Mr. Philip Fraser reports

KILLAM APARTMENT REIT ANNOUNCES Q2-2023 OPERATING PERFORMANCE AND FINANCIAL RESULTS

Killam Apartment Real Estate Investment Trust has released its results for the three and six months ended June 30, 2023.

"Killam's second quarter operating performance delivered FFO per unit of 30 cents, a 7.1-per-cent increase from Q2 2022," noted Philip Fraser, president and chief executive officer. "We continued to deliver on our strategic targets, including 7.9-per-cent same-property NOI growth.

"With the completion of $72.2-million in dispositions in the quarter, we are progressing well towards our target of selling $100-million of non-core assets and we expect to exceed our capital recycling target for 2023. Funds from dispositions were applied against our line of credit, strengthening Killam's balance sheet and increasing our capital flexibility; debt to total assets at June 30, 2023, was 43.1 per cent -- the lowest in Killam's history.

"Additionally, two of our active developments, Civic 66 and the Governor, reached substantial completion in early July. CMHC-insured permanent financing was placed on Civic 66 in July, further reducing our exposure to variable debt."

Q2 2023 financial and operating highlights:

• Reported net income of $114.5-million, an increase of $45.8-million compared with $68.7-million in Q2 2022. The growth in net income is primarily attributable to $96.2-million of fair value gains on investment properties in the period;
• Generated net operating income (NOI) of $56.2-million, an 8.8-per-cent increase from $51.7-million in Q2 2022;
• Earned funds from operations (FFO) per unit of 30 cents, a 7.1-per-cent increase from 28 cents in Q2 2022 (1);
• Increased adjusted funds from operations (AFFO) per unit by 8.3 per cent to 26 cents, from 24 cents in Q2 2022, and reduced the rolling 12-month AFFO payout ratio by 200 basis points (bps) to 73 per cent, from 75 per cent in Q2 2022 (1);
• Achieved a 5.3-per-cent increase in revenue for the same-property portfolio compared with Q2 2022;
• Generated a 7.9-per-cent same-property NOI growth (2).

(1) FFO and AFFO are non-international financial reporting standards (IFRS) measures that do not have a standardized meaning according to IFRS and, therefore, may not be comparable with similar measures presented by other issuers.

(2) Same-property NOI is a supplementary financial measure.

Summary of Q2 2023 results and operations

Earned net income of $114.5-million

Killam earned a net income of $114.5-million in Q2 2023, compared with $68.7-million in Q2 2022. The increase in net income is primarily attributable to fair value gains on investment properties of $96.2-million, compared with fair value gains of $27.6-million in the same period in 2022. These gains were a direct result of strong NOI growth.

Same-property NOI growth of 7.9 per cent

Killam achieved a 7.9-per-cent increase in same-property NOI during the quarter based on a 5.3-per-cent increase in same-property revenue and a modest 0.7-per-cent increase in same-property operating expenses. Revenue growth was driven by a 4.3-per-cent increase in apartment rental rates, coupled with a 40-basis-point increase in same-property apartment occupancy and reduced rental incentives. General operating expenses increased 3.2 per cent, driven by higher wages and insurance costs, while property tax expense decreased 2.3 per cent. Lower natural gas and oil pricing in Q2 2023 offset the majority of the higher electricity and water costs, resulting in a 0.5-per-cent increase in utility and fuel expenses, compared with the same period in 2022. Killam also achieved expansion in the operating margin of its same-property portfolio, increasing 160 basis points compared with Q2 2022.

7.1-per-cent-FFO-per-unit growth and 8.3-per-cent-AFFO-per-unit growth

Killam achieved FFO per unit of 30 cents in the quarter, a 7.1-per-cent increase from 28 cents per unit in Q2 2022. AFFO per unit increased 8.3 per cent to 26 cents, compared with 24 cents in Q2 2022. The growth in FFO and AFFO was attributable to strong NOI growth from Killam's same-property portfolio, coupled with incremental contributions from developments completed in 2022. This growth was partially offset by a 1.3-per-cent increase in the weighted average number of trust units outstanding and higher interest expense as a result of rising interest rates.

Dispositions of non-core assets to strengthen balance sheet

Killam completed three dispositions in Q2 2023, including: a 108-unit property located in Halifax for $33.0-million, with net cash proceeds of $20.1-million; a 102-unit property located in Ottawa for $17.9-million, with net cash proceeds of $12.5-million; as well as 122 units located in Charlottetown for $21.3-million, with net cash proceeds of $8.2-million. Cash proceeds were used to reduce Killam's credit facility and financing continuing developments. Killam has more dispositions planned for the remainder of 2023 and expects to exceed its fiscal 2023 capital recycling target of $100.0-million.

Continued advancement of development pipeline

Two developments reached substantial completion subsequent to the quarter-end, totalling 181 units and a combined development cost of $94.1-million. Killam has the Carrick, a 139-unit property in Waterloo under development, with a cost of $83.5-million, to be completed in the first half of 2025. As of Q2 2023, Killam invested $25.2-million in its active development projects, the majority of which was financed through construction financing. Further, Killam has a 10-per-cent interest in the second phase of the Nolan Hill development in Calgary. With a commitment to purchase the remaining 90-per-cent interest, Killam's total cost for the project will be $65-million. This three-building project will be completed in phases, with the first building expected to be completed in September, 2023, and the remaining two buildings expected to be completed in Q4 2023.

Focus on reduced leverage

During the first half of the year, debt to total assets decreased 220 basis points, from 45.3 per cent at Dec. 31, 2022, to 43.1 per cent at June 30, 2023. Since the beginning of the year, Killam's variable rate debt has been reduced by $68.7-million, as funds from dispositions, mortgage refinancings and general operations were used to reduce the balance on Killam's credit facility. Looking ahead, Killam expects to continue to reduce variable rate debt during the remainder of the year with funds from refinancings and dispositions. Over all, Killam's weighted average mortgage interest rate increased 20 basis points at the end of Q2 2023, compared with Dec. 31, 2022. The maturity dates of Killam's mortgages are staggered to help mitigate interest rate risk.

ESG (environmental, social and governance) update

During the quarter, Killam invested $2.8-million in energy initiatives. At the end of Q2 2023, Killam had 18 PV solar arrays producing power, with an expected 1,817 megawatt-hours (MWh) of annual energy production. PV solar arrays, along with geothermal heating and cooling systems at Killam's new developments, illustrate Killam's continuing commitment to lowering its carbon footprint. Additionally, Killam is installing level II EV (electric vehicle) charging stations across its portfolio, with 260 charging stations operational at 39 properties to date, plus an additional 108 charging stations under way at 13 different properties. Killam's 2022 ESG report was released on June 6, 2023, and can be accessed on its website. The report summarizes Killam's commitment to creating and maintaining sustainable communities, and details its progress and future plans to achieve its long-term targets.

Financial statements

Killam's condensed consolidated interim financial statements and management's discussion and analysis (MD&A) for the three and six months ended June 30, 2023, are posted under financial reports in the investor relations section of Killam's website and are available on SEDAR+. Readers are directed to these documents for financial details and a discussion of Killam's results.

Results conference call

Management will host a webcast and conference call to discuss these results and current business initiatives on Thursday, Aug. 10, 2023, at 9 a.m. Eastern Time. The webcast will be accessible on Killam's website. A replay will be available for seven days after the webcast.

The dial-in numbers for the conference call are as follows.

North America (toll-free):  1-888-664-6392

Overseas or local (Toronto):  1-416-764-8659

Killam, based in Halifax, N.S., is one of Canada's largest residential real estate investment trusts, owning, operating, managing and developing a $5.0-billion portfolio of apartments and manufactured home communities. Killam's strategy to enhance value and profitability focuses on three priorities: (1) increasing earnings from existing operations; (2) expanding the portfolio and diversifying geographically through accretive acquisitions, with an emphasis on newer properties; and (3) developing high-quality properties in its core markets.

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 financial 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 with similarly titled measures presented by other publicly traded organizations.

We seek Safe Harbor.