Boardwalk Real Estate Investment Trust T.BEI.UN

TD 2

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Boardwalk REIT

(BEI.UN-T) C$49.99

Momentum Building Within the Alberta Portfolio

Event

Forecast update. For our initial thoughts click here.

Impact: NEUTRAL

Boardwalk's Q2/22 was a clear indication that there is momentum building within its business that we believe should materialize into a continuation of strong fundamentals in H2/22. Highlights in the quarter included SPNOI growth of +2.8% and sequential revenue growth of +2.2% — the highest seen since 2008. Renewals were also strong at +4% in Q2/22 and only dipped to +3.1% in July due to seasonality in Quebec (large number of leases renewing). Thus far in August, management pointed to +4%-5% increases on renewals, with Alberta (61.3% of NOI) topping 5%, largely due to a further burn off of incentives, that have been significantly reduced as availability has trended lower. Bumps on new leases are well into the 6% range. Management reaffirmed its 2-5% SPNOI forecast that compares with our current +3.6% estimate.

The REIT continues to face cost pressures due to inflation on wages and salaries, along with elevated utility costs and property taxes, although management did note that property tax bills came in at +3%. We believe revenue growth should more than offset these increased costs.

Management highlighted that thus far there has been no discernible change in cap rates with the recent increase in interest rates and therefore kept IFRS cap rates unchanged q/q at 4.66%. The modest IFRS fair value gain of $37mm was on higher rent assumptions. With Alberta cap rates already elevated heading into the recent spike in rates (albeit eased somewhat recently), we believe there is somewhat of a buffer built in that should limit potential cap rate increases.

Forecasts. Our 2022/23 AFFO/unit estimates are largely unchanged. We have also introduced our 2024 AFFO/unit estimate that calls for +5.5% y/y growth. Our NAV/ unit estimate is +2.4% to $62.50.

TD Investment Conclusion

Looking ahead, we anticipate further improvements in fundamentals in 2022 but have tempered our forecast slightly in 2023 to account for a potential slowing of the economy. We view Boardwalk as attractively valued on a P/AFFO and price/suite basis vs. its peers. We are maintaining our BUY rating and increasing our target price to $63.00 from $61.00 previously.