Boardwalk Real Estate Investment Trust – Third Quarter 2026 Earnings Call - DEFI TECHNOLOGIES INC

Financial Performance:

• Same property rental revenue increased 0.9% year-over-year; same property Net Operating Income (NOI) decreased 1.1%.
• Operating margin compressed by 140 basis points to 67%, primarily driven by a significant increase in Alberta education property taxes in the second half of the year.
• Funds From Operations (FFO) per unit decreased 1.6%, mitigated by capital from asset sales used to fund a normal course issuer bid (NCIB) program.
• GAAP profit declined due to a non-cash reduction in IFRS net asset value following asset sales.
• Debt-to-EBITDA ratio improved to 9x (down from ~10x in Q4 2025); debt-to-total assets remained steady at just under 43%.
• Interest coverage ratio stands at 2.83x; $579 million of $815 million in maturing 2026 mortgages has been renewed or forward-locked at an average rate of 3.89%.
• Liquidity position remains strong at approximately $403 million at quarter-end.
• Fair value of investment properties totaled $8 billion as of September 30, 2026 (down from $8.6 billion), reflecting asset sales and fair value adjustments; estimated at ~$248,000 per door.

Guidance and Future Outlook:

• Tightened 2026 outlook: Anticipated same property NOI growth of 1–2% and FFO per unit between $4.65 and $4.75.
• Confirmed regular monthly distribution of $0.15 per trust unit ($1.80 annualized) for December 2026 through February 2027.
• 2027 guidance will be provided alongside Q4 2026 results in February.
• 2027 outlook expects continued strong demand for affordable housing and potential positive impact from new federal economic projects (e.g., De Havilland aircraft financing, energy, agriculture).
• Management expects Q4 property tax expenses to be consistent with Q3, with a recent Alberta announcement providing certainty on education tax rates for the next three years.
• Utilities are identified as the primary variable factor for the $0.10 guidance range variance in Q4.

Business Segments and Product Lines:

• Overall occupancy remains resilient at 97%, supported by strong retention strategies and vertical integration to minimize turnover time.
• Average occupied rent for two-bedroom units is $1,609, significantly below the Canadian average of $2,221, reinforcing the affordable housing focus.
• $1 billion invested since 2017 in rebranding and repositioning; 7 of 16 value-add projects for 2026 are complete, with the remainder on track for year-end completion.
• Asset sales completed in Q3 ($177 million in London, Grand Prairie, and Edmonton) at an average cap rate of 5.4% were driven by high deferred capital needs and market overexposure.
• Year-to-date, $629 million in sales were completed at a 5.2% cap rate, generating $342 million in net proceeds used primarily for NCIB repurchases ($245 million bought back in 2026 at an average of $65.37).
• Quebec portfolio showed strong sequential revenue growth due to higher summer lease volumes, offsetting mandated inspection costs.

Market and Competitive Landscape:

• Core markets of Alberta and Saskatchewan continue to drive population growth via interprovincial migration and resilient non-permanent resident numbers.
• Market competition is concentrated in higher-end luxury segments; BoardWalk's affordable segment remains in high demand with supply deliveries focused on luxury products.
• Leasing spreads blended slightly negative in Q3, reflecting a balanced supply-demand environment, though renewal spreads remain positive.
• Private market cap rates (4.75–5.25%) remain below the trust's implied cap rate (>6%), creating an opportunity for the NCIB.
• Supply in Calgary remains under construction but starts are down 15% year-over-year; new immigration levels and federal infrastructure projects are viewed as key demand drivers.

Risks and Challenges:

• Significant increase in non-controllable operating expenses, specifically education property taxes in Alberta, impacting margins.
• Unanticipated Repairs and Maintenance (R&M) costs due to mandated inspections in Quebec and record rainfall damage in Alberta.
• Competitive pressure in higher rent price points leading to slightly higher turnover and the need for incentives on new leases.
• Immigration policy uncertainty affecting non-permanent resident retention, with some units vacated due to permit issues requiring backfilling.
• Inflationary pressure on controllable costs, though management is actively targeting cost containment.

Management Commentary and Tone:

• Tone is confident and resilient, emphasizing the "BoardWalk Family Forever" (BFF) culture and the strategic focus on affordable housing stability.
• Management highlighted the "win-win-win" approach for residents, team, and investors, citing operational discipline and high occupancy as proof of model resilience.
• Confidence expressed in the long-term economic prospects of Alberta and Saskatchewan, citing energy, agriculture, and technology investments.
• Strong emphasis on capital discipline, utilizing net proceeds from asset sales to repurchase underpriced units rather than pursuing immediate external acquisitions.

Analyst Questions and Answers:

• Revenue/Expense Outlook: Management stated 2027 revenue growth will focus on maintaining 97% occupancy; property tax increases seen in 2026 are not expected to repeat at the same magnitude in 2027.
• Acquisition Strategy: While highly selective, the team is reviewing opportunities but notes the wide valuation gap between public units and private market prices makes NCIB the preferred capital deployment.
• Leasing Spreads: Renewal spreads remain strong and consistent; new leasing spreads are moderated to win market share in a competitive environment, with incentives primarily applied to new leases.
• Immigration & Policy: Management advocated for economic migration, noting that while policy adjustments impact some non-permanent residents, new federal investments will drive job creation and household formation.
• Property Taxes: Alberta education tax increases are a one-time 2026 event; the trust received certainty on future rates, and assessments are expected to rise only 2–4% annually in the long run.
• Financing Rates: Lending rates are stable around 3.7%; no significant rate-driven shifts have impacted current sale/purchase discussions, though the team remains flexible for 2027.

Other Key Points:

• The trust's mortgage portfolio is 99% CMHC-insured, providing access to below-market rates.
• Management reiterated that the NCIB is the top priority due to the significant discount of trust units relative to net asset value.
• A special distribution update regarding taxable gains from asset sales will be provided in December.
• The company maintains a minimum distribution policy to maximize reinvestment and free cash flow growth.
• Recent federal financing for De Havilland and other infrastructure projects in Alberta are highlighted as major economic catalysts for the region.