TSX:HOM.DB.U - Post by User
Post by
incomedreamer11on Oct 18, 2021 11:40am
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Post# 34018245
New analysis from Scotia
New analysis from ScotiaRent Growth Acceleration Continues
OUR TAKE: Positive.
(all numbers in USD)
Effective rents grew 11.4% y/y in Q3/21 vs 4.5% in Q2/21 in BSR's portfolio, according to RealPage . Rents in BSR's Texas portfolio grew 14% y/y in September, which was even stronger than August (+12%) and July (+10%). An acceleration of rent growth in the U.S. Sunbelt was our thesis for upgrading BSR REIT to Sector Outperform a few weeks back
. Our target price of $18.00 is unchanged. In a bull case scenario , we think our fwrd NAVPU could increase to $20+, implying ~30% upside.
We continue to see valuation upside: BSR REIT is trading at ~1% premium to NAV and 25x 2022E AFFO multiple . U.S. Sunbelt-focused multi-family names are trading at 11% premium to NAV and 29.8x 2022E AFFO multiple . BSR is trading at an implied cap rate of 4.4% vs U.S. peers (CPT & MAA) at 3.9%-4.0%. If we use 5% SP NOI growth in 2022 (vs 4%) and 4.2% cap rate (instead of 4.4%), our 1-yr fwrd NAVPU increases to $19+ from $17.50 currently.
KEY POINTS
Multi-family rent growth acceleration in the U.S. Sunbelt continues (see note from our U.S. colleague Nick Yulico). BSR's portfolio is predominantly located in three Texas MSA's i.e. Dallas, Houston and Austin, and all of these three markets posted doubledigit y/y effective rent growth in Sep'21 i.e. Austin 21%, Dallas 13% and Houston 10%. Based on market rent forecasts from RealPage, we estimate 4.3% y/y rent growth in full year 2021E and 4.2% y/y in 2022E. Introducing 2023 Estimates - Our model implies AFFOPU CAGR of +13.2% in 2021E-2023E, and +9.2% CAGR in 2020A-2022E. We assume $200M of acquisitions annually in 2022 and 2023 (50% funded by debt and 50% by equity). We assume 4% SS NOI growth in 2022 and 2023. Our NAV cap rate of 4.4% is based on H1/21 CBRE Cap Rate Survey. We believe there has been cap rate compression in H2/21 so far - we heard that Class A cap rates in Dallas at 3.9% to 4.1%, Austin at 3.5% to 3.75%, and Houston perhaps slightly tighter than Dallas. Also, in mid-Sep'21, we heard Starlight re-capitalized a large $600M multifamily portfolio in the US Sunbelt at a mid-3% implied cap rate or $270k per unit. In comparison, BSR's current price implies a 4.4% cap rate or $186k per unit. The average age of BSR's portfolio is ~13 yrs vs Starlight's portfolio at ~17 yrs.