IA Capital Markets analyst Gaurav Mathur thinks the “solid” fourth-quarter 2022 results and forward guidance from Boardwalk Real Estate Investment Trust(BEI.UN-T) “highlights the strength in the business.”
“BEI has a long growth runway and can unlock embedded growth in its portfolio as market rents rise, incentives decrease, immigration in Alberta remains consistently strong, and expenses are controlled,” he said.
Mr. Mathur was one of several equity analysts on the Street to raise their financial forecast and target prices for units of the Calgary-based REIT following the late Thursday release of better-than-expected quarterly results.
Boardwalk reported funds from operations per diluted unit of 80 cents, up 5.9 per cent year-over-year and a penny higher than the forecast from both Mr. Mathur and the Street. Same property net operating income grew 5.9 per cent, led by gains in Saskatchewan (7.6 per cent) and Quebec (7.0 per cent) with Alberta and Ontario also seeing notable increases (5.5 per cent and 3.9 per cent, respectively).
For 2023, the REIT expects FFO per unit in the range of $3.25 to $3.45, rising from $3.13 in 2023, and SP NOI growth of 8.5 per cent to 12.5 per cent.
“With 72 per cent of the NOI derived in non-rent-controlled markets, we believe that the REIT can post results closer to the top end of the guidance range,” said Mr. Mathur. “Add the rising levels of immigration in Alberta, and BEI could potentially beat guidance.”
Maintaining a “buy” recommendation for Boardwalk units, he raised his target to $65 from $60. The average is $62.64.
“Recall that BEI was highlighted as one of our picks for 2023 in our recent outlook note, It’s Time to Be Active,” he concluded.
Other analysts raised their targets include:
* National Bank’s Matt Kornack to $68 from $65 with an “outperform” rating.
“Boardwalk’s results and 2023 guidance confirmed our positive bias going and continues to support the buy thesis for this name going forward,” said Mr. Kornack. “Alberta rental trends positively inflected in 2022 but have been accelerating since with Calgary joining the ranks of top-performing markets on a SP revenue basis (occupancy gains plus accelerating rents). While the former will fall away given 98+% end of year occupancy, we expect rent spreads on renewal and new leasing to expand. Meanwhile, the Edmonton portfolio looks to be a few quarters behind, reaching 97% occupancy in Q4 but with rent escalations still in their infancy. Needless to say, we are comfortable with management’s guidance on SPNOI growth and FFO/unit. We took estimates up in 2023/2024 on the back of slight incremental rent growth assumptions and modestly higher margins but note that a continued ability to keep controllable cost growth under control would make the high-end of management’s range easily achievable. Apartment results have generally been strong and BEI will face competition for incremental capital, but nonetheless, looks well-positioned to generate near-term above peer growth figures.”
* Desjardins Securities’ Kyle Stanley to $69 from $64 with a “neutral” rating.
“The fundamental apartment backdrop in Alberta continues to improve, supported by elevated population growth, a robust economy and a manageable new supply pipeline,” said Mr. Stanley.
* Scotia Capital’s Mario Saric to $66.60 from $63 with a “sector perform” rating.
“In our Q3 note (BEI was $51), we opined a rating upgrade needed greater confidence that new supply wouldn’t be an issue in 2024 (allowing for higher blended rent spreads),” said Mr. Saric. “We’ve admittedly been slow to gain that assurance and the stock has moved on us (reasonable valuation), leaving us searching for a better entry point (20-per-cent return = $54 per unit) and perhaps conviction in an uneventful Alberta election in May. That said, we think better days remain ahead for BEI.”
* RBC’s Jimmy Shan to $69 from $65 with an “outperform” rating.
“Boardwalk REIT turned in a good quarter and introduced 2023 FFO guidance reflecting 7-per-cent year-over-year growth which we think could prove conservative,” said Mr. Shan. “Given that BEI is 70-per-cent-plus in non-rent controlled markets, we think BEI’s near-term results should reflect the strength in rental fundamentals sooner than its ON-centric peers, and there is a good runway for rent growth given low rent to income ratio. Potential upside to forecast would be if the current pace of migration to AB continues.”
* BMO’s Michael Markidis to $64 from $60 with an “outperform” rating.
“BEI continues to be one of our best ideas in the Canadian listed-property space. Our thesis considers its above-average near-term organic growth profile, industry-leading payout ratio, and potential for further improvement in D/EBITDA,” said Mr. Markidis.
* CIBC’s Dean Wilkinson to $64 from $56 with a “neutral” rating.
* TD Securities’ Jonathan Kelcher to $67 from $60 with a “buy” rating.