TD's Upgrading to ACTION LIST BUY from Buy; Q2/21 Results Event
Q2/21 results, ratings change and forecast update.
Impact: POSITIVE
We are upgrading Boardwalk to ACTION LIST BUY. We believe that Boardwalk's
valuation is compelling at current levels. The REIT is trading at $152,000/suite and
an implied cap rate of 5.3%. That compares with its closest peers at $285,000/suite
and ~3.9% implied cap rate. The current implied price/suite is also well below the
~$175,600/suite that Avenue Living recently paid for a portfolio of 1,566 Edmonton
suites, which we view as lower quality assets than Boardwalk's Edmonton portfolio.
We are also seeing a good recovery in fundamentals in its core markets, which
should begin to drive strong earnings growth. Looking ahead, we anticipate further
occupancy gains in H2/21 as young professionals seek apartments, postsecondary in-person learning resumes, and immigration picks up. The REIT's
relative valuation and improving outlook are the key catalysts to our rating
upgrade.
Q2/21 Results Summary. FFO/unit (f.d.) was $0.75, +5% vs. Q2/20, and largely in
line with our estimate/consensus of $0.74. AFFO/unit (our calculation) of $0.58 was
also largely in line (TDS: $0.57).
Guidance. Boardwalk reintroduced financial guidance for the first time since the
onset of the pandemic. Management expects to achieve SPNOI growth of 0% to 4%
in H2/21, which implies a -2.0%-to-+1.0% range for F2021 (TDS forecast: +0.8%).
Additionally, Boardwalk forecasts FFO/unit of $2.80 to $2.92, which compares
favourably with our previous estimate/consensus of $2.81. Our revised FFO/unit
estimate of $2.87 is near the mid-point of management's guidance.
Management will host a conference call this morning at 11:00 a.m. EST (dialin: 1-888-664-6383; passcode: 97624649).
Forecast. Our 2021/2022 AFFO/unit estimates are ~4% higher on increased NOI
assumptions and lower interest costs. Our $54.30 NAV/unit estimate is +10%.
TD Investment Conclusion
Boardwalk has now delivered 10 consecutive quarters meeting/exceeding Street
earnings expectations, and we anticipate improving fundamentals in H2/21 and into
2022. Furthermore, we view Boardwalk as attractively valued on a P/NAV, P/AFFO,
and price/suite basis vs. its peers. We are increasing our target price to $59.00
from $52.00 and our rating to ACTION LIST BUY.