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Q1/24 RESULTS IN LINE; SPNOI GROWTH +10.3%; FULL YEAR SPNOI TGT BUMPED TO 8%+
THE TD COWEN INSIGHT
Q1 results were in line and represented a solid start to 2024 with SPNOI growth of 10.3%. Management increased its SPNOI target to 8%+ (previously 6%+) on continued strong fundamentals across the REIT's portfolio. The capital recycling program remained active with Killam announcing a post Q1 disposition and breaking ground on a new development.
Impact: NEUTRAL Q1 Results. FFO/unit (f.d.) of $0.256 was +2% y/y, and largely in line with our estimate/ consensus. AFFO/unit of $0.204 was also largely in line.
Operating Highlights
Apartment SPNOI (~90% of SPNOI) growth of +10.4% was up from Q4/23's 8.8% pace and now marks four consecutive quarters of 7.5%+ growth. SP revenue growth was 6.0% and largely driven by rental rate growth (+5.8%) and a decrease in rental incentives, offset slightly by a 10bps dip in occupancy to 98.2%. SP operating expenses declined 0.7% y/y on lower utilities (warmer winter temperatures). SPNOI growth was broad based with every region in positive territory except for PEI (-1.9%), including particular strength in Alberta (+15.7%) and Nova Scotia (+12.3%). Apartment SPNOI margin was +250bps y/y to 63.2%.
MHC SPNOI (4% of NOI) growth was +9.8% (lower water/utilities), while Commercial (6%) SPNOI growth was +9.7% (higher occupancies, increased rates on renewals, and higher percentage rents).
Capital Recycling / Developments
Post Q1, Killam announced the sale of Woolwich in Guelph (84-unit apartment building) for $19.2mm ($229k/unit). Closing is expected in May. Management remains on track to meet its 2024 target of $50mm in asset sales. During Q1, Killam acquired a 50 unit apartment building (5 & 35 Harlington Cres) in Halifax for $11mm.
During Q1, Killam broke ground on Eventide (55 unit apartment in Halifax) with expected completion in H2/26. Killam expects to commence construction on Wissler (130 unit apartment in Waterloo) in late 2024. Killam's remaining developments continue to progress well. The Governor/Civic 66/Nolan Hill Phase II are now 75%/88%/45% leased, up from 40%/66%/19% in Q4.
Balance Sheet
Leverage (D/GBV) decreased 80bps q/q (to 42.1%) representing the lowest level achieved in the REIT's history. Recorded an IFRS FV gain of $116.3mm on higher NOI (cap rates unchanged). Refinanced $12mm of maturing mortgages with $17.4mm of new debt (WAIR of 4.32%)
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