Killam Properties Inc. reports first quarter 2012 results highlighting a 4.1% increase in FFO per share and its first apartment acquisition in Ottawa

HALIFAX, May 8, 2012 /CNW/ - Killam Properties Inc. ("Killam" or the "Company") (TSX: KMP) today announced its financial results for the first quarter ended March 31, 2012.

First Quarter Highlights

• Generated funds from operations ("FFO") of $0.151 per share, a 4.1% increase from $0.145 per share during the first quarter of 2011.
  
  
• Increased same store net operating income ("NOI") by 2.2%.
  
  
• Achieved same store rental revenue growth of 1.9%.
  
  
• Completed $34.1 million in acquisitions at an average cap rate of 6.2%.
  
  
• Recorded net unrealized fair value gains of $6.5 million on the Company's investment properties, compared to a $13.0 million gain during the first quarter of 2011.
  
  
• Debt levels remain conservative, with an interest coverage ratio of 1.98 times, consistent with the December 31, 2011 ratio, and gross debt as a percentage of total assets of 56.2%.
  
  
• Subsequent to the end of the first quarter, Killam agreed to acquire a 25% interest in a new 146-unit apartment building in Ottawa, marking the Company's first multi-family residential investment in the city. The acquisition will be Killam's second purchase through its partnership with Kuwait Finance House.

Financial Highlights (in thousands, except per share amounts)

For the three months ended,		Mar 31, 2012		Mar 31, 2011		Change
Property Revenue		$32,631		$29,598		10.2%
Net Operating Income		$19,216		$17,046		12.7%
Fair Value Gains		$6,460		$13,035		(50.4%)
Net Income Attributable to Common Shareholders		$10,082		$15,567		(35.2%)
Funds from Operations		$7,463		$6,528		14.3%
Funds from Operations per Share		$0.151		$0.145		4.1%
Shares Outstanding (weighted average)		49,364		44,995		9.7%
As at		Mar 31, 2012		Dec 31, 2011		Change
Total Assets		$1,359,982		$1,329,531		2.3%
Total Liabilities		$841,666		$816,988		3.0%
Total Equity		$518,316		$512,543		1.1%
Debt as a % of Assets		56.2%		56.2%		-

4.1% Growth in FFO per Share in Q1 2012

FFO increased to $0.151 per share in the first quarter of 2012, up 4.1% from $0.145 in the first quarter of 2011. The growth in FFO per share is attributable to contributions from acquisitions completed in 2011 and increased earnings attributable to same store properties, partially offset by higher interest costs associated with the increased convertible debentures outstanding and an increase in the number of shares outstanding. Killam raised a combined $86.2 million through convertible debenture and equity offerings during 2011, however not all of the funds had been deployed, resulting in a dilutive impact on FFO per share during the first quarter of 2012.

2.2% Same Store NOI Growth

Killam achieved same store NOI growth of 2.2% during the first quarter of 2012. The same store manufactured home community ("MHC") portfolio generated 4.7% NOI growth and the same store apartment portfolio generated 1.5% NOI growth. Consolidated same store results for the quarter are summarized below:

Consolidated Same Store  (in thousands)

For the three months ended,			Mar 31, 2012		Mar 31, 2011		Change		% Change
Property Revenue			$29,112		$28,559		$553		1.9%
Property Expenses
	Operating Expenses		4,694		4,569		125		2.7%
	Utility and Fuel Expenses		4,580		4,627		(47)		(1.0%)
	Property Taxes		3,077		2,966		111		3.7%
Total Operating Expenses			12,351		12,162		189		1.6%
NOI			$16,761		$16,397		$364		2.2%

Property revenue increased by 1.9% quarter-over-quarter due to an average rental increase of 3.2% in the apartment portfolio and 3.0% in the MHC portfolio, partially offset by a decrease in occupancy. Total property expenses increased by 1.6% in the quarter, as lower utility costs offset a modest increase in operating expenses and property taxes.

Killam has maintained its 2012 same store NOI growth target of 2% to 4%.

Consolidated Occupancy of 97.1%

Killam's consolidated occupancy at March 31, 2012, was 97.1%, compared to 98.2% at March 31, 2011 and 97.6% at December 31, 2011. The occupancy and average rents by core market for apartments, and for MHCs are shown in the chart below:

		March 31, 2012						March 31, 2011
						Average						Average
		Units		Occupancy		Rent		Units		Occupancy		Rent
Apartments
Halifax, NS		4,691		96.6%		$865		4,325		97.8%		$825
Moncton, NB		1,426		93.3%		$783		1,138		96.5%		$743
Fredericton, NB		1,293		95.8%		$825		983		97.2%		$774
Saint John, NB		1,143		96.1%		$726		1,143		98.2%		$701
St. John's , NL		742		97.8%		$719		689		98.1%		$660
Charlottetown, PE		687		97.4%		$854		638		98.3%		$830
Other Atlantic Locations		448		93.8%		$760		448		97.1%		$733
Ontario		394		94.4%		$1,496		362		95.0%		$1,495
Total Apartment Portfolio		10,824		96.0%		$841		9,726		97.7%		$806
MHC Portfolio		9,441		98.5%		$240		9,290		98.8%		$232
Total Portfolio		20,265		97.1%				19,016		98.2%

Not included in the occupancy stats above are 182 apartment units (including three newly constructed properties acquired in 2011 that are in their initial lease-up phase), 150 MHC sites that had not been previously rented or are off-line, and the 1,592 sites in the Company's seasonal resort portfolio.

Killam has experienced a decrease in occupancy during the last two quarters due to: 1) a short-term over-supply of new apartments in Halifax and Moncton leading to a drop in occupancy overall in the markets, 2) vacancies associated with buildings adjacent Killam's developments in Fredericton and Halifax, and 3) vacancies associated with Killam's efforts to maximize rental revenue and offset rising operating costs.

$6.5 Million in Fair Value Adjustments

Management uses the fair value approach to account for Killam's investment properties and investment properties under construction under IFRS. Killam's investment properties and investment properties under construction were valued at $1.31 billion at March 31, 2012, up $49.4 million over the fair value of $1.26 billion at December 31, 2011. This increased value is attributable to acquisitions, developments and fair value gains. The fair value adjustment during the first quarter of 2012 was $6.5 million, compared to $13.0 million during the first quarter of 2011.

Acquisition Activity During 2012

Killam completed $34.1 million in acquisitions during the first quarter of 2012 with the purchases of Chapter House and Brentwood Apartments in Halifax.

Killam has agreed to acquire a 25% ownership interest in the Kanata Lakes Apartments, a new 146-unit apartment building located in Ottawa, Ontario. The property, targeted to close on May 15, 2012, will be purchased through Killam's partnership with Kuwait Finance House. This will be Killam's second purchase made through the partnership, and its first apartment acquisition in the Ottawa market.

The purchase price for Kanata Lakes Apartments is $42.5 million ($291,100 per suite), with Killam's 25% ownership interest being $10.6 million. The purchase will be satisfied with cash; mortgage debt is expected to be placed on the property during 2012. The capitalization rate (based on 98% occupancy) is approximately 5.2%. Killam's expected all-cash yield, including management fees associated with the management of the building under the partnership agreement, is expected to be approximately 6.0%.

Construction of the ten-storey, concrete apartment building with two levels of underground parking, was completed in March 2012. The building is located in Kanata, next to shopping, restaurants and entertainment venues. Still in its initial lease-up stage, the building is currently 55% occupied. The purchase agreement includes a revenue guarantee of 90% occupancy for the next twelve months.

The building's total square footage is approximately 205,000 square feet and contains 86 one-bedroom units, 39 one-bedroom units with a den, and 21 two-bedroom units. The average rent is $1,670 per month and the average unit size is 935 square feet.  The units have condo-quality features, including stainless steel kitchen appliances, granite countertops and in-suite laundry.

Conservative Balance Sheet Maintained

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 56.2% as at March 31, 2012. 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 1.98 as at March 31, 2012.

Management's Comments  

"We are pleased to announce our upcoming acquisition in the Ottawa region, a market that we have been actively looking at over the last three years" noted Philip Fraser, Killam's President and CEO. "The acquisition of the Kanata Lakes Apartments fits with our strategy of focusing on high-quality new construction, which we believe will meet the demands of renters in the long-term and will not face deferred capital issues, resulting in a more predicable cash flow for many years ahead. The property marks our second acquisition with our partners Kuwait Finance House, a partnership that has allowed us to expand our investment in Ontario with large new properties, and with property management responsibilities by Killam allowing for augmented returns."

"Killam's same store properties generated 2.2% NOI growth in the quarter, partially attributable to our increased investment in natural gas, which reduced our reliance on oil in the quarter, the price of which increased by 15% quarter-over-quarter."

"Our four development projects are progressing on schedule. We are actively marketing the buildings and are generating strong rental interest, which should support a relatively fast lease-up period once the four projects are completed in early 2013."

Financial Statements

Killam's March 31, 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.

Q1 Conference Call

Management will host a conference call to discuss these results on Wednesday, May 9, 2012, at 10:00 AM Atlantic time (9:00 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 71559958 until May 16, 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.

 

Killam Properties Inc.
Dale Noseworthy, CA, CFA
Vice President, Investor Relations and Corporate Planning
[email protected]
Phone: [phone]