Boardwalk Real Estate Investment Trust T.BEI.UN

TD Notes

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REAL ESTATE Q3/24 RECAP; PULLBACK = ATTRACTIVE VALUATION, ESP. VS. U.S. REITS

THE TD COWEN INSIGHT

Q3/24 results were in-line overall, as Canada's reduced immigration targets, rising bond yields, and the U.S. election continued to weigh on sector sentiment. Overall fundamentals remain healthy, which gives us confidence in underlying valuations. We view current valuations as attractive on an absolute basis, but in particular relative to U.S. REITs.

Q3/24 results in-line: Overall AFFO/unit growth* of 4.4% y/y (+2.4% excluding Seniors) was in-line, led by Seniors (+31%), Residential (+7%), and Industrial (+4%), followed by Retail (+1%), Diversified (-2%), and Office (-10%). Notable outliers* include beats by PMZ.un, SIA, and SRU.un and slight misses by AP.un and CAR.un. During Q3/24 earnings, we upgraded IIP.un and SRU.un to BUY and raised nine target prices, while reducing three. Our detailed Q3/24 reviews: Retail, Residential.

Compelling Valuation vs. U.S. REITs (figures 12-17).

• Despite 10-year government bond yields rising less in Canada (60bps) vs. the U.S. (80bps) since mid-September, Canadian REITs have significantly underperformed at -11% vs -2% for U.S. REITs.

• U.S. REIT FFO yields (excluding Towers and Data Centers) are now in line with their 5.9% five-year average, while Canadian REITs at 8.7% are above their 8.2% five-year average.

• Versus 10-year bond yields, the gap is even wider as U.S. REITs are now trading tighter vs. the U.S. 10-year bond yield than they were pre-pandemic (160bps now vs. 330bps
  in 2019), while the spread between Canadian FFO yields and the 10-year bond yield has widened over the same time frame (530bps vs. 510bps). As such, the relative spread between U.S. and Canadian yield spreads has widened to 370bps (from 180bps) and now sits at the upper end of the five-year range of 120bps-410bps (Figure 13).

• On P/NAV, Canadian REITs have checked back to 82% from the recent 91% month-end high in September.

  Our property sector pecking order is Retail, Seniors Housing, Industrial, Apartments,
  and Office. We believe the majority of the relative valuation move between Retail and Residential is done. Although our preferences between sectors is much closer, we do not see a compelling reason for Residential to regain leadership in the near term until implications from the immigration change are more fully understood. We expect accelerating and solid SPNOI and AFFO growth for both the Retail and Industrial sectors in 2025 (Figure 5), with decelerating (yet still strong) growth for Apartments.

  Our overall top larger-cap picks areREI.un, CSH.un, GRT.un, BEI.un, and FCR.un.