In May 2004, Boardwalk Equities Inc. was reorganized into a real estate investment trust structure. It became known as Boardwalk REIT (TSX:BEI.UN), which specializes in acquiring and managing multi-family residential projects in Canada. At the end of 2014, the trust owned 34,626 apartments across Alberta, Saskatchewan, Quebec, and Ontario. At the end of 2014, management equity ownership was 25%.
Is Boardwalk REIT’s distribution safe?
Since 2005, Boardwalk REIT has paid a regular, monthly distribution. In 2005, the annualized distribution was $1.26 per unit. In 2014, the annualized distribution was $2.04 per unit. Over the course of nine years, the distribution grew at an annualized rate of 5.5%.
Between 2005 and 2014, Boardwalk REIT’s funds from operations payout ratio has ranged from 60% to 89%. Its 2014 payout ratio was 60.5%, at the low end of the range, so its distribution appears safe.
Special distribution possibilities
Although Boardwalk REIT’s regular distribution froze between 2009 and 2011, it paid out a special distribution of $0.50 per unit in 2010. Compare that to the annualized distribution of $1.80 per unit paid out in those three years. In 2014, it announced yet another special distribution of $1.40 per unit that was paid out in January 2015.
Both of these special distributions were funded by an ongoing program of selling non-core properties. In fact, part of the released capital from the sales was also used to buy back its trust units for cancellation. For example, between 2007 and 2012, 4 million trust units were repurchased for cancellation. The unit cancellation helps put a base in the unit price.
Is it time to buy Boardwalk REIT?
In the fourth quarter of 2014, the trust estimated its unit fair value range to be between $54.23 and $58.29. Today, the trust costs around $58 with the 200-day moving average sitting around $55. In my opinion, investors looking for safe income and steady growth should consider buying its units in the $54 to $58 range.
What can investors expect in the future?
Analysts estimate a one-year target price of $66 to $68. If you do end up buying Boardwalk REIT units in your portfolio at $58, from capital appreciation alone, you’re estimated to get a return of 13% to 17% in one year. Adding in the 3.5% yield, that’s a total return of 16.5% to 20.5%.
Fool contributor Kay Ng has no positions in any of the stocks mentioned in this article.