HomeStockBoardwalk REIT 1st-Quarter Outcomes: Huge Alternative Forward

Boardwalk REIT 1st-Quarter Outcomes: Huge Alternative Forward


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$2.3 billion Boardwalk REIT (TSX:BEI.UN) is the proprietor and operator of multi-family rental communities. It owns roughly 200 rental items comprised of greater than 33,000 suites. Whereas rising rates of interest and vitality prices have spooked us all, Boardwalk is dealing with all of this fairly effectively. That is evidenced in its first-quarter outcomes.

Let’s take a better look.

Boardwalk’s quarter in a nutshell

The primary quarter of 2022 was characterised by two issues. First, and fairly curiously, it was characterised by sturdy demand momentum. However secondly, and never surprisingly, it was characterised by price inflation.

Funds from operations rose 4.6% to $0.68. It is a reflection of the more and more constructive fundamentals that Boardwalk REIT is seeing. For instance, demand in Alberta is rising, whereas provide there stays stagnant. As a reminder, Boardwalk is closely uncovered to Alberta, which makes up 62.4% of its whole portfolio.

The elephant on this room is rates of interest. One can not have a correct and exhaustive dialogue about Boardwalk (and any REIT) with out addressing rising rates of interest. As a result of, by their very nature, we discover that REITs are fairly closely indebted. It’s half and parcel of their enterprise mannequin — a closely capital intensive one whose rewards embrace a lifetime of secure and predictable earnings. This is the reason it comes as no shock that Boardwalk REIT has fallen 14% in 2022.

Boardwalk REIT

So, Boardwalk is feeling inflationary pressures from rising rates of interest but additionally rising utility prices. That is displaying up within the REIT’s outcomes. Nevertheless, the vital takeaway right here is that Boardwalk continues to enhance internet working margins (58.3% this quarter versus 57.8% final 12 months), regardless of will increase in these non-controllable prices

Boardwalk REIT is undervalued on so many ranges

Boardwalk estimates that its internet asset worth now stands at over $68. Rising occupancies, rising demand, and rising rental charges are supporting this. Briefly, the atmosphere at this time could be very beneficial, and Boardwalk’s share worth just isn’t reflecting this.

Current market transactions are effectively above market valuations. There are numerous issue that spotlight this discrepancy. For instance, the stock of properties is declining, and building prices are rising. This speaks to a continued beneficial provide scenario. On the demand facet, housing costs have risen dramatically, making dwelling buy much less reasonably priced. That is constructive for leases. As of proper now, leasing momentum is impacting income and working earnings very favourably.

All of this performs into Boardwalk and its valuation. The hole between the corporate’s NAV estimate and the present share costs ought to slim, as these tendencies hit the underside line.

Lengthy-term progress drivers are sturdy

Canada’s borders are re-opening after the extended COVID-19 shutdowns. That is respiration new life into Canada’s file immigration targets. This large inhabitants progress shall be a key consider Boardwalk’s anticipated success. Already, occupancy in Might is greater than in April. Boardwalk expects this development to proceed because the REIT is “firing on all cylinders.”

Additional to this, now we have Canada’s booming vitality sector. We all know that Edmonton and Alberta are lastly seeing a restoration together with rising oil and gasoline costs. As we all know, this has put upward strain on Boardwalk’s bills. However, the restoration of this sector may even have a really constructive affect on Boardwalk given that almost all of its portfolio is in Western Canada. A revival of the vitality trade, means a pick-up in hiring, which suggests extra people who want housing. We will count on market fundamentals for Boardwalk’s western properties to enhance considerably.

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