KILLAM APARTMENT REIT ANNOUNCES STRONG Q4-2023 AND 2023 OPERATING PERFORMANCE AND FINANCIAL RESULTS
"Killam achieved total NOI growth of 8.3% for the year, driven by strong market fundamentals in our core markets and solid operating performance across all business segments. Same property NOI was up 7.8% in 2023, including NOI growth of 7.6% from the apartment portfolio, 3.5% NOI growth from the MHC portfolio and 15.8% from the commercial portfolio," noted
"The successful execution of our capital recycling program in 2023 increased capital flexibility and strengthened our balance sheet. The net proceeds from
"We added 415 new units to the portfolio in 2023 through our development program, including Civic 66, a 169-unit property in
Q4 Financial & Operating Highlights
- Reported net operating income (NOI) of
$56.5 million , compared to$53.2 million in Q4-2022. - Achieved a 5.4% increase in same property revenue and an 8.8% increase in same property NOI in Q4-2023, compared to Q4-2022.1
- Achieved 98.5% same property apartment occupancy in the quarter.
- Earned funds from operations (FFO) per unit (diluted) of
$0.28 , a 3.7% increase from Q4-2022, and adjusted funds from operations (AFFO) per unit (diluted) of$0.23 , consistent with Q4-2022.2
__________________________ |
1 Same property revenue, same property net operating income, same property average rent, and same property apartment occupancy are supplementary financial measures. An explanation of the composition of these measures can be found under "Supplementary Financial Measures." Occupancy represents actual residential rental revenue, net of vacancy, as a percentage of gross potential residential rent. |
2 FFO and AFFO are not defined by International Financial Reporting Standards (IFRS) and do not have a standardized meaning according to IFRS and, therefore, may not be comparable to similar measures presented by other companies. For information regarding non-IFRS measures, including reconciliations to the most comparable IFRS measure, see "Non-IFRS Measures." |
2023 Financial & Operating Highlights
- Reported net income of
$266.3 million , compared to$122.5 million in 2022. The year-over-year increase is due to$174.2 million in fair value gains on investment properties in 2023, compared to a fair value loss of$19.9 million in 2022, contributions from developments and same property NOI growth in 2023. - Generated NOI of
$224.0 million , an 8.3% increase from$206.9 million in 2022. - Increased FFO per unit by 3.6% to
$1.15 , compared to$1.11 in 2022, and increased AFFO per unit by 4.3% to$0.97 , compared to$0.93 in 2022. - Generated same property NOI growth of 7.8% during 2023.
- Achieved a 5.5% increase in same property revenue in 2023, the result of a 5.1% increase in the same property average rental rate(2) and a 30 basis points (bps) increase in same property apartment occupancy.
- Maintained a conservative and flexible balance sheet, ending the year with debt as a percentage of assets of 42.9%.
|
Three months ended |
Twelve months ended |
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(000's) |
2023 |
2022 |
Change |
2023 |
2022 |
Change |
Property revenue |
|
|
2.7 % |
|
|
5.9 % |
Net operating income (NOI) |
|
|
6.2 % |
|
|
8.3 % |
Net (loss) income |
( |
( |
N/A |
|
|
N/A |
FFO (1) |
|
|
4.0 % |
|
|
5.4 % |
FFO per unit (diluted) (1) |
|
|
3.7 % |
|
|
3.6 % |
AFFO per unit (diluted) (1) |
|
|
— % |
|
|
4.3 % |
AFFO payout ratio (diluted) (1) |
75 % |
77 % |
(200) bps |
72 % |
75 % |
(300) bps |
Same property apartment occupancy (2) |
98.5 % |
98.6 % |
(10) bps |
98.5 % |
98.2 % |
30 bps |
Same property revenue growth (2) |
5.4 % |
|
|
5.5 % |
|
|
Same property NOI (2) |
8.8 % |
|
|
7.8 % |
|
|
(1) FFO and AFFO are defined in "Non-IFRS Measures." A reconciliation between net income and FFO and a reconciliation from FFO to AFFO are included below. |
||||||
(2) Same property revenue, same property net operating income, same property average rent, and same property apartment occupancy are supplementary financial measures. An explanation of the composition of these measures can be found under "Supplementary Financial Measures." Occupancy represents actual residential rental revenue, net of vacancy, as a percentage of gross potential residential rent. |
Debt Metrics As At |
|
|
Change |
Debt to total assets |
42.9 % |
45.3 % |
(240) bps |
Weighted average mortgage interest rate |
3.22 % |
2.74 % |
48 bps |
Weighted average years to debt maturity |
3.9 |
3.8 |
0.1 years |
Interest coverage ratio (3) |
3.10x |
3.31x |
(6.3) % |
(3) Interest coverage is defined in "Supplementary Financial Measures." An explanation of the composition of these measures can also be found under "Supplementary Financial Measures." |
Summary of 2023 Results and Operations
Strengthened Balance Sheet
During 2023, Killam decreased its debt as a percentage of total assets by 240 bps, down from 45.3% at
Generated Net Income of
Killam earned net income of
Delivered FFO per Unit Growth of 3.6% and AFFO per Unit Growth of 4.3%
Killam's FFO per unit was
Achieved Same Property NOI Growth of 7.8%
Killam achieved a 7.8% increase in same property NOI during the year, with a 7.6% increase from the apartment portfolio, a 15.8% increase from the commercial portfolio and a 3.5% increase from the MHC portfolio. Same property revenue growth of 5.5% was driven by higher rental rates across all three business segments, coupled with a 30 bps increase in same property apartment occupancy and reductions in rental incentives.
Total same property operating expenses increased by 1.6%, well below the average rate of inflation of 3.9% in
Completed
During 2023, Killam completed a total of 14 property dispositions for gross proceeds of
Higher Interest Rates on Refinancings
The maturity dates of Killam's mortgages are staggered to help mitigate interest rate risk. During 2023, Killam refinanced
Progress on ESG Initiatives
Killam continues to reduce its environmental impact and ensure its buildings are sustainable and resilient to climate change. In 2023, Killam invested
Killam's Annual Consolidated Financial Statements, including the notes thereto, and its Annual Management's Discussion and Analysis (the "MD&A") for the year ended
Management will host a webcast and conference call to discuss these results and current business initiatives on
The dial-in numbers for the conference call are as follows:
Overseas or local (
Management believes the following non-IFRS financial measures, ratios and supplementary information are relevant measures of the ability of Killam to earn revenue and to evaluate Killam's financial performance. Non-IFRS measures should not be construed as alternatives to net income or cash flow from operating activities determined in accordance with IFRS, or as indicators of Killam's performance or the sustainability of Killam's distributions. These measures do not have standardized meanings under IFRS and, therefore, may not be comparable to similarly titled measures presented by other publicly traded organizations.
- Funds from operations (FFO) is a non-IFRS financial measure of operating performance widely used by the Canadian real estate industry based on the definition set forth by REALPAC. FFO, and applicable per unit amounts, are calculated by Killam as net income adjusted for fair value gains (losses), interest expense related to exchangeable units, gains (losses) on disposition, deferred tax expense (recovery), unrealized gains (losses) on derivative liability, internal commercial leasing costs, depreciation on an owner-occupied building, change in principal related to lease liabilities, and non-controlling interest. FFO is calculated in accordance with the REALPAC definition. A reconciliation between net income and FFO is included below.
- Adjusted funds from operations (AFFO) is a non-IFRS financial measure of operating performance widely used by the Canadian real estate industry based on the definition set forth by REALPAC. AFFO, and applicable per unit amounts and payout ratios, are calculated by Killam as FFO less an allowance for maintenance capital expenditures ("capex") (a three-year rolling historical average capital investment to maintain and sustain Killam's properties), commercial leasing costs and straight-line commercial rents. AFFO is calculated in accordance with the REALPAC definition. Management considers AFFO an earnings metric. A reconciliation from FFO to AFFO is included below.
- Per unit calculations are calculated using the applicable non-IFRS financial measures noted above, i.e. FFO and AFFO, divided by the basic or diluted number of units outstanding at the end of the relevant period.
Supplementary Financial Measures
- Same property NOI is a supplementary financial measure defined as NOI for stabilized properties that Killam has owned for equivalent periods in 2023 and 2022. Similarly, same property revenue is a supplementary financial measure defined as revenue for stabilized properties that Killam has owned for equivalent periods in 2023 and 2022. Same property apartment occupancy is a supplemental financial measure defined as actual residential rental revenue, net of vacancy, as a percentage of gross potential residential rent for stabilized properties that Killam has owned for equivalent periods in 2023 and 2022. Same property results represent 90.0% of the fair value of Killam's investment property portfolio as at
December 31, 2023 . Excluded from same property results in 2023 are acquisitions, dispositions and developments completed in 2022 and 2023, and non-stabilized commercial properties linked to development projects. - Same property average rent is calculated by taking a weighted average of the total residential rent for the last month of the reporting period, divided by the relevant number of the units per region for stabilized properties that Killam has owned for equivalent periods in 2023 and 2022. For total residential rents, rents for occupied units are based on contracted rent, and rents for vacant units are based on estimated market rents if the units were occupied.
- Interest coverage is calculated by dividing normalized adjusted earnings before interest, tax, depreciation and amortization (adjusted EBITDA) by mortgage, loan and construction loan interest and interest on credit facilities. Normalized adjusted EBITDA is calculated by Killam as adjusted EBITDA that has been normalized for a full year of stabilized earnings from recently completed acquisitions and developments, on a forward-looking basis.
Non-IFRS Reconciliation (in thousands, except per unit amounts)
Reconciliation of Net Income to FFO |
Three months ended |
Year ended |
||
|
2023 |
2022 |
2023 |
2022 |
Net (loss) income |
( |
( |
|
|
Fair value adjustments |
29,577 |
38,291 |
(167,028) |
(11,861) |
Non-controlling interest |
— |
(4) |
(10) |
(16) |
Internal commercial leasing costs |
90 |
90 |
360 |
315 |
Deferred tax expense |
1,025 |
3,363 |
33,158 |
18,813 |
Interest expense on exchangeable units |
682 |
688 |
2,729 |
2,790 |
Loss on dispositions |
2,640 |
— |
4,021 |
— |
Unrealized loss (gain) on derivative liability |
— |
71 |
68 |
(88) |
Depreciation on owner-occupied building |
25 |
24 |
102 |
96 |
Change in principal related to lease liabilities |
6 |
6 |
22 |
22 |
FFO |
|
|
|
|
FFO per unit — diluted |
|
|
|
|
Reconciliation of FFO to AFFO |
Three months ended |
Year ended |
||
|
2023 |
2022 |
2023 |
2022 |
FFO |
|
|
|
|
Maintenance capital expenditures |
(5,278) |
(5,123) |
(21,587) |
(20,318) |
Commercial straight-line rent adjustment |
(5) |
(27) |
78 |
(196) |
Internal commercial leasing costs |
(168) |
(152) |
(446) |
(532) |
AFFO |
|
|
|
|
AFFO per unit – diluted |
|
|
|
|
AFFO payout ratio – diluted (1) |
75 % |
77 % |
72 % |
75 % |
Weighted average number of units – diluted (000s) |
122,217 |
120,676 |
121,656 |
119,678 |
(1) Based on Killam's annual distribution of |
Note:
Readers should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated or implied, or those suggested by any forward-looking statements, including: the effects and duration of local, international and global events, any government responses thereto and the effectiveness of measures intended to mitigate any impacts thereof; competition; global, national and regional economic conditions (including rising interest rates and inflation); and the availability of capital to fund further investments in Killam's business. For more exhaustive information on these risks and uncertainties, readers should refer to Killam's most recently filed annual information form, as well as Killam's most recently filed MD&A, each of which are available on SEDAR+ at www.sedarplus.ca. Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements contained in this press release. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events may not occur. Although Management believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that future results, levels of activity, performance or achievements will occur as anticipated. 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. While Killam anticipates that subsequent events and developments may cause Killam's views to change, Killam does not intend to update or revise any forward-looking statement, whether as a result of new information, future events, circumstances, or such other factors that affect this information, except as required by law. The forward-looking statements in this press release are provided for the limited purpose of enabling current and potential investors to evaluate an investment in Killam. Readers are cautioned that such statements may not be appropriate and should not be used for any other purpose. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.
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