Killam Properties Inc. reports third quarter 2012 results

HALIFAX, Nov. 6, 2012 /CNW/ - Killam Properties Inc. ("Killam" or the "Company") (TSX: KMP) today announced its financial results for the third quarter ended September 30, 2012.

Highlights from the Third Quarter of 2012

  • Generated funds from operations ("FFO") of $0.213 per share, compared to $0.216 per share during the third quarter of 2011. The nominal decrease reflects the fact that the net proceeds from the sale of 12 manufactured home communities ("MHCs") in May were not fully deployed during the third quarter, and the short-term dilutive impact of the Company's new apartment developments.

  • Achieved same store rental revenue growth of 1.7%.

  • Increased same store net operating income ("NOI") by 0.9%.

  • Improved occupancy in Killam's apartment portfolio, ending the quarter at 96.9% occupancy, up 150 basis points from 95.4% at the end of the second quarter.

  • Recorded net unrealized fair value gains of $6.3 million on the Company's investment properties, contributing to net income attributable to common shareholders of $12.7 million, or $0.25 per share.

  • Expanded the Company's Ottawa presence with the acquisition of a four-building, 244-unit portfolio.

  • Purchased two parcels of land in St. John's, Newfoundland for new developments.

  • Ended the quarter with cash-on-hand of $18.0 million and debt as a percentage of total assets of 53.5%.

Highlights from the First Nine Months of 2012

  • Generated FFO per share of $0.550, a 2.4% increase from $0.537 during the first nine months of 2011.

  • Achieved same store rental revenue growth of 1.8%.

  • Increased same store NOI by 2.0%.

  • Including fair value gains of $27.7 million, earned net income attributable to common shareholders of $41.3 million, or $0.83 per share, compared to fair value gains of $43.2 million, and net income attributable to common shareholders of $53.4 million, or $1.18 per share, during the first nine months of 2011.

  • Completed $83.4 million in acquisitions.

  • Met the strategic goal of increasing ownership in newer properties with the acquisition of two newer buildings, including one built in 2012 and one built in 2004.

  • Continued progress on Killam's development projects, with all four developments expected to be ready for occupancy during the first quarter of 2013.

Financial Highlights (in thousands, except per share amounts)

For the three months ended,   Sept 30, 2012   Sept 30, 2011   Change
Property Revenue   $33,894   $33,158   2.2%
Net Operating Income   $21,442   $21,301   0.7%
Fair Value Gains   $6,279   $15,176   (58.6%)
Net Income Attributable to Common Shareholders   $12,662   $19,747   (35.9%)
Funds from Operations   $10,721   $9,784   9.6%
Funds from Operations per Share   $0.213   $0.216   (1.4%)
Shares Outstanding (weighted average)   50,330   45,258   11.2%
             
             
For the nine months ended,   Sept 30, 2012   Sept 30, 2011   Change
Property Revenue   $100,281   $93,500   7.3%
Net Operating Income   $60,885   $56,959   6.9%
Fair Value Gains   $27,669   $43,152   (35.9%)
Net Income Attributable to Common Shareholders   $41,302   $53,357   (22.6%)
Funds from Operations   $27,363   $24,214   13.0%
Funds from Operations per Share   $0.550   $0.537   2.4%
Shares Outstanding (weighted average)   49,779   45,117   10.3%
             
As at   Sept 30, 2012   Dec 31, 2011   Change
Total Assets   $1,381,711   $1,329,531   3.9%
Total Liabilities   $831,759   $816,988   1.8%
Total Equity   $549,952   $512,543   7.3%
Debt as a % of Assets   53.5%   56.2%   ↓ 270 bps


$0.213 in FFO per Share

FFO increased 9.6%, to $10.7 million in the third quarter of 2012, compared to $9.8 million in the third quarter of 2011. The growth was primarily attributable to increased earnings from same store properties, the positive contribution from acquisitions and a decrease in interest expense. Growth from these areas was partially offset by the impact of the divestiture of 12 MHCs during the second quarter, a decrease in the contribution from home sales and an increase in general and administration costs.

On a per share basis, FFO was $0.213 per share, compared to $0.216 per share. The reduction in FFO per share is attributable to an 11.2% increase in the common shares outstanding following the November 2011 equity raise of $40.2 million. The funds raised were primarily to fund development and acquisitions.

During the first three quarters of 2012, Killam reported $27.4 million in FFO, or $0.550 per share, compared to $24.2 million, or $0.537 per share, during the first three quarters of 2011, representing growth of 2.4%.

0.9% Same Store NOI Growth

Killam's same store portfolio posted a 0.9% increase in NOI in the third quarter of 2012 and a 2.0% increase for the nine months ended September 30, 2012, as summarized below:

For the three months ended,   Sept 30, 2012   Sept 30, 2011   Change   % Change
                   
Property Revenue   $29,104   $28,626   $478   1.7%
Property Expenses                
  Operating Expenses   5,133   4,881   252   5.2%
  Utility and Fuel Expenses   2,635   2,598   37   1.4%
  Property Taxes   3,002   2,982   20   0.7%
Total Property Expenses   10,770   10,461   309   3.0%
NOI   $18,334   $18,165   $169   0.9%
                 
For the nine months ended,   Sept 30, 2012   Sept 30, 2011   Change   % Change
                   
Property Revenue   $84,277   $82,810   $1,467   1.8%
Property Expenses                
  Operating Expenses   14,517   14,134   383   2.7%
  Utility and Fuel Expenses   10,049   10,226   (177)   (1.7%)
  Property Taxes   9,107   8,828   279   3.2%
Total Property Expenses   33,673   33,188   485   1.5%
NOI   $50,604   $49,622   $982   2.0%


Total revenue increased by 1.7% in the quarter due to higher rental rates, up 3.0% and 4.2% for the apartment and MHC portfolios, respectively, which were partially offset by higher vacancy levels. Expenses increased by 3.0% over the same period last year, driven by higher general operating expenses, due mainly to the timing of repair and maintenance costs.

Year-to-date, property expenses have increased a moderate 1.5%. Killam has experienced reduced fuel expenses in 2012 due to lower natural gas prices and the decision to convert more heating systems to gas from oil, taking advantage of significantly lower prices. Management is optimistic that Killam can save up to $0.7 million in energy costs over the next year, resulting from additional gas conversions and more equitable natural gas distribution rates in New Brunswick, which came into effect October 1, 2012.

Occupancy Gains in the Third Quarter

Killam's consolidated occupancy at September 30, 2012 was 97.4%, compared to 98.4% at September 30, 2011, and 96.4% at June 30, 2012. The apartment portfolio drove the occupancy improvement in the quarter. Killam's apartment portfolio was 96.9% occupied in September 2012, up 150 basis points from 95.4% in June 2012. After experiencing leasing pressure during the last three quarters, Killam generated positive occupancy gains in August and September, benefiting from strong leasing, property upgrades, and from implementing incentives at specific properties, as required. In addition to improved occupancy, Killam continued to achieve increased rental rates.

The occupancy and average rents by core market for apartments, and for MHCs, are shown in the following table:

    Sept 30, 2012   Sept 30, 2011
    Units   Occupancy   Average
Rent
  Units   Occupancy   Average
Rent
Apartments                        
Halifax, NS   4,821   97.7%   $883   4,459   98.7%   $838
Moncton, NB   1,424   96.8%   $796   1,426   94.8%   $773
Fredericton, NB   1,293   98.1%   $846   1,293   98.6%   $818
Saint John, NB   1,143   94.1%   $744   1,143   98.3%   $719
Ontario   1,078   95.5%   $1,320   362   96.9%   $1,491
St. John's, NL   742   97.8%   $767   689   99.3%   $692
Charlottetown, PE   687   95.9%   $869   687   98.5%   $843
Other Atlantic Locations   448   96.2%   $774   448   96.6%   $746
Total Apartment Portfolio   11,636   96.9%   $883   10,507   98.0%   $823
MHC Portfolio   7,397   98.3%   $224   9,290   98.8%   $231
Total Portfolio   19,033   97.4%       19,797   98.4%  


Not included in the occupancy statistics above are 273 apartment units, representing two newly constructed properties in their initial lease-up phase, and 112 MHC sites that had not been previously rented or are unavailable for rent, and the 1,592 sites in the Company's seasonal resort portfolio.

$6.3 Million in Fair Value Gains during the Third Quarter

The fair value of Killam's investment properties increased by $6.3 million during the third quarter, compared to a fair value adjustment of $15.2 million during the third quarter of 2011. The increase in the fair market value during the quarter reflects increased NOI from properties, as capitalization rates generally remained flat from the second quarter.

Acquisition Activity in Ottawa and St. John's

Killam completed the acquisition of a four-building, 244-unit apartment portfolio in Ottawa, Ontario, during the third quarter. The centrally located buildings were purchased for $24.0 million. The acquisition complements Killam's first apartment purchase in Ottawa, completed earlier in the year. Ottawa is a target acquisition market for Killam as it expands its ownership in Ontario. Killam's apartment unit count in Ontario is now 1,078 units (472 units held through a joint venture in which Killam has a 25% interest), representing 9.3% of the Company's 11,636 unit apartment portfolio. Killam remains committed to geographic diversification with increased investment outside Atlantic Canada.

During the third quarter, Killam purchased two parcels of land for future development in St. John's, Newfoundland, for a total of $5.2 million. A 4.8 acre parcel on Topsail Road is zoned for 284 units and a second parcel, adjacent the Company's Bennett House development, is approximately 2.3 acres and zoned for 102 units.

Year-to-date, Killam has competed $83.4 million in acquisitions, including $77.7 million in apartment acquisitions at a weighted average all cash yield of 6.0%.

Stable Balance Sheet

Killam maintains its stable and conservative balance sheet. Killam's total gross debt as a percentage of the Company's total assets, including the fair market value of investment properties, decreased to 53.5% at September 30, 2012, down from 54.0% on June 30, 2012. Killam's annualized interest coverage ratio was 1.99 as at September 30, 2012 and the Company ended the third quarter with $18.0 million of cash-on-hand.

Killam continues to have access to mortgage debt at lower interest rates and has successfully refinanced $22.0 million of maturing mortgages during the first nine months of the year, at a weighted average rate of 3.31%, 191 basis points lower than the previous rate of 5.22%. In addition, Killam was able to generate $6.4 million in net proceeds on the refinanced mortgages.

Developments on Schedule

Killam has invested $34.5 million to date, excluding land costs, on four apartment developments in progress. The total construction cost of the projects is expected to be $63.0 million. The projects, totalling 282 units, are expected to be ready for occupancy during the first quarter of 2013, with positive contributions to FFO anticipated during the balance of 2013.

Management's Comments  

"We are pleased to report same store NOI growth in the quarter, and year-to-date, following the rental environment we've experienced during the last year," noted Philip Fraser, Killam's President & CEO. "We've focused on what needs to be done to improve occupancy levels, while still achieving rental rate growth. The efforts of the entire operations team, including the maintenance staff, resident and property managers, and senior staff, have resulted in the occupancy improvements we've experienced over this last quarter."

"Killam posted a nominal decrease in FFO per share in the quarter, due primarily to the impact of the sale of a portfolio of 12 MHCs in May and the effect of having issued more shares outstanding.  Part of the $40 million of equity raised last fall included funds for development projects.  Although these projects are slightly dilutive during the construction phase, we are confident in the long-term benefit of investing in high-quality, energy efficient new construction. This strategy has been reinforced throughout this year as we've seen many older buildings trading at what are, arguably, historically low Cap-Rates in some of the markets we've targeted for growth. We believe that a combination of acquisitions and development will create sustainable shareholder value."

Financial Statements

Killam's September 30, 2012 Financial Statements and Notes, and Management's Discussion and Analysis can be found under the 2012 Financial Reports of the Investors section of Killam's website at www.killamproperties.com/investor-relations.

Q3 Conference Call

Management will host a conference call to discuss these results on Wednesday, November 7, 2012, at 11:00 AM Eastern. The dial-in numbers for the conference call are 647-427-7450 (in Toronto) or 888-231-8191 (toll free, within North America).

A live audio webcast of the conference call will be accessible on the Company's website at www.killamproperties.com/investor-relations/events-and-presentations and at www.newswire.ca.

A replay will be available by dialing 416-849-0833 (Toronto) or 855-859-2056 (toll-free) and using the passcode 38728368 until November 14, 2012, or on the Company's website for 90 days after the conference call.

Corporate Profile

Killam Properties Inc., based in Halifax, Nova Scotia, is one of Canada's largest residential landlords, owning, operating and developing multi-family apartments and manufactured home communities.

Note: The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.  Certain statements in this report may constitute forward-looking statements relating to our operations and the environment in which we operate, which are based on our expectations, estimates, forecast and projections, which we believe are reasonable as of the current date.  Such forward-looking statements involve risks, uncertainties and other factors which may cause actual results, performance or achievements of Killam to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. For more exhaustive information on these risks and uncertainties, you should refer to our most recently filed annual information form which is available at www.sedar.com. Readers, therefore, should not place undue reliance on any such forward-looking statements. 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.  Other than as required by law, Killam does not undertake to update any of such forward-looking statements.

 

SOURCE: KILLAM PROPERTIES INC.

For further information:

Killam Properties Inc.
Dale Noseworthy, CA, CFA
Vice President, Investor Relations and Corporate Planning
dnoseworthy@killamproperties.com
Phone: (902) 442-0388