Mr. Philip Fraser reports

KILLAM APARTMENT REIT ANNOUNCES STRONG Q4 2023 AND 2023 OPERATING PERFORMANCE AND FINANCIAL RESULTS

Killam Apartment REIT has released its results for the fourth quarter and year ended Dec. 31, 2023.

"Killam achieved total NOI growth of 8.3 per cent 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 per cent in 2023, including NOI growth of 7.6 per cent from the apartment portfolio, 3.5-per-cent NOI growth from the MHC portfolio and 15.8 per cent from the commercial portfolio," noted Philip Fraser, president and chief executive officer.

"The successful execution of our capital recycling program in 2023 increased capital flexibility and strengthened our balance sheet. The net proceeds from $168.7-million in dispositions were used to pay down variable rate debt and fund our active developments. Killam finished 2023 with variable rate debt representing 3.0 per cent of total debt, significantly less than the 9.8 per cent at the beginning of the year.

"We added 415 new units to the portfolio in 2023 through our development program, including Civic 66, a 169-unit property in Kitchener, Ont., and The Governor, a 12-unit property in downtown Halifax, N.S. Additionally, we purchased the remaining 90 per cent of the second phase of Nolan Hill, in Calgary, Alta., last December. Killam held a 10-per-cent interest throughout the development of this project with a commitment to purchase the remaining 90 per cent upon completion at a fixed price of $65-million, based on terms agreed to in 2021. These developments are expected to contribute positively to Killam's earnings growth in the future and, more importantly, to the much-needed supply of housing in Canada."

Q4 financial and operating highlights

• Reported net operating income (NOI) of $56.5-million, compared with $53.2-million in Q4 2022.
• Achieved a 5.4-per-cent increase in same property revenue and an 8.8-per-cent increase in same property NOI in Q4 2023, compared with Q4 2022.
• Achieved 98.5-per-cent same property apartment occupancy in the quarter.
• Earned funds from operations (FFO) per unit (diluted) of 28 cents, a 3.7-per-cent increase from Q4 2022, and adjusted funds from operations (AFFO) per unit (diluted) of 23 cents, consistent with Q4 2022.

2023 financial and operating highlights

• Reported net income of $266.3-million, compared with $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 with 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-per-cent increase from $206.9-million in 2022.
• Increased FFO per unit by 3.6 per cent to $1.15, compared with $1.11 in 2022, and increased AFFO (adjusted funds from operations) per unit by 4.3 per cent to 97 cents, compared with 93 cents in 2022.
• Generated same property NOI growth of 7.8 per cent during 2023.
• Achieved a 5.5-per-cent increase in same property revenue in 2023, the result of a 5.1-per-cent increase in the same property average rental rate and a 30-basis-point (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 per cent.

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 per cent at Dec. 31, 2022, to 42.9 per cent at Dec. 31, 2023. In 2023, Killam's variable rate debt was reduced by $150.4-million, as funds from dispositions and mortgage refinancings were used to reduce the balance on Killam's credit facility. Variable rate debt as a percentage of total debt decreased to 3.0 per cent at the end of 2023, compared with 9.8 per cent as at Dec. 31, 2022.

Generated net income of $266.3-million

Killam earned net income of $266.3-million in 2023, compared with $122.5-million in 2022. The increase in net income is due to fair value gains on investment properties of $174.2-million in 2023, compared with fair value writedowns of $19.9-million in 2022. The fair value gains in 2023 reflect robust NOI growth driven by strong apartment fundamentals, partially offset by an expansion in cap rates. Killam's weighted average cap rate for its apartment portfolio as at Dec. 31, 2023, was 4.62 per cent, a 14 bps increase from the weighted average cap rate as at Dec. 31, 2022. Killam's NOI grew by $17.1-million, or 8.3 per cent year over year, was driven by increased earnings from the existing portfolio and developments completed in 2022.

Delivered FFO per-unit growth of 3.6 per cent and AFFO per-unit growth of 4.3 per cent

Killam's FFO per unit was $1.15 in 2023, a 3.6-per-cent increase from $1.11 in 2022. AFFO per unit increased 4.3 per cent to 97 cents, compared with 93 cents in 2022. The growth in FFO and AFFO was attributable to increased NOI from Killam's same property portfolio and contributions from developments completed in 2022. This growth was partially offset by a 1.7-per-cent increase in the weighted average number of trust units outstanding, along with higher interest expense and property dispositions.

Achieved same property NOI growth of 7.8 per cent

Killam achieved a 7.8-per-cent increase in same property NOI during the year, with a 7.6-per-cent increase from the apartment portfolio, a 15.8-per-cent increase from the commercial portfolio and a 3.5-per-cent increase from the MHC portfolio. Same property revenue growth of 5.5 per cent 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 per cent, well below the average rate of inflation of 3.9 per cent in Canada during 2023. This was driven by a 0.4-per-cent reduction in property tax expense based on lower regional mill rates in New Brunswick and one-time property tax subsidies in Prince Edward Island. Same property general operating expenses were up 2.2 per cent as a result of higher wages and service contract costs, partially offset by lower insurance, advertising, and repairs and maintenance costs. Same property utility and fuel expenses were up 3.0 per cent, mainly driven by higher water expense, and an increase in natural gas costs in Q1 2023. Killam's strong NOI performance resulted in an operating margin improvement of 140 bps for the same property portfolio compared with 2022.

Completed $168.7-million in property dispositions, $69.3-million in acquisitions and $94.1-million in developments in 2023

During 2023, Killam completed a total of 14 property dispositions for gross proceeds of $168.7-million. Proceeds were used to reduce the amount drawn on Killam's credit facility and to finance developments. The sale of these properties aligns with Killam's strategy to optimize value from its portfolio and to increase geographical diversification outside Atlantic Canada (87 per cent of the units sold were located in Atlantic Canada.) During the fourth quarter, Killam fulfilled its commitment to purchase the remaining 90-per-cent interest in the second phase of the Nolan Hill development in Calgary adding 234 newly constructed units to the portfolio. Killam continues to advance its development pipeline, investing $39.3-million in 2023 and completing two development projects (Civic 66 and The Governor), which contain a combined total of 181 apartment units. Killam has one development project in progress, The Carrick, a 139-unit property located in Waterloo, Ont., which is expected to be completed in the second half of 2025. Killam continues to advance other projects in its development pipeline.

Higher interest rates on refinancings

The maturity dates of Killam's mortgages are staggered to help mitigate interest rate risk. During 2023, Killam refinanced $252.0-million of maturing mortgages with $320.3-million of new debt at a weighted average interest rate of 4.89 per cent, 183 bps higher than the weighted average interest rate of the maturing debt. Over all, Killam's weighted average mortgage interest rate increased 48 bps at the end of 2023 to 3.22 per cent, compared with 2.74 per cent at Dec. 31, 2022. The weighted average term to maturity is 3.9 years.

Progress on ESG (environmental, social and governance) initiatives

Killam continues to reduce its environmental impact and ensure its buildings are sustainable and resilient to climate change. In 2023, Killam invested $8.8-million in energy projects, which include a geothermal heating and cooling system at Civic 66, installation of photovoltaic (PV) solar panels and electric vehicle (EV) chargers at select properties, new boilers and heat pumps, building automation systems, as well as electricity and water conservation projects. To date, Killam has installed 23 PV solar arrays, with an expected 2,395 MWh (megawatt-hours) 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 continues to install Level II EV charging stations across its portfolio, with 401 charging stations operational at 57 buildings.

Financial statements

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 Dec. 31, 2023, are posted under financial reports in the investor relations section of Killam's website and are each filed 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, Feb. 15, 2024, at 9 a.m. Eastern Time. The webcast will be accessible on Killam's website. A replay of the webcast will be available for one year after the event.

The dial-in numbers for the conference call:

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

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

About Killam Apartment Real Estate Investment Trust

Based in Halifax, N.S., Killam Apartment is one of Canada's largest residential real estate investment trusts, owning, operating and developing a $5-billion portfolio of apartments and manufactured home communities. Killam's strategy is to enhance value and profitability by focusing on three priorities: (i) increasing earnings from existing operations; (ii) expanding the portfolio and diversifying geographically through accretive acquisitions and dispositions, with an emphasis on newer properties; and (iii) developing high-quality properties in its core markets.

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