TSX:HOM.DB.U - Post Discussion
Post by
retiredcf on Sep 12, 2023 9:41am
TD Initiate Coverage
BSR REIT
(HOM.u-T) US$12.03
Solid Texas Fundamentals to Support AFFO Growth Event
We are initiating coverage of BSR REIT (the REIT, or BSR) with a BUY rating and US$16.50 target price. Please see our full initiation of coverage report to be published later today.
TD Investment Conclusion
BSR offers investors exposure to the favourable U.S. sunbelt multifamily markets, and should provide strong earnings growth driven by its newer and upgraded portfolio that is located in well-performing markets (~90% of NOI is generated from Texas). We also believe management is building an enviable track record of strong capital allocation. From 2019-2021, BSR completed ~$2 billion in property transactions, which saw the average age of its portfolio fall to 12-13 years versus the ~29 years at its IPO, while also exiting from slower-growth secondary markets, reducing leverage and generating a 7.5% AFFO growth CAGR. With its focus on Class B, garden- style apartments targeted towards the middle-market rental segment, we believe BSR is well-positioned to push rental rates on both renewals and new leases, while still remaining affordable in comparison to homeownership or Class A properties. Although there are some concerns about the U.S. multifamily sector, given elevated near-term new supply, we do not believe this will have a material impact on BSR's long-term NOI growth. When looking at BSR's core markets, we estimate that less than half of its properties will be negatively impacted by new supply coming in 2023, while also being offset by increasing demand from strong migration to the REIT's core markets.
Our forecast has AFFO/unit growth of 10.4% in 2023, followed by a moderation to 1.9% in 2024, owing to a softer rental environment as new supply is absorbed, and an acceleration to 7.5% growth in 2025 as new supply deliveries rapidly taper off in 2024/2025.
Valuation. BSR is currently trading at a 2.9-multiple-point discount on P/2023E AFFO versus its U.S. sunbelt peers. Looking at P/NAV, BSR is trading at a 40% discount to our $20.10 NAV/unit estimate versus its peers at a 25% discount. Given BSR's current relative discount versus its peers and the strong multifamily fundamentals we envision across its primary markets, we believe that the current unit price represents an attractive entry point.
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