BEI.UN : TSX : C$59.88
With a portfolio of 35,277 units, Boardwalk REIT is the
largest owner of rental apartments in Canada, with
dominant market positions in Edmonton, Calgary, Regina,
and Saskatoon. Some of Boardwalk’s other markets
include Montreal, Quebec City, London, and Windsor.
All amounts in C$ unless otherwise noted.
Real Estate — Real Estate Investment Trusts
INTERNAL GROWTH SHOULD CONTINUE
TO DRIVE FFO PER UNIT HIGHER IN 2014
Boardwalk reported FFO per unit of $0.79, up 8% from the $0.73 earned in
Q4/12, and above our estimate of $0.76. AFFO per unit for Q4/13 was $0.68, well
above the $0.62 earned in the year-ago period. For the full-year 2013, Boardwalk
reported FFO per unit of $3.21, up 12% from the $2.87 earned in 2012, and
above management’s most recently updated guidance range of $3.10-3.20.
The strong year-over-year growth in cash flow was driven primarily by solid
same-property NOI growth as well as interest expense savings from refinancing
maturing debt at lower rates. These were offset in part by an increase in G&A.
While Boardwalk has often been overly conservative in its guidance, we had
believed that the most recent range was realistic considering the cold winter and
recent cooling of fundamentals in Saskatchewan.
February monthly rental rate survey – rental rates modestly increase while use of
incentives shifts markets. For properties included in our survey, asking rental
rates generally increased month-over-month. The overall use of incentives
remained fairly stable compared to the prior month; however, the markets in
which incentives were used differed month-over-month. The use of incentives is
not surprising for the slower winter months, and the incentives being offered are
not overly material.
2014 guidance confirmed; distribution increased. Along with Q4/13 results,
management confirmed its 2014 guidance of FFO per diluted unit ranging from
$3.25-3.45, which implies growth of 4.4% at the mid-point. Our estimate of $3.44
equates to growth of 6.9% and sits at the high end of guidance. In addition, the
Board of Trustees approved a 3.0% increase in the monthly distribution to $0.17
per unit ($2.04 annualized) which equates to 68% of our 2014 estimate of AFFO.
We believe another distribution increase is possible later in the year.
Maintain HOLD rating and C$61.00 target price. We continue to utilize a 5.4%
cap rate to value Boardwalk’s portfolio, and our updated net asset value (NAV)
per unit estimate is $58.04, up from $57.80. Our target price of C$61.00 is based
on a modest premium to NAV, which combined with an annual distribution of
$2.04 per unit, implies a 12-month forecast total return of 5%. We continue to
rate Boardwalk REIT a HOLD.