TSX:HOM.DB.U - Post Discussion
Post by
incomedreamer11 on Jul 12, 2023 8:50am
Scotia comments
Rent growth in BSR’s U.S. Sun Belt multi-family markets further decelerated in June’23 (Exhibit 3 for recent rent growth trends). Based on data from RealPage, we estimate BSR’s portfolio effective rent grew +0.2% y/y in June ’23 and +1.3% in Q2 (vs +3.9% in Q1). Rents grew +1.0% q/q in Q2/23 in line with our estimate of +1.0%. We think BSR valuation looks attractive but due to lack of near-term positive catalysts, some patience is still required on this name. On P/AFFO multiple basis, BSR is now trading at a wide discount to CDN multi-family (current spread of 7pt vs no spread in July ’22 and average historical spread of 3.5pt) – Exhibit 7.
Overall, our foreign residential basket (HOM.U, DRR.U, MHC.U and ERE.UN) is trading at 33% discount to NAV and 13.1x 2024E AFFO multiple (Exhibit 5). This compares to REIT sector at 23% discount and 14.1x multiple. We estimate our basket can deliver AFFOPU CAGR of 7.6% vs REIT sector at 4.6%, and expected NAV growth of 8.6% vs REIT sector at 7%. See Exhibit 1 for portfolio summary and our investment thesis on these names. Flagship (manufactured housing) is not facing deceleration trends (unlike US Sun Belt), and expected to generate double-digit AFFO and NAV growth
U.S. Sun Belt Multi-family – Trend is not the friend right now. Easy comps start from Q1/24 and onwards: Out of the three Texas markets, Austin looks the toughest with negative y/y rent growth trends while Dallas is showing deceleration but still in positive territory. Dallas printed +0.9% y/y rent growth in June, and +2.2% y/y rent growth in Q2. We note that in June ‘22, Dallas experienced +16.3% y/y rent growth, so tough comps are also playing a role in this slowdown. Similar trend was observed in Houston, rents grew +1.5% y/y in June and +2.2% in Q2. Austin y/y negative growth which started in Apr ’23 has accelerated throughout Q2. This is not a surprise, as Austin has one of the highest development pipelines in US with 15.9% total permits as % of total inventory. Strong construction pipeline is putting pressure on rent growth and likely to continue in the near-term. See our note titled Texas Multi-Family Markets - Elevated New Supply for more details on supply and demand dynamics in key Texas markets.
BSR is trading at modest discount to US peers: BSR is trading at 14.3x 2024E AFFO multiple vs. US peers at 17.2x (Exhibit 6). BSR’s implied cap rate is in line with US peers (6.0% for both BSR and US peers). DRR implies cap rate of 8.2% and trades at 11.7x 2024 AFFO multiple
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