Boardwalk Real Estate Investment Trust's (BOWFF) CEO Sam Kolias on Q1 2016 Results - Earnings Call Transcript

| About: Boardwalk Real (BOWFF)

Boardwalk Real Estate Investment Trust (OTCPK:BOWFF) Q1 2016 Earnings Conference Call May 13, 2016 11:00 AM ET

Executives

James Ha - Director of Finance and Investor Relations

Sam Kolias - Chief Executive Officer

Roberto Geremia - President

William Wong - Chief Financial Officer

William Chidley - Senior Vice President of Corporate Development

Analysts

Jonathan Kelcher - TD Securities (NYSE:USA) LLC

Heather Kirk - BMO Capital Markets

Michael Markidis - Desjardins Capital Markets

Jimmy Shan - GMP Securities L.P.

Matt Kornack - National Bank Financial

Alex Avery - CIBC World Markets

Operator

Good morning. My name is Melissa and I will be your conference operator today. At this time I would like to welcome everyone to the Boardwalk Real Estate Investment Trust First Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I will now turn the call over to Mr. James Ha, Director of Finance. You may begin your conference.

James Ha

Thank you, Melissa. And welcome to the Boardwalk REIT 2016 first quarter results conference call. With me here today is Sam Kolias, Chief Executive Officer; Rob Geremia, President; William Wong, Chief Financial Officer; and Bill Chidley, Senior Vice President of Corporate Development.

Note that this call is being broadly disseminated by way of webcast. If you haven’t done so already please visit boardwalkreit.com where you will find a link to today’s presentation as well as PDF files of the Trust financial statements, management discussion and analysis as well as supplemental information package.

Starting on Slide 2, I would like to remind our listeners that certain statements in this call and presentation may be considered forward-looking statements. Although the Trust believes that 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 the earning press release and in other publicly filed documents including Boardwalk REITs Annual Report, Annual Information Forms and Quarterly Reports.

Moving on to Slide 3, our topics of discussions for this morning will include a review of current rental market fundamentals, our latest acquisition and development updates, financing highlights, operational review, and lastly our finance and financial guidance review. At the conclusion of today’s presentation, we will be opening up the phone lines for questions.

I’d like to now turn the call over to Sam Kolias.

Sam Kolias

Thank you, James. And thank you, everyone for joining us this morning. Starting on Slide 4, some financial highlights for the first quarter 2016 includes total rental revenue of $113.4 million, a decrease of 5.6% from the same period last year. On the same property basis which excludes the winter portfolio sold in September of 2015, total rental revenues decreased 2.2%.

Please also keep in mind these comparisons are against a very strong first quarter and first three quarters of last year 2015. Total NOI of $67.1 million down 7% from the same period last year excluding winter, NOI decreased 5% from the same period a year-ago. Funds from operations of $39.1 million, a decrease of 11.4% from Q1 2015, FFO per unit up $0.77 on a diluted basis down 9.4% from last year.

Please note that last year excluded $0.02 of FFO from winter, which has been offset almost entirely by our normal course issuer bid by an equal amount. And adjusted funds from operation per unit which includes an estimated $525 per apartment unit of maintenance capital per year of $0.68 for the first quarter 2016 down 11.7%. Please note there is a $0.02 one-time G&A charge in both FFO and AFFO per unit.

Moving on to Slide 5, oil prices have remained lower for a longer period of time. Despite the challenging economic environment Boardwalk continues to mitigate further declines in NOI and FFO as a result of our continued focus on optimizing NOI through higher incentive which has led to higher occupancy level.

The Calgary and Edmonton rental market has softened and with increased incentives suite upgrades have remained in a relatively balanced position with the Trust vacancy levels steady near 3%. The Saskatchewan, Fort McMurray, and Grand Prairie markets remain in softer part of the rental cycles resulting in both the decrease in occupancy and increase in incentives in these areas.

We continue to focus on customer service and lease renewals offering incentives or upgrades to mitigate the decline in occupancy in these areas. At this time and based on current information available, we believe that all nine of Boardwalk’s communities in Fort McMurray have been spared by the wild fire.

The Trust – as the team prepared to access its communities once it is safe to do so to assess damages and to ensure the safe return of our resident members to their homes. Both structure and business interruption insurance are in place. Most importantly, all our resident members and associates are safe. The Ontario and Quebec markets remain in a balanced position, but it gained some strength as a result of lower overall operating costs.

As Slide 6 displays net interprovincial migration into Alberta and Saskatchewan has decreased, which is the reflection of the current economic climate. Although, interprovincial migration has continued to decline, international migration is still positive as resulted in net positive migration into these provinces.

Slide 7, shows the Alberta labor market with an overall total net job loss with the expected industries posting negative job creation in March of 2016. Please note the positive trend of jobs created in a service and retail trade sectors, which generally is positive for rental apartment demand.

Slide 8, depicts the affordability of rental housing relative to homeownership with rental accommodation providing the most affordable form of housing in Canada. We anticipate continued solid demand for Boardwalk communities.

Slide 9 through 11 illustrates the relationship between Alberta rental and vacancy rate and WTI prices. Historically, despite periods of volatile oil prices, stability and long-term growth in the rental market has prevailed. Boardwalk’s unique self regulated and NOI optimization strategic approach, which focuses in part on high occupancy, has allowed Boardwalk to sustain lower vacancy levels during the current oil price decline and economic contraction. This is a testament to our best in class operating team.

Slide 12, shows there is a historic long-term trend of FFO growth throughout past WTI price turbulence.

Slide 13, illustrates the implied net asset value of the Boardwalk portfolio and includes the IFRS fair value revenue and expenses used to calculate applied cap rates on a per share basis and compares the Trust valuation net of $2.62 of cash per unit in cap rate in relation to our unit price.

There continues to be a significant disconnect between the implied value of Boardwalk’s apartment assets and the evaluation of comparable apartment that have recently sold and are located in Western Canada. Our current public market valuation continues to represent exceptional opportunity when considered against NAV, recent transactions in the marketplace, replacement cost, and other consumer housing options like condominium ownership and current valuations on private market transaction.

Slide 14, provides a summary of the Trust’s strategic initiative to create enhanced value for our unitholders. Announced in February 2016, the Trust has increased its regular distribution. Provided an acquisition target of 800 to1200 apartment units for 2016 accelerated its development pipeline, increases its Trust unit repurchase program, continue to focus on organic growth. Trust is well positioned to deliver on its strategic initiative with the current economic environment presenting a unique opportunity for the Trust to capitalize on these countercyclical opportunities.

Before I turn the call over to Bill Chidley to provide further detail on our acquisitions and development initiative, I’d like to take this opportunity to thank Bill for his 20 years of service with Boardwalk. Bill has announced his intention to retire on June 30. Bill has brought invaluable service, created a valuable amount of value and brings wisdom and leadership to the Trust and we are the team wish Bill and his family only the best in their future endeavors.

Lisa Russell, the Trust’s current Vice President of Acquisitions; Western Canada, has been with Boardwalk since 1995 and has served in her current role since 2003. Lisa has been appointed Senior Vice President of Corporate Development, effective July 2016, and will provide great leadership and vision for the Trust.

I would like to now turn the call over to Bill Chidley.

William Chidley

Thank you, Sam. Low interest rates continue to fuel investor appetite for rental apartments and cap rates remain at low levels. This is especially the case for established properties as recent transactions in the Alberta and Saskatchewan market have shown. The recent downturn in the Alberta economy has presented an opportunity for the Trust to utilize its operational expertise to acquire newly built multifamily assets at cap rates above these stabilized levels and take on lease up risk on these new assets.

As Sam mentioned, we have set a target of 800 to 1200 apartment units be acquired in 2016 and at this time we are currently unconditional on 509 units. We are also in various stages of negotiation on a number of other processes.

Moving on to Slide 16, we are unconditional on three properties totaling 509 brand new rental units in Edmonton. Each site consists of two 4 storey wood frame, elevatored apartment buildings with one level of underground parkade. The first property, Vita Estates is set to close on May 25, while the others were closed in the next couple of months since they are completed. The aggregate purchase price of $93 million which equates to $182,750 per door to and $225 per square foot.

Moving on to the next Slide, all three properties are generally similar with open floor plans include five appliances, granite countertops in the kitchen and vanity, and high gloss melamine cabinets. There are varieties of four plans with the majority being two bedrooms with two baths. There are total of 86 one bedroom unit, 405 two bedrooms and 18 three bedroom units. The overall average unit size is approximately 810 square feet. These properties are located in newer communities with easy access to the ring road it shown on Slide 18.

Construction complete at Vita Estates with some minor deficiencies that are currently being addressed. At closing on May 25, the property will be approximately 50% leased. Occupancy permit for Axxess are expected later this month in late June for the Edge. Closing will be approximately a month following the receipt of occupancy permit.

The acquisition of these newly built assets had a cost similar to the cost of developing our own projects provides the unique opportunity to decrease the average age and increase the quality of our portfolio. While taking advantage of our operational and leasing expertise to maximize the return on these assets both in the short and long-term.

Moving on to the next slide, Pines Edge was the first phase of our development on our existing property, Pines of Normanview in Regina. This 4 storey wood frame, elevator building, has one level of underground parking and consist of 79 units there are 13 one-bedrooms and 66 two-bedrooms, of which 60 have two baths.

We took possession of this first phase on January 29, 2016. The cost was $13.4 million or $170,000 per door, which equates to $170 per square foot buildable and $199 per square foot rentable, below our budgeted cost. After three months of leasing we are currently 66% leased well ahead of schedule. We are estimating the stabilized cap rate range to be 6.5% to 7% excluding land.

Slide 20 highlights Phase 2 of the Pines Edge, which will also be a 4 storey wood frame building with 2 elevators and single level underground parkade. It will be similar to Phase 2 but will be upgraded with 9 foot ceilings. Tendering for this project was completed and a Construction Management agreement has been executed. Estimated cost for this phase is $13.2 million or $167,000 per door. We estimate the stabilized cap rate to be between 6.25% to 6.75%. Site mobilization is underway and construction will take approximately 14 months. Occupancy is anticipated to be in the summer of 2017.

On Slide 21, we are in the midst of finalizing construction drawings and will complete tendering for Phase 3 next month. This phase will again be 4 storey wood frame building with 2 elevators and a single level underground parkade covered 71 units. Depending on market and economic conditions, construction of this phase could begin as early of July of this year. If this is the case and within 14 months construction timeframe occupancy could be Q3 or Q4 of 2017.

Slide 22 & 23 highlights some of our other development opportunity. In Calgary at our Sarcee Trail Place site we have completed DP drawing on a 226 unit, two point tower project. We received some preliminary construction costing and will be reviewing this to determine the economic viability of the development, if feasible construction could begin summer of 2017.

In Edmonton, we’re on an existing community of 1,175 units on approximately 38 acres of land known as West Edmonton Village an initial concept plan has been developed to increase density at the site by replacing approximately 112 townhouse units on 12 acres of land with up to 950 units of 4 storey wood frame products. Zoning is in place to allow for this use and construction on the first building should begin as early as mid-2017. We are exploring other concept plans as well and will determine which options would be most appropriate for this community.

On to the next slide, also in Edmonton at our Viking Arms site we have developed a concept plan for an additional 312 units in two concrete point towers. Depending on the desired timing for moving the project forward and DC rezoning maybe required or alternatively the city may have completed their proposed changes to RA9 base zoning, which is currently in sites to allow for the concept plan. We are currently analyzing the economic viability of this project.

At Wascana Park Estates in Regina a draft concept Master Plan has been developed which includes high-rise, mid-rise, low-rise and possible commercial lands. More detailed planning is underway to determine the optimal mix of the residential and commercial uses. Community engagement and rezoning will be required. Earliest construction start would be winter 2017/Spring 2018. The entire site would allow up to 2,000 residential units.

I would now like to turn the call over to William Wong. William?

William Wong

Thank you, Bill. Slide 24, shows a per unit reconciliation of funds from operation or FFO for the three months ended March 31, 2016 from the FFO per unit amount reported in the first quarter of 2015. A reconciliation of FFO to Boardwalk condensed consolidated financial statement can be found in the appendix of today’s presentation.

As the slide shows the first loss $0.07 on the stabilized property NOI and $0.03 on higher admin cost. This was partially tempered by $0.02 gain on financing cost. Our Trust unit buyback program contributed $0.02 to FFO per unit growth for the current quarter offsetting the $0.02 FFO per unit loss due to our Windsor portfolio of sale.

Stabilized property NOI was lower primarily as a result of higher incentive primarily in our Alberta rental markets. Administration with higher primarily as a result of higher professional fees through related to our strategic review conducted earlier in the year. Admin was also higher as a result of a refund we received on our group insurance premium in the first quarter of 2015, which affected the comparative.

Slide 25, shows Boardwalk’s rental statistics on a quarterly basis leading up to the quarter. As noted, overall market rents have declined to a $1,163 from the $1,168 in December of 2015 and the $1,204 achieved in March of 2015 as the Trust continue its strategy of maintaining high occupancy levels. Occupied rent at $1,150 in March 2016 was lower than the $1,179 in December of 2015 and $1,178 from the same period in the prior year.

Boardwalk continues to actively manage the three key variables in its rental revenue strategy, namely market rent, suite specific incentives, and occupancy levels to maximize NOI during this current period of low oil prices.

Slide 26, highlights this interaction between the three key strategic variables.

The next two slides, Slide 27 and 28 focuses on our stabilized portfolio performance. At March 31, 2016 a total of 32,947 units or 99.8% of our portfolio was classified as stabilized. For the current quarter revenue on these properties declined by 2.2% as compared to the same period last year with operating cost increasing slightly by 0.4%. This resulted in an NOI decrease of 3.8%.

Lower revenue was primarily centered in our Alberta market were higher incentives are incurred to maintain high occupancy levels. Operating cost for Grande Prairie was due to higher bad debt and promotional cost. In addition to that operating costs were higher due to high wages and salaries and RNM costs.

The Fort McMurray portfolio which represents a little more than 1% of our overall NOI continue to see a decline in revenue. This is before the areas wildfire earlier this month, which resulted in the evacuation of the entire Fort McMurray area and the suspension of oil sands ratio.

Slide 28, shows the sequential revenue on our stabilized properties over the last four quarters. The current quarter shows a decrease of 2% when compared to the fourth quarter of last year.

The next slide, Slide 29 provides a breakdown of our operational capital improvements and capital asset additions for the first three months of 2016. Excluding the acquisitions and development cost, the Trust reinvested back into its portfolio a total of approximately $16.4 million comprised of $15 million for its investment property improvement and $1.5 million in property, plant and equipment compared to a total of $16 million for the same period in 2015.

Included in the amount to reflect Boardwalk’s internal capital program is approximately $4.6 million of allocated onsite wages and salaries in certain parts and supply compared to $4.2 million for 2015. Not included in the pie chart for the three months of 2016 Boardwalk invested $0.8 million in development compared to $1.6 million for the same period in 2015.

The increase in development cost was primarily the result of completing our 79 unit building in Regina, Saskatchewan called Pines Edge which began to lease up in February 2016. This property is now designated as a revenue producing property.

As Slide 30 shows, total overall admin costs which includes operating and corporate G&A for the first three months of 2016 were $15.3 million an increase of $0.9 million or approximately 6% from the $14.4 million for the same period last year. This increase was due primarily to higher professional fees.

Slides 31 and 32 highlights Boardwalk’s investment property fair value calculation. And Slide 31 shows Boardwalk’s reported fair value at March 31, 2016 on its investment property of $5.58 billion approximately $40 million higher than the reported amounts at the end of last year.

Sequentially the Trust fair value has increased relative to its fourth quarter of 2015 as a result of selected market rent increases in some of the Trust’s Alberta community in the first quarter of 2016, specifically in buildings where we are seeing lower vacancy.

As Slide 32 shows forecasted NOI for fair value determination was $300 million at March 31, 2016 compared to $297 million at the end of 2016 year.

The next slide, Slide 33, highlights the range of capitalization rate used in determining the fair value of Boardwalk’s investment property. As you can see, overall, the weighted average cap rate used in the determination on fair value at March 31, 2016 was 5.38% unchanged from the weighted average cap rate at December 31, 2015.

I would now like to turn the presentation over to Rob Geremia. Rob?

Roberto Geremia

Thanks, William. As shown on Slide 34, Boardwalk’s liquidity continues to be strong with base liquidity of $368 million and an additional estimated $323 million being available to the end 2007. Our total liquidity is over $690 million and this is available at a historically low interest rates. We are well positioned to take advantage of additional strategic opportunities.

Slide 35, reports Trust total debt maturity schedule. At March 31, 2015 the Trust’s overall weighted average in place interest rate was 2.99%. This rate continues to be above the current estimated tenure NHA insured rate of 2.7% and 109 basis points above the current five-year rate of 1.9%. Our mortgage maturity curve is well balanced; we continue to focus on extending mortgage terms as well as staggering for further maturities. Boardwalk’s remaining amortization under these insured loans is still in excess of 30 years.

Slide 36 shows the Trust interest coverage on a four-quarter rolling basis. For the 12 months ended March 31, 2015 the Trust interest coverage ratio was over 3.61 times significantly higher than the 3.46 times for the prior period. Boardwalk’s secured mortgage portfolio is over 99% insured under the current government of Canada NHA Insurance program. The use of this insurance as two unique and distinct benefits and assist to address in a two distinct financing risks, this being interest rate risk and renewal risk.

With respect to interest rate risk, the NHA insurance provides us the benefit of very advantageous interest rates. With this insurance, we are able to obtain a very competitive interest rate which is currently approximately 95 to 110 basis points over the corresponding government of Canada benchmark bond. Renewal risk is a substantially reduced with this insurance in that once obtained, it is good for the entire amortization period of the mortgage, which in most cases is between 30 to 40 years. The insurance is transferrable to other approved lenders long-term maturity.

Slide 37 provides the reader with our estimate of our current mortgage underwriting valuations. Boardwalk’s balance sheet needs to be conservatively levered at 46% after deducting our current cash portion. Boardwalk continues to have access to low cost of financing and the ability to access these lowest costs of fund to take advantage of the trust.

Slide 38, updates our progress on our 2016 mortgage maturities. To date, we’ve renewed or forward locked 45% of this year maturity, while accessing an additional $129.5 million in new mortgage top-ups. In addition, we have extended the mortgage term by over a year.

Slide 39, reports Trust normal course issuer bid for the first quarter. The Trust is purchasing cancel total of 513,900 Trust units at an average price of $48.06.

Slide 40, focuses on the Trust’s net operating income strategy. Our strategy focuses on the customer by providing the best value products and an unprecedented level of service, while managing operating efficiency in adjusting marketing trend.

Slide 41, highlights the three key variables in our strategy; market rent, occupancy and selective suite specific incentives. The constant shift to these allows us to focus on reporting the best possible net operating income.

Slide 42, addresses our two basic operational approaches which are dependent on market conditions. In strong market, our focus is on optimizing market rent while maintaining a high level of occupancy. While in weaker markets we focus on adjusting rent to meet the existing demand while maintaining our high level standard level of service. In either case, the focus is on the customer and their particular needs.

Slide 43, documents the Trust’s customer turnover and related occupancy levels. Our turnover levels continue to be low as resident members stay with us longer as is shown on Slide 44 with the average resident member stay increasing to over 3.8 years.

Moving on to Slide 45, Boardwalk’s 2016 financial forecast. Consistent with prior periods, on a quarterly basis, the Trust reviews reported financial guidance. This review consists mainly of comparing the actual reported results with those assumptions used in determining the reported guidance.

Although our third quarter reported net operating income decline of 3.8% was expected, the current level that is offered and issued in Alberta are higher than originally contemplated and their impact of remainder of 2016 are also higher than originally thought. The result of this is we are adjusting our rent expectations of the same property NOI to minus 6% to minus 3% from minus 2% to zero as compared to the prior year.

The impact of this on the reduction of top end of our Trust’s 2016 reported FFO and AFFO financial guidance to $3.55 from $3.60 and to $3.26 from $2.23 respectively. With the recent natural disaster in Fort McMurray, we continue to monitor the impact this will have on both our Alberta portfolio as a whole and our existing communities, in Fort McMurray during this re-population and re-construction stage. All the variables noted have not changed and in this guidance we have included an estimated net operating income generated from new acquisitions based on the closing date.

Slide 46 highlights the Trust capital expenditures on both its existing and development projects. We are anticipating to invest approximately $90 million in our existing portfolio and have increased our development budgeted $19.7 million from the $12.4 million and the direct result of this is a speeding up or quickening up of the Phase 2 and Phase 3 Pines Edge of Regina as mentioned by Bill.

Slide 47 highlights Boardwalk’s distributions and customary at the Board meeting the trustees reviewed the Trust unitholder distributions. As a result of this review the Board has decided to maintain its regular distribution of $18.75 per Trust unit on a monthly basis or $2.25 on an annualized basis.

This ends the formal part of our presentation. We’d now like to open it up for questions. Melissa.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Jonathan Kelcher with TD Securities. Your line is open.

Jonathan Kelcher

Thanks. Good morning.

Sam Kolias

Good morning.

William Wong

Good morning, Jonathan.

Jonathan Kelcher

First, just on Calgary and I guess little bit on the incentives. With the market rents there now back up of in place rents? Are you seeing a decline in the amount of incentives you are using going forward?

Roberto Geremia

We are starting to – Jonathan, its Rob. However, we are in the spring environment still right now which is probably the most difficult time of the year. I have to actually wait until August, September to really answer that. On the preliminary numbers we are seeing right now in select buildings actually yes we’re offering a lot less, but there are some particular buildings that still have some vacancy or some availability as a result of that based on to be the same. So they are not backing off as fast as we were hoping they would, but they are starting to come off.

Jonathan Kelcher

Okay. And then similarly with Edmonton and I guess with the influx of people from Fort Mac, how do you see that market shaping up in terms of supply and demand over the balance of this year?

Roberto Geremia

Well, I think the jury is still a bit out on that one. You are correct; we have over 250 units in Edmonton right now that are currently being occupied by Fort McMurray evacuees. However, most importantly we wanted to make sure they got housed and were safe as a result of that we put very flexible lease terms in place for them.

So although they’ve occupied a lot of units for us, we really don’t have a long-term lease set up on them, we will need a few months to see what happens in Fort McMurray to see if they can get back in when they can get back in and if they want to stay at Edmonton or go back to Fort McMurray.

So as a result of that business fluctuate now is really not going to generate a lot of revenue in the short-term, but if we convert them to long-term leases, which we think we will be able to, but again based on their decision not ours. That will have material impact. So that’s going to be a few months away. Outside of that we are seeing the very similar characteristics in Edmonton that we are in Calgary.

Jonathan Kelcher

Okay. So I guess the demand what I am trying to get out is not so much the people – the actual people from Fort McMurray but the rest of the - I guess I’ll call it normal renters in Edmonton, is that starting to tighten up given that there is more demand in the market?

Roberto Geremia

It will. It’s starting to now but again it will take some time to just all look its way through. So obviously if we have less availability because the inflection for Fort McMurray we are not going to offer much incentive on the other vacancy as well to other available use.

Jonathan Kelcher

Okay. Thanks. I will turn it back.

Roberto Geremia

Thanks.

Operator

Your next question comes from Heather Kirk with BMO Capital Markets. Your line is open.

Heather Kirk

Good morning. Last quarter you had mentioned I guess in your comments on the call that about two-third of the revenue was in place and that rents were climbing. And I’m just trying to reconcile that kind of commentary with this quarter’s performance and I guess what I am wondering is this a reflection of a material softening in March or is there something else?

Sam Kolias

Heather, it’s Sam. The rent in the first few months of the first quarter were climbing and so we did in the first three months of the first quarter see stabilization and the difference between our revenues in the first quarter of this year and the first quarter of last year there were no incentives in the first quarter or much, much less incentives in the first quarter of last year.

So the big reason in the decline is the comparison against the phenomenal first quarter last quarter and it’s going to be another phenomenal second quarter, we are going to be compared against in the second quarter as well. The difference in the guidance is the spring. And what we saw on the spring was higher than average and more typical seasonal turnover. And that in the prior year with a much stronger housing market, we never really saw the typical, cyclical and seasonal turnover in the spring because it was a very strong housing market.

And so what we are seeing this spring is what we are typically seeing in springs is higher spring turnover in a more balanced rental marketplace and so this is why we adjusted and this is what we are reflecting is more seasonal spring that we are actually seeing now and looking at our move-out versus our move-ins and as a result comparing that against spring that was completely the opposite last year, we’re going to have some adjustments to make and we’re making that to maximize our occupancy and NOI, so that’s why we made the change.

Heather Kirk

Okay. And just touching again on the incentives, can you just walk us through exactly how they’re accounted for and how they tie into the average rent number, so if you’re giving either a free rent or deposit that is being waived, how is that running through your statement?

Roberto Geremia

It’s amortized over the entire lease term, so if they get a free month upfront or they take a dollar value off on per month basis were exactly the same. So they are literally amortized total amount of the incentive amortized equally every month, so it’s actually in the rental revenue number.

Heather Kirk

Okay. So the – say eyeballing the chart the $3.5-ish million that you had this quarter that is being backed out, out of both the average rent and the revenue number?

Roberto Geremia

That is correct. Yes, we treat them equally across the board, the demand – because we have to amortize them over the length of the lease, you are not going to see zero, zero for the first two months and then full rent for the next 10, no it’s amortized equally across the board.

Heather Kirk

Okay. Thanks. And just finally what are your thoughts on the share buyback and what kind of activity you should expect for the rest of the year.

Roberto Geremia

Well, again as you know from our strategic we did deploy a lot in the first quarter with price is well under the $50 range. Constantly, we are evaluating them. The issuer bid is out there, it is still active. Without telling you exactly what we are going to do, we look at the spread between our current value of the assets and the current trading in the market, so we will keep reviewing it and allocating capital accordingly.

We also looking at the opportunities that we’re looking at as well to, because capital – although we’re – liquidity position is not unlimited. So we’ll look at what Bill have lease out to look at, we look at the development side and we’ll look at share buyback and balance out accordingly throughout the year. We don’t want to give an exact target right now, but the issuer bid still is in place.

William Wong

The challenge Heather we have is balancing our short-term value creation opportunities with our long-term value creation opportunities and our Board is a great Board and ensures that we have a balance between creating value both in the short and long-term. And as a result, looking at these brand newly build apartment communities that are nicer than the average apartment communities that we have, that’s typically 30, 40 years old and our portfolio even though they are renovated, they are not brand new.

And so we have to maintain a balance between creating value in the long run as well in the short run. And as a result of that increase in newly developed rental communities that really originally were developed by condominium developer who struggled to sell these communities as condominium, so they are really condominium quality communities, which are much higher than the average community that we’re offering right now.

So we strive to increase our brand and quality and service and this product is exceptional and it will create much greater long-term value than even buying our own shares back. This is something that we have to balance and we’re constantly looking and reviewing and we’ll continue to as well because we want to ensure we’re doing the best thing for both the short and long-term value creation for our stack holders and especially our resident members and quality and brand and reputation that’s all essential.

Heather Kirk

Thank you.

Operator

Your next question comes from the line of Mike Markidis with Desjardins. Your line is open.

Michael Markidis

Hi, thank you. I may have missed this earlier, but the G&A charge that you guys took it was $0.02, did you quantify the aggregate dollar amount, could you just give us a little bit more colors to what that related to?

William Wong

This is William. It was relating to higher professional fees, in the earlier part of this year we had conducted and completed that strategic review of Boardwalk and as a result of that it was additional consulting expenses that we had incurred on our G&A line.

Michael Markidis

Okay. And would you expect anymore of that in the second quarter or is that all pretty much burn through now?

William Wong

It might be a bit more coming in the second quarter, but it is – one of the challenges we had starting in later part of last year and earlier part of this year is our unit price trending in tandem with our oil prices. And we took an overall view as to what is our short-term, long-term and medium-term goals and as a result of that we had some outside help.

Roberto Geremia

Mike, it’s Roberto, but there also will be the issue of Bill retirement that we’ll have to go through Q2 now. We do believe in a preliminary analysis that charge going through Q2 should be probably being made up in Q3 and Q4, we build salary isn’t there anymore.

Michael Markidis

Okay.

Roberto Geremia

But you will see that go through in Q2 as well.

Michael Markidis

Okay. That’s helpful. Thank you. Okay and just shifting gears with the reduced same property NOI guidance, does that incorporate your views as to what may happen with Fort McMurray due to the unfortunate events now or is it purely based on what’s happening in Calgary and Edmonton?

Roberto Geremia

Well our guidance was based on three Fort McMurray to be honest and the issue with Fort McMurray is it still so early in that in this process. It could go either way up there, we could see Edmonton take off on demand and Fort McMurray take off on demand and on the building and reconstruction of the community or it could be the other way around as well to. So again Fort McMurray is 1% of our overall portfolio, but the flow impact the Edmonton could be larger than we think it could be.

So the guidance you see to the – from the minus 2 to minus 6 is not based on any massive increased demand for Fort McMurray its and we’re not sure how that’s going to pay out, but it is basically based on the characteristic that we did saw. In a nutshell what we’re seeing effectively as we anticipated a really rough half to 2016 and we’re seeing it know its answer what’s about that and we always did. We really don’t anticipate that latter half of 2016 to able to – get a little better and start improve.

Now our preliminary thought is that might be pushed to Q1 of 2017 before we see the recovery. Now, the situation of Fort McMurray may change our thought process at the end of Q2 and we’ll update you when we see more a hard data on that.

Michael Markidis

Okay. It sounds like your buildings fortunately are fine. With respect to the rental income protection our business interruption insurance you have like how would that work. I mean if this plays out where people are allowed back in the city, but your leases that you had their start rolling off and there’s a lot of rental demand. Is this something that could be a drag or I’m just trying to get a sense of what potential impact…

Roberto Geremia

Well, first of all the very small part of our portfolio was 1%, so we don’t have impact, how would it effectively work is Bill fill you back up to where you were prior to the fire and subsequent to that the people do not return to Fort McMurray that’s not their problem.

Michael Markidis

Okay.

Roberto Geremia

That becomes yours. We don’t think that’s going to be – what we think to be honest I think it’s going to be almost opposite because of the increased demand for reconstruction and places people to stay. But on paper $100,000 deductible, they’re going to put us back to where we would have been.

Michael Markidis

Okay. That’s helpful. Thank you. And then last question for me I just want to make sure on the assets that you are buying over the next couple months, it sounds like there that basically you’re starting from zero in terms of leasing them up. What’s the accounting going to look like for those I mean are you able to capitalize because it’s a newly built property or just trying to get a sense of how the NOI contribution would look over the first couple of quarters once required?

William Wong

It’s William here, because these buildings are substantially completed there is no capitalization on the lease up of – under lease up period, basically all the rental and operating cost associated with it will flow through the P&L.

Roberto Geremia

And just one more and raise your question but it add on that, Alberta development side will be capitalizing some costs.

Michael Markidis

Right, okay. But the impact of the acquisitions is purely based on the cash flow of the property and just goes to a ramp up phase?

William Wong

Right. That’s correct.

Michael Markidis

Okay. That’s very helpful. That’s all from me. Thank you very much.

Sam Kolias

Thanks Mike.

Operator

Your next question comes from Jimmy Shan with GMP Securities. Your line is open.

Jimmy Shan

Thanks. Just a follow up on that on the acquisition, in the guidance that you have would you be - what would be the contribution of NOI that you’d be assuming in that guidance? Would you be much?

Roberto Geremia

Jimmy its Rob. It’s not much, we anticipate about $0.01 for the existing stuff that were going on conditional, we just basically took the closing dates and based on our pro forma moving forward. But again we only think it’s going to be about $0.01 now that may change if we ramp up better than we thought on occupancy but based on our preliminary starting pro forma and budget will only be about $0.01 for this year, next year it will be obviously lot better but 2016 only about $0.01.

Jimmy Shan

Okay. And then in terms of the incentive - the increased incentive that you’re seeing, is it that you’re seeing a higher level of incentive amount that you need to offer or is it that you’re offering or is it on a broader number of units that you’re offering incentives, is that where you’re seeing the increase or is it both?

Roberto Geremia

Well, I think as Sam mentioned 2015 was an exceptional year and as a result of that we got pretty significant revenue growth. What we’re seeing now is the incentives being offered to bring it back close to 2014 levels on an overall basis. So yes we’re offering more we’re going through what I would consider more traditional spring turnover and traditionally in spring we’re offering more incentives with the objective of filling up the vacancy units going into our strong months which is July, mostly August and September.

And then we’re able to see more pressure. So we’re back to a more seasonal normal turnover kind of ratio and lease up as we have been for the last probably two years closer to two in a bit.

So it will be a bit of time for we can see that yes again our incentives are focused first and foremost on units that are not rented it suite specific by no means the global across we go to our website you will see that you know it’s only two of these offers left over, no different than the airline pricing strategy on empty seats before the flight takes off.

So we are really micromanaging the whole system and trying to balance it knowing that historically coming into August and September you want to be as full as possible to take advantage of the stronger market in that times.

Jimmy Shan

Yes. But you are finding that the level of incentive, the amount of incentive you’re offering is actually needs to be higher in other words offering one month you know offering two months.

Roberto Geremia

No higher than it was in Q1 but a lot higher than it was last year.

Jimmy Shan

Okay. All right and then when I look at Slide 20, incentive chart. So I understand it properly if market conditions were to stay constant and you offer the same level of incentives just naturally this incentive amount should let’s say it’s $3.5 million of $4 million in Q1 as you just it would continue to ramp up but then by the fourth quarter you would have gone through all the leases so then start to flatten now. Right?

Roberto Geremia

That is correct. The question becomes how fast do they burn off and our history has been when you’re offering major incentives on these projects it takes you 12 months to 18 months to burn them off because on renewal the customers is going back saying unless they’re really, really hot demand market, they’re saying well you gave me a big incentive last year I can’t give it all back at one shot, but it will come down obviously in that so as you can see from the chart here we always even last year we had some incentives in our portfolio, because that’s been the big increase year-over-year. So you will see that trend off the issue then typically comes demand. The more demand you have the less you have to offer.

Jimmy Shan

Right. Okay, thank you.

Roberto Geremia

Thanks.

Operator

Your next question comes from Matt Kornack with National Bank Financial. Your line is open.

Matt Kornack

Hi, guys. Just wanted to quickly go back to the condo product that you are buying, in terms of due diligence I mean there are plenty of condo projects here in Toronto that I don’t think I would want to own given the quality of construction but how did you get comfortable about the long run sort of quality of the construction for these condo type projects?

William Chidley

Hi, Matt, it’s Bill. We have had a very, very extensive due diligence process here and we are aware that new development does have potential risk, so we’ve been very careful and have had more advisers, more people involved in due diligence then we would on you know as part of the new construction process. The good news on this particular situation is these buildings are in various phases of construction.

So we’ve been able to look at how things are done in the various phases and it gives us a much better idea of the construction process. And our advisors and our internal capital people have been very complimentary about the quality of the construction basically in every aspect. So we are aware that you have to be more careful with the new construction and we certainly have been.

Matt Kornack

And to be fair you’re developing some on your own so you have experience and…

William Chidley

Yes. We have our people that actually have experience on the development side and we also have outside advisors that have even more experience that we use on the due diligence process. This has been a very, very extensive due diligence process.

Sam Kolias

Matt, it’s Sam. And one aspect of this market being as competitive as it has been is the developers have had to one-up themselves for the last several years. So the more challenging marketplace and competitive marketplace is actually played in our favor for these particular newly developed communities. And one example is the underground heated parking.

That in the past was something missing and it’s a significant amenity. Underground heated parking in Edmonton as we all know the temperature can drop pretty severe, so that’s a very expensive and a positive amenity that we’re really, really happy about. Then there is the interior in the layout, everybody is watching everybody with respect to layout and so there’s been a lot of competition because the condominium market has been more competitive over the last few years and so the layouts have become more generous.

And the expertise and experience on development has been more innovative and that’s elimination of hallway space and generous splits and double bath, walk-in closets, five appliances is a real reflection of how much more competitive the condominium market has gotten over the last several years not just because of supply and demand, but mostly because of the tightening of credits that was initiated by our finance leaders and eliminating condominium investor financing which really, really had a big impact on presale in the Alberta market.

And again keep in mind in Edmonton and Calgary, our core markets, there is no foreign demand and foreign buyer influence like there is in the Toronto and the Vancouver markets, where foreign buyers have a different set of criteria when they’re buying and looking at units and a typical person that would in Alberta, so that has really, really helped create a really higher quality product in our marketplace.

We really haven’t seen in past cycles that we are seeing now and that’s why we’re very excited about what we just bought and commend Bill and Lisa and the whole team on doing this and finding this and really have to credit the low oil price in the challenging economic time, because in the past we wouldn’t even get a chance of buying something like this because it would have been sold to condominium buyers and individuals for much, much higher valuations.

And so it’s a real, real example of how we’re benefiting from the discipline and waiting for opportunities in a countercyclical way versus jumping in when everybody is jumping in three or four years ago and building when everybody is building. And so this is really exciting and we’re really happy about the opportunities.

And this is really something small compared to all the calls that we’re getting from all the builders in the entire community that are very anxious to deal with us and to build and/or sell their existing communities to us to lever down and to get a little cash on their balance sheet as a result of this more difficult economic environment we are all in here in Western Canada.

Matt Kornack

Interesting. So it sounds like I mean the traditional multi-family rental owners are very well capitalized, there’s no real distress there, but there maybe more distress in this type of product. Also with regards to the financing I assume you have to stabilize it before you can put CMHC mortgages on those properties, correct?

Roberto Geremia

We don’t have to, but it’s our choice so we can actually get construction financing with these guys stabilization financing, but our strategy is right now is the finance already stabilized properties in our portfolio, use the funds to close you this transaction and have a clear title asset. And as we doubt about we’ll take our – we will do the proper lease up and then go back to CMHC and we levered if needed.

Matt Kornack

Okay. Great. Thanks.

Operator

[Operator Instructions] Your next question comes from Alex Avery with CIBC. Your line is open.

Alex Avery

Thank you. Rob, you mentioned – I might have missed a little bit of it, but you’ve mentioned that there were 250 units in Edmonton being occupied by displaced people from Fort McMurray. Did you describe the financial arrangement that you got with those residents?

Roberto Geremia

Well, it’s very, very flexible right now so it is much more flexible what we given historically so what we are giving right now is the rest of May free on those, June free is well too. And then they’re getting a 25% to 26% reduction if they decided to go longer term in that. Our goal with these leases was to offer them maximum flexibility until they know what’s going on with their home in Fort McMurray.

Although we – do we have already had some of our existing Fort McMurray resident members decide they want to transfer to Calgary that’s a lot easier job for us to do, we just simply move them down here and they keep paying rent accordingly under all this new rental and new project, so it is going to be a short-term, we’re not quite sure, we’re not collecting a lot of money off those. On the other side of the coin, we weren’t anyways those were pretty well vacant units in the Edmonton portfolio at that time.

Alex Avery

Okay. And the business interruption insurance that you have - would that cover I guess the in place cash flow that you were getting from Fort McMurray or would that be a normalized cash flow.

Roberto Geremia

No, it’s in place, so we were I believe 17% vacant in Fort McMurray it will be adjusted for the existing vacancy. Again the object of the insurance is to put you back to where you were that give you any better or any worse. The issue there is going to be how long before our customers can get back into the buildings, because we have not been up in there yet although we believe our properties are all fine, we see pictures of most of them. We don’t know structurally whether damages the roof, we don’t know yet. Even when we get back in there how long will it be before everything is turned back on again, we get clearance and send people back again. As a time ticks, we’re covered for that as well.

Alex Avery

And in terms of the residents that are displaced. Is there are any insurance presumably they would have to have some of their own insurance in terms of covering the rent well they’re displaced.

Roberto Geremia

Well, I’m not sure if home owner regulatory of insurance coverage rent, but we require all of our customers to have insurance, a content insurance on an overall basis. One more thing we did do for our customers in Fort McMurray which is we thought was very important to do is get cash in our hands right away. As we go through that we credit every one of them $1500 against their May rent just to get them some cash.

I know the government’s come along since then to give them more, but the first thing you should most [indiscernible] we knew there was an injury, the next thing you did was something in their hands to be able to buy food and do everything else as well. We took care of that right away. We weren’t concerned about anything else until then and again the charges again the rent they’ve already paid us. So we covered back for the insurance company.

Alex Avery

Okay. And then you’ve got the three developments in Edmonton that you’re buying, the Vita is already open, so presumably any influx of people would help the lease up of that property. Axxess slated for opening in May is that open today?

William Chidley

No, its not.

Roberto Geremia

We haven’t got. Again we’re waiting 30 days after we get the occupancy.

William Chidley

Yes, 30 days after we get the occupancy permit, so they should – each closing should be staggered by roughly one month, so end of May, end of June, end of July.

Alex Avery

Okay. All right. That’s great. Thank you.

Roberto Geremia

Thanks.

End of Q&A

Operator

There are no further questions in queue at this time. I turn the call back over to Mr. James Ha for closing comments.

James Ha

Thanks, Melissa. If you missed any portion of today’s call, a copy of this webcast will be made available on our website, boardwalkreit.com, where you also find our contact information should you have any further questions? Thank you, again, for joining us this morning. This now concludes our call.

Operator

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.

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