Good morning, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust Fourth Quarter Results Conference Call. Also note, the call is being recorded today, Friday, February 28, 2020. And I would like to turn the conference over to James Please go ahead, sir.
Thank you, Sylvia, and welcome to the Boardwalk REIT 2019 Q4 results conference call. With me here today is Sam Colias, Chief Executive Officer Rob Jeremiah, President William Wong, Chief Financial Officer Lisa Russell, Senior Vice President of Corporate Development and Lisa Spannage, Chief Accounting Officer. Note that this call is being broadly disseminated by way of webcast. If you have not done so already, please visit bwalkdot com/investors, where you will find a link to today's presentation as well as PDF files of the Trust's financial statements, MD and A and supplemental information package. Starting on Slide 2, 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 the phone lines for questions. I'd like to now turn the call over to Sam Colias.
Thank you, James, and thank you everyone for joining us this morning. Starting on Slide 3, we are pleased to continue building on our track record with our 7th consecutive quarter of growth in FFO per unit, delivering 16.7% growth in FFO per unit for the 4th 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 4 provides a summary of our results with total FFO and AFFO growth of 17.5% 20.9% for the Q4, 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 5, 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 $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 6, 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 Q4, Edmonton rail market fundamentals continue to improve and stabilized NOI growth jumped ahead of Calgary for the 3 and 12 month periods. Our focus on a carrying 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 percent of 4th box 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 7, 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 5th 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 1 of the highest average weekly earnings in Canada. BMHC 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 8 shows our strategy of reengineering our corporate culture 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 1 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 Jeremiah.
Thanks, Jim. Moving on to slide 9. Boardwalk continues to target 4% to 8% increases on new and renewing leases in our non rent control markets of Alberta and Saskatchewan. As is shown on slide 9, our reported results are in line with our seasonal expectations. For 2019, the Trust achieved an average of 4% increases on new leases and six percent increases on lease renewals.
For our rent control 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 to positive trend. Total revenues continue to increase as it has been for the past consecutive 8 quarters. And with the high 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 to continue to be overall trend of positive postings. The Trust's 4th 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 percent 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 these for our communities. At the end of December, we have completed approximately 24% of our amenity and common area upgrades. And as we always have, we have been 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 upgrade the leasing and the lobby with a strategic investment of $30,000 Upon completion of this investment, we adjusted market rents just by $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'd 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 Burillo, 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 21. 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 1, 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% to 5 percent with anticipated rental rates of $2.45 to $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 2 tower 365 unit development remains planned for 20222023 respectively. Battlewood Square in Mississauga, Ontario is our 2nd joint venture partnership with RioCan. Our initial zoning application for a 16 and 25 storey mixed use development was received positively and the partnership 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 undersupplied 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 Slide 17 highlights Boardwalk's liquidity position at
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 line of credit. Boardwalk's liquidity of approximately $258,000,000 represents 9% of the Trust's total debt. Debt net of cash was 47% of December 31 reported asset value. The next slide, 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, are backed by the Government of Canada and enjoy advantageous interest rates on renewal. Based on a rolling 4 quarter basis, interest rate coverage improved to 2.76 compared to 2.74 at the end of Q3 and 2.68 times 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 $519,000,000 of mature or maturing mortgages at a weighted average interest rate of 3% while extending the term maturity to 8 years. In addition, Boardwalk paid off $12,600,000 mortgage upon maturity.
In 2020, approximately $318,000,000 of mortgages are set to mature with a weighted average interest rate of 2.52%. To date, we have renewed or forward locked $41,000,000 at a new weighted average interest rate of 2.35 percent for an average term of 8 years. Boardwalk has also added $23,000,000 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 3 months.
Continuing with strategy of capital allocation optimization, for February, March April record dates, Boardwalk is maintaining its distribution of $0.0834 per trust unit, which equates to an annualized basis of $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 UHU 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 20 fourseven 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 has been strong penetration today. The Trust estimates that once fully stabilized, the Trust 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. The 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 $2.65 to $2.80 and AFFO per unit results to range between $2.25 to $2.40 per trust unit excluding one time non recurring retirement costs anticipating in the Q2 of 2020.
Additionally, the trust expects to invest between $175,200,000 to 194 $1,000,000 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 Jeremiah and William Wong for the 26 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 And the first question will be from Brandon Abrams at Canaccord Genuity. Please go ahead.
Hi, good morning.
Good morning, Brandon.
Just 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. So I'm just wondering if you had any color there?
Hey, Brendan, it's James here. You're absolutely right. And 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. So when we look at Calgary and Edmonton, the dynamic that we're seeing is increased assessed values for purpose built rental combined with flat slightly down assessments for single family homes. The net result of that is purposeful rental is taking a bigger portion of the residential property tax pool.
And 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, I mean, 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.
But 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.
Bren, it's Robert. Just to add on to Gene's 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. So 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 Apartment Association, with all other Calgary Apartment Providers that are having great discussions with the City of Calgary and there's already been some flexibility and we've already realized less increases than what originally was contemplated. And so we're very pleased with the friendly discussions we're having with our municipal civil servants and our Calgary Apartment Association and all Calgary Apartment Providers. So we're very happy in the efforts we're all making to control or uncontrollable through friendly discussions.
Right. Okay. Yes, that's very helpful. Just taking a look at the loss to lease calculation in the MD and A, and it looks like Quebec and Ontario, fairly significant mark to market opportunities, dollars $10,000,000 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?
Vernon, it's Rob. Ontario has actually decreased our turnover. We're down to about 14% from 17% the year before. And Quebec is staying about the same. So we're able we're getting a little more aggressive in the Quebec market to be able and plus on but 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, but you have to balance it off as there is a maximum you can give every year on those. 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. But the good news is when they're approved, we were they understand that we are have increasing costs. We've invested back into our properties and they understand the expectation of getting return.
Right. Okay. And then just last question before I turn it over. And Sam, I don't want to get you in trouble here necessarily, but I mean we had the Frontier decision by Teck Resources earlier this week, deciding not to go ahead with the project given kind of the political and regulatory uncertainty. I just from a business owner perspective, CEO perspective, maybe just your views on the investment climate there and kind of 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. And so there's always a silver cloud to a silver lining to every cloud and diversification is definitely one positive. We're seeing more sustainable growth as a result as well. And we've got a city, both major cities of Calgary and Edmonton much, much bigger than historically they were in the 80s. And so there's a urbanization ratchet effect that urban economists have discovered many, many decades ago.
And 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. And 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. And so we're all about figuring out what to do with the chips that we have to play with.
And 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 and 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 and we'll be extremely well positioned with the best team and culture and brand that we've ever, ever had. So we're moving ahead with or without check.
Great. Okay. That's very helpful. Thank you. I'll turn it over.
Thank you. And 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% to 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, was 4% to 8% on renewals and new leases. So I'd probably argue that it's fair and reasonably to say it was roughly 4.5 percent revenue top line growth. And then again, obviously the difference coming due on the expense side. But again, we are really working hard on the controllable expense side, which represents about 50% of total expenses in place. So we are very optimistic that we're going to be able to do better than we think.
But 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. So we don't see massive growth there, but there will be upward pressure. And that will get you down to roughly the range we're looking at.
Got it. So it still sounds like you're expecting a bit of margin expansion?
Yes, we are. We are anticipating continued margin expansion with because our revenue numbers are going to grow faster than our expense numbers are.
Okay. So 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 5 minutes in terms of what's happened, but down quite a bit this year. So does 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 is a real increased demand for affordable housing. And we're certainly seeing that and have been seeing that over the last several years. And so we have seen a market share growth as a result of a flight to affordability. So we continue to experience that along with more stringent mortgage qualification rules.
And we've had amazing January 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 move out than move outs in February, which will have positive revenue numbers in March. And so we're seeing a very strong response in January 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. And we're seeing occupancy rise in the middle of winter, which is a reflection of that again phenomenal performance that our team again, 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. And 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, very unique product, larger unit sizes and it's a lot different than the brand new product that was recently introduced in that area. And so we're already having great response from that. And renting is 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 is a change in job and that's still a big reason why we're doing so well in gaining market share in this market place. New migrants as well Mario are another big source of new renters. When new Albertan or Canadian comes in, they typically rent. And 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.
Okay. Your 4% to 8% given kind of the commentary on the brand and the evolution of the brand and stealing market share?
Fantastic success with it. So we've seen some of the benefits of it in 2019. Obviously, once we get to March, April, we would have had a full year of turning all of our residents onto the program. On the $170,000,000 you're absolutely right. So it's a 2 to 400 basis point swing as a result of your program onto that $170,000,000 Now we expect that to be fully stabilized for 2021.
Sorry, for 2021?
Correct. Yes. There is some benefit here in 2020, likely on the lower end of that range. But 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. And 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. And at this time, Mr. We have no other questions. 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 Jeremiah and William Wong for their invaluable contribution where we will forever be grateful. Thank you again everyone for joining us this morning and 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