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Killam Properties Inc (2)
Symbol KMP
Shares Issued 62,653,067
Close 2015-11-03 C$ 10.39
Market Cap C$ 650,965,366
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Killam Properties earns $11.62-million in Q3

2015-11-03 17:18 ET - News Release

Mr. Philip Fraser reports

KILLAM PROPERTIES INC. ANNOUNCES HIGHEST QUARTERLY EARNINGS IN ITS HISTORY: THIRD QUARTER 2015 RESULTS HIGHLIGHT $0.24 PER SHARE IN FUNDS FROM OPERATIONS

Killam Properties Inc. had funds from operations per share of 24 cents, up from 23 cents in the third quarter of 2014. For the nine months ended Sept. 30, 2015, Killam earned 59 cents in FFO per share, up 9.3 per cent from 54 cents in the same period in 2014.

"It's been another strong quarter for Killam. Our Q3 2015 FFO per share of 24 cents marks our highest quarterly earnings on record," noted Philip Fraser, Killam's president and chief executive officer. "We're achieving success in all areas of our growth strategy, driving increased FFO every quarter of 2015."

                    FINANCIAL AND OPERATING HIGHLIGHTS 

                                For the three months     For the nine months  
                                               ended                   ended         
                                Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
                                    2015        2014        2015        2014

FFO per share (diluted)            $0.24       $0.23       $0.59       $0.54
AFFO per share (diluted) (1)       $0.21       $0.21       $0.51       $0.46
AFFO payout ratio (diluted)           71%         73%         88%         99%
Apartment occupancy                 95.3%       94.7%       95.5%       94.8%
Same-store revenue growth            2.6%                    2.4%            
Same-store net operating                                                    
income growth                        4.0%                    4.3%            
(1) Adjusted funds from                                                     
operations                                                                 
                                               As at                                 
                                Sept. 30,   Sept. 30,                        
                                    2015        2014  
                      
Total debt to total assets          55.4%       53.6%                        
Weighted average mortgage                                                      
interest rate                       3.32%       3.76%                        
Weighted average term to debt                                                  
maturity                       4.3 years   4.5 years                        
Interest coverage ratio            2.33x       2.20x                        

Same-store properties have been a leading contributor to Killam's earnings growth in 2015, generating a 4.0-per-cent increase in net operating income (NOI) over Q3 2014, following 4.0-per-cent growth in second quarter 2015 and 5.0-per-cent growth in first quarter 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 Dec. 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 continuing 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 partway 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 five-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.

Financial summary (in thousands, except per-share amounts)

The attached chart provides a summary of Killam's financial position and results for the periods ending Sept. 30, 2015, per international financial reporting standards (IFRS). A reconciliation of net income to funds from operations is also disclosed. FFO is recognized as the industry-wide standard measure of operating performance for real estate entities; however, it is not a measure defined by IFRS.

                        CONSOLIDATED FINANCIAL HIGHLIGHTS

                                For the three months     For the nine months  
                                               ended                   ended         
                                Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
                                    2015        2014        2015        2014

Property revenue                 $43,193     $37,777    $124,181    $109,360
Net operating income             $27,178     $23,773     $73,029     $62,834
Income before fair value                                                    
gain, gain (loss) on                                                       
disposition and income                                                    
taxes                            $15,010     $13,145     $37,085     $30,492
Fair value gain                   $1,368     $13,382      $1,548     $21,582
Net income                       $11,621     $21,466     $27,731     $41,221
Net income attributable to                                                  
common shareholders              $11,462     $20,491     $27,137     $39,031
Earnings per share (diluted)       $0.17       $0.33       $0.42       $0.66

Financial statements

Killam's consolidated financial statements, and management's discussion and analysis for the three and nine months ended Sept. 30, 2015, are posted under financial reports in the investor relations section of Killam's website. Readers are directed to these documents for financial details and a discussion around Killam's results.

Results conference call

Management will host a conference call to discuss these results on Wednesday, Nov. 4, 2015, at 11 a.m. ET. The dial-in numbers for the conference call are 416-340-2220 (in Toronto) or 866-225-6564 (toll-free, within North America).

A live audio webcast of the conference call will be accessible on the company's website.

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