RBC ReactionHere's the first I can find and they raised their target. Note that their upside scenario target is a very healthy $19.00. GLTA
May 8, 2015
Milestone Apartments REIT
Good Q1/15 results – Houston, we have...no
problem; Target tweaked +$0.50 to $15
Our view: Milestone Apartment REIT's ("MST") Q1/15 results were good.
A key driver was strong organic growth, notably in the Houston properties,
which have up until recently been an investor focus, in light of WTI's sharp
YoY decline. Overall, U.S. job growth, lower gas prices and the Millennials'
propensity to rent form the constructive backdrop for MST's business. We
maintain our Outperform rating on the units.
Key points:
• FFO/share: $0.266, +1% YoY, and $0.014 ahead of our $0.252E
• SP-NOI growth: +7.7% YoY, driven by 5.5% AMR growth (to $740) and
+80bps in occupancy (to 96.0%)
• IFRS NAV: $13.25/unit, +$2.06 (+18%) YoY and +$0.64 (+5%) QoQ
Results exceed forecast – Q1/15 FFO/unit of $0.266 was +1% from Q1/14’s
$0.263 and $0.014 (+6%) ahead of our $0.252E. Top line revenues were
in-line, yet NOI exceeded forecast by $0.9MM ($0.014/unit) on lower
opex, thus pushing margin +210bps YoY and beating our expectation. As
referenced above, organic growth was impressive (+7.7%) and including
the impact of acquisitions, total NOI increased 25% YoY (to $27.4MM). As
in prior quarters, sizable growth in asset management and G&A expenses
(+55%, to $4.0MM) hurt flow-through to FFO and AFFO. Stated alternately,
Q1/15 corporate expenses equated to 8% of total property revenue, up
from 6% in Q1/14.
Houston looks good – With the thrashing taken by the WTI price from June
through March, MST’s sizable (20%) Houston exposure had become a focal
point for investors. Sensing less concern of late, Q1/15 results illustrated
the portfolio is performing well. Houston’s same-property AMR growth
was 6.7%, above the overall portfolio’s 5.5%. Market occupancy gains of
20bps (to 95.7%) did lag the overall portfolio (+80bps, to 96.0%). While
we would be surprised to see this pace of gains sustained, we believe the
market will post good job growth, which is a key demand driver.
Another “tuck-in” – On May-1, MST purchased The Village at Almand
Creek, a 232-unit class "A" property located in the Conyers sub-market of
East Atlanta. The $24MM purchase (the 10th post Mar-2013 IPO) should
yield a 6.7% return. Built in 2002 the property carries a $985 AMR, 95%
occupancy, and is consistent with the character/quality that MST has been
selectively acquiring over the past two years. Funding was derived from
principally, if not entirely, from the credit facility, as we believe MST is
contemplating a larger-scale term financing arrangement.
Price target increased to $15 (+$0.50/unit) – The change is congruent
with NAV/unit (refer herein) and FFO/unit revisions (see sidebar). The
latter now implies two-year earnings growth averaging ~5%.