HALIFAX,
NS, May 3, 2023 /CNW/ - Killam Apartment
REIT (TSX: KMP.UN) ("Killam") today reported its results for the
three months ended March 31,
2023.
"Killam's first quarter
delivered strong operating performance and financial results, with
FFO per unit growth of 4.2% compared to Q1-2022," noted
Philip Fraser, President and CEO.
"Fundamentals in our core markets are stronger than ever. Looking
forward, we expect our portfolio to maintain healthy revenue and
NOI growth.
"Killam initiated its capital
recycling program, and year-to-date, we have completed $42.8 million of dispositions, generating
$27.1 million of net cash proceeds.
Our focus on dispositions in 2023 aligns with our goal of recycling
assets to maximize long-term value creation and strengthen our
balance sheet. I am pleased to report that we are on track to
exceed our capital recycling goal of $100
million in 2023.
"In addition, we are pleased with the progress on our
development projects and the successful lease-up of three
developments we completed in 2022. Killam's development program is extensive and
an important component of our long-term growth plan."
Q1-2023 Financial & Operating Highlights
- Reported net income of $83.5
million, an increase of $23.5
million compared to $60.0
million in Q1-2022. The growth in net income is primarily
attributable to $66.8 million of fair
value gains on investment properties in the period.
- Generated net operating income (NOI) of $50.8 million, a 12.3% increase from $45.3 million in Q1-2022.
- Earned funds from operations (FFO) per unit (diluted) of
$0.25, a 4.2% increase from
$0.24 in Q1-2022.[1]
- Increased adjusted funds from operations (AFFO) per unit
(diluted) by 5.0% to $0.21, from
$0.20 in Q1-2022, and reduced the
rolling 12 month AFFO payout ratio (diluted) by 200 basis points
(bps) to 74%, from 76% in Q1-2022.1
- Achieved a 5.4% increase in revenue for the same property
portfolio compared to Q1-2022.
- Generated same property NOI growth of 6.3% compared to
Q1-2022.[2]
____________________________
|
1 FFO
and AFFO 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 March 31,
|
(000's)
|
2023
|
2022
|
Change
|
Property
revenue
|
$84,895
|
$77,464
|
9.6 %
|
Net operating
income
|
$50,815
|
$45,263
|
12.3 %
|
Net income
|
$83,460
|
$60,027
|
39.0 %
|
FFO
(1)
|
$30,283
|
$28,665
|
5.6 %
|
FFO per unit (diluted)
(1)
|
$0.25
|
$0.24
|
4.2 %
|
AFFO per unit (diluted)
(1)
|
$0.21
|
$0.20
|
5.0 %
|
AFFO payout ratio –
diluted (1)
|
84 %
|
87 %
|
(300) bps
|
AFFO payout ratio –
rolling 12 months(1)
|
74 %
|
76 %
|
(200) bps
|
Same property apartment
occupancy (2)
|
98.6 %
|
97.8 %
|
80 bps
|
Same property revenue
growth(3)
|
5.4 %
|
|
|
Same property NOI
growth
|
6.3 %
|
|
|
(1) FFO and AFFO are
defined in "non-IFRS 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) Same property
apartment occupancy is a supplementary financial measure. An
explanation of the composition of this measure can be found under
the heading "Supplementary Financial Measures."
|
(3) Same property
revenue is a supplementary financial measure. An explanation of the
composition of this measure can be found under the heading
"Supplementary Financial Measures."
|
Debt Metrics as
at
|
March 31,
2023
|
December 31,
2022
|
Change
|
Debt to total
assets
|
44.6 %
|
45.3 %
|
(70) bps
|
Weighted average
mortgage interest rate
|
2.80 %
|
2.74 %
|
6 bps
|
Weighted average years
to debt maturity
|
3.8
|
3.8
|
– years
|
Interest coverage
ratio(1)
|
3.20x
|
3.31x
|
(3.3) %
|
(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 Q1-2023 Results and Operations
Earned Net Income of $83.5
Million
Killam
earned net income of $83.5 million in
Q1-2023 compared to $60.0 million in
Q1-2022. The increase in net income is primarily attributable to
fair value gains on investment properties of $66.8 million, compared to fair value gains of
$28.0 million in the same period in
2022. These gains were a result of strong NOI growth.
Revenue Growth Drives Same Property NOI Growth of
6.3%
Killam generated 6.3%
growth in same property NOI during Q1-2023, compared to Q1-2022.
This was driven by 5.4% growth in same property revenue from a
combined 4.0% increase in apartment rental rates, 80 bps increase
in same property apartment occupancy, and increased ancillary
revenue. Property operating expenses increased 4.1% in the quarter.
Higher natural gas pricing and a 5.8% increase in same property
general operating expenses, driven by higher wages and contract
service costs, was partially offset by a 2.9% decrease in property
tax expense. Killam also achieved
expansion in the operating margin of its same property portfolio,
up 50 bps compared to Q1-2022.
Achieved 4.2% FFO per Unit Growth and 5.0% AFFO per Unit
Growth
Killam delivered FFO
per unit of $0.25 in the quarter, a
4.2% increase from $0.24 per unit in
Q1-2022. AFFO per unit increased 5.0% to $0.21 ($0.20 in
Q1-2022). The growth in FFO and AFFO was attributable to strong net
operating income growth, partially offset by higher interest
expense and a 2.8% increase in the weighted average number of units
outstanding.
Disposing Select Assets to Enhance Value and Strengthen
Balance Sheet
Killam
completed its first disposition in Q1-2023, selling a 43-unit
apartment property located in Ottawa for $9.8
million, with net cash proceeds of $7.0 million. Subsequent to quarter end, on
April 21, 2023, Killam completed the disposition of a 108-unit
property located in Halifax for
$33.0 million, with net cash proceeds
of $20.1 million. Killam has more dispositions planned for the
remainder of 2023 and expects to exceed its fiscal 2023 capital
recycling target of $100 million.
Continued Advancement of Development
Pipeline
Killam continues
to advance its development pipeline, with two developments nearing
completion and one ongoing project, totalling 320 units and an
expected combined development cost of $177.5
million. During Q1-2023, Killam invested $11.3 million in its active development
projects, the majority of which were funded through construction
financing.
Focus on Reduced Leverage with 26% Reduction in Variable Rate
Debt
During the first quarter, debt to total assets
decreased 70 bps from 45.3% to 44.6%, and variable rate debt was
reduced by $55.2 million, as funds
from dispositions, mortgage refinancings, and general operations
were used to reduce the balance on Killam's credit facility. Looking ahead,
Killam expects to continue to
reduce variable rate debt with funds from additional refinancings
and dispositions during the second and third quarters. In addition,
construction financing for the Latitude development in Ottawa was repaid with permanent Canada and Mortgage Housing Corporation
(CMHC)-insured financing. Killam
expects permanent financing for three additional developments to be
in place between the second and third quarters of 2023 and to
reduce the balance on Killam's
credit facility further as disposition transactions are completed.
Overall, Killam's weighted average
mortgage interest rate increased a nominal 6 bps at the end of
Q1-2023 compared to December 31,
2022, as the maturity dates of Killam's mortgages are staggered to help
mitigate interest rate risk.
ESG Update
During Q1-2023, Killam invested $1.2
million in energy initiatives. At the end of the quarter,
Killam had 18 photovoltaic (PV)
solar arrays producing power, with an expected 1,817 MWh of annual
energy production. This is the equivalent amount of energy to
supply 343 apartment units with electricity annually, based on the
average consumption per unit in Killam's apartment portfolio. 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 rolling out Level II electric
vehicle charging stations across its portfolio, with 187 charging
stations installed at 30 properties to date, plus an additional 103
charging stations at 12 different properties underway.
Financial Statements
Killam's condensed consolidated
interim Financial Statements and Management's Discussion and
Analysis (MD&A) for the three months ended March 31, 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.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 4, 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
$4.9 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 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 and AFFO, divided
by the basic or diluted number of units outstanding at the end of
the relevant period.
Non-IFRS Ratios
- Interest coverage is calculated by dividing adjusted EBITDA by
mortgage, loan and construction loan interest and interest on
credit facilities.
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 97% of the fair value of Killam's investment property portfolio as at
March 31, 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 March 31,
|
|
2023
|
2022
|
Net income
|
$83,460
|
$60,027
|
Fair value
adjustments
|
(63,365)
|
(37,761)
|
Non-controlling
interest
|
(4)
|
(3)
|
Internal commercial
leasing costs
|
90
|
75
|
Deferred tax
expense
|
8,942
|
5,703
|
Interest expense on
exchangeable units
|
682
|
701
|
Loss on
disposition
|
350
|
—
|
Unrealized loss (gain)
on derivative liability
|
96
|
(108)
|
Depreciation on
owner-occupied building
|
26
|
25
|
Change in principal
related to lease liabilities
|
6
|
6
|
FFO
|
$30,283
|
$28,665
|
FFO per unit –
diluted
|
$0.25
|
$0.24
|
Reconciliation of
FFO to AFFO
|
Three months
ended March 31,
|
|
2023
|
2022
|
FFO
|
$30,283
|
$28,665
|
Maintenance capital
expenditures
|
(5,127)
|
(4,733)
|
Commercial
straight-line rent adjustment
|
101
|
(114)
|
Internal commercial
leasing costs
|
(87)
|
(79)
|
AFFO
|
$25,170
|
$23,739
|
AFFO per unit –
basic
|
$0.21
|
$0.20
|
AFFO per unit –
diluted
|
$0.21
|
$0.20
|
AFFO payout ratio –
diluted
|
84 %
|
87 %
|
AFFO payout ratio –
rolling 12 months (1)
|
74 %
|
76 %
|
Weighted average number
of units – basic (000s)
|
120,893
|
117,598
|
Weighted average number
of units – diluted (000s)
|
121,072
|
117,765
|
(1) Based on Killam's
annual distribution of $0.69996 for the 12-month period ended March
31, 2023, and $0.69166 for the 12-month period ended March 31,
2022.
|
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
revenue and NOI generation and growth therefrom; focusing on
dispositions and recycling assets; maximizing long-term growth and
strengthening the balance sheet; Killam's ability to achieve or exceed its
capital recycling goal of $100
million and the timing thereof; planned dispositions in
2023; the completion, costs, capacity, total investment and timing
of development projects and acquisitions; sources of financing for
Killam's developments and the
timing thereof; the reduction of the balance on Killam's credit facility; continued
advancement of Killam's
development pipeline; Killam's
commitment to reducing its environmental impact and carbon
footprint; the expected annual energy production of Killam's PV solar arrays; the ability of
Killam's development program to
deliver anticipated portfolio growth; 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 international events, and the
effectiveness of measures intended to mitigate impacts thereof;
competition; global, national and regional economic conditions,
including inflationary pressures; 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 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