CA - Boardwalk Real Estate Investment Trust (BOWFF) Q3 2023 Earnings Call Transcript

2023-11-09 00:18:13 ET

Boardwalk Real Estate Investment Trust (BOWFF)

Q3 2023 Earnings Conference Call

November 8, 2023, 01:00 PM ET

Company Participants

Eric Bowers - VP of Finance and IR

Sam Kolias - Chairman & CEO

Samantha Kolias-Gunn - Independent Trustee

Lisa Smandych - CFO

James Ha - President

Conference Call Participants

Jonathan Kelcher - TD Cowen

Mario Saric - Scotiabank

Kyle Stanley - Desjardins

Mike Markidis - BMO

Jimmy Shan - RBC Capital

Sairam Srinivas - Cormark Securities

Dean Wilkinson - CIBC

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Boardwalk Real Estate Investment Trust Third Quarter 2023 Earnings Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on November 8th, 2023.

I would now like to turn the conference over to Eric Bowers, VP of Finance and Investor Relations. Please go-ahead sir.

Eric Bowers

Thank you, Laura. And welcome to the Boardwalk REITs 2023 third quarter results conference call. With me here today are Sam Kolias, Chief Executive Officer; James Ha, President; Lisa Smandych, Chief Financial Officer and Samantha Kolias-Gunn, Senior Vice President of Corporate Development and Governance. Please note that this call is being broadly distributed by way of webcast. If you have not already done so, please visit us at bwalk.com/investors, where you will find a link to today's presentation, as well as PDF files of the Trust's financial statements and MD&A.

Starting on Slide 2, 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 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.

I would like to now turn the call over to Sam Kolias.

Sam Kolias

Thank you, Eric, and welcome everyone to our Q3, 2023 conference call. Starting on Slide 4, our strong performance with our GAAP and non-GAAP measures of FFO per unit profit, net asset value and unit holder equity, seeing an increase from the same quarter of the prior year or September 30th, 2022. And profits seem decreased quarter-over-quarter due to reduced fair value adjustments.

Slide 5, our culture from our humble beginnings in 1984. Our resident members are at the top of our organization. Our leaders put our team first and our team puts our resident members first. Guided by the golden rule, we have a peak performing customer service culture that creates exceptional results.

I would like to now pass it over to Samantha Kolias-Gunn.

Samantha Kolias-Gunn

Thank you so much, Sam. Slide 6. Our strategy to create value for our stakeholders begins with our people. We are so grateful for our extraordinary team and family who continue to innovate and deliver our places. Homes for our resident members, where love always live.

Our strategic focuses are: best-in-class organic growth from our strategic decision made several years ago to implement a distribution policy which maximizes free cash flow, reinvestment back into our communities, leverages our proven team and platform to deliver the best service and value to our resident members, which results in optimized NOI growth. When we pair all of these with the improvement in a property rental market fundamentals in our core markets on a solid foundation on some of the most affordable rents in Canada, we are well positioned to continue to deliver best in class organic growth.

Accretive capital recycling focuses on opportunistic investment into acquisitions, dispositions, development, and investment into our own high quality existing portfolio. With the tactical unit buybacks when appropriate, to also increase free cash flow.

Compelling value from our strategic decision to diversify our product offerings into three distinct brands, affordable living, enhanced value community, and affordable luxury lifestyle. This strategic decision combined with our maximizing of free cash flow and reinvestment back into our communities has positioned Boardwalk as a leader in multifamily community providers with growing free cash flows.

Our solid financial foundation provides flexibility on our balance sheet with a minimum distribution policy which maximizes available capital from our growing funds from operations for reinvestment back into our communities.

With our ladder mortgage renewal approach and CMHC insurance, 96% of our financings, this continues to provide a stability and access to low-cost mortgage capital with reduced renewal rents.

Slide 7. We are delivering leading growth Boardwalk’s existing exposure to strong rental demands in non-price controlled markets with record immigration, significant organic growth as Alberta has some of the most affordable rental rates in the country with limited new supply versus demand from both international and interprovincial 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, however 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 immigration into our core Alberta market.

All of our apartment rental fundamentals continue to improve with higher revenues as a result of our significant improvements and inflationary adjustments coupled with essentially no new incentives on new and renewing leases. All of our markets have neared 99% occupancy and strong apartment rental fundamental.

Slide 8. Shows the significant magnitude and scale on a historic level of continued all-time record high immigration 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 significant job vacancies. Our federal government recently reaffirmed the same permanent resident targets for next year and into 2026.

Slide 9, shows interprovincial migration sources into Alberta for current year 2016 and 2006. Most interprovincial migrants are coming from Ontario and Quebec, with a big increase from DC. Reflecting a migration into more affordable housing in Alberta from higher housing costs in Ontario and DC.

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 Alberta’s leading economic growth from high commodity prices resulting in budget surpluses that will go towards debt repayment and savings contributions for future investment. Smaller debts will also result in smaller interest costs for our Alberta government.

Slide 12, some headlines that reflect the 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 13 shows a large presence in affordable and non-priced controlled markets. With Alberta and Saskatchewan representing 62.1% and 10.3% of our portfolio, respectively. Boardwalk has the highest Canadian concentration of non-priced control departments amongst our public REIT peers. Boardwalk’s current mark-to-market which includes the reduction of incentives averages $177 per suite and equates to approximately a $69.9 million revenue opportunity.

Slide 14 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 index inflation. There remains a significant gap between occupied brands and the changeover 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 15, shows a graph on the left, which shows significant imbalance between strong demand or immigration versus supply or new builds in the yellow black and gray 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 persistent higher interest rates.

Slide 16, shows high occupancy now close to 99%. As a result of strong apartment rental fundamentals and are leading diversified product offerings in all our key markets. Move outs versus last year are also dropping as our retention and value proposition continues to increase. It is important to compare same month over previous month last year because of seasonality.

Slide 17, shows our key operational metrics with high occupancy lower incentives, higher occupied rents, resulting in higher revenues for the quarter, reflecting our key strategic decisions made to maximize free cash flow and diversify our product offering yielding significant financial performance.

Slide 18, shows steady net new and renewal rental rates within our resident friendly centric renewal rate band, keeping our 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 residents friendly affordable housing options in our core markets, while lowering our costs and steadying operational results. A win-win for all our stakeholders. Slide 19, shows a growing 2.6% sequential quarterly revenue gains an increase from 2.3% in the previous quarter.

We would like to now pass the call on to Lisa Smandych, who will provide us with an overview of our portfolio performance and balance sheets. Lisa?

Lisa Smandych

Thank you, Samantha. Moving to Slide 20. For Q3, 2023 same property net operating income increased by 12.1% as compared to Q3, 2022, with revenue growth of 8.9%. For the nine months ended September 30th, 2023, same property net operating income increased by 12.7% with revenue growth of 8.6%.

Edmonton the trust’s largest market saw revenue growth accelerate to 9.6% in Q3, 2023, and 9.3% for the nine months ended September 30th, 2023, as compared to Q3, 2022 and the nine months ended September 30th, 2022, respectively. Operating expenses increased by 3.6% in Q3, 2023, and 2.7% for the nine months ended September 30th, 2023, primarily the result of increased wages and salaries, repairs and maintenance, and utilities as a result of higher rates. The team remains committed to ensuring focus and discipline when managing controllable operating expenses.

Slide 21, administration costs increased by $2 million in Q3, 2023, as compared to Q3, 2022, while also increasing $900,000 as compared to Q2, 2023. This increase was mainly driven by inflationary wage adjustments at the beginning of 2023, as well as larger bonus accruals recorded in Q3, 2023 as a result of the trust's financial performance, differed unit base compensation increase due to the increase in the number of participants as well as the cost of the program.

Slide 22 illustrates Boardwalks 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 five year and 10-year CMHC rates of 4.7%.

The current interest rates are above the trust maturing rates, the trust maturity curve remains staggered, reducing the renewal amount in any particular year. Lastly, the trust has an interest coverage of 2.88 in the current quarter.

Slide 23 summarizes our 2023 mortgage program. Overall, we have renewed or forward locked $327.2 million as well as secured $72.5 million in new financing at an average rate of 4.5% and an average term of seven years. Included in these financings is $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.

In addition, the trust obtained $46.5 million of CMHC financing at 3.89% and a seven-year term for its acquisition of the view in Victoria British Columbia. Current underwriting criteria in our most recent submissions to CMHC and our lenders has remained in line with our historically conservative estimates.

Moving to the right of the slide we provide a summary of Boardwalks available liquidity. The trust is well positioned with approximately $56.4 million in cash and subsequently funded financings as well as an undrawn $196 million operating line. This approximate $252 million in liquidity provides the trust with a flexible financial position.

Slide 24 illustrates the trust estimated fair value of its investment properties, excluding adjustments for IFRS 16, which totaled $7.4 billion as at September 30th, 2023, as compared to $6.8 billion as at December 31st, 2022. The increase in overall fair value is a result of increases in market rents at select sites and communities as market fundamentals improved, as well as the Victoria acquisition, while being slightly offset by an increase to capitalization rates as discussed on the next slide. Current estimated fair value of approximately 216,000 per apartment door remains below replacement cost.

Moving to Slide 25, in consultation with our external appraisers, the capitalization rates or cap rates used in determining Q3, 2023 fair value were increased from both Q2, 2023 and Q4, 2022. Upward adjustments were made to the trust Ontario and Quebec assets as well as Calgary to reflect the higher interest rate environment. 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 Calgary reports suggested 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 Shaw to highlight our capital allocation, developments and the trust exceptional value, James?

James Ha

Thank you, Lisa. Our maximum cash flow retention strategy remains key to our ability to opportunistically invest, and compound returns for our stakeholders. And as a result are growing cash flow is increasing our available capital deployment towards growth, while also further improving our leverage matrix. And you to seek opportunities for growth with our focus today on our value add capital improvement program sourcing strategic and accretive acquisitions and continuing our new development in undersupplied housing markets.

For the quarter, we are pleased to share an update on our capital deployment starting on slide 26, 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 on pace to complete 11 common area and amenity renovations 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. Our existing vertically integrated platform provides us with a 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 as 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 17 units to the market. Investing in small renovations to turn sweets from administrative use back into rentable units, we will add much needed additional housing in suite areas. We are currently under construction for an additional six units and are in the early stages of assessing feasibility on up to an additional 57 units in Alberta.

On slide 27, we provide an update to our ongoing development pipeline, debt housing and supply constrained markets. We are pleased to share that the lease up of the first hour of our 45-railroad development is complete with 100% occupancy at rental rates at the upper end our original expectation. Second tower has now received occupancy permit. I mean, it's progressing through leasing with a total of 56 or one-third of the units already rented today.

This project was delivered on time and on budget and we're projecting a development yield at the upper end of our forecasted range. Our Victoria development pipeline presents an opportunity for the trust to contribute new housing units, while also creating strong value for our stakeholders.

This buyer is our first of three developments in Victoria. They are progressing on completing 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.

Switching to our current valuation, Slide 28, highlights the exceptional value that Boardwalks Trust units represents at our trading price which implies a value of approximately 194,000 per apartment door. This compares favorably to the substantive transactions that have occurred in the external market.

Though our estimated cap rates are higher reflecting the higher cost of mortgage financing, our NAV has increased alongside, our strong NOI growth and is estimated to be approximately $82 per trust unit equates to just 216,000 per apartment door and represents an exceptional opportunity relative to market pricing and remains well below the increase in cost of replacement.

On Slide 29, Boardwalks trading price equates to an attractive 4.9% cap rate on our trailing NOI. With our double digit NOI growth. The forward cap rate at this price is in the mid-size and provides a significant spread to the current cost of mortgage capital and transactional cap rates in private markets. With favorable fundamentals, strong leasing trends, and leading NOI growth our current valuation represents exceptional value alongside are strong runway for earnings growth.

Our updated guidance outlook reflects these strong trends and are highlighted on slide 30. Boardwalks third quarter operating performance continued to be strong. Revenue growth was toward the upper end of our expectation with near full occupancy and strong leasing spreads. Operating expenses were on the low end of our expectations with our optimization efforts ongoing and non-controllable expenses such as utilities coming in at the low end of our prior expectations.

This has allowed us to increase the bottom end and tighten our same property NOI growth range to 12.5% to 14% growth for the year. As the strong same property NOI performance compounds into the fourth quarter, our recent acquisitions and developments are also outperforming our expectations. Interest rates, though higher are well within our forecast balance. Interest earned on cash is above our expectations and our G&A optimizations have assisted us in allowing a translation to a forecasted double digit growth rate for FFO per unit.

For the year, the trust is tightening and upwardly revising our 2023 FFO per unit guidance to $3.52 to $3.60 per trust unit. Our team is committed to leading in transparency, and we'll continue to update our stakeholders in the event of any change in conditions that may materially impact our forecast.

On slide 31, our Board of Trustees has confirmed our monthly cash distribution of $1.17 per trust unit on an annualized basis for the next three months. Our distributions have increased alongside of growing cash flow while maintaining our industry low payout ratio, providing significant cash flow, reinvestment and positioning Boardwalk with ample capital for growth. As is customary to Trust will review any necessary regular distribution increase to meet our minimum requirement and adjust accordingly with our fourth quarter results.

Lastly, on Slide 32, we are proud to share our continued improvement to our GRASP score which highlights our focus and continual progress towards leading sustainability stewardship. Our GRASP score of 71 is an improvement from last year. And we are proud to have been ranked first amongst our peer group and public disclosure. Thank you to our Boardwalk team and all our stakeholders for accomplishing this amazing recognition.

This concludes the formal portion of our presentation and we would be happy to answer any questions. Laura?

Question-and-Answer Session

Thank you, sir. [Operator Instructions] We have our first question coming from the line of Jonathan Kelcher with TD Cowen, please go ahead.

Q - Jonathan Kelcher

Hi, there. First question just on market rent growth. How do you how do you see that trending into 2024? And how long do you think can keep sort of at the same pace going?

James Ha

Hey, Jon, this is James. The market rent growth has been quite consistent, certainly we track that would be with our leasing spreads. As we've talked about, we are strategically moderating the pace of adjustments with those market rent adjustments and to-date, we have been accomplishing leasing spreads inside of that targeted range specifically in Alberta between 10% to 15%. You know Smandych had pointed out in her prepared remarks, affordability continues to be the best in the country right here in Alberta. And so we believe that this approach is going to create a longer runway for us with this continues market rent adjustments.

Jonathan Kelcher

Okay, and then I guess, just on the same property expenses, the growth in Edmonton was on the expense side was a lot lower than your other larger markets. Can you maybe give a little bit of color on that and how you expect that to trend into next year?

Lisa Smandych

Sure. Hi, Jonathan, it's Lisa. Edmonton is as this group would know, they really benefited from our platform optimization program. So the way that optimization specifically looked at when we had associates leave the organization, did we need to replace positions so we really managed with turnover going down and occupancy going up? Could we maximize or optimize our platform and so the benefits you're seeing on that revenue and expense side is directly related to that platform optimization.

The other market is just not having such a large presence didn't have the same opportunity for the expense savings, but still would have seen some through that optimization. So moving into 2024. The timeline it gets with the optimization will be what impact 2024 results. And sort of would have happened through the year, largely at the beginning of the year. So you might expect more inflationary side adjustments as we look at 2024.

Jonathan Kelcher

Okay. So basically, if you've got the full, or mostly the full benefits of it right now, and 2024 should just be more inflation type growth, the way to think about it?

Lisa Smandych

Maybe a little bit of benefit trickles into Q1 of 2024? But then yes, it would move more towards inflationary. Don't get us wrong, though, we're always going to look to see how can we continue to optimize that platform, evaluating those head counts, while also looking at technology and other opportunities to ensure we keep those expenses as low as we can?

Jonathan Kelcher

Sure. We’ll turn it back. Thank you.

Operator

Our next question comes from the line of Mario Saric from Scotiabank. Please go ahead.

Mario Saric

Hi, good afternoon. One, or the first question just on capital allocation. I may have missed it. But it looks like you may have removed kind of your uses and sources of capital, that little matrix that you put in the presentation a couple of quarters ago. So just curious to see whether the positioning or the various use of that source of capital have changed. Specifically, with your free cash flow today, what is looking like the most attractive risk adjusted return in terms of deployment?

James Ha

Hi, Mario, it's James. No change to the view of those sources and uses certainly. As our stakeholders will know, we certainly pay some priority and have a business model that focuses on growing free cash flow. That is the cheapest form of capital. And that's allowing us to make capital allocation decisions each and every day. As we pointed out in our prepared remarks, we're continuing to focus on reinvesting back into our portfolio where we can develop great yields from repositioning, rebranding and renovate suites, where appropriate.

All that said, you know, we continue to have cash on our balance sheet as well. And, Lisa reminds us that we're in great interest rates for having that cash on the balance sheet. And so we're also looking at opportunities to deploy towards accretive acquisition, when those opportunities to come. So certainly no significant change toward our view on those [indiscernible]. It's in addition to that, because there hasn't really been any changes we’ve been speaking into it in our prepared remarks.

Mario Saric

Got it. Okay. And then just on the accretive acquisitions, how would you characterize the environment today versus three months ago, in terms of opportunities to transact that valuations that makes sense?

James Ha

Yes, I think, interest rates were they were even a month ago, we saw interest rates on CMEC [ph] fell north of 5%. Are we cutting out Mario?

Mario Saric

You did briefly, but you're back.

James Ha

Okay. Perfect. Thank you.

Mario Saric

Last thing I heard was north of 5%.

James Ha

Yes, so interest rates -- pardon me. We’re north of 5%, on a CMHC front, we certainly saw fewer even listings come up at that juncture. Today, we see interest rates on the CMHC front up 5%. As Lisa pointed out with our discussions with appraisers, and even with our own fair value and estimates of cap rates for us using a 5% cap rate within our own portfolio. And so, you know, with interest rates coming off, certainly we believe that that's going to start to perhaps unlock some opportunities in the transaction market. But today even characterizing versus – today versus three months, which was your original question. Not a lot of activity still to-date

And so, from our standpoint, though, we believe that that's what's going to create that opportunity for us in sourcing those accretive opportunities.

Mario Saric

Got it. And some of your peers are more focused on new construction, some more focused on value add, how would you characterize your acquisition, appetite in terms of the type of product that you're most interested in?

James Ha

Mario, Sam, and what we're always looking to allocate into is what's going to create the most value. We have an exceptional capability to repurpose, rebrand and reposition existing communities and we've demonstrated that significant value creation with our own communities and so we've got in-house capability vertical integration that allows us to quickly retransform older communities. So that's a huge source of value creation and the biggest source of how we've created the most amount of value over the last several years.

The new construction we've created significant value with as well with our construction partners. And that will continue to be an avenue of value creation, but not as significant as what we've seen with our organic growth. The market is a much higher interest rate market, especially for builders right now who are using variable rate financing that typically is close to double digits, that's creating a lot of pressure on the developers and much greater incentive to sell and be more flexible on when these new developments are sold, versus holding on to and refinancing out of like the past with lower interest rates.

And we realize this already, but that we're seeing more opportunity come to us as a result of the higher borrowing costs developers are having to pay to finish the development. And so it's really important for developers to sell sooner versus later to realize the internal rates of returns or hurdle rates that they've set many years ago, or a couple of years ago, before the project was under construction.

So we're seeing opportunities with higher overall cap rates as everybody seeing higher cap rates. We love higher cap rates, why? Because it's higher free cash flow, higher returns and a much quicker payback as well. So we're seeing an environment more traditional as to when we really grew rapidly in our start, in our initial 10 20-year period of growth. That's the same environment we're in now are similar with higher cap rates, higher returns and higher paybacks. So it's a lot more exciting time for us, because it's back to the future of higher returns.

Mario Saric

Okay. Just one follow up on that. So the acquisitions or the development opportunity that you see, how do you think about the balance sheet today, in terms of your debt to GDP or your debt EBITDA? However, you want to answer it? Are you interested, or are you open to increasing leverage a little bit to fund some of these acquisitions, as funding of acquisitions or transactions predicated on selling some assets, or equity financing, kind of play a role into the opportunities that you see going forward?

James Ha

Back to the future, again, when we first started as a private company, and even a public company, we reinvested 100% of our free cash flow. And we're pretty close to that now at 70% Mario. So our biggest source is free cash flow, that's a proven track record of how we grew up 16 units to close to 40,000 units with very, very little equity issuance over that period.

The balance sheet we always like to strengthen and using debt now is more expensive. So it's, it's less preferable, and is the reason why we would transact more and see more transactions and focusing on our non-core assets that are not going to perform as much as the new acquisitions or development opportunities that we're in. And so we're looking more to recycling our capital and high grading our assets and, more importantly, high grading our free cash flow.

And everything that that we're looking at, we're asking. How is that going to increase our free cash flow, and the more free cash flow we generate, obviously, the more capital we have at hand. That's at a very low cost that we can continue generating even more free cash flow. And so that really is our focus is.

Again, back to the future and using free cash flow focus. The least expensive source of capital that we can reinvest back into our communities or our acquisitions, our development programs, and continue to create the best product service and value for our residents at the very end of the day.

Mario Saric

Got it. That's really helpful time. My last one, just really quickly, I know, the story is transitioning more toward the market rent growth story as opposed to incentive burn off. But just from a modeling perspective, the incentives are coming down at an average of $10 to sweep per quarter give or take a couple of dollars, to that type of burn off a reasonable expectation through the end of ‘24 such that the existing $35 $36 in terms of per suite average essentially comes down to zero by next year.

James Ha

That is a reasonable expectation, Mario. Again, the trends that we're seeing here today to are continuing in the marketplace. You know, we can speak to new and renewal spreads on a forward basis as our team is negotiating and having discussions with our residents, and we're continuing to see a similar pace within our targeted range, which would imply a similar incentive burnout trend as you were suggesting, Mario.

Mario Saric

Okay. Thank you.

Operator

Our next question comes from the line of Kyle Stanley from Desjardins, please go ahead.

Kyle Stanley

Thanks. Good afternoon, everyone. Maybe just building on your OpEx outlook commentary from earlier, based on everything you're seeing on the OpEx side, as well as on the leasing demand front as we head into year end, and maybe a bit early, but anything that suggests you see a material slowdown in organic growth in 2024?

Lisa Smandych

From an operating expense standpoint, or from NOI, just making sure.

Kyle Stanley

Yes, more from an NOI perspective. I mean, obviously, taking into account what you just said on OpEx, I think was fairly positive, but I'm just -- when you bake it all together, what are you thinking on the NOI growth front?

Lisa Smandych

Yes, overall, Kyle, we certainly expect that we are going to see some positive NOI growth when we move into 2024. I think James shared some color sort of when answering Jonathan's question about where we're seeing with revenue from an expense standpoint, you're correct. We certainly look at managing those controllable expenses. At this juncture, specific from an NOI expense category. We don't anticipate any sorts of -- we would anticipate normal inflationary type adjustments when we're looking at expenses for 2024. So yes, overall, NOI growth is expected when we think of 2024.

Kyle Stanley

Okay. Probably not a material slowdown from the strong growth we've seen this year, which is great. Next question, bit of a broader question. But, our focus has primarily been on Alberta over the last several quarters, and obviously rightfully so just given the strength. But operating results in Saskatchewan have also been really strong as of late. So I'm just wondering, can you talk about your thoughts on the portfolio in Saskatchewan? Maybe, the contributors to that growth, what's driving it and your outlook, maybe with regards to leasing demand rental growth in the markets that you're in?

Sam Kolias

Kyle, its Sam. Saskatchewan is our inspiration and our first peak performer and strongest team and results for the longest period of time, why? Saskatchewan's team, again, we stand on big shoulders and leadership is exceptional and extraordinary and started to produce exceptional results with a very big focus on retention and high occupancy. All the things we're seeing in all our markets right now we saw in Saskatchewan a while ago, Saskatchewan, the affordability is even higher than Alberta, the most affordable place and we're happy you're bringing Saskatchewan up and our team's tickled pink that we're talking about Saskatchewan right now, as our team listens to our calls, because it's an exceptional place to live.

And we're seeing extraordinary demand, far outpaced supply and what we saw in Saskatchewan, with respect to high demand for food, high demand for resources, all the things our planet and we need high demand because affordability has to be in front of energy and food just as much as housing. And so that's what we're really seeing a big demand for affordable food and energy of which Saskatchewan is a big contributor to those two other essential products and services that we all rely on. And we're seeing exceptional growth and will for many years to come.

We completed our board meeting, we're hearing about the low cost of production of essential resources, like potash came up in our boardroom and the capacity to produce that with old production that's been developed very costly to produce these resources. And because we've got a huge advantage of the infrastructure that is already producing that the cost of increasing that production, because of inflation is costing even more now. And so we've got a big advantage that we're producing what our world and planet needs more affordably than anybody else's.

And so we've got a long, long ways to go and a big runway, because of all the all the essential resources and food that we have that our world is increasingly needing.

So that's sorry, a long answer to that question. But it's a reflection of how we feel about our future and how it's reflected in economic reports, by economists, in our particular region, we absolutely are at the best place at the best time. And we see that happening for quite a while going forward just because of the geopolitical events that we're seeing, and the interruption of these essential resources and products that we're seeing. And so we're in a great -- we're in the best spot.

Kyle Stanley

Perfect. So thank you for the thorough response. I'll turn it back.

Operator

We have our next question coming from the line of Mike Markidis from BMO. Please go ahead.

Mike Markidis

Thanks, operator. Just on the railroad. Congrats on the leasing success so far, and for delivering the project on time and on budget. Can you remind us what the total cost basis for development is?

Sam Kolias

Approximately $150 million, but that…

Lisa Smandych

I think it's closer to $200 million.

Sam Kolias

Between 150 and 200.

Mike Markidis

Okay. And is that at 100%? Or Boardwalks interest?

Sam Kolias

That's 100%.

Mike Markidis

100%. Okay, perfect. Thank you. So I guess there's construction debt on that project. When do you think it'd be in a position to take that out?

James Ha

Mike, it's James here. We're in conversation with our lender in terms of the best opportunity for that certainly, CMHC -- transitioning that over to CMHC would be a priority for us. Good news is that lease up is going really well on tower two, we're already a third of the way through tower two. And so the quicker that we can lease that up, the quicker we can transition that over to a CMHC insured loan. Ideally, we can see that occur sometime over the next quarter or two.

Mike Markidis

Okay, perfect. And I guess just I'm not too familiar with your partner, I think it's Redwood [ph], I guess they look to be more of a developer then as opposed to a long term owner of rental assets. Do you have any thoughts in terms of is there a plan for them to exit this asset once it's stabilized or is it expected to be a long term hold, with the partnership continue as is for longer period of time?

James Ha

Yes, our partnership here with Redwood, and we certainly don't want to speak for them. But similar to our other partnerships. This is a long term hold for both parties, shoulder to shoulder where we are creating long term value with this asset.

Mike Markidis

Okay, great. And that's all I got. Thanks so much. Great quarter.

Operator

We have our next question coming from the line of Jimmy Shan from RBC. Please go ahead.

Jimmy Shan

Thanks. If you look at the leasing activity in the quarter in Alberta, as an example, how do the new lease rent compare within renewal rents? Not the spread but the actual rent. So they're both the same or the renewal rent slagging the new rents by quite a bit.

James Ha

Hey, Jimmy. It's James. New lease rents are slightly higher. I mean, certainly when we look at lease spreads, new lease spreads are higher as a result, but they're not they're not materially different. It's not like our more price controlled markets where there are big differences between new leases versus renewals in our Alberta, Saskatchewan market, there is a slight difference on that aggregate rent for new leases, but the differential is nowhere near what it is, a non-price control markets -- certainly price controlled markets.

Jimmy Shan

Yes. Okay. And so then a follow up on the rent growth comment that you made for next year. So is it that you think that next year the spreads that you're currently seeing the 7% to 9% on renewals, 10% to 15% on new. You think that's sustainable at about the same pace next year, despite the base being higher? Or, I don’t know what you said there?

Sam Kolias

Yes, I mean, look, our approach of focusing on retention is lowering our operating costs. It's sustainable for our residents. It's allowing us to frankly maximize and optimize our NOI. On the new lease fronts, this target of 10% to 15%. We certainly believe it is sustainable, because, as Samandych had in her prepared remarks, affordability continues to be some of the best here in the country. And so when we look at supply and demand fundamentals, we certainly believe that there is a long runway here for rental rate growth and adjustments.

James Ha

Jimmy, slide 35. Q3, in total, were at 2,380 move out this year. Q3 last year, were at 2,839. So, we've made this adjustment as low as possible at that 8% 9%. And we saw a pretty significant drop in move outs, and a much higher retention, why? There's nowhere else to go.

So what is the market rent? Is the question when there's no vacancy, like, how is that determined? When we don't have vacant units, other than the brand new units, there's vacancy in brand new units, and they're typically between $2,000 and $3,000 a month, depending if it's a one or two-bedroom apartment. And that's a vacant unit, somebody could move into easily today, and that's really the availability that we're seeing.

But for existing affordable apartments, we're all being very responsible, and taking the long road and the resident friendly approach road, to minimize our adjustments as much as we possibly can to keep our affordability advantage, keep our brands and our retention high and satisfaction high. And it's working, delivering great results too. It really, really is a win, win win. And we see this happening. And sustainable is a key word and we see this being sustainable over the next two, three years. And it's impossible to predict the future, as we don't know what the future is. But we're -- as everybody can feel and hear we're confident about the sustainability of our results.

Jimmy Shan

Thank you.

Operator

We have our next question coming from the line of Sairam Srinivas from Cormark. Please go ahead.

Sairam Srinivas

Thank you, operator. And good afternoon, everybody. Apologies as those already been asked before, and it has been answered. But I was just wondering in terms of the broader dynamics in terms of the macro announcements of GST and other favorable announcements on the housing front. Are you seeing a shift in sentiment from developers and people in the market towards purpose built rental versus built to sell?

James Ha

Hey, Sai. It's James. I can start on this. Certainly we applaud our government's shift towards starting to incentivize the supply side of this housing shortage that we have. I think, certainly in markets like Alberta, where there is no provincial portion of that GST. I think that incrementally will help but at the end of the day, sadly, interest costs, as Sam pointed out earlier, are still quite high construction costs are still continuing to increase. And so we believe we will start to see some additional supply response given that improved news, however we have we have not seen it yet.

To-date it just sadly, as Sam pointed out it's tough to pencil soft pencil development on the purpose of a rental side. I don’t know Sam if you want to add on GST front.

Sam Kolias

It's great news and great proven public policy that creates affordability. And we always like to reaffirm, and we can never remind everybody the law of supply and demand is not a theory, it's a law. When we reduce the price, and the taxes of anything, we reduce the cost of it, and increase the affordability and increase the supply of it. And so we applaud our policymakers for making the right move, to create more affordable housing for all Canadians. And this is a great, big first step.

It's like Neil Armstrong, big quote, Small Step for Man, but One Big Step for Mankind. It really is a big step for affordability and in the right direction. And we have to continue to move in that direction, with our public policy and reduce taxes on something we need more of, and that's housing. And so we're so happy to see that that's, big kudos to our government, and our policymakers. And what we need more of it that is for sure.

And it's good to see, for all Canadians, this move. And we believe the right move, going forward will continue to happen. Because we trust in our relationships and our policymakers and making the best decision. When we all have the best information? And we all work together. And this is a reflection of how that does work. When we do work together, share the information, what works, the right decisions, the best decisions are always made.

Sairam Srinivas

Thanks for the color guys. Just really combining this comment of the difficulty that Matt, with Sam, your comment earlier about recycling. Are there some markets where you feel which are easier or maybe more lucrative to operate as a purpose built rental market versus others, and you probably consider lightening up in some markets was renting some others?

Sam Kolias

We're really a competitive market, housing provider. And that's where we're seeing the best, most affordable rents and the best, biggest opportunities create value. And is in the marketplace like Alberta and Saskatchewan, where we can do what we do best. That's build, that's operate and deliver housing, because it's a competitive market place that we're in.

And we believe being in a competitive marketplace is the best place to be. And so that's going to continue to be our focus, is in competitive marketplaces. That includes, by the way brand newly built communities in Ontario, for example, that are competitive and are provided by market participants because of the regulation that's different for new supply than it is on existing supply. And so it can be in a regulated market that's not with new supply. And so that we still feel and see and are producing the best results in our core markets and see that for the foreseeable future, though.

Sairam Srinivas

Thanks for the color, Sam and James. I’ll turn it back.

Operator

Thank you. We have your next question coming from the line of Dean Wilkinson from CIBC. Please go ahead.

Dean Wilkinson

Thank you, and good afternoon, everyone. Sam, last quarter, we kind of spoke a little about individual condo investors coming into the market and we're seeing an influx of listings in the GTA. How's that dynamic look there and are you still sort of seeing upward pressure on those individual units? And is that kind of putting some more pressure to the upside on the asking rents there that I guess ultimately filters through to your product as well?

Sam Kolias

It certainly creating or supply and we remind everybody and refer to the Canada Mortgage and Housing site, that housing is a continuum. And there's a great graphic on affordable housing and how any new supply benefits everybody why? Because if there's a resident in an affordable unit, and a promotion happens, that resident moves into a more expensive unit that more expensive unit, same thing happens in that resident, the more expensive unit moves into a brand new condo, that's more expensive, say, and the condo owners get promotions and move into a new home.

And so the continuum helps increase supply period. So any new supply, regardless of where it is in the continuum, is a positive for everybody, because it's all interlinked. And so overall, it's essential, we build more supply period. And it's essential we have public policy, that lets developers do what developers do, build.

What we're seeing in the United States right now, we saw in Alberta deemed the oversupply developers will build until there's too much building and supply. That's what developers do. And that creates affordability. And we're seeing in the United States rents flattened out. Why? Because there's so much new supply. And so our competitive market works. It's not perfect, it's not instinct, but it works out a whole lot better than regulations. That's a 100%, as what the evidence clearly shows.

And so, we're happy to see condominiums pick up. Why? Because they're really affordable. We toured a site a couple of weeks ago, at the university, and one of the developers is sharing their pre sailing condos in the Northwest where we built Brio, for example, at $700 a foot for a wood frame, condominium. That's incredible, compared to what we built 304, we've created a lot of value. That's exciting.

And those, those $700 foot condos in the university are really affordable compared to the $1, $1.5 bungalows that are selling in Brentwood and are surrounding the University of Calgary. So everything is relative. And the Condominiums are definitely seeing an increase in price. But we're also seeing an increase or continue or actually a steady amount of bill, because it's tough to get trades, it's tough to increase construction capacity is what still is the challenge. Because it's tough to find carpenters and trades people are still hard to find and we have to promote our trades and increase that supply.

And in immigration policy. We're seeing a lot of construction and trades come in. We're hiring. And a lot of the new immigrants are working at our sites, renovating new sighting, we were at one of our communities in Edmonton, and met with a lot of our Ukrainian brothers from other mothers that were helping us rebuild our sighting there. And so lots of carpenters and skilled people coming in from Ukraine as what we're seeing. And so we're really happy that we are figuring out how to increase supply but not fast enough. But that's one thing that we have to all work on.

Dean Wilkinson

Cats never fast enough. I guess the nine most dangerous words in the English language are still alive from the government and I'm here to help. Thanks for the color. Sam, I'll turn it back.

Sam Kolias

Thank you. We have to remember Dean, we the people, for the people by the people of the people. We are the government, we have to remember that we have to all work together there.

Dean Wilkinson

That we do.

Operator

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Sam Kolias, for final closing comments.

Sam Kolias

Thank you, Laura. 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 unit holders and all our stakeholders. It's really is all about our people, whose huge shoulders we continue to stand on. And as leaders we continue to do everything we can to support continued growth and our extraordinary.

We really can't thank our extraordinary team and great leaders enough. We’re 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. Home is where our heart is, our heart is where our family is, and our family is where love always lives. Welcome home to love always, our futures family, what can be more important when choosing where to call home?

Thank you again, everyone for joining us this morning. We honor all our fallen heroes during this remembrance and lest we forget the life sacrifice for the freedom we all have. God bless us and now more than ever, grant us all peace.

Operator

Ladies and gentlemen, this concludes our conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.

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Boardwalk Real Estate Investment Trust (BOWFF) Q3 2023 Earnings Call Transcript