HALIFAX,
NS, Nov. 7, 2023 /CNW/ - Killam Apartment REIT
(TSX: KMP.UN) ("Killam") today reported its results for the three
and nine months ended September 30,
2023.
"We are pleased to deliver another strong quarter of operating
and financial performance," noted Philip
Fraser, President and CEO. "Top line growth remained robust,
driving 8.1% growth in same property net operating income.
"Our disposition program remains on track, with a total of
$130.5 million in property sales
to-date, and more closings expected during the remainder of the
fourth quarter. Our strategy of selling non-core assets and using
the proceeds to pay down variable rate debt has been an important
step in strengthening both our portfolio and our balance sheet. We
ended the quarter with a debt to total assets ratio of 42.8%, the
lowest in Killam's history.
"Killam's development program
continues to be an important component of our long-term strategy.
During the third quarter, we completed two developments, in
Halifax and in Kitchener, adding
$94 million of new, high-quality
units to our portfolio."
Q3-2023 Financial & Operating Highlights
- Reported net income of $68.3
million, an increase of $64.7
million compared to $3.6
million in Q3-2022. The growth in net income is primarily
attributable to $38.5 million of fair
value gains on investment properties in the period.
- Generated net operating income (NOI) of $60.5 million, a 6.6% increase from $56.8 million in Q3-2022.
- Earned funds from operations (FFO) per unit of $0.32, a 3.2% increase from $0.31 in Q3-2022.[1]
- Increased adjusted funds from operations (AFFO) per unit by
3.7% to $0.28, from $0.27 in Q3-2022, and reduced the rolling
12-month AFFO payout ratio by 100 basis points (bps) to 72%, from
75% in Q3-2022.1
- Achieved a 5.6% increase in revenue for the same property
portfolio compared to Q3-2022.
- Generated 8.1% same property NOI growth.2
__________
|
1
|
FFO, AFFO, FFO per
unit, AFFO per unit and AFFO payout ratio are non-International
Financial Reporting Standards (IFRS) measures that do not have a
standardized meaning according to IFRS and, therefore, may not be
comparable to similar measures presented by other issuers. For
information regarding non-IFRS measures, including reconciliations
to the most comparable IFRS measure, see "Non-IFRS
Measures."
|
2
|
Same property NOI is a
supplementary financial measure. An explanation of the composition
of this measure can be found under the heading "Supplementary
Financial Measures."
|
|
Three months
ended September 30,
|
Nine months ended
September 30,
|
(000s)
|
2023
|
2022
|
Change
|
2023
|
2022
|
Change
|
Property
revenue
|
$89,534
|
$85,301
|
5.0 %
|
$261,292
|
$244,313
|
6.9 %
|
Net operating
income
|
$60,515
|
$56,792
|
6.6 %
|
$167,555
|
$153,740
|
9.0 %
|
Net income
|
$68,349
|
$3,600
|
N/A
|
$266,345
|
$132,344
|
101.3 %
|
FFO
(1)
|
$39,234
|
$37,144
|
5.6 %
|
$105,722
|
$99,885
|
5.8 %
|
FFO per unit (diluted)
(1)
|
$0.32
|
$0.31
|
3.2 %
|
$0.87
|
$0.84
|
3.6 %
|
AFFO per unit (diluted)
(1)
|
$0.28
|
$0.27
|
3.7 %
|
$0.74
|
$0.71
|
4.2 %
|
AFFO payout ratio –
diluted (1)
|
62 %
|
65 %
|
(300) bps
|
71 %
|
74 %
|
(300) bps
|
AFFO payout ratio –
rolling 12 months(1)
|
72 %
|
75 %
|
(300) bps
|
|
|
|
Same property apartment
occupancy (3)
|
98.5 %
|
98.4 %
|
10 bps
|
|
|
|
Same property revenue
growth(3)
|
5.6 %
|
|
|
5.4 %
|
|
|
Same property NOI
growth
|
8.1 %
|
|
|
7.5 %
|
|
|
(1) FFO and AFFO are
non-IFRS financial measures. A reconciliation from net income to
FFO and a reconciliation from FFO to AFFO can be found under the
heading "Non-IFRS Reconciliation."
|
(2) FFO per unit, AFFO
per unit and AFFO payout ratio are non-IFRS ratios. An explanation
of the composition of these measures can be found under the heading
"Non-IFRS Ratios."
|
(3) Same property
apartment occupancy and same property revenue are supplementary
financial measures. An explanation of the composition of these
measures can be found under the heading "Supplementary Financial
Measures."
|
Debt Metrics as
at
|
September 30,
2023
|
December 31,
2022
|
Change
|
Debt to total
assets
|
42.8 %
|
45.3 %
|
(250) bps
|
Weighted average
mortgage interest rate
|
3.00 %
|
2.74 %
|
26 bps
|
Weighted average years
to debt maturity
|
4.0
|
3.8
|
0.2 years
|
Interest coverage
ratio(1)
|
3.11x
|
3.31x
|
(6.0) %
|
(1) Interest coverage
ratio is a non-IFRS ratio. An explanation of the composition of
this measure can be found under the heading "Non-IFRS
Ratios."
|
Summary of Q3-2023 Results and Operations
Generated Net Income of $68.3
Million
Killam
generated net income of $68.3 million
in Q3-2023, compared to $3.6 million
in Q3-2022. The increase in net income is primarily attributable to
fair value gains on investment properties of $38.5 million, compared to fair value losses of
$41.3 million in the same period in
2022. The gains in Q3-2023 were a direct result of strong NOI
growth, partially offset by an expansion in cap rates in
Ontario, BC and PEI. The fair
value losses in Q3-2022 were related to an expansion of cap-rates
across the portfolio.
Achieved Same Property NOI Growth of
8.1%
Killam achieved an
8.1% increase in same property NOI during the quarter, based on a
5.6% increase in same property revenue and a 0.7% increase in same
property operating expenses. Revenue growth was driven by a 4.7%
increase in apartment rental rates, coupled with a 10 bps increase
in same property apartment occupancy and further reduction in
rental incentives. General operating expenses increased 1.7%,
driven by higher wages and contract costs, partially offset by
lower insurance, bad debt and repairs and maintenance costs, while
property tax expense decreased 0.9%. Lower natural gas pricing
partially offset higher electricity and water costs, resulting in
only a 1.3% increase in utility and fuel expenses compared to the
same period in 2022. The strong performance resulted in an
operating margin expansion of 160 bps for the same property
portfolio compared to Q3-2022.
Delivered 3.2% FFO per Unit Growth and 3.7% AFFO per Unit
Growth
Killam delivered FFO
per unit of $0.32 in the quarter, a
3.2% increase from $0.31 per unit in
Q3-2022. AFFO per unit increased 3.7% to $0.28, compared to $0.27 in Q3-2022. The growth in FFO and AFFO was
attributable to strong NOI growth from Killam's same property portfolio, coupled with
incremental contributions from developments completed in 2022. This
growth was partially offset by a 1.3% increase in the weighted
average number of Trust Units outstanding, along with higher
interest expense as a result of rising interest rates.
Continued Progress on Killam's Disposition Strategy
During
Q3-2023, Killam completed the disposition of Parkwood
Apartments, located in Saint John,
NB, for gross proceeds of $15.0
million. Parkwood Apartments is a complex containing 205
apartment units across 20 buildings. It was originally built in
1947 and was acquired by Killam in
2004. Proceeds were used to reduce Killam's credit facility and to fund on-going
developments. The sale of the property aligns with Killam's strategy to optimize value from the
existing portfolio. During the first nine months of 2023,
Killam completed five dispositions
for gross proceeds of $97.0
million.
Completion of Two Development Projects
Two
developments reached substantial completion in Q3: Civic 66,
containing 169 apartment units and 3,000 SF of ground floor
commercial space located in Kitchener, and The Governor, containing
12 luxury apartment units and 3,500 SF of ground floor commercial
space located in Halifax. The
total combined development cost of the properties was $94.1 million. Civic 66 is currently 54% leased,
while The Governor is currently 42% leased. The Carrick, a 139-unit
property located in Waterloo, is currently under development and
expected to be completed in the second half of 2025, with an
expected cost of $83.5 million.
Killam also owns a 10% interest in
the second phase of the Nolan Hill development in Calgary, which is expected to be completed in
December 2023. Killam has a commitment to purchase 100% of
the development for $65.0
million.
Focus on Reduced Leverage
Year-to-date, debt to total
assets decreased 250 bps, from 45.3% at December 31, 2022, to 42.8% at September 30, 2023. Since the beginning of the
year, Killam's variable rate debt
has been reduced by $110.5 million, as funds from
dispositions, mortgage refinancings, and general operations were
used to reduce the balance on Killam's credit facility, and permanent
financing has replaced construction loans. Variable rate debt as a
percentage of total debt has decreased to 4.9% at the end of
Q3-2023 from 9.8% as at December 31,
2022. Looking ahead, Killam
expects to continue to reduce variable rate debt during the fourth
quarter, with the placement of permanent financing on two
developments and a further reduction in the credit facility.
Overall, Killam's weighted average
mortgage interest rate increased 26 bps at the end of Q3-2023 to
3.0%, compared to 2.7% at December 31,
2022. The maturity dates for Killam's mortgages are staggered to help
mitigate interest rate risk, and the weighted average term to
maturity is four years.
ESG Progress
In October, Killam received a green, three-star
designation for its 2023 GRESB real estate assessment. During the
quarter, Killam invested
$2.5 million in energy initiatives,
and, to date, Killam has 19
photovoltaic (PV) solar arrays producing power, with an expected
1,900 MWh of annual energy production. PV solar arrays, along with
geothermal heating and cooling systems at Killam's new developments, illustrate
Killam's ongoing commitment to
lowering its carbon footprint. Additionally, Killam is installing Level II electric vehicle
(EV) charging stations across its portfolio, with 355 charging
stations operational at 47 properties, plus an additional 54
charging stations underway at seven additional properties.
Killam's 2022 ESG report can be
accessed on its website at https://killamreit.com/esg. The report
summarizes Killam's commitment to
creating and maintaining sustainable communities, and details its
progress and future plans to achieve its long-term targets.
Additional Dispositions Subsequent to Quarter End
On
October 5, 2023, Killam completed the disposition of
Edward Court, a 96-unit apartment
building located in Miramichi, NB,
for a sale price of $11.0 million,
and net cash proceeds of $5.1 million
after mortgage repayment. On November 2,
2023, Killam completed the
disposition of two apartment buildings totalling 139 units located
in Sydney, NS, for a combined sale
price of $22.5 million, and net cash
proceeds of $10.1 million.
Year-to-date, Killam has completed
$130.5 million of dispositions.
Financial Statements
Killam's condensed consolidated interim
Financial Statements and Management's Discussion and Analysis
(MD&A) for the three and nine months ended September 30, 2023, are posted under Financial
Reports in the Investor Relations section of Killam's website at www.killamreit.com,
and are available on SEDAR+ at www.sedarplus.ca. 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 Wednesday, November 8,
2023, 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 of the webcast will be available for one year after the
event 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
$4.9 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 financial 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 the 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.
- 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 below.
- 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 below.
- Adjusted EBITDA is calculated by Killam as net income before fair value
adjustments, gains (losses) on disposition, income taxes, interest,
depreciation and amortization.
Non-IFRS Ratios
- Interest coverage is calculated by dividing adjusted earnings
before interest, tax, depreciation and amortization ("adjusted
EBITDA") by mortgage, loan and construction loan interest and
interest on credit facilities.
- Per unit calculations are calculated using the applicable
non-IFRS financial measures noted above, i.e. FFO and AFFO, divided
by the basic or diluted number of units outstanding at the end of
the relevant period.
- Payout ratios are calculated using the distribution rate for
the applicable period divided by the applicable per unit amount,
i.e. AFFO per unit.
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
2023 and 2022. Similarly, same property revenue is a supplementary
financial measure defined as revenue for stabilized properties that
Killam has owned for equivalent
periods in 2023 and 2022.
- Same property apartment occupancy is a supplemental financial
measure defined as actual residential rental revenue, net of
vacancy, as a percentage of gross potential residential rent for
stabilized properties that Killam
has owned for equivalent periods in 2023 and 2022. Same property
results represent 92% of the fair value of Killam's investment property portfolio as at
September 30, 2023. Excluded from
same property results in 2023 are acquisitions, dispositions and
developments completed in 2022 and 2023, and non-stabilized
commercial properties linked to development projects.
Non-IFRS Reconciliation (in thousands, except per unit
amounts)
Reconciliation of
Net Income to FFO
|
Three months
ended September 30,
|
Nine months ended
September 30,
|
|
2023
|
2022
|
2023
|
2022
|
Net income
|
$68,349
|
$3,600
|
$266,345
|
$132,344
|
Fair value
adjustments
|
(39,392)
|
33,181
|
(196,604)
|
(50,154)
|
Non-controlling
interest
|
(3)
|
(5)
|
(10)
|
(12)
|
Internal commercial
leasing costs
|
90
|
75
|
270
|
225
|
Deferred tax expense
(recovery)
|
9,176
|
(446)
|
32,134
|
15,450
|
Interest expense on
exchangeable units
|
682
|
701
|
2,046
|
2,102
|
Loss on
disposition
|
301
|
—
|
1,380
|
—
|
Unrealized loss (gain)
on derivative liability
|
0
|
11
|
68
|
(159)
|
Depreciation on
owner-occupied building
|
25
|
21
|
76
|
72
|
Change in principal
related to lease liabilities
|
6
|
6
|
17
|
17
|
FFO
|
$39,234
|
$37,144
|
$105,722
|
$99,885
|
FFO per unit –
diluted
|
$0.32
|
$0.31
|
$0.87
|
$0.84
|
Reconciliation of
FFO to AFFO
|
Three months
ended September 30,
|
Nine months ended
September 30,
|
|
2023
|
2022
|
2023
|
2022
|
FFO
|
$39,234
|
$37,144
|
$105,722
|
$99,885
|
Maintenance capital
expenditures
|
(5,031)
|
(4,856)
|
(15,229)
|
(14,402)
|
Commercial
straight-line rent adjustment
|
31
|
(29)
|
83
|
(169)
|
Internal commercial
leasing costs
|
(91)
|
(71)
|
(278)
|
(380)
|
AFFO
|
$34,143
|
$32,188
|
$90,298
|
$84,934
|
AFFO per unit –
basic
|
$0.28
|
$0.27
|
$0.74
|
$0.71
|
AFFO per unit –
diluted
|
$0.28
|
$0.27
|
$0.74
|
$0.71
|
AFFO payout ratio –
diluted
|
62 %
|
65 %
|
71 %
|
74 %
|
AFFO payout ratio –
rolling 12 months (1)
|
72 %
|
75 %
|
|
|
Weighted average number
of units – basic (000s)
|
121,651
|
120,130
|
121,277
|
119,174
|
Weighted average number
of units – diluted (000s)
|
121,848
|
120,292
|
121,466
|
119,341
|
(1) Based on Killam's
annual distribution of $0.69996 for both the 12-month period ended
September 30, 2023 and the 12-month period ended September 30,
2022.
|
Normalized Adjusted
EBITDA
|
Twelve months
ended,
|
|
|
September 30,
2023
|
December 31,
2022
|
% Change
|
Net income
|
$256,781
|
$122,532
|
109.6 %
|
Deferred tax
expense
|
35,251
|
18,813
|
87.4 %
|
Financing
costs
|
68,278
|
61,499
|
11.0 %
|
Depreciation
|
547
|
573
|
(4.5) %
|
Loss on
disposition
|
1,380
|
—
|
N/A
|
Fair value adjustment
on unit-based compensation
|
524
|
(2,234)
|
(123.5) %
|
Fair value adjustment
on Exchangeable Units
|
8,615
|
(29,497)
|
(129.2) %
|
Fair value adjustment
on investment properties
|
(167,451)
|
19,870
|
(942.7) %
|
Adjusted
EBITDA
|
203,925
|
191,556
|
6.5 %
|
Normalizing adjustment
(1)
|
1,395
|
3,437
|
(59.4) %
|
Normalized adjusted
EBITDA
|
205,320
|
194,993
|
5.3 %
|
Net debt
|
$2,156,955
|
$2,186,275
|
(1.3) %
|
Debt to normalized
adjusted EBITDA
|
10.51x
|
11.21x
|
(6.2) %
|
(1) Killam's
normalizing adjustment includes NOI adjustments for recently
completed acquisitions, dispositions and developments to account
for the difference between NOI booked in the period and stabilized
NOI over the next 12 months.
|
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," "commit," "estimate," "potential,"
"continue," "remain," "forecast," "opportunity," "future" 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: the continued expansion of Killam's portfolio and the effects thereof;
strengthening the balance sheet; reducing exposure to variable debt
through permanent financing, refinancing and dispositions, and the
timing thereof; planned dispositions in 2023; Killam's commitment to purchase the remaining
90% interest in the second phase of the Nolan Hill development; the
completion, costs, capacity, total investment and timing of
development projects, acquisitions and dispositions;
Killam's ability to mitigate
interest rate risk; Killam's
commitment to reducing its environmental impact and carbon
footprint; the expected annual energy production of Killam's PV solar arrays; the installation of
electric vehicle charging stations across Killam's portfolio and the timing thereof; and
Killam's priorities. 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 other local or international events, and the
effectiveness of measures intended to mitigate impacts thereof;
competition; global, national and regional economic conditions,
including inflationary pressures; the availability of capital to
fund further investments in Killam's business; and the risks and
uncertainties identified in Killam's most recently filed annual
information form, as well as Killam's most recently filed MD&A and
other documents Killam files from
time to time with securities regulatory authorities in Canada, each of which are available at
www.sedarplus.ca. 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 Killam's 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