Good morning, ladies and gentlemen, welcome to the Boardwalk Real Estate Investment Trust fourth quarter results conference call. Note that at this time, all lines are in a listen-only mode, but following the presentations, 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, the call is being recorded today, Friday, February 28, 2020. I would like to turn the conference over to James Ha. Please go ahead, sir.
Thank you, Sylvie, and welcome to the Boardwalk REIT 2019 fourth quarter results conference call. With me here today is Sam Kolias, Chief Executive Officer, Rob Geremia, President, William Wong, Chief Financial Officer, Lisa Russell, Senior Vice President of Corporate Development, and Lisa Smandych, Chief Accounting Officer. Note that this call is being broadly disseminated by way of webcast. If you have not done so already, please visit bwalk.com/investors, where you will find a link to today's presentation, as well as PDF files of the trust's financial statements, MD&A, and 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. At the conclusion of today's presentation, we will be opening up the phone lines for questions. I'd like to now turn the call over to Sam Kolias.
Thank you, James, thank you everyone for joining us this morning. Starting on slide three, we are pleased to continue building on our track record with our seventh consecutive quarter of growth in FFO per unit, delivering 16.7% growth in FFO per unit for the fourth quarter. Rental market fundamentals in our core Alberta markets continue to improve, and our team continues to deliver exceptional product quality, service, and experience. Slide four provides a summary of our results with total FFO and AFFO growth of 17.5% and 20.9% for the fourth quarter, resulting in 16.8% and 20.1% growth for fiscal 2019, respectively. Looking into our same-property portfolio performance, our NOI grew by 11.6% for the quarter, with 4.3% revenue growth and a decrease in expenses of 4%.
For the 12 months of 2019, our NOI grew 8.2%, highlighted by revenue growth of 4.1% and a decrease in our operating expenses of 0.9%. Moving on to slide five, Boardwalk offers an exceptional combination of growth and value. Boardwalk's focus on delivering strong NOI growth has resulted in strong growth in FFO per unit. The trust's current IFRS net asset value of CAD 63.72 is significantly higher than our current unit trading price, presenting an exceptional opportunity for our investor. Boardwalk's high-quality overall portfolio equates to approximately 162,000 per apartment door at our current unit price. Recent transactions in Calgary and Edmonton have averaged over 200,000 a door. Furthermore, replacement costs are significantly higher than these apartment trading prices.
Our exceptional value provides for a unique opportunity for our partners and stakeholders as we continue to focus in on delivering solid growth. Slide six, we illustrate current rental market fundamentals for each of the markets where we operate. Boardwalk strives to create value through all stages of the rental market cycle. Approximately 60% of Boardwalk's portfolio is in Alberta, where rental market fundamentals continue to improve and are moving towards a balanced state in our core markets of Edmonton and Calgary. Major refining, upgrading, and oil transportation investments were made earlier in the year, along with the continued construction work on the Trans Mountain pipeline, as well as the upcoming operation of the Canadian section of Enbridge's Line 3 pipeline. The Alberta economy continues to diversify, along with increased international migration, continuing to increase the population and demand of housing.
Changes by the provincial government to decrease corporate taxes will also create a more favorable investment environment in the province. The Royal Bank expects employment growth to nearly double to 1.1% in 2020 from 0.6% in 2019. Grande Prairie has already seen benefits from an improved economy and continues to move into a strong rental market, almost fully occupied with a strong demand for rentals. Fort McMurray remains in a soft rental market. Red Deer continues to see improvement as a result of our successful value-add investment in this region. For the fourth quarter, Edmonton rental market fundamentals continue to improve and stabilized NOI growth jumped ahead of Calgary for the three and 12-month periods. Our focus on a caring peak performance culture, along with significant value-add capital investment, continues to deliver significant gains in NOI.
Our value-add lessons learned in our Calgary market are helping us better allocate value-add investments into all our other markets, in particular in our larger Edmonton market. Our Saskatchewan region continues to remain in a softer rental market with green shoots of higher occupancy, revenue, and recent quarter NOI increase, particularly in Saskatoon, which is entering into a more balanced market. We continue to focus in on gaining market share with targeted value-add capital improvements and increasing our operating efficiency, which should continue to provide a positive NOI growth into the foreseeable future. Ontario and Quebec represent over 25% of Boardwalk's portfolio, with both provinces showing strong performance. Ontario continues to deliver solid results, with market rents increasing and vacancies decreasing.
We have increased our value add investment in our portfolio here to further enhance returns, with strong demand in London and Kitchener, and to better position and compete with any new future supply. Quebec rental market fundamentals have improved. Boardwalk's Nuns' Island portfolio in Montreal is nearly fully occupied and is reflected in our sequential revenue for the last quarter, which has increased 1.3%. Moving on to Slide seven. Alberta continues to see high population growth, reflecting a world-class standard of living and multi-decade high affordability. Calgary was in fact ranked the world's fifth most livable city by the Economist Intelligence Unit, ranking almost a perfect score in stability, healthcare, culture and environment, education and infrastructure. Job growth continues to reflect a diversifying economy with one of the highest average weekly earnings in Canada. CMHC forecasts improving rental market fundamentals.
Our newly elected government is working hard to attract top talent to our province by offering more accessible visas for foreign students, targeting top U.S. university graduates, as well as creating an attractive tax environment for health, biotech, and startup firms. Slide eight shows our strategy of re-engineering our corporate culture and performance-driven team to deliver the best product, service, and experience building on our brand. Reflecting on 2019, our team is proud of the accomplishments we have made. We have delivered strong organic growth, accomplished brand and product diversification by repositioning and renovating 16% of our common areas in 2019, as well as one lifestyle repositioning in Edmonton. We continue to high grade and geographically diversify, continued focus on a solid financial foundation, and lastly, delivering on strong unitholder value with a 2019 total return of over 25%.
With our team, we are confident we can continue to build on this in 2020, and we'll provide our outlook at the end of this presentation. I'd like to now turn the call over to Roberto Geremia.
Thanks, Sam. Moving on to Slide nine. Boardwalk continues to target 4%-8% increases on new and renewing leases in our non-rent-controlled markets of Alberta and Saskatchewan. As is shown on Slide nine, our reported results are in line with our seasonal expectations. For 2019, the Trust achieved an average of 4% increases on new leases and 6% increases on lease renewals. For our rent-controlled markets, where we are subject to legislative increases, we target above-guideline increases where applicable, and to date have been very successful in achieving these. As is shown on Slide 10, all key revenue metrics continue the positive trend. Total revenues continue to increase, as it has been for the past consecutive eight quarters. With continued high occupancy levels, we are able to increase overall occupied rents while decreasing incentives and lowering vacancy loss. Slide 11 shows Boardwalk's quarterly sequential revenue growth.
Current quarter's results continue the overall trend of positive postings. The trust's fourth quarter reported sequential revenue growth of 0.8%. Slide 12 shows more detail on Boardwalk's stabilized portfolio. For Q4 2019, the trust's stabilized portfolio posted NOI growth in excess of 11% on revenue growth of 4.3% and cost being reduced by 4%. Boardwalk's Alberta portfolio NOI growth was of over 15%, led all regions. Also of note, Saskatchewan posted over 10.6% NOI growth for the current quarter. On a year-to-date basis, our stabilized portfolio reported revenue growth of 4.1% and NOI growth in excess of 8.2%. Boardwalk continues to target its value-added investment program to enhance the overall experience offered to our resident members. As we continue to selectively invest back into our communities, we are constantly exploring for ways to deliver these programs in more efficient and cost-effective ways.
Slide 13 shows our overall progress in our value-added strategic investment program. Since commencing our current program in 2017, we have upgraded approximately 18% of our suites. The renovation level is different by brand and community and is driven mainly by demand. Over the last few years, we have seen a material shift toward lower suite cost investments, with an increased focus on improved amenity and common area for our communities. At the end of December, we have completed approximately 24% of our amenity and common area upgrades. As we always have, we are constantly looking to deliver these investment programs in more efficient and cost-effective ways. Slide 14 is an example of our strategic value-added program. Lansdowne Park is a 62-unit apartment complex in Edmonton, Alberta. At this community, we upgraded the leasing office and the lobby with a strategic investment of CAD 30,000.
Upon completion of this investment, we adjusted market rents just by CAD 10 per month for each unit. Based on our past experience with this type of investment, we are anticipating a stabilized return well in double digits. I would like to turn the call over to Lisa Russell now, who will update you on our development program. Lisa?
Thank you, Rob. Slide 15 provides an update on Brio, a premium mixed-use development in Calgary. We are proud to have received our occupancy permit and have taken possession of the property as of February 21st. We are in the final stages of fixturing and setting up the experience center, common areas, show suite, fitness center, and amenity areas. We plan to host a grand opening and have our first resident members move in on April 1st, 2020. Boardwalk's initial marketing of the project has been well-received, and we anticipate lease-up to progress over the next 12 months. Our estimated stabilized yield for the project ranges from 4%-5%, with anticipated rental rates of CAD 2.45-CAD 2.75 per square foot. Stabilized product of this caliber currently trade at cap rates below 4% in Calgary. Slide 16 provides a brief update on our other active development projects.
Construction at 45 Railroad, which is located in Brampton, Ontario, is progressing well. Underground construction is ongoing, and we anticipate the project to be at grade in Q3 of 2020. Estimated completion of this two-tower, 365-unit development remains planned for 2022 and 2023 respectively. Westwood Square in Mississauga, Ontario, is our second joint venture partnership with RioCan. Our initial zoning application for a 16- and 25-story mixed-use development was received positively, and the partnership is currently working with the municipality to finalize zoning. Anticipated potential construction is planned for 2021. The timing of Boardwalk's current development projects are well-staggered to best balance our resources. Our planned developments in the Peel region provide an attractive entry into the GTA where market fundamentals remain strong, allowing Boardwalk to enter high-growth, under-supplied markets, providing continued progress towards our long-term strategic plan.
Further information on each of these developments, as well as our previously announced high-grading acquisition and non-core sales in 2019 can be found in our appendix of this presentation. I would now like to turn the call over to William Wong.
Thank you, Lisa. Boardwalk continues to maintain a strong financial position. Slide 17 highlights Boardwalk's liquidity position at the end of the year, defined here as cash on hand, committed up financing subsequent to December 31st, plus the trust's line of credit. Boardwalk's liquidity of approximately CAD 258 million represents 9% of the trust's total debt. Debt net of cash was 47% of December 31st reported asset value. The next slide 18, highlights Boardwalk's mortgage maturity schedule and interest service coverage. Overall weighted average interest at the end of the year was 2.74%. Approximately 99% of our mortgages are CMHC-insured, which are backed by the government of Canada and enjoy advantageous interest rates on renewal. Based on a rolling four-quarter basis, interest rate coverage improved to 2.76x, compared to 2.74x at the end of Q3 and 2.68x at the end of 2018.
Slide 19 shows Boardwalk's mortgage program completed for the 2019 year and summarizing our upcoming mortgage maturities for 2020. In 2019, the trust renewed approximately CAD 519 million of matured or maturing mortgages at a weighted average interest rate of 3% while extending the term maturity to eight years. In addition, Boardwalk paid off one CAD 2.6 million mortgage upon maturity. In 2020, approximately CAD 318 million of mortgages are set to mature with a weighted average interest rate of 2.52%. To date, we have renewed or forward-locked CAD 41 million at a new weighted average interest rate of 2.35% for an average term of eight years. Boardwalk has also added CAD 23 million of up financing in the process. Current five and 10-year CMHC interest rates are approximately 2.3% and 2.4% respectively. Next slide shows Boardwalk's announced distribution for the next three months.
Continuing with its strategy of capital allocation optimization, for February, March, and April record dates, Boardwalk is maintaining its distribution of CAD 0.0834 per trust unit, which equates to an annualized basis of CAD 1 per trust unit. I would now like to turn the presentation back to Sam.
Thank you, William. We have entered 2020 on solid footing and well-positioned to continue to deliver solid results and returns to our stakeholders by taking a similar approach as we did in a successful 2019. In addition, we are layering exciting new initiatives to further drive and improve on our product, quality, service, and experience we are providing to all our resident members while also delivering solid financial results for our stakeholders. Slide 21 provides a couple of examples of this. Boardwalk is proud to launch, in partnership with Yuhu, a new online resident member portal to all of our resident members. This new portal will provide more self-service options to our residents, allowing for direct online payments, online maintenance requests, a real-time chat feature, amenity bookings, and much more.
By creating more optionality in the way our residents experience their homes, the trust believes that further efficiency and 24/7 self-service can be gained while also creating new resident-friendly forms of communication. Additionally, Boardwalk has had great success in Alberta partnering and selling Boardwalk exclusively priced internet and TV services. This program began in our Alberta portfolio in Q2 of 2019 and has been strong penetration to date. The trust estimates that once fully stabilized, the trust's NOI will improve by 200 to 400 basis points in Alberta. Looking forward, the trust is excited to begin expanding on this service across its portfolio. Core values of our foundation have always supported a focus on our environment, social responsibility, and our governance. From our sustainable self-regulation since 1999 and our energy efficient use of fixtures, appliances, and building envelopes to reduce our carbon footprint and save on our energy costs.
Slide 22 provides a summary of the Boardwalk ESG initiatives. We are proud that Boardwalk's golden foundation, in which we have always operated, aligns well with modern-day ESG. We are excited to launch our inaugural ESG report along with our 2019 annual report in the coming weeks. Looking forward into 2020, on Slide 23, the trust anticipates a continued positive trend of stabilized property NOI growth. This growth is expected to be tempered by upward pressure in certain uncontrollable operating expenses, such as property taxes, insurance, and utilities. Boardwalk 2020 stabilized NOI growth is expected to range between 4% to 7%. FFO per unit results to range between CAD 2.65-CAD 2.80, and AFFO per unit results to range between CAD 2.25-CAD 2.40 per trust unit, excluding one-time non-recurring retirement costs we are anticipating in the second quarter of 2020.
Additionally, the trust expects to invest between CAD 175.2 million-CAD 194 million in capital investment in 2020. The trust reviews its financial guidance regularly and will provide updates on a quarterly basis. We'd especially like to recognize both Roberto Geremia and William Wong for the 26 and 18 years of inspiring service respectfully, and together building a strong foundation and well-mentored team for an even brighter future we have as a result of their significant contribution. We will forever be grateful. We wish both Rob and William health, love, peace, joy, and abundance in their future. We'd now like to open the phone lines for questions. Sylvie?
Thank you. Ladies and gentlemen, if you do have a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. If you should wish to withdraw your question, simply press star followed by two. We do ask that if you're using a speakerphone, to please lift the handset before pressing any keys. Please go ahead and press star one now should you have a question. The first question will be from Brandon Abrams at Canaccord Genuity. Please go ahead.
Hi. Good morning.
Morning, Brandon.
I'm wondering if you could provide some guidance for property taxes for 2020, specifically in Alberta. I know there's been a few changes in Edmonton and Calgary. I'm just wondering if you had any color there.
Hey, Brandon. It's James here. You're absolutely right. As Sam pointed out, one of the headwinds that we have coming into 2020 is uncontrollable expenses, and one of those is property taxes, especially here in Alberta. When we look at Calgary and Edmonton, the dynamic that we're seeing is increased assessed values for purpose-built rental, combined with flat to slightly down assessments for single-family homes. The net result of that is purpose-built rental is taking a bigger portion of the residential property tax pool. That dynamic is happening for both Edmonton and Calgary. When we look into Calgary, there's a second dynamic that we're going to see where we're seeing a property tax shift from city council, potentially moving more of the tax burden from commercial towards residential.
The net effect of that, we're looking at mid to high single-digit increases in Edmonton and potentially double-digit increases in Calgary. Sadly, that's one of the expense line items that we do, as everybody knows, we actively negotiate and work with city council and work with assessment departments to negotiate our assessments. Structurally in Calgary, sadly, there's potentially some significant changes that are going to have a negative impact on our property tax expense this year.
Brandon, it's Rob. Just to add on to James' point, I think he's 100% right. There's upward pressure there. We're doing our best to look at our controllable costs to ensure we maintain those and look at downward pressure on those as well too, as we're trying to balance off some of that. We don't know if we can do it fully, but we're sure working hard at it.
We really have to commend our industry leaders, Calgary Residential Rental Association, with all other Calgary apartment providers that are having great discussions with the City of Calgary. There's already been some flexibility, and we've already realized less increases than what originally was contemplated. We're very pleased with the friendly discussions we're having with our municipal civil servants and our Calgary Residential Rental Association and all Calgary apartment providers. We're very happy in the efforts we're all making to control our uncontrollable through friendly discussions.
Right. Okay. Yeah, that's very helpful. Just taking a look at the loss to lease calculation in the MD&A, and it looks like Quebec and Ontario, fairly significant mark-to-market opportunities, CAD 9 million and CAD 14 million respectively. I'm just wondering if you could remind us again what your turnover is in your portfolio for those two markets, just to get a sense of how quickly you might be able to capture that.
Bran, it's Rob. Ontario has actually decreased our turnover. We're down to about 14% from 17% the year before. Quebec is staying about the same. We're getting a little more aggressive in the Quebec market to be able. In both of those markets, particularly in Ontario, we've been extremely successful in getting above-guideline average increases. We've actually won most of the ones we went into to get increases close to 5% in some cases. Higher than that, you have to balance it off as there is a maximum you can give every year on those. A challenge we're having, to be honest, is we have a lot of backlog files with the Ontario system there to be able to get approved. The good news is, when they're approved, they understand that we are having increasing costs.
We've invested capital back into our properties, and they understand the expectation of getting a return.
Right. Okay. Then just last question before I turn it over. Sam, I don't want to get you in trouble here necessarily, but we had the Frontier Project decision by Teck Resources earlier this week, deciding not to go ahead with the project, given the political and regulatory uncertainty. From a business owner perspective, CEO perspective, maybe just your views on the investment climate there and the sentiment in Alberta right now.
We're seeing record diversification. As we have seen historically, in any kind of resource down cycle, our economy gets more diversified, very similar to what happened in Denver and even in Texas. There's always a silver lining to every cloud, and diversification is definitely one positive. We're seeing more sustainable growth as a result as well. We've got both major cities of Calgary and Edmonton much, much bigger than historically they were in the '80s. There's a urbanization ratchet effect that urban economists have discovered many decades ago. When a city gets to a certain size, it experiences what's called the ratchet effect, and that's as a result why we continue to grow. We're seeing market share growth as a result of our brand diversification. We're moving ahead, and we're gaining ground in every effort that we're doing.
We're all about figuring out what to do with the chips that we have to play with. We really can't thank our team enough for the innovation, the thinking outside the box, and the blood, sweat, and tears that we're all pouring out to deliver exceptional performance in a really, really tough economy. What happens in a better economy is pretty obvious. When the resource sector does turn around, because we continue to consume fossils, and it's necessary as a bridge to a more sustainable and renewable energy future. When that happens, and when further diversification kicks in, we'll see even better results, and we'll be extremely well-positioned with the best team and culture and brand that we've ever had. We're moving ahead, with or without Teck.
Great. Okay. That's very helpful. Thank you. I'll turn it over.
Thank you. Ladies and gentlemen, as a reminder, if you do have a question, please press star followed by one on your touch-tone phone. Your next question will be from Mario Saric at Scotiabank. Please go ahead.
Hi, good morning.
Good morning.
Just focusing on the guidance, the 4%-7% same-store NOI guidance. Are you able to break that down between same-store revenue and same-store expense growth?
Historically, again, our strategy on the revenue side, Mario, is 4%-8% on renewals and new leases. I'd probably argue that it's fair and reasonable to say roughly 4.5% revenue top-line growth. Again, obviously, the difference coming due on the expense side. Again, we are really working hard on the controllable expense side, which represent about 50% of the total expenses in place. We are very optimistic that we're going to be able to do better than we think. We do know, and as James really highlighted, there's going to be upward pressure on property taxes. Utilities, not as much. The more upward pressure there is going to be on the carbon tax being replaced back on Alberta. We don't see massive growth there, but there will be upward pressure. That'll get you down to roughly the range we're looking at.
Got it. It still sounds like you're expecting a bit of margin expansion.
Yes, we are. We are anticipating continued margin expansion because our revenue numbers are going to grow faster than our expense numbers are.
Okay. Just on the revenue numbers, I'm just trying to get a sense of your confidence in those figures. WTI is almost down 30%, I guess. I haven't checked in the last five minutes in terms of what's happened. Down quite a bit this year. How does the sudden drop in the oil price kind of impact your confidence or your ability to shave off the half month to a month of incentives per year?
The history is really clear. In a really tough economic environment, there's a real increased demand for affordable housing. We're certainly seeing that and have been seeing that over the last several years. We have seen a market share growth as a result of a flight to affordability. We continue to experience that along with more stringent mortgage qualification rules. We've had amazing January and February rental months. We've rented far more rentals in the middle of frigid January, which will have revenue effects in February, and we're renting way more than move-outs in February, which will have positive revenue numbers in March. We're seeing a very strong response in January and February to rentals, and we're really encouraged as a result of the rentals that we're currently seeing. We're very well-positioned as a result for a strong seasonal spring. That's typical.
We're seeing occupancy rise in the middle of winter, which is a reflection of the, again, phenomenal performance that our team. We can't thank our team enough for the innovation and the blood, sweat, and tears and the value-add repositioning and the brand diversification. We've got a lot of choices, and we can compete with everybody in the marketplace, especially with the brand-new product, too, that we've introduced with our Brio and our partner, RioCan, in the Northwest. Really exciting brand-new product, a very unique product, larger unit sizes, and it's a lot different than the brand-new product that was recently introduced in that area. We're already having great response from that. Renting's back in because of the flexibility that consumers need because of the uncertainty.
The last thing that an uncertain individual needs is a fixed mortgage and location that's very expensive to move if there's a change in job. That's still a big reason why we're doing so well and gaining market share in this marketplace. New migrants as well, Mario, are another big source of new renters. When a new Albertan or Canadian comes in, they typically rent. So we're seeing good response and demand from migrants, and we're working very close with the communities that are welcoming new Albertans and Canadians to be on top of their list as to where to live.
Got it. Okay. Your 4%-8%, given kind of the commentary on the brand and the evolution of the brand and stealing market share.
Fantastic success with it. We've seen some of the benefits of it in 2019. Obviously, once we get to March, April, we would've had a full year of turning all of our residents onto the program. On the CAD 170 million, you're absolutely right. It's a 200 to 400 basis point swing as a result of the program onto that CAD 170 million. We expect that to be fully stabilized for 2021.
Sorry, for 2021?
Correct. Yeah. There is some benefit here in 2020, likely on the lower end of that range. Once we get into 2021, we believe we can be or strive to meet the top end of that 200 to 400 basis point range for Alberta NOI.
That's great. Thank you. I just wanted to take the opportunity to wish Rob and William well in their next stage. Congratulations.
Thank you very much.
Thank you, Mario.
Thank you. Ladies and gentlemen, once again, if you do have a question, please press star followed by one on your touch-tone phone. At this time, Mr. Ha, we have no other questions, so I would like to turn the call back to you, sir.
We would like to end this call by thanking our amazing team, loyal residents, and all our stakeholders. We are pleased with the improving rental market fundamentals, the exceptional value we continue to provide our residents, our investors, and for the continued great service from our team. We would again like to thank both Roberto Geremia and William Wong for their invaluable contribution, where we will forever be grateful. Thank you again, everyone, for joining us this morning. God bless.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines. Have yourselves a great weekend.