Boardwalk Real Estate Investment Trust T.BEI.UN

TD 2

[retiredcf]

Boardwalk REIT

(BEI.UN-T) C$49.16

Boardwalk Well-positioned Heading into Winter Leasing Months

Event

Forecast update. For our initial thoughts, click here.

Impact: NEUTRAL

Boardwalk's portfolio continues to benefit from strong demand fundamentals, which have led to higher occupancy, higher occupied rents along with lower incentives, and have combined to drive strong overall growth. More specifically, SPNOI growth was solid at +5.2%, bringing the YTD SPNOI to +3.8%, while spreads on new leases were +7.6% in Q3/22 and improved further to +9.0% in October. Renewals were also strong at +3.9% (+4.6% in October). Looking forward, we expect momentum to continue, with management commentary pointing to further improvements in occupancy and rent growth in Q4/22, despite the typically slower winter leasing months. This is largely predicated on a further recovery in Edmonton (34% of NOI), which represents the large majority of the REIT's vacancy. As occupancy in Edmonton trends higher (availability today based on commitments stood at ~1-1.5% versus in-place Q3/22 vacancy of ~3.9%), we expect a further reduction of average incentives and an uptick on uplifts on renewals and turnover. With no rent control in the majority of its portfolio, we view Boardwalk as best-positioned among its Canadian apartment REIT peers to offset any impacts of inflation and believe the REIT is well-positioned heading into both Q4/22 and 2023.

Guidance: Guidance has been increased slightly on the back of a strong revenue growth trajectory, along with improved visibility on utility and interest costs. Management now expects FFO/share in the range of $3.08-$3.15 from $3.00-$3.15 (+1.3% at the midpoint), while SPNOI growth guidance was raised to 3-5% from 2-5%. Our revised 2022 FFO/share estimate of $3.11 is near the middle of management's guidance range.

Forecasts. We have increased our 2022/2023/2024 AFFO/unit estimates by 1%/4%/5% on higher NOI, partially offset by higher interest costs. Our NAV/unit estimate is -2% to $61.40 (13bps increase in our cap rate to 5.00%).

TD Investment Conclusion

Looking ahead, we anticipate further improvements in fundamentals in 2022 and into 2023, albeit we acknowledge that momentum could slow should an economic slowdown take place. We view Boardwalk as attractively valued on a P/AFFO and price/suite basis vs. its peers. We are maintaining our BUY rating and $60.00 target price.