HALIFAX, NS, Feb. 16, 2022 /CNW/ - Killam Apartment REIT (TSX:
KMP.UN) ("Killam") is pleased to report its results for the fourth
quarter and year ended December 31,
2021.
"We are pleased to report our Q4 and 2021 financial
results. We achieved strong financial and operational
performance, realizing the positive results of executing on our
three strategic priorities," noted Philip
Fraser, President and CEO. "Demand for housing across the
country is robust, driving favorable market fundamentals. This
strong housing demand, coupled with our suite repositioning
program, produced net revenue growth of 4.0% for the
year. When combined with our sharp focus on managing operating
expenses, we realized 5.1% growth in same property net operating
income in 2021."
"We finished 2021 with a record high of $399 million in acquisitions during the year and
we are maintaining positive momentum as we start 2022," stated Mr.
Fraser. "Following the closing of our recent $98 million equity raise in early February 2022, we have acquisition capacity of
over $400 million and a growing
acquisition pipeline."
"Growth in the year ahead will be augmented by the expected
completion of $168 million of
development projects, adding another 328 high-quality units to our
portfolio. This will mark the largest year of development
completions in Killam's history.
With a $69 million project to be
completed in early 2023 and a pipeline of almost 4,000 additional
units, we expect developments to contribute to earnings and net
asset value growth for many years."
Q4 Financial & Operating Highlights
- Reported net income of $74.8
million, an increase of $26.2
million compared to $48.6
million in Q4-2020, due to higher fair value gains on
investment properties recognized in Q4-2021.
- Achieved a 4.8% increase in same property revenue and a 5.7%
increase in same property net operating income ("NOI") over
Q4-2020.1
- Realized a 160 bps improvement in same property apartment
occupancy, achieving 98.1% occupancy in the quarter, the highest Q4
occupancy in Killam's
history.
- Earned funds from operations ("FFO") per unit (diluted) of
$0.27, and adjusted funds from
operations ("AFFO") per unit (diluted) of $0.22, an 8.0% and 4.8% increase from
Q4-2021.2
______________
|
1
|
Same property
revenue, same property net operating income and same property
apartment occupancy are supplementary financial measures. An
explanation of the composition of these measures can be found under
"Supplementary Financial Measures".
|
2
|
FFO and AFFO are
non-IFRS measures that do not have a standardized meaning according
to IFRS and therefore may not be comparable to similar measures
presented by other companies. For information regarding non-IFRS
measures, including reconciliations to the most comparable IFRS
measure, see "Non-IFRS Measures".
|
2021 Financial & Operating Highlights
- Reported net income of $285.5
million, an increase of $139.5
million compared to $146.0
million in 2020, due primarily to higher fair value gains on
investment properties recognized in 2021.
- Generated NOI of $183.2 million,
an 11.8% increase from $163.9 million
in 2020.
- Increased AFFO per unit (diluted) by 8.4% to $0.90, compared to $0.83 in 2020, and increased FFO per unit
(diluted) by 7.0% to $1.07, compared
to $1.00 in 2020.
- Generated same property NOI growth of 5.1% during 2021.
- Achieved a 4.0% increase in same property revenue in 2021
resulting from a 3.0% increase in the average apartment same
property rental rate and a 50 bps increase in apartment same
property occupancy.
- Maintained a conservative and flexible balance sheet, ending
the year with debt as a percentage of assets of 45.0%.
|
Three months
ended December 31,
|
Twelve months
ended December 31,
|
(000's)
|
2021
|
2020
|
Change
|
2021
|
2020
|
Change
|
Property
revenue
|
$76,998
|
$66,845
|
15.2%
|
$290,917
|
$261,690
|
11.2%
|
Net operating income
(1)
|
$47,921
|
$41,496
|
15.5%
|
$183,235
|
$163,854
|
11.8%
|
Net income
|
$74,801
|
$48,563
|
54.0%
|
$285,527
|
$146,040
|
95.5%
|
FFO
(2)
|
$30,514
|
$26,537
|
15.0%
|
$119,235
|
$104,678
|
13.9%
|
FFO per unit
(diluted) (2)
|
$0.27
|
$0.25
|
8.0%
|
$1.07
|
$1.00
|
7.0%
|
AFFO per unit
(diluted) (2)
|
$0.22
|
$0.21
|
4.8%
|
$0.90
|
$0.83
|
8.4%
|
AFFO payout ratio
(diluted) (2)
|
78%
|
83%
|
(500) bps
|
76%
|
82%
|
(600) bps
|
Same property
apartment occupancy (3)
|
98.1%
|
96.5%
|
160
bps
|
97.2%
|
96.7%
|
50 bps
|
Same property revenue
growth
|
4.8%
|
|
|
4.0%
|
|
|
Same property
NOI
|
5.7%
|
|
|
5.1%
|
|
|
|
(1) Killam
reclassified salary expenses of $0.8 million from "administration"
to "operating expenses" to reflect the nature of these expenses for
the three months and year ended December 31, 2020.
|
(2) FFO and AFFO
are defined in "Non-IFRS Measures". A reconciliation between net
income and FFO and a reconciliation from FFO to AFFO are included
below.
|
(3) Occupancy
represents actual residential rental revenue, net of vacancy, as a
percentage of gross potential residential rent.
|
Debt Metrics As
At
|
December 31,
2021
|
December 31,
2020
|
Change
|
Debt to total
assets
|
45.0%
|
44.6%
|
40 bps
|
Weighted average
mortgage interest rate
|
2.58%
|
2.69%
|
(11) bps
|
Weighted average
years to debt maturity
|
4.0
|
4.6
|
(0.6)
years
|
Interest coverage
ratio
|
3.53x
|
3.36x
|
17 bps
|
Summary of 2021 Results and Operations
Largest Acquisition Year in Killam's History
In 2021,
Killam had a record year for
acquisitions, acquiring $399.4
million in properties, bringing its total investment
property portfolio to $4.5 billion.
Killam added 1,597 apartment units
to its portfolio, expanding its geographic diversification, with
78% of acquisitions in 2021 located outside of Atlantic Canada, principally in Ontario and Alberta. Killam's geographic diversification strategy
is succeeding, as the percentage of NOI generated outside of
Atlantic Canada is now 33%, up
from 32% in 2020.
Delivered FFO per Unit Growth of 7.0% and AFFO per Unit
Growth of 8.4%
FFO per unit was $1.07 in 2021, a 7.0% increase from $1.00 in 2020, and AFFO per unit increased 8.4%
to $0.90, compared to $0.83 in 2020. The growth in FFO and AFFO were
primarily attributable to increased NOI from strong same property
performance and incremental contributions from recent acquisitions
and completed developments. This growth was partially offset by a
6.8% increase in the weighted average number of units
outstanding.
Revenue Gains Drive Same Property NOI Growth of 5.1%
Killam achieved 5.1% same property
NOI growth during the year, with a 4.1% increase from the apartment
portfolio, a 17.6% increase from the commercial portfolio and a
9.3% increase from the MHC portfolio. Revenue growth of 4.0% was
driven by rental rate growth from all three business segments along
with a 50 bps increase in apartment occupancy. Operating expense
growth remained modest as operating and energy efficiencies, lower
utility costs and successful property tax assessment appeals helped
mitigate inflationary cost pressures.
Strong Rent Growth and Cap-rate Compression Support
$240 Million in Fair Value
Gains
Killam recorded
$239.7 million in fair value
gains related to its investment properties in 2021, supported by
cap-rate compression across most of the regions in which
Killam operates, most notably in
New Brunswick and Ontario, as well as robust NOI growth driven
by strong apartment fundamentals. Killam's weighted average cap-rate for its
apartment portfolio as at December 31,
2021 was 4.41%, a 26 bps reduction from December 31, 2020.
Invested in Substantial Development Activity
Killam advanced its development
pipeline, completing one 38-unit project early in 2021 (which is
fully occupied) and investing an additional $73.0 million in its five active development
projects. These projects total 685 units (497 units
representing Killam's percentage
ownership) for a total investment of $238.8
million. Four of the active projects are expected to be
completed in 2022.
Lower Interest Rates Contributed to Earnings Growth
Killam benefited from lower
interest rates on mortgages refinanced in 2021. During the year,
Killam refinanced $132.0 million of maturing mortgages with
$184.5 million of new debt at a
weighted average interest rate of 2.13%, 24 bps lower than the
weighted average interest rate of the maturing debt. Lower interest
expense on Killam's same property
portfolio contributed to FFO per unit growth in 2021.
Substantial Advancement in Environmental, Social and
Governance (ESG) Focused Initiatives
Killam continues to reduce its environmental
impact and ensure its buildings are sustainable and resilient to
climate change. In 2021, Killam
invested $8.2 million in energy
projects, which included $1.9 million
in geothermal installations at three of its development projects.
As well, Killam installed
photovoltaic solar panels, modern boilers, heat pumps and
electricity and water conservation measures. Killam also introduced building certifications
at its properties with a focus on health living standards in 2021
benefiting both Killam and its
tenants.
Summary of Q4-2021 Results
Killam generated FFO per unit of $0.27 and AFFO per unit of $0.22 in Q4-2021, an increase of 8.0% and 4.8%
from Q4-2020. Acquisitions and completed developments, same
property NOI growth of 5.7% and a reduction in same property
interest expense contributed to Q4-2021 FFO and AFFO growth. These
increases to FFO per unit and AFFO per unit were offset by a 6.8%
increase in the weighted average number of units outstanding
following an equity raise completed in May
2021.
Same property revenue increased 4.8% in Q4-2021, compared to
Q4-2020, due to a 3.0% increase in the average apartment rental
rate, a 160 bps increase in apartment occupancy and 11.0% and 3.6%
top-line growth within Killam's
commercial and MHC portfolios. Operating expenses for Q4-2021 were
3.3% higher than Q4-2020 due to inflationary pressures and higher
commodity pricing for heating fuels. In total, same property NOI
for Q4-2021 was 5.7% higher than in Q4-2020.
Financial Statements
Killam's Annual Consolidated
Financial Statements including the notes thereto and its Annual
Management's Discussion and Analysis (the "MD&A") for the year
ended December 31, 2021, are posted
under Financial Reports in the Investor Relations section of
Killam's website at
www.killamreit.com and are each filed on SEDAR at
www.sedar.com. Readers are directed to these documents for
financial details and a discussion of Killam's results.
Results Conference Call
Management will host a webcast and conference call to discuss
these results and current business initiatives on Thursday, February 17, 2022, at 9:00 AM eastern time. The webcast will be
accessible on Killam's website at
the following
link http://www.killamreit.com/investor-relations/events-and-presentations.
A replay will be available for 7 days after the webcast at the same
link.
The dial-in numbers for the conference call are as follows:
North America (toll-free):
1-888-664-6392
Overseas or local (Toronto):
1-416-764-8659
Profile
Killam Apartment REIT, based in Halifax, Nova Scotia, is one of Canada's largest residential real estate
investment trusts, owning, operating, managing and developing a
$4.5 billion portfolio of apartments
and manufactured home communities. Killam's strategy to enhance value and
profitability focuses on three priorities: 1) increasing earnings
from existing operations, 2) expanding the portfolio and
diversifying geographically through accretive acquisitions, with an
emphasis on newer properties, and 3) developing high-quality
properties in its core markets.
Non-IFRS Measures
Management believes the following non-IFRS financial measures,
ratios and supplementary information are relevant measures of the
ability of Killam to earn revenue
and to evaluate Killam's financial
performance. Non-IFRS measures should not be construed as
alternatives to net income or cash flow from operating activities
determined in accordance with IFRS, as indicators of Killam's performance, or sustainability of
Killam's distributions. These
measures do not have standardized meanings under IFRS and therefore
may not be comparable to similarly titled measures presented by
other publicly traded organizations.
- Funds from operations (FFO) is a non-IFRS financial measure of
operating performance widely used by the Canadian real estate
industry based on the definition set forth by REALPAC. FFO, and
applicable per unit amounts, are calculated by Killam as net income adjusted for fair value
gains (losses), interest expense related to exchangeable units,
gains (losses) on disposition, deferred tax expense (recovery),
unrealized gains (losses) on derivative liability, internal
commercial leasing costs, depreciation on an owner-occupied
building, interest expense related to lease liabilities, and
non-controlling interest. FFO is calculated in accordance with the
REALPAC definition. A reconciliation between net income and FFO is
included on page 5.
- Adjusted funds from operations (AFFO) is a non-IFRS financial
measure of operating performance widely used by the Canadian real
estate industry based on the definition set forth by REALPAC. AFFO,
and applicable per unit amounts and payout ratios, are calculated
by Killam as FFO less an allowance
for maintenance capital expenditures ("capex") (a three-year
rolling historical average capital investment to maintain and
sustain Killam's properties),
commercial leasing costs and straight-line commercial rents. AFFO
is calculated in accordance with the REALPAC definition. Management
considers AFFO an earnings metric. A reconciliation from FFO to
AFFO is included on page 6.
- Per unit calculations are calculated using the applicable
non-IFRS financial measures noted above, i.e. FFO, AFFO and/or
ACFO, divided by the basic or diluted number of units outstanding
at the end of the relevant period.
Supplementary Financial Measures
- Same property NOI is a supplementary financial measure defined
as NOI for stabilized properties that Killam has owned for equivalent periods in
2021 and 2020. Same property results represent 85.0% of the fair
value of Killam's investment
property portfolio as at December 31,
2021. Excluded from same property results in 2021 are
acquisitions, dispositions and developments completed in 2020 and
2021, and non-stabilized commercial properties linked to
development projects.
- Same property average rent is calculated by taking a weighted
average of the total residential rent for the last month of the
reporting period, divided by the relevant number of the units per
region for stabilized properties that Killam has owned for equivalent periods in
2021 and 2020. For total residential rents, rents for occupied
units are based on contracted rent and rents for vacant units are
based on estimated market rents if the units were occupied.
- Interest coverage is calculated by dividing adjusted EBITDA by
mortgage, loan and construction loan interest and interest on
credit facilities. Normalized adjusted EBITDA is calculated by
Killam as adjusted EBITDA that has
been normalized for a full year of stabilized earnings from
recently completed acquisitions and developments, on a
forward-looking basis.
- Debt to normalized adjusted EBITDA is calculated by dividing
interest-bearing debt (net of cash) by normalized adjusted
EBITDA.
Non-IFRS Reconciliation (in thousands, except per unit
amounts)
Reconciliation of
Net Income to FFO
|
Three months
ended December 31,
|
Year ended
December 31,
|
|
2021
|
2020
|
2021
|
2020
|
Net income
|
$74,801
|
$48,563
|
$285,527
|
$146,040
|
Fair value
adjustments
|
55,811
|
(29,514)
|
211,708
|
(54,620)
|
Non-controlling
interest
|
(4)
|
(3)
|
(13)
|
(16)
|
Internal commercial
leasing costs
|
147
|
51
|
302
|
264
|
Deferred tax
expense
|
10,716
|
6,717
|
42,393
|
9,566
|
Interest expense on
exchangeable units
|
701
|
697
|
2,766
|
2,784
|
Net insurance
proceeds
|
—
|
—
|
—
|
—
|
Loss on
disposition
|
—
|
—
|
—
|
—
|
Unrealized (gain)
loss on derivative liability
|
(69)
|
(6)
|
(167)
|
483
|
Depreciation on
owner-occupied building
|
26
|
24
|
106
|
146
|
Change in principal
related to lease liabilities
|
7
|
8
|
29
|
31
|
FFO
|
$30,514
|
$26,537
|
$119,235
|
$104,678
|
FFO per unit -
diluted
|
$0.27
|
$0.25
|
$1.07
|
$1.00
|
Reconciliation of
FFO to AFFO
|
Three months
ended December 31,
|
Year ended
December 31,
|
|
2021
|
2020
|
2021
|
2020
|
FFO
|
$30,514
|
$26,537
|
$119,235
|
$104,678
|
Maintenance capital
expenditures
|
(4,666)
|
(4,271)
|
(18,023)
|
(16,860)
|
Commercial
straight-line rent adjustment
|
(47)
|
(109)
|
(356)
|
(555)
|
Internal commercial
leasing costs
|
(132)
|
(145)
|
(418)
|
(447)
|
AFFO
|
$25,669
|
$22,012
|
$100,438
|
$86,816
|
AFFO per unit –
basic
|
$0.22
|
$0.21
|
$0.90
|
$0.83
|
AFFO per unit –
diluted
|
$0.22
|
$0.21
|
$0.90
|
$0.83
|
AFFO payout ratio –
diluted
|
78%
|
83%
|
76%
|
82%
|
AFFO payout ratio –
rolling 12 months (1)
|
76%
|
83%
|
|
|
Weighted average
number of units – basic (000s)
|
114,408
|
107,139
|
111,465
|
104,340
|
Weighted average
number of units – diluted (000s)
|
114,571
|
107,300
|
111,626
|
104,503
|
|
|
(1)
|
Based on Killam's
annual distribution of $0.6867 for the year ended December 31,
2021, and $0.6767 for the year ended December 31, 2020.
|
Note: The Toronto Stock Exchange has neither approved nor
disapproved of the information contained herein. Certain statements
in this press release may constitute forward-looking statements. In
some cases, forward-looking statements can be identified by the use
of words such as "may", "will", "should", "expect", "plan",
"anticipate", "believe", "estimate", "potential", "continue",
"remain", "forecast" or the negative of these terms or other
comparable terminology, and by discussions of strategies that
involve risks and uncertainties. Such forward-looking statements
may include, among other things, statements regarding: market
fundamentals and regional economies in Killam's markets; acquisition capacity;
expected growth relative to Killam's historical growth; the completion and
timing of development projects; the total investment in development
projects; demand; reducing Killam's environmental impact; and the
benefits of building certifications and efficient and healthy
operating and living standards.
Readers should be aware that these statements are subject to
known and unknown risks, uncertainties and other factors that could
cause actual results to differ materially from those anticipated or
implied, or those suggested by any forward-looking statements,
including: the effects, duration and government responses to the
COVID-19 pandemic and the effectiveness of measures intended to
mitigate the impact of COVID-19 and any variants thereof, including
vaccines; competition; national and regional economic conditions
and the availability of capital to fund further investments in
Killam's business. For more
exhaustive information on these risks and uncertainties, readers
should refer to Killam's most
recently filed annual information form, as well as Killam's most recently filed MD&A, each of
which are available at www.sedar.com. Given these uncertainties,
readers are cautioned not to place undue reliance on any
forward-looking statements contained in this press
release.
By their nature, forward-looking statements involve numerous
assumptions, inherent risks and uncertainties, both general and
specific, that contribute to the possibility that the predictions,
forecasts, projections and various future events may not occur.
Although Management believes that the expectations reflected in the
forward-looking statements are reasonable, there can be no
assurance that future results, levels of activity, performance or
achievements will occur as anticipated. Further, a forward-looking
statement speaks only as of the date on which such statement is
made and should not be relied upon as of any other date. While
Killam anticipates that subsequent
events and developments may cause Killam's views to change, Killam does not intend to update or revise any
forward-looking statement, whether as a result of new information,
future events, circumstances, or such other factors that affect
this information, except as required by law. The forward-looking
statements in this press release are provided for the limited
purpose of enabling current and potential investors to evaluate an
investment in Killam. Readers are
cautioned that such statements may not be appropriate and should
not be used for any other purpose. The forward-looking statements
contained in this press release are expressly qualified by this
cautionary statement.
SOURCE Killam Apartment Real Estate Investment Trust