November 11, 2010 / 8:39 PM / 7 years ago

UPDATE 1-Boardwalk REIT sees flat revenue as incentives end

* Sees flat 2011 revs, FFO between C$2.35-C$2.55 per unit

* Won’t “shock” customers, prefers to wean off incentives

* Q3 FFO of C$0.64/unit vs street view of C$0.69/unit (Recasts)

TORONTO, Nov 11 (Reuters) - Boardwalk Real Estate Investment Trust (BEI_u.TO) expects to see little change to its revenues into next year as incentives offered to retain tenants during the recession must “burn off” before it can start charging higher rents on its apartment leases.

The REIT, which posted flat revenue in the third quarter of C$104.7 million ($104.7 million), said it expects similar revenue levels going forward as it waits for the apartment rental market to rebound.

“We’re in a competitive market and we have to wait for the rest of the market to reach equilibrium. When that happens, we will then see a recovery in our rent,” Sam Kolias, chief executive at Boardwalk said on a conference call the day after the REIT reported disappointing quarterly results.

“We cannot raise rents until the rest of the market reaches the equilibrium that we’re at.”

Units of Boardwalk Real Estate Investment Trust fell to a 13-week low before paring losses, down 2.8 percent to C$42.24 on the Toronto Stock Exchange on Thursday afternoon.

The REIT said the average monthly rent in its portfolio for the quarter edged up to C$977 per suite, compared with C$976 a year earlier. But overall occupancy in the third quarter rose to 97.01 percent from 95.54 percent a year ago.

The REIT, Canada’s biggest apartment landlord, began raising rents slowly and selectively earlier this year in key markets, and paring back incentives, such as a free month’s rent or below-market rental rates, offered during the economic downturn.

“Until we start seeing some more green shoots in our portfolio we’re not going to be aggressive in our revenue targets,” said Boardwalk President Rob Geremia.

But Boardwalk said there were some positive signs for its rental markets, with a large chunk concentrated in Alberta. They pointed to steady wage growth in the oil-rich western province, and in neighboring Saskatchewan, as people move there to work on major oil projects.

The trust also said that fewer tenants have moved out of its properties recently because rents have been more affordable than buying a home in a market where house prices have been climbing steadily.

Boardwalk warned the expected flat revenues are a result of year-long leases that take time to expire, and even then, it may be reluctant to suddenly hike rents and eliminate incentives right away.

“When we lock in on incentives or lower rent, it lasts 12 months minimum. We can’t take all the incentives away when those leases expire,” said Kolias. “We never want to shock our customer and we want to gradually wean off these incentives.”

In the meantime, the REIT said it plans to invest about C$79 million into capital improvements at its properties next year.

Boardwalk also estimated 2011 funds from operations (FFO) of between C$2.35-C$2.55 per unit. Funds from operations are a key measure of performance for real estate companies, which strips out the distorting effects of depreciation and other factors from earnings.

In the latest quarter, FFO slipped to C$33.6 million, or 64 Canadian cents a unit, from C$35 million, or 66 Canadian cents a unit, a year ago. Analysts, on average, had forecast 69 Canadian cents a unit, according to Thomson Reuters I/B/E/S.

$1=$1.00 Canadian Reporting by Ka Yan Ng; editing by Rob Wilson

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