TSX:BEI.UN - Post by User
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retiredcfon Nov 07, 2024 8:28am
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Post# 36300547
TD
TDHave a $95.00 target. GLTA
Q3/24: FUNDAMENTALS SOFTENING, BUT GROWTH SHOULD STILL BE TOPS AMONG PEERS
THE TD COWEN INSIGHT
Boardwalk met expectations in Q3/24 and raised its guidance for the third consecutive quarter. While slowing, fundamentals remain healthy enough to drive continued above avg earnings/NAV growth through our forecast period. We have modestly reduced our estimates and target price owing to a softening macro environment but view the ~21% decline in the share price since mid-Sept as overly punitive.
Impact: NEUTRAL
Initial views: here
Well Positioned for Current Macro. Management expects AB to be less impacted by the government's immigration policy owing to a lower amount of non-permanent residents (Figure 7) and its history of net provincial in-migration. BEI's in place/asking rents in AB remain well below that of new supply, deliveries of which are currently peaking. Uplifts on new leasing are still in the 7-9% target range (2-4 months out), although new leasing has slipped to high single digits. All in, we view BEI as well positioned in the current macro environment.
2024 guidance raised for the third consecutive quarter, calling for $4.15 to $4.23 FFO/ unit (+0.5% at the midpoint to $4.19) and compares with our revised $4.16 estimate. On SPNOI, expects to achieve +12.5% to +14.5% growth (our estimate is +13.5%). We note that SPNOI growth assumes high-8% to low-9% revenue growth and 2% to 5% operating expense growth.
More activity coming on acquisitions/dispositions, potential for NCIB to restart? While there were no Q3 transactions, we believe dispositions are more likely near term as management appears close to selling some non-core assets in the Edmonton market (more asset-specific vs. geographic considerations). On the acquisition side, management is targeting new/nearly new properties with larger unit sizes and a larger mix of 2/3 bedroom units. While not mentioned on the conf call, at current levels we believe management could become active on its NCIB, using proceeds from dispositions.
2025/26 Estimates Decline But Growth Should Still Be Tops Among Resi REITs. Our 2024 AFFO/unit estimate is largely unchanged, while our 2025/2026 estimates decrease 3%/5% on lower NOI assumptions (reduced revenue growth) offset slightly by lower net interest expense. Our NAV/unit estimate is +3.5% to $88.00 on NOI rolling fwd one quarter. Our revised forecasts have AFFO/unit growth of 9%/8% in 2025/26, down from 13%/11%.
Attractive Valuation. Despite having a 5-year NAV CAGR of 11% and in our view very visible near term NAV growth, Boardwalk currently trades at an 18% discount to our NAV estimate vs the long-term average of 8%.
Boardwalk’s SPNOI growth slowed marginally to 13.5% versus the 14.2% reported last quarter. The portfolio remains essentially full at 98.6% (-10bps q/q). The mark-to-market gap fell 16% q/q to $130/suite per month as in place rents continue to grow faster than market rents. Excluding incentives, the mark-to-market was $151, down from $177 in Q2/24. With Boardwalk’s portfolio essentially full and in-place rents well below market, we believe Boardwalk is well-positioned to deliver consistently solid top line growth over our forecast period.