operator. Just, I guess, in the last 3 to 4 months, we've seen a bit of a moderation in I guess, noncommercial but residential mortgages. And I'm just wondering if you guys have seen an uptick at all in move-outs due to home ownership in your portfolio.

[Sam Kolias, executive]

It's Sam. And yes, we have seen an uptick, and there has been evidence of pent-up demand of Canadians waiting for interest rates to come down. And yes, that has gone up.

[James Ha, executive]

Yes, we do have that in our appendix as well, Mike. Sorry, it's James. Slide 39 in the appendix of our conference call presentation. You can see that purchase a home is our second largest reason for move-out. If I compare year-over-year for the quarter, we had 412 move-outs for purchasing a home in Q3 compares to 321 in same period last year. So about 90 of our residents and 90 of our move-outs left for purchasing a home -- or 90 more, pardon me.

[Michael Markidis, analyst]

Got it. Okay. And I guess you guys touched on it in terms of the amount of money you spent on the portfolio since, I guess, since 2016. And I know that affordability is in style I guess, what would be the difference now between when we were back in 2016 and you guys invested heavily because the problem -- I guess the problem -- the issue you paid back then was that you had a lot of sort of condo competition that was discounting I guess, projects that had converted to rental and they were discounting trying to lease up. And it sounds like maybe, maybe not as severe, but maybe that's a similar dynamic going on. So I guess in that vein, how should we think -- acknowledging you've invested the capital in suites, was it just that you had underinvested previously? Or was it that the competitive pressure was higher? Just trying to circle the square there in terms of what gives you confidence in the CapEx profile staying similar?

[Sam Kolias, executive]

So in 2016, our units were what we describe as classic and the upgrades are affordable, carpet, vinyl, upgraded cabinet fronts doing everything we can to preserve the existing cabinets. But our full renovation program and our common area program was just evolving. And back at 2016, our average occupied rents were pretty close, not too far off, brand newly delivered rental product back in 2016 because there was a big switch between condominiums repurposing to rental purpose built. And so the supply of rental increased high-quality brand-new rental that was originally designed intended for condominium.

And so we saw a big competitor in amenities in the full renovations. And in order to compete with that brand-new supply and because of our price differential, we decided to invest. It was also a really good time to invest because our costs were lower back then and our vacancy increase. So with that added vacancy, we saw a window of opportunity as well to reengineer our distribution to maximum free cash flow, maximum reinvestment of which is least expensive source of capital. And so our returns on our upgrades were minimum benchmark hurdle 8%.

We got well over that. History and hindsight is 2020. And we did extremely well in that investment in that strategy. And so right now, where are we? Well our occupied rents are way behind. They're so much lower than brand new on a price per square foot, maybe they're $2 a foot. So the brand new, we're seeing peak at about $4 a square foot. Come down a little bit in the mid-3s, maybe they'll settle out at 3.25%, but we've got a far ways to go between our existing occupied rents and brand-new we delivered rents. So that's the big difference today is the big gap and differential between our occupied and newly delivered rents.

[Michael Markidis, analyst]

Great. And I guess, relatively speaking, your portfolio is more competitive today just given the capital than it would have been back in '16. Is that a fair assessment?

[Sam Kolias, executive]

The big difference in our portfolio, and we do a lot of market shops, size matters, space matters. We've got large apartment sizes on average two bedrooms, a bedroom that you can fit a king size and side tables. Lots of room in our apartments. And so there's a lot of bachelor studio, very small, efficiently designed one bedrooms. And again, with all due respect, it's tough to build big sized units that we offer and provide our residents. So that continues to give us a huge advantage as well.

[Michael Markidis, analyst]

Understood. And just last one for me. I'm just wondering if you could remind us on a few things we expect to Aspire Building 1 and 2: A, with the total cost is for that development? And then B, what the terms of the debt financing that project are? Just trying to get a sense of how to model in some of the potential dilution that you might experience through 2025 as lease-up ours.

[Samantha Adams, executive]

Mike, it's Samantha Adams speaking. We'll be providing that closer to completion because I don't believe we've provided that guidance just yet.

[Sam Kolias, executive]

And so far, we're funding it with cash. There's no debt on it right now.

[Michael Markidis, analyst]

So no debt, but there is capitalized interest, correct?

[John Bowers, executive]

So Mike, it's Eric here. So you can see on our financials, we do have a small nominal amount drawn on the construction line. So to be clear, there is a facility available for Aspire under the MLI Select program, but that does give us additional optionality down the road from a funding perspective.

[Michael Markidis, analyst]

Yes. I got no doubt on your ability to fund it just trying to -- again, just trying to model in the dilution that we might experience.

[Operator]

And your next question comes from Jimmy Shan from RBC Capital Markets.

[Khing Shan, analyst]

Just a follow up on the rent spreads. And I might have asked this before, but are the renewal rents much lower than the rents that you're getting on new leases for comparable units. And if there is a gap, what is that gap look like?

[James Ha, executive]

Yes. I mean, generally speaking, there's going to be a gap because we've taken the strategic moderation approach for the last couple of years. And so when we put that together, when we and our retention teams take the opportunity to shop the market with our renewing residents. Our feedback from our residents is that we continue to offer that extensional value because they are rewarding us with that retention and continuing to get a win-win scenario there for both the residents and for us, community provider.

[Khing Shan, analyst]

Yes. Do you have a sense of what that gap would be roughly?

[James Ha, executive]

We can circle back on Jimmy. I just don't want to quote an incorrect number here.

[Khing Shan, analyst]

Okay. That's fine. I'm just trying to get a sense of whether that gives you a bit of a buffer, I suppose, as you continue to get renewal rent increases even in a flat market.

[James Ha, executive]

Yes. If you look at the gap between renewal spreads and new spreads for the last 2, 3 years, that would give you at least an indication of it.

[Khing Shan, analyst]

And then my second question is really on your comment about interprovincial migration, which, I guess, could continue even if population isn't growing. If we see more vacancy or rent pressure in the more expensive markets, where people are coming from into Alberta: I guess, A, do you think that could happen? And then B, do you think if it does happen whether that would actually impact the provincial migration numbers, especially for markets like Calgary where rents are go closer to the more expensive city.

[Sam Kolias, executive]

Yes, everything is relative -- Jimmy, at Sam. And -- we're seeing incentives in Vancouver. We're seeing them in Toronto, 1 month incentive out of 12 is roughly 8%, close to 10%. But 10% off of 3,500 is still rent over $3,000. And so relatively speaking, there's a long ways to go to rebalance the Canadian housing market between these larger centers and our core markets. especially, Jimmy, our biggest market is Edmonton. That average occupied rent is one of the lowest in the country along with Regina and Saskatoon as well. So there's a long ways to go to equilibrium between the other more expensive cities in Canada. .

[Operator]

And your next question comes from Kyle Stanley from Deere.

[Kyle Stanley, analyst]

Just kind of building on, I guess, some of the commentary about new and renewal leasing spreads. As we think about the market becoming a bit more competitive, how do you think retention versus turnover might progress across your portfolio?

[James Ha, executive]

Kyle, it's James. Strategically, and Sam pointed to it earlier in one of his responses, we're strategically looking to increase our retention percentage. And so asking our teams to really focus and always be flexible as we always have been, but really focusing on increasing that retention. So internally, we're looking to target closer to 80% and reduce that turnover. Yes, there is more choice at the top end of the rental market, but that is such a gap from where our current average occupied rents are here.

[Kyle Stanley, analyst]

That's helpful. Just the last one. We haven't touched on it today, but what type of external opportunities are you seeing in the market today? Can you talk about if you are seeing anything your preference towards new build versus value add or maybe geographies that you'd be targeting or avoiding?

[Samantha Adams, executive]

It's Samantha Adams speaking. We remain incredibly opportunistic, and it's all about location. It's all about suite mix, it's all about affordability and providing the best options, not just to our current resident members but future resident members. So we're taking approach where we are looking for new to nearly new product. We're happy to take on some lease-up risk in the right location at the right price, in particular, new builds or newer builds where Sam discussed earlier to a better balance of two and three bedrooms, which we believe over the longer term, provide better value, not just Boardwalk but to our resident members, giving everybody much greater flexibility in terms of their housing choices. So again, we remain focused on our core markets. We completely believe in the strength of Calgary and Edmonton and Saskatoon as an example. But actively exploring opportunities in all major markets across Canada.

[Kyle Stanley, analyst]

Okay. So I had to assume that you're still, as you mentioned, very actively looking at this. Is there desire to either transact more rapidly? Or would you just be kind of waiting to see how the market shakes out in the next little while before maybe pulling the trigger on something?

[Samantha Adams, executive]

Look, I'm a fan of moving fast for the right opportunity, but I'm not a fan of moving to ask for the wrong opportunity. So we're going to be -- we remain very selective, and we're going to be responsible stewards of our unit holders' capital. So when it's the right opportunity, we'll move.

[Operator]

And your next question comes from Matt Kornack from National Bank Financial.

[Matt Kornack, analyst]

You have historically been really good on controllable costs. But in light of kind of this change in immigration potentially a tighter labor market, do you expect maybe a bit of cost creep R&M and things like that? Or is there still some slack in the system at this point?

[Gregg Tinling, executive]

As far as like 2025 goes and the latest announcements, the teams very focused on expenses. And again, like we said it lots of times and we're very committed to operational efficiencies where we can find them in exploring technology initiatives to help control costs where we can.

[James Ha, executive]

And Matt, I mean, we're really keenly focused employees in those efficiencies. We talked a little bit, I think, on our last earnings call about some of the initiatives that we have underway, like our virtual assistant and reducing our call center costs. Those still have a huge opportunity to go through to some of our community offices. And so that's just one small example of the type of innovation and opportunities that we have. We will always stay focused on innovating and keeping down the controllable portion of our operating expenses. And I have to -- we have to give our team a ton of credit. Each year, over the last several years, we've continued to beat that. We will aim to do the same going forward.

[Matt Kornack, analyst]

Makes sense. And then just quickly, it was interesting commentary about Alberta having fewer temporary foreign workers, but PR numbers remained fairly elevated. So the change in demand students at this point? Or do you have any sense as to the amount of temporary foreign workers that would be living in your portfolio at this point?

[James Ha, executive]

Yes. Within our portfolio, there's not a lot. Obviously, there's going to be some in the rental market in itself. But within our portfolio, there's not a huge number of that. Alberta, believe the stats came from BMO economists and as per stats can. In Alberta, our proportion of population that are temporary residents in Alberta is already at that 5% target that is being targeted nationally. I recognize that it's likely not going to be split on a regional basis. But this is another reason why Alberta going to have an advantage here where a proportion of temporary residents is already lower. On a student basis, I believe we're below allocation at a federal level for international students. On the interprovincial side, Alberta has been a winner on informational migration over the last couple of years because of that Alberta advantage that Samantha had in her prepared remarks. We've had the lowest taxes in the country. We've had affordable housing. We have job availability. All of those conditions still exist. And so we are optimistic that Alberta is going to continue to be a winner here on a relative basis.

[Operator]

At this time, we have no more questions. I will turn the call back to Sam Kolias for closing remarks.

[Sam Kolias, executive]

Thank you, Emily. As always, if there are any further questions or comments, please do not hesitate to contact us. With gratitude, we would like to thank our extraordinary team, layer residents, CMHC, our lenders and of course, our unit holders from far and wide and local. It really is all about our BFF, our Boardwalk family forever, whose huge shoulders we stand. And as leaders, we continue to do everything we can to support continued growth and extraordinary, really can't thank our extraordinary team and great leaders enough. We are pleased with our improving results on the foundation of exceptional value service and experience, we continue to provide our resident members, our investors and all our stakeholders.

Home is where our heart is, our heart is, where our family is and our family is where love always lives. Welcome home to love always our future is family what can be more important than choosing where to call home. We honor all our falling heroes during this upcoming remembrance. Unless we forget the life sacrifice for the freedom we have, God bless us and now more than ever granted all piece. On this big day for our great friendly neighbors, God, always bless America.

[Operator]

Ladies and gentlemen, this concludes the conference. You may now disconnect your lines.