Good morning, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust fourth quarter 2021 earnings conference call. At this time, all lines are in listen only mode, but following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Friday, February 25, 2022. I would like to turn the conference over to Mr. Eric Bowers. Please go ahead, sir.
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 have not already done so, please visit bwalk.com/investors, where you will find a link to today's presentation as well as PDF files of the Trust's financial statements, MD&A, as well as supplemental information package. Starting on slide 2, we 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.
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 seeing increases over the last four years.
Slide 5. Our Q4 2021 FFO per unit growth is 11.9%. Our 2021 FFO of CAD 2.94 is up 7.3% versus last year. Our FFO per unit 3-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 inter-provincial 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 valuation. 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 eight. 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 CAD 147 per month and equates to a significant CAD 55 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 show 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 remained 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.
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'Astra, which was recently repositioned to a conventional multifamily 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 remained 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 5-year CMHC rate of 2.5%. With current rates below the trust maturing 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 CAD 354.8 million, as well as secured CAD 152.6 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 CAD 42 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 CAD 106 million in cash and subsequently funded financings, as well as an undrawn CAD 199 million dollar operating line.
This approximate CAD 306 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 nineteen.
The trust 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's estimated fair value of its investment properties. Excluding adjustments for IFRS 16, which totaled CAD 6.4 billion as of December 31, 2021, as compared to CAD 5.9 billion as of 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 recognize 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 190,000 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 has 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.
Thank you, Lisa. By year-end, Boardwalk has opportunistically invested CAD 72 million to acquire two communities highlighted on slide 23. Both Mountainview Estates in Banff and Aurora in 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.
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 CAD 31 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 CAD 170,000 per apartment door and compares favorably to recent apartment transactions.
At our NAV of CAD 67 per trust unit, equating to CAD 190,000 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 rates 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.
As we report our full year results, we are proud to deliver on strong results that aligned with our upwardly revised ranges with second half same property NOI growth of 3.1% and FFO per unit of CAD 2.94. 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 CAD 3.03 and CAD 3.18. 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 CAD 0.09 per trust unit per month, and equating to CAD 1.08 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.
Lastly, on slide 32, our third annual ESG report will be published toward 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?
Thank you, sir. Ladies and gentlemen, if you would like to ask a question at this time, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request.
Should you wish to withdraw your question, simply press star followed by two. If you're using a speakerphone, we do ask that you please lift the handset before pressing any keys. Your first question will be from Jonathan Kelcher at TD Securities. Please go ahead.
Thanks. Good morning.
Good morning, Jonathan.
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?
Yeah, I think, hey, Jonathan, it's James. You know, from an occupancy growth standpoint, and as you can see in our disclosures, but 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 leases. However, completely offset by our performance on renewals today.
Okay. That's helpful. 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?
Hi, Jonathan. It's Lisa. Focusing, I guess, first on the operating costs, which is the majority of our controllable expenses. For the majority of those, we've budgeted. I'm gonna call it a more normalized inflationary expense.
We're gonna lean on our internal team. We're gonna lean on our warehouses to try to keep all of those costs in line with a typical standard inflation rate. 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 hedge our utilities as much as possible. The good news from a hedging perspective is the hedge we had in place for Western Canada in 2021 remains in place for 2022.
Utilities, we do expect there will be a little bit of an increase there, but nothing, hopefully, too material. It'll, of course, depend on what the weather does for us. Lastly, from a property tax perspective, we're looking at more standard inflationary increases there, so normalized property tax increases.
Okay. Thanks for that. Then Sam, just on the capital allocation and the dividend increase, is that in keeping still, I guess, the 8% is keeping in line with your sort of minimum payout? Should we really think about future dividend growth, from here out in line with FFO growth?
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.
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. Okay. That's it for me. Thanks.
Thank you, Jonathan.
Your next question will be from . Please go ahead.
Thanks. Good morning, everybody.
Good morning.
Morning, Dean.
Congratulations, James. That's some pretty big arms to fill. Just on that, distribution increase, to clarify Jonathan's question there. Is that 108 figure you've set it at, is that the taxable portion, or did you kind of put a bit of a buffer in there?
Yeah. Hi, 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. Within whenever we're looking at our distribution, we do allow for some room for a potential capital gain on sale. It's our taxable income plus a portion for capital gains.
Okay. If you do any recycling, we shouldn't expect any sort of a special distribution or anything from that.
No. 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 no.
Yep.
Right now, at this juncture, the plan would be to stay within that regular distribution.
Got it. You can only sell Windsor 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 and of yourselves.
You see a lot of stuff. How is the employment market shaping up there, given what we're seeing sort of, you know, 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?
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 and the blue collar workforce demographic of Edmonton.
We're just starting to see that as we speak. 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.
Okay. That's encouraging. And then the last question for me just comes back into the debt. How do you guys look at it? Because, you know, 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, you know, who knows what rates are gonna do going forward. How are you guys thinking about term versus weighted average cost of debt right now?
Hey, Dean, it's James. Yeah, from our standpoint, priority 1 always is to build a nice ladder for our maturity curve. 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. You know, 5-year money seems to be very attractive, less than 5-year money, even more so. All that said, you know, 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 the past year. You'll see us continue to build out that ladder and take advantage of this current rate environment when it exists.
Great. That's it for me. I will hand it back to, give some others a chance. Thanks, guys.
Thanks, Dean.
Thank you, Dean.
Next question will be from Kyle Stanley at Desjardins. Please go ahead.
Thanks. Morning, everyone.
Morning, Kyle.
Just looking at your 2022 capital budget, it calls for about CAD 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?
Yeah. Hi, Kyle. It's Lisa. Value add perspective, I guess just a reminder that we define value add as, basically anything that enables, operating cost savings or a revenue growth opportunity. Within that capital budget, you will see that we do break out sort of the major categories of where that spend would be.
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 where it's a full renovation or partial renovation. Does that help answer your question, or do you want a bit more detail than that?
No, no. I think that's good. That makes sense. Just one other one, and it came from the remarks from the presentation. Just looking at the Banff asset and you mentioned that you're in discussions with the municipality about potentially intensifying the site. 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.
We're very happy. It's Sam speaking with our discussions with Banff and the discussions that Banff needs more housing. 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 an international market, and during COVID reflected a domestic tourist market.
It's very resilient marketplace, and it continues to show strong growth fundamentals that reflect the desperate need of new housing and more housing in that market. We are very pleased with our discussions so far. It's gonna take some time and we'll keep everybody posted with how that comes along because we really wanna focus in on that opportunity.
Okay, great. That's helpful. That's it for me. I'll turn it back. Thanks.
Thank you.
Next question will be from Mario Saric at Scotiabank. Please go ahead.
Hi. Good morning.
Hi, Mario.
First off, I just want to clarify, when Northern Alberta is mentioned, presumably that includes Edmonton, and not just Fort Mac in the discussion. Is that correct?
Correct, yes.
Okay. Coming back to the guidance, are you able to provide a bit more color in terms of within that 3%-7% same-property NOI, what the same-property revenue and same-property expense growth rates look like?
Hey, 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, you know, providing that detailed breakout on the expense side. You know, given those two components, we can wager what that revenue looks like kind of from that bottom to that top end. You know, generally speaking, you know, that build out looks like something from 3%-6%.
Got it. 3%-6% on the top line.
Yes. Mario, sorry.
Got it. Okay, perfect. You know, 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 2022 do you think it'll take for it to exceed the portfolio average?
Mario, it's Sam. We're seeing a 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 governments and nonprofits 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. 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's aware of this opportunity, and we're just starting to see the fruits of that and those efforts now.
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. 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 CAD 1 billion more in spending just over the last month or so in their announcements. 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 Mac, Marsha, is over the top happy with all the rentals that we're seeing in Fort Mac, and we're very pleased with that. Timing, we think it'll be sooner. Sorry for the long answer, but to wrap it up, we think the absorption will be sooner.
Right now, Edmonton's on track for about 100 rentals to absorb approximately, which is approximately 1%. Edmonton's vacancy is approximately 7%, and so 6%-7%, and 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.
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.
Got it. Maybe, just coming back to your question or your comment on immigration, Sam, I think it's a good point. Like, when I look back over time Edmonton as a percentage of total international immigration into Canada has been about 4%-5%, so about 4% in 2021 and 5% in the past 5 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 formally?
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're 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.
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.
Thanks. One last question on Edmonton, and then I'll turn it back. You know, part of the challenge in Edmonton recently has been the 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?
You know, we always are active in shops, and we visit new communities all the time. Calgary is impressive. The absorption's pretty high. Edmonton suburban, still, again, pretty high. The challenges in Edmonton are in the downtown core still and the small apartment sizes.
Even though the rental rates are affordable, the unit sizes are very small. It's really tough to compete with us with a very small new unit. That's the only pocket of vacancy that we're seeing struggling as far as new supply is concerned right now.
Okay. Thanks, Dan, and congratulations to James and Leonora on the appointments.
Thank you, Mario.
Next question will be from Howard Leung at Veritas Investment Research. Please go ahead.
Hi, thank you so much. I wanted to turn the questions to the sources and uses of capital tables because I find them very helpful. I want to start with value add CapEx. You guys have all come a long way and I see now that almost half of your common areas are renovated and almost a third of your suites. When you think about, the renovations are giving good returns.
When you think about your plan going, you know, down the next 3 to 5 years, you know, is the plan to have 100% of your common areas renovated or is there at some point, you know, that you're gonna slow down and maybe the value add, you know, CapEx is not gonna be as attractive in terms of returns? You know, what's your thoughts on that?
Hey, 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. You know, 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, you know, 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. From our standpoint, as long as there continues to be a market for that improved product, we'll continue to invest there. You know, as it stands today, and our outlook certainly for the next several years, we believe that we're gonna continue to have that opportunity to do so.
Makes sense. I guess near term, you know, with inflationary pressures, you're not seeing that really take down some of these returns.
Hi, 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. 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 cost and contractor margin. In addition to that, we just make sure to have product.
We buy product in bulk, benefit from pricing advantage by buying in bulk and the ability to warehouse it. Don't get me wrong. We always monitor it. We always monitor the price inflation and make sure we try to get the best price possible. So far we have been fortunate to have our vertical integration program.
Makes sense. Going back to the uses of capital table, you know, the debt pay down right now is listed as low in terms of return. You know, given the rates they're still, you know, it still seems like it makes sense.
You know, if we kind of think about a year or two from now, you know, if we are kind of in a consistent rate hike cycle, you know, at what point do you think, you know, and maybe there's no clear break even, but at what point, you know, do you think that it might be prudent to pay down some debt?
Hey, Howard, it's James. I think, you know, 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.
To that end, to your point right now, debt financing continues to see attractive interest rates. You know, our team is sourcing great places to look for allocation opportunities such as our buyback, as we highlighted.
At this point, you know, 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's best to allocate capital.
Makes sense. Yeah. It's all relative. Thanks. That's it for me. I'll turn it back, and congrats, James and Leonora, on the appointment.
Thank you, Howard.
Thank you, Howard.
Next question will be from Joanne Chen at BMO Capital Markets. Please go ahead.
Hi. Good morning.
Good morning.
Yeah, congrats again, James. Maybe just going back on, I know, this was asked a couple times in some ways, but on the SPNOI growth target of 3%-7%, would it be possible for you to kind of break down kind of the growth by region where you see, you know, kind of the higher areas where you could probably be in the higher end of that range?
Hey, Joanne. Maybe I can start. It's James here. You know, certainly outside of the scope of our kind of formal guidance, again, that same property NOI at a portfolio basis is, you know, where we will stick. All that said, Sam touched on this a little bit earlier from a region to region standpoint. You know, if we look at leasing spreads, you know, renewals, we are positive across the board.
Mm-hmm.
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. You know, 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. Fundamentals continue to improve, I think we're gonna be able to, you know, close that gap there. You know, from a regional breakdown, I think, you know, hopefully we've given you enough color to be able to discern how we're thinking about each of those regions.
Yeah, no, that is helpful. Maybe just shifting gears, I guess, on the capital recycling front, you know, do you see even more opportunities within 2022, especially with where pricing is right now? On the flip side of that, I guess, would you look to redeploy that capital on the acquisitions front? Which markets do you see the most attractive opportunities right now?
Hey, Joanne, it's James again. Again, I'll start maybe on the recycling front. You know, certainly, we're gonna remain opportunistic with that. I think, you've seen us be fairly consistent with that over the last two, three years. You know, opportunistically pairing some of our non-core assets with unique allocation opportunities, where we've been very clear in terms of, you know, how attractive we believe an investment in our own portfolio is here today.
Again, depending on the opportunity, from our standpoint, you know, we will look to recycle capital when appropriate and as appropriate. I would say, you know, the trend that we've seen over the last two, three years, certainly, outside of any exceptional opportunity may be the likely norm going forward.
Okay. Nope, that is very helpful. Most of my questions have been asked, so I will turn it back. Thank you very much.
Thank you, Joanne.
Next question will be from Matt Kornack at National Bank Financial. Please go ahead.
Hi, guys. 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?
Matt, it's Sam. Historically, we've learned it's prudent to provide great product and service. 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.
It's really the answer is a balance. 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 gonna last for 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.
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. 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.
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.
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?
I think so, Matt. Sorry, I'm just trying to reframe that cadence that you had suggested. You know, from our standpoint, again, you know, 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, you know, 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. The good news is that as you saw with our occupancy number, our turnover also declined quite substantially as well. That has put us into a pretty good position coming into February here. As Sam mentioned, we are seeing occupancy build.
We continue to see that positive momentum on lease renewals. I think the cadence of that year-over-year same property NOI growth will be similar to what you had suggested there. Again, you know, property taxes, as Lisa mentioned, we're not anticipating anything much more than inflationary at this point. The comp period for that second half of 2021 will be more difficult to compare against.
Okay. Makes sense. Then I haven't traveled in a while, but I'm looking forward to the stampede. From a winter standpoint, we had a fair bit of snow in Ontario and Quebec. I, one of your peers is gonna 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?
Yeah. 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, you know, mitigate, call it the surge-type costs. I think that is one of the 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.
You guys are doing better than us. It's snowing at the moment. Thanks for that.
Next question will be from Jimmy Shan at RBC Capital Markets. Please go ahead.
Thanks. Yeah, just a couple of quick ones from me. In terms of the, you know, 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.
Yeah. Hey, Jimmy. I think for us, there's a little bit of, you know, seasonality with it. You know, 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 will be telling Jimmy, as you know, we get into our busier spring, summer leasing season, see a lot of traffic. Again, we have good visibility in terms of what those renewal spreads are gonna look like.
You know, our new leasing, again, pretty well all of our markets are seeing quite balanced housing conditions. You know, from our standpoint, I think going forward, into the spring, summer, we'll likely see some improvement on that as well through this production.
Okay. 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?
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. That has picked up, especially before the fifth wave and especially now after the fifth wave. The cold weather and the fifth wave did impact the out-of-town demand slightly. We're seeing that pick up now. We're doing 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%.
That's pretty significant absorption over a 1-month period. That is in February. 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. We're very pleased with the demand we're seeing right now in Edmonton.
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. That we are very happy to be able to provide. It's a win-win-win for everybody.
Okay. Okay. Thank you.
Thanks so much, Jimmy.
Thank you. At this time, we have no further questions, so I would like to turn the call back over to Sam Kolias. Please go ahead.
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 unit holders, and all our stakeholders.
It really is all about our people whose huge shoulders we stand on. As leaders, we continue to do everything we can to support continued growth in 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 peace.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines. Have a good weekend.