Post by
retiredcf on Nov 07, 2024 10:16am
CIBC
Have an $86.00 target. GLTA
EQUITY RESEARCH
November 6, 2024 Earnings Update
BOARDWALK REIT
Not Just Housing, AFFORDABLE Housing
Our Conclusion
Boardwalk REIT printed another strong quarter, edging out consensus
estimates by a penny, aided by lower utility costs in Calgary due to water
restrictions that were in place during the quarter (which we anticipate will
normalize in Q4). The bottom end of 2025 guidance was tightened with the
quarter, we believe partially bolstered by the aforementioned savings. A
premium company deserves a premium valuation, and BEI continues to
trade above its peers, accounting for its greater exposure to markets with a
lack of regulatory rent controls. Given the relative affordability when
comparing rents to current income levels within the REIT’s key market of
Calgary (~65% of NOI), we believe the premium valuation that the REIT is
afforded is sustainable as we move into 2025 and beyond.
Concurrent with Q3/24 reporting, we are releasing our inaugural 2026
estimates. Our forward NAV estimate and price target are unchanged.
Key Points
Q3/24 Results: FFO/unit of $1.11 was a penny above consensus; however,
after adjusting for what appears to be a one-time positive impact of reduced
water and sewer costs in the quarter (helping to lift the margin in the Calgary
assets), the figure was likely closer to consensus. Total SPNOI increased
13.5% on a 9.5% increase in same-property rental revenue and an 18 bps
increase in occupancy, driving a margin increase of 260 bps (to 65.3%).
Saskatchewan was the REIT’s strongest market, posting SPNOI growth of
15.9%, while its Quebec portfolio (~17% of NOI) trailed at a still respectable
+6.6% as rental rate restrictions capped growth.
Leasing Activity: In the REIT’s key market of Alberta, new leasing spreads
continue to drive organic growth as the REIT achieved a robust ~10% on
new leases and ~8% on renewals for September 2024. Occupied rent for
September grew ~8% from year-end to $1,493. Rents in Alberta (relative to
income levels) remain some of the most affordable in Canada. We continue
to see a clear path to robust leasing growth within the REIT’s portfolio.
Balance Sheet: The balance sheet remains healthy with debt to GBV in the
~40% range. Interest coverage was 2.91x, compared to 2.83 at year-end
2023. Reported IFRS NAV came in at $94.64, a ~12% increase since year-
end. While only ~6% of total debt is maturing in the remainder of 2024, we
highlight that BEI has a significant amount of debt rolling in 2025/26, at ~17%
and ~18% of total debt, respectively, both with weighted-average interest
rates in the low/mid-2% range. However, continued outsized SPNOI should
more than mitigate the expected increased interest expense.
Outlook Revision: Concurrent with the quarter, Boardwalk updated and
tightened the low end of its guidance to a range of $4.15 to $4.23 FFO/unit
(from $4.11 to $4.23). As a result, we may see a slight lift from the
consensus estimate ($4.17), coming up slightly to meet our $4.18 estimate.