TSX:BEI.UN - Post Discussion
Post by
retiredcf on Aug 01, 2024 8:45am
TD 2
Raise target by 5 bucks to $95.00. GLTA
WESTERN CANADA CONTINUING TO DRIVE SOLID EARNINGS GROWTH
THE TD COWEN INSIGHT
Boardwalk met elevated expectations in Q2/24 and raised its guidance for the second consecutive quarter. Management continues to see robust fundamentals across its portfolio (particularly in AB/SK), which should support double-digit earnings growth through 2026. Although relative valuation has improved, we believe there is further room for growth, given its best-in-class earnings growth profile.
Impact: NEUTRAL
Initial views: here
Boardwalk continues to see earnings momentum across its portfolio, highlighted by solid +14.2% SPNOI growth that accelerated from +13.5% in Q1/24. Operating fundamentals, particularly across its Alberta portfolio, are benefiting from above-average levels of population growth and limited levels of supply, especially in the affordable rental segment. Given the continued large gap between in-place and market rents (average mark-to-market was $155/suite), management expects to continue to self-moderate rents on renewals/ turnovers in its non-rent-controlled markets, which should support a longer runway for future revenue growth.
2024 guidance raised for the second consecutive quarter, calling for $4.11 to $4.23 FFO/ unit (+2% at the midpoint) and compares with our revised $4.15 estimate. On SPNOI, management now expects to achieve +12.5% to +14.5% growth vs. +11.0% to +14.0% previously (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.
Capital Allocation. In addition to the $120mm in acquisitions announced earlier in July (link), management is seeing opportunities in its core markets of AB and SK, with the
most opportunities currently in Calgary. Outside AB/SK management would look to add assets that are not subject to rent control. Management is also exploring the disposition
of non-core assets and noted that it is currently targeting select assets in its Edmonton market (more asset-specific vs. geographic considerations). We would expect any near-term acquisition activity to be offset by dispositions.
Forecasts. Our 2024 AFFO/unit estimate is up modestly +1%, while our 2025/2026 estimates increase +3%/+4% on higher NOI assumptions and lower interest expense. Our NAV/unit estimate is +4.6% to $85.00 on our higher NOI.
Valuation. Boardwalk is currently trading at 23.0x 2024 AFFO, a slight premium to its peers. In prior periods where it has seen above-average earnings growth, BEI has traded at an ~3-4-point premium to the group.
Boardwalk’s SPNOI growth ticked up to 14.2% versus the 13.5% reported last quarter. Demand fundamentals continue to be driven by strong population growth (including strong inter-provincial migration). The portfolio remains essentially full at 98.3% (-35bps q/q). The mark-to-market gap fell 11% q/q to $155/suite per month, while average incentives decreased to $90/month (Q1/24: $96/month) and compares with $106/month in Q2/23. Excluding incentives, the mark-to-market was $177, down from $202 in Q1/24. With Boardwalk’s portfolio essentially full and in-place rents well below market, we believe Boardwalk is well-positioned to deliver consistently strong operational results in the near-to-medium term.
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