A Gold Medal Performance Our Conclusion
Boardwalk REIT printed a strong as expected and in-line quarter, continuing
to exceed its residential peers in terms of SPNOI growth, underpinned by its
outsized exposure to non-rent-controlled markets. For the second quarter in
a row, BEI updated and raised its forward-looking guidance, and accordingly
we expect Street estimates to move commensurately upwards on the revised
outlook. Boardwalk has been amongst the best-performing REITs YTD and
we expect that the results from the quarter will maintain the current, and well
deserved, valuation premium.
Our forward NAV estimate is increased to $86.00 (from $81.00) and,
accordingly, our price target increases to the same, maintaining NAV parity.
Key Points
Q2/24 Results: FFO/unit of $1.04 was in line with our estimate and similar
consensus. Total SPNOI increased 14.2% on a 9.5% increase in same-
property rental revenue and a 36 bps increase in occupancy, driving a
margin increase of 270 bps (to 65.2%). By market, Saskatchewan was the
REIT’s strongest, posting exceptional SPNOI of 19.0%, while its Ontario
portfolio (7.9% of NOI) trailed at a still respectable +4.6% as rental rate
restrictions capped growth. Portfolio-wide occupancy picked up 36 bps Y/Y
to an effectively full 98.68%.
Leasing Activity: In the REIT’s key market of Alberta, new leasing spreads
continue to drive organic growth as the REIT achieved a robust ~14% on
new leases and ~9% on renewals for June 2024. The absence of rent
controls continues to drive outsized growth within the Boardwalk portfolio
relative to peers. Considering the substantial, and increasing, spreads
achieved each quarter, one could call the sustainability of such strong
leasing momentum into question. However, rents in Alberta are well below
30% of the median renter household income in the country and current rents
(relative to income levels) remain some of the most affordable in Canada.
We continue to see a clear path to above-average leasing growth within the
REIT’s portfolio.
Balance Sheet: We estimate Debt to GBV to be in the low 40% range.
Interest coverage was 2.86x, flat when compared to year-end 2023.
Reported IFRS NAV came in at $92.39. While only ~6% of total debt is
maturing in the remainder of 2024, we would highlight that BEI has a
significant amount of debt rolling in 2025/26, at ~17% and ~18%,
respectively, both with weighted-average interest rates in the low-mid-2%
range – however, continued outsized SPNOI should serve to more than
mitigate the expected increased interest expense.
Outlook Revision: Concurrent with the quarter, Boardwalk updated and
raised its guidance to a range of $4.11 to $4.23 FFO/unit (from $4.00 to
$4.20). This compares to consensus of $4.16, which is effectively already at
the mid-point of the new range.