Killam Properties inc. announces third quarter results, including strong FFO growth of 5.6% and FFO per share growth of 4.3%

HALIFAX, Nov. 8, 2011 /CNW/ - Killam Properties Inc. ("Killam") (TSX: KMP) today announced its financial results for the third quarter ended September 30, 2011.

Highlights of Killam's Third Quarter

  • Generated funds from operations ("FFO") of $9.8 million, or $0.216 per share, compared to $9.3 million, or $0.207 per share during the third quarter of 2010.
  • Earned net income before fair value gains and income taxes of $10.0 million, or $0.222 per share, compared to $9.5 million, or $0.211 per share during the third quarter of 2010.
  • Including fair value gains of $15.2 million and $20.0 million during the third quarters of 2011 and 2010, respectively, earned net income attributable to common shareholders of $19.7 million, or $0.43 per share, during the third quarter of 2011 compared to $23.6 million, or $0.53 per share during the third quarter of 2010.
  • Achieved same store revenue growth of 3.0% during the third quarter.
  • Maintained high occupancy rates, ending the third quarter with consolidated occupancy of 98.4%.
  • Increased same store net operating income ("NOI") by 1.4% during the third quarter.
  • Completed $25.5 million in acquisitions during the third quarter, for a total of $68.3 million in acquisitions during the first nine months of 2011.
  • Completed construction of Phase 1 of Charlotte Court, Killam's first apartment development.
  • Ended the third quarter with $29.2 million of cash on hand and total debt as a percentage of total assets of 57.5%.

Financial Highlights (in thousands, except per share information)

For the three months ended, Sept 30, 2011   Sept 30, 2010   Change
Property Revenue $33,052   $30,261   9.2%
Net Operating Income $21,659   $19,921   8.7%
Income Before Fair Value Gains and Income Taxes $10,025   $9,478   5.8%
Fair Value Gains $15,176   $19,982   (24.1%)
Net Income (applicable to common shareholders) $19,747   $23,555   (16.2%)
Funds from Operations $9,784   $9,263   5.6%
Funds from Operations per Share $0.216   $0.207   4.3%
Shares Outstanding (weighted average) 45,258   44,847   0.9%
           
For the nine months ended, Sept 30, 2011   Sept 30, 2010   Change
Property Revenue $93,277   $85,182   9.5%
Net Operating Income $57,604   $53,808   7.1%
Income Before Fair Value Gains and Income Taxes $24,906   $23,624   5.4%
Fair Value Gains $43,152   $24,903   73.3%
Net Income (applicable to common shareholders) $53,357   $37,540   42.1%
Funds from Operations $24,214   $22,935   5.6%
Funds from Operations per Share $0.537   $0.535   0.4%
Shares Outstanding (weighted average) 45,117   42,877   5.2%
           
As at Sept 30, 2011   Dec 31, 2010   Change
Total Assets $1,260,325   $1,116,333   12.9%
Total Liabilities $793,233   $689,292   15.1%
Total Equity $467,092   $427,041   9.4%
Debt as a % of Assets 57.5%   57.0%   ↑ 50 bsp

4.3% FFO Per Share Growth in the Third Quarter

FFO is recognized as the industry-wide standard measure for real estate entities' operating performance, and management considers FFO per share to be a key measure of Killam's operating performance. The calculation of FFO includes adjustments specific to the real estate industry applied against net income to calculate a supplementary measure of performance that can be compared with other real estate companies and real estate investment trusts (REITs). FFO does not have a standardized meaning under IFRS or GAAP and therefore may not be comparable to similarly titled measures presented by other public companies.

Killam earned FFO of $9.8 million, or $0.216 per share, during the third quarter compared to $9.3 million, or $0.207 per share during the third quarter of 2010, using Killam's definition of FFO implemented with the adoption of IFRS in 2011. The calculation of FFO is as follows:

Funds From Operations (in thousands)      
For the three months ended, Sept 30, 2011   Sept 30, 2010
       
Net Income $20,103   $23,705
Adjustments:      
Fair Value Gains (15,176)   (19,982)
Non-controlling Interest (before tax and gains) (241)   (215)
Deferred Tax Expense 5,098   5,755
FFO $9,784   $9,263
Weighted Average Shares Outstanding 45,258   44,847
FFO Per Share $0.216   $0.207

The 4.3% increase in FFO per share earned during the third quarter of 2011 compared to the third quarter of 2010 is primarily attributable to the acquisitions completed in 2010 and year-to-date in 2011, contributing $0.9 million to FFO growth in the quarter, and positive same store FFO growth of $0.4 million. These increases were partially offset by a $0.8 million increase in interest on convertible debentures associated with a net $61.3 million increase in convertible debenture debt outstanding compared to the third quarter of 2010. The additional convertible debentures were raised primarily to fund acquisitions and development. Not all the funds raised have been deployed; at the end of the third quarter Killam had a cash balance of $29.2 million.

NOI Growth of 1.4% from Same Store Properties

Killam's same store properties, which account for 92% of the Company's portfolio on a unit-count basis, generated NOI of $18.1 million during the third quarter of 2011, a 1.4% increase from $17.8 million during the third quarter of 2010. Consolidated revenue growth of 3.0% was partially offset by a 6.0% increase in expenses.

Consolidated Same Store (in thousands)              
For the three months ended,   Sept 30, 2011   Sept 30, 2010   Change   % Change
Total Operating Revenue   $28,404   $27,572   $832   3.0%
                 
Operating Expenses   4,978   4,751   227   4.8%
Utility and Fuel Expenses   2,635   2,445   190   7.8%
Property Taxes   2,728   2,557   171   6.7%
Total Operating Expense   10,341   9,753   588   6.0%
NOI   $18,063   $17,819   $244   1.4%

Occupancy Rates Remain Strong

Killam's consolidated occupancy at September 30, 2011, was 98.4%, compared to 98.5% at September 30, 2010.  The change year-over-year is shown in the chart below:

    Sept 30, 2011   Sept 30, 2010
    Units   Occupancy   Average
Rent
  Units   Occupancy   Average
Rent
Apartments                        
Halifax, NS   4,329   98.7%   $838   4,244   98.5%   $824
Moncton, NB   1,426   94.8%   $773   1,138   97.5%   $740
Fredericton, NB   1,293   98.6%   $818   983   96.5%   $769
Saint John, NB   1,143   98.3%   $714   1,143   98.5%   $700
St. John's, NL   689   99.3%   $696   584   99.0%   $649
Charlottetown, PE   687   98.5%   $843   638   99.8%   $823
Other Atlantic Locations   448   96.6%   $746   448   97.5%   $717
Ontario   362   96.9%   $1,491   362   93.9%   $1,493
Total Apartment Portfolio   10,377   98.0%   $823   9,540   98.1%   $802
MHC Portfolio   9,290   98.8%   $235   9,290   99.0%   $230
Total Portfolio   19,667   98.4%       18,830   98.5%

The apartment occupancy at September 30, 2011, was 98.0%, compared to 98.1% at September 30, 2010, and remained strong across the majority of the portfolio, with St. John's, Halifax and Fredericton three of the strongest markets. Moncton experienced a decrease in occupancy compared to the same period last year due primarily to higher than normal vacancy at three of Killam's new acquisitions.

The MHC portfolio had an occupancy rate of 98.8%, with an average monthly rent of $235. Not included in the MHC vacancy numbers are 126 MHC sites that had not been previously rented and 376 transient sites in Killam's seasonal resort portfolio. These units are excluded from vacancy statistics in the table above.

$15.2 Million in Fair Value Adjustments

Management uses the fair value approach to account for Killam's investment properties under IFRS. Killam's investment properties and investment properties under construction were valued at $1.20 billion at September 30, 2011, up $48.8 million over the fair value of $1.15 billion at June 30, 2011. This increased value is primarily attributable to $25.6 million in acquisitions made during the third quarter, $6.4 million in capital expenditures and $15.2 million in fair value gains relating to market capitalization rate compression; the capitalization rates on Killam's apartment portfolio decreased an average of 12 basis points during the quarter, and the average rate for the MHC portfolio decreased an average of 16 basis points. The fair value adjustment during the third quarter of 2010 was $20.0 million.

The following table summarizes the changes in the value of Killam's investment properties for the third quarter ended September 30, 2011. The fair value adjustment noted below, in millions of dollars, flows through the income statement.

Change in Investment Properties and Investment Properties Under Construction (in millions)
For the three months ended September 30, 2011            

  Investment
Properties
  Investment
Properties
Under
Construction
 
Total
Beginning Fair Value   $1,153.3   $10.9   $1,164.2
Acquisition of Properties   25.6   -   25.6
Transfer from Investment Properties Under Construction   4.7   (4.7)   -
Capital Investment   3.3   3.1   6.4
Interest Capitalization   -   0.1   0.1
Fair Value Adjustment   15.2   -   15.2
Ending Fair Value   $1,202.1   $9.4   $1,211.5

Debt Equal to 57.5% of Assets

The ratio of Killam's total gross debt to the Company's total assets, including the fair market value of Killam's investment properties, was 57.5% as at September 30, 2011. The Company continues to have access to debt and was successful in refinancing maturing debt during the quarter at attractive interest rates.  The average term to maturity of Killam's mortgage debt is 3.7 years and Killam's annualized interest coverage ratio was 1.97 as at September 30, 2011.

Acquisition Activity Continues

Killam completed a total of $68.3 million in acquisitions during the first three quarters of 2011, totalling 602 units, primarily in Moncton and Fredericton, New Brunswick, and three parcels of land for development.

Subsequent to the end of the third quarter, on October 24, 2011, Killam completed the previously announced acquisition of Rutledge Manor, a 53-unit building in St. John's, Newfoundland, for $6.65 million. In addition, on November 2, 2011, Killam acquired a 50% ownership in a two-building commercial complex in Halifax, the location of Killam's head office. The purchase price for Killam's 50% interest of $4.0 million was satisfied with a new 10-year mortgage for $2.8 million at 4.57%, and the balance in cash.

Killam continues to have an active acquisition pipeline and expects to be at the low end of its acquisition target of between $100 million and $150 million for 2011.

Development Update

Phase I of Charlotte Court in Charlottetown was completed during the third quarter and the Province of PEI has leased the entire building for a 10-year term. Construction has begun on Phase II of Charlotte Court, a 47-unit building.

Construction continues at two other development projects, S2 in Halifax, and The Plaza in Fredericton. The developments are expected to be completed in early 2013. Killam expects to receive municipal approval during the next few weeks to begin construction of a fourth development project, 71-unit Bennett House in St. John's. Construction is expected to start during the fourth quarter of 2011.

These four construction projects total approximately $56 million, representing 4.5% of the Company's balance sheet, and are expected to yield all-cash unlevered returns of between 5.5% and 6.5%.

Management's Comments

"We are pleased to report same store NOI growth during the third quarter of 2011", noted Philip Fraser, Killam's President and CEO. "Rising operating costs have been a challenge this year, offsetting much of the benefit we've experienced from 2.7% growth in same store revenues year-to-date. During the third quarter we enhanced our rental revenue, achieving our targeted 3.0% revenue growth. This level of rental growth is paramount for us to offset higher operating costs and ensure that Killam continues to achieve NOI growth on an annual basis."

"We are actively working on acquisitions and have closed $79 million of properties year-to-date, and expect to complete approximately $100 million of acquisitions in 2011. The acquisition market in Ontario has been very competitive this year, resulting in less acquisition activity during the first nine months of the year than expected, and Killam holding a higher than normal cash balance on hand. Although this has impacted our FFO growth in the quarter, we are confident in our ability to deploy the cash accretively based on our acquisition pipeline."

"In addition to growth through acquisitions, we are expanding our portfolio with apartment developments. Charlotte Court, our first development, was completed during the third quarter and is now fully-occupied. Progress is ongoing at four other developments, most of which we expect will be completed by early 2013. We are confident in the long-term benefit of developing properties directly and investing in new, top-quality assets. This focus, along with the acquisition of newer assets, should distinguish Killam as having one of the highest quality multi-family residential portfolios in Canada."

Financial Statements

Killam's September 30, 2011 Financial Statements and Notes and Management's Discussion and Analysis can be found at www.killamproperties.com.

Third Quarter Conference Call

Management will host a conference call to discuss Killam's third quarter results on Wednesday, November 9, 2011, at 12:00 PM Atlantic time (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 and at www.newswire.ca.

A replay will be available by dialing 416-849-0833 (Toronto) or 800-642-1687 (toll-free) and using the passcode 16367034 until November 16, 2011, 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 statement.

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

Profil de l'entreprise

KILLAM PROPERTIES INC.

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