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WELL POSITIONED TO MEET 2025 TARGETS
THE TD COWEN INSIGHT
We are confident that KMP can meet its 2025 operational targets with leasing remaining robust and market rents expected to firm into the spring leasing season. Jan started well with 16% uplifts on turns — slightly above the 15% est m-t-m. Our fcsts are largely unch. KMP is the only apt REIT in our coverage with accelerating earnings growth in 25E. At 70% P/NAV, val'n is attractive in our view.
Impact: NEUTRAL
We believe Killam can deliver mid-to-high-single digit SPNOI growth. Our current +6.5% forecast for 2025 sits at the upper end of management's 4%-7% target. We are confident in the 5-6% top line growth being achieved. Costs are expected to be elevated in 2025 (5-7%) largely due to higher utility and property taxes. More clarity on that is expected with Q1 reporting.
Market rents should hold steady or start to improve into the spring. While market rent growth has slowed across the portfolio, management has been encouraged by leasing activity to start the year, which should bode well for the spring leasing season. Mark to market spreads moderated to 15% (from 22% in Q3) but remain high (20%-25%) in Halifax and Kitchener/Waterloo markets. Mtm spreads do not include suite repositionings which should add to uplifts achieved.
Leasing incentives being applied on a targeted basis. New supply completions across most markets remain in line with historical averages except for Calgary and Moncton, although both markets are benefiting from among the highest per capita population growth rates in Canada. Management noted that while leasing incentives were being offered to match competing new supply (e.g., first month free rent), this was more asset specific vs wide spread across the portfolio.
Targeting new build assets in Ont and Western Canada. Management expects to deploy equity from its $100-$150mm in targeted dispositions towards its credit line, NCIB and new acquisitions.
Development program continues to add value. 2024 lease ups should add ~$0.03/unit to FFO. Management expects one completion in 2025 (The Carrick est Q2/25) and to add one new development to the under construction pipeline. Construction hard costs have moderated with management noting a 7% y/y decline.
We forecast accelerating earnings growth. Our forecast is largely unchanged and calls for a 6%/9% AFFO growth in 2025/26, up from 3% in 2024. Our NAV/unit is unchanged at $23.60.
