RE: Nice start to the New yearStock price is up around 10% or so recently, that's good. The earnings and FFO for the quarter will move the stock. A couple points:
1)I don't own KMP. Too cheap to pay over $2 I guess. Just watching it closely and thinking.
2)They need kicka$$ numbers. Small cap real estate stocks, NOT REITs, are chronically undervalued on NAV and FFO basis'. See Morguard Corp and O&Y Properties. So no matter how good they are, they'll get a discount. But hold on, KMP is already at a zillion multiple to FFO, you say. That's why I haven't bought it yet, a tonne of growth is already priced in.
3)The bigger it gets the harder it can be to grow in that $20 million in acquisitions won't double the assets anymore. Photos of the most recent acquisitions are up on the KMP website and they look like more of the same extremely plain, low income area type rentals. Status quo here I guess. Although KMP has some better quality, newer properties, they continue to gobble up undesirable stuff. One man's trash is another man's treasure, I hope. Questions that crossed my mind were: are they just buying to keep the growth up? -is the interest on the debt or dilution from the new issue pressuring them? -or do they just want a big, stable and hastily acquired 10% of the Atlantic market from which to stabilize and milk the double digit returns to internally fund an expansion into Quebec or Ontario? Probably a bit of all three, but it is the last idea that will drive the shares up longterm. But who wants to hold a penny stock for five years? Or even through an entire real estate cycle? A big move from 20 cents to two bucks has already occured. I don't think it'll be a ten-bagger from here.
4)Saw some charts on a CMHC site showing rents in Halifax and other maritime cities up sharply over the last 5 years and vacancies down from 4.5 or so to 2ish. It is a great time to be a seller. KMP is buying and with 75% debt. Have to watch this. However, KMP claims a lot of purchases are below replacement cost, sometimes by 50%, and that the cap rates are double digit on most.
5)Like Boardwalk did, KMP has to geographically diversify. Staying concentrated in the Atlantic market adds a lot of risk. Perhaps another reason KMP is buying so recklessly. OT: It's kind of funny to look at this company from the perspective of, could you create the most risky real estate company? All things remaining the same, if they were buying class C office space they probably would have it. KMP business plan is to consolidate the market that no one wanted to. Some better than KMP apartments in Halifax are held by CAP REIT and Realstar. Guess the market has already been cherry picked.
6)The quality of the property portfolio could be upgraded over time with good acquisitions but the competition could price them out. Some notabale upgrades done in the REIT universe have been: Calloway from a bunch of gobbledygook to a First Pro vehicle, OYR REIT has adjusted the composition of their office portfolio from B to a majority of class A. IPC REIT is paying through the nose, but has switched its focus from Kansas and Kentucky to the biggest and best, class A Boston, San Fran, etc. and accretively. The more banal, backwater buildings that KMP buys now, the harder it will be to move up the quality later. The irritating thing is that KMP won't be patient and focus on quality or articulate an acquisition criteria. Phillip Reichmann at OYR.UN has hundreds of millions in acquisition capacity, patience, confidence and a clear focus on high quality class A CBD or suburban. For KMP, at least 60% of the properties are below the average quality class held by other Cdn. real estate operating cos/REITs (CAR.UN, BEI.UN, MetCap, Morguard Residential, etc.). Don't even think of adding location, location, location to the quality comparison. I mean, Grand Falls NL and Antigonish NS to GTA? This is no good as the NAV discount will be even larger.
7)If KMP enters the ON market with similar quality purchases in apartments, I'd be less inclined to buy the stock at any price. Hamilton and Brantford have lots of depressing low quality apartments that I'm sure they could consolidate.
Still just watching.
P.S. Anyone ever had KMP respond to an email? Emailed them a couple times with no reply.