Event
Yesterday, we hosted Boardwalk management for investor meetings.
Impact: SLIGHTLY POSITIVE
Operational Update (Exhibit 1). Stabilized portfolio occupancy has trended up
since Q1/21 and has held in at 96.0% since May. This is +100bps versus March
occupancy. Rents have also held in well, with May occupied rent of $1,189, in line
with what was reported in Q1/21. These metrics are slightly ahead of our Q2/21
forecasts, which had occupancy at 95.9% and AMR at $1,183, and puts the
REIT in a position to resume sequential revenue growth in Q2/21. With Alberta
effectively open as of July 1, management expects to begin to reduce incentives on
renewals by 0.5-1.0 months, which translates into renewal rent growth of 4-8% on its
Alberta and Saskatchewan portfolios (72% of NOI). On the cost side, management
anticipates that property taxes will decrease from July 1, following a large increase
in Alberta in 2020. However, higher utilities and insurance costs remain headwinds.
Management's goal is to get back to 60%+ operating margins (TDS 2021F: 57.5%).
Recent Transactions Reinforce Value in BEI Units at Current Price Levels.
Earlier this week, Avenue Living acquired three portfolios in the Edmonton area
aggregating 1,566 units for $275mm, or ~$175,600/suite. The transaction cap
rate is estimated to be in the mid-4% range. Boardwalk's higher overall quality
Edmonton portfolio has an IFRS value of ~$180,000/door, while the stock is trading
at ~$150,000/door and an implied 5.4% cap rate. We expect consensus NAV
estimates to increase.
We estimate that an implied price/suite value of ~$175,000 will equate to a unit
price of $58.50. This translates into a 37% premium to last night's closing price
of $42.85 and is 13%/19% ahead of our Street-high $52.00 target price and
$49.20 NAV/unit estimate.
Distribution Increase Likely. Management noted that the growth in the REIT's
taxable income will likely necessitate a distribution increase. Although not in our
forecasts, we believe that an increase could be announced as early as this year.
Q2/21 Results. Boardwalk will report Q2/21 results on August 12, with a conference
call at 11:00 a.m. ET on the following day (dial-in: 1-888-664-6383; conference ID:
97624649).