HALIFAX,
NS, May 4, 2022 /CNW/ - Killam Apartment REIT
(TSX: KMP.UN) ("Killam" or the "REIT") today reported its results
for the three months ended March 31,
2022.
"Killam's first quarter
earnings growth and operating performance were strong," noted
Philip Fraser, President and CEO.
"The same property revenue growth of 5.1% in Q1-2022 reflects the
strong demand for housing across all our markets. Despite a colder
winter season and higher heating costs this quarter, Killam achieved 3.1% same property net
operating income growth to start the year."1
"Our development program will deliver much anticipated growth to
our portfolio in 2022 and 2023," stated Mr. Fraser. "The Latitude
and Kay are now both opened and approximately 60% leased, and we
are pleased with the pre-leasing activity at the Luma, which is
opening in June."
"Year-to-date, we have grown our portfolio by $60.5 million in acquisitions in Halifax, Waterloo, Guelph and Victoria, complementing our existing portfolio
and growing our presence in our key markets" stated Mr. Fraser. "As
well, we expanded our BC presence and expect to close our first
acquisition in Courtenay, BC,
later this month with 150 newly built units, for $55.6 million. Geographical diversification
continues to be a driver of our business strategy, aiding to
accretively growing earnings for our unitholders."
Q1-2022 Financial & Operating Highlights
- Reported net income of $60.0
million, an increase of $32.6
million compared to $27.4
million in Q1-2021, primarily attributable to fair value
gains on investment properties driven by rent growth and strong
occupancy, growth through acquisitions, completed developments, and
increased earnings from the existing portfolio.
- Generated net operating income (NOI) of $45.3 million, a 12.4% increase from $40.3 million in Q1-2021.
- Earned funds from operations (FFO) per unit (diluted) of
$0.24, an 4.3% increase from
$0.23 in Q1-2021.2
- Increased adjusted funds from operations (AFFO) per unit
(diluted) by 5.3% to $0.20, from
$0.19 in Q1-2021, and reduced the
first quarter AFFO payout ratio (diluted) 200 basis points (bps) to
87%, from 89% in Q1-2021.2
- Achieved a 5.1% increase in revenue for the same property
portfolio.
- Generated same property NOI growth of 3.1% over Q1-2021.
- Reduced debt to total assets by 170 bps and increased capital
flexibility with the closing of a $98.1
million public offering on February
4, 2022.
__________________
|
1 Same
property revenue and same property net operating income 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".
|
|
Three months
ended March 31,
|
(000's)
|
2022
|
2021
|
Change
|
Property
revenue
|
$77,464
|
$67,374
|
15.0%
|
Net operating
income
|
$45,263
|
$40,263
|
12.4%
|
Net income
|
$60,027
|
$27,422
|
118.9%
|
FFO
(1)
|
$28,665
|
$25,107
|
14.2%
|
FFO per unit (diluted)
(1)
|
$0.24
|
$0.23
|
4.3%
|
AFFO per unit (diluted)
(1)
|
$0.20
|
$0.19
|
5.3%
|
AFFO payout ratio –
diluted (1)
|
87%
|
89%
|
(200) bps
|
AFFO payout ratio –
rolling 12 months(1)
|
76%
|
81%
|
(500) bps
|
Same property apartment
occupancy (2)
|
98.0%
|
95.8%
|
220 bps
|
Same property revenue
growth
|
5.1%
|
|
|
Same property NOI
growth
|
3.1%
|
|
|
|
(1) 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 in
"non-IFRS Reconciliations."
|
2) Occupancy
represents actual residential rental revenue, net of vacancy, as a
percentage of gross potential residential rent.
|
Debt Metrics As
At
|
March 31,
2022
|
December 31,
2021
|
Change
|
Debt to total
assets
|
43.3%
|
45.0%
|
(170) bps
|
Weighted average
mortgage interest rate
|
2.58%
|
2.58%
|
— bps
|
Weighted average years
to debt maturity
|
4.0
|
4.0
|
—
|
Interest coverage
ratio(1)
|
3.58x
|
3.53x
|
1.4%
|
(1) Interest coverage
ratio is supplementary financial measure. An explanation of the
composition of this measure can be found under "Supplementary
Financial Measures".
|
Summary of Q1-2022 Results and Operations
Earned Net Income of $60.0
Million
Killam
earned net income of $60.0 million in
Q1-2022, compared to $27.4 million in
Q1-2021. The increase in net income is primarily attributable to
fair value gains on investment properties, growth through
acquisitions, completed developments, and increased earnings from
the existing portfolio.
Delivered 4.3% FFO per Unit Growth
Killam generated FFO per
unit of $0.24 in Q1-2022, a 4.3%
increase from $0.23 per unit in
Q1-2021. AFFO per unit increased 5.3% to $0.20, compared to $0.19 in Q1-2021. The growth in FFO
and AFFO was prima
rily attributable to increased NOI
from Killam's
same property portfolio and incremental contributions from
over $400 million in recent
acquisitions. This growth was partially offset by a 9.4% increase
in the weighted average number of units outstanding.
Revenue Growth Supports Same Property NOI Growth of
3.1%
Despite inflationary pressures,
Killam achieved 3.1% growth
in same property consolidated NOI during the quarter.
This improvement was driven by 5.1% growth in revenue, partially
offset by an 8.2% increase in operating expenses. A 220 bps
increase in same property apartment occupancy coupled with a
3.3% increase in apartment rental rates drove overall revenue
growth. Operating expenses increased largely due to higher utility
and fuel costs as a result of increases in natural gas pricing
across all of Killam's
core markets, as well as increased consumption due to a
colder winter. A 5.5% increase in property taxes also contributed
to higher-than-normal expense growth.
Continued Advancement of Development
Pipeline
Killam
continues to advance its development pipeline, with four
developments underway totaling 477 units (393 units
representing Killam's
ownership interest) for an expected total development cost of
$241.1 million ($195.3 million for Killam's ownership interest).
During the first quarter, Killam invested $20.5
million in its active development projects, the majority of
which was funded through construction
financing. Killam's
joint development project, Latitude, a 208-unit building
located in Ottawa, Ontario, was
completed during the first quarter. This development reached
substantial completion in March 2022
and is currently 61% leased. Overall, this asset
generated $8.9 million in fair value
gains since the project began in 2018 and is expected to contribute
$2.0 million in NOI
annually, once stabilized.
Strong Rent Growth Supports $28
Million in Fair Value Gains
Killam recorded $28.0
million in fair value gains related to its investment
properties in Q1-2022, supported by robust NOI growth driven by
strong apartment fundamentals. Killam's weighted average cap-rate for its
apartment portfolio as at March 31,
2022, was 4.41%, consistent with December 31, 2021.
Rising Interest Rates
Killam benefited from lower interest rates on
mortgages refinanced in Q1-2022; however, this trend is not
expected to continue throughout the remainder of the year, as
interest rates continue to rise. During Q1-2022, Killam refinanced $36.2
million of maturing mortgages with $58.8 million of new debt, the majority of which
was for 10-year terms at a weighted average interest rate of 3.08%,
slightly lower than 3.11% for the maturing debt.
ESG Update
During Q1-2022, Killam completed its third-party verified
energy consumption and greenhouse gas (GHG) review. Killam achieved a 5.6% reduction in
like-for-like energy consumption and an 8.6% reduction in GHG
intensity (tCO2e per square foot) in 2021, compared to 2020.
Killam now has 12 photovoltaic
(PV) solar arrays producing power, with an expected 1,300 MWh of
annual energy production. PV solar arrays, along with geothermal
heating and cooling systems at Killam's new developments, illustrate
Killam's on-going commitment to
lower its carbon footprint.
Killam has published its 2021
ESG report, which can be accessed on its website at
https://killamreit.com/esg. The report summarizes Killam's 2021 achievements, describes
Killam's commitment to creating
and maintaining sustainable communities, and details its progress
and future plans to achieve its long-term targets.
2022 Acquisitions
Killam invested $60.5 million in acquisitions year to date, which
include:
1477 & 1479 Carlton Street
On February 16, 2022, Killam completed the acquisition of a
four-unit apartment property in Halifax,
NS, for $3.5 million. This
building is adjacent to other Killam properties on Spring Garden Road and
complete the lot consolidation for the planned future
development.
510-516 Quiet Place
On March 7, 2022, Killam completed the acquisition of a 24-unit
apartment property in Waterloo,
ON, for $7.9 million.
The four, six-unit buildings are located on a 1.2-acre property
which has future development potential, with zoning for
approximately 300 units.
150 Wissler Road
On March 17, 2022, Killam completed the acquisition of a 5,000
square foot retail plaza containing 0.75 acre located adjacent to
Northfield Gardens property in Waterloo,
ON for $3.9 million. This
property, combined with surplus land already owned, will provide an
opportunity to build up to 150 residential units in the future.
Craigflower House
On March 31, 2022, Killam acquired a 49-unit apartment property
in Esquimalt, BC, for $14.0 million. This acquisition is Killam's third in the Greater Victoria Area.
1358 Hollis Street, Halifax, NS
On April 6, 2022, Killam acquired 1358 Hollis Street, a 27-unit
building located adjacent to other Killam properties in downtown Halifax, for $6.2
million ($230,000 per unit).
This property has a mix of bachelor, one and two bedroom units at
an average monthly rent of $1,040 and
is 100% leased.
671 Woolwich St, Guelph, ON
On April 29, 2022, Killam purchased 671 and 665 Woolwich Street
for $25.0 million ($250,000/unit and $4.0
million for land) in Guelph,
Ontario. 671 Woolwich Street is a 12-storey, 84-unit
concrete building that contains a mix of one, two and three bedroom
units. The average monthly rent is $1,218 and is currently 96% leased. 665 Woolwich
is development land adjacent to the apartment building zoned for
potential 10 storeys and 100 to 150-unit development.
Subsequent to quarter end, Killam committed to acquire two properties in
Courtenay, BC, for a total of
$55.6 million. The Shores (located at
1849 & 1876 Riverside Lane) contains two, four-storey
wood-framed buildings with 94 units. This new property has a mix of
one, two and three bedroom units and is fully leased, with an
average monthly rent of $1,641. The
Residences (located at 621 Crown Island Blvd) contains one,
four-storey wood-framed building with 56 units. This recently
completed building has a mix of one and two bedroom units and is
fully leased, with an average monthly rent of $1,608.
These acquisitions will increase Killam's portfolio on Vancouver Island to 516
units. Courtenay is a growing city
in the Comox Valley with a diverse
economic base, including Canada's
only west coast Canadian Air Force Base.
Financial Statements
Killam's condensed consolidated
interim Financial Statements and Management's Discussion and
Analysis for the three months ended March
31, 2022, 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.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, May 5, 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
$4.7 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-International Financial Reporting Standards (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 below.
- 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 below.
- 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 2022 and 2021. Same property results
represent 90.5% of the fair value of Killam's investment property portfolio
as at March 31, 2022. Excluded from
same property results in 2022 are acquisitions, dispositions and
developments completed in 2021 and 2022, and non-stabilized
commercial properties linked to development projects.
- 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. 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.
Non-IFRS Reconciliation (in thousands, except per unit
amounts)
Reconciliation of
Net Income to FFO
|
Three months
ended March 31,
|
|
2022
|
2021
|
Net income
|
$60,027
|
$27,422
|
Fair value
adjustments
|
(37,761)
|
(7,856)
|
Non-controlling
interest
|
(3)
|
(2)
|
Internal commercial
leasing costs
|
75
|
52
|
Deferred tax
expense
|
5,703
|
4,800
|
Interest expense on
exchangeable units
|
701
|
697
|
Unrealized gain on
derivative liability
|
(108)
|
(40)
|
Depreciation on
owner-occupied building
|
25
|
27
|
Change in principal
related to lease liabilities
|
6
|
7
|
FFO
|
$28,665
|
$25,107
|
FFO per unit –
diluted
|
$0.24
|
$0.23
|
Reconciliation of
FFO to AFFO
|
Three months
ended March 31,
|
|
2022
|
2021
|
FFO
|
$28,665
|
$25,107
|
Maintenance capital
expenditures
|
(4,733)
|
(4,369)
|
Commercial
straight-line rent adjustment
|
(114)
|
(173)
|
Internal commercial
leasing costs
|
(79)
|
(79)
|
AFFO
|
$23,739
|
$20,486
|
AFFO per unit –
basic
|
$0.20
|
$0.19
|
AFFO per unit –
diluted
|
$0.20
|
$0.19
|
AFFO payout ratio –
diluted
|
87
%
|
89 %
|
AFFO payout ratio –
rolling 12 months (1)
|
76
%
|
81 %
|
Weighted average number
of units – basic (000s)
|
117,598
|
107,509
|
Weighted average number
of units – diluted (000s)
|
117,765
|
107,699
|
(1) Based on Killam's
annual distribution of $0.69166 for the 12-month period ended March
31, 2022, and $0.68004 for the 12-month period ended March 31,
2021.
|
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: market fundamentals and regional economies in
Killam's markets; acquisition
capacity; the completion, costs, capacity, total investment and
timing of development projects and acquisitions; annual FFO and
certain properties' contributions thereto; demand; reducing
Killam's environmental impact; the
ability of Killam's development
program to deliver anticipated portfolio growth; geographical
diversification of our portfolio and its impact on our business
strategy; unitholder earnings; development pipeline; Killam's commitment to sustainability and ESG
and related targets; Killam's
priorities; and interest rates.
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