Killam Apartment REIT T.KMP.UN

RE: Conference Call

[baudelaire]

I found it a bit un-nerving to hear management state definitively that they couldn't get 8% to 9% cap rates anymore, that 7% or less was the market, but struggle like heck and even take hints from an analyst as to what their cost of capital was. In general, management didn't seem that strong particularly when answering questions relating capex and maintenance to FFO>>>AFFO. IMHO, all apartment/residential REITs fudge their capex numbers a fair bit, some more than others I guess, so I'm not all that concerned about their mealy-mouthed replies to analysts on the matter. At 7% there's not much of a spread versus my estimate of their cost of capital but that hasn't held back other REITs: Calloway buying a billion at a 6% cap rate and Riocan's Ed Sonshine claiming that "anyway you look at it, our cost of capital has a five handle on it". The CEO described apartment market cap rates as all going to one number and the Atlantic market as having similarity to the the rest of Canada but not the GTA. Despite this he doesn't want to sell any of the portfolio before the Atlantic premium shoots up again or enter other geographic areas in apartments for the near term. If the rest of Canada, excluding the GTA, is available at the same price as Atlantic Canada why wouldn't he pick up the free diversification benefit for Killam's apartment portfolio? It's a shame that the board insists on spending hundreds of thousands analyzing an unnecessary REIT conversion (they admitted on the call that they won't be taxable until 2010 to 2011) when they have this profitable free ride staring them in the face.