Killam Apartment REIT T.KMP.UN

Scotia Capital Inc. current comments re. Killam Properties.

[cohoe]

     Thursday, November 7, 2013
Killam Properties Inc. (KMP-T C$11.08)
Mario Saric, CPA, CA, CFA - [phone]
(Scotia Capital Inc. - Canada)
In Loading Dock, Waiting for a Better Entry Point
Event
Pertinent Data
New
Old
Rating:
--
SP
Risk:
Med
High
Target:
1-Yr
--
$12.00
FFOPS13E
$0.72
$0.74
FFOPS14E
$0.79
$0.81
FFOPS15E
$0.84
$0.85
New Valuation:
16.5x AFFO (F'15 estimate)
Old Valuation:
16.4x AFFO (F'15 estimate)
Key Risks to Target:
Execution of Ontario market entry, rising interest rates, new supply
Full Story
ScotiaView Analyst Link
Table of Contents
■ Full comment post Q3 results.
Implications
■ Sale of MHC portfolio in New Brunswick is both an opportunity and a challenge. We've reduced our estimates to reflect some near-term dilution, while we would have preferred a portfolio premium accruing to KMP on the sale given the difficulty in consolidating the MHC market. That said, we think sale timing may be appropriate given the tighter-than-average cap rate spread between MHCs and apartments and the fading possibility of obtaining CMHC insurance on the asset class.
■ We're expecting attractive growth through 2015. Our recently introduced 2015E FFOPU & AFFOPU of $0.85 & $0.73 are down $0.01 yet still reflect an attractive 2013E-2015E AFFOPU CAGR of 9.7% vs. 6.1%/5.5% average for apartment peers /sector.
■ Following a review of risk rankings in our universe of coverage, we have changed our risk ranking for KMP to Medium (from High) to better reflect Killam’s improving fundamental outlook, financial condition, liquidity, and general market conditions.
Recommendation
■ Maintain SP and $12.00 target. KMP fits our bias for organic growth quite well, although it may take 2-3 quarters to materialize in earnest. With our NTM total return of 13% below the 16% avg. for our universe, we view KMP as an ideal candidate to build positions on sector-driven share price weakness (closer to $10.50-$10.75, all else equal).