Boardwalk Real Estate Investment Trust

TSX:BEI.UN

Earnings Call Analysis

Positive Growth and Strong Liquidity Position

In a period marked by disciplined expense management and robust revenue growth, the company reported a 9.2% revenue increase in Q4 2023 over the same quarter in the previous year, achieving a striking net operating income growth of 13.7% for the year. Margin expansion was notable, climbing 280 basis points to 61%. The company successfully decreased its operating expenses by 1.6% in Q4 2023 due to a milder winter, although the year saw a 1.6% increase in expenses due to higher wages and maintenance costs. Administration costs increased by $1.4 million in Q4 2023 year-over-year, with a reduction of $600,000 compared to the prior quarter, driven by inflationary pressures. The fair value of investment properties grew due to increased market rents and acquisitions, with an estimated value of around $222,000 per apartment door, which remains below replacement costs. A promising outlook hints at another year of double-digit net operating income growth, with a forward capitalization rate in the mid-5% range, presenting a significant spread compared to current mortgage capital costs. The trust is in a strong liquidity position with approximately $527 million available, offering flexibility and strategic growth potential.

Strong Financial Performance and Positive Outlook

The company experienced significant growth during the reported period, with same-property net operating income (NOI) increasing by 13.7% attributable to an 8.8% rise in revenue, underpinned by a notable 10.2% revenue growth in Edmonton, the trust's largest market. Looking ahead, the 2024 guidance anticipates same-property NOI growth to range from 10% to 14%, and funds from operations (FFO) per trust unit estimated to be between $3.93 to $4.18, highlighting a confident trajectory for the year ahead.

Prudent Capital Investment and Value-Add Strategies

The company has maintained a strategic approach to capital allocation, mirroring its 2023 capital budget levels, reflecting a disciplined yet proactive stance towards investment. Additionally, it converted unused administrative and storage spaces into rentable units, showcasing innovation in optimizing asset utility. These actions illustrate the company's resourcefulness in addressing housing demands within its markets.

Market Dynamics and Growth Catalysts

The Alberta market, where a good portion of the company's operations is based, is experiencing strong population growth, necessitating increased housing options amid construction cost increases and elevated interest rates. The company's focus on affordable housing is particularly strategic, given how rents in Alberta's key markets are approximately half those in Vancouver and Toronto, indicating a significant affordability advantage.

Enhanced Returns to Shareholders

The Board of Trustees approved a sizable 23% increase in monthly cash distributions, moving from $1.17 to $1.44 per trust unit on an annualized basis. The increased distribution is aligned with the growth in cash flow, while still maintaining a low industry payout ratio for reinvestment purposes, signaling a strong balance between rewarding shareholders and fueling growth.

Commitment to Sustainability and Affordability

The executive team emphasized the company's deep-rooted commitment to affordable housing as a cornerstone for sustainable growth. Affordability remains a primary factor driving migration and growth in the Alberta and Saskatchewan markets, and the company's commitment to this principle is likely to ensure a stable and predictable performance going forward.

Investment Property Valuation Insights

The fair value of the investment properties increased due to improvements in market rents and acquisitions, despite facing a slight uptick in capitalization rates. The current estimated fair value per apartment door underlines that assets are valued under replacement costs, which may indicate a value opportunity.

Strategic Focus and Opportunity Assessment

In assessing growth opportunities, the company is open to a range of asset types, including new construction, value-add, and trophy locations. There's an expressed preference for countercyclical properties that shield the portfolio during downturns. While the focus remains on opportunities within Alberta, the company is also considering possibilities in Ontario due to its attractive market conditions.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust Fourth Quarter 2023 Earnings Call. [Operator Instructions] This call is being recorded on February 23, 2024. I would now like to turn the conference over to Eric Bowers, Vice President of Finance and Investor Relations. Please go ahead.

[John Bowers, executive]

Thank you, Aster, and welcome to the Boardwalk REIT 2023 Fourth Quarter Results Conference Call. With me here today are Sam Kolias, Chief Executive Officer; James Ha, President; Lisa Smandych, Chief Financial Officer; and Samantha Kolias-Gunn, Senior VP of Corporate Development and Governance.

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

Please note that this call is being broadly distributed by way of webcast. If you have not already done so, please visit us at 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 annual report.

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

[Sam Kolias, executive]

Thank you, Eric, and welcome, everyone, to our Q4 2023 conference call. Starting on Slide 4. Our strong performance with our GAAP and non-GAAP measures of FFO per unit, net asset value and unitholder equity seen an increase from the same quarter of the prior year and profit seeing an increase quarter-over-quarter due to stronger apartment rental fundamentals, leading to higher fair value adjustments. Slide 5 showed FFO per unit growth with a 9.5% CAGR over the last 3 years. Slide 6, our culture from our humble beginnings in 1984, our resident members are at the top of our organization. Our leaders put our team first, and our team puts our resident members first. Guided by the golden rule, we have a peak performing customer service culture that creates exceptional results. I would like to now pass it over to Samantha Kolias.

[Samantha Kolias-Gunn, executive]

Thank you so much, Sam. Slide 7, our strategy to create value for our stakeholders begins with our people. We are grateful for our extraordinary team and family who continue to innovate and deliver our places, homes for our resin members where love always lives. Our strategic focus is our best-in-class organic growth from our strategic decision made several years ago to implement a distribution policy, which maximizes free cash flow, reinvestment back into our communities, leverages our proven team and platform to deliver the best service and value to our resident members, which results in optimized NOI growth.

When we pair all of this with the improvement in apartment rental market fundamentals in our core markets, on a solid foundation of some of the most affordable rents in Canada, we are well positioned to continue to deliver best-in-class organic growth. Accretive capital recycling focuses on opportunistic investment into acquisitions, dispositions or sale of noncore assets, developments and investments into our own high-quality existing portfolio with a tactical unit buyback when appropriate to also increase free cash flow. Our solid financial foundation provides flexibility on our balance sheet with a minimum distribution policy, which maximizes available capital from our growing funds from operations for reinvestment back into our communities.

With our laddered mortgage renewal approach and CMHC insurance on 96% of our financing, this continues to provide stability and access to low-cost mortgage capital with reduced renewal risk. Compelling value from our strategic decision to diversify our product offering into 3 distinct brands, affordable living, enhanced value community and affordable luxury lifestyle. This strategic decision, combined with our maximizing of free cash flow and reinvestment back into our communities has positioned Boardwalk as a leader in multifamily community providers with growing free cash flow.

Slide 8, we continue to deliver leading growth Boardwalk's existing exposure to strong rental demand, nonprice controlled markets with record immigration, significant organic growth at Alberta has some of the most affordable rental rates in the country with limited new supply versus demand from both international and interprovincial migrations. Our solid financial foundation and partnership with CMHC allows us to provide some of the most affordable rents in Canada, with rising interest rates making homeownership more expensive and rising construction costs, all widening the gap between our replacement cost of our assets and our current valuation.

Construction levels in our core markets remain low relative to anticipated household formation with record high immigration into our core Alberta markets. All of our apartment rental fundamentals continue to improve with higher revenues as a result of our significant improvements and inflationary adjustments, coupled with essentially no new incentives on new and renewing leases. All of our markets have near 99% occupancy with increasing operating income and strong mental fundamentals.

Slide 9 shows the significant magnitude and scale on a historic level of continued all-time record high immigration into our largest region, Alberta, from both in the provincial and international migrants calling Alberta Home. This significant migration reflects the affordability that Alberta provides relative to other provinces, coupled with significant job vacancy, our federal government recently announced a freeze on foreign student visas and we are not expecting an impact in our core markets.

Slide 10 shows interprovincial migration sources into Alberta for the current year 2016 and 2006. Most interventional migrants are coming from Ontario and Quebec, with a big increase from BC, reflecting a migration into more affordable housing in Alberta from higher housing costs in Ontario and British Columbia.

Slide 11 shows strong overall employment growth in Alberta, along with how diversified new jobs are helping with the diversification of the Alberta economy. Slide 12 shows Alberta's leading economic growth from high commodity prices, resulting in budget surpluses that will go towards debt repayment and savings contributions for future investments. Smaller debt will also result in smaller interest costs for our Alberta government. Alberta government revenues have increased a significant 30% over the last 2 years.

Slide 13, continued economic news and headlines that reflect a diversifying economy for Alberta, including an article on a 2-year cap on international student visas not affecting Alberta. Alberta's economy remains strong. In addition, there are many major projects under development in the province of Alberta, which will further promote more job opportunities in the future.

Slide 14 shows our large presence in affordable and nonprice controlled markets with Alberta and Saskatchewan, representing 62% and 10.3% of our portfolio, respectively. Boardwalk has the highest Canadian concentration of nonprice control departments amongst our public REIT peers. Boardwalk's current mark-to-market, which includes the reduction of incentives, averages $173 per suite and equates to approximately a $68.5 million revenue opportunity.

Slide 15 shows our high affordability as defined by CMHC in our core Edmonton and Calgary markets with rents still below 30% of median rental household income. To the right of the affordability chart, is a graph, which shows occupied rents in Alberta are still tracking below both Alberta and Canadian CPI indexed inflation. There remains a significant gap between occupied rents and the changeover consumer price index over the last 8 years. Boardwalk continues to provide exceptional value versus the consumer price index over the last 8 years.

Slide 16 reflects supply constraints. The graph on the left shows a significant imbalance between strong demand or immigration versus supply or new builds in the yellow black and gray with demand or migration accelerating further in our core Edmonton and Calgary marketplaces, far outstripping new supply. To the right, another graph showing how high construction costs remain along persistent higher interest rates.

Slide 17 shows the continued downward trend on year-over-year turnover. Occupancy continues close to 99% as a result of strong apartment rental fundamentals in our leading diversified product in all our key markets. Slide 18 shows our key operational metrics with high occupancy, lower incentives, higher occupied rents, resulting in higher revenues for the quarter, reflecting our key strategic decisions made to maximize free cash flow and diversify our product offering, yielding significant financial performance.

Slide 19 shows steady net new and renewal rental rates within our self-regulated resident-friendly centric renewal rate band, keeping retention high, our turnover and expenses low. Year-over-year, we have seen a significant improvement. Existing lease spreads or renewals are strategically moderated to keep providing resident-friendly affordable housing options in our core markets while lowering our costs and steadying operational results, a win-win for all our stakeholders.

Slide 20 shows a strong 2.5% sequential quarterly revenue gain. We would like to now pass the call on to Lisa Smandych, who will provide us with an overview of our portfolio performance and balance sheet. Lisa?

[Lisa Smandych, executive]

Thank you, Samantha. Moving to Slide 21. For Q4 2023, same property net operating income increased by 16.8% as compared to Q4 2022 with revenue growth of 9.2%. For the year ended December 31, 2023, same property net operating income increased by 13.7% with revenue growth of 8.8%. Edmonton, the Trust's largest market, saw revenue growth of 10.2% in Q4 2023 and 9.4% for the year ended December 31, 2023, as compared to Q4 2022 and the year ended December 31, 2022, respectively. Operating expenses decreased by 1.6% in Q4 2023 primarily as a result of a milder winter in Q4 2023. For the year ended December 31, 2023, operating expenses increased 1.6%, mainly due to increased wages and salaries, repairs and maintenance and utilities as a result of higher rates. The team remains committed to ensuring focus and discipline when managing controllable operating expenses.

On Slide 22, as a result of the discipline in managing all expenses, coupled with strong revenue growth, as promised, the Trust experienced margin expansion of 280 basis points from 58.2% in 2022 to 61% in 2023.

Slide 23. Administration costs decreased $600,000 as compared to Q3 2023, however, increased by $1.4 million in Q4 2023 as compared to Q4 2022. The increase was driven by inflationary wage adjustments at the beginning of the year, an increase in software service as service fees, increases in professional services such as legal, tax and government relations as well as larger bonus accruals as a result of the trust's annual financial performance. Deferred unit-based compensation increased due to an increase in the number of participants as well as the cost of the program.

Slide 24 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 stacking provides access to financing at rates lower than conventional mortgages with the current estimated 5-year and 10-year CMHC rates of 4.45%. Though current interest rates are above the trust maturing rates, the trust maturity curve remains staggered, reducing the renewal amount in any particular year. Lastly, the trust has an interest coverage of 2.83 in the current quarter.

Slide 25 summarizes our 2023 mortgage program. Overall, we renewed $411.2 million as well as secured $137.9 million in new financing at an average rate of 4.5% and an average term of 7 years. Included in these financings was $106 million of conventional mortgage financing, which were renewed on shorter terms to allow for them to be replaced with CMHC financing upon next renewal. In addition, the trust obtained $46.5 million of CMHC financing at 3.89% and a 7-year term for its acquisition of the view in Victoria, British Columbia. Current underwriting criteria in our most recent submissions to CMHC and our lenders has remained in line with our historically conservative estimates.

Slide 26 highlights our 2024 mortgage program, which includes approximately $21 million, which was overheld from December 2023 at the previously in-place interest rate. To date, we have renewed or forward locked $26.9 million at an average rate of 4.36% and an average term of 5 years. Moving to the right of the slide, we provide a summary of Boardwalk's available liquidity. The Trust is well positioned with approximately $331 million in cash and subsequently funded financings as well as an undrawn $196 million operating line. This approximate $527 million in liquidity provides the Trust with a flexible financial position.

Slide 27 illustrates the Trust's estimated fair value of its investment properties. Excluding adjustments for IFRS 16, which totaled $7.6 billion as at December 31, 2023, as compared to $6.8 million as at December 31, 2022. The increase in overall fair value is the result of increases in market rents at select sites and communities as market fundamentals improve as well as the Victoria acquisition, while being slightly offset by an increase to capitalization rates. Current estimated fair value of approximately 222,000 per apartment door remains below replacement costs.

Moving to Slide 28. In consultation with our external appraisers, the capitalization rates or cap rates used in determining Q4 2023 fair value were increased from Q4 2022, however, are the same as those used in Q3 2023. Upward adjustments were made in Q3 2023 to the Trust, Ontario and Quebec assets as well as Calgary and Edmonton. As it does every quarter, the trust will continue to review completed asset sales transactions and market reports to determine if adjustments to cap rates are necessary. Most recently published cap rate reports suggest that the cap rates being used by the Trust for calculating fair value are within their estimated ranges.

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

[James Ha, executive]

Thank you, Lisa. Our maximum cash flow retention strategy remains key to our ability to opportunistically invest and compound returns for our stakeholders. We are pleased to provide an update on our capital deployment starting on Slide 29, which shares progress on our value-add repositioning and renovation program. Our common area and amenity renovations position our communities to offer the best value, service and experience to our resident members and are a key contributor to Boardwalk's success in both strong as well as competitive market conditions.

For 2023, our team has completed 10 projects, resulting in over 60% of our total suites benefiting from our common area renovations. In addition, our suite renovation program continues to be opportunistically used to improve and enhance our offering for residents. Our vertically integrated platform provides us with the unique ability to quickly and cost effectively complete these renovations. With limited availability and the current strong demand for housing, our ability and focus on reducing days vacant are a significant differentiator of our communities. With low availability in our markets, an additional initiative we are undertaking is the conversion of existing storage and administrative spaces into rental suites.

This initiative aligns with our platform optimization and to date, we have added 23 units to the market by investing in small renovations to turn spaces from administrative use into rentable units, we will add much needed additional housing in our communities. We are currently under construction for an additional 18 units and are in the early stages of assessing feasibility on up to a further 39 units in Alberta. In addition to our value-add capital improvement program, we continue to seek opportunities for growth with a focus on sourcing strategic and accretive acquisitions and continuing our new developments in undersupplied housing markets. Our recent equity raise in December provides the Trust with strong liquidity and the opportunity to accretively deploy capital to create and compound value.

On Slide 30, we summarized the use of our $240 million of net proceeds. First, we utilized approximately $70 million to close our acquisition of the Circle in Calgary, which was announced in conjunction with our raise in December. The Circle is a recently constructed 295-unit community located near the Calgary South Health Campus and provides increased operating synergies for our cluster of assets in the area. The Circle has an ideal suite mix with large unit sizes and excellent appointments. We negotiated the forward sale of this community in May of 2022 for a purchase price of $264,000 per apartment tour and upon the completion of lease-up over the next couple of months are anticipating a 5.75% stabilized cap rate.

In addition to the $70 million investment in the circle, approximately $57 million was deployed towards the repayment in full of Boardwalk's portion of its construction facility related to the 45-railroad development in Boardwalk. The trust interest rate on the construction facility was approximately 6.6% in the period prior to our repayment. The balance of proceeds from our capital raise has been invested in short duration term deposits that are currently yielding over 5%, earning interest while the trust is actively negotiating accretive acquisition opportunities. We look forward to sharing an update on these in the coming months.

On Slide 31, we provide an update to our ongoing development pipeline to add housing and supply-constrained markets. We are pleased to share that the lease-up of the second tower of our 45-railroad development is progressing well with approximately 45% of units in the second tower now leased. This project was delivered on time and on budget, and we are projecting a stabilized yield at the upper end of our forecasted range. For our Victoria development pipeline, Aspire, is our first of 3, and we are now starting to move construction above grade for this 234-unit development, which is located adjacent to our existing Aurora community. This development is progressing on budget and we'll continue to scale our Victoria presence alongside our existing communities.

Switching to our current valuation. Slide 32 highlights the exceptional growth and value that Boardwalk's Trust units represent. Our current trading price equates to an attractive 4.8% cap rate on our trailing NOI. With our outlook for another year of double-digit NOI growth, the forward cap rate at this price is in the mid-5s and provides a significant spread to the current cost of mortgage capital and transactional cap rates in private markets.

Recent transactions shown on Slide 33, compared favorably to our current trading price and represent exceptional value with our NAV estimated to be just over 220,000 per apartment door and remains well below the increase in cost of replacement. With favorable fundamentals, strong leasing trends and leading NOI growth, our current valuation represents exceptional value alongside our strong runway for continued earnings growth.

As we close 2023 on Slide 34, our performance was on the top end of our revised expectations and are a reflection of all our team's dedication and efforts in creating value for all our stakeholders. Moving into 2024, we see a continuation of this runway for growth, which in part is a result of our own strategic moderation and allowing us to deliver consistently strong results.

Our 2024 guidance outlook is anticipating same-property NOI growth to be between 10% and 14%, while our FFO is anticipated to range from $3.93 to $4.18 per trust unit. Our wider $0.125 FFO per unit range from midpoint to top and bottom are a reflection of larger base figures. And similar to past initial guidance represents approximately a 3% forecast band from our midpoint. As always, we intend to update and tighten our guidance range as the year progresses. Our team is committed to leading in transparency, and we'll continue to update our stakeholders in the event of any change in conditions that may materially impact our forecast.

On Slide 35, and in line with our strong FFO per unit growth in 2023 and forecasted growth for 2024, our Board of Trustees has approved a 23% increase to our monthly cash distribution from $1.17 to $1.44 per trust unit on an annualized basis. Our distributions have increased alongside our growing cash flow, while maintaining our industry low payout ratio, providing significant cash flow reinvestment for growth. We continue to maintain our minimum distribution policy with our payout ratio in 2023 of 32%, representing one of the lowest in the sector. As we look forward to 2024, our guided FFO anticipates significant cash flow retention with a similar payout ratio in the low to mid-30s. As is customary, the trust will review our distribution on a quarterly basis.

Lastly, on Slide 36, we are finalizing our ESG report for 2023 and look forward to sharing our progress toward leading sustainability stewardship. We anticipate our report to be published in April. We cannot thank all our stakeholders enough for a successful 2023. Thank you to our resident members for calling Boardwalk your Home. Thank you to our partners for helping us deliver high-quality and affordable housing to Canadians, and thank you to our Boardwalk team for your continued dedication and commitment in serving all our stakeholders.

Thank you, and we would be happy to answer any questions. Aster?

[Operator]

[Operator Instructions] Your first question comes from Frank Liu from BMO Capital Markets.

[Frank Liu, analyst]

It's great to see that you guys are well capitalized to execute on growth initiatives. But how should we think about your capital deployment towards acquisitions and what kind of opportunities you're seeing in the market today?

[James Ha, executive]

Frank, it's James. Very similar to the acquisition that we made at the Circle there. As we've talked about with our stakeholders in the past, we are seeing opportunity to acquire great recently developed assets. And so our team is out there patent of payment looking for opportunities similar to that. Obviously, our criteria, we are looking for to deploy that capital accretively and more specifically, trying to stay within our targeted markets and more specifically markets that don't have price control and where we can scale our existing portfolio.

[Frank Liu, analyst]

Got it. And I guess with the benefit of the favorable cost of debt from apartment construction loan program from CMCH and the GST rebate, would you guys consider being more active on the development front?

[Sam Kolias, executive]

Frank, it's Sam. We succeeded in creating significant value in our development and especially in what we define and describe as trophy locations once-in-a-generation locations that are exceptional, like our 45 rail that's right on the go Train station, for example, and the prime locations of our Victoria developments right beside large regional hospitals, TransCanada Highway or right in the middle of town squares and square miles.

And these developments are joint venture with RioCan, BREO, another fantastic example of a prime location right next to the University of Calgary, Foothills Hospital where communities hardly ever come around for sale and are available. And as a result, building them in what we define and call trophy locations is really the best way to position ourselves and to grow into amazing located, very stable and communities that we see very little cyclicality in as well. So we're very, very classy in the design, in the location when we do develop. And as a result, we see significant value that we create as a result. I hope I answered that question.

[Operator]

Your next question comes from Jonathan Kelcher from TD Cowen.

[Jonathan Kelcher, analyst]

First question, just on the guidance on the same property NOI. I guess the revenue picture is pretty clear, pretty easy to map out. But what are your expectations for expense growth for the year?

[Lisa Smandych, executive]

Jonathan, it's Lisa. If we're speaking to what we call our total rental expenses, so rental expenses inclusive of utilities, property tax and our operating costs, the guidance range is suggesting anywhere from mid-2% to mid-4% growth in comparison to 2023.

[Jonathan Kelcher, analyst]

Okay. That's helpful. And then just -- and I guess, Sam, this is probably mostly for you, but the distribution increase was a little larger than -- certainly than I expected. How should we think about that when you also talk about having a minimum distribution policy? I'm guessing this was above the minimum distribution.

[Samantha Kolias-Gunn, executive]

Jonathan, I'm going to speak to it first, and Sam can certainly add on color, if necessary. As James did articulate in his prepared remarks, this does remain within our minimum distribution policy. And so the increase in distribution, while we appreciate it was larger than we would have expected, it is coming with our growing FFO. So after 2 consecutive years of the current year FFO growth of 2023, coupled with what we're forecasting for 2024. This does remain in line with our minimum distribution policy as taxable income is growing. James did also mention our payout ratio for 2024 on our forecasted guidance range is expected to be low to mid-30s. So we're still staying within the same payout ratio, and it is still a minimum distribution policy.

[Jonathan Kelcher, analyst]

Well, I was just going to say so going forward, when we think about increases in '25, '26, should we be thinking about it as really FFO growth for those years or a little bit above that?

[Samantha Kolias-Gunn, executive]

Yes. I think going forward, Jonathan, if you want to sort of normalize it a bit, I would think, yes, if you look at what your expected FFO growth is, that percentage would help influence that distribution increase.

[Operator]

Your next question comes from Kyle Stanley from Desjardins.

[Kyle Stanley, analyst]

So just looking at the kind of the disclosure prior January so far, the renewal rent increase in Alberta was 9.5%. I mean that is -- it's modestly ahead of the kind of top end of your 7% to 9% range target. And it looks like at least given that chart kind of the fastest rent growth you've seen on renewal. Just wondering, is there anything that changed? Is it seasonality? Is there anything specific or just kind of something that happened this January.

[James Ha, executive]

Kyle, it's James. So January, specifically, keep in mind, we have to look back in time for the past -- probably a couple of years ago. Winter months were generally when we saw some of the biggest incentives in our suites many years ago. And so this was that opportunity now where we are eliminating those incentives. And so you temporarily saw a brief data point that was slightly above our range. We do anticipate going forward to remain within that 7% to 9% strategically moderated range.

[Kyle Stanley, analyst]

Okay. That makes sense. And a good point on the incentive burn off, I guess, we're really seeing proof of it right there. Okay. One, just on your kind of capital investment, it looks like total CapEx was down about 3% year-over-year in 2023. I mean how should we think about your expected spending for 2024, maybe a similar type of decline or flat? Just curious there.

[Lisa Smandych, executive]

Yes. Kyle, it's Lisa. We do include our 2024 capital budget within the MD&A, if you want to look for it. Overall, you are correct. We did see a decline in capital spend in 2023 as compared to our budget. The largest driver for that decline came specifically from Suite Capital and as we saw turnover go down, as most can appreciate, pivoting a capital budget can be challenging. So we saw that, that capital Suit capital was going down, and we did pivot to try to take on some of our bigger projects that we knew might be coming in future years as we saw that capital coming down.

We did start on those projects. Some of them are rolling forward a little bit into 2024. So you'll see that our 2024 capital budget is roughly equivalent to our 2023 capital budget, however, does contemplate an increase from our actual spend. And so that's driven largely by recognizing we have a lower suite capital probably in 2024 and enabling us to do some of the bigger projects, ESG-focused projects, building envelopes, windows, submetering initiatives in our 2024 capital budget.

[Kyle Stanley, analyst]

Okay. I should have looked a little harder. Just the last one for me. Just on the new supply environment in Alberta. I mean, it's something that gets talked about quite a bit. I'm just wondering, have you noticed any recent changes that would maybe be more supportive of increased development? Or maybe put another way, what's holding back new development currently? Is it still high rates, it construction costs? And just what's your outlook with regards to new supply in Alberta for the year ahead?

[Sam Kolias, executive]

Kyle, just looking at under construction right now in Alberta, there's about 37,000 total housing units, total housing units under construction in Calgary and [ ams ], which is a slight increase from past months and quarters, which is a good thing because we are seeing some of the biggest population growth we've ever seen here in Alberta. And so with 37,000 homes under construction at 2.5x household formation, let's say, that's for 100,000 people. And we're taking in 50,000 a quarter right now. And so we do need more housing here in Alberta. What's constraining that is exactly what you said. Interest rates continue to be elevated, Construction costs continue to increase.

And so we, as housing providers need to find a way to try to find more housing, which is part of the reason why we are executing on our suite optimizations, right? So we are effectively creating suites by converting administrative and storage spaces and 1,000 units. And so it's small but we've accomplished about 40 so far. We've got another 30 in the pipeline, that's going to be about 70 units. That's almost equivalent to the small acquisition or small developments. And so as we continue to progress here, Kyle, we have a lot of work to do with housing providers to provide more housing for all buttons and for Canadians. And going forward, the outlook for us looks good, and we'll try to create and find more innovative ways to do so.

[Operator]

Your next question comes from Khing Shan from RBC Capital Markets.

[Khing Shan, analyst]

Maybe just a follow-up on the construction comment. Downtown Calgary office conversions, is that something you guys would look to participate in somehow? And do you think they will ultimately have a meaningful impact on the supply there?

[Sam Kolias, executive]

Jimmy. It's Sam. We're big advocates of investment by all levels of government in our downtown cores as a whole and bring more housing in our downtown core here in Alberta and everywhere to be quite honest because it's what we would call a no-brainer for all levels of government to invest in and preserve and keep our downtown cores healthy. That being said, we're more advocates than involved -- we support the idea and believe it's a great one and have active discussions with office owners that are accessing grants because grants have to be used to make economic sense because of the conversions that are very expensive to complete.

And so we believe the grants are a good investment because then it will increase tax assessments and bring necessary affordable housing into the market, more supply, and we'll preserve the significant investment in our downtown cores and infrastructure already. And so going forward, we could be acquiring some of these developments because we're active in the design, the recommendations like the balconies that are required, the type of floor plates because not all office is suitable for conversion. That all being said, it's very, very difficult to see a lot of supply because it takes a lot of grants and capital, and it takes a lot of time and it's very complicated to do.

So the supply that we are seeing is pretty small. And going forward, we're not seeing much more and the grants really need to pick up in order for the conversions to pick up. And again, we believe it's a great investment for all levels of the government and existing office owners to continue to explore and develop. And we'll continue to be advocates and maybe buy some of these assets down the road, but we're not active in any acquisitions of office conversions right now.

[Khing Shan, analyst]

All right. Got it. And then my other question may be a broad question as well. Things are going quite well today. Sam, you've seen many cycles. Just curious as to what are the key things that you're keeping an eye on? Anything that you could see that could potentially derail the growth that we're currently seeing.

[Sam Kolias, executive]

Jimmy. Great question. Our biggest experience over the many, many decades and we're in our 40th year now is affordability. And affordability is a theme and a factor that we've shared on our conference call for many, many years. Affordability is a big factor as to why we've seen such big migration in growth and movement into Alberta and record Saskatchewan markets as well because homes are necessity and affordability is the greatest and most significant indicator of future growth. The good news is we're still very affordable.

Our occupied rents are about half of what rents are in Vancouver and Toronto, and our moderate win-win-win approach to continue on providing affordability and exceptional results, which is a win-win for everyone is what will keep our performance stable, more predictable and sustainable. And sustainable is a big keyword and resident focus, our brand or reputation is the most important. Our resident members are our BOSS. And so we're doing everything we can to continue providing affordable housing. And we see and everybody can agree there's always a shortage of affordable housing. There's plenty of choices for housing for income levels that are high or purchasers with significant capital to purchase homes, what's always in our experience in short supplies affordable housing. And that's where our focus will always be.

[Operator]

[Operator Instructions] Your next question comes from Matt Kornack from National Bank.

[Matt Kornack, analyst]

Just quickly going back to capital allocation on the back of the equity offering that you guys did. When you look at acquiring assets, do you have a preference in terms of the vintage value-add new construction? And just some thoughts there.

[James Ha, executive]

Matt, it's James. I think for us, we're looking to be opportunistic. So it really depends. Currently, what we're seeing, and you've seen it with our most recent acquisitions, we've seen the opportunity in newer assets, newer assets where developers are looking to turn that capital and we're able to pick up great communities that are high grading our portfolio in great locations that are expanding on our clusters. We're seeing some opportunities like that here going forward. But we're also starting to see some value-add opportunities as well. And so it really depends not like as I had said earlier, our team is working hard, looking for the best deals and the best opportunities for us to accretively deploy that capital that we have on our balance sheet.

[Sam Kolias, executive]

We ask our team to find the best acquisition, and there's only one best. And that's really what our focus is. And being fussy on location and what we again shared with everyone trophy locations are something that over 40 years, we've learned are countercyclical, and we have seen exceptional communities in our portfolios that are countercyclical. So we believe we or anybody can't have enough communities that are countercyclical. And that's really what we're focusing on is a qualitative expansion.

[Matt Kornack, analyst]

I guess as an extension of that, James, Alberta's part right now. It's a great place to be. But would you look to deploy capital outside of the province and diversify? I know we've gone back and forth throughout the history of Boardwalk on diversification or not, but thoughts on that at this juncture.

[James Ha, executive]

Yes, Matt, I mean, we're looking at opportunities within our target markets. Alberta certainly is one of them. We're also looking at new in Ontario. One of the great features of New in Ontario is a lack of price control. In addition to , we do have a great operating platform in Ontario as well. And so we certainly are looking at markets outside of Alberta. It's the biggest opportunity, however, we are seeing is the double-digit NOI growth that our performance and our results have shown in Alberta, the affordability that Sam was speaking to and the longevity and runway that we are anticipating here in Alberta with that high affordability that we have here today.

[Matt Kornack, analyst]

And the last one for me. I didn't get a chance to go through it in detail yet, and I know you disclosed this figure, but can you give a sense as to your thoughts on kind of what you're leaving on the table from a mark-to-market standpoint, and kind of how many years it would take to necessarily get at the market rent growth that we've already seen to this point? And then just looking forward, the pace of market rent growth, are you seeing any stabilization in that? Or is it continuing to move higher?

[Sam Kolias, executive]

Was there a specific market you were looking at that?

[Matt Kornack, analyst]

I mean let's stick to your core markets, Edmonton and Calgary, I guess, would be the most interesting color you could provide there?

[Sam Kolias, executive]

Yes. In Alberta, our mark-to-market right now is about $130. Keep in mind, our market rents move dynamically. If you look back to past quarters, you probably would have seen a fairly consistent number. But that's part of our approach and strategy as well as a moderated pace of adjustments on market rents. And when combined with the adjustments that we are seeing on our lease renewals and in-place rents, we're seeing a fairly consistent mark-to-market. And so we would anticipate, Matt, that going forward, that mark-to-market spread in our Alberta market to remain within that range, call it, around that $100 range.

[Matt Kornack, analyst]

Okay. So for just, I guess, said differently, you expect kind of a similar type dynamic to persist at least for a couple of years in terms of new and renewal leasing spreads that you've achieved again in Alberta this year, that seems sustainable for at least a few years.

[Sam Kolias, executive]

Yes. I mean, affordability is nowhere better than in Calgary and Edmonton. Supply and demand dynamics continue to remain favorable. And again, when you pair that with our approach to moderating those adjustments, we do see a longer runway here.

[Operator]

There are no further questions at this time. Mr. Kolias, please continue with your closing remarks.

[Sam Kolias, executive]

Thank you, Aster. As always, if there are any further questions or comments, please do not hesitate to contact us. With gratitude, we'd like to thank our extraordinary team, loyal residents CMHC or lenders or unitholders, especially for the support in our most recent offering and all our stakeholders. It really is about our BFS, 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. We really can't thank our extraordinary team and great leaders enough. We especially remember our BFF with our former Senior Vice President, Bill Chidley, recently passing.

We are pleased with our improving results on a foundation of exceptional value, service and experience we continue to provide our resident members, investors and all our stakeholders. Home is where our heart is, our heart is where our family is and our family's work love always lives. Welcome home to love always. Our future is family. What can be more important when choosing where to call home. Thank you again, everyone, for joining us this morning. And may we please remind everybody that July 8 and 9 is our Investor Relations, 40-year of riding the bull since '84 investor tour. Please mark this on your calendars as we look forward to seeing everybody at our investor conference. Thank you again. God bless and now more than ever, grant us all peace.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.