Good afternoon, ladies and gentlemen, and welcome to the Boardwalk Real Estate Investment Trust second quarter 2023 earnings call. At this time, all lines on a listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during the call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, August 11th, 2023. I will now turn the conference over to Eric Bowers, Vice President of Finance and Investor Relations. Please go ahead.
Thank you, Julie, and welcome to the Boardwalk REIT 2023 second quarter results conference call. With me here today are Sam Kolias, Chief Executive Officer, James Ha, President, and Lisa Smandych, Chief Financial Officer. Please note that this call is being broadly distributed by way of webcast. If you have not already done so, please visit bwalk.com/investors, where you will find a link to today's presentation, as well as copies of the Trust financial statements and MD&A. Starting on slide two, we would like to remind our listeners that certain statements in this call and presentation may be considered forward-looking statements. Although the expectations set forth in such statements are based on reasonable assumptions, Boardwalk's future operation and its actual performance may defer materially from those in any forward-looking statements.
Additional information that could cause actual results to defer materially from these statements are detailed in Boardwalk's publicly filed documents. I would like to now turn the call over to Sam Kolias.
Thank you, Eric, welcome everyone to our Q2 2023 conference call. Starting on slide four, our performance with our GAAP and non-GAAP measures of FFO per unit, profit, net asset value, and unitholder equity, all seeing an increase from the same quarter of the prior year or December 31st, 2022. Slide five, Our culture. From our humble beginnings in 1984, our resident members are at the top of our organization. Our leaders put our team first, our team puts our resident members first. Slide six. Our strategy to create value for our stakeholders begins with our people. We are so grateful for our extraordinary team, who continues to innovate and deliver our places, homes for our resident members, where love always lives. In turn, this leads to leading earnings performance, which we believe will continue to result in strong total returns for our stakeholders.
Our strategic focuses are: significant organic growth from utilizing our proven team and platform that focuses on operational excellence to optimize NOI growth. When we pair this with the current improvement in apartment rental fundamentals on a solid foundation of some of the most affordable rents in Canada, we are well positioned to continue to accelerate on our organic growth trend. Accretive capital recycling focuses on opportunistic investment into acquisitions, development, and investment into our own high-quality existing portfolio with a tactical unit buyback when appropriate. Those opportunistic investments, combined with our operational optimization, have positioned Boardwalk for increasing asset values within Boardwalk's diversified and high-quality multifamily portfolio. Our solid financial foundation provides flexibility on our balance sheet with our growing free cash flow and with CMHC insurance on 96% of our financings, which provides access to low-cost mortgage capital with reduced renewal risk. Slide seven.
We are delivering solid growth. Boardwalk's existing exposure to strong rental demand, non-price controlled markets with record immigration, significant organic growth as Alberta has some of the most affordable rents in the country, with limited new supply versus demand from both international and inter-provincial migration. Our solid financial foundation and partnership with CMHC allows us to provide some of the most affordable rents in Canada. With rising interest rates making homeownership more expensive and rising construction costs, all widening the gap between our replacement cost of our assets and our current valuation. Construction levels in our core markets remain low relative to anticipated household formation, with record high in migration into our core Alberta markets. Our largest market, Edmonton, ended last month of July with 14 available units to rent, contributing to our solid performance.
Apartment rental fundamentals continue to improve, with higher revenues as a result of inflationary adjustments, coupled with essentially no new incentives on new and renewing leases. All of our markets have near full occupancy and strong apartment rental fundamentals. Slide eight shows the significant magnitude and scale on a historic level of all-time record high in migration into our largest region, Alberta, from both interprovincial and international migrants calling Alberta home. This significant migration reflects the affordability that Alberta provides relative to other provinces, coupled with higher job vacancies. Slide nine shows interprovincial migration sources into Alberta for current year, 2016 and 2006. Most in-interprovincial migrants are coming from Ontario and Quebec, with a big increase from B.C., reflecting a migration into more affordable housing in Alberta from higher housing costs in Ontario and B.C.
Slide 10 shows strong overall employment growth in Alberta, along with how diversified new jobs are helping with the diversification of the Alberta economy. Slide 11 shows some headlines that reflect a diversifying economy for Alberta. Alberta's economy remains strong. In addition, there are many major projects under development in the province of Alberta, which will further promote more job opportunities in the future. Slide 12 shows our large presence in affordable and non-price-controlled markets, with Alberta and Saskatchewan representing 62.1% and 10.3% of our portfolio, respectfully. Boardwalk has the highest concentration of non-price-controlled apartments amongst our public peers. Boardwalk's current mark-to-market, which includes a reduction of incentives, averages CAD 169 per suite and equates to approximately CAD 66 million of revenue opportunity.
Slide 13 shows our high affordability, as defined by CMHC in our core Edmonton and Calgary markets, with rents well below 30% of median rental household income. To the right of the affordability chart is a graph which shows occupied rents in Alberta are still tracking below both Alberta and Canadian CPI indexed inflation. There remains a significant gap between occupied rents and the change over consumer price index over the last eight years. Boardwalk rents continue to provide exceptional value versus consumer price index over the last eight years. Slide 14 shows the graph on the left, which shows significant imbalance between strong demand or in-migration versus supply or new builds, with demand or migration accelerating further in our core Edmonton and Calgary marketplaces, far outstripping new supply. To the right, a graph showing how high construction costs remain, along with persistent higher interest rates.
Slide 15 shows high occupancy as a result of strong apartment rental fundamentals in all our key markets. Move-outs versus last year are also dropping as our retention and value proposition increases. It is important to compare same month over previous month, last year, because of seasonality. Slide 16 shows our key operational metrics with high occupancy, lower incentives, higher occupied rents, resulting in higher revenues for the quarter. Slide 17 shows steady net new and renewal rental rates with our resident-friendly centric renewal rate band keeping retention high, our turnover and expenses low. Year-over-year, we have seen a significant improvement. Existing lease spreads or renewals are strategically moderated to keep providing resident-friendly, affordable housing options in our core markets while lowering our costs and steadying operational results. A win-win for all stakeholders.
Slide 18 shows a 2.3% sequential quarterly revenue gain, an increase from 1.6% previous quarter, as we discussed last quarter, would increase this quarter, reflecting rental market adjustments, higher occupancy, and no more use of incentive on renewals. We'd like to now pass the call on to Lisa Smandych, who will provide us with an overview of our portfolio performance and balance sheet. Lisa?
Thank you, Sam. Moving to slide 19. For Q2 2023, same-property net operating income increased by 12.5% as compared to Q2 2022, with revenue growth of 8.6%. For the 6 months ended June 30th, 2023, same-property net operating income increased by 13%, with revenue growth of 8.5%. Edmonton, the trust's largest, largest market, saw revenue increase by 9.3% in Q2 2023 and 9.1% for the 6 months ended June 30th, 2023. Operating expenses increased by 2.7% in Q2 2023 and 2.3% for the 6 months ended June 30th, 2023, primarily the result of increased wages and salaries, insurance costs, utilities as a result of higher rates and property taxes.
Of note, Calgary expenses increased due to higher wages and salaries, as well as increased electricity costs, while Saskatchewan expenses increased due to inflationary pressure on wages and salaries, repairs and maintenance, and increased prices for most utilities. The team remains committed to ensuring focus and discipline when managing controllable operating expenses. Slide 20, administration costs increased by CAD 1.8 million in Q2 2023 as compared to Q2 2022. only increased CAD 200,000 as compared to Q1 2023. The increase was attributable to larger bonus accruals recorded in Q2 2023 as a result of performance, as well as increases in software as a service cost and the cost of professional fees. deferred unit-based compensation increased due to an increase in the number of participants, as well as the cost of the program, noting that historically, the highest deferred unit-based compensation expense is in Q2.
Slide 21 illustrates Boardwalk's mortgage maturity schedule. Our mortgages are well staggered, with approximately 96% of our mortgage balance carrying NHA insurance through the Canada Mortgage and Housing Corporation. This insurance remains in effect for the full amortization of the mortgage, and in addition to carrying the Government of Canada's backing, provides access to financing at rates lower than conventional mortgages. With the current estimated 5-year and 10-year CMHC rates of 4.8% and 4.4%, respectively. Though current interest rates are above the trust maturing rates, the trust maturity curve remains staggered, reducing the renewal risk in any, pardon me, the renewal amount in any particular year. Lastly, the trust has an interest coverage of 2.88x in the current quarter. Slide 22 summarizes our 2023 mortgage program.
Overall, we have renewed or forward-locked CAD 225.8 million, as well as secured CAD 41.6 million in new financing at an average rate of 4.42% and an average term of 5 years. Included in these financings is CAD 106 million of conventional mortgage financing, which were renewed on shorter terms to allow for them to be replaced with CMHC financing upon next renewal. The trust obtained CAD 46.5 million of CMHC financing at 3.89% and a 7-year term for its acquisition of The View in Victoria, British Columbia. Current underwriting criteria in our most recent CMHC submissions and our lenders has remained in line with our historically conservative estimates. Moving to the right of the slide, we provide a summary of Boardwalk's available liquidity.
The trust is well-positioned with approximately CAD 42 million in cash and subsequently funded financings, as well as an undrawn CAD 196 million operating line. This approximate CAD 239 million in liquidity provides the trust with a flexible financial position. Slide 23 illustrates the trust's estimated fair value of its investment properties, excluding adjustments for IFRS 16, which totaled CAD 7.4 billion as of June 30th, 2023, as compared to CAD 6.8 billion as at December 31st, 2022. The increase in overall fair value is the result of increases in market rents at select sites and communities as market fundamentals improve, as well as the Victoria acquisition. Current estimated fair value of approximately CAD 215,000 per apartment door remains below replacement cost. Moving to slide 24.
In consultation with our external appraisers, the capitalization rates or cap rates used in determining Q2 2023 fair value were unchanged from both Q1 2023 and Q4 2022. As it does every quarter, the trust will continue to review completed asset sales transactions and market reports to determine if adjustments to cap rates are necessary. Most recent published cap rate reports suggest that the cap rates being utilized by the trust for calculating fair value are within their estimated ranges. I would now like to turn the call to James Ha to highlight our capital allocation, developments, and the trust's exceptional value. James?
Thank you, Lisa. Our maximum cash flow retention strategy remains key to our ability to opportunistically invest and compound returns for our stakeholders. As a result, our growing cash flow is increasing our available capital for deployment towards growth, while also furthering improving our leverage metrics. The larger opportunities that may arise, CMHC insured mortgage financing continues to represent an attractive source of capital. Continue to seek opportunities for growth with our focus today on our value add capital improvement program, strategic and accretive acquisitions, continuing our new development in under-supplied housing markets, and if warranted, an investment in our Normal Course Issuer Bid. For the quarter, we are pleased to share an update on our capital deployment starting on slide 25, which provides an update to our progress on our value add, repositioning, and renovation program.
Our common area and amenity renovations have positioned our communities to offer the best value, service, and experience to our resident members and are a key contributor to Boardwalk's success in both competitive as well as strong market conditions. For 2023, our team is targeting 11 common area and amenity renovations to further enhance our portfolio and product offering, resulting in over 60% of our total suites benefiting from our repositioning program. In addition, our suite renovation program continues to be opportunistically used to improve and enhance our offering for residents. Boardwalk's existing vertically integrated platform provides us with the unique ability to quickly and cost-effectively complete these renovations. With limited availability and the current strong demand for housing, our ability to reduce days vacant are a significant differentiator of our Boardwalk communities.
With low availability in our markets, an additional initiative we are undertaking is the conversion of existing storage and administrative spaces in our communities into rental suites. This initiative aligns with our platform optimization, and to date, we have added 10 units to the market. By investing in small renovations to turn suites from administrative use back into rentable units, we will add much needed additional housing in our communities. We are currently under construction for an additional 10 units and are in the early stages of assessing feasibility on up to an additional 60 units in Alberta. On slide 26, we provide an update to our ongoing development pipeline to add much needed housing in supply-constrained markets.
We are pleased to share that the lease-up of the first tower of our 45 Railroad development is complete with 100% occupancy and at rental rates at the upper end of our original expectations. Our team continues to progress on construction of the second tower and is scheduled for delivery in the fourth quarter. This project remains on time and on budget. Our Victoria development pipeline presents an opportunity for the trust to add and contribute housing units, while also creating strong value for our stakeholders. Aspire is our first of three developments in Victoria. Excavation now complete, we are now constructing our foundations for this 234 unit development, which is located adjacent to our existing Aurora community that remains fully occupied.
This development will continue to scale our Victoria presence alongside our existing communities, which includes our recently disclosed acquisition of The View, which closed at the end of April. Slide 27 highlights the exceptional value that Boardwalk's trust units represent. At yesterday's trading price, which implied a value of approximately CAD 190,000 per apartment door. This compares favorably to the substantive transactions that have occurred in the external market. Our NAV has increased alongside our strong NOI growth and is estimated to be approximately CAD 80 per trust unit, which equates to just CAD 215,000 per apartment door and represents an exceptional opportunity relative to market pricing and remains well below the increasing cost of replacement. On slide 28, Boardwalk's trading price equates to an attractive 4.9% cap rate on our trailing NOI.
This valuation provides a significant spread to the current cost of mortgage capital and transactional cap rates in the private market. Favorable fundamentals, strong leasing trends, and leading NOI growth in our portfolio, this cap rate represents exceptional value and growth for our stakeholders. Moving to slide 29, our second quarter operating performance continues to be strong, with results for the first half of the year finishing on the upper end of our original forecast range. With continued strength in revenue, confirmation of property tax and insurance expense for the balance of the year, as well as our progress on our platform optimization to manage controllable costs, we are pleased to announce an update to our 2023 guidance.
For the year, the trust is tightening and upwardly revising our 2023 same property NOI growth range now to 11.5%-14%, and FFO per unit guidance of CAD 3.42-CAD 3.54 per trust unit. Our Boardwalk team is committed to leading in transparency and will continue to update our stakeholders in the event of any changing conditions that may materially impact our forecast. On slide 30, our board of trustees has confirmed our monthly cash distribution of CAD 1.17 per trust unit on an annualized basis for the next three months. Our distributions have increased alongside our growing cash flow while maintaining our industry low payout ratio, providing significant cash flow reinvestment and positioning Boardwalk with ample capital for growth.
Lastly, on slide 31, we continue to work toward our ESG goals and targets, working together to positively impact our communities. For an update on our initiatives for the year, our latest ESG, ESG report can be found on our website, bwalk.com/investors. This concludes the formal portion of our presentation. We would be happy to answer any questions. Julie?
Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touchtone phone. If you'd like to withdraw your question, please press the star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Sairam Srinivas from Cormark Securities. Please go ahead.
Thank you, operator. Good afternoon, team Boardwalk. Just looking at the leasing spreads that have been pretty positive over the last couple of quarters, how should we be thinking about leasing spreads because of lower incentives versus leasing spreads because of strong market fundamentals?
Hey, Sai, it's James here. Leasing spreads are certainly a combination of both incentives and market rent changes. You know, if we look at lease renewals, where effectively, as Sam said in his prepared remarks, lease incentives are effectively being eliminated on lease renewals. We are always taking a balanced and flexible approach with our residents, hence the strategic moderation that we're undertaking. Today we are in our targeted zone of 7%-9% on renewals in Alberta. On new leases, it's pretty tough to find any incentives in the marketplace. In fact, you know, we're rarely seeing them anywhere, certainly across our portfolio or in the marketplace, anywhere in Alberta. On the new lease front, we're starting to see market rent growth.
You've seen that in Calgary, and we're starting to see that in, in Edmonton now as well.
That's good color, James. Thanks for that. You know, obviously looking at incentives, you guys have done an amazing job of bringing that down year-over-year. If you were to think of this from a steady state, stabilized perspective, how should we be thinking about incentives?
Yeah, incentives, Sai, you know, if we look, if we look back through time, incentives really has been a very short-term line item through past periods. For the most part, incentives on a normalized basis, you know, we certainly would expect that to come down into the low single digits. Really just, just a closing tool that our team would use from a leasing front.
That's awesome. Thanks for the color, James. I'll turn it back.
Thanks.
Your next question comes from Dean Wilkinson from CIBC. Please go ahead.
Thanks. Afternoon or morning or whatever time it is. One question, multiple parts. I don't know if this is Sam or James.
We've done some work in our economics team showing that majority, if not all, of the individual investors in the condo market are effectively underwater right now. Are you finding that there is not just migration of people, but perhaps migration of capital going into your market that may, in the future, start pushing up pricing around sort of condo investment? What could be the potential, I'm assuming, positive follow-on to multifamily from that dynamically? Are you seeing anything there, or is it just a little too early to call that a tailwind right now?
Thank you, Dean. It's Sam. We are seeing a increase in condominium, multiple listing sale prices, and that has been a long time coming, and that absolutely reflects the ability to buy, two for one, condos in Alberta versus one in Toronto or, or Vancouver, for that matter. The economics is, is much better, and, and the affordability and the lower cost makes the numbers work. We're, we're not really seeing much supply versus the immigration and, and the household formation. It, it is adding supply, and it's important for investors to provide that capital to builders that are completing condominiums and new supply.
Whether that new supply goes into ownership or rental, it's much needed, and it's too, too, too late and too little right now with respect to the demand that we're seeing. We're, we're pleased. Investors are coming to Alberta and realizing the opportunity on individual condominium investments. It's, it's, it's not, it's not having much of an effect on our average occupied rents of about CAD 1.44 a sq ft versus the new that is approximately CAD 3 a sq ft. There is rental units available. They're typically brand new, and they're 100% more in rents, typically, than our occupied and in-place rents are. It, it is, it is helping.
It's just, it's just more expensive and, and not, and, and not at the price that most renters are looking at and can afford.
I, I guess by extension from that, one could potentially infer that that creates an argument for lower cap rates in, in your markets as you go forward.
Well, with our double-digit NOI growth, that, that, that is exceptional growth versus other regions, and the rent in place versus the rent in new developments and new rentals, of approximately 50% less, shows that we've got quite a few years ahead of us to be able to close that gap. Construction costs continue to rise, and interest rates are high, and so the costs of new supply are increasing as well. You know, we're, we're, we're trying to hit a moving target that keeps going higher and higher with respect to new supply in housing. That's, that's why we continue to be advocates of lower taxes and capital grants for more affordable housing that, that, most folks are looking for.
I'm a big fan of lower taxes. Thanks. I'll hand it back.
Thank you.
Your next question comes from Jonathan Kelcher from TD Cowen. Please go ahead.
Hi there. Your, your strategy of moderating rents on, on new leases, when, when did you guys start that, and, and what's kind of the thought process behind that?
It started in the 1990s when we took a much different approach and more marketplace approach, where in the 1990s we, we essentially marked our rents to whatever the market would bear. We would take a much different, more marketplace approach. In the 1990s we made some very significant rental adjustments, which became big lessons on our brand, our reputation, and both our brand and reputation are priceless, and our resident members are on top of our organization, and we learned very quickly how expensive it is to lose residents that are long-term, to increase that turnover, to upset residents.
There was a, there was a lot of lessons in the 1990s that we learned, as well as rent control and regulation pressures that we were seeing. Meeting with our government in the 1990s, we were really faced with a very simple choice to self-regulate or have government regulations enter into the 1990s. We put up our hand and agreed back in the 1990s with our government leaders at that time to self-regulate. That's where really our self-regulation came in. It's, it's first and foremost, it's pro resident, it's pro brand, our reputation, and it, you know, it, it's, it's about affordable housing. No matter what the economic cycle we're in, we have learned in our strategic planning and sessions that there's always demand for affordable housing, period, no matter what economic cycle.
We wanna stay affordable because there's always demand for that, and, and that's a little bit of history, and maybe that's a little bit too much.
No, no, that, that's good. I and I, I get that, and that, most of what you said probably relates to renewals, but it's more on, on the turnover. I guess some of the same arguments apply to that.
On the turnovers, our mark-to-market's too low. You're right. Our competition is renting for higher than our mark-to-market. Why? We get on any kind of availability, 100 phone calls the first day, and clearly, that's a lot more demand than the 1 unit or 2 that we have in each one of our communities. Clearly, that price is too low. We agree. We are leaders in providing affordable housing, and we're still doing exceptionally well. Compared or relative to any other multifamily provider or REIT, our growth is exceptional. Everything is relative. We're really in a great position to provide exceptional value for our residents and top-peer performance and financial results for our unitholders. Really, really is a win-win for everybody, and we wanna do that for the next several years.
Okay. It does build a little buffer, and you do get it on renewals. My second question is just on the expense growth, same property expense growth overall, pretty good at 2.7%, but there was a pretty wide variance. You did call out some of the high ones, Calgary and Saskatchewan, but the Edmonton portfolio was down 1% year-over-year. Maybe give us a little bit of color on why that was and the outlook over the next couple of quarters.
Hi, Jonathan. Specific to Edmonton, I would say Edmonton was our biggest opportunity, where the optimization of our platform that we spoke of made the most sense, right? Edmonton had the most to gain in terms of filling up that occupancy, and consequently, that allowed us to really look at how we can optimize our platform in the tighter market. Just to provide sort of more overall color, we certainly are, as we move through the remainder of the year, to James's point in his prepared remarks, we have more color on our insurance numbers and our property tax numbers. When we look at total rental expenses, all buckets, buckets included, we're anticipating an increase of about 1.5%-3.5% on a same-store basis.
For, for Q3 and Q4?
That'll be the full year. The full year, year-over-year, same property.
Okay. That's helpful. I'll turn it back. Thanks.
Your next question comes from Mario Saric from Scotiabank. Please go ahead.
Hi, thanks for taking the call. Just a clarification question for James on the incentives, mentioning that they could come down to low single digits in kind of a steady state, normal environment. Are you referring to a single digit incentive per suite? So like, for example, for the portfolio today, it's about CAD 44. I think for Alberta, it's about CAD 61 per suite. Are you referring to those numbers coming down to single digits, or is it the percentage of rent that you're referring to?
Yeah, we're talking more just generally speaking, when we're talking about incentives, we see them coming down into CAD 1 million across our portfolio mark for the entire year. It's really an irrelevant, irrelevant figure if we look back into past periods, where our anticipation is really, it's only used just as a very selective closing tool for our residents, or pardon me, for our, for our leasing team. Incentives certainly are trending towards us, really not using it as a topic of discussion in our future reporting.
Got it. Okay. Thanks for clarifying. Then my second question comes to the, the rent moderation that you've highlighted. Like, based on your analytics, you know, is there, is there an impact to occupancy? Like, is there a relationship there such that if, for example, you chose not to moderate rents, what would your estimated impact to occupancy be, if any, or is it completely aside of that, and it's just simply more of a qualitative decision to make?
Thank you, Mario. It's Sam, and we did take a much different approach again in the 1990s, and we engineered a much lower occupancy and much higher rental rates. The law of supply and demand is not a theory, it's a law, and price is a variable in those other two variables. When we adjust price to anything, demand falls, occupancy falls, turnover increases, all sorts of negatives happen. For the most part, our expenses are fixed. Whether or not we're at full occupancy, we're gonna pay our property taxes.
It's very similar to the airline service providers, these fixed costs are there, and the higher the occupancy, the higher our NOI, the higher our margins and profitability. It makes more sense for us to have full occupancy or near full occupancy, and we're, we're almost at 100%, close to 99%. That really is reflecting our higher margins that continue to grow, because every incremental dollar that, that we realize on the top line, with fixed expenses, almost entirely goes directly to our bottom line and our margins. We've been advocates of high occupancy because we've been focusing on NOI, not top revenue growth. The revenue models, in the past failed to keep in mind, reputation, brand, retention, all these super important factors.
In almost all other product and service providers, retention and customer satisfaction is paramount, and that's why it's paramount with us, and, and it always will be. That's why our, our, profitability and our performance is, is doing as well as it is, is because we're taking a very resident-focused, centric approach and, and, and seeing, seeing how that benefits, the bottom line. It, it really, really does make a difference when any product and service provider focuses in on a really important purpose, like bringing folks home to love always, and, and, people are the most important, asset, our places and our planet. You know what? Profit takes care of itself at the end of the day.
Yep. Okay, now I'm just trying to get a sense, 'cause you mentioned, you did mention that your, your new lease spreads are probably lower than what they could be relative to competitors. I wasn't sure if, if there was, like, a sensitivity there where, you know, if you, if the new lease spreads were consistent with the peers, you know, the impact on occupancy could be 50 basis points or 100 basis points or 10 basis points. Just trying to get a sense of that magnitude.
Sorry, Mario. We're quite a ways off to what really the market is. When looking at RentFaster and just seeing and hearing from our sites how quickly everything rents, we're, we're quite a ways off to where the market is in what the availability is. There's a big shortage of rentals in the CAD 2 a sq ft range, you know, our in place is a CAD 1.44, a CAD 1.50, so we're, we're quite a ways off, and that's why we rent as fast as we are, and our occupancy is as high as it is.
Okay, makes sense. Then more of a, a qualitative question. If you look at your markets, clearly, you give us the numbers on a market-by-market basis in terms of NOI growth, rent growth, and so on and so forth. If you're, if you're looking on the ground today from a trend perspective, how would you rank your kind of top three markets in terms of relative strength, and then kind of the, the market or two where it's not as strong on a go-forward basis?
Our bell at our ball is Edmonton.
Uh.
There's exceptional value in Edmonton rents still, and our average occupied rents in Edmonton are relative, very low. There's really a significant opportunity. Given the scale and size of our Edmonton communities and team, we've got exceptional growth in Edmonton versus where we were coming from over the last few years. All the rest of our, you know, Alberta, Saskatchewan, core markets are in great relative position with respect to where rents are in new developments and where rents are with our competitors. There's a pretty big gap, even as per our slides between the consumer price index. We're still quite behind inflationary expenses.
What's important for everybody to keep in mind, and many of our residents have given us credit, and go back to 2015 and say, "You know what? Rents are pretty well the same as they were in 2015" for some of our residents. Our residents are very grateful for that and, and express that gratitude. You know, considering inflation over the last 8 years has been pretty significant, even at 2% or 3% times 8 years, that's 25%. It's really important to keep that timeline and, and look at rents over the last 8 years and, and plot it against inflation and see how far behind our rents still are, Mario.
They're tracking way below whatever the Consumer Price Index of all other services and products that have kept up to Consumer Price Index.
Maybe just one last follow-up, sticking to Edmonton and, you know, given the Oilers playoff run is still a bit fresh, I won't, I won't use hockey as analogy. If we switch to baseball, like, what, what inning would you say the rent growth picture in Edmonton is in today?
Hey, Mario, it's James. I'd say early innings, you know, second or third inning if it's, if it's gonna be a nine-inning game. We're just getting to that point. If you, if you look back, I know the revenue print was strong this quarter at 9%. We're just getting started. To Sam's point, affordability, nowhere else in the country do we have the same affordability as Edmonton does today.
Mario, just some feedback from our on-site teams. We're seeing folks in cars. We're getting Net Promoter Score thanking us for renting a new resident an apartment because they are moving out of their car. They no longer have to sleep in their car. What we're really recommending folks in Calgary, especially, because there's just no apartments that are vacant physically, you can move into, and very few in Edmonton, market-wide. We're recommending renters that are looking for apartments in Calgary to move to Edmonton. In Edmonton, you know, there's still availability there. It's disappearing. Like we mentioned, there was 14 available units left last month. There's about 100 and some. It's, you know, the 11th of the month.
By the end of the month, there's just, just around 150-200 left to go in Edmonton. It's not an advertisement, but availability is still best in Edmonton and affordability. That's why we believe Edmonton has the biggest upside still.
Okay. That's it for me. Thank you.
Thanks, Mario.
Your next questions come from Gaurav Mathur, from iA Capital Markets. Please go ahead.
Thank you. Good afternoon, everyone. You know, just going back to your prepared remarks, James, you know, it's, we're just trying to get some color on the transaction market, and I'm just wondering if you're seeing any opportunities in the Alberta market where it makes sense to allocate capital to at this time.
Hey, Gaurav, it's James. Good afternoon. You know, we're, we're certainly looking for opportunities. This interest rate environment, and with the delays that we're seeing at CMHC are certainly, you know, slowing things down a touch. Our team's busy out there pounding the pavement, looking for opportunities similar to what we purchased last quarter, like The View in Victoria. Right? Looking for opportunities where we might be able to work on our relationships, lean on our relationships, where newly developed or newer apartment buildings are potentially coming to the market, where we can step into a cost basis that was from two or three years ago, and lean on our expertise to deliver and provide great units to our residents and create value that way. Again, our team is, is looking for opportunities like that.
Mm-hmm.
There are, there are some transactions, some opportunities in our Calgary and Edmonton markets with which, you know, similar to one of our peers who was speaking to a, a transaction in Edmonton. You know, we look forward to seeing more and more details on that as more transactions come through this summer.
Okay, great. Then, just switching gears to the administration costs. You know, one of the line items that did stand out was that increase in software as a service fees. My question is, you know, as, as a team, you have, invested in technology initiatives, across the platform, how should we think about, you know, capital savings and value that's being generated, over the next few quarters?
Yeah. Hi, Gaurav, it's Lisa. I think, I mean, this is where you're largely where you're gonna see those, those savings from technology investments are in our operating expenses. For example, I mean, a little bit of those platform innovations that we're looking at, the first step, as we've discussed, was really just making sure that our asset management teams were the right number of associates.
Mm-hmm.
Now as we move forward, it's how can these technologies help further optimize those platforms? I mean, the intention is over sort of the short to medium term, that's what's gonna help us keep expenses to inflationary or just below inflationary increases as we move into future years.
Okay, great. Fantastic. My last question, and this is on the balance sheet. You know, when looking at your mortgage maturities up, coming up in 2024, that's a sizable chunk, and even though your ladder is very well staggered, just could you walk me through how you're thinking through refinancing versus repayment at this point?
We're taking a similar approach to what you would have seen in 2023, so that our, our focus always remains on ensuring that that mortgage maturity curve stays staggered. As we did note in our prepared remarks, in 2023, we did have some shorter-term loans as a result of our conventional financing.
Uh-huh.
When we move to 2024, I think we will be looking a little bit at, at the longer end of the curve, similar to what we're doing for the remainder of 2023. Again, it will, it will focus really on staggering that mortgage maturity curve. To James' point about just some of the delays we're seeing at CMHC, making sure we're well in front of that, we don't anticipate. Now that we're aware that it's taking longer, we'll work closely with CMHC and our lenders to make sure we're in front of that timeline.
Fantastic. Well, thank you for the color, everyone. I'll turn it back to the operator.
Thanks, Gaurav.
Your next question comes from Mike Markidis from BMO. Please go ahead.
Hi, everybody. James, just following on the comment you made about finding opportunities from developers and buying in at a cost base from 2-3 years ago. Does that imply that you're buying at cost, or are you saying buying at a profit margin over and above a cost base from two to three years ago?
Every opportunity, Mike, is, is gonna be, is gonna be variable, dependent on each of those opportunities. If we look at The View, acquisition from, from April, again, I mean, it'd be pretty tough to build that product today at that price that we were able to acquire it at. The yield that we were able to step into on that one was quite high, and again, if we can find more opportunities like that, we're happy to, to take advantage of those.
Okay, thanks for that. I appreciate that your free cash flow is, is growing very significantly. You're probably gonna tell me that you look at opportunities and reevaluate your portfolio on an ongoing basis, but are you guys seriously considering recycling capital in any of your markets today?
Yeah, we don't have anything in the marketplace at this time, Mike. I mean, as you can see from our NOI growth, every one of our assets in, in our core markets is producing exceptional NOI growth today. you know, if there's, again, if there's an we'll remain opportunistic. If there is a solid bid, we'll look at that, but we're also happy to keep these assets and, and grow the cash flow with them.
All right. So fielding calls.
Mike.
Yep, sorry, go ahead, Sam.
Thank you, Mike. We are, and have been, and will continue to sell our older communities and recycle into newer communities. That, that is what we're front-ending on the new communities that we're buying and seeing 20% NOI growth or 18% NOI growth in our northern Alberta regions. Which, going forward, will help provide the capital to pay for these newer communities that we're high-grading and renewing our communities by doing, and that, that's something we'll always do.
Got it. Crystal clear. Thanks so much, and congrats on the strong quarter.
Thanks, Mike.
Thank you, Mike.
Your next question comes from Matt Kornack from National Bank Financial. Please go ahead.
Hey, everyone. Just to quickly going back to the administrative expenses, Lisa, appreciate the color that you provided there. Can you give a sense just how that will, kind of, develop over the next few quarters, and just in terms of the investment versus eventual savings, how we should think of it?
Yeah, I think, I mean, the big focus will be sort of largely the technology side, I think, will really come into play sort of 2024, 2025. It's all part of our large platform optimization. In full transparency, Matt, I don't- I can't say I can get down to specific numbers, but the goal is using that technology to make sure we stay below inflationary pressures. Boardwalk's always done that. That's been our, our focus and our discipline, and we will continue to do that. I think that's where you're gonna see that technology benefit will help us keep us below inflation.
Okay. Just, I mean, for G&A itself, inclusive of non-cash compensation, this quarter was a little bit high relative to Q1, but should we look at an average of the 2, or is Q1 a better proxy for kind of the balance of the year?
I, I would say Q2 is a better proxy if I had a choice.
Okay.
I think the important consideration as we move through the latter half of the year is, that outperformance that we're seeing from the team, that could impact a bit our bonus accruals going forward. If anything, I would. Yeah, I would lean more towards the Q number, Q2 number moving forward when you're looking at your run rate.
Okay, fair enough. With regards to, to the leasing side of things, have you seen a change in, in tenant type, I guess, underlying income of the tenants coming in, as a result of the tighter market? Or is it kind of the same people that are just making more because there's been wage inflation?
Thanks, Matt, it's Sam. Absolute increase in our demographics and quality of our resident members. That's reflective of great jobs that are available and opportunities here. We're seeing a definite increase. Why? When there's so many applications, residents and prospects really work hard in making sure their credit, their jobs, their referrals and references are all super strong because everybody's aware how competitive our market is. It absolutely is increasing the quality of our residents. We're seeing a marketing improvement in that. Yes.
Yeah. No, that makes sense. I, I, it's been touched on a few times, but I just wanted to kind of clarify. I mean, your quarterly annualized market rent growth was something like 18% in this quarter, and hence the spread, mark-to-market spread widened. Are you gonna take a similar approach as you're taking on renewals to the new leasing, in terms of putting kind of a fixed number out there? Or is it, again, depending on the tenant suite, et c., property by property?
Hey, Matt, it's James. On the market rent growth, similar to, I guess, what Sam was saying on the strategic moderation, the pace of those adjustments will also be moderated as well, and that's how we're going to accomplish this longevity and sustainability of this new, new lease rent spread growth. There, there will be some lumpiness with that, but again, watch for a moderation of the pace on those market rent adjustments.
Okay. it's, it's not gonna be Ontario-style rent control, but it'll be, Boardwalk-style rent control?
It's gonna be about sustainability.
Yeah.
A win-win-win scenario for residents, for stakeholders, for everybody involved.
Makes sense. Thanks, Ed.
Thanks, Matt.
Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. There are no further questions at this time. I will turn the call back over to Sam for closing remarks.
Thank you, Julie. As always, if there are any further questions or comments, please do not hesitate to contact us. With gratitude, we'd like to thank our extraordinary team, loyal residents, CMHC, our lenders, our unitholders, and all our stakeholders. It really is all about our people, whose huge shoulders we stand on. As leaders, we continue to do everything we can to support continued growth and extraordinary. We really can't thank our extraordinary team and great leaders enough. We are pleased with our improving results on a foundation of exceptional value, service, and experience we continue to provide our resident members, our investors, and all our stakeholders. Welcome home to Love Always. Our future is family. What can be more important when choosing where to call home? Thank you again, everyone, for joining us this morning. God bless and grant us all peace.
Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines. Thank you.