BSR Real Estate Investment 5 00 convertible unsecured subordinated debentures T.HOM.DB.U

Scotia comment

[incomedreamer11]

It's Not Too Hot... But Not Too Cold Either

OUR TAKE: Neutral. Last night, BSR provided a Q4 operational update. This confirms a sequential slowdown but numbers were still slightly ahead of Scotia estimate, and were in line with BSR management full year guidance.

In Q4/22, blended rent growth was at 6% y/y, down from 11% to 12% in the last three quarters. New lease spreads have come down to 2%, which was offset by accelerated growth in rent renewals (11.9%) – Exhibit 1. We note 6% effective rent growth came in despite very tough comps (15.3% in Q4/21). Occupancy came in higher (not lower) at 96%, up 130bp sequentially.

BSR was active on the NCIB front in Q4/22 as the REIT repurchased 1.1M units at an average price of $13.55/unit. On valuation, BSR trades at 5.9% implied cap rate while CBRE brokers are still seeing transactions in low-to-mid 4% cap rate range (BSR comparable product). On $ per door metrics, BSR trades at $174k per door vs CBRE transaction market estimate of $225k per door vs replacement cost estimate of $250k per door. We think public equity markets have over-corrected with BSR trading at a 26% discount to Scotia NAV and a 42% discount to IFRS NAV.

BSR hosted investor day in Dallas on Dec. 12 and Dec. 13 – see our note (link) for full details. In this note, we highlighted that management focus is on occupancy gains, and we could see larger share of rent growth from lease renewals and slowdown in rent growth from new leases.

Operational update from BSR. Renewals lagged behind the new leases in a meaningful way and now BSR is playing catch-up. Tough comps caused new lease spreads to be muted this quarter at 2.1% (21.4% in Q4/21). Occupancy increased by 130bp (96.0% in Q4/22 vs. 94.7% in Q3/22) supports the ongoing demand despite concerns on a potential slowdown. BSR repurchased $14.6M worth of units (@ $13.55/unit) under its NCIB in Q4/22, which equates to 1.9% units outstanding.

Axiometrics data also speaks to the same story. Axiometrics December rent growth figures for BSR markets came in at 6.4%, in line with the BSR rent growth. Comps to stay tough for Q1/23 (Q1/22 rent growth was 17.6%) and it won’t be surprising if the slowdown continues. Based on Axiometrics, we anticipate 4.7% rent growth for 2023 and 3.2% rent growth for 2024 

[maypeters]

Thank you incomedreamer for the info. Had not looked at BSR REIT for a while. Low volume and its choppy trading.  Have 4000 shares bought at much lower prices around $12 CAD and not added since.  Just sold some Minto REIT at a loss and a small amount of TNT so this is as good a candidate as any along with Tricon.  Have a small amount (400 shares) in CAP REIT at a 8% loss which I

[incomedreamer11]

Just finished switching from Minto REIT to BSR REIT : - higher dividend yeld and low  payout rate,low D/GBV,  - internally managed,no conflict of inerest - no rental control in Sunbelt USA - more chance to be taking out