GREY:MSTUF - Post Discussion
Post by
retiredcf on Aug 15, 2016 9:23am
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Milestone Apartments REIT
Bringing It All In House
What's Changed
Milestone's reported FFO of $21.3 mln. ($0.28/unit) compared to $17.3 mln. ($0.27/unit) in Q2/15 and slightly below our $22.8 mln. ($0.29/unit) estimate due to higher-than-expected non-cash compensation. Results were driven by +11.1% SP-NOI growth, boosted by +6.0% SP-revenue growth and higher total NOI margins of 57.5%, up 240 bps from Q2/15. Average Q2/16 occupancy was 95.2%, flat Y/Y.
Average occupied monthly rent/suite increased to $933 in Q2/16, up from $917 in Q1/16 and $837 at Q2/15. SP-rents increased from an average of $845 in Q2/15 to $900 in Q2/16.
Subsequent to the quarter, Milestone entered an agreement internalize its asset management function for $106.5 mln., through the issuance of 5.3 mln. Class B units and $25.0 mln. in cash. Subject to unitholder approval, the internalization is expected to close on September 30, 2016.
D/GBV assets was 48.9% at Q2/16, up from 47.8% in Q2/15 and below the REIT's limit of 60.0%. MST's cash balance was $10.6 mln.
Implications
Our 2016E FFO and AFFO estimates remain unchanged at $1.15/unit and 1.04/unit, respectively. To reflect the internalization of the asset management function, our 2017E FFO and AFFO estimates increase to $1.29/unit and $1.17/unit, respectively, from $1.25/unit and $1.12/unit. Our NAV estimate increases to $16.50/unit (from $15.00/unit) at a 6.25% cap rate.
Valuation
At C$21.20, Milestone trades at ~14.2x our 2016E FFO (F/X adjusted), a 1% discount to our $16.50/unit NAV estimate (from $15.00), and yields 3.4%. Our 12- to 18-month price target is C$22.50 (from C$20.00) or ~15.0x-15.5x 2016E FFO (F/X adjusted). We rate Milestone Sector Outperformer
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