Boardwalk Real Estate Investment Trust

TSX:BEI.UN

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust Fourth Quarter 2021 Earnings Conference Call. [Operator Instructions] Also note that this call is being recorded on Friday, February 25, 2022.And I would like to turn the conference over to Mr. Eric Bowers. Please go ahead, sir.

[Eric Bowers]

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

[Sam Kolias, Chairman & CEO]

Thank you, Eric, and welcome everyone to our Q4 conference call.Starting on Slide 4, our strategy continues to deliver strong results with our FFO, profit per unit, net asset value and unitholder equity, and fair value of investment properties, all seen increases over the last four years.Slide 5, our Q4 2021 FFO per unit growth is 11.9%. Our 2021 FFO of CAD2.94 is up 7.3% versus last year. Our FFO per unit, three-year compounded annual growth rate is 10%.Slide 6, our strategy, to create value for our stakeholders begins with our people. We are positioned and are so grateful for our amazing team, who continues to innovate and deliver our places, homes for our resident members. In turn, this leads to leading earnings performance, which we believe will continue to result in strong total returns for our stakeholders. Our strategic focuses are; significant organic growth from utilizing our proven platform that focuses on operational excellence to optimize NOI growth. When we pair this with the current improvement in apartment rental fundamentals, we are well-positioned to accelerate on our organic growth trend.Accretive capital recycling focuses on opportunistic investment into acquisitions, development, and investment into our high-quality existing portfolio with a tactical unit buyback. These opportunistic investments, combined with our operational optimization, have positioned Boardwalk to increasing asset values within Boardwalk's diversified and high-quality multifamily portfolio. Our solid financial foundation provides flexibility on our balance sheet with our growing free cash flow and with CMHC insurance on 98% of our financings, which provides access to low-cost mortgage capital with reduced renewal risk.Slide 7. We are in the right place at the right time, delivering solid growth. Boardwalk's existing exposure to strong rental demand, unregulated markets with increased immigration, significant organic growth as Alberta and Saskatchewan have some of the most affordable rental rates in the country with limited new supply versus demand in both international and interprovincial migration.Declining inventories of homes, rising home prices and rising construction costs are all widening the gap between our replacement costs of our assets and our current evaluation. Construction levels remain low relative to historical levels and the stronger demand for housing. Interest rates with CMHC-insured mortgages continue to be low-cost source of capital to pursue accretive opportunities.Slide 8. In addition to the positive impact that higher commodity prices are providing to our Western Canadian markets, there has been a steady stream of investment in job-creating announcements from the emerging technology and energy sectors. As of the most recent data, over 88,000 jobs are now vacant and available in Alberta, which is approximately 30% growth in job vacancies since April 2021.Slide 9 shows strong economic momentum with job and wage growth from the most recent Statistics Canada release. Alberta and Saskatchewan remain the only self-regulated markets in Canada. Boardwalk's mark-to-market, which includes the reduction of incentives averages CAD147 per month and equates to a significant CAD55 million revenue opportunity.Slide 10. Our markets and portfolio provide some of the most affordable rents in Canada when comparing to average incomes. In addition, average projected population growth in our markets are outpacing new supply, leading to strong apartment, rental and housing market fundamentals. Our available supply and affordability are a great opportunity for new and existing Canadians looking for a new affordable place to call home.Slide 11 shows our retention is increasing with decreasing turnovers and a steady occupancy of approximately 96%. As per our Appendix Slide 35, we are seeing more move-ins from out of town as more Canadians move back to Alberta and Saskatchewan.Slide 12 shows our key operational metrics with our actual occupancy of approximately 96%. Incentives continue to drop. Occupied rent continues to increase with vacancy loss increasing slightly in the slower winter season, resulting in steady revenues.Slide 13 shows continual improvement in net rental rates. New leases saw slightly higher incentives during our slower winter season and renewals continue to see an improvement, reflecting an increase of inflation. Our total portfolio new and renewal leases remain steady during the slower winter season and through the fifth COVID wave. Year-over-year, we have seen a significant improvement. With restrictions easing, we are seeing growing strength in our apartment rental fundamentals, positioning us to capture a significant mark-to-market opportunity.We would like to now pass the call on to Lisa Smandych, who will provide us with an overview of our portfolio performance, operating margins, balance sheet and repositioning results. Lisa?

[Lisa Smandych, Chief Financial Officer]

Thank you, Sam.Moving to Slide 14. Despite a fifth wave of COVID and a historical slower season, we experienced continued revenue momentum with sequential revenue growth of 0.3% in Q4 2021 as compared to Q3 2021. With stable occupancy and net effective rents increasing, we expect this positive sequential revenue growth to continue. Our Q4 2021 quarterly operating results reflect positive NOI growth of 3.4%, with positive growth in all our major markets with the exception of Quebec.In Quebec, same-property NOI growth was negative. However, when excluding the seniors community, L'Astre, which was recently repositioned to a conventional multi-family asset, same-property NOI growth was down 1% in Quebec compared to Q4 2020. For fiscal 2021, NOI grew by 0.1% as a result of slightly lower revenues year-over-year, offset by a decrease in operating expenses. With improved NOI growth in both Q3 and Q4 of 2021, the Trust is forecasting positive NOI growth in 2022 as discussed later in this presentation.On Slide 15, consistent with prior years, in fiscal 2021, the Trust remain disciplined and focused on managing its controllable expenses despite increases in non-controllable costs, resulting in margin improvement of 50 basis points in 2021. This discipline has resulted in declining controllable expenses year-over-year, and when coupled with our revenue growth potential, will allow margins to continue to improve.Slide 16 illustrates Boardwalk's mortgage maturity schedule. Our mortgages are well staggered with approximately 98% 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 the current estimated five-year CMHC rates of 2.5%. With current rates below the Trust maturity rates, mortgage financing continues to be a low cost of capital available to the Trust.Slide 17 summarizes our 2021 mortgage program. Overall, we renewed CAD354.8 million, as well as secured CAD152.6 million in new financing at interest rates lower than the maturing rate.Slide 16 summarizes our 2022 mortgage maturities. To-date, we have renewed or forward locked approximately 9% of our 2022 mortgage maturities, as well as secured CAD42 million in new financing at low interest rates, which included converting our construction loan on BRIO to a CMHC-insured mortgage. Current underwriting criteria in our most recent submissions to CMHC and our lenders has remained in line with our historically conservative estimates.Moving to the right of the slide. We provide a summary of Boardwalk's available liquidity. The Trust is well positioned with approximately CAD106 million in cash and subsequently funded financings, as well as an undrawn CAD199 million operating line. This approximate CAD306 million in liquidity provides the Trust with a flexible financial position, as well as providing the ability to take advantage of opportunities as they present themselves.Slide 19. The Trust's debt metrics continue to improve with an interest coverage ratio of 2.97 in the current quarter. This continuous improvement is the result of strong financial performance led by cash flow growth, coupled with low-cost debt financing.Slide 20 illustrates the Trust estimated fair value of its investment properties. Excluding adjustments for IFRS 16, which totaled CAD6.4 billion as at December 31, 2021 as compared to CAD5.9 billion as at December 31, 2020. The increase in overall fair value is largely the result of decreasing cap rates. Market transactions throughout 2021, as well as discussions with our external appraisers supported cap rate compression of 25 basis points in the majority of our Western Canadian markets.With our Ontario portfolio, we recognized cap rate compression of 50 basis points through 2021, while the majority of our Quebec portfolio, which includes our land leased assets, also experienced cap rate compression of 50 basis points. Current estimated fair value of approximately CAD190,000 per door remains significantly below replacement cost.Slide 21 provides a summary of the recycling of cash flow towards value-add improvements. To date, we have completed approximately 29% of total suite improvements, while also completing 45% of our total portfolio, common areas and amenity spaces. 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 sustainable market rent adjustments.Slide 22 illustrates our stabilized renovation returns for Greenbriar Apartments located in Regina, Saskatchewan and Ridgeview Gardens in Calgary, Alberta, with returns of 23% and 10%, respectively, which have exceeded our internal hurdle rate of 8%. Our renovations continue to garner positive resident member testimonials, driving referrals and higher occupancy.I would now like to turn the call to Rick Anda to discuss our acquisitions, development and dispositions. Rick?

[Richard A. Anda, Head of Acquisitions]

Thank you, Lisa.By year-end, Boardwalk has opportunistically invested CAD72 million to acquire two communities highlighted on Slide 23. Both Mountain View Estates in Banff and Aurora and Victoria were acquired in Q2 2021 and are performing in line with expectations. Boardwalk is currently in discussions with the municipality of Banff to review the opportunity to utilize the excess land located at the site to develop more housing for this undersupplied market. Aurora also continues to operate at full occupancy and provide a base of operation for Boardwalk in the city. Victoria is a market that the Trust continues to be active in sourcing accretive and opportunistic opportunities to expand.Slide 24 provides a brief update on our active development pipeline. Our Brampton development continues to progress on time and on budget, with anticipated delivery of the first tower of the 365-unit marquee community in the fall of 2022. Our Aspire development is directly adjacent to our Aurora acquisition in Victoria and now has a submitted development permit. We continue to progress on entitlements at our second development in Victoria area named The Marin. Our expectation for yield and cap rate remain unchanged.Slide 25 provides a summary and update of our active capital recycling through the sale of non-core assets. In addition to the three non-core sales the Trust completed in 2021 in Edmonton and Saskatoon, Boardwalk has completed the sale of our 50% interest in the Sandalwood development site in Mississauga.I would like to now turn the call over to James Ha.

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

Thanks, Rick.As we look forward to 2022, Slide 26 provides our stakeholders with our current view on sources and uses of capital. From a source standpoint, we believe that our growing internally generated cash flow, low-cost mortgage financing as well as equity from non-core asset dispositions, currently represent the most attractive sources of capital. These sources can be used to fund attractive and accretive capital allocation opportunities, such as our continued focus on platform innovation, our value-add capital improvement program, new development, opportunistic acquisitions and the investment in our own high-quality portfolio at a discount to intrinsic value through our normal course issuer bid.Since November of 2021, Boardwalk has invested approximately CAD31 million in buybacks and has been an excellent use of proceeds from recent non-core asset sales. Our team will continue to update its view of capital sources and uses on a regular basis and as market conditions change.Slide 27 provides detail on the exceptional value that Boardwalk's current trust units represent. Our current trading price implies a value of approximately CAD170,000 per apartment door and compares favorably to recent apartment transactions. Our NAV of CAD67 per trust unit equating to CAD190,000 per apartment door represents an exceptional opportunity relative to market pricing and remains well below the increasing cost of replacement.Utilizing trailing 12-month property NOI on Slide 28, Boardwalk's current trading price equates to an attractive 4.9% cap rate and is a significant spread to the cost of available mortgage capital, as well as recent capitalization rate seen in transactions in our markets. With continued sequential revenue and NOI growth in Boardwalk's portfolio, these cap rates represent an attractive option and the potential for the Trust to continue to invest in our own high-quality portfolio.Slide 29 provides a review of our 2021 performance relative to our expectations and guidance. Since our reintroduction of guidance earlier this year, we had revised our performance estimates upwards in the third quarter. And as we report our full-year results, are proud to deliver on the strong results that aligned with our upwardly revised ranges with second half same-property NOI growth of 3.1% and FFO per unit of CAD2.94.As we look forward to the new year, Boardwalk is introducing its 2022 operating and financial guidance on Slide 30. For fiscal 2022, the Trust is anticipating same-property NOI growth of between 3% and 7% and FFO per unit performance of between CAD3.03 and CAD3.18. Our team is committed to leading in transparency and will update our stakeholders in the event of any change in conditions that may materially impact our forecast.On Slide 31, Boardwalk is pleased to announce an 8% increase to our monthly per unit distribution to CAD0.09 per trust unit per month and equating to a CAD1.08 per trust unit on an annualized basis. The Trust continues to have an industry low payout ratio, providing significant cash flow reinvestment, positioning us with ample capital for growth. As we continue to grow our free cash flow, our distributions will also continue to grow alongside.And lastly, on Slide 32, our third annual ESG Report will be published towards the end of March and will include updates to our new and ever improving initiatives, including details from our 2021 GRESB score of 69, information on our new internal certification program called BWell, our new Rise Scholarship program and a further governance update, including our recent strong governance scores.This concludes the formal portion of our presentation. I would now like to open up the phone line for questions. Sylvie?

[Operator]

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

[Jonathan Kelcher, Analyst]

First question, just on the guidance, the same-property NOI guidance. How are you guys thinking about the top line of that in terms of occupancy growth versus generating higher rental rates?

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

Yes. Jonathan, it's James. From an occupancy growth standpoint, as you can see in our disclosures, pretty well all of the markets have seen a strong tightening in terms of housing conditions. The one place where we do have a significant opportunity for occupancy growth is in our Northern Alberta portfolio. Our team is optimistic, certainly with the traffic that we've seen since the slower winter months in December and January that were affected and impacted by our fifth wave, as well as the exceptionally cold weather. The month of February has actually seen a strong pickup in terms of foot traffic, and we are anticipating occupancy build from there.In terms of leasing spreads, Jonathan, and you can see that in the conference call and Sam spoke to it in his prepared remarks. We're seeing strong momentum pretty well across the portfolio. Renewals are positive across the board, including Northern Alberta. We continue to see positive momentum on that going forward. Our retention teams are doing a fantastic job of performing from a leasing spread standpoint and really reducing those incentives in all of our markets. New leasing spreads positive again, pretty well in every market with the exception of Northern Alberta. However, our Northern Alberta leasing spreads have moved better than they have been in the past. We're seeing slight negative leasing spreads on new renewals and pardon me, on new leases, however, completely offset by our performance on renewals today.

[Jonathan Kelcher, Analyst]

Okay. That's helpful. And then I guess on the top end, it obviously implies some margin expansion. Can you maybe give us your thoughts on how you think expense growth will go for property taxes, utilities and operating costs?

[Lisa Smandych, Chief Financial Officer]

Jonathan, it's Lisa. So focusing, I guess, first on the operating cost, which is the majority of our controllable expenses. For the majority of those we've budgeted, I'm going to call it a more normalized inflationary expense. We're going to lean on our internal team. We're going to lean on our warehouses to try to keep all of those costs in line with the typical standard inflation rates, continue to benefit from the work we've done in the past on those line items and continue to maintain that focus.From a non-controllable expense standpoint, insurance remains a little bit of a headwind. It still is a supply-constrained market. We'll continue to work hard to try our best. We still have all of our tenant insurance to try to keep those premiums as low as possible. Utilities perspective, weather is always the unknown factor, I would say. So, that's always the challenge. What we do is we do hedge our utilities as much as possible.So the good news from a hedging perspective is the hedge we had in place for Western Canada in 2021 remains in place for 2022. So utilities, we do expect there will be a little bit of an increase there, but nothing hopefully too material. It will, of course, depend on what the weather does for us. And lastly, from a property tax perspective, we're looking at more standard inflationary increases there, so the normalized property tax increases.

[Jonathan Kelcher, Analyst]

Okay. And then, Sam, just on the capital allocation and the dividend increase, is that keeping still? I guess the 8% is keeping in line with your sort of minimum payout. And should we really think about future dividend growth from here out in line with FFO growth?

[Sam Kolias, Chairman & CEO]

Yes, Jonathan. Minimum payout equals maximum retention of free cash flow, which we all agree is the least cost of capital and gives us an advantage redeploying that in opportunistic opportunities that maximize the return of that free cash flow. And so going forward, we'll continue to adjust as our returns are realized from our free cash flow and our investments and our profit continues to increase. Then, of course, our distribution will continue to increase to offset the taxable portion of our profitability.

[Operator]

And your next question will be from Dean Wilkinson at CIBC.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Congratulations, James. Some pretty big arms to fill. Just on that distribution increase to clarify Jonathan's question there. So is that CAD1.08 figure you've set it at, is that the taxable portion? Or did you kind of put a bit of a buffer in there?

[Lisa Smandych, Chief Financial Officer]

Yes. Dean, it's Lisa. As you know, we always -- we do look at disposing some of our non-core assets. That's a key area for us, taking those equity proceeds to be able to redeploy elsewhere. So within -- whenever we're looking at our distribution, we do allow for some room for a potential capital gain on sale. So it's our taxable income plus the portion for capital gains.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. So if you do any recycling, we shouldn't expect any sort of a special distribution there from that?

[Lisa Smandych, Chief Financial Officer]

No. Unless -- as always, we're opportunistic. So should there be an opportunity that would allow us to potentially look at a different non-core asset disposition, that would be the only reason why, sort of similar to what happened in 2021, where opportunities presented themselves to allow us to dispose more. But right now, at this juncture, the plan would be to stay within that regular distribution.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Got it. And you can only sell [ wonders ] once, so that's out of the way. Sam, just talking about the Edmonton market, you guys are on the ground there. You've got a large workforce in of yourselves. You see a lot of stuff. How is the employment market shaping up there given what we're seeing in the strength of price of oil? And how do you think that flows through to vacancy and the burn-off for incentives in Edmonton for you?

[Sam Kolias, Chairman & CEO]

Right now, we're seeing an acceleration of rentals in Edmonton, reflecting the job opportunities and the 88,000 empty jobs that require filling in Alberta statistics. Historically, what we see is a pickup in employment in Calgary head office staff, white collar and then the big trickle down into field services on the blue-collar workforce demographic of Edmonton. And so we're just starting to see that as we speak, and our rentals so far versus move-outs are the largest in Edmonton. Most of our absorption that we're seeing this month is happening in Edmonton is actually the bulk of the rentals above move-outs.

[Dean Mark Wilkinson, Director of Institutional Equity Research]

Okay. That's encouraging. And then the last question for me just comes back into the debt. How do you guys look at -- because the debt that you've got rolling over this year, there could be some savings if you go short, but you could take your duration out longer than the 3.8 years if you kind of lock it in at the 10% and who knows what rates are going to do going forward. Are you guys thinking about term versus weighted average cost of debt right now?

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

Dean, it's James. Yes, from our standpoint, priority one always is to build a nice ladder for a maturity curve. And as a function of that, I think you'll see us strategically select various terms along the way. We are, to your point, seeing some very attractive pricing on the shorter end. Five-year money seems to be very attractive, less than five-year money even more. So all that said, on the long end, if you look at our maturity curve, there's an opportunity for us to do a lot more 6, 7, 8, 9, 10 years, I think similar to past year. You'll see us continue to build out that ladder and take advantage of this current rate environment when it exists.

[Operator]

Next question will be from Kyle Stanley at Desjardins.

[Kyle Stanley]

Looking at your 2022 capital budget, call is for about a $100-ish million of value-add capital spending. I'm just wondering, can you talk a little bit about where you expect that capital to be deployed throughout the year?

[Lisa Smandych, Chief Financial Officer]

Kyle, it's Lisa. So value-add perspective, I guess, just to remind you that we define value-add as basically anything that enables operating cost savings or a revenue growth opportunity. So within that capital budget, you will see that we do break out sort of the major categories of where that spend would be. So value-add projects would include anything from envelope work, windows work, all of our common area renovations and repositioning programs, suite upgrades on the majority of our suites for the full renovation or partial renovation. Does that help answer your question? Or do you want a bit more detail than that?

[Kyle Stanley]

No, no, I think that's good. That makes sense. And then just one other one came from the remarks in the presentation. Just looking at the Banff's asset, and you mentioned that you're in discussions with the municipality about potentially intensifying the site. Wondering if there's -- it's still -- I understand it's probably still very early in that process, but just wondering if there's any more information you could provide on the potential opportunity there.

[Sam Kolias, Chairman & CEO]

We're very happy -- it's Sam speaking, with our discussions with Banff and the discussions that Banff needs more housing. And our discussion with the city planners are recognizing the real need for more housing in Banff. All throughout the Alberta economic correction over the last five years, Banff was very strong and reflects our international market and during COVID reflected a domestic tourist market. And so it's very resilient marketplace, and it continues to show strong growth fundamentals. That reflects the desperate need of new housing and more housing in that market. So, we are very pleased with our discussion so far. It's going to take some time, and we'll keep everybody posted with how that comes along because we really want to focus in on that opportunity.

[Operator]

Next question will be from Mario Saric with Scotiabank.

[Mario Saric, Analyst]

First off, I just want to clarify when Northern Alberta was mentioned, presumably that includes Edmonton and not just Fort Mc in the discussion, is that correct?

[Sam Kolias, Chairman & CEO]

Correct. Yes.

[Mario Saric, Analyst]

Okay. So coming back to the guidance. Can you provide a bit more color in terms of within that 3% to 7% same-property NOI, what does same-property revenue and same-property expense growth rates look like?

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

Mario, it's James. As you know, we provide formal guidance on that same-property NOI line. All that said, I think Lisa did a fantastic job just earlier providing that detailed breakout on the expense side. Given those two components, we can wager what that revenue looks like kind of from that bottom to that top end. Generally speaking, we're -- that build-out looks like something from 3% to 6%.

[Mario Saric, Analyst]

Sort of 3% to 6% on the top line?

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

Yes.

[Mario Saric, Analyst]

Okay. Perfect. And then coming back to Edmonton, it's encouraging to hear some of the absorption commentary from Sam. When we look at that sequential revenue growth line item, how far into '22, do you think of the kind of sequential revenue growth data point for Edmonton or do you think it will take for it to exceed the portfolio average?

[Sam Kolias, Chairman & CEO]

Mario, it's Sam. We're seeing significant opportunity for our international migrants and new Canadians coming in. Because of the opportunity that Edmonton presents, our new Canadians of availability and empty suites now, we're seeing a great cooperation by all levels of government and non-profits to provide an outsized or disproportionate share of new Canadians homes in Edmonton. This is a very significant opportunity for Canadians and all of us, and we're just starting to see the beginning of that migration as we speak. We've -- and our team has significant discussions with all levels of governments and not-for-profits to make sure everybody is aware of this opportunity. And we're just starting to see the fruits of that and those efforts now. And it's a win-win for everybody, getting new Canadians out of motel rooms into permanent housing, which is a big benefit, as well the new Canadians are really strong in language and skills. We need a bigger workforce here, too.So it's a win-win in many ways. We're starting to see a pickup in capital spending from our major producers. Both Suncor and Canadian Natural have announced CAD1 billion more in spending just over the last month or so in their announcements. And we're seeing -- even though Fort McMurray is a very small market of ours, we're seeing, as we speak, a significant pickup in demand in rentals in Fort McMurray right now. Our manager in Fort Mc, Marsha is over-the-top, happy with all the rentals that we're seeing in Fort Mc, and we're very, very pleased with that. So timing, we think it will be sooner -- sorry, for the long answer, but to wrap it up, we think the absorption will be sooner.Right now, Edmonton is on track for about 100 rentals to absorb approximately, which is approximately 1%. Edmonton's vacancy is approximately 7%, and so 6% to 7%. And so a 1% drop this month and over the next several months in our stronger seasonal period is something that we are expecting and seeing as we speak. And that will give us significant additional revenue by increasing our occupancy where our occupancy can increase most, and that's in our Edmonton marketplace that we have currently approximately 800 apartment units, which represent a significant revenue opportunity for us when we fill those empty units.

[Mario Saric, Analyst]

Got it. And maybe just coming back to your question or your comment on integration, Sam, I think it's a good point. Like when I look back over time, Edmonton as a percentage of total international integration into Canada has been about 4% to 5%, so about 4% in '21 and 5% in the past five years in your discussions with the government. Any sense on -- is there a target level where that 5% can go to? Like, is it possible for it to double? Or is it less for [ Molina]?

[Sam Kolias, Chairman & CEO]

Our discussions with all levels of government is to work together and make sure we're all on the same page to increase that, simply because there are homes available and we're getting the message out and the news out. It's good news. They are some of the most affordable homes in the country as well. It fits within the grants and the benefits that new Canadians are accessing or able to access as well. And so Edmonton presents a great opportunity to welcome and provide homes for new Canadians and is a big part of how we are part of the solution in increasing affordable housing in Canada.

[Mario Saric, Analyst]

One last question on inventory and then I'll turn it back. Part of the challenging [indiscernible] is new supply coming in. Do you have a sense in terms of where the occupancy levels are in that new supply specifically today relative to six months ago?

[Sam Kolias, Chairman & CEO]

We always are active in shops, and we visit new communities all the time. Calgary is impressive. The absorption is pretty high. Edmonton suburban still, again, pretty high. The challenges in Edmonton are in the downtown core still and the small apartment sizes. Even buildup, the rental rates are affordable, the unit sizes are very small. And so we've got a big advantage in our repositioning program that our design and our in-house capital teams have upgraded and repositioned our older, larger sized communities into like new communities. And it's really, really tough to compete with us with a very small new unit. And so that's the only pocket of vacancy that we're seeing struggling as far as new supply is concerned right now.

[Mario Saric, Analyst]

Okay. And congratulations to James and Leonora on the appointments.

[Operator]

Next question will be from Howard Leung at Veritas Investment Research.

[Howard Leung, Investment Analyst]

I wanted to turn the questions to the sources and use of capital tables because I find them very helpful. Starting with -- I want to start with value-add CapEx. So, you guys have all come a long way. And there's -- I see now almost half of your common areas are renovated and almost a third of your suite. When you think about -- and the renovations are giving good returns, when you think about your plan going down in the next three years to five years, is the plan to have 100% of your common areas renovated? Or is there at some point that you're going to slow down and maybe the value-add CapEx is not going to be as attractive in terms of returns? What's your thoughts on that?

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

Howard, it's James here. For common areas, I mean, it's been an exceptional investment that we've made, as you've seen in some of our examples in terms of the yields that we're getting for those investments. In terms of the scope that we have, I think we've found a great formula in terms of updating and high grading those common areas. Our residents appreciate it. It really provides that ability for us to incrementally reduce those incentives and to drive occupancy and outperform from an occupancy standpoint and really stand out relative to our peers and our competition. And so from our standpoint, as long as there continues to be a market for that improved product, we'll continue to invest there. As it stands today and our outlook certainly for the next several years, we believe that we're going to continue to have that opportunity to do so.

[Howard Leung, Investment Analyst]

Makes sense. And I guess near term, with inflationary pressures, you're not seeing that really take down these returns?

[Lisa Smandych, Chief Financial Officer]

Howard, it's Lisa. I think that's one of those areas where we've highlighted a lot how much we benefit from our vertical integration and our warehousing abilities. So yes, there is inflationary pressure. However, we often use our in-house team to do that work, and so we can avoid all that contractor costs and contractor margin. In addition to that, we just make sure to have -- we buy product in bulk. So benefit from pricing advantage by buying in bulk and the ability to warehouse it. Don't get me wrong, we always monitor, we always monitor the price inflation and make sure we try to get the best price possible. But so far, we have been fortunate to have our vertical integration program.

[Howard Leung, Investment Analyst]

Makes sense. And then going back to the use of the capital table, the debt paydown right now is listed as low in terms of return. And given the rates, they are still -- it still seems like it makes sense. If we kind of think about a year or two from now, if we are kind of in a consistent rate hike cycle, at what point, do you think -- and maybe there's no clear breakeven, but at what point, do you think that it might be prudent to putting down some debt?

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

Howard, it's James. I think, from our standpoint, it's very difficult to answer that one single item in isolation, right, because it's relative to other allocation opportunities. And that is part of our strategy to be opportunistic in terms of allocating that capital to drive FFO growth, to drive NAV growth on a per unit basis. And so to that end, to your point, right now, debt financing continues to see attractive interest rates.Our team is sourcing great places to look for allocation opportunities, such as our buyback as we highlighted. And so at this point, Howard, we'll continue to monitor this. We'll continue to update this on a quarterly basis as well and inform and share with our stakeholders our view and thoughts in terms of where it's best to allocate capital.

[Howard Leung, Investment Analyst]

Makes sense, yes. It's all relative. That's it for me. I'll turn it back and congrats to James and Leonora on the appointment.

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

Thank you, Howard.

[Operator]

Next question will be from Joanne Chen at BMO Capital Markets.

[J. Chen, Director of Equity Research]

Congrats again, James. Maybe just going back on -- I know that this has been asked a couple of times in some ways, but on the SPNOI growth target of 3% to 7%, would it be possible for you to kind of break down kind of the growth by region, where you see kind of the higher areas where it could probably be in the higher end of that range?

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

Joanne, maybe I can start. It's James here. Certainly, outside of the scope of our kind of formal guidance, again, that same property NOI on a portfolio basis is where we will stick. All that said, and Sam touched on this a little bit earlier from a region-to-region standpoint. If we look at leasing spreads, renewals, we are positive across the board. You see it in that conference call slide or that presentation. Good news, our team, like we had mentioned earlier, we're starting to see some improvement on that across the board. New leasing spreads are positive. Again, pretty well across the board with the exception of our Northern Alberta portfolio, which we are starting to see some improvement there. The biggest opportunity we have is that occupancy in Northern Alberta as well. And as fundamentals continue to improve, I think we're going to be able to close that gap there. And so from a regional breakdown, I think, hopefully, we've given you enough color to be able to discern how we're thinking about each of those regions.

[J. Chen, Director of Equity Research]

Yes. No, that is helpful. Maybe just shifting gears, I guess, on the capital recycling front. Do you see even more opportunities within 2022, especially with where pricing is right now? And on the flip side of that, I guess, would you look to redeploy that capital on the acquisition front? And which markets do you see the most attractive opportunities right now?

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

Joanne, it's James again. Again, I'll start. Maybe on the recycling front, certainly, we're going to remain opportunistic with that. I think you've seen us be fairly consistent with that over the last two years, three years, pairing -- opportunistically pairing some of our non-core assets with unique allocation opportunities. We've been very clear in terms of how attractive we believe an investment in our own portfolio is here today. And so, again, depending on the opportunity from our standpoint, we will look to recycle capital when appropriate and as appropriate. But I would say the trend that we've seen over the last two years, three years, certainly outside of any exceptional opportunity maybe the likely norm going forward.

[J. Chen, Director of Equity Research]

Okay. No, that is very helpful. And most of my questions have been asked. So, I will turn it back.

[Operator]

Next question will be from Matt Kornack at National Bank Financial.

[Matt Kornack, Analyst]

Just a follow-up on the CapEx side of the equation because I think, given the nature of the Alberta market and the lack of rent control, there's less of a kind of push to mark-to-market on turnover and maybe less of an inclination in a tight market to spend money on suites. Is that a fair kind of view that as things tighten, you may actually see CapEx go down because you can get mark-to-markets and do it in normal course as opposed to trying to get the highest rent from the best tenant day one?

[Sam Kolias, Chairman & CEO]

Matt, it's Sam. Historically, we've learned it's prudent to provide great product and service. And it's challenging when the market tightens to be able to renovate because the demand is challenging for getting suites renovated given the strong demand. And it's -- really the answer is a balance. And the good news is the materials that we've been using over the last several years and all the improvements that we have made are making our turns a lot quicker with the laminate flooring that we have and the cabinet material that is more durable. These turns are going to last for many, many years, and it really depends on the existing shape of the unit to make sure our product is always up to snuff and competitive and renewed.Asset preservation is a big focus as well, as our Vice President of Asset Management will attest to. So it's a balance. It's a tough question to answer because, really, it is driven by the market forces first and foremost and secondly, by the qualitative levels that we want to uphold our communities at. And it's super important for us to continue to preserve our assets and maximize the value to our resident members that, in turn, then maximizes retention, satisfaction and increases our performance in profitability and return.

[Matt Kornack, Analyst]

Fair enough. And then just on the cadence of the same-property NOI growth, I think you have a bit of a weaker comp in the first half of the year, given there was some allocation on the property tax side that got alleviated in the back half of the year. But generally, is your thought process that the market continues to improve over the balance of the year and that when you're comping sort of the harder comps towards the second half of the year that at that point, you'll have higher occupancies and improving market rents?

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

I think so, Matt. Sorry, I'm just trying to reframe that cadence that you had suggested. But from our standpoint, again, starting the year here, December and January as we look at the weather that we had, we look at the seasonal slowdown that we had. I mean, let's be honest, foot traffic was quite slow in December and January. It's tough to compete with winter. It was exceptionally cold in Western Canada for several weeks in December and January. But the good news is that, as you saw with our occupancy number, our turnover also declined quite substantially as well. But that has put us into a pretty good position coming into February here.As Sam mentioned, we are seeing occupancy builds. We continue to see that positive momentum on lease renewals. And so I think the cadence of that year-over-year same-property NOI growth will be similar to what you had suggested there. Again, property taxes, as Lisa mentioned, we're not anticipating anything much more than inflationary at this point. But the comp period for that second half of 2021 was -- will be more difficult to compare against.

[Matt Kornack, Analyst]

Okay. Makes sense. And then I haven't traveled in a while, but I'm looking forward to the stampede. But from a winter standpoint, we had a fair bit of snow in Ontario and Quebec. And one of your peers is going to have higher snow removal costs. Was Alberta weather-wise from a cost standpoint in Q1 other than colder weather? Is there additional R&M around snow removal?

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

Yes. At this time, Matt, I mean, nothing to guide or no additional news to share on that. Again, our vertical integration, as Lisa talked about, our internalization certainly helps to mitigate, call it, the surge type costs. I think that is one of the huge, biggest benefits of our operational platform. Again, from a utility standpoint, it was just exceptionally cold in January as well. Good news, February has been quite mild and the 14-day outlook for March out here looks good.

[Matt Kornack, Analyst]

You guys are doing better than us. It's snowing at the moment.

[Operator]

Next question will be from Jimmy Shan at RBC Capital Markets.

[Jimmy Shan]

Yes. Just a couple of quick ones for me. In terms of the fact that the renewal rate has been trending higher than the new lease rate, is that really just a function of incentive burning off? I'm just trying to understand what is that actually telling us, if anything?

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

Yes. Jimmy, I think for us, there's a little bit of seasonality with it as we look at it right now, I mean, again, we mentioned in the winter months and this winter with the fifth wave, certainly, was a little bit slower. I think the spring summer here, we'll be telling Jimmy, as we get into our busier spring summer leasing season. We see a lot of traffic. Again, we have good visibility in terms of what those renewal spreads are going to look like.On new leasing, again, pretty well, our markets are seeing quite balanced housing conditions. And from our standpoint, I think, going forward into the spring summer, we'll likely see some improvement on that as well through [Technical Difficulty] production.

[Jimmy Shan]

Okay. And then in terms of the move-ins that you're seeing, particularly in Edmonton, do you have a sense of where the majority of people are coming from? Are they still within the province or any discernible trend there?

[Sam Kolias, Chairman & CEO]

It's Sam. It's pretty diverse. There is a higher out-of-town in Slide 35 in Edmonton, for example, that shows and we keep track and ask our new resident members if they're out of province or not. And so that has picked up and especially before the fifth wave and especially now after the fifth wave. And so the cold weather and the fifth wave did impact the out-of-town demand slightly. And we're seeing that pick up now. And we're doing really, really well this month as we discussed, most of our absorption for the month is going to be from Edmonton of approximately 100 units, which is 1%. And that's pretty significant absorption over a one-month period. And that is in February.And the first part of February, still we experienced the tail end of the fifth wave and a little bit of cold weather in February as well. And so we're very pleased with the demand we're seeing right now in Edmonton and our especially discussions with the not-for-profits and all levels of governments that we're all working very well together to welcome our new Canadians home to Edmonton, where there's the -- as the CMHC surveys and our data shows, the biggest opportunity to move into vacant homes today and into very affordable vacant homes today. So, that we are very happy to be able to provide. And it's a win-win-win for everybody.

[Operator]

Thank you. And at this time, we have no further questions. So, I would like to turn the call back over to Sam Kolias. Please go ahead.

[Sam Kolias, Chairman & CEO]

Thank you so much, operator. As always, if there are any further questions or comments, please do not hesitate to contact us.With gratitude, we'd like to thank our amazing team of heroes, our great leaders, loyal residents, CMHC, our lenders, our unitholders and all our stakeholders. It really is all about our people, whose huge shoulders we stand. And as leaders, we continue to do everything we can to support continued growth and extraordinary. We really can't thank our amazing team and great leaders enough. Congratulations to the well-deserved promotions of James Ha, our new President; and Leonora Davids, our Senior VP, Operations.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 or a location. Our 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. God bless us, and grant us all piece.

[Operator]

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