The Sun Belt Continues To Shine
What's Changed
Milestone's reported FFO/unit of $0.27 was above $0.25/unit in
Q2/14 and in line with our $0.27/unit estimate. Results were driven
by +5.2% SP-NOI growth, boosted by +5.2% SP-revenue growth on
stable NOI margins. Average occupancy in Q2/15 was 95.2%, up 20
bps from Q2/14. Average occupied monthly rent/suite increased to
$837 in Q2/15, up from $820 at Q1/15 and $757 at Q2/14. SP rents
increased from an average of $781 in Q1/15 to $794 in Q2/15.
In May, Milestone acquired a 236-unit, Class A multi-family
apartment community in Atlanta for $24 mln. at a year-one cap rate
of 6.7%. The property is 95.0% occupied with average monthly
rents of $985. Subsequent to Q2, MST acquired a 252-unit
multifamily apartment in Charlotte for $32.2 mln. at a year-one cap
rate of 6.4%. The property is 95.0% occupied with average monthly
rents of $950.
Debt/GBV assets was 47.8% at Q2/15, down from 51.6% in Q1/15
and below the REIT's limit of 65.0%. MST's cash balance is $10.5
million. In Q2, MST issued ~9.1mln. units at C$13.70, for total gross
proceeds of ~C$125 mln., to reduce MileSouth's ownership interest
to 17.9% (from 26.9%) and fund the aforementioned acquisitions.
Implications
To reflect the impact of the timing difference between the recent
equity financing and the deployment of its proceeds, our 2015
FFO/AFFO estimates decline modestly by $0.02/unit to $1.07/unit
and $0.90/unit, respectively. Our 2016 FFO/AFFO estimates remain
unchanged at $1.15/unit and $0.98/unit.
Our forward NAV estimate remains unchanged at $12.50 at a 6.5%
cap rate (unchanged). In keeping with CIBC F/X estimates for the
next 12 months, our price target increases to C$16.25 using an
exchange rate of 1.30 CAD/USD, from 1.24 CAD/USD.
Valuation
At C$13.82, MST trades at ~9.8x our 2015E FFO (F/X adjusted), a
discount to our $12.50/unit (unchanged) NAV estimate, and yields
4.7%. Our 12- to 18-month price target is C$16.25 (from C$15.50)
or approximately 11.5x - 12.0x 2015E FFO (F/X adjusted). We rate
Milestone Sector Outperformer.