Good morning, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust third quarter 2020 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we'll conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on November 13th, 2020. I would now like to turn the conference over to James Ha. Please go ahead.
Thank you, Colin, welcome to the Boardwalk REIT 2020 third quarter results conference call. With me here today is Sam Kolias, Chief Executive Officer, Lisa Smandych, Chief Financial Officer, and Lisa Russell, Senior Vice President of Corporate Development. Note that this call is being broadly disseminated by way of webcast. If you have not already done so, please visit bwalk.com/investors, where you will find a link to today's presentation, as well as PDF files of the Trust financial statements, MD&A, as well as supplemental information package. Starting on slide two, we'd like to remind our listeners that certain statements in this call and presentation may be considered forward-looking statements. Although the expectations set forth in such statements are based on reasonable assumptions, Boardwalk's future operation and its actual performance may differ materially from those in any forward-looking statements.
Information that could cause actual results to differ materially from these statements are detailed in Boardwalk's publicly filed documents. I would like to now turn the call over to Sam Kolias.
Thank you, James, and thank you everyone for joining us this morning. May we first start by sharing our thoughts, hearts, and prayers for all affected by COVID-19. We remain ever mindful of the great need for healing, love, and patience during this time. We are also ever mindful of the great sacrifice our veterans have made for the freedom we all have today, as we honor all the lost lives in service this remembrance week. Boardwalk's top priority remains the health and safety of both our resident members and our Boardwalk team of heroes. Our Boardwalk family, our team, continues to adapt, evolve, and emerge through this pandemic environment.
We remain committed to providing our essential service of safe, affordable housing in all our markets and are so proud of our team, who have been rewarded with record-high resident satisfaction scores, which in turn has delivered resilient and growing FFO results for our unit holders. Our FFO per unit remains the highest in the Canadian multifamily REIT sector. These results would not be possible without the integration and quick adoption of new technologies such as our resident member platform, Yuhu, introducing virtual showings, online payments, and our significant in-house advances in robotic lead management automation. We are exceptionally driven to continually emerge, improve our NPS scores, drive our occupancy higher, and increase our financial performance throughout this pandemic and well into the future. Slide four. Building better communities continues to be at the heart of what we do.
Our community programs have shifted to address the changing needs of our communities. Our residents have rewarded us with the highest NPS scores, and our increasing market share is a testament that Boardwalk remains the choice housing provider in our markets. Continuing on to slide five, Boardwalk's portfolio of well-located affordable homes provide an exceptional value proposition for current and future resident members. Of Boardwalk's 33,000 apartment units, approximately 62% are based in Alberta and 11% in Saskatchewan, with each of these provinces providing exceptional affordability with multi-decade low rents as a percentage of incomes, creating an opportunity for incentives to be reduced to help offset increasing non-controllable expenses. Ontario and Quebec represent 27% of Boardwalk's communities, providing exceptional affordable average rents as well, with opportunity for future revenue growth. Slide six.
Boardwalk's product diversification captures a much wider audience of resident members' needs, increasing the overall demand for Boardwalk communities. We provide three different branded communities, Boardwalk Living, affordable value, Boardwalk Communities, enhanced value, and Boardwalk Lifestyle, affordable luxury. Currently, we have approximately 6% Lifestyle, 44% Communities, and 50% Living suites across our portfolio. Each brand provides exceptional value at each price point, grounded on some of the most affordable rents in Canada. Slides seven through nine highlight our most recent rebrand projects. Our design, asset management, and operations teams work together to selectively and strategically identify each community rebrand or refresh. Our focus is to continue to deliver the best product, optimizing our capital allocation for our value add program to our targeted resident member demographic, so we can continue to provide the most exceptional, elevated experience at an affordable price.
The result is increased market demand, exceptional value, and appealing returns with achievable market rental adjustments. Our results continue to reflect the success of the re-engineering and redesign of our service, product quality, diversity, and experience led by our design team and executed with our entire team's all-hands-on-deck approach. Slide 10 illustrates some key operational metrics which demonstrates our continued strong operational performance through the current competitive environment. Our team continues to optimize our revenues, balancing occupancy, occupied rent, and the use of incentives. Occupancy has remained stable, a reflection of Boardwalk's strong product and value proposition, while occupied rents have begun to increase again from the self and government-imposed rent restrictions that have been eased. Slide 11 provides further details on new and renewal lease spreads to date. Our revenue optimization strategy through the current environment is focused on retention.
New leasing spreads have improved from the onset of the pandemic as lead generation improves. With our current high occupancy and the lifting of rental rate restrictions, Boardwalk has reintroduced sustainable discount reductions on our renewals and continue to see success targeting inflationary adjustments. With many of our lease renewals negotiated 30- 90 days in advance, our third quarter primarily reflects the rental rate restrictions over the summer months. With approximately 60%-70% of Boardwalk's lease activity in the form of renewals, these sustainable discount reductions will provide resilience and growth in optimizing Boardwalk's revenue to offset increasing non-controllable expenses. Slide 12, our same property results reflect the rental restrictions set forth at the beginning of the pandemic, as well as increased non-controllable expense line items such as property taxes and utilities.
With continued focus on reducing our G&A, our controllable costs, our NOI overall sustained a positive growth of 0.5% for the quarter, 4.9% for the nine months of this year, and a slight decline in sequential revenue growth of 0.2%. These rental restrictions have now been lifted as of August. We are working together with our team to focus on sustainable rental discount reductions on our renewals. Slide 13, we continue to build on our track record with our 10th consecutive quarter of growth in FFO per unit. Our performance is the best reflection of our team's commitment to innovation, exceptional service, and focus on performance. Thank you to our entire Boardwalk team. We would like to now pass the call on to Lisa Smandych, who will provide us with an overview of our financial results. Lisa?
Thank you, Sam. On slide 14, the trust delivered strong FFO and AFFO growth, with FFO increasing by 5.6% from CAD 35.8 million- CAD 37.8 million for the three months ended September 30th, 2020. AFFO increased by 9.7%, from CAD 29.8 million- CAD 32.7 million, using an annualized maintenance CapEx estimate of CAD 613 per apartment unit. For the nine months ended September 30th, 2020, FFO increased 6.7%, from CAD 98.8 million- CAD 105.5 million, while AFFO increased 11.5%, from CAD 80.8 million- CAD 90.2 million. Included in our year-to-date FFO and AFFO results is approximately CAD 3.5 million for retirement costs.
Slide 15 summarizes the trust's monthly revenue collections from its resident members for the year-to-date 2020. Please note, collections are reported for the calendar month only and do not include revenue collected in subsequent months. 98.3% of October revenue was collected in October, which is consistent with the trust's historic run rate.
Though varying by province, city, and site, prior to 2020, the trust's historic bad debt expense was between 1% and 1.1% of total revenue. Thus far in 2020, bad debt expense has been 1.3% of total revenue. During COVID, Boardwalk offered its resident members a deferral program for those who could demonstrate financial hardship. As at the end of October, there were approximately 50 participants in this program, which is down from 100 participants at the end of July. Additionally, the total deferred balance was approximately CAD 47,000 at the end of October, also down from the CAD 85,000 at the end of July. Slide 16 provides a summary of Boardwalk's available liquidity. The trust is well-positioned with approximately CAD 86 million in cash and subsequently funded financings, as well as an undrawn CAD 199 million operating line.
This approximate CAD 286 million in liquidity provides the trust with a flexible financial position in the current environment, as well as providing the ability to take advantage of opportunities as they present themselves and as visibility improves. Slide 17 illustrates Boardwalk's mortgage maturity schedule. Our mortgages are well staggered with approximately 99% of our mortgage balance carrying NHA insurance through the Canada Mortgage and Housing Corporation. This insurance remain in effect for the full amortization of the mortgage. In addition to carrying the government of Canada's backing, provides access to low-cost financing, with current estimated five and 10-year CMHC rates of 1.2% and 1.8% respectively. The trust debt metrics continue to be strong, with an interest coverage of 2.78 in the current quarter. Our progress on our 2020 mortgage maturities is presented on slide 18.
Boardwalk has been actively taking advantage of this current low-interest environment to renew, forward lock, as well as securing additional up financing from our mortgage portfolio. To date, we have renewed or forward locked approximately 83% of our 2020 mortgage maturities, as well as secured CAD 173.4 million in new financing at record low interest rates, highlighted by some recently completed financings at interest rates less than 1%. Current underwriting criteria in our most recent submissions to CMHC and our lenders has remained in line with our historically conservative estimates. I would now like to turn the call to Lisa Russell, who will provide an update on our investments.
Thank you, Lisa. In addition to our operational focus and in line with Boardwalk's long-term strategy, slide 19 summarizes our areas for future growth. These four levers include value-add capital improvements, acquisitions, development, and dispositions of non-core assets, and will allow the trust to progress toward high grading and geographically expanding our portfolio. Slide 20 summarizes our progress on our value-added improvements with an increased focus on common areas and amenities, as well as more affordable suite renovations. Our measured approach to our value-add improvement program focuses in on best returns. The trust continues to remain disciplined as we strategically invest in our communities. These renovations showcase the power of design and our ability to reposition assets across Canada. Slide 21 summarizes our recent acquisition of a 226-unit portfolio located in Kitchener, Waterloo, and Cambridge.
This portfolio allows us to gain operating efficiencies with our existing portfolio in this high-growth region and aligns with our strategy of high grading and geographic diversification. Purchased at approximately a 4% cap rate, this portfolio has a significant mark-to-market opportunity over in-place rents. These low-density, private entrance townhome style units have an average suite size of over 1,000 sq ft and are well-positioned to provide homes for the changing needs of our resident members. On slide 22, we are pleased to announce the unconditional sale of Boardwalk Manor, a 72-unit walk-up in Regina. This asset transacted for CAD 7.5 million and it's expected to close on November 16, 2020. The sale of this non-core asset is in line with the trust's IFRS value and allows Boardwalk to continue to recycle capital towards accretive opportunities and achieve the trust's strategic objectives.
Slide 23 provides a brief update of our current and future development projects. Construction at 45 Railroad Street in Brampton continues on schedule. Completion of this two-tower, 365-unit development is estimated to be in 2022 and 2023. In line with our long-term strategy of geographic expansion and high grading our portfolio, the trust acquired two future development sites in Victoria, the capital city of British Columbia. We are excited to reenter the Victoria market where rental fundamentals are strong with low vacancy rates and an undersupply of rental housing even during a pandemic. Government, tourism, and a rapidly growing technology sector provide the economic foundation for this market. These two future prime development sites give Boardwalk a solid foothold in this growth market. The Carlisle Avenue land site is a land assembly in the gentrifying municipality of Esquimalt and was acquired for CAD 12.9 million.
Located across from the newly developed Esquimalt Town Square and Recreation Centre, this prime development site will provide new rental housing in a growing and undersupplied market. This transaction closed on November second. We anticipate entitlements and rezoning to be completed in 2022. This site will yield approximately 200 luxury affordable units. The second site we purchased is located in the growing municipality of View Royal. This zoned piece of land was purchased for CAD 14 million. Conditions have been waived and is scheduled to close on November 23rd, 2020. We anticipate building approximately 250 units on this prime site, which is located near Victoria General Hospital, a large retail plaza, and provides quick access to both downtown Victoria and Langford. These two sites provide the opportunity for Boardwalk to utilize its past experience and success in building accretive low-rise developments.
The trust is excited to bring Boardwalk's brand of unique design and affordability to Victoria while creating value for the trust in our proven low-rise development program. We will progress through rezoning entitlement and the design of all new development projects in 2021. For clarity, the trust will not begin any new construction in 2021. I would now like to turn the call over to James.
Thank you, Lisa. Slide 24 illustrates the exceptional value opportunity Boardwalk's current trading price represents when compared to recent multifamily transactions in the marketplace. As a basis of comparison, this slide utilizes Boardwalk's consensus 2020 NOI to illustrate implied valuation on a cap rate and per apartment door basis. Reported cap rates on transactions often have varying assumptions, with some instances using a stabilized NOI
Such as Boardwalk has in our current calculation of fair value, which utilizes a stabilized cap rate of 5.27%, as disclosed in our financial statements. In other instances, reported cap rates on sales transactions have utilized an in-place NOI, similar to our consensus NOI estimates used here on this slide. As noted, Boardwalk's net asset value of approximately CAD 60 per trust unit or CAD 180,000 per apartment door is in line with recent transactions. Our current unit price of approximately CAD 135,000 per apartment door or a 6% cap rate on consensus NOI presents an exceptional opportunity given the resilience of our operating performance and the industry's access to record-low debt financing. In addition to the exceptional value our trust units currently represent, Boardwalk is well-positioned to continue to deliver organic growth on the foundation of high affordability and unparalleled value in our essential housing products.
As shown on slide 25, Boardwalk's core Alberta markets of Edmonton and Calgary remain resilient with stable occupancy, positioning us well to reduce incentives sustainably on lease renewals, which represent the largest portion of our deal flow. In our Saskatchewan market, Boardwalk's focus on product quality, service, and experience has gained market share. Our affordable and high-value offering Ontario and Quebec markets remain near full occupancy. The trust continues to focus on maximizing market rents upon turnover. Just a CAD 25 increase in our monthly average in-place rent equates to approximately CAD 0.20 in annual FFO per unit and represents a significant growth opportunity over the near and long term as we focus in on optimizing our revenue and NOI, delivering quality, safe, and affordable housing across Canada. Looking forward on slide 26, Boardwalk's formula remains.
With significant liquidity, 99% CMHC-insured financing on our debt and access to debt capital that is near 1%, provides a significant tailwind in our financing costs. Boardwalk is on a strong financial foundation to weather any COVID-related uncertainties as well as execute on opportunities that arise. Our industry-low distribution payout ratio provides a recycling of cash flow for growth. Our organic growth opportunity remains a key priority, driving sustainable rental rate adjustments while maintaining high occupancy levels. Our controllable cost savings to date will continue to be a focus point as we aim to innovate and leverage our technology and energy efficiency programs. We look forward to sharing our progress and growth in our upcoming quarters, and we'd like to open up the phone line for questions. Colin?
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Jonathan Kelcher from TD Securities. Jonathan, please go ahead.
Thanks. Good morning.
Morning, Jonathan.
First question just on the incentives. At the end there, James, you were talking about them coming down on renewals. How do you see incentives playing out as you go through the winter leasing season? Maybe contrast renewals versus new leasing.
Sure. Thanks, Jonathan. You're 100% right. On renewals specifically, that is where our focus is. That's no different over the last many years. We've 100% been focused in on retention within our portfolio. Today on renewals, we're targeting very sustainable increases. We're talking a range of CAD 20-CAD 50 on a net effective basis. Really, for the most part, especially in our Western Canadian market, these are in the form of incentive or discount reductions. Our team to date has seen great success with this. Again, some are lower, some are higher, but for the most part, we're falling within the CAD 20-CAD 50 range. On new leases, our team's doing a great job of maintaining high occupancy. You see that on our leasing spread slide so far to date. Positioned with our high occupancy today of roughly just over 96%.
We feel good about going into the winter months. Again, to your point, Jonathan, it's a combination of maintaining high occupancy, gaining that with new leases, and continuing to get steady, sustainable increases on our renewals, which represents about 65% of our deal flow.
Okay. Then on slide 10, when it says the average incentive is CAD 178, remind us how that's calculated.
That's the average incentive for those units that have incentives in place.
Okay. Just switching gears. Victoria, going back to the B.C. market, maybe talk about the decision to go there through development versus buying existing assets, and are you looking for existing assets there?
The big decision and pivot for Victoria, Jonathan, it's Sam, has been the significant success we've realized in our low-rise development in Regina and Calgary. We've created and realized significant value in that development program. It's really exciting to secure prime locations in suburban areas in Victoria, in town centers or right next door to a major hospital in Victoria. That provides us with brand-new, low-rise, affordable housing in a market that's very undersupplied. The other characteristics we looked at in those locations was very little apartment rental product supply in those suburban locations. Primarily, the housing choices there are very expensive single-family homes. The relative value proposition between renting a brand-new low-rise community and buying a single-family home is really exceptional. Victoria has grown during the pandemic and has demonstrated one of the strongest population growths and continued rental demand in the country.
We're very excited, as you can sense.
Yeah. What about existing assets or revenue-producing assets right now? Are you looking at any of those in Victoria?
Yeah, Jonathan, we're definitely looking at those. It's going to be a combination. As we've clearly stated, we are going to be going through entitlements for the next couple of years on the development site, and the developments will not start in 2021. That being said, we're currently looking at some existing assets right now on any value add or newer supply that we do see in Victoria. We're very excited to be in this market again.
Okay. That's helpful. I'll turn it back. Thanks.
Thank you, Jonathan.
Your next question comes from Neil Downey from RBC Capital Markets. Neil, please go ahead.
Thank you. Good morning, everyone. I just have a couple of questions. One relates to, I'll call it the cost side of the ledger and your trust expenses. In the quarter, they were down materially from where they were earlier in the year, even excluding some one-off items. Can you maybe discuss how you see trust expenses going forward and the sustainability of the expenses that were incurred in the third quarter? Secondly, I might as well get these all out of the way at once. On the subject of capital investments and improvement CapEx, we are approaching the end of 2020. Can you please provide an indication as to roughly what the total investment might be for the year? As you look to 2021, do you think capital improvements will be the same, higher or lower?
There's really a part B to that CapEx question. What should we be thinking about in terms of the deduction that we take for R&M CapEx as it relates to our AFFO derivation?
Thanks, Neil. It's Lisa Smandych. I'll speak first to the administration expenses of the trust cost. As everyone can see, Q3 for us was a really clean quarter as it relates to all of our admin charges. As you pointed out, there were no retirement costs or severance adjustment in this quarter. We have commented on how we have been really maintaining and managing our headcount, a considerable portion of those savings that you saw was a result of our wages and salaries and keeping on top of those expenses. During Q3 too, we were just really clean in terms of looking at accruals and those types of adjustments to make sure everything made sense.
It's important to note that when we go into Q4, we will have some true-ups as it relates to year-end accruals based on knowing your actual results in comparison to some internal targets. There may be some adjustments going into Q4 a little bit in comparison to that Q3 rate. As we move into 2021, I think our expectation would be our admin costs, including the deferred comp, would probably be about the CAD 8.5 million-CAD 9 million range per quarter moving into 2021. From a CapEx side, I don't know, Sam or James, if you would rather that one.
Yes, Neil, it's Sam. Our trend is clearly down in our total CapEx spend as per slide 20. There's more demand for affordable, what we call classic units. Our spend is really on our common area experience centers, which is a real fraction of the spend of our interior full renovation suites. We are seeing a clear, strong demand in affordability and in our Living brand. Coupled with a repositioned experience center and common areas, we're really differentiating ourselves versus our competition and gaining market share. That trend in lower CapEx total spend will, as we calculate our CapEx on a three-year moving average, and that will translate into a lower CapEx number because the total spend will be dropping as well. I hope that answers the question.
Okay. That's super. Thank you so much.
One thing we're spending a lot on is creative capital. Creative capital is really the brain trust of our entire team, and we're coming up with new ways to do things and there's new savings all the time that all our associates are contributing. We really have to give all credit to our team that continues to come up with amazing ways and ideas to do the same old, same old in different, more efficient, cost-effective ways. The other really exciting thing that we're doing, we just finished our trial with SmartRent, and that's our partnership with the major U.S. apartment REITs, with Real Estate Technology Ventures and smart home technology, self-showing. We're scratching the surface as we install our first full community of smart technology.
That will introduce savings that are unparalleled that the U.S., we're very grateful to be partners with the most innovative U.S. REITs, developing and creating. One of our new partners is Amazon, for example, in SmartRent. As soon as we put that technology together, Amazon became a partner of ours very quickly. So we're super excited with the technology. Again, we got to give kudos for our Yuhu platform. The automation, our in-house development of our new robotic lead management system we created in-house. I can go on and on. Again, we're scratching the surface on the savings potential and the way we're revolutionizing and changing the way we serve in the multifamily communities.
Your next question comes from Howard Leung from Veritas Investment Research. Howard, please go ahead.
Good morning.
Morning.
I also want to ask about OpEx, the controllable side. What do you see for fiscal 2021, and do you expect that to also offset some of the cost increases for the uncontrollable side?
Hey, Howard, it's James here. 100% great question. On the controllable expense side, I think we continue to see the benefit of that. You saw it here, even in our most recent results here with our Q3 report offsetting some of the gains that we've had or the increases that we've seen in the non-controllable side. Looking forward into next year, Sam was just talking about, our team is looking for savings and innovating each and every day, uncovering as many rocks as we can. We're confident that our team will continue to find savings going forward. Obviously, we want to remain conservative and anticipate some inflation in items such as your standard events, such as wages and salaries, et cetera.
With what our team is doing and what our team has done over the last few years, looking at efficiencies, we're confident that this trend can continue.
Okay. I see that I think Edmonton and Calgary, they just had a spike this quarter for rental unit construction in Q3 in terms of completions. Can you speak to that and where you think if they'll put any pressure on occupancies or rental revenue in the near term?
What we're seeing, Sam, is new supplies coming on about 1,000 units, and the pricing is stable. It's about CAD 2.50 a square foot. We're seeing the new communities accept a lower absorption and a higher vacancy. That is good news for everybody because the rental market is contiguous, it's interconnected, everything is relative. New supply is a price setter and the rest of the market is a price taker. We're very pleased with the stability at about CAD 2.50 and the affordability of the new supply that's out there. It's well below other levels in other centers in Canada. Affordability continues to be the leading variable in the United States, our biggest data sampling and trends. Well before the pandemic, affordability was clearly a trend in major, more expensive cities in the U.S., and we're seeing this trend accelerate during the pandemic.
We're talking with Shopify employees in Calgary. We're talking with Amazon Web Services employees in Calgary. This work from home and from anywhere is accelerating. Calgary's got the freshest air, cleanest water, most beautiful mountains. It's the Denver-like, and according to The Economist magazine, the fifth top best city to live in in the world. That's the only Canadian city that makes it on the top five list. It's the best-kept secret, and it continues to grow. We're seeing that. Our results are reflecting that. Affordability is something that we've got the most of or one of the most of in the entire country.
Right. It doesn't sound like you're seeing a lot of pressure from new supply. I guess, that kind of relates to my next question about Brio. I think it's around 55% leased. Can you talk about your leasing strategy there? I guess it sounds like you're also not competing, you're not giving large incentives to lease that building.
Correct. We're taking a more patient approach. We're assuming a 12-month lease up. We're well on target. We're over 50% occupied as we speak, and on target to be fully occupied by the spring, about a year after, during a pandemic, lease up. Again, our product is very unique. Our unit size is very large. That's one thing we've learned is unit size matters, and it's something that's impossible to change. Once a development's completed, the unit size stays the same. That decision to redesign that to smaller unit count and larger unit sizes has really helped us compete in that marketplace and actually gain market share from the newer, smaller condominium rentals in the area. The residential housing in the area is approximately CAD 1 million or just under.
Some of the most expensive bungalows in the city are just in and around that area. It's providing a great alternative to a single-family home as well. We very carefully crafted that community, and it's showing in our performance.
Okay. No, that's great. Then kind of my last question relates to capital recycling. We've seen you buy some units in Ontario and BC at about, it seems like, around the four cap. Then we're seeing some disposition, mainly in Saskatchewan, around a six cap. Yeah, I understand the strategy of high-grading your portfolio. Given that there's that spread between the different cap rates and most of your remaining Saskatchewan assets, I think, are levered, so they're not unencumbered. Could you see any near-term headwinds to cash flows or NOI if you keep pursuing this strategy? To what extent are you looking to dispose your Saskatchewan assets?
Just for clarity, the sale that just transacted at seven and a half was closer to low four cap. I'm not sure where the six cap is coming from. The lower four cap is transacting, and yeah, we're not concerned.
Just to be clear, Howard, the six cap that I'm assuming you're referring to is our stabilized cap rate that we would utilize in Saskatchewan. For what Lisa's referring to is more the in-place that's currently reflected there. As we redeploy that towards four caps in Ontario from a cash flow basis, especially with the mark-to-market that we have in Ontario, we believe we're accomplishing our strategic goals of high grading and geographically expanding.
Okay. Sorry. Yeah, I thought the Boardwalk Manor was disposed of at six cap, but you're saying it's closer to a four and a half?
Low fours.
In place. In place fours. What we're seeing is low fours in place going to five and six as incentives burn and as turnover happens in Ontario. What we're seeing in Victoria is what we saw here in Calgary and Regina is the capital that we're going to have to use is our creative capital, where we get in front of all the competitive buying and partner up with land assemblers, for example, that have been in that market for 10 years. As a result, we're able to secure unique sites and create the value and the equity that's required. Our capital will be construction financing of the cost of the construction, and then the value we create will be our equity. It's exactly like the equity capital that we created through the value that we create in the development cycle and process.
We've created significant value on a smaller scale in Western Canada, in Alberta and Saskatchewan, with around 1,000 or 700, 800 units. Our equity capital is the value that we created. These communities provide positive accretive FFO contributions to our bottom line, and we're going to continue to do that. We realize the timing of sales is critical to the acquisitions. Lisa can needle a very fine thread through this and will continue to as she and our acquisition and disposition and development team have been doing over the last several years in a smaller scale. We're going to scale that up going forward and be more active on both, first and foremost, the disposition side and timing our acquisitions at accretive levels so we can accelerate the geographic distribution of our asset mix.
Right. I guess to that, should we expect more dispositions then in the Saskatchewan region?
Yeah. Absolutely.
Okay.
Yeah.
Well, even in Alberta, and more particular Edmonton, our most highly concentrated market is Edmonton. That's most likely where we will be most active. We're going to be most active in Western Canada, where there's the bid and the best pricing, period. We're going to be a lot more open-minded when it comes to the trading of our assets to accelerate our geographic
A distribution in our asset class.
Okay. No, good to know. Just to confirm, yeah, so 4% caps in place and after incentives burn, it'll be 5%-6%. Okay. No, got it. Thanks.
Yeah, that's correct.
Your next question comes from Matt Kornack from National Bank Financial. Matt, please go ahead.
Hi, guys. Just wanted to quickly follow up on Howard's question with regards to capital recycling in Edmonton in particular. Can you provide any commentary as to transaction activity in that market, what you're seeing and what you could potentially lighten up on there?
There is some product in Edmonton right now. From just talking to the brokers, there's lots of activity on the product that is in Edmonton and Calgary. In 2021, like Sam said, we're going to be really focused on transactions, not just in Edmonton, but in Western Canada. Yeah, we feel like there's strong interest in talking to these different groups as we are right now.
Pricing-wise, cap rates on in-place NOI, are you inside of what you're seeing in Saskatchewan, or is it similar type pricing?
Yeah, it depends on the product, but similar type pricing. Definitely we're right in line.
Okay. On property taxes, they were up fairly significantly sequentially, I think this was previously known. As you look into 2021, it sounds like some municipalities are trying to hold off on passing through budget deficits related to COVID onto property owners. What are your thoughts there? Then maybe more generally, can you speak to, I think on OpEx this quarter, same property year-over-year was up 3.6%. Is that a figure that you'd hope to attain? I know there's some one-time items in there like the carbon tax. How should we think about OpEx growth going forward?
Hey, Matt, it's James. On the property tax front, absolutely we're not anticipating the same pace of increase for 2021 as we would have seen this year in 2020. In fact, you're 100% right, even in Calgary, much of the media attention is around the potential of residential tax decreases, actually. Going forward, we'll have more visibility on that in the new year. We are hearing that there's likely some pressure on industrial property taxes here in Alberta. Multifamily, it sounds like we'd anticipate something that is closer to flat, if not even more inflationary, as opposed to the double-digit tax increases we saw this year. With regards to other operating costs, you hit it bang on, Matt. The majority of our increases were a result of these non-controllable increases like property tax, like insurance.
When it comes to carbon tax, I mean, again, that is another item where frankly, we are seeing those increases. Again, we wouldn't anticipate the same pace of increase, but we will see those continue into 2021.
You'd hope for under the 3.6%, potentially, if you're lucky into 2021. One other thing, just that CAD 13.7 million of property tax, is that a good run rate figure? It kind of moves around a little bit, but presumably that's the new basis.
Yeah, barring future information that we see for 2021. We'll have more visibility on that in the new year. For now, we'd say yes.
Okay. Thanks, guys.
Thanks, Matt.
Ladies and gentlemen, as a reminder, should you have a question, please press star, followed by one. Your next question comes from Mike Markidis from Desjardins. Mike, please go ahead.
Hi, everyone. Just with the plan to accelerate your disposition program in Western Canada, I apologize if I had missed this earlier, but I think you guys had three assets listed in Edmonton. I was just wondering if you could give us an update on that process?
Sure. Yeah, we've had a lot of interest in the assets, and we're actually at different stages of an under contract. We can speak to it further next quarter. Yeah, we've seen a lot of interest, and there's buyers from out east to private guys in the local market.
Okay. You would expect those transact early next year?
Correct.
Then just looking at your segmented revenue, clearly it was one of the toughest quarters we've seen in a while. You did have a sequential revenue decline in Alberta, about 1.5%. Realize you guys are getting more traction on the renewal increases as we move through 4Q. Just given what you're seeing in terms of leasing velocity and demand, and understandably, the visibility factor is as low as it's probably been in a long time. Do you expect that will stabilize over the next couple of quarters, or do you expect it will continue to leak lower?
Mike, it's Sam. We're seeing between the CAD 20-CAD 50 discount reductions on renewals, which accounts for about 60%-70% of our turnover.
We will be seeing that reverse in the fourth quarter because we're seeing it as we speak in our renewals today. Our renewal agents, especially the communities that we've repositioned, we're going to see discount reductions more in the CAD 60-CAD 80 range. We're seeing some of those, and we're going to see more of those as more of our repositioned communities come online. We're, as we speak, seeing an increase in our revenues as a result of the reduction of our discounts flowing through again.
Okay. I guess the outlook would be reduction in average incentive. Maybe you're giving up a little bit on new leases, and then you would expect occupancy to remain relatively stable. Would that be fair?
That's what we're seeing as we speak, yes.
Okay, great. That's helpful. Thank you.
Thanks, Mike.
Your next question comes from Mario Saric from Scotiabank. Mario, please go ahead.
Thank you, and good morning. Just two questions on the disposition activity. Coming back to the three assets that are listed in Edmonton, can you highlight whether there's any debt on those three assets, or are they free and clear of debt?
There's currently debt on the assets that we're marketing, but we're not marketing them free and clear, so there'll be debt assumption with that.
Okay. More of a bigger picture on disposition. I think, especially when you're looking at your Western Canada assets, some of those assets or properties, you've owned forever. I'd imagine the tax basis on a lot of these assets is probably zero. Does the adjusted tax basis of the assets impact in any way your ability to execute on your disposition program or the magnitude of that disposition program?
Hi, Mario. It's Lisa. Great question. Basically, when we evaluate our distribution on a recurring quarterly, monthly basis, we do consider capital gains and recapture in our taxable income calculations. We do allow for a pool within our distributions to allow for us to execute and sell our assets at their equity value. You are correct. Any time we're evaluating any disposition, we have to look at the tax basis. Yes, some of those assets which we've held for a longer period of time, you would expect that there would be a recapture and capital gain consequence. We consider that when we evaluate our distribution on a quarterly basis.
Mario, the other option we have is selling like and buying like. Our newer acquisitions that we purchased or developed, realize the gains that we've created. The cost base is much higher, and reinvest those gains into a different geographic region with like brand-new developed product as well. It'll be a like-for-like product in a different geographic region. That's exactly how we can access capital internally. It's a great way. Again, our focus is internally generated free cash flow. That's why we re-engineered our distribution to maximize the free cash flow available for us, and that's our biggest primary source of capital, will be free cash flow, especially when our average rents are CAD 1,183. Everything is relative. Everything. It's a whole lot different moving rents from CAD 1,183- CAD 1,300, CAD 1,400.
On a relative basis, that's a big, major percentage increase versus moving average rents from CAD 1,500, CAD 1,600 at the same percentage level. That's really important to keep in mind. That's the growth. The organic growth is significant. The re-engineering to maximize the access of that free cash flow is significant. That is going to fuel our growth going forward.
Okay. Thank you for the color.
Your next question comes from Brendon Abrams from Canaccord. Brendon, sorry. Please go ahead.
Hi, good morning. I hopped on late, so maybe I missed it. Just on the Victoria land purchases, can you just maybe reiterate what the expected development yield and also maybe price per suite once built-out would be?
Yeah. For Victoria right now, we're going through rezoning on one of the sites. That we'll figure out density as we get closer. That'll be likely further out in 2022. As we progress through the rezoning process, we'll keep everybody up to speed. For the Eagle's Nest, it is a rezoned piece of land, and we're in really preliminary stages. We're just closing on this piece of land right now and working through it. It'll be close to a four and a half yield or four and a half.
The development yield will be approximately 25%, that essentially will be our equity into those developments and communities. We've realized higher than that in our past developments, depending on where the market's going over the next couple of years, because right now the market continues to improve and strengthen in the locations that we're secured land in. As a result, these, we believe, are realistic yields. The low rise construction is another big difference. The advances that we've seen in low rise construction is significant. The cost of low rise is much, much lower than high rise, and that contributes to the value that we can create in low rise developments versus high rise developments. We're very happy with our high rise developments because we secured really low price contracts several years ago, to be honest.
The low rise construction we have in Brampton is very exciting because the legacy older product is not too far below what our total cost is going to be in Brampton with our partner that's doing an amazing job keeping costs down and securing these contracts a long time ago. We're, again, very excited about the value that we can create in these new, exciting opportunities.
Right. No, that's helpful. Maybe just on a similar tone, maybe as it pertains to capital allocation. Over the last year or two, you've invested in a few development projects, some acquisitions outside of your core markets. Obviously, the growth of the REIT and geographical diversification is paramount. Just in terms of unit buybacks and given where the stock is trading relative to perceived value, do you have a view and your significant liquidity. Maybe you could just remind us your view on unit buybacks and I guess, what it would take to go into the market and support the stock.
Our view on unit buybacks is the same as our view on capital allocation. We review that all the time, and we look at all options available to us. You must have been in our board meeting. We had a very heated discussion and talk about asset or capital allocation and unit buyback. We will continue to look at all sources and uses of capital allocation all the time.
Okay, that's great. I'll turn it over. Thank you.
Thanks, Brendon.
Your next question comes from Liyan Chen from iA Securities. Liyan, please go ahead.
Hi, good morning. Most of my questions were answered. Just really quickly for me, just in regards to Brampton and Mississauga projects, have your projections in terms of costs or yield on costs changed at all in the near term?
They haven't, actually. For Brampton, we're 85% fixed cost, so we're secure with any construction fluctuations that we may have seen over the past six months. No, everything is absolutely in line. Mississauga, again, we're just going through rezoning, so that one is very preliminary.
We watch the market all the time, and in Brampton, we're surveying competitors. There's very little to no new supply in the Brampton market, and there's very little to no incentives as well in the Brampton market. Brampton market, we purchased that land on a square foot basis at just over CAD 30 a buildable or close to CAD 40 with entitlements. Very affordable contracts. The partner we have is the general contractor, developer, and has been in the construction and development business for decades. We're very blessed to have them as a partner that secured really exceptional low cost and proven good quality trades to keep our costs under control. So far so good. They're doing an amazing job, and we're seeing great discipline in cost control, and we're on time, on budget, which is the good news on any new development.
Okay, great. Thanks for the color. I'll turn it back. Thanks.
Thanks, Liyan.
Your next question comes from Joanne Chen from BMO Capital Markets. Joanne, please go ahead.
Hi, good morning. Yeah, most of my questions have been answered as well, but maybe just a really quick one. I apologize if I missed this earlier, but with the rent freeze listed, could you maybe provide some color on what sort of rent lifts that are you seeing now so far in, I guess, September and October?
Sorry, what was that?
Hi, Joanne. Yeah, you're 100% right. Just on the rent freeze-
Oh, okay.
the increases post the rent freeze. The rental rate restrictions, both self and government imposed for the most part across our markets, were lifted towards August here. Since then on renewals, we've really been targeting sustainable discount reductions with our residents, right? We've been targeting CAD 20-CAD 50 discount reductions and getting them. With our renewal agents and the strategy and the approach that we take with our lease renewals, we're often negotiating lease renewals 30-90 days in advance. We're starting to see that benefit now, in these current months, and we anticipate that we'll see those leasing spreads on renewals improve into the fourth quarter.
I got you. You said 25-35 discount on reductions?
CAD 20-CAD 50.
Sorry, that's what I meant. Okay. Yeah. Nope. Sorry, that's all I had. I'll turn it back. Thanks very much, guys.
There are no further questions at this time. Please proceed.
Thank you, Colin. We would like to end this call by thanking our amazing team of heroes and great leaders, loyal residents, and all our stakeholders. It really is all about our amazing team of heroes whose huge shoulders we stand and as leaders, we continue to do everything we can to support continued growth and excellence. We really can't thank our amazing team and great leaders enough. We are pleased with our improving results on a foundation of exceptional value we continue to provide our resident members, our investors, and all our stakeholders. Our home is much more than a place. The future is family, where love always lives. What can be more important when choosing where to call home? Thank you again, everyone, for joining us this morning, may God bless us all with healing, health, and peace through all times. Thank you.
Ladies and gentlemen, this concludes your conference call today. We thank you for participating and ask that you please disconnect your line.