Killam Apartment REIT, a Canadian residential real estate giant, recently held its Q1 2024 earnings call. While analysts focused on standard metrics, a subtle shift in the narrative hints at a major strategic pivot. The buzzword? **Development costs**.

CEO Philip Fraser hinted at a significant decline in development costs, particularly outside the Greater Toronto Area. He cited examples like:

- Mid-rise concrete construction in Alberta for around $400,000 per unit.

- Five and six-story wood-frame developments in Halifax for around $400,000 per unit.

- Wood-frame construction in Waterloo for $450,000 per unit.

This cost differential, coupled with Killam's strategic embrace of the Canadian government's Housing Accelerator Fund (which expedites approvals), could unlock a development pipeline far larger than anticipated.

"Assuming a conservative 5% cap rate, a $450,000 development cost translates to a stabilized value of $9 million per unit. This doesn't factor in the additional yield embedded in Killam's impressive mark-to-market spreads, which are currently hovering around 30%."

Projected FFO Impact from Recent Developments

Killam's Q1 2024 FFO per unit growth was impacted by the lease-up phase of its three developments completed last year. This short-term dilution is standard for new developments. However, upon stabilization, earnings from these developments are expected to increase FFO per unit growth starting in Q3 2024.

Killam has a strong balance sheet and access to CMHC's low-interest loan program. Its track record of successful development execution positions it well to capitalize on this emerging opportunity. However, challenges remain, including property tax increases and securing construction financing in a rising interest rate environment.

"Fun Fact: Killam Apartment REIT is named after its founder, Robert C. Killam, who started the company with a single apartment building in Halifax in 1949."