Desjardins Securities analyst Kyle Stanley upgraded his rating on Boardwalk Real Estate Investment Trust (BEI-UN-T) to “buy” from “hold,” citing second-quarter results that were modestly better than expectations and a more robust revenue growth trajectory that reflects improving apartment fundamentals in Alberta.
Mr. Stanley also felt comfort in the REIT’s ability to control costs in an inflationary environment, as well as a valuation that is below peers based on its trading price relative to funds from operations.
He raised his 12-month price target to C$62.50 from $58.
Key to his more upbeat assessment of the REIT is that population and employment growth have return to Alberta’s two largest cities, Edmonton and Calgary - which together account for about 62% of Boardwalk’s net operating income.
He expects continued positive trends in revenue growth continuing into this summer following the second quarter.
“Post-quarter, occupancy has improved to 97.1% in August (vs. 96.4% in 2Q22), while total portfolio new and renewal leasing spreads of 6.6% and 3.1%, respectively, in July are ahead of pre-pandemic levels,” Mr. Stanley said in a note.
Meanwhile, the company’s containment of operating expenses has set it apart from peers, he said. In the first half of this year, they rose 3.7%, well below the average of peers at 7.9%.
Boardwalk is trading at a price that is 15.0 times its free cash flow, versus 18.2 times for its peer group, he added.