TSX:BEI.UN - Post by User
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retiredcfon Feb 27, 2023 1:59pm
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Post# 35307635
TD Report
TD Report Boardwalk REIT
(BEI.UN-T) C$58.23
Strong SPNOI Guidance to Drive AFFO Growth in 2023
Event
Forecast update. For our initial thoughts, click here.
Impact: SLIGHTLY POSITIVE
Boardwalk's newly introduced 2023 guidance is evidence of the continued momentum and strong demand in the Alberta markets, as well as overall strength in apartment market fundamentals. Boardwalk's 8.5%-12.5% SPNOI growth target compares favourably with the 3.8% achieved in 2022, and we believe our 9.8% 2023 SPNOI forecast for BEI will be the highest in our Canadian apartment coverage universe. Management expects to drive SPNOI growth through margin improvement, continued growth in market rents, and lower incentives. Higher y/y occupancy will also aid H1/23 results (H1/22 occupancy averaged sub-97%). That said, management did point to costs remaining elevated into 2023. SP expenses were +8% in Q4, largely coming from higher utility expenses and wage costs related to landscaping premiums for the colder winter months. Looking ahead, management expects full-year SP cost increases in the range of 4%-5%, but expects strong leasing spreads and high occupancy to offset this to deliver the strong SPNOI growth.
The Alberta market (59% of NOI) continued to improve while delivering 2%+ sequential revenue growth for the third consecutive quarter. January increases on new leases remained high at +10.4%, while lease renewals were +8.0% (combination of incentive reductions and market rent growth), demonstrating the strength in fundamentals.
Distribution Bump. The 8.3% increase reflects BEI's "minimum payout policy" (distributing taxable income), albeit with a small buffer for capital gains. As such, we believe future distribution growth will closely mirror FFO growth. Our forecast has an 8% distribution increase in 2024.
Forecasts. Our 2023 AFFO/unit estimate is largely unchanged, while we have increased our 2024 estimate by 3% on higher NOI assumptions, partially offset by higher interest costs. Our NAV/unit estimate is +6.5% to $65.40.
TD Investment Conclusion
Looking ahead, we anticipate further improvements in fundamentals over our forecast period. Despite having the best AFFO CAGR among its Canadian focused apartment peers, Boardwalk continues to trade at a discount. We believe this discount should narrow over time as the REIT continues to execute on its growth potential. We are maintaining our BUY rating and increasing our target price to $67.00.