HALIFAX, Aug. 6 /CNW/ - Killam Properties Inc. (TSX:KMP/KMP:DB) today
announced its financial results for the second quarter ended June 30, 2008.
Highlights of Killam's Q2 Financial Results
- Increased total operating revenue by 17.7% to $23.8 million, from
$20.2 million in the second quarter of 2007.
- Generated net operating income ("NOI") of $14.5 million, a 16.3%
increase from $12.4 million generated during the second quarter
- Produced funds from operations ("FFO") of $5.7 million, a 17.1%
increase from $4.9 million gen erated during the second quarter of
- Generated FFO per share of $0.17, compared to $0.18 during the second
quarter of 2007, reflecting the spike in energy costs.
- Completed 25 manufactured home sales and home sale placements, for a
total of 39 home sales and home sale placements year-to-date; a
significant increase from the sale of 3 homes for the six months ended
June 30, 2007.
- Maintained a strong balance sheet, with gross debt (as a percentage of
the gross book value of assets) of 66.7%.
Financial Highlights (in thousands, except per share information)
For the three months ended, June 30, June 30, %
2008 2007 Change
Net Operating Income $14,462 $12,436 16.3%
Net Income Before Tax and
Depreciation $5,234 $4,345 20.5%
Net Loss ($980) ($644) (52.2%)
Funds from Operations (FFO) $5,718 $4,885 17.1%
Funds from Operations per Share $0.17 $0.18 (5.6%)
Shares Outstanding (weighted average) 33,496 27,610 21.3%
For the six months ended, June 30, June 30, %
2008 2007 Change
Net Operating Income $26,612 $22,600 17.8%
Net Income Before Tax and
Depreciation $8,314 $6,256 32.9%
Net Loss ($3,373) ($2,700) (24.9%)
Funds from Operations (FFO) $9,317 $7,491 24.4%
Funds from Operations per Share $0.28 $0.29 (3.4%)
Shares Outstanding (weighted average) 33,451 25,894 29.2%
FFO Per Share Impacted by Increased Heating Costs
Management considers FFO per share a key measure of operating performance.
FFO per share for the second quarter of 2008 was $0.17, a $0.01 decrease from
$0.18 generated during the second quarter of 2007. A key factor in the
decreased FFO per share was the increase in energy costs during the second
quarter of 2008. Killam is exposed to heating costs for approximately 70% of
its apartment units, which are heated either by oil (30%) or natural gas
(40%). Killam's heating oil and natural gas costs increased 63% and 35%,
respectively during the second quarter of 2008, compared to the second quarter
of 2007, and increased 50% and 23% for the first half of 2008 compared to the
first half of 2007.
The impact of higher heating costs was partially offset by new home sales,
which contributed positively to FFO in the second quarter with a total of 22
home sales and 3 home sale placements, increasing the total homes sold for the
first half of the year to 34 home sales and 5 home sale placements, compared
to 3 sales in the same period of 2007. The average margin on the 34 home sales
completed during the first half of the year was $19,900 compared to an average
of $14,000 in the first half of 2007.
MHCs Show Strong Same Store NOI Growth
Killam's MHC division generated same store NOI growth of 6.1% during the
second quarter, compared to the second quarter of 2007, as rental increases,
the expansion of existing MHCs and occupancy improvements drove revenue growth
of 5.0%. Operating expenses increased modestly at 2.6% for the same period.
The Company's apartment portfolio experienced a 1.9% decrease in same
store NOI, compared to the same period in 2007, as higher heating costs offset
the positive impact of a 3.5% improvement in revenue. Overall, Killam's same
store NOI decreased slightly, by 0.1%, for the second quarter of 2007.
Killam generated same store NOI growth of 0.4% for the six months ended
June 30, 2008, compared to the same period in 2007. The 3.3% improvement in
revenue was offset by the increased cost of heating oil and natural gas,
driving up operating costs by 7.2% for the period. A total of 13,961 units,
representing 79% of Killam's portfolio, are included in the Company's 2008
same store property results.
Management expects to realize improvements to the consolidated same store
NOI results during the second half of 2008 as it benefits from strong
occupancy and the decreased exposure to energy costs during the third quarter.
Killam has the ability to offset the increase in energy costs with higher
rents, however, there is a timing difference between passing the costs through
to tenants and the Company's exposure to the rapid increase in costs.
Vacancy Trending Downward
Killam's vacancy decreased during the second quarter compared to both the
first quarter of 2008 and the second quarter of 2007. The Company has
continued to realize improved vacancy rates subsequent to the end of the
second quarter, with an 80 basis point improvement in apartment vacancy in
July and positive trending continuing in August. Leasing activity is strong
across Killam's core markets in Atlantic Canada, with the most notable
improvements in Fredericton and Halifax.
Portfolio wide vacancy was 2.7% at June 30, 2008, a positive improvement
of 60 basis points from the preceding quarter, and down 70 basis points from
June 30, 2007. The apartment portfolio had a vacancy rate of 4.7% with an
average monthly rent of $718. The MHC portfolio had a vacancy rate of 0.8%
with an average monthly rent of $218. Forty-five vacant apartment units were
undergoing renovation and therefore unavailable for renting, compared to 86 at
December 31, 2007, and 143 at June 30, 2007. In addition, approximately 98 MHC
sites have not been previously rented, including recently expanded sites at
Birch Hill and Greenhill in Nova Scotia. These units are excluded in the table
below, which represents available units at June 30, 2008.
Units Vacancy Rent
---------- ---------- ----------
NOVA SCOTIA 4,074 4.8% $761
NEW BRUNSWICK 3,200 5.0% $687
NEWFOUNDLAND 732 3.1% $582
PRINCE EDWARD ISLAND 684 4.1% $746
TOTAL APARTMENTS PORTFOLIO 8,690 4.7% $718
TOTAL MHC PORTFOLIO 8,789 0.8% $218
Investment in Capital Improvements and Developments Have Decreased
The Company invested $3.7 million in capital during the second quarter,
compared to $4.2 million during the second quarter of 2007. Year-to-date
Killam has invested $5.8 million, a 33% decreased from the capital investment
made in the first half of 2007. The decrease is due to a reduction in suite
upgrades and general property improvements, and fewer development projects
during the quarter, reflecting the benefit of capital invested in recent
years. Included in the capital investment during 2008 is a $0.2 million
investment to convert three of the Company's largest assets in Halifax to
natural gas and $0.4 million for the expansion of new sites in four of the
Company's MHC properties.
Killam's Balance Sheet Remains Healthy
Killam continues to maintain a strong balance sheet with total gross debt
as a percentage of the gross book value of assets at 66.7%, including cash on
hand of $5.7 million. Killam has reduced its weighted average interest rate on
total debt to 5.6% at June 30, 2008, as compared to 5.7% at year-end 2007. The
Company has approximately $24 million of mortgages to refinance during the
balance of 2008. Management does not anticipate any difficulty in refinancing
this debt and has been able to obtain new mortgages on refinancing at
attractive rates in 2008, benefiting from decreased bond yields and CMHC
insured financing for the Company's apartments.
Acquisition Activity Increased During Q2
Killam resumed its acquisition activity during the second quarter with
the purchase of two properties in Ontario for $3.8 million; Domaine Le
Village, a 74-site MHC in Rockland Ontario, and Woodhaven Leisure Resort, a
126-site seasonal community in Forest, Ontario.
Subsequent to June 30, 2008 Killam has acquired two additional
properties; the previously announced $3.5 million purchase of Holiday Park, a
289-site seasonal community in Southampton, Ontario, and 37 Somerset Street, a
newly constructed 21-unit apartment building in Saint John, New Brunswick. The
three-storey building was built in 2007 and includes 16 one-bedroom units and
5 two-bedroom units, with an average monthly rent of $1,109 per unit. The
purchase price of $2.25 million ($107,000 per unit) was satisfied by cash.
Killam will acquire Blue Rock Estates, a new 60-unit, concrete
construction apartment building in Saint John, New Brunswick. The building was
built in 2007 and includes 30 one-bedroom units and 30 two-bedroom units with
existing average rents of $760 per unit. The purchase price of $5.6 million
($93,600 per unit) and is expected to close in the middle of August.
Acquisition Target Adjusted
Following the quarterly review of Killam's 2008 goals and objectives, as
set out in its 2007 Annual Report, Killam has reduced its acquisition target
for 2008 to $50 - $60 million from $75 - $100 million, based on the
acquisitions completed to date. The reduction in acquisition activity during
the first half of 2008 was in response to global liquidity concerns.
Management continues to actively explore opportunities for both apartments and
MHCs and plans to continue its strategy of growth through acquisitions.
Normal Course Issuer Bid
The Company remained active in its normal course issuer bid during the
second quarter of 2008, purchasing 40,300 common shares at an average price of
$8.01 per share for a total market value of $0.3 million. Year-to-date the
Company has purchased 108,900 shares at an average price of $7.95.
Management's Comments on the Quarter
"We are pleased with the positive occupancy improvements we have made
during the second quarter, and the continued strength of leasing in July and
into August", noted Philip Fraser, Killam's President and Chief Executive
Officer. "The investments we have made in our properties and in advertising
over the last year are driving this trend, as Killam is recognized as a high
quality landlord in the markets in which we operate."
"Increasing energy costs have been a challenge over the last number of
months. Our investment in natural gas conversions has helped to mitigate some
of the impact of the significant rise in the cost of heating oil, however, 30%
of our assets remain dependent on oil for heat. We are actively looking for
additional opportunities to decrease our exposure to energy prices in the
future. We look forward to implementing some of these interesting
opportunities during the next few quarters."
"We are looking forward to a strong second half of 2008 as we benefit
from our occupancy improvements and realize the full benefit of the
$125 million of acquisitions we completed in 2007. The FFO generated by these
assets are impacted by seasonality, including the impact of higher heating
costs in the winter months, the timing of revenue generated for the seasonal
parks acquired, and, in some instances, the impact of a short-term increase in
vacancy as Killam improves the quality of the tenant base following an
acquisition. The financial impact of the investments made during 2007 is
expected to be more accurately reflected in the financial results for the year
ended December 31, 2008."
Killam's board of directors has declared a dividend pursuant to Killam's
monthly dividend policy. The dividend of $0.046668 per common share will be
paid on September 15, 2008 to shareholders of record on August 29, 2008.
Killam's June 30, 2008 Financial Statements and Notes and Management's
Discussion and Analysis can be found at www.killamproperties.com
Killam Properties Inc, based in Halifax, Nova Scotia, is one of Canada's
largest residential landlords, owning and operating multi-family apartments
and manufactured home communities.
FFO is a generally accepted measure of operating performance of real
estate companies; however, it is a non-GAAP measurement and readers are
cautioned that Killam's calculation of FFO may be different than that used by
other companies. Killam calculates FFO as net income plus depreciation and
amortization, stock compensation, non-cash debenture interest and future
income tax expenses.
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.
For further information:
For further information: Dale Noseworthy, CA, CFA, Director, Investor
and External Relations, Killam Properties Inc., (902) 442-0388 Fax: (902)