On today’s Breakouts report, there are 45 stocks on the positive breakouts list (stocks with positive price momentum), and 36 securities are on the negative breakouts list (stocks with negative price momentum).
An apartment REIT, Minto Apartment Real Estate Investment Trust (MI.UN-T), surfaced on the positive breakouts list, and others may follow in 2024, including Killam Apartment Real Estate Investment Trust (KMP.UN-T). Killam has the lowest valuation and the highest yield relative to its industry peers.
A brief outline on Killam is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The REIT
Halifax-based Killam, operates a portfolio of apartments, which contributed 88 per cent of net operating income for the first nine months of 2023, as well as manufactured home communities (6 per cent), and commercial properties (6 per cent).
Killam has real estate assets located in seven provinces. The geographical breakdown of its net operating income as of Sept. 30 was: Nova Scotia (31.7 per cent), Ontario (25.2 per cent), New Brunswick (20.7 per cent), Alberta (8.3 per cent), Prince Edward Island (6 per cent), Newfoundland (4.5 per cent) and British Columbia (3.6 per cent).
Quarterly earnings
After the market closed on Nov. 7, Killam reported solid financial results.
Funds from operations (FFO) came in at 32 cents per unit, in-line with the consensus estimate and up 3 per cent year-over-year. Same-property apartment net operating income rose 8.1 per cent year-over-year. Rents increased 4.7 per cent year-over-year on average for the apartment portfolio. Same-property apartment occupancy remains high at 98.5 per cent.
The unit price rallied 1.7 per cent the following day on high volume with over 515,000 units traded. The three-month historical daily average trading volume is approximately 360,000 units.
Subsequent to the quarter, management announced the sale of five non-core properties located in Prince Edward Island for $27-million on Nov. 7.
Distribution policy
The REIT currently pays its unitholders a monthly distribution of 5.833 cents per unit, or 70 cents per unit on a yearly basis. This equates to an annualized yield of 4 per cent.
The adjusted FFO payout ratio was 71 per cent for the first nine months of 2023, suggesting that the distribution is sustainable with room to increase in the future.
Analysts’ recommendations
With a market capitalization of $2-billion, the REIT is well-covered by the Street. After Killam reported its third-quarter financial results, 13 analysts issued research reports. Twelve were buy-equivalent recommendations. Scotiabank’s Mario Saric maintained a “sector perform” recommendation.
The firms providing recent research coverage on the REIT are: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Cormark Securities, Desjardins Securities, Echelon Wealth Partners, Laurentian Bank Securities, National Bank Financial, Raymond James, RBC Dominion Securities, Scotiabank, TD Securities and Veritas Investment Research.
Revised recommendations
In November, seven analysts revised their expectations.
- BMO’s Michael Markidis to $20.50 from $21.
- CIBC’s Dean Wilkinson to $20 from $22.
- National Bank’s Matt Kornack to $20.50 from $20.
- Raymond James’ Brad Sturges to $21.50 from $21.25.
- RBC’s Jimmy Shan to $23 (the high on the Street) from $23.50.
- Scotiabank’s Mario Saric to $21 from $22.
- Veritas’ Shalabh Garg to $21.75 from $20.75.
Financial forecasts
The Street is forecasting FFO per unit of $1.15 in 2023 and $1.21 in 2024. The AFFO per unit consensus estimate is 98 cents in 2023 and $1.03 in 2024.
Financial forecasts have been stable. Four months ago, the FFO per unit consensus estimates were $1.14 in 2023 and $1.21 in 2024. The AFFO per unit consensus estimates were 97 cents in 2023 and $1.03 in 2024.
Valuation
The REIT is trading at a price-to-FFO multiple of 14.5 times the 2024 consensus estimate, below its five-year historical average multiple of 16.9 times. Killam is currently trading at a price-to-AFFO multiple of 17 times the 2024 consensus estimate.
Units of Killam trade at a discount relative to its industry peers. Units of Canadian Apartment Properties REIT (CAR.UN-T) are currently trading at a P/FFO multiple 18.8 times the 2024 consensus estimates and a P/AFFO multiple of 20 times. Units of Minto Apartment REIT are trading at 16.7 times and 8.3 times, respectively, while InterRent REIT is trading at 20.1 times and 22.5 times, respectively..
The average one-year target price is $21.04, implying there is 20-per-cent upside potential in the unit price over the next 12 months. When combined with the yield, this equates to a potential total one-year return of 24 per cent.
Individual target prices are quite concentrated and are: two at $20, four at $20.50, two at $21, $21.25, $21.50, $21.75, $22 and $23 (from RBC’s Jimmy Shan).
Insider transaction activity
Over the past six months, there has not been any trading activity in the public market reported by insiders.
Chart watch
Year-to-date, the unit price is up 8 per cent, making it the sixth-best performing stock in the S&P/TSX real estate index.
Over the past 17 months, the unit price has largely traded between $16 and $19.
In terms of key technical resistance and support levels, there is major overhead resistance around $19. The unit price has rallied up to this level three times this year (Sept. 14 closed at $18.99, Feb. 17 closed at $18.92 and Feb. 2 closed at $18.89) but has failed to break above this level. Looking at the downside, there is strong technical support between $16 and $16.50.
ESG Risk Rating
According to risk provider Sustainalytics, Killam has an environmental, social and corporate governance (ESG) risk rating of 12.5 as of Sept. 2, 2023. A risk rating of between 10 and 20 reflects a low risk rating.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
This report should not be considered an investment recommendation.
Jennifer Dowty