TSX:KMP.UN - Post by User
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retiredcfon Aug 11, 2024 11:25am
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Post# 36173423
TD
TDHave a $22.00 target. GLTA
FUNDAMENTALS REMAIN STRONG. EARNINGS GROWTH TO ACCELERATE IN 2025
THE TD COWEN INSIGHT
KMP's 2024 earnings growth is expected to lag its peers, which we believe is being reflected in its current relative valuation (Fig 12). Looking to 2025, we believe strong op fundamentals, a more favourable refinancing environment (which benefits KMP most), and dev't lease up headwinds turning to tailwinds should allow KMP's growth to be back in line, and should result in an improved valuation.
Impact: NEUTRAL
Operational metrics remain solid, with Killam achieving +8.8% apartment SPNOI growth and reiterating its 8%+ target for the year. While the current mark-to-market moderated slightly to 25% from 28% q/q, that is a function of new leases capturing some of the gain-to-lease vs. any change in market rent growth. Management noted a recent uptick in market rents (last ~6 weeks) following a period of stability post the spring leasing season. We continue to view Killam as well-positioned to benefit from improving demand fundamentals and forecast 9.4%/7.9%/8.0% SPNOI growth for 2024/25/26.
Capital Recycling. With $30mm in asset sales announced in the year at $184k/unit (including the post-quarter sale of a 66-unit apartment building for $8.4mm or $127k/ unit), management expects to exceed its original $50mm disposition target. Management continues to see strong interest for its assets (focused on Atlantic Canada), with the buyer pool largely reflecting private buyers, including those that had previously transacted with Killam. We expect proceeds on dispositions to go towards a combination of debt reduction, share buybacks, and future acquisitions (although we do not expect Killam to be active in the near-term).
Developments. Killam saw good leasing progress in Q2 on its three recently completed developments. With two of the three projects now fully leased (with the third up to 76%), management expects a $3.2mm ($0.026/unit) contribution to FFO in 2025. Looking ahead, Wissler (128 units in Waterloo, ON) is now in the final stages of planning approvals, and management expects to break ground on the project in late 2024.
Forecasts. Our 2024 AFFO/unit estimate is unchanged while our 2025 estimate is down 2% (lower NOI). Our new 2026 estimate calls for 9% y/y growth. Our NAV/unit is +3.6% to $23.00.