HALIFAX,
NS, Aug. 7, 2024 /CNW/ - Killam Apartment REIT
(TSX: KMP.UN) ("Killam") today reported its results for the three
and six months ended June 30,
2024.
"We are pleased to present another quarter of strong operating
performance, including same property net operating income [NOI]
growth of 8.5%," noted Philip
Fraser, President and CEO.
"With our three recently completed developments in lease-up through
the second quarter, funds from operations [FFO] remained steady at
$0.30 per unit in Q2-2024 compared to
Q2-2023. We have achieved significant leasing progress on all three
of these properties, including full lease-up at Civic 66 and The
Governor. These best-in-class developments are expected to
contribute to strong FFO growth in the second half of the year and
into 2025.
"We continued to execute on our capital recycling program in the
second quarter, with the sale of an 84-unit apartment building in
Guelph, Ontario for a sale price
of $19.2 million. Subsequent to
quarter-end, we completed the sale of a 66-unit apartment building
in PEI for a sale price of $8.4
million. The proceeds from these sales have been used to
strengthen our balance sheet and fund strategic capital
investments and developments that will enhance our portfolio and
create long-term value. With additional dispositions planned for
the remainder of the year, we expect to meet our target of
$50 million in dispositions in
2024."
Q2-2024 Financial & Operating Highlights
- Reported net income of $114.5
million, consistent with net income of $114.5 million in Q2-2023. Killam recorded
fair value gains on investment properties of $85.5 million, compared to larger fair value
gains of $96.2 million in
Q2-2023.
- Generated NOI of $59.9
million, a 6.6% increase from $56.2
million in Q2-2023.
- Achieved a 6.1% increase in same property revenue compared to
Q2-2023.1
- Generated 8.5% same property NOI growth compared to
Q2-2023.1
- Earned FFO per unit of $0.30, consistent with $0.30 earned in Q2-2023.2
- Earned adjusted funds from operations (AFFO) per unit of
$0.25, consistent with $0.25 in Q2-20233, and reduced the
rolling 12-month AFFO payout ratio by 200 basis points (bps)
to 72%, from 74% in Q2-2023.2
- Increased the same property operating margin by 140 bps to
66.2% from 64.8% in Q2-2023.
- Ended the second quarter with debt as a percentage of total
assets of 41.2%, the lowest level in Killam's history.
__________________________________
|
1 Same
property revenue, and same property NOI are supplementary
financial measures. An explanation of the composition of these
measures can be found under the heading "Supplementary Financial
Measures."
2 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."
3 The maintenance capital expenditures used to calculate
AFFO and AFFO payout ratio for the three and six months ended June
30, 2023, were updated to reflect the maintenance capex reserve of
$1,025 per apartment unit, $300 per manufactured home community
(MHC) site and $1.00 per square foot (SF) for commercial properties
that were used in the calculation for the 12 months ended December
31, 2023.
|
|
Three months
ended June 30,
|
Six months ended
June 30,
|
(000s)
|
2024
|
2023
|
Change
|
2024
|
2023
|
Change
|
Property
revenue
|
$90,776
|
$86,863
|
4.5 %
|
$178,281
|
$171,758
|
3.8 %
|
Net operating
income
|
$59,923
|
$56,226
|
6.6 %
|
$114,944
|
$107,041
|
7.4 %
|
Net income
|
$114,452
|
$114,538
|
(0.1) %
|
$241,693
|
$197,998
|
22.1 %
|
FFO
(1)
|
$36,673
|
$36,207
|
1.3 %
|
$68,053
|
$66,489
|
2.4 %
|
FFO per unit (diluted)
(1)
|
$0.30
|
$0.30
|
— %
|
$0.55
|
$0.55
|
— %
|
AFFO
(1)
|
$31,197
|
$30,626
|
1.9 %
|
$57,159
|
$55,431
|
3.1 %
|
AFFO per unit (diluted)
(1)(2)
|
$0.25
|
$0.25
|
— %
|
$0.47
|
$0.46
|
2.2 %
|
AFFO payout ratio –
diluted (1)(2)
|
69 %
|
70 %
|
(100) bps
|
75 %
|
77 %
|
(200) bps
|
AFFO payout ratio –
rolling 12 months(1)(2)
|
72 %
|
74 %
|
(200) bps
|
|
|
|
Same property apartment
occupancy (3)
|
98.2 %
|
98.2 %
|
– bps
|
|
|
|
Same property revenue
growth (3)
|
6.1 %
|
|
|
6.0 %
|
|
|
Same property NOI
growth (3)
|
8.5 %
|
|
|
9.3 %
|
|
|
(1) FFO, FFO per unit,
AFFO, AFFO per unit, and AFFO payout ratio 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) The maintenance
capital expenditures used to calculate AFFO and AFFO payout ratio
for the three and six months ended June 30, 2023, were updated
to
reflect the maintenance capex reserve of $1,025 per apartment unit,
$300 per MHC site and $1.00 per SF for commercial properties that
were used in the
calculation for the 12 months ended December 31, 2023.
|
(3) Same property
apartment occupancy, same property revenue, and same property NOI
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
|
June 30,
2024
|
December 31,
2023
|
Change
|
Debt to total
assets
|
41.2 %
|
42.9 %
|
(170) bps
|
Weighted average
mortgage interest rate
|
3.32 %
|
3.22 %
|
10 bps
|
Weighted average years
to debt maturity
|
3.8
|
3.9
|
(0.1) years
|
Interest coverage
ratio(1)
|
3.01x
|
3.10x
|
(2.9) %
|
Debt to normalized
EBITDA (1)
|
9.98x
|
10.29x
|
(3.0) %
|
(1) Interest coverage
ratio and debt to normalized earnings before interest, tax,
depreciation and amortization ("EBITDA") ratio are non-IFRS ratios.
An explanation of the composition of these measures can be found
under the heading "Non-IFRS Ratios."
|
Summary of Q2-2024 Results and Operations
Achieved Same Property NOI Growth of 8.5%
Killam achieved same property
NOI growth of 8.5% during Q2-2024, along with an operating
margin increase of 140 bps. This growth was driven by a 6.1%
increase in same property revenue, partially offset by a modest
1.7% increase in same property operating expenses. Same property
revenue growth is attributed to a 6.4% increase in apartment rental
rates year-over-year, a 39% reduction in rental incentives,
increasing ancillary revenue and stable occupancy. Rental growth
continues to accelerate with a record high weighted-average 8.2%
rental rate increase for units that renewed and turned in
Q2-2024.
The 1.7% increase in total same property operating expenses is
attributable to a 1.3% increase in general operating expenses
coupled with a 6.6% increase in property tax expenses, due to
higher property taxes across the portfolio and the absence of
property tax subsidies in Prince Edward
Island (PEI) (which were offered in 2023 to compensate
apartment owners for rent control restrictions). This was partially
offset by a 4.0% reduction in utility and fuel expenses, the result
of lower natural gas prices in Q2-2024.
Generated Net Income of $114.5
Million
During the quarter, Killam
generated net income of $114.5
million, consistent with net income in Q2-2023. Killam recorded fair value gains on investment
properties of $85.5 million during
Q2-2024, compared to fair value gains of $96.2 million in Q2-2023. The fair value gains on
investment properties in Q2-2024 were a direct result of strong NOI
growth and operating margin expansion. This variance was offset by
an increase in NOI of $3.7 million ,
a reduction in deferred tax expense of $1.3
million.
Stable FFO and AFFO per Unit Earnings
Killam generated FFO growth of
1.3% in Q2-2024, up $0.5 million from
Q2-2023. AFFO increased 1.9%, up $0.6
million compared to Q2-2023. The growth in FFO and AFFO is
attributable to strong NOI growth from Killam's same property portfolio, partially
offset by higher interest costs, lower capitalized interest and the
short-term impact of vacancy during the lease-up of recently
completed developments. As a result, FFO and AFFO per unit in the
quarter were consistent with Q2-2023 at $0.30 and $0.25,
respectively. Two of the developments which reached substantial
completion in mid-2023, The Governor and Civic 66, are now fully
leased, up from 40% and 66% as at December
31, 2023. Nolan Hill Phase II, which reached substantial
completion in December 2023, is
currently 76% leased, up from 19% at year-end 2023. These projects
are expected to contribute positively to earnings growth during the
second half of 2024 and through the first half of 2025.
Continued Progress on Killam's Disposition Strategy
During Q2-2023, Killam completed the disposition of
Woolwich, an 84-unit apartment building located in Guelph, Ontario, for gross proceeds of
$19.2 million, bringing the total
dispositions completed in the first half 2024 to $21.6 million. Killam's capital recycling program is focused
on non-core and slower growth properties, or those that may be more
capital or carbon intensive. Killam expects to complete a minimum of
$50 million of dispositions in 2024,
with proceeds used to reduce the balance on Killam's credit facility, fund future
development activity, support strategic acquisitions and
potentially buy back Trust Units through Killam's normal course issuer bid program.
Higher Interest Rates on Refinancings
The maturity dates of Killam's
mortgages are staggered to mitigate interest rate risk. During
Q2-2024, Killam refinanced
$96.6 million of maturing mortgages
with $125.8 million of new debt at a
weighted average interest rate of 4.59%, 143 bps higher than the
weighted average interest rate of the maturing debt. Overall,
Killam's weighted average mortgage
interest rate increased 10 bps at the end of Q2-2024 to 3.32%,
compared to 3.22% as at December 31,
2023.
ESG Update
During the quarter, Killam
invested $1.0 million in energy
initiatives, including the installation of photovoltaic (PV) solar
panels, new boilers and heat pumps, and roofing upgrades across the
portfolio. This brings Killam's
total investment in energy initiatives to $2.4 million year-to-date. At the end of Q2-2024,
Killam had 24 PV solar arrays
producing power, with an expected 2,500 MWh of annual energy
production. Killam's commitment to
fostering a positive workplace culture was reaffirmed by exceeding
its annual employee satisfaction survey target of 80%. Killam was honored to receive the Atlantic
Business Magazine's Employers of Diversity Award, which recognizes
Killam's efforts to promote
diversity and inclusion. Additionally, during the quarter,
Killam completed its sixth annual
GRESB submission, demonstrating commitment to transparent ESG
disclosures. Killam's 2023 ESG
report was released on June 12, 2024,
and 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
sustainability targets.
Additional Dispositions Subsequent to Quarter End
On July 11, 2024, Killam completed the disposition of
Bridlewood, a 66-unit apartment building located in Charlottetown, PEI, for a sale price of
$8.4 million and net cash proceeds of
$2.7 million.
Financial Statements
Killam's condensed consolidated
interim Financial Statements and Management's Discussion and
Analysis (MD&A) for the three and six months ended June 30, 2024, 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 Thursday, August 8, 2024, at 8:00 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 at the same link for one
year after the event.
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
$5.3 billion portfolio of apartments
and manufactured home communities. Killam's strategy to enhance value and
profitability focuses on three priorities: 1) increase earnings
from existing operations; 2) expand the portfolio and diversify
geographically through accretive acquisitions, targeting newer
properties and dispositions of non-core assets; and 3) develop
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 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.
Non-IFRS Financial Measures
- 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 earnings before interest, tax, depreciation and
amortization ("adjusted EBITDA") is a non-IFRS financial
measure calculated by Killam as
net income before fair value adjustments, gains (losses) on
disposition, income taxes, interest, depreciation and amortization.
A reconciliation between net income and adjusted EBITDA is included
below.
- Normalized adjusted EBITDA is a non-IFRS financial measure
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. In addition, adjustments have been made to
eliminate earnings associated with properties sold in the last
twelve months. A reconciliation between adjusted EBITDA and
normalized adjusted EBITDA is included below.
- Net debt is a non-IFRS financial measure used by
Management in the computation of debt to normalized adjusted
EBITDA. Net debt is calculated as the sum of mortgages and loans
payable, credit facilities and construction loans (total debt)
reduced by the cash balances at the end of the period. The most
directly comparable IFRS measure to net debt is debt. A
reconciliation between debt and net debt is included below.
Non-IFRS Ratios
- Interest coverage is calculated by dividing 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 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.
- Debt to normalized adjusted EBITDA is calculated by dividing
net debt by normalized adjusted EBITDA.
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
2024 and 2023. Similarly, same property revenue is a supplementary
financial measure defined as revenue for stabilized properties that
Killam has owned for equivalent
periods in 2024 and 2023.
- 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 2024 and 2023. Same property results represent 96%
of the fair value of Killam's
investment property portfolio as at June 30, 2024. Excluded
from same property results in 2024 are acquisitions, dispositions
and developments completed in 2023 and 2024, 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 June 30,
|
Six months ended
June 30,
|
|
2024
|
2023
|
2024
|
2023
|
Net income
|
$114,452
|
$114,538
|
$241,693
|
$197,998
|
Fair value
adjustments
|
(91,946)
|
(93,848)
|
(205,769)
|
(157,213)
|
Non-controlling
interest
|
—
|
(3)
|
—
|
(7)
|
Internal commercial
leasing costs
|
45
|
90
|
135
|
180
|
Deferred tax
expense
|
12,689
|
14,016
|
29,658
|
22,958
|
Interest expense on
Exchangeable Units
|
682
|
682
|
1,364
|
1,364
|
Loss on
disposition
|
721
|
729
|
913
|
1,079
|
Unrealized (gain) loss
on derivative liability
|
—
|
(28)
|
—
|
68
|
Depreciation on
owner-occupied building
|
24
|
25
|
48
|
51
|
Change in principal
related to lease liabilities
|
6
|
6
|
11
|
11
|
FFO
|
$36,673
|
$36,207
|
$68,053
|
$66,489
|
FFO per unit –
diluted
|
$0.30
|
$0.30
|
$0.55
|
$0.55
|
Reconciliation of
FFO to AFFO
|
Three months
ended June 30,
|
Six months ended
June 30,
|
|
2024
|
2023
(1)
|
2024
|
2023
(1)
|
FFO
|
$36,673
|
$36,207
|
$68,053
|
$66,489
|
Maintenance capital
expenditures
|
(5,316)
|
(5,431)
|
(10,639)
|
(10,922)
|
Commercial
straight-line rent adjustment
|
(51)
|
(49)
|
(82)
|
52
|
Internal commercial
leasing costs
|
(109)
|
(101)
|
(173)
|
(188)
|
AFFO
|
$31,197
|
$30,626
|
$57,159
|
$55,431
|
AFFO per unit –
diluted
|
$0.25
|
$0.25
|
$0.47
|
$0.46
|
AFFO payout ratio –
diluted
|
69 %
|
70 %
|
75 %
|
77 %
|
AFFO payout ratio –
rolling 12 months (2)
|
72 %
|
74 %
|
|
|
Weighted average number
of units – diluted (000s)
|
122,980
|
121,472
|
122,795
|
121,273
|
(1)
(2)
|
The maintenance capital
expenditures used to calculate AFFO and AFFO per unit (diluted) for
the three and six months ended June 30, 2023, were updated to
reflect the maintenance capex reserve of $1,025 per apartment unit,
$300 per MHC site and $1.00 per SF for commercial properties that
were used in the calculation for the 12 months ended December
31, 2023.
Based on Killam's annual distribution of $0.69996 for both the
12-month period ended June 30, 2024, and the 12-month period ended
June 30, 2023.
|
|
Normalized Adjusted
EBITDA
|
Twelve months
ended,
|
|
|
June 30,
2024
|
December 31,
2023
|
% Change
|
Net income
|
$310,029
|
$266,333
|
16.4 %
|
Deferred tax
expense
|
39,859
|
33,158
|
20.2 %
|
Financing
costs
|
75,107
|
69,398
|
8.2 %
|
Depreciation
|
946
|
669
|
41.4 %
|
Loss on
disposition
|
3,854
|
4,021
|
(4.2) %
|
Fair value adjustment
on unit-based compensation
|
(162)
|
330
|
(149.1) %
|
Fair value adjustment
on Exchangeable Units
|
(2,417)
|
6,821
|
(135.4) %
|
Fair value adjustment
on investment properties
|
(213,005)
|
(174,179)
|
22.3 %
|
Adjusted
EBITDA
|
214,211
|
206,551
|
3.7 %
|
Normalizing adjustment
(1)
|
5,080
|
3,480
|
46.0 %
|
Normalized adjusted
EBITDA
|
219,291
|
210,031
|
4.4 %
|
|
|
|
|
Total interest-bearing
debt
|
$2,198,769
|
$2,174,995
|
|
Cash and cash
equivalents
|
(10,202)
|
(14,087)
|
|
Net debt
|
$2,188,567
|
$2,160,908
|
1.3 %
|
|
|
|
|
Debt to normalized
adjusted EBITDA
|
9.98x
|
10.29x
|
(3.0) %
|
(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: same property NOI growth rate; the occupancy
rate of Killam's properties; FFO
growth and the timing thereof; rental rates and lease renewals and
the timing thereof; the effects of acquisitions and development
projects on Killam's earnings and
financial condition; Killam's
weighted average mortgage interest rate; the expected amount and
use of proceeds from dispositions and the timing thereof; Unit
repurchases under Killam's normal
course issuer bid; the continued expansion of Killam's portfolio, including through
developments, and the timing thereof; Killam's capital recycling program and its
impact on Killam's portfolio and
long-term value creation; annual NOI generation as a result of new
developments; the progress, completion, costs, capacity, total
investment and timing of development projects; the anticipated
energy production from Killam's
photovoltaic (PV) solar arrays; Killam's commitment to transparent ESG
disclosures and creating and maintaining sustainable communities;
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 and duration of local, international and
global events, any government responses thereto and the
effectiveness of measures intended to mitigate any impacts thereof;
competition; government legislation and the interpretation and
enforcement thereof; litigation to which Killam may be subject; global, national and
regional economic conditions (including rising interest rates and
inflation); 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 on SEDAR+ 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 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 its 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