Killam Apartment REIT (KMP.UN:TSX; KMMPF:OTCPK) delivered a Q1/23 that met expectations, reported Echelon Capital Markets analyst David Chrystal in a May 3 research note. Management raised its net operating income growth target for the year.
Echelon maintained its Buy rating and CA$21.50 per share target price on Killam, currently trading at about CA$16.70 per share. This price gap implies a 23% return for investors.
Growth During Q1/23
Chrystal presented several results from 2023's first quarter, which indicate overall year-over-year (YOY) growth.
During 1/23, the Canadian REIT generated net operating income (NOI) of CA$50.8 million (CA$50.8M), a 12% increase over a year ago. Funds from operations (FFO) also were up YOY, by 6%. FFO per unit came in CA$0.25, also reflecting a YOY rise of 3%. This met Echelon's CA$0.249 estimate and the Street's expectation.
"The YOY growth was driven by organic NOI growth [and] offset in part by rising interest expense and a higher unit count," Chrystal wrote.
Same-property NOI growth in Q1/23 was 6.3%, and this exceeded the high end of management's initial full-year 2023 target for it of 3–5%, noted Chrystal. Accordingly, the company revised its target to 5%-plus given the "positive outlook for rental demand as well as easing cost pressures."
Takeaways From Q1/23
Chrystal listed the main points of the REIT's Q1/23 financial and operational results.
The quarter was noteworthy for a new record in the percentage of turnover lifts: 14.3%. This, along with average lifts on renewal of 2.3%, resulted in a blended average increase of 3.8%.
Gains in occupancy continued in Q1/23. Same property occupancy was 98.6%, up YOY by 80 basis points.
The mark-to-market opportunity within the REIT's portfolio is about 20%, according to management's estimate, and is expanding.
Operational expenses eased and should continue to let up, which will allow for margin growth.
The REIT's capital recycling program is paying off. Dispositions of about CA$43M in Q1/23 yielded CA$27M-plus in net cash to the REIT. It used part of these funds to pay off some of its outstanding variable-rate debt.
"With another CA$100–150M of additional potential sales under various stages of due diligence, management expects to exceed its original goal of CA$100M for the year," Chrystal wrote.
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Disclosures for Echelon Capital Markets, Killam Apartment REIT, May 3, 2023
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ANALYST CERTIFICATION
Company: Killam Apartment Real Estate Investment Trust | (KMP.UN-TSX)
I, David Chrystal, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
IMPORTANT DISCLOSURES
The Analyst had an onsite visit with the Issuer within the last 12 months, October 2022, Halifax property tour.
