Boardwalk Real Estate Investment Trust BEI-U S
April 16, 2015 - 9:28am EST by
2015 2016
Price: 59.72 EPS 3.277 3.613
Shares Out. (in M): 52 P/E 18.22 16.53
Market Cap (in $M): 3,105 P/FCF 16.93 16.61
Net Debt (in $M): 2,195 EBIT 304 308
TEV (in $M): 5,300 TEV/EBIT 17.45 17.22
Borrow Cost: Available 0-15% cost

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  • REIT
  • Canada


Investment ThesisShort Boardwalk
Boardwalk Real Estate Investment Trust (“BEI-U CN” or “Boardwalk”) is the largest owner of apartment rental
units in Canada with significant exposure (71% on a weighted unit basis, 79% on a “stabilized property” NOI
basis) to Canada’s oil producing regions.
Boardwalk is an easyto borrow REIT short with short interest under 1%, a dividend yield of 3.4%, a large
$C3.1bn market cap, trading at the highest valuation of all Canadian REIT peers (on any metrics, but on a
P/AFFO basis: 20x 2014 P/AFFO, 19x 2015 E Mgt’s P/AFFO) and above the sector’s 15 year average (~16x
P/AFFO). Boardwalk is down only ~15% from its all time peak in October of $70 and faces numerous
headwinds driven by a weakening Alberta economy.
Boardwalk’s large Alberta exposure will be a drag on earnings in 2015 due to impact from the recent
commodity correction. This impacts Boardwalk in several ways, most importantly: 1) reduced oil and gas prices
will result in a recession in Alberta with local energy companies having layoffs, less work for energy service
companies (more layoffs), as well as less revenue for the province (energy drives Alberta’s GDP, so less work
for infrastructure projects, more layoffs, etc…), and 2) a reduction of in-migration to Alberta from other
provinces seeking commodity related jobs. In-migration has been the growth driver in Alberta’s population (and
thus apartment rental rates) pre-commodity correction.
Simply put, Boardwalk has large Alberta exposure, is valued above peers, trades near its historic stock high just
as Alberta enters a recession. We see Boardwalk worth the mid $40s (similar levels to where the stock traded in
2010/2011), a 30% return from the current $60 price with limited risk against the short thesis.
Founded in 1984 by Sam Kolias (chairman and CEO of Boardwalk REIT) and his brother Van Kolias (Senior
VP of Quality Control of Boardwalk) the brothers got their start via a $50,000 loan from their father. The loan
was used to buy apartment real estate in Alberta and Saskatchewan. Currently Sam and his brother Van Kolias
are at #81 of the top 100 richest people in Canada, via Canadian Business 2006.
As of 12/31/14 58% of Boardwalk’s portfolio in terms of weighted average apartment units was located in
Alberta (16% in Calgary, 36% in Edmonton, 1% in Fort McMurray, 2% in Grande Prairie, and 3% in Red Deer)
with an additional 14.1% in Saskatchewan, another oil rich province.
Among the entire apartment REIT industry in Canada, Boardwalk has the highest amount of exposure to
Alberta. The trade is based on Boardwalk’s Alberta exposure, as we see Alberta entering a recession in 2015
and Boardwalk undergoing a similar scenario to previous recessions in Alberta.
Alberta is Canada’s energy province. Alberta accounts for 78% of Canada’s oil production (2013, 80% of which
are oil sands projects) and 69% of Canada’s natural gas production (2013). The energy sector (which includes
mining as well as oil and gas) accounted for 22.1% of Albert’s GDP in 2012 and 72% of the province’s exports.
In terms of investment projects, oil sands alone accounted for 53% ($C 110bn, many of which are having their
growth initiatives scaled back as oil sands on average require a break even oil price of $65/bbl) of all major
investment projects in Alberta. Oil and gas is easily the economic driver in Alberta.
In terms of people, according to StatCan Alberta has a population of 4.1MM (estimated as of 10/1/14), or 11.6%
of Canada’s total population. In 2014, mining, quarrying, and oil and gas extraction employed 175,300 people,
considering Alberta in 2014 had a 72.7% Labour Force Participation Rates, it suggests 5.9% of the labor force
was involved in the mining, quarrying, and oil and gas extraction segment. This is misleading as it omits related
industries (servicers, linked construction, etc…etc).
A thorough review of how energy impacts Alberta was completed via the Alberta Competitiveness Review in
20102 and stated that the oil and gas industry impacts 50% of the Alberta economy and directly or indirectly
employs one out of seven (14%) people in Alberta, with a substantially greater impact in sectors such as
hospitality, transportation, food services, construction, and real estate. Every one dollar invested in oil and gas
provides three for Albertans in economic activity. The drop off in oil / gas prices has guided Alberta’s 2015
budget to forecast a $C4.991bn deficit in 2015 and only to return to surplus in 2017, based on WTI of
$54.84/bbl in 2015-2016 and $62.80/bbl in 2016-207, and just under $84 by 2019-2020.
The current drop off in commodity prices has driven Alberta unemployment to 5.5% for March 2015 (the
highest since September 2011), up from 4.5% in January 2015, with 20,000 natural resource jobs cut in the past
6 months. 3
The unemployment rate in Alberta will continue to rise in 2015, with continued losses from the
energy space (the highest paid sector in Alberta).
WTI vs Alberta Unemployment Rate
1 Boisvert, David and Contreras, Guido” Economic Impacts and Labour Market Trends 2015.” Research, Policy and Strategic Partnerships Jan 1, 2015: Electronic.
2 Canadian Association of Petroleum Producers. “Alberta Competitiveness Review 2010.” Mar. 11, 2010:. Electronic.
3 BNN. “Just how bad were the job losses in Alberta.” March 13, 2015: Electronic
WCS vs Alberta Unemployment Rate

The mining, quarrying, and oil/gas extraction sector has the highest earnings among all professions in Alberta.4
Alberta’s economic growth, directly and indirectly relates to investments in the oil and gas industry and has
played a key role in attracting Canadian workers from other provinces.5
During the 2009 / 2010 recession, all ofAlberta’s regions experienced zero to negative migration with the exception of moderate gains in two divisions
(Division No. 16 (Wood Buffalo) and Division No. 18 (Greenview)). Post the Great Recession, 11 of the 18
districts in Alberta grew at least 2x higher than pre-recession rates.6
4 Alberta Government, Alberta’s Labour Market Highlights, 2014: Electronic
5 Statistics Canada. “Migration: Interprovincial, 2011/2012.” Statistics Canada. Electronic
6 Statistics Canada. “Migration: Interprovincial, 2011/2012.” Statistics Canada. Electronic




In 2011 / 2012 Alberta received as many  interprovincial migrants as the two most populated provinces in all of Canada combined (Ontario and Quebec).
Workers flocked to Alberta for the commodity driven jobs and the jobs the commodity boom helped create
(i.e. residential construction, infrastructure, services etc..). Given the reduction in commodity prices, an increase
in unemployment is already occurring and we expect Alberta migration to drastically decrease in 2015. This has
already started occurring, in Q4’14 inter-provincial migration was down 13.3% y/y, netting out international
migrants, total migration was down 8.1%. 8
This creates less demand for apartments and will increases the vacancy rates of Boardwalk’s properties.
The post Great Recession migration was so large that in 2013 except for Saskatchewan, another commodity rich
area, every other province experienced an exodus of people. The 2013 surge in migration was the biggest in 23
years and increased Alberta’s population by 1.1%.9

Migration remained the main driver of population growth and as previously mentioned is highly correlated with
oil prices, as shown below.
Components of population growth11
Migration is linked to oil prices12
7 Statistics Canada. “Migration: Interprovincial, 2011/2012.” Statistics Canada. Electronic
8 CREA. “Alberta Migration.” Electronic
9 Sturgeon, Jamie. “Migration to Alberta is exploding.” Global News. Mar 20, 2014: Electronic
10 Canaccord, “The Alberta Disadvantage: low oil prices to hit rental apartment fundamentals.” Feb 12, 2015: Electronic
11 Alberta Government, Alberta’s Labour Market Highlights, 2014: Electronic
12 CIBC Market Insights. Jan 30, 2015: Electronic
Correlation between the real GDP growth gap between Alberta and the rest of Canada vs net interprovincial