Boardwalk REIT
(BEI.UN-T) C$76.14
Strong Fundamentals Driving Double-digit FFO/unit Growth
Event
Forecast update.
Impact: SLIGHTLY POSITIVE
Apartment market fundamentals remained robust in Q4/23, highlighted by +16.8%
SPNOI growth and the introduction of higher-than-expected guidance for 2024.
Boardwalk's 10-14% SPNOI target for 2024 (TDS estimate: 12.5%) will likely be the
highest among our Canadian apartment coverage, and close to the +13.7% achieved
in 2023. On the cost front, Boardwalk benefited from insurance savings and warmer
Q4/23 weather, which should also benefit Q1/24. For 2024, rental expense growth
is expected to be +2% to mid-4%. With mark-to-market rents remaining healthy
at $142/suite, we believe Boardwalk remains well-positioned to deliver continued
strong earnings growth (high-single to low-double-digit) over our forecast period. We
note that Boardwalk has been relatively conservative on its initial guidance over the
past few years, and as such, we would expect FFO/unit to be above the current $4.06
midpoint of guidance (TDS: $4.09).
The REIT's Alberta portfolio (~63% of NOI) continues to perform exceptionally well,
supported by +22.8% growth in Edmonton and +20.8% in Calgary. We expect this
trend to continue, given the current favourable supply/demand dynamics.
Capital Allocation. On the call, management noted that it is continuing to search
for acquisition opportunities, including newer and recently developed assets in
Boardwalk's existing target markets (similar to "The Circle" acquisition that closed in
early 2024 — link). Although management has focused on "newer" assets, it has also
started seeing some opportunities within value-add assets. We forecast $110mm of
unannounced acquisitions in 2024.
Forecasts. Our 2024/2025 estimates increase +4%/+5% on higher NOI
assumptions, partially offset by higher interest. Our NAV/unit estimate is +6% to
$78.40 on higher NOI.
TD Investment Conclusion
Despite having the best AFFO CAGR among its Canada-focused apartment peers,
Boardwalk is trading roughly in line with/at a slight discount to its peers on an AFFO-
multiple basis. In prior periods where Boardwalk had above-average growth, it has
traded at premiums (Exhibit 10 uses CAPREIT as a proxy to show this). We are
maintaining our BUY rating and increasing our target price to $89.00 from
$84.00.