CIBC upgradeOur Conclusion( in USD)
HOM reported a headline beat of FFO/unit of $0.26, outpacing consensus expectations of $0.23. The result included a property tax refund, which accounted for ~$0.01/unit of the differential, with the remainder driven by higher revenues and lower operating expenditures. Highlights of the quarter were the announcement of an ~8% increase to the current distribution and an upwards revision to full-year FFO/unit guidance. While rental rate growth remains tempered in the very near term, we expect the full absorption of supply by the latter half of 2024 and into 2025. Furthermore, we expect migration to continue unabated at above historical levels into BSR’s niche of affordable housing in some of the most favourable U.S. geographies. An abundance of job opportunities and the absence of personal income tax continue to make the Lone Star State one of the most attractive options for those looking to relocate.
We remain Outperformer rated, and maintain our $17.00 forward NAV estimate, while increasing our price target slightly from $15.00 to $16.00, on an unchanged 5.5% cap rate.
Key Points
Earnings Results: HOM reported Q2/24 diluted FFO/unit of $0.26, up ~13% Y/Y and well above consensus of $0.23, aided by a property tax refund that accounted for ~$0.01/unit of the differential. Reported SP-NOI for the quarter was up 4.6% on a ~0.4% increase in revenues, as well as on a reduction in property operating costs due to the aforementioned lower real estate tax expense, lower professional fees and property insurance, offset by an increase in payroll and renting expenses. NAV per unit was $16.87 (in line with our $17.00 estimate), a decrease of ~18% Y/Y and driven by capitalization rate expansion.
Balance Sheet: The REIT reported D/GBV of 46.7% (44.4% ex-convertible debentures), an increase of 220 bps since Q4/23. Liquidity was ~$113.7MM, coupled with no debt maturities until 2025.
Debt And The Rate Environment: As the interest rate environment continues to stabilize, we are being presented with a normalized view of what to expect in terms of debt rolls. BSR’s current weighted-average interest rate on total debt of 3.6% compares to current estimated financing in the mid- to high-4% range. BSR has no debt maturing in 2024. Through 2025, the REIT has ~$208MM maturing that should serve to increase its financing costs through 2025.
Guidance Revision And Distribution Increase: FFO/unit guidance for 2024 was increased to a range of $0.93-$0.99; however, revenue growth was moderated, with an equal offset on operating costs causing no change to expected SP-NOI growth. Consensus 2024E FFO/unit sits at $0.93. Concurrent with the quarter, the REIT increased the distribution by ~8% to $0.56 annualized, representing a ~4.4% yield on last night’s close.