KILLAM APARTMENT REIT ANNOUNCES Q2-2024 OPERATING PERFORMANCE AND FINANCIAL RESULTS
"We are pleased to present another quarter of strong operating performance, including same property net operating income [NOI] growth of 8.5%," noted
"With our three recently completed developments in lease-up through the second quarter, funds from operations [FFO] remained steady at
"We continued to execute on our capital recycling program in the second quarter, with the sale of an 84-unit apartment building in
Q2-2024 Financial & Operating Highlights
- Reported net income of
$114.5 million , consistent with net income of$114.5 million in Q2-2023. Killam recorded fair value gains on investment properties of$85.5 million , compared to larger fair value gains of$96.2 million in Q2-2023. - Generated NOI of
$59.9 million , a 6.6% increase from$56.2 million in Q2-2023. - Achieved a 6.1% increase in same property revenue compared to Q2-2023.1
- Generated 8.5% same property NOI growth compared to Q2-2023.1
- Earned FFO per unit of
$0.30 , consistent with$0.30 earned in Q2-2023.2 - Earned adjusted funds from operations (AFFO) per unit of
$0.25 , consistent with$0.25 in Q2-20233, and reduced the rolling 12-month AFFO payout ratio by 200 basis points (bps) to 72%, from 74% in Q2-2023.2 - Increased the same property operating margin by 140 bps to 66.2% from 64.8% in Q2-2023.
- Ended the second quarter with debt as a percentage of total assets of 41.2%, the lowest level in Killam's history.
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1 Same property revenue, and same property NOI are supplementary financial measures. An explanation of the composition of these measures can be found under the heading "Supplementary Financial Measures." |
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Three months ended |
Six months ended |
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(000s) |
2024 |
2023 |
Change |
2024 |
2023 |
Change |
Property revenue |
|
|
4.5 % |
|
|
3.8 % |
Net operating income |
|
|
6.6 % |
|
|
7.4 % |
Net income |
|
|
(0.1) % |
|
|
22.1 % |
FFO (1) |
|
|
1.3 % |
|
|
2.4 % |
FFO per unit (diluted) (1) |
|
|
— % |
|
|
— % |
AFFO (1) |
|
|
1.9 % |
|
|
3.1 % |
AFFO per unit (diluted) (1)(2) |
|
|
— % |
|
|
2.2 % |
AFFO payout ratio – diluted (1)(2) |
69 % |
70 % |
(100) bps |
75 % |
77 % |
(200) bps |
AFFO payout ratio – rolling 12 months(1)(2) |
72 % |
74 % |
(200) bps |
|
|
|
Same property apartment occupancy (3) |
98.2 % |
98.2 % |
– bps |
|
|
|
Same property revenue growth (3) |
6.1 % |
|
|
6.0 % |
|
|
Same property NOI growth (3) |
8.5 % |
|
|
9.3 % |
|
|
(1) FFO, FFO per unit, AFFO, AFFO per unit, and AFFO payout ratio are non-IFRS financial measures. A reconciliation from net income to FFO and a |
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(2) The maintenance capital expenditures used to calculate AFFO and AFFO payout ratio for the three and six months ended |
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(3) Same property apartment occupancy, same property revenue, and same property NOI are supplementary financial measures. An explanation of the |
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|
|
Change |
Debt to total assets |
41.2 % |
42.9 % |
(170) bps |
Weighted average mortgage interest rate |
3.32 % |
3.22 % |
10 bps |
Weighted average years to debt maturity |
3.8 |
3.9 |
(0.1) years |
Interest coverage ratio(1) |
3.01x |
3.10x |
(2.9) % |
Debt to normalized EBITDA (1) |
9.98x |
10.29x |
(3.0) % |
(1) Interest coverage ratio and debt to normalized earnings before interest, tax, depreciation and amortization ("EBITDA") ratio are non-IFRS ratios. An explanation of the composition of these measures can be found under the heading "Non-IFRS Ratios." |
Summary of Q2-2024 Results and Operations
Achieved Same Property NOI Growth of 8.5%
Killam achieved same property NOI growth of 8.5% during Q2-2024, along with an operating margin increase of 140 bps. This growth was driven by a 6.1% increase in same property revenue, partially offset by a modest 1.7% increase in same property operating expenses. Same property revenue growth is attributed to a 6.4% increase in apartment rental rates year-over-year, a 39% reduction in rental incentives, increasing ancillary revenue and stable occupancy. Rental growth continues to accelerate with a record high weighted-average 8.2% rental rate increase for units that renewed and turned in Q2-2024.
The 1.7% increase in total same property operating expenses is attributable to a 1.3% increase in general operating expenses coupled with a 6.6% increase in property tax expenses, due to higher property taxes across the portfolio and the absence of property tax subsidies in
Generated Net Income of
During the quarter, Killam generated net income of
Stable FFO and AFFO per Unit Earnings
Killam generated FFO growth of 1.3% in Q2-2024, up
Continued Progress on Killam's Disposition Strategy
During Q2-2023, Killam completed the disposition of Woolwich, an 84-unit apartment building located in
Higher Interest Rates on Refinancings
The maturity dates of Killam's mortgages are staggered to mitigate interest rate risk. During Q2-2024, Killam refinanced
ESG Update
During the quarter, Killam invested
Additional Dispositions Subsequent to Quarter End
On
Financial Statements
Killam's condensed consolidated interim Financial Statements and Management's Discussion and Analysis (MD&A) for the three and six months ended
Results Conference Call
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 (
Profile
Non-IFRS Measures
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, 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.
Non-IFRS Financial Measures
- 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, interest expense 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.
- 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.
- Adjusted earnings before interest, tax, depreciation and amortization ("adjusted EBITDA") is a non-IFRS financial measure calculated by Killam as net income before fair value adjustments, gains (losses) on disposition, income taxes, interest, depreciation and amortization. A reconciliation between net income and adjusted EBITDA is included below.
- Normalized adjusted EBITDA is a non-IFRS financial measure 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. In addition, adjustments have been made to eliminate earnings associated with properties sold in the last twelve months. A reconciliation between adjusted EBITDA and normalized adjusted EBITDA is included below.
- Net debt is a non-IFRS financial measure used by Management in the computation of debt to normalized adjusted EBITDA. Net debt is calculated as the sum of mortgages and loans payable, credit facilities and construction loans (total debt) reduced by the cash balances at the end of the period. The most directly comparable IFRS measure to net debt is debt. A reconciliation between debt and net debt is included below.
Non-IFRS Ratios
- Interest coverage is calculated by dividing adjusted EBITDA by mortgage, loan and construction loan interest and interest on credit facilities.
- Per unit calculations are calculated using the applicable non-IFRS financial measures noted above, i.e. FFO and AFFO, divided by the diluted number of units outstanding at the end of the relevant period.
- Payout ratios are calculated using the distribution rate for the applicable period divided by the applicable per unit amount, i.e. AFFO per unit.
- Debt to normalized adjusted EBITDA is calculated by dividing net debt by normalized adjusted EBITDA.
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 2024 and 2023. Similarly, same property revenue is a supplementary financial measure defined as revenue for stabilized properties that Killam has owned for equivalent periods in 2024 and 2023.
- 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 2024 and 2023. Same property results represent 96% of the fair value of Killam's investment property portfolio as at
June 30, 2024 . Excluded from same property results in 2024 are acquisitions, dispositions and developments completed in 2023 and 2024, and non-stabilized commercial properties linked to development projects.
Non-IFRS Reconciliation (in thousands, except per unit amounts)
Reconciliation of Net Income to FFO |
Three months ended |
Six months ended |
||
|
2024 |
2023 |
2024 |
2023 |
Net income |
|
|
|
|
Fair value adjustments |
(91,946) |
(93,848) |
(205,769) |
(157,213) |
Non-controlling interest |
— |
(3) |
— |
(7) |
Internal commercial leasing costs |
45 |
90 |
135 |
180 |
Deferred tax expense |
12,689 |
14,016 |
29,658 |
22,958 |
Interest expense on Exchangeable Units |
682 |
682 |
1,364 |
1,364 |
Loss on disposition |
721 |
729 |
913 |
1,079 |
Unrealized (gain) loss on derivative liability |
— |
(28) |
— |
68 |
Depreciation on owner-occupied building |
24 |
25 |
48 |
51 |
Change in principal related to lease liabilities |
6 |
6 |
11 |
11 |
FFO |
|
|
|
|
FFO per unit – diluted |
|
|
|
|
Reconciliation of FFO to AFFO |
Three months ended |
Six months ended |
||
|
2024 |
2023 (1) |
2024 |
2023 (1) |
FFO |
|
|
|
|
Maintenance capital expenditures |
(5,316) |
(5,431) |
(10,639) |
(10,922) |
Commercial straight-line rent adjustment |
(51) |
(49) |
(82) |
52 |
Internal commercial leasing costs |
(109) |
(101) |
(173) |
(188) |
AFFO |
|
|
|
|
AFFO per unit – diluted |
|
|
|
|
AFFO payout ratio – diluted |
69 % |
70 % |
75 % |
77 % |
AFFO payout ratio – rolling 12 months (2) |
72 % |
74 % |
|
|
Weighted average number of units – diluted (000s) |
122,980 |
121,472 |
122,795 |
121,273 |
(1)
(2) |
The maintenance capital expenditures used to calculate AFFO and AFFO per unit (diluted) for the three and six months ended |
|
Normalized Adjusted EBITDA |
Twelve months ended, |
|
|
|
|
|
% Change |
Net income |
|
|
16.4 % |
Deferred tax expense |
39,859 |
33,158 |
20.2 % |
Financing costs |
75,107 |
69,398 |
8.2 % |
Depreciation |
946 |
669 |
41.4 % |
Loss on disposition |
3,854 |
4,021 |
(4.2) % |
Fair value adjustment on unit-based compensation |
(162) |
330 |
(149.1) % |
Fair value adjustment on Exchangeable Units |
(2,417) |
6,821 |
(135.4) % |
Fair value adjustment on investment properties |
(213,005) |
(174,179) |
22.3 % |
Adjusted EBITDA |
214,211 |
206,551 |
3.7 % |
Normalizing adjustment (1) |
5,080 |
3,480 |
46.0 % |
Normalized adjusted EBITDA |
219,291 |
210,031 |
4.4 % |
|
|
|
|
Total interest-bearing debt |
|
|
|
Cash and cash equivalents |
(10,202) |
(14,087) |
|
Net debt |
|
|
1.3 % |
|
|
|
|
Debt to normalized adjusted EBITDA |
9.98x |
10.29x |
(3.0) % |
(1) Killam's normalizing adjustment includes NOI adjustments for recently completed acquisitions, dispositions and developments to account for the difference between NOI booked in the period and stabilized NOI over the next 12 months. |
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; government legislation and the interpretation and enforcement thereof; litigation to which Killam may be subject; 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 its 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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