TSX:BEI.UN - Post by User
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retiredcfon Feb 27, 2024 12:49pm
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Post# 35901747
RBC Report
RBC ReportTheir upside scenario target is $108.00. GLTA
Outperform
TSX: BEI.UN; CAD 76.14
Price Target CAD 86.00 ↑ 82.00
Boardwalk REIT Continued strength
Our View: Boardwalk (“BEI”) delivered a trifecta of good news: 1) An 8% Q4 FFO beat, 2) A strong 2024 guide that implies +9% to +16% y/y FFO growth, while having materially de-levered, and 3) +23% distribution increase while maintaining payout of ~40%. This was one of the best quarters we’ve seen out of BEI since the 2007 era - we were a little surprised that the stock didn't react more positively. We think growth sustainability is top of mind for investors and based on affordability and current demand/supply picture, outlook still looks good. Estimates revised higher; Target $86 (+5%); OP.
Key points:
Strong organic growth: Q4 SP NOI growth of +16.8% was driven by SP-Rev +9% and SP-Exp -1.5%. Good cost control and lower utilities from milder weather contributed to lower expenses. Average occupied rent was $1,388, +9.2% y/y, +2.3% q/q. Occupancy was 98.9% (+92 bps y/y, +40 bps q/q) and was 98.8% in February. Market rent was $1,561 (+1.8% q/q, +11% y/y). Regionally, its AB and SK markets (75% of NOI) remain the strongest with NOI growth in the 15-22% range, while the rest of portfolio was at 3%-6%.
A strong 2024 guide – we think there is some room for upside: FFO/unit of $3.93 to $4.18 with midpoint implying 13% y/y. This assumes SP NOI growth of +10% to +14% (Rev +8% to +9.5%; Exp +2.5% to +4.5%). It’s noteworthy that the +13% FFO growth comes despite leverage declining materially y/y (Net debt to F12M EBITDA of 9.6x vs. 11.4x in 2022) and despite debt refinancing headwinds. If January 2024 new lease/renewal spreads of +11%/9% hold (new lease/renewals of ~30%/70%), revenue growth could come in slightly higher or at high end of range. Our tracking of BEI’s listed rents in January suggests continued strong sequential growth.
Growth sustainability: Given the current robust growth and cyclical nature of its Western Canadian markets, we think growth sustainability is likely top of mind for investors. To that end, the demand/supply still looks good. T12M AB population growth was 195K vs. under construction of 37K. BEI noted affordability being a good indicator of future rent growth – its AB rent to median renter household income remains in the 24-29% range.
2023 Capital allocation: $240M net proceeds from December equity offering will be used to close on The Circle ($70M, 5.75% cap rate), pay down construction facility on Railroad ($57M) and $113M in cash earning 5%. BEI noted it's looking at opportunities to buy newly-built assets, even in ON.
Valuation: Our NAV/unit estimate of $73 (+4%) is based on a 5.05% cap rate (+5bps), vs. IFRS reported NAV of $84.41 (+2.9% q/q) based on 5.05% (+0bps) cap rate on ‘stabilized’ NOI. Our target of $86 (+5%) is based on 5% premium (unchanged) to our 1Y forward NAV. At 22x 2024E AFFO, BEI trades largely in line with its historical 10-year average, but with materially higher growth rate today. Maintain OP.