Killam Apartment REIT reported record Q1-2016 results, including diluted funds from operations per unit of $0.18, up from $0.15 in Q1-2015.
“Our record Q1 results set Killam up for a strong 2016,” noted Philip Fraser, President and CEO. “Our same property portfolio performed exceptionally well, achieving an 8 per cent increase in net operating income, benefiting from top-line growth and lower energy and utility costs. Our acquisitions and developments completed in 2015 and interest expense savings on refinancings also contributed to the 20 per cent increase in FFO per unit.”
Killam generated FFO per unit growth of 20 per cent quarter-over-quarter, earning $0.18 in Q1-2016 compared to $0.15 in Q1-2015. The earnings growth was attributable to strong same property net operating income, contributions from developments and acquisitions completed in 2015 and interest expense savings from refinancings.
Higher rents; improved occupancy levels
Killam continues to generate top-line growth, achieving same property revenue growth of 1.5 per cent in Q1. Increased rents and higher occupancy levels both contributed to improved revenues. Importantly, same property revenues were up 3.2 per cent in Halifax in Q1, the highest revenue growth in Killam’s core markets.
Warmer temperatures; lower gas costs
Killam’s same property expenses decreased 5.6 per cent in Q1-2016, contributing to the 8.0 per cent increase in same property NOI compared to Q1-2015. Lower natural gas, oil and electricity costs led the reduction in expenses with a 12.9 per cent decrease in same property utility and fuel expense. The savings were attributable to warmer weather, lower natural gas costs in New Brunswick and Ontario, lower oil prices and energy efficiency initiatives. A decrease in operating expenses and relatively flat property tax expenses also contributed to the strong NOI growth in the quarter.
Killam 2015 developments and acquisitions
Killam completed $54 million in acquisitions in 2015 and $38 million of condo-quality apartment developments. These properties contributed an additional $0.8 million in FFO in Q1-2016 compared to Q1-2015.
Lower interest rates contribute to earnings growth
Killam benefited from lower interest rates on mortgages refinanced in 2015 and Q1-2016, resulting in a $0.4 million reduction in same property interest expense in the quarter. During Q1-2016, Killam successfully refinanced $13.9 million of maturing apartment mortgages with $28.4 million of new debt at a weighted average interest rate of 2.51 per cent, 208 bps lower than the weighted average interest rate prior to refinancing. Killam’s weighted average mortgage interest rate decreased to 3.23 per cent at March 31, 2016, from 3.27 per cent at December 31, 2015.
New acquisitions in Halifax and Ottawa
Killam is pleased to announce two acquisitions totalling $54.6 million scheduled to close during the second quarter of 2016. Killam has agreed to acquire the remaining 51 per cent interest in Garden Park Apartments in Halifax for $23.7 million, which will result in Killam owning 100 per cent of this well-located property. Killam has been acquiring partial ownership interests in the 246-unit building since its first investment in the property in 2005 and has been acting as the property manager for the building since 2011. The Garden Park acquisition will be fully-funded through a new mortgage on the property; the property is currently free and clear of mortgage debt. The acquisition is expected to close in June 2016.
Killam is also scheduled to acquire a 50 per cent interest in Kanata Lakes Apartments III, located at 1047 Canadian Shields Avenue in Ottawa. The 173-unit apartment building was completed in late 2014 and is the third of a five-building complex with a shared clubhouse. Killam already has a 50 per cent interest in both Kanata Lakes Apartments I and II. The acquisition cost of $30.8 million for Killam’s 50 per cent interest will be funded through a new 10-year CMHC-insured mortgage and cash. The acquisition is expected to close in May 2016. Killam and its 50/50 partner have the two remaining buildings in the Kanata Lakes apartment development under contract, with closings scheduled for Q1-2017.
Mr. Fraser commented on the acquisitions, saying, “These two acquisitions enable us to expand our portfolio with two exceptional assets with which we are already familiar. Acquiring the remaining 51 per cent interest in Garden Park Apartments gives Killam full control over one of the best located apartment properties in Halifax. Also, the purchase of the 50 per cent interest in Kanata Lakes III builds on our already established interest in this unique condo-quality apartment development and increases our investment in the Ottawa market.”
Killam Apartment REIT, based in Halifax, Nova Scotia, is one of Canada’s largest residential landlords, owning, operating and developing multi‐family apartments and manufactured home communities. Killam’s current portfolio includes $1.8 billion in real estate assets. Killam’s strategy to maximize its value and long‐term profitability includes concentrating on three key areas of growth: 1) increasing the earnings from its existing portfolio, 2) expanding its portfolio and diversifying geographically through accretive acquisitions, with an emphasis on newer properties, and 3) developing high‐quality properties in its core markets.