Our view: Boardwalk REIT (BEI) hosted its annual investor days in Calgary on July 8 and 9. We saw a couple of newly acquired properties (Elbow 5 eight, Marda Loop) and a few previously owned, but recently redesigned properties (Spruce Ridge Gardens, Northwest Portfolio). Our main takeaway is that Alberta fundamentals remain strong and aren’t showing signs of slowing. Also, BEI is “gittin’ ‘er done”, deploying the remainder of its December 2023 issuance toward the acquisitions announced last week.
Key points:
BEI highlighted four key themes at its Investor Days:
Strong housing fundamentals: Alberta continues to experience strong immigration and is less reliant on non-permanent residents than other provinces, with NPRs representing only ~40% of its ~200,000 new immigrants last year (vs. 72% of BC’s 2023 immigration, 68% Ontario, 80% Quebec). On the supply side, Calgary has 10-15K apartments under construction. To justify $550/sf construction costs, Calgary rents need to be $3.85/sf vs. ~$3/sf market rent today.
Sustainable organic growth: All of the above factors point to elevated demand and potential rent growth. One way BEI has worked to capture rent growth is through its redesign efforts. By refreshing amenities (i.e. common area, gym, games room) of older or out-of-date properties, BEI has been able to reduce vacancy and increase rents. These projects often require relatively little time and cost to complete compared to larger redevelopments.
Supplementing organic growth with acquisitions: Last week, Boardwalk announced the acquisition of two new properties in Calgary as well as one tuck-in acquisition at a property with future re-development potential. The two new properties (Exhibit 1) include Elbow 5 eight, a 255-suite development near Chinook Centre mall purchased for $93MM ($365K/suite; 5.75% stabilized cap rate), and Dawson Landing, a new, fully occupied, 63-suite townhome community in an affluent neighbourhood outside of Calgary for $26MM ($417K/suite; 5% going-in cap rate). BEI also closed on The Brenda for $1.9MM, a 6-unit walk up with future land intensification potential. Notably, management emphasized that they are always looking at non-core asset dispositions as a source of capital.
Attractive valuation: BEI is currently trading at an implied cap rate of 5.3%, 21x 2024E AFFO, $206K price/suite vs. recent Alberta transactions at ~4.25%-5.25% cap rate, ~$211K-$270K price/suite. As such, BEI continues to trade below private market valuation.