Boardwalk Real Estate Investment Trust T.BEI.UN

TD

[retiredcf]

Boardwalk REIT

(BEI.UN-T) C$66.16

Alberta Market In the Early Innings of Growth

Event

Forecast update. For our initial thoughts, click here.

Impact: SLIGHTLY POSITIVE

Boardwalk's Q2/23 results displayed further evidence of the strong apartment fundamentals currently occurring in the REIT's core markets and in particular highlighted the robust demand for the REIT's relatively affordable apartment units, which continue to see above-average demand. The quarter was highlighted by +12.5% SPNOI growth and a further increase/tightening of the REIT's SPNOI and FFO/unit guidance (Exhbit 3), following the modest bump in Q1/23. Management now expects 2023 SPNOI growth of 11.5%-14.0%, up from 9.5%-13.0% previously while FFO/unit is expected to come in at $3.42-$3.54 (+3% at the mid-point). Our revised 2023 FFO/unit forecast is near the middle of management's guidance range at $3.49 (+2% from our prior forecast), as is our 2023 SPNOI growth forecast of 12.5%.

The REIT's Alberta market (63% of NOI) continues to perform exceptionally well, evidenced by the +16.5% SPNOI growth (Edmonton: +18.1% and Calgary: +13.5%) achieved in Q2, along with the 14.2%/8.6% uplifts on turnover/renewal. Despite further increases to market rents in the region going forward and as was the case in Q2/23, management intends to self-manage growth on new uplifts to 10%-15% and renewals to 7%-9% in its non-price controlled markets. While this limits the potential on what could otherwise be very strong near-term growth, we believe it provides Boardwalk with a long runway for growth over the medium term, and in turn should partially aid in the delivery of consistent underlying earnings growth going forward.

Forecasts. Our 2023/2024 AFFO/unit estimates are +2% on higher NOI assumptions, slightly lower interest, and partially offset by higher G&A. Our NAV/unit estimate is +3% on higher NOI (cap rate unchanged at 5%).

TD Investment Conclusion

Looking ahead, we anticipate consistently strong fundamentals over our forecast period. Despite having the best AFFO CAGR among its Canadian-focused apartment peers, Boardwalk is only trading roughly in line with its peers on an AFFO- multiple basis. In prior periods where Boardwalk had above-average growth, it has traded at premiums (Exhibit 10 uses CAPREIT as a proxy to show this). We are maintaining our BUY rating and increasing our target price to $80.00.