HALIFAX, March 5, 2013 /CNW/ - Killam Properties Inc. ("Killam" or the "Company") (TSX: KMP) today announced its financial results for the fourth quarter and fiscal year ended December 31, 2012.
Highlights from the Fourth Quarter of 2012
- Generated funds from operations ("FFO") per share of $0.17, a 6.3% increase from $0.16 earned during the fourth quarter of 2011.
- Achieved same store rental revenue growth of 1.9%.
- Increased same store net operating income ("NOI") by 1.8%.
- Recorded net unrealized fair value gains of $10.1 million on the Company's investment properties, contributing to net income attributable to common shareholders of $10.4 million, or $0.20 per share.
- Raised gross proceeds of $34.5 million from a public offering of common shares for future acquisitions and developments, debt retirement, and general corporate purposes.
- Strengthened the balance sheet, ending the year with cash-on-hand of $56.7 million and debt as a percentage of total assets of 51.6%.
Highlights from 2012
- Generated FFO per share of $0.72, a 2.9% increase from $0.70 earned during 2011.
- Achieved same store rental revenue growth of 1.9%.
- Increased same store NOI by 2.0%.
- Benefitted from the low-interest rate environment by securing an attractive weighted average interest rate of 3.33% on mortgage refinancings, 184 basis points lower than the previous weighted average rate of 5.17%.
- Invested approximately $40 million in four apartment development projects, all expected to be ready for occupancy by May 2013.
- Completed $85 million in acquisitions and equity investments, including Killam's first acquisitions in Ottawa and the Greater Toronto Area ("GTA"), and the purchase of three parcels of land (in St. John's and Halifax) for future development.
- Crystalized the value of a portfolio of twelve non-core manufactured home communities ("MHCs") in Western Canada and Ontario, generating net proceeds of $33.9 million.
- Including fair value gains of $37.7 million, earned net income attributable to common shareholders of $51.7 million, or $1.03 per share, compared to fair value gains of $52.1 million, and net income attributable to common shareholders of $66.0 million, or $1.45 per share, during 2011.
|Financial Highlights (in thousands, except per share amounts)|
|For the three months ended,||Dec 31, 2012||Dec 31, 2011||Change|
|Net Operating Income||$19,559||$19,288||1.4%|
|Fair Value Gains||$10,057||$8,918||12.8%|
|Net Income Attributable to Common Shareholders||$10,425||$12,804||(18.6%)|
|Funds from Operations||$8,732||$7,549||15.7%|
|Funds from Operations per Share||$0.17||$0.16||6.3%|
|Shares Outstanding (weighted average)||51,528||46,728||10.3%|
|For the years ended,||Dec 31, 2012||Dec 31, 2011||Change|
|Net Operating Income||$80,444||$76,352||5.4%|
|Fair Value Gains||$37,726||$52,070||(27.5%)|
|Net Income Attributable to Common Shareholders||$51,727||$65,965||(21.6%)|
|Funds from Operations||$36,096||$31,757||13.7%|
|Funds from Operations per Share||$0.72||$0.70||2.9%|
|Shares Outstanding (weighted average)||50,227||45,523||10.3%|
|As at||Dec 31, 2012||Dec 31, 2011||Change|
|Total Debt to Total Assets||51.6%||55.2%||(360 bps)|
6.3% Increase in FFO per Share in Q4
Killam generated FFO of $0.17 per share during the fourth quarter, up 6.3% from $0.16 earned during the fourth quarter of 2011. The increase was primarily attributable to acquisitions, contributions from same store properties and a quarter-over-quarter increase in corporate income. Partially offsetting these gains was the reduction in NOI from the MHC disposition in May 2012, a 10% increase in the weighted average shares outstanding and higher administrative costs. Killam's investment in development projects and land for future development had a short-term dilutive effect, impacting Killam's FFO per share growth in the fourth quarter, and throughout 2012.
2.9% Increase in FFO per Share in 2012
FFO per share increased to $0.72 per share, compared to $0.70 in 2011. The growth was primarily attributable to increased earnings from Killam's existing portfolio and contributions from acquisitions. These gains were partially offset by the decrease in NOI resulting from the MHC disposition in May 2012, increased shares outstanding, and an increase in administrative costs.
2.0% Same Store NOI Growth in 2012
Killam achieved consolidated same store NOI growth of 1.8% in the fourth quarter, and 2.0% for the year. Annual NOI growth was realized in both the apartment and MHC portfolios, with growth rates of 1.5% and 4.7%, respectively. Consolidated same store results for the fourth quarter and for 2012 are summarized below:
|Consolidated Same Store NOI (in thousands)|
|For the three months ended,||Dec 31, 2012||Dec 31, 2011||Change||% Change|
|Utility and Fuel Expenses||3,685||3,478||207||6.0%|
|Total Property Expenses||11,693||11,456||237||2.1%|
|Consolidated Same Store NOI (in thousands)|
|For the years ended,||Dec 31, 2012||Dec 31, 2011||Change||% Change|
|Utility and Fuel Expenses||13,734||13,705||29||0.2%|
|Total Property Expenses||45,366||44,644||722||1.6%|
Same store property NOI increased 2.0% year-over-year, in line with the lower end of Killam's 2012 NOI growth target of 2% to 4%. Revenue growth was achieved due to rental increases, up 3.6% during the year, which were partially offset by a decrease in occupancy levels. Total property operating expenses increased a moderate 1.6%. Flat utility and fuel expenses, reflecting the benefit of natural gas conversions, offset a 3.0% increase in property taxes. Other operating expenses, including salaries, maintenance and property administrative costs, experienced a moderate increase of 1.8% during the year.
Year-end Occupancy of 96.6%
Killam's consolidated occupancy was 96.6% in December 2012, compared to 97.6% in December 2011. The occupancy and average rents by core market for apartments, and for MHCs, are shown in the following table:
|Dec 31, 2012||Dec 31, 2011|
|Saint John, NB||1,143||93.6%||$747||1,143||97.0%||$725|
|St. John's , NL||742||97.8%||$776||742||98.7%||$726|
|Other Atlantic Locations||431||96.1%||$776||448||94.9%||$752|
|Total Atlantic Canada||10,542||96.1%||$843||10,149||97.1%||$811|
|Total Apartment Portfolio||11,620||95.9%||$888||10,638||97.0%||$843|
| Not included in the occupancy statistics are 112 MHC sites that had not been previously rented or are unavailable for rent, and
1,592 sites in the Company's seasonal resort portfolio.
Killam's apartment portfolio experienced a decline in occupancy in 2012, down 110 basis points year-over-year, ending 2012 with 95.9% occupancy. The decrease in apartment occupancy reflects increased rental supply in certain markets in Atlantic Canada, specifically in Halifax, Moncton and Charlottetown, and softness in the Saint John economy. Killam is addressing market pressures with new leasing initiatives, where necessary, increased incentives and capital improvements, and a continued focus on best-in-class service. Offsetting increased competition in the above noted markets is continued strong demand for apartments in St. John's, a stable market in Fredericton, plus an aging population with an increased tendency to rent. Killam measures its performance against Canadian Mortgage and Housing Corporation's ("CMHC") vacancy statistics, and outperformed the market in each of its core cities in Atlantic Canada when measured against CMHC's Fall 2012 Market Rental Report.
Killam's occupancy was down in Ontario year-over-year due to turnover in a portfolio of properties in Ottawa acquired in September 2012 and a short-term spike in vacancy in Cambridge. Killam's Richmond Hill Apartments in London and 1355 Silver Spear in Mississauga were 98.8% occupied in December 2012, and the lease-up at Kanata Lakes and 180 Mill Street, the newly developed properties in both Ottawa and London, respectively, has been strong.
Acquisitions Contributed to Ontario Expansion
Killam completed $85 million in acquisitions in 2012, which included the Company's first properties in the GTA and Ottawa. Both markets have been identified by Management as future growth markets for the Company. Acquisitions in 2012 were completed at an average capitalization rate of 5.8%. Killam also purchased three parcels of land for future development.
Disposition of 12 MHCs
On May 31, 2012, Killam sold a portfolio of 12 MHCs. The sale allowed Killam to crystalize the increased value of 5 non-core MHCs in Western Canada and 7 properties in Ontario, and to generate net proceeds of $33.9 million.
FFO per Share Growth from Developments Expected in 2013
As noted earlier, Killam's investment in development projects impacted FFO per share growth in 2012. Approximately $47 million of cash was invested to fund four developments, and to acquire land for future developments, in the year. The dilutive impact of these investments is short-term as the four developments are expected to contribute positive returns in the second half of 2013. Development is a strategic opportunity for growth in the current competitive acquisition environment, with development projects expected to produce year-one all cash yields of between 5% and 6%, and an expectation of little to no capital expenditures for the next ten to fifteen years. Brighton House in Charlottetown opened in February 2013, and Management expects the remaining developments to be ready for occupancy by April and May 2013. Lease-up is expected to take four to nine months.
$37.7 Million in Fair Value Gains During 2012
Killam recorded $37.7 million in fair value gains in 2012, including a gain of $10.1 million during the fourth quarter, as compressed capitalization rates and growing NOI increased the fair values of the Company's apartment and MHC portfolios. The continued low interest rate environment and the stability of the real estate sector in Canada have resulted in higher valuations for real estate assets. The gain in real estate valuations does not impact FFO per share, Killam's key measure of performance.
Debt Equal to 51.6% of Total Assets
Killam strengthened its balance sheet in 2012, decreasing total debt to total assets to 51.6% at December 31, 2012, down from 55.2% at December 31, 2011. The reduction reflects higher property values and an increase in cash-on-hand. Killam continues to have access to mortgage debt at low interest rates and in 2012 successfully refinanced $31.8 million of maturing mortgages at a weighted average interest rate of 3.33%, 184 basis points lower than the previous rate of 5.17%. In addition, Killam was able to generate $10.9 million in net proceeds on the refinanced mortgages.
"We're pleased to report our results for 2012", noted Philip Fraser, Killam's President and CEO. "We made progress in each of our core areas of growth: increasing earning from our properties, acquisitions and developments. In addition, we ended the year with a stronger balance sheet and a cash balance to support our acquisition and development programs."
"Growing NOI for our same store assets was challenging this year due to occupancy pressures in certain markets, however, our operations team was able to grow revenue and manage costs to achieve our NOI growth target of between 2% and 4% in the year. Killam has a history of generating NOI growth, and we're targeting 2% to 4% growth again in 2013."
"The acquisition environment was also challenging this past year as the low interest rate environment and strong demand for yield continued to push capitalization rates lower. Although we weren't able to purchase all the buildings we would have liked, due to the competitive market, we are pleased with the additions we have made to our portfolio, and the capitalization rates at which we were able to transact. We acquired two prime properties in Halifax which we believe will outperform the market over the long-term. Ottawa is a market that we've been looking to expand into for the last five years and we are pleased to have purchased five properties in that market in 2012. Subsequent to year-end, we've added a sixth property, increasing our presence in Ottawa. Finally, we completed our first acquisition in the GTA."
"Our third area of growth is development, which was a core focus in 2012. Development is a strategic opportunity for growth in the current competitive acquisition environment. We expect our development projects to produce year one all cash yields of between 5% and 6% with little to no capital expenditures for the next ten to fifteen years. Our four development projects are expected to contribute to FFO per share growth in 2013. We look forward to providing operating updates on our new properties throughout 2013."
Killam's 2012 Financial Statements and Notes, and Management's Discussion and Analysis can be found under Financial Reports in the Investor Relations section of Killam's website at www.killamproperties.com/investor-relations.
Results Conference Call
Management will host a conference call to discuss these results on Wednesday, March 6, 2013, 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.
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
Phone: (902) 442-0388