Killam Properties Inc. reported funds from operations (FF0) per share of $0.24, up from $0.23 in Q3-2014. For the nine months ended September 30, 2015, Killam earned $0.59 in FFO per share, up 9.3 per cent from $0.54 in the same period in 2014.
“It’s been another strong quarter for Killam. Our Q3-2015 FFO per share of $0.24 marks our highest quarterly earnings on record,” noted Philip Fraser, Killam’s President and CEO. “We’re achieving success in all areas of our growth strategy, driving increased FFO every quarter of 2015.”
Financial and Operating Highlights
Same store properties have been a leading contributor to Killam’s earnings growth in 2015, generating a 4.0% increase in net operating income (“NOI”) over Q3-2014, following 4.0% growth in Q2-2015 and 5.0% growth in Q1-2015. Improved occupancy, rental growth, operating efficiencies and lower energy costs all contributed to the increase.
Mr. Fraser expressed optimism about the year ahead, saying, “We see economic strength in the Atlantic Canadian economy, with Halifax leading the way. Killam will benefit from a stronger economy, increased employment and population growth in our core markets.”
In 2016, Killam anticipates interest expense savings on refinancings, and expects recently completed developments and acquisitions to contribute to FFO per share growth. Successful completion of the conversion to Killam Apartment REIT, a structure that should maximize Killam’s future cash flows, will round out the year. The shareholder meeting to approve the conversion is scheduled for December 8, 2015, in Halifax.
Summary of Q3 Results and Operations
Growing rental rates and improved occupancy drive same store revenue growth: Same store revenue growth of 2.6 per cent was achieved through 1.2 per cent and 4.4 per cent increases in rental rates related to the apartment and manufactured home community (“MHC”) portfolios, respectively, as well as a 60 basis point (“bps”) increase in apartment occupancy and a 50 bps reduction in rental incentives. All regions contributed positively to revenue growth with Killam’s largest rental market, Halifax, generating a 2.2 per cent increase in same store property revenue during Q3-2015.
Lower energy costs and operating efficiencies curb expense growth: Same store property operating expenses increased a modest 0.3 per cent in Q3-2015, mitigated by a 2.4 per cent reduction in utility and fuel costs from lower pricing for oil and natural gas, as well as boiler replacements and lighting retrofits. Killam benefited from reduced water consumption through its ongoing water-fixture replacement program, resulting in a 0.7 per cent decrease in same store apartment water costs in Q3-2015.
Developments and acquisitions contribute to FFO: Acquisitions and developments completed throughout 2015 and 2014, along with two previous developments that were stabilized part way through 2014, contributed $1.6 million to FFO growth in the quarter. This growth was partially offset by an increase in the number of weighted average shares outstanding.
Interest savings locked in on refinancings: Killam successfully refinanced $32.0 million of maturing apartment mortgages with $43.8 million of new debt at a weighted average interest rate of 2.12 per cent, 203 bps lower than the weighted average interest rate prior to refinancing, all for 5-year terms. The company also refinanced one MHC mortgage at 3.41 per cent, 147 bps lower than the weighted average interest rate prior to refinancing.
Expansion of development pipeline with $8.4 million acquisition in Halifax: During the third quarter, Killam acquired a combination of commercial and residential assets located directly across from Killam’s Spring Garden Terrace property in Halifax. The largest of the properties is known as the Medical Arts Building, an 18,000 square foot office building. Killam plans to redevelop the properties. The total purchase price of $8.4 million was satisfied with the issuance of $2.5 million of common shares of Killam, and the balance in cash. A new, three-year term, $6.3 million mortgage was placed on the properties during the quarter.
