Good morning, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust Second Quarter Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, August 15, 2019. And I would now like to turn the conference over to James Please go ahead.
Thank you, Joanna, and welcome to the Boardwalk REIT 2019 Q2 results conference call. With me here today is Sam Colias, Chief Executive Officer Rob Jeremiah, President William Wong, Chief Financial Officer Tissa Russell, Senior Vice President of Corporate Development and Lisa Spannage, our Chief Accounting Officer.
Note that this call
is being broadly disseminated by way of webcast. If you have not already done so, please visit bwok.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 as well as 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. Additional 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 Collis.
Thank you, James, and thank you, everyone, for joining us this morning. Starting on Slide 3, we are pleased to report on another solid quarter in 2019 delivering 13.3 FFO per unit growth for the 2nd quarter and 14.8% for the first half of the year. This marks our 5th consecutive quarter of FFO growth with continued positive momentum as rental market fundamentals in our core Alberta markets continue to improve and our team continues to deliver exceptional service, product and experience. Total revenue growth was 4.6% for both the 3 6 months of 2019. As we continue to focus in on peak performance, we believe Boardwalk offers exceptional value, which currently trades at a significant discount to our IFRS, NAV and recent sales transactions.
At $42 trust unit, the implied value of Boardwalk's high quality overall portfolio equates to approximately $149,000 per apartment door. Boardwalk has recently sold a non core asset in Saskatoon for $150,000 per apartment door, allowing us to access equity at well above our IFRS equivalent unit price. Recent transactions in Calgary and Edmonton have averaged over $200,000 door. Further, replacement costs are significantly higher than these apartment trading prices. Our exceptional value provides opportunity for our partners and stakeholders as we continue to focus in on delivering solid growth.
On Slide 4, 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 balance. Major refining, upgrading and oil transportation investments were made earlier in the year along with the approval of the Trans Mountain pipeline in the recent quarter. The Alberta economy continues to diversify along with increased international migration continuing to increase the population and demand of housing.
Grande Prairie has already seen benefits from an improved economy and continues to move into a strong rental market, almost fully occupied with the strong demand for rentals. Fort McMurray remains in a soft rental market. Red Deer continues to see significant improvement as a result of our successful value add investment in this region. Calgary rental fundamentals remain ahead of Edmonton, which continues to make measured gains. Improving rental market fundamentals continue in our core Edmonton and Calgary markets as we are in the middle of our stronger summer season.
Our focus on a carrying peak performance culture along with significant value add capital investment made earlier in Calgary has produced an NOI gain of 8.9% and reflects a successful strategy of our value add product diversification, which is delivering significant gains in NOI. We continue to apply our value add lessons into our Edmonton market with much lower costs for better gains in NOI this year. In the 1st 6 months of this year, NOI in Edmonton grew by 4.2%. Our Saskatchewan region continues to remain in a softer rental market with green shoots of higher occupancy and revenue. We are focusing in on targeted value add capital improvements and increasing our operating efficiencies, which should provide a positive NOI growth in the foreseeable future.
Ontario continues to deliver solid results as we increase investment and adjust our pricing to market levels in order to better position and compete with new supply. Quebec rental market fundamentals have improved and our sequential revenue for the last quarter has increased by 0.2%. Slide 5 highlights a number of positive economic trends supportive of rental demand in Alberta. Some highlights include continued positive net migration, positive labor growth year over year despite lumpy June's positive numbers and July's negative numbers, economic diversification with increased AI investment in Alberta, CMHC rental market fundamentals improving and increasing affordability for the renter demographic. The Alberta economy continues to evolve and we are finding new and innovative ways to deliver performance and increase our market share in this different economy.
Slide 6 shows our strategy of reengineering our corporate culture and team to deliver the best product, service and experience building on our brand. Our three sources of growth are organic, value add, brand diversification, expansion, recycling, high grading and geographically diversifying, building upon our solid financial foundation further, which in turn produces unitholder value. I'd like to now turn the call over to Roberto, Jeremiah. Rob?
Thanks, Sam. As is shown on Slide 7, Boardwalk delivered another solid growth quarter. For the 2nd quarter, the Trust posted FFO and AFFO growth of 13% 16% respectively and for the first half of the year FFO grew by 15% with AFFO growth of almost 18%. On a same property basis, the Trust continued to report NOI growth in excess of 5% both for the current quarter and on a year to date basis. More detail on this will be provided in the upcoming slides.
Moving on to Slide 8, Boardwalk's rental and renewals continue to show strong growth. Overall, Boardwalk lease renewals and new lease increases continue to be in line with our overall target range of between 4% to 8%. The decline noted in the overall portfolio for July is directly related to the renewals in Quebec. Renewals in this province are heavily weighted in the month of July as compared to of the portfolio. As these renewals are subject to rent adjustment restrictions, the impact was a short term reduction in Trust's overall renewal rate for July, which will correct itself in the upcoming months.
Our overall new leases continue to show above 5% growth on the entire portfolio. Consistent with our overall strategy, our focus in the summer months is on increasing our occupancy levels and reported renewal rates are in line with our internal expectations, which have traditionally been lower in summer months and increasing as we go forward into the fall rental season. Slide 9 shows more detail on Boardwalk's stabilized portfolio. Boardwalk's Alberta portfolio for the current quarter reported NOI growth in excess of 8.4%, slightly above the 8.1% our Ontario portfolio posted. Our Saskatchewan portfolio is beginning to show improvement but was subject to an extraordinary cost resulting from a flood at one of our buildings which still reported increase in the expenses in this region.
Slide 10 shows Boardwalk's quarterly sequential revenue growth. Once again, current quarter results continue to the overall trend of posting growth in excess of 1%. Q2 reported growth of 1.3% as compared to the previous quarter. Slide 11 focuses on key revenue metrics. Overall, occupancy levels are well above 96%, while our occupied rents continue to rise.
Vacancy loss was consistent with prior quarters. However, we saw a material reduction in overall incentives and on an average incentive outstanding, we saw a distropped by over 5% in Q2 as compared to Q1. Boardwalk continues to target its value added investment program to increase the overall experience offered to our existing resident members. We continue to look for ways to deliver these programs in more efficient and cost effective ways. Slides 1213 highlight 2 of these value added projects.
Slide 12 shows an investment of $215,000 we made at Whitehall Square, a 600 unit apartment complex community located in Edmonton, Alberta. Upon completion of this project, we adjusted overall rents on 3.45 high rise units at the site, which were directly impacted by this renovation by as little as $20 per month, showing an estimated annualized stabilized return in excess of 38%. Slide 13 is another example of a more modest investment of $51,000 made on one of our living communities in Edmonton. Upon completion of this project, we adjusted market rents on all 91 units by only $10 per month and on a stabilized basis are expecting an annualized return over 21%. Boardwalk each community.
We believe there are a number of additional communities within our portfolio where renovations at these more modest levels will result in returns as we have noted. It is our intention to continue with this program in a measured basis. Let's turn the call over to Lisa Russell now who will discuss will update us on our development program. Lisa?
Thank you, Rob. On Slide 14, we are pleased to announce the unconditional sale of Chancellor Gate, 138 non core low rise asset in Saskatoon. The sale price of $20,700,000 equates to $150,000 per door, which is a premium to the IFRS value the trust recorded for the asset. This transaction is expected to close mid September. The sale of non core assets at a premium to the trust IFRS value and recycling towards higher quality assets with superior returns provides an excellent source of equity capital for the trust to high grade and geographically diversify its slide 15 and in line with our goal to geographically diversify over the long term, we are pleased to announce the continuation of our strategic partnership with RioCan through a 50% joint venture interest in a new mixed use development in the GTA.
The site is well located in an established community in Mississauga, Ontario, a high growth undersupplied rental market where current market vacancy is below 1% with limited purpose built rental units currently under construction. The median price for a single detached home has risen to just under $1,000,000 highlighting the rising cost of homeownership. Plans submitted for rezoning included 25 and 16 storey mixed use development totaling an estimated 4 70 residential units. In the preliminary design, the residential units connected by a retail podium and three levels of underground parking. This development will be located on a discrete portion of land at RioCan Sandalwood Square Shopping Centre and provide premium rental housing in a transit orientated location along Huron, Ontario Street near Square 1 Shopping Centre with easy access onto the 401, 403 and 407 highways.
The LRT line is expected to open in 2022. RioCan and Boardwalk are in the early stages of creating development plans and subject to zoning approval and confirmation of total buildable area, the total purchase price for the Trust 50 percent interest is $14,900,000 or $80 per square foot buildable. Zoning approval for this development is anticipated in early 2020, which coincides with the completion of Brio, RioCan and Boardwalk's 1st joint venture development in Calgary. This will be Boardwalk's 2nd development in the Greater Toronto Area. Both Mississauga and our Brampton development are located in the Peel region, which is forecasted to be one of the fastest growing regions in Ontario.
Slide 16 provides an update on our current development. Rio is a premium 12 storey concrete 162 Unit mixed use project that is being developed in partnership with RioCan. The exterior envelope is generally complete with landscaping expected to be completed before winter. The interior is progressing rapidly with painting and finishing well underway. Occupancy is estimated to be Q2 2020, which is a seasonally optimal leasing period.
45 Railroad, which is located in the Peel region is a mixed use development consisting of 25 and 27 storey concrete towers connected by 3 storey podium with approximately 11,000 square feet of retail space. This development is located near downtown Brampton and directly across from the GO transit station. Shoring is now complete, Foundation slabs, concrete forming and pours have commenced on P3 level. Estimated construction completion of Tower 1 and Tower 2 to be 20222023 respectively, with stabilization of the entire development occurring in 2024. CMHC is reporting approximately 1% vacancy in this market.
Brampton is also seeing a high barrier of entry into homeownership with a median single detached house price close to $810,000 Timing of Boardwalk's current development projects are well staggered. Rio and Calgary is anticipated to be completed in Q2 2020, allowing the trust to transition resources and capital to Sandalwood Square in Mississauga with current estimated construction likely to commence in late 2020 or early 2021. 45 Railroad in Brampton remains on schedule for completion in 20222023. I would now like to turn the call over to William Wall.
Thank you, Lisa. Slide 17 highlights Boardwalk's liquidity position at the end of the second quarter, defined here as cash on hand, committed up financing subsequent to the quarter end, plus the trust line of credit. Boardwalk's liquidity of approximately $234,000,000 represents 8% of the trust's total debt. Debt net of cash was 48% of June 30 reported asset value. Boardwalk's interest service coverage based on a rolling 4 quarter basis improved to 2.7 times.
Slide 18 shows Boardwalk's mortgage summary since the start of the 2019 year. As the slide shows, the Trust has renewed or forward locked approximately 443,000,000 of maturing mortgages or 84% of maturing mortgages for the year at a weighted average interest rate of 3.1% while extending the term maturity to 8 years. Included is a November 2019 single mortgage on the Trust's 3 Unit Nuns Island portfolio at a new rate of 3.27 percent for a term of 8 years. Boardwalk has also added close to 81,000,000 of new financing and a weighted average interest rate of 2.77% for close to 7 years. Current five- and 10 year CMAC interest rates continued to decline from 2.3% and 2.5% respectively to approximately 2.2% to 2.1% currently.
Next slide shows Boardwalk's announced distribution for the next 3 months. Continuing with the strategy of capital allocation optimization for August, September October 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 Colias for closing commentary and remarks. Sam?
Thank you, William. Moving on to Slide 20, our results in the first half of twenty nineteen were on the top end of our original expectations. We are reiterating our stabilized building NOI growth guidance of between 4% to 9%. However, our increasing the bottom end of our FFO guidance from $2.35 to $2.45 per trust unit. Additionally, we are raising the upper end of our FFO guidance from $2.50 to $2.52 per trust unit.
Our resulting AFFO range has been revised to 1.98 dollars to $2.05 per trust unit. We are increasing our development investment from $44,000,000 to 55,000,000 dollars to include the most recent addition of our new RioCan JV in Mississauga. Including on Slide 21, we are proud of the progress and accomplishments our team has made since coming from what has been a multi decade cycle low of exceptional rental affordability and value. Our recent financial results reflect our newer engineered culture and brand and our residents are rewarding us with higher retention, higher occupancy and higher rental revenues. Our team is always innovating and looking for new ways to improve our operating efficiency and maximize our returns.
In turn, we are delivering improving results and establishing a new track record of growth. Our outlook is positive as affordability underpins our core Alberta markets with rental rates currently equivalent to approximately $1.35 per square foot. Migration and population growth is continuing in Alberta while new supplies remain fairly balanced. Our resident friendly strategy of providing the best product, service and experience, as well as sustainable rental rate adjustments through improving rental market conditions has set Boardwalk apart as we strive for multiple years of organic growth. This concludes our formal part of our presentation.
And we would like to kindly ask our operator, Joanna, to now open our conference call to questions, please.
Thank you. Ladies and gentlemen, we will now begin the question and answer And the first question is from Mike Markidis of Desjardins. Please go ahead, Mike.
Thank you and congratulations for the very strong quarter. Just looking at your new guidance, it would have seemed to me at least that you guys are still maintaining a fairly optimistic view. So I just look at your first half of this year and multiply by 2 that would get to the midpoint of your guidance. Is there something specific that's keeping you maybe cautious about the outlook specifically or is there something one time in the current quarter that I'm missing?
Hi, Mike, it's Rob. No, I think when we originally did our NOI guidance range, we were very optimistic on the top end and conservative on the bottom end too. So what we looked at again ran all the variables over again through all the variables in there. So it's really nothing in there that we thought. It's going to be very and but achievable for us to hit the high end of our guidance range given the fact that we're at 5% for the 1st 6 of the month.
But there are some things lining up for us that gives us an opportunity to actually hit that high end as well too. So no, we're not expecting anything, any big surprises in the last half of the year at this point in time. We are a little bit cautious with respect to Q4 in utilities. That's always one that you never know for sure about, but we built that risk factor in as well too. Okay.
On the G and A side of things, you had a pretty significant sequential decline this quarter. And I know that that's one that's been sort of lumpy just with the reallocation of expenses going to the new asset manager model, etcetera, etcetera. So going forward, would the current quarter be a good run rate or is there still some adjustment to be felt?
I think there will probably be a little bit of adjustment going forward. But I think what's happened with the G and A number is we really spent a lot of time in the last 6 to 12 months trying to fine tune the system to make it better. And we're starting to really see the benefits right now above that. So I'm always cautious to say that's a run rate moving forward because there's always a different pay period over time, but we are seeing and witnessing a material reduction in that category particularly and that's been factored into our guidance as well.
Okay. I guess stated alternately, I mean, obviously there can be things that have been flow. But is the streamlining finished or do you still have further sort of more efficiencies to gain?
Mike, we're constantly looking for ways to improve our efficiencies and we have to give all our credit to our team because we ask our team who's on the job all the time and who knows where the savings are better than we do. And we really do have to give credit to our team, because that's the question we ask continuously of everybody, where can we continue to improve because we can always get better. And our team continues to find ways to improve our efficiencies, lower our costs, while maintaining our great service products and experience. There's lots of innovative and creative ways to cut costs now while maintaining our service levels and experience. And so we're very excited with the innovation and creativity that our team is really working hard on to remove friction in administrative processes and to increase efficiencies with new innovative ways and using new tools that are available to us to do just that.
So that's going to continue going forward. We're constantly working on ways to improve and we're working on a lot of exciting ways to do that. Bill.
Okay, great. Last one for me before I turn it back. Just on your minimum distribution, maximum reinvestment policy, just given where your results are trending, where do you guys see yourself in terms of your tax situation and potential trajectory of the distribution as we move forward?
We're managing that very carefully and we don't see any kind of surprises on.
Yes. And this is William. We always look at our distribution policy on a quarter by quarter basis and we'll be refining that as we move forward.
Okay.
We have stress tested a bit too, Mike, as well. So we looked at 2019 given our results today and stress tested base over that. When we provide 2020 guidance, we'll obviously provide you a distribution update as well too. But we're very happy with what we are and we're well, again, we'll stress we have one more quarter, we will be stress testing it again in Q4 just to make sure we're not off somewhere.
Okay. That's great. Thanks very much.
Thank you.
Thank you. Your next question is from Dean Wilkinson of CIBC. Please go ahead, Dean.
Thanks, Joanna. Good morning, everyone.
Good morning, Deane.
Just looking at the rent changes on the prior leases in Alberta, the last couple of months, it looks like your renewal rents came in a little better than the new. Is that just a function of less incentives for tenants that are rolling over versus bringing new bodies in? Or is there some other dynamic kind of going on there?
It's a combination of both, Dean. It's a combination of we're passing on the new costs on our renovation program also to the new customers as well too, while we're measuring it against the current market conditions. So they will ebb and flow a bit between the 2 on a regular basis, so they really aren't consistent. But I think the important point we're trying to get here is traditionally in the summer months, we do see a slowdown in retention increases just because we really focus heavily on occupancy. And when we go into our real strong rental months being the fall, we want to be as full as possible.
So we'd have even more pricing power both on renewals and on new leases for the rest of the year.
And does some of that feed into sort of your back to back turns and not losing as much time on that or?
Dean, it's Sam. And the back to backs are improving, which reflects our successful renovation program, especially with our curb appeal experience centers and common area renovation programs that are really increasing the curb appeal and the demand of our communities. And as a result, we're seeing higher back to backs, but we're also engineering a more smooth, sustainable recovery with respect to our rental revenue in that our targets are between 4% 8% and we've got goalposts now for each and every community where there is clear direction as to where we want to end up each and every month. And so, we have to again give all the credit to our team because the ball is going in between the goalposts and that's between 4% 8%. So our team continues to score positive growth going forward and providing us with much better results.
So that's the approach we're taking. And again, it's very measured, it's engineered, it's gradual and it's very resident friendly.
There's something to be said for your interior designer,
right? I gave her all the credit.
Yes. Well, there you go.
I had to love to have that one.
She's listening, Dean.
Yes. I don't doubt that. On the issue of the joint ventures and I mean it's good to see you sort of partnering up again with your same joint venture partner on that Sandalwood deal. Have you had a larger discussion with them seeing how your expansion targets seem to be somewhat aligned as to maybe a larger portfolio approach to that joint venture? Or is that something that's probably just going to still be more one offs and you would roll one into the other?
Or could you see something a little bigger coming from that relationship?
We started many years ago with breakfast really with Eddie Sunshine and our goal from the first breakfast a few years ago was to be RioCan's best partner period and vice versa on Eddie and Jonathan's and the whole RioCan team, we have to really credit for being amazing partners. And that's really been our primary focus where we create value for one another. And that we believe will be a more strategic way to determine what we're going to do in the future. We are really excited with the results of the Brio. We shopped a couple of brand new developments yesterday actually and the day before and last week where one of the 400 units that was brought onto the market a few months ago is 85% rented at rental levels close to $3 a square foot.
There was a new community that just came on the market in June, a block away from our head office. So it's no excuses not to shop that community. And that's already 40% rented. And so we're so pleased to see the rental market improve in Calgary and Edmonton as well. The new Insignia community that we built or that we bought that was just built, we're seeing exceptional lease up opportunities as well and great demand for new product and newly repositioned and value add product as well.
And so we're very pleased with how things are going with our new development and we're excited to complete Rio and start a new development with RioCan and we're going to take it day by day. And the more value we create, the more success we have. I'm sure that's the best way to take our partnership and the approach and we'll see what the future holds as a result of that approach.
No, it's good. I mean, it's a good partnership. So hopefully it's something that continues to grow. It is. That's it for me.
I'll hand it back. Thanks, everyone.
Thanks, Dean. Thanks, Dean.
Thank you. Your next question is from Jonathan Kelcher of TD Securities. Please go ahead, Jonathan.
Thanks. Good morning.
Good morning. Good morning, John.
Just turning back to Slide 8, I would estimate that overall it looks like you're about 3% in July and I know 4% to 8% is a goal. Do you think I get that the summer months are a little weaker. Do you think that you guys can get there at least to the low end of that for Q3?
Yes, Jonathan, it's Rob. I think the 2.4% you're seeing there for July, the key issue there is Quebec. And in particular, we had a probably on the renewal side, almost 40% to 50% of our renewals were from the Quebec market. Traditionally, July is the big renewal month and move out month in Quebec to the point where our team goes crazy for a couple of days because there's so much going on. If you wait adjust that for the rest of the portfolio, you'll see we'll be well above that and well within our target range.
So I tried to highlight that in my note is if you strip out the Quebec portion, remember on renewals in Quebec, it's rent controlled. You don't have a lot of stuff you can do above guideline controls there. So that really drew it down. If we were to adjust it for that, you would have probably seen again. If look at just the Alberta on the left hand side, it was 44.9.
When you compare that to the 5.3 we had on new leases on the tire portfolio, our renewals would probably be above the 4.9 you see in Alberta. So once we adjust that, that's the key point. Number 2 is, we're heading in out of the summer months down into our stronger rental months in the fall. So we anticipate and we've seen this in the past over a number of years, our renewal rates and our new lease rates increased dramatically as well too. So again, back to that 4% to 8% range, once we have occupancy levels higher than they are today, even stronger, even gives us more pricing power.
So but again, to Sam's point, which is very, very key. We're targeting the 4% to the 8%. We want to be very customer friendly, but yet we're very happy with that range as well too.
Okay. So it does sound like you can get there for at least a low end there for Q3?
Yes. We think if you again if you strip off Quebec and that's sort of a 1 month vacation, Quebec will go back to regular where it is now.
Yes. And then overall, it should be it should at least at the low end even with Quebec in there.
Yes. We will still be well above the low end to be honest with you and on total, but once we've adjusted for the occupancy pickup, we know we're going to get in the summer and the strong rental Q3 we usually normally have as well too.
Okay. Where do you see incentives trending the next couple of quarters? They're down nicely quarter over quarter this in Q2?
Jonathan, good question. We again look at incentives as just part of the way we manage our revenue. And so we want to emphasize and stress that our revenue targets are between 4% 8%. And how we get there is a multitude of options and levers and incentive reduction is one of those. We've started to share the amazing value that and the deal and partnership we have with TELUS with our residents and we pass along exceptional value for Internet and cable services to our residents and are recovering those costs.
And that's another great source of revenue. Many of our communities, we're now expenses that we need to invest back in our parking lots and parkades and landscape. And so that's another source of revenue that we're realizing is an opportunity that we haven't really in the past. And we're really looking at each and every community with an asset management approach. We compare it with the entire community and all our competitors and we reverse engineer the best performance for each and every community that we work with our entire team to be able to accomplish and make sure that each and every community is operating at its optimum potential.
Okay. That's helpful. And then the last one for me, just on the operating costs side, particularly in Alberta. I'm sure you saw your peers reported pretty elevated costs yesterday in Alberta. Can you maybe just walk us through what you're seeing?
And if I believe Q3 is typically a changeover in property tax and maybe give us a little bit of guidance on that?
That's correct, Jonathan. On the property tax side, July 1 when the new numbers actually hit. So we are anticipating an increase of about 3% or 4%. But we'll be the good point is with James leading our property tax, we're actually expecting to come in below budget this year. So we're going to be happy on that.
So yes, there will be some upward pressure in the latter half of the year on property taxes. On the costing side, to be honest, honest, I can't underemphasize what Sam said. Our team is coming up with ways to save costs, to do stuff that we could never think of. They've just come up with new strategies and new ways to do it. And all the stuff we've invested over the years, last couple of years are really starting to pay off now like so the lower turnover cost because we renovated 2 years ago.
The fact that we're doing lobbies and pushing it all the stuff, it's making them more cost effective to maintain even. So it's really not one issue that's lowering costs. All of these put together, our rental and renewal specialists are doing a phenomenal job keeping our turnover down yet still getting the 4% to 8% growth on the bottom line on top line revenues as well too. So we are very proud of what they're doing. We continue to there probably will be some upward pressure on some of our operating costs going into Q3.
We understand that. But in general, we are trending in the right direction and we continue to look even more savings.
Okay. Thanks. I will turn it back.
Thanks.
Thank you. Your next question is from Mario Saric of Scotiabank. Mario, please go ahead.
Hi, good morning.
Good morning, Mario.
I think if we're learning anything this morning is that your slide deck moved from 69 slides to probably about 5.
Sorry, Mario, we can't hear you. Sorry, can you
Sorry, is that better?
Yes, please. Thank you.
Yes. I was saying, I think if we can learn anything from this morning, it's that your slide deck can go from 69 slides, probably to about 5, with the focus on Slide 8 in particular. So I'll go there as well. On the renewals and the rentals, do you have last year's equivalent numbers for May, June July?
We do actually have them. I think last year is a little bit of an anomaly year to focus on. But what we did see last year on renewals and I'm going off, I looked at them yesterday, we were roughly where we are today on the renewals, but then we saw October, November December spike up to close to the high end of our renewal range. But it isn't just for last year. If I go back a couple of years, I see the same kind of trends.
Okay. I'm just trying to understand the trend that we saw in May, June, July and when you open the commentary.
Yes. If I strip out the Quebec impact of July, what the number will be? I will get that number and try to do something with it. But you'll see I'm pretty confident to say that if we strip that renewal number out. And if you look at the I guess Sam mentioned on the sequential revenue in Quebec being a little lower than our average, I think that you're going to see that number come up in total.
So again, focus on occupancy is the key, but we're not we're still within our 4% to 8% range.
Yes. I'm sorry, I was thinking more on Alberta in particular. So like when I look at the trend line of the bars in May, June, July this year, I guess you're saying you saw a similar trend, maybe not necessarily last year, but overall you typically see that trend. And then if you were to add August, September, October to this chart going forward, I guess you're highlighting that these bars are expected to increase over the next 3 months as opposed to staying where they are today?
So Mario, last second quarter, we were much more optimistic with respect to reducing our incentives and we reduced our incentives much more last year in Q2 as a result of the tightened vacancy and much higher occupancy that we're tracking towards the April, May June months. And so we learned last summer that we have to take a more measured and engineered approach with respect to the reduction of the incentives and this is where we introduced the goalposts that are very measured and gradual throughout the entire period, throughout the entire summer. And so we took a much more measured and engineered gradual approach this summer and it was engineered and purposeful that way because we looked at our data and the volatility that we created last summer as a result of reducing our incentives too quickly and too much. And so this year, we've taken a much more measured and gradual approach. And this year we're up significantly in Alberta in occupancy and our vacancy loss is significantly less in Alberta this time this year versus last year.
And so we're already seeing the positive effects of increased occupancy, increased renewals and retention is something we're really focusing in on. And again, we have to stress we're balancing out the benefits of the net promoter score and measuring our resident satisfaction with the economics of doing that as well because there is a balance between making residents happy and staying in business at the same time. And so we have to balance that and we have to continue to grow and be profitable because that's essential to continue to provide great service product and experience to our residents. We explain that exactly to all our residents during the renewal process. We're still flexible though because some of our residents are on fixed income and they listen to our calls.
And so we continue to be very flexible with residents that are on fixed incomes and are not getting raises like we always have since 1999. We've been a very resident focused and self regulated. And so we see the stresses and the importance of a home is paramount. And so it's personal and we work with everybody and together work on mutual agreements on renewals and so far so good. We're so happy and thrilled with our team and approach and our service to our residents, which is really producing great stable results.
Okay.
Maybe shifting to Slide 10 of the call and kind of focusing on the sequential revenue growth, particularly in Edmonton. You saw a very nice uptick going to 1.8% from 0.2% in Q1. And then the same quarter last year, I think it was 1.4%. You're up even relative to last year. You're spending a bit more capital in Edmonton, making a difference to the product as the products were really well in our July property tour.
So just wondering high level how much of the 1.8% would you say is kind of a return on that capital spend versus a natural market tightening?
Most of it is return on that capital spend. There's absolute direct correlation with our high grading of our common areas, lobbies, experience centers and the huge investment we made 2 years ago and a year or 2 3 years ago when we really ramped up and we're investing significantly in our interior units. And so we've got ample supply of phenomenal product. And then some of the showings that I tag along and learn how to be a phenomenal leasing associate from our guru leasers. I personally see a potential resident expression of joy when they walk into a brand newly renovated kitchen with new flooring and that is real testament as to the success we have in the investment and the significant investments we've made in our product quality.
It's really, really showing and we're absolutely gaining market share. There is no question about that. In the market research and shops that we do, we are absolutely doing better than our competitors as a result of our renovation program and especially our reengineering of our culture. There is a different buzz in our communities and it's a phenomenal vibe and feel. And when everybody is happy and having a good time, it's a much different culture and atmosphere and it's really helping with our rentals and building a phenomenal community and place to live.
So we're just thrilled. Again, we just can't give enough credit to our team for rising to the occasion and coming up with great new ways of increasing retention and occupancy and reducing our incentives as a result because value is exceptional, especially in Alberta with what we've invested in it. It really is exceptional value. As we noted earlier, dollars 1.35 on average a square foot is exceptional rent per square foot. We haven't seen that kind of exceptional value proposition for Alberta renters for decades.
So we're obviously very happy.
Absolutely. So Sam, you mentioned the condiments in your taking market share, the occupancy came down a little bit year over year on a same store basis. And so would it be fair to say that the broader market is seeing a bit more occupancy erosion than that or is some of that occupancy decline year over year just related to kind of the capital spend?
Overall, the market's gaining in occupancy and the vacancy overall is dropping. Where we're seeing vacancy drop is in the new supply significantly. There is significant absorption in the new supply. Then in the newly renovated repositioned value add product, significant improvements in occupancy. And where we're seeing vacancy, to be quite honest, is perfect example is Regina, where we need to focus in on and we are working on Regina and Saskatoon.
The brand new communities we built in Regina are almost entirely full. Perfect example in a very competitive tough market where new supply reigns and great product quality reigns in service. And where we're seeing lower occupancy is in the communities that we are working on as we speak. We're taking our eyedropper where we apply eyedropper amounts of capital in the perfect place and amount to maximize the return of that capital and to turn around that community and maximize that and increase that occupancy and reduce those incentives as a result of the very calculated capital spend that we're doing now versus what we're doing 2, 3 years ago.
Got it. Okay. My last question just really quickly on the guidance. It's up about 2.5% on FFO at the midpoint. You left your same property NOI guidance intact at 4% to 9%.
It sounds based on kind of the press release and the commentary, the revenues are going towards the top end of the range and the costs are coming in maybe a little below on the property tax side, for example. So when you look at the guidance being intact at 4% to 9%, within that range, I guess today relative to 3 months ago, is the expectation for the same property NOI to be higher than it was before?
Yes, yes, Margaret, it's Rob. Yes, so we are shifting up the curve for sure on that one as well. A couple of different variables though as if you notice, we already we are getting close to 9% in our Alberta portfolio already for the first half of the year. So just maintain that loan is going to push the curve overall on all there as well too. Also we have to remember that in the Alberta portfolio, we have a big savings.
There's no more carbon tax for the last half of the year in Alberta. That actually adds about $1,000,000 to our NOI alone adjusting for that. We have not again, we're not sure if 2020 yet because until the election comes up, we won't know. But we do know now for sure that there's no carbon tax for the last half of the year. So that has a positive impact for sure.
Right. And So would the carbon tax savings be in the 49%?
Yes, yes. And again, we shifted up the curve on originally we were moving the 5%, 5.5 percent range for the year. We shifted up the curve on that as well now too.
Got it. Okay. Thanks for the color.
Thank you.
Thank you. Your next question is from Brandon Abrams of Canaccord Genuity. Please go ahead, Brandon.
Hi, good morning, everyone. Just taking a look here at your Ontario portfolio, I mean, we don't talk a lot about it, it's almost 10% of total suite. It looks like the mark to market or gain to lease opportunities kept growing and it's now above $10,000,000 Just curious in terms of where turnover is in this segment of your portfolio and how quickly do you think you can fully capture this opportunity?
It's Rob. Very good point there. Yes, the mark to market is quite large there. We're actually seeing even with lower turnover that we have passed. The spread is getting higher and higher.
But we are getting with our renovated product, to be honest, on turnover 30% to 35% rental increases on those, but the number is just not increasing. That's part of the challenge because the whole Ontario market has is on legacy assets is the mark to market is very, very large, but as it gets larger and larger, your turnover is going to get lower and lower on an overall basis as well too. So and we're also seeing the same turnover occur year over year. So the same customer is moving over versus the new one who's full mark to market. So I don't have a crystal bar how long you said how long will it take us to get the full mark to market on the portfolio.
I think it's going to be a little longer than we anticipated. But the good news is, what is turning over, we're getting substantial increases and we're also doing renovations to those suites for the long term sustainability of that income flow as well.
Okay. But roughly speaking, I mean, where would you peg turnover in your Ontario portfolio? Would it be?
15%.
Okay. And just turning gears here on the disposition side, the last two assets you've sold in Saskatoon, both premiums to IFRS, about $150,000 per door. Just considering the kind of strong valuations you've been able to get, is there a thinking or thought process around kind of accelerating this program and to free up more capital to redeploy elsewhere?
Yes, we actually are what we do is we look at each and every asset and we are calling the portfolio constantly, but we do not have any direction to sell anything further for 2019. And again, if you go back historically, we have sold from time to time, but it's on a one off opportunity driven spot.
Okay. And just last question for me before I turn it over. Maybe I missed it in the disclosures, but the projected stabilized cap rate for Brio, just wondering if you have an update there or now that you're much further along in the project?
Okay. So we're working right now on a pre leasing program with RioCan and we'll be able to give you a further update as we move forward. But as we're over the next 6 to 9 months, we are going to be narrowing it down. I guess the good news is we are seeing Calgary getting improving overall. And as Sam has indicated earlier, the new purpose built rental is seeing higher rents.
And so it's a really fast moving market right now on with the new purpose built development. So again, we'll give you an update next quarter after we work through this with our partner.
Thank you. Your next question is from Matt Kornack of National Bank. Please go ahead, Matt.
Hi, guys. You mentioned your eyedropper that you're dispersing capital with and we've seen it in the numbers in terms of CapEx coming down. I know Edmonton was sort of the next destination for some of that capital and obviously you have a larger portfolio there. Should we expect that you'll be able to maintain these sort of total CapEx, not maintenance, but total CapEx figures?
Hi, it's Rob. Yes, you're right. Edmonton is the biggest portfolio. As Sam mentioned, we haven't put enough detail into yet. Although, if you look at our brand diversification, Edmonton has a large number of living brand.
So it's going to be a focused kind of a smaller, more moderate renovation program. So on an absolute basis, it will be lower, but on a per door basis, it's going to be great. But I can't I think Sam's words exactly right. We're using the eyedropper to make sure that we can get the returns. We can do all this stuff here with that.
And if you look at slide on the Prominence Play slide there, again, that's the kind of renovation we can anticipate at the Living Communities brand that we're having. Again, very nice, looks really good, really appreciative and the amount of rent adjustment we need to get really good returns is not that great, but we are getting it.
Okay. So it sounds like current levels at least on a per suite basis across the portfolio are indicative. I mean, if you go back into the 2011 to 2016 era, you were probably at about $2,500 a suite in terms of total CapEx. But now I think it's around $3,500 or do you anticipate that you'll eventually trend back down towards where you were historically?
We'll trend back down because as Sam mentioned, we invested heavily upfront and then a lot of the units and they're recycling above again, so we'll need to reinvest in those as well too. Our design and operations teams have done a phenomenal job lowering costs even on those particular categories as well, which is key. But it's going to be
very opportunity driven and based. Matt, one of the great benefits of this investment that we've made is the product material quality. In the flooring, for example, we're replacing carpets that we would have to replace every 5, 10 years with lifetime guaranteed and back product. That's flood proof too, which is a big, big plus. And so we've seen this flooring at scratch proof and very durable and it's going to last a lot longer and it's so much faster to turn an apartment with this flooring than a carpet steam used to be.
And the newness of that floor over many turns is really impressive. And so that's another reason why we expect to see savings down the road because we've made significant investment upfront to significantly improve the materials that we're using and as a result improve the durability over the long run and it's a great longer term investment that we will see benefits over many, many years.
Okay. That makes sense. With regards to the balance sheet, you guys are being a little bit more efficient in terms of not holding huge cash balances as you had at some points in the past. But with regards to up financing on the mortgage front, I think most of this year has been dealt with. There's a few mortgages where I don't think you've disclosed what the new mortgage will be, but what is the opportunity there?
And obviously, given where the 10 year bond yield is at this point, are you going to be able to extract some mortgage up financing?
Hey, Matt, it's James. Yes,
there is an opportunity there. We're based
on our original budget, we likely will do somewhere between $10,000,000 $30,000,000 above financing in the last quarter of this year. But as you pointed out, I mean, we're doing 10 year money right now at about 2.1%, 2 point 2%. So there is a there continues to be a good positive mark to market there on those renewals.
Okay. Matt, it's Sam. The real big primary source of capital, free cash flow. That's where we're really focusing in on where we're going to get our primary source of free capital cash flow capital. And just to give you an example, at $1.35 a square foot, if you apply even $0.70 on our $29,000,000, 28,000,000 square feet, that's significant amount of additional free cash flow.
And that's why we reengineered our distribution policy to enable us access to the most economic source of cash flow and that's free cash flow. And there's a couple of public companies and God bless Bob Dylan. He's a perfect example of what happens with free cash flow even in a highly concentrated Alberta market. We've got to look at that because when we were public and retaining all of our cash flow, that's absolutely when we delivered the highest growth per unit in any kind of measurement period. And so they're really our original public structure and Main Street's public structure are really good case examples of how effective free cash flow is.
And that really is the primary goal and focus going forward is free cash flow and generating and maximizing that. And that's the plan.
Okay. Thanks for the color.
Thank you, Matt. Thank you, Matt.
Thank you, everyone. We'd like to end this call now 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 both our residents and investors and for the continued great service from all our team. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.