Today, we look at a Canadian Real Estate Investment Trust (REIT) with all of its properties outside the country. A member of Pat McKeough’s Inner Circle asked for Pat’s opinion on Milestone Apartment REIT, which specializes in “garden-style” apartment complexes spread across the U.S. Southeast and Southwest. The company is profitable, with a growing occupancy rate and rising cash flow. Its monthly distribution yields 4.3%. The so-called Sunbelt has the fastest-growing population in America. On the other hand, Pat notes that this REIT has grown rapidly by acquisition, which brings risk. For a recent report on two Canadian REITs that we recommend, read H&R REIT grows with takeovers, Canadian REIT builds from within.
Q: Pat: Thank you for all of your past advice. Could you please give me your opinion on Milestone Apartment REIT? Thanks. A: Milestone Apartment REIT (symbol MST.UN on Toronto; www.milestonereit.com) holds 61 “garden-style” apartment properties containing 20,232 units in 14 cities throughout the U.S. Southeast and Southwest.
Milestone continues to grow by acquisition. In the first half of 2015, it purchased buildings in Orlando, Atlanta and Kansas City for a total of $101.3 million (all amounts in U.S. dollars). In all, these properties contain 819 units. At the same time, the trust is selling older properties to improve the overall quality of its portfolio.
The REIT’s new properties increased its revenue by 22.8% in the three months ended June 30, 2015, to $54.8 million from $44.6 million a year earlier. Cash flow jumped 34.3%, to $14.9 million from $11.1 million. The trust sold units to fund these purchases. As a result, cash flow per unit rose at a slower pace of 20.0%, to $0.24 from $0.20.
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Dividend stocks: Fast-growing population in U.S. Sunbelt partly offsets risk of growth by acquisition
As of June 30, 2015, Milestone’s occupancy rate was a high 95.2%, up from 95.0% a year earlier.
In August 2015, the trust agreed to pay $45.1 million for a 372-unit apartment building in Dallas. It expects to close this deal by September 30, 2015.
Growth by acquisition adds risk. Offsetting some of that risk is the fact that the population of the U.S. Sunbelt is growing more quickly than in the country as a whole.
The REIT pays monthly distributions of $0.05417 (Canadian), for a 4.3% annualized yield. In the latest quarter, distributions accounted for 58% of its cash flow.
Milestone Apartment REIT is okay to hold, but only for aggressive investors.
Inner Circle recommendation: HOLD for aggressive investors.
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