Killam Properties Inc. reports second quarter 2012 results highlighting a 5.7% increase in FFO per share

HALIFAX, Aug. 8, 2012 /CNW/ - Killam Properties Inc. ("Killam" or the "Company") (TSX: KMP) today announced its financial results for the second quarter ended June 30, 2012.

Highlights from the Second Quarter of 2012

• Generated funds from operations ("FFO") of $0.185 per share, a 5.7% increase from $0.175 per share during the second quarter of 2011.
  
  
• Increased same store net operating income ("NOI") by 2.7%.
  
  
• Achieved same store rental growth of 1.7%.
  
  
• Entered the Ottawa and Toronto apartment markets with the acquisition of a 25% interest in two apartment buildings purchased for $76 million, with Killam's interest being $19 million.
  
  
• Crystalized the value of a portfolio of twelve manufactured home communities ("MHCs") in Western Canada and Ontario, generating net proceeds of $33.9 million.
  
  
• Recorded net unrealized fair value gains of $14.9 million on the Company's investment properties, contributing to net income attributable to common shareholders of $18.6 million, or $0.37 per share.

Highlights from the First Half of 2012

• Generated FFO of $0.336 per share, a 5.0% increase from $0.320 during the six months ended June 30, 2011.
  
  
• Increased same store NOI by 2.4%, in-line with Killam's same store NOI growth target of 2% to 4% in 2012.
  
  
• Completed $53.1 million in acquisitions, at a weighted average all-cash yield of 6.1%.
  
  
• Acquisitions in the first half of the year included two new properties, including one built in 2012, contributing to Killam's goal of increasing its investment in new properties.
  
  
• Continued progress on Killam's development projects, with all four developments expected to be ready for occupancy during the first quarter of 2013.

Financial Highlights (in thousands, except per share amounts)

For the three months ended,	June 30, 2012		June 30, 2011		Change
Property Revenue	$33,679		$30,735		9.6%
Net Operating Income	$20,518		$18,687		9.8%
Fair Value Gains	$14,930		$14,941		(0.1%)
Net Income Attributable to Common Shareholders	$18,558		$18,043		2.9%
Funds from Operations	$9,179		$7,896		16.2%
Funds from Operations per Share	$0.185		$0.175		5.7%
Shares Outstanding (weighted average)	49,623		45,097		10.0%
For the six months ended,	June 30, 2012		June 30, 2011		Change
Property Revenue	$66,388		$60,434		9.9%
Net Operating Income	$39,445		$35,750		10.3%
Fair Value Gains	$21,389		$27,976		(23.5%)
Net Income Attributable to Common Shareholders	$28,640		$33,610		(14.8%)
Funds from Operations	$16,641		$14,430		15.3%
Funds from Operations per Share	$0.336		$0.320		5.0%
Shares Outstanding (weighted average)	49,494		45,046		9.9%
	June 30, 2012		Dec 31, 2011		Change
Total Assets	$1,338,930		$1,329,531		0.7%
Total Liabilities	$806,483		$816,988		(1.3%)
Total Equity	$532,447		$512,543		3.9%
Debt as a % of Assets	54.0%		56.2%	↓	210 bps

 

5.7% Growth in FFO per Share in Q2 2012

FFO increased to $0.185 per share in the second quarter of 2012, up 5.7% from $0.175 in the second quarter of 2011. The growth in FFO per share is primarily attributable to contributions from acquisitions completed in 2011 and the first half of 2012, and increased earnings from Killam's same store properties. Improved earnings from the MHC home sale business and increased revenue from property management services also contributed positively to FFO growth in the quarter. These improvements were partially offset by higher interest costs associated with the increased convertible debentures outstanding and an increase in the number of shares outstanding following Killam's November 2011 equity raise.

Killam's generated FFO of $0.336 per share during the first half of the year, a 5.0% increase compared to $0.320 in the first half of 2011.

2.7% Same Store NOI Growth

Killam achieved same store NOI growth of 2.7% during the second quarter of 2012. The same store MHC portfolio generated 8.8% NOI growth and the same store apartment portfolio generated 1.4% NOI growth. Consolidated same store results for the second quarter and the six months ended June 30, 2012 are summarized below:

Consolidated Same Store (in thousands)
For the three months ended,			June 30, 2012		June 30, 2011		Change		% Change
Property Revenue			$28,081		$27,619		$462		1.7%
Property Expenses
	Operating Expenses		4,946		4,937		9		0.2%
	Utility and Fuel Expenses		3,058		3,208		(150)		(4.7%)
	Property Taxes		3,094		2,935		159		5.4%
Total Property Expenses			11,098		11,080		18		0.2%
NOI			$16,983		$16,539		$444		2.7%
For the six months ended,			June 30, 2012		June 30, 2011		Change		% Change
Property Revenue			$55,391		$54,547		$933		1.7%
Property Expenses
	Operating Expenses		9,408		9,273		135		1.5%
	Utility and Fuel Expenses		7,452		7,657		(205)		(2.7%)
	Property Taxes		6,113		5,854		259		4.4%
Total Property Expenses			22,973		22,784		189		0.8%
NOI			$32,418		$31,673		$744		2.4%

 

Property revenue increased by 1.7% quarter-over-quarter due to an average rental increase of 3.5% and 4.2% for the apartment and MHC portfolios, respectively, and increased activity at Killam's seasonal MHCs, partially offset by a decrease in occupancy. Total property expenses were virtually flat in the quarter as lower utility and repair and maintenance costs offset increased property taxes. Killam's utility costs have decreased due to natural gas conversions completed last fall and winter, lower natural gas prices and a warmer spring, thereby reducing heating requirements.

Consolidated Occupancy of 96.4 %

Killam's consolidated occupancy at June 30, 2012, was 96.4%, compared to 98.3% at June 30, 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 following table:

		June 30, 2012				June 30, 2011
		Units	Occupancy	Average Rent		Units	Occupancy	Average Rent
Apartments
Halifax, NS		4,821	95.6%	$871		4,325	97.8%	$825
Moncton, NB		1,426	94.4%	$789		1,293	97.2%	$743
Fredericton, NB		1,293	94.8%	$834		1,202	98.6%	$774
Saint John, NB		1,143	93.4%	$738		1,143	97.8%	$701
St. John's , NL		742	98.2%	$755		689	98.5%	$660
Charlottetown, PE		687	95.3%	$860		638	98.6%	$830
Ontario		834	97.5%	$1,459		362	96.1%	$1,495
Other Atlantic Locations		448	95.3%	$765		448	97.3%	$733
Total Apartment Portfolio		11,394	95.4%	$874		10,100	97.8%	$813
MHC Portfolio		7,397	98.3%	$221		9,290	98.8%	$232
Total Portfolio		18,791	96.4%			19,390	98.3%

 

Not included in the occupancy stats above are 274 apartment units (including two newly constructed properties acquired in 2011 and 2012 that are in their initial lease-up phase), 114 MHC sites that had not been previously rented or are unavailable for rent, and the 1,592 sites in the Company's seasonal resort portfolio.

Killam has experienced a decrease in occupancy during the last three quarters due primarily to: 1) a short-term over-supply of new apartments in Halifax and Moncton, 2) vacancies associated with buildings adjacent Killam's developments in Fredericton and Halifax, 3) vacancies associated with Killam's efforts to maximize rental revenue and offset rising operating costs, and 4) a decrease in demand for rental units in Saint John, New Brunswick.

Killam has noted an increase in demand for rental units subsequent to the second quarter, leading up to September, typically Killam's strongest month from an occupancy standpoint.

$14.9 Million in Fair Value Adjustments During the Second Quarter

Management uses the fair value approach to account for Killam's investment properties. The value of Killam's investment properties increased by $14.9 million during the second quarter, in-line with the fair value adjustment during the second quarter of 2011. The increase in value reflects compressed capitalization rates, down 8 basis points for the apartment portfolio.

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 its 5 non-core MHCs in Western Canada and 7 properties in Ontario, and to generate net proceeds of $33.9 million.

$19 Million of Acquisitions Completed During the Second Quarter

Killam completed two acquisitions during the second quarter, both through the Company's partnership agreement with Kuwait Finance House. Killam acquired a 25% interest in the 146-unit Kanata Lakes Apartments in Ottawa in May. The purchase price for the building was $42.5 million, with Killam's investment being $10.6 million. Killam also acquired a 25% interest in the 199-unit Silver Spear Apartments in Mississauga, marking Killam's first acquisition in the Toronto market. The purchase price for Silver Spear was $33.5 million, with Killam's investment being $8.4 million.

During the first half of the year, Killam competed $53.1 million in acquisitions, at a weighted average all cash yield of 6.1%.

Subsequent to the end of the second quarter, the Company acquired a 4.9 acre development site in St. John's, Newfoundland for $3.2 million in cash. The site is zoned for two six-storey buildings containing 176 units and two four-storey buildings containing 108 units.

Stable Balance Sheet

Killam continues to maintain a stable and conservative balance sheet. 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 54.0% as at June 30, 2012, down from 56.2% on March 31, 2012. The reduction primarily reflects the increase in the value of the Company's investment properties.

Killam successfully refinanced maturing debt during the quarter at attractive interest rates. The average term to maturity of Killam's mortgage debt is 3.5 years and Killam's annualized interest coverage ratio was 1.98 as at June 30, 2012.

Developments on Target for Completion in Early 2013

Killam has invested $21.5 million to date on the construction of four apartment developments underway, representing 34.7% of the total expected cost of $61.9 million. All four projects, totalling 282 units, are expected to be ready for occupancy early in 2013. The Company has used cash on hand to fund the construction costs to date, and anticipates funding the majority of the remaining costs from  construction financing, beginning in the third quarter. The developments are expected to start contributing positively to FFO during the second half of 2013.

Management's Comments  

"We are pleased to report a 5.7% increase in FFO per share during the second quarter," noted Philip Fraser, Killam's President & CEO. "Our same store properties performed well during the quarter, generating NOI growth of 2.7%. Despite some pressure on occupancy over the last few quarters, apartment revenues have improved due to increased rental rates. We expect to see the revenue growth continue to improve during the second half of the year with occupancy gains during Q3, our busiest lease-up period."

"We are pleased to see the positive financial results of having invested in natural gas conversions in Halifax during the last year, allowing us to benefit from the low cost of gas, and reducing our exposure to oil, the price of which was higher this quarter compared to the second quarter of 2011."

"We have successfully entered both the Toronto and Ottawa apartment markets this year, in addition to expanding our Halifax portfolio with two well positioned assets. The acquisition market continues to be competitive with limited properties available for sale, and many buyers.  We are maintaining our acquisition target of $100 million for the year, but our ability to achieve that target will depend on opportunities. We are confident that our focus on development, as a complement to our acquisition program, will allow Killam to expand its portfolio of quality apartments, even in this competitive environment."

Financial Statements

Killam's June 30, 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.

Q2 Conference Call

Management will host a conference call to discuss these results on Thursday, August 9, 2012, at 12:00 PM 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 98175194 until August 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.

 

 

SOURCE: KILLAM PROPERTIES INC.

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