HALIFAX, Feb. 18, 2014 /CNW/ - Killam Properties Inc. ("Killam" or the
"Company") (TSX: KMP) announced its financial results for the fourth
quarter and year ended December 31, 2013.
Highlights from Q4
-
A 3.4% increase in the Company's dividend announced by the Board of
Directors.
-
Generated funds from operations ("FFO") per share of $0.18, a 5.9%
increase from $0.17 earned during Q4 2012.
-
Increased same store property revenue by 1.5%.
-
Despite a 15% increase in utility costs, managed same store property
operating costs, resulting in a 0.9% decrease in net operating income
("NOI") from Q4 2012.
-
Completed $14.8 million in acquisitions.
-
Netted proceeds of $42.6 million from the sale of a ten property
manufactured home community ("MHC") portfolio in New Brunswick.
-
Began construction of a 122-unit apartment development in Cambridge,
Ontario.
Highlights from 2013
-
Increased total property revenue by 5.6%.
-
Increased same store revenue by 1.8%.
-
High natural gas prices in Atlantic Canada caused total same store
utility and fuel expenses to increase 13.8% and total operating costs
to increase 5.0%, which resulted in a decrease in same store NOI of
0.4% in the year.
-
Reduced the weighted average interest rate on mortgage debt 43 basis
points to 4.05% from 4.48% at December 31, 2012.
-
Generated FFO per share of $0.72, consistent with $0.72 earned in 2012.
-
Completed $121.1 million in property acquisitions and $69.6 million in
new apartment developments, totalling $190.7 million in new assets,
marking Killam's largest year of growth since 2005.
-
Short-term per share earnings dilution from the MHC portfolio sale in
November 2013 and the timing of deployment of funds should reverse in
the first half of 2014 with the completion of acquisitions aligned with
Killam's strategy to diversify its geographic footprint.
Financial Highlights (in thousands, except per share amounts)
For the three months ended,
|
Dec 31, 2013
|
|
Dec 31, 2012
|
|
Change
|
Property Revenue
|
$36,262
|
|
$33,360
|
|
8.7%
|
Net Operating Income
|
$21,399
|
|
$19,559
|
|
9.4%
|
Fair Value (Losses) Gains
|
($13,827)
|
|
$10,057
|
|
n/a
|
Net (Loss) Income Attributable to Common Shareholders
|
($4,543)
|
|
$10,425
|
|
n/a
|
Funds from Operations
|
$9,812
|
|
$8,732
|
|
12.4%
|
Funds from Operations per Share
|
$0.18
|
|
$0.17
|
|
5.9%
|
Shares Outstanding (weighted average)
|
54,395
|
|
51,528
|
|
5.6%
|
|
|
|
|
|
|
For the year ended,
|
Dec 31, 2013
|
|
Dec 31, 2012
|
|
Change
|
Property Revenue
|
$141,112
|
|
$133,641
|
|
5.6%
|
Net Operating Income
|
$83,040
|
|
$80,444
|
|
3.2%
|
Fair Value Gains
|
$13,070
|
|
$37,726
|
|
(65.4%)
|
Net Income Attributable to Common Shareholders
|
$39,779
|
|
$51,727
|
|
(23.1%)
|
Funds from Operations
|
$38,770
|
|
$36,096
|
|
7.4%
|
Funds from Operations per Share
|
$0.72
|
|
$0.72
|
|
-
|
Shares Outstanding (weighted average)
|
54,143
|
|
50,227
|
|
7.8%
|
|
|
|
|
|
|
As at
|
Dec 31, 2013
|
|
Dec 31, 2012
|
|
Change
|
Investment Properties
|
$1,476,116
|
|
$1,354,665
|
|
9.0%
|
Total Assets
|
$1,532,431
|
|
$1,443,128
|
|
6.2%
|
Total Liabilities
|
$928,371
|
|
$854,692
|
|
8.6%
|
Total Equity
|
$604,060
|
|
$588,436
|
|
2.7%
|
Total Debt to Total Assets
|
52.9%
|
|
51.6%
|
|
130 bps
|
FFO per Share Up 5.9% in Q4
FFO per share was $0.18 in Q4, up 5.9% from $0.17 earned in the same
period in 2012. The increase was primarily attributable to acquisitions
and developments, lower interest expense and administrative cost
savings. These factors more than offset the 5.6% increase in shares
outstanding, the month of lost MHC earnings related to the New
Brunswick portfolio sold on November 29, 2013, and a 0.9% decrease in
same store NOI in the quarter.
Maintained FFO per Share of $0.72 Despite High Natural Gas Prices in
2013
Killam generated FFO per share of $0.72 during 2013, consistent with
$0.72 in 2012. Earnings from acquisitions and savings in interest and
administrative costs were offset by an unanticipated increase in
natural gas pricing in Atlantic Canada during the winter heating season
and an 8.9% increase in the weighted average number of shares
outstanding following the Company's equity raise to fund growth in
December 2012.
Killam's long-term strategy of investing in newer buildings and
increasing the quality of its portfolio had a short-term dilutive
effect in 2013. In addition to Killam's investment in development
projects, the full impact of which will be realized once the buildings
are fully-leased in mid-2014, there was a timing difference between a
reduction in NOI related to the disposition of MHC properties and the
redeployment of the resulting net proceeds towards apartment
acquisitions. The Company is diligent in its acquisition program to
ensure buildings acquired fit with its strategy, including increasing
geographic diversification.
High Heating Costs Hindered Same Store NOI Growth in Q4 and for the Year
Consolidated Same Store NOI (in thousands)
|
|
|
|
|
|
|
|
|
For the three months ended,
|
Dec 31, 2013
|
|
Dec 31, 2012
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
Property Revenue
|
$30,436
|
|
$29,997
|
|
$439
|
|
1.5%
|
Property Expenses
|
|
|
|
|
|
|
|
|
Operating Expenses
|
4,648
|
|
4,770
|
|
(122)
|
|
(2.6%)
|
|
Utility and Fuel Expenses
|
4,416
|
|
3,843
|
|
573
|
|
14.9%
|
|
Property Taxes
|
3,505
|
|
3,361
|
|
144
|
|
4.3%
|
Total Property Expenses
|
12,569
|
|
11,974
|
|
595
|
|
5.0%
|
Net Operating Income
|
$17,867
|
|
$18,023
|
|
($156)
|
|
(0.9%)
|
|
|
|
|
|
|
|
|
For the year ended,
|
Dec 31, 2013
|
|
Dec 31, 2012
|
|
Change
|
|
% Change
|
|
|
|
|
|
|
|
|
|
Property Revenue
|
$121,530
|
|
$119,390
|
|
$2,140
|
|
1.8%
|
Property Expenses
|
|
|
|
|
|
|
|
|
Operating Expenses
|
20,313
|
|
20,250
|
|
63
|
|
0.3%
|
|
Utility and Fuel Expenses
|
16,189
|
|
14,225
|
|
1,964
|
|
13.8%
|
|
Property Taxes
|
13,902
|
|
13,519
|
|
383
|
|
2.8%
|
Total Property Expenses
|
50,404
|
|
47,994
|
|
2,410
|
|
5.0%
|
Net Operating Income
|
$71,126
|
|
$71,396
|
|
($270)
|
|
(0.4%)
|
Killam's same store portfolio posted a 1.8% increase in revenue growth
in 2013 due to the Company's ability to realize increased rental rates
by 1.3% for the apartment portfolio and 3.7% for the MHC portfolio.
This revenue growth was partially offset by higher vacancy during the
first half of 2013, compared to 2012, and higher rental incentives due
to increased competition in certain core markets in Atlantic Canada as
a result of increased supply.
Killam's same store operating costs increased by 5.0% year-over-year due
predominately to high natural gas costs in Nova Scotia and New
Brunswick which drove utility and fuel costs up 13.8%. After an
unexpected spike in December 2012, natural gas costs remained high
throughout early 2013 due to supply and pipeline constraints, and high
demand from utilities in New England. Following a return to normal
pricing in Q3 and for most of Q4, natural gas prices increased again in
December 2013 due to colder than normal weather in the Northeastern US.
In spite of the high prices experienced in 2013, natural gas was more
affordable than heating oil and Killam benefitted from its past
investment in natural gas conversions.
Excluding energy and property taxes, Killam managed its controllable
same store operating expenses to a modest 0.3% increase in 2013. Killam
controlled these costs by renegotiating key contracts and focusing on
increasing efficiencies and cost control throughout its business. In
addition, the Company managed same store property tax expense to an
increase of 2.8% with successful assessment appeals.
Improved Apartment Occupancy in December 2013
The occupancy and average rents for Killam's apartments at year-end are
highlighted below:
|
|
Dec 31, 2013
|
|
Dec 31, 2012
|
|
|
Units
|
Occupancy1
|
Average
Rent
|
|
Units
|
Occupancy1
|
Average
Rent
|
Halifax, NS
|
|
4,970
|
96.0%
|
$923
|
|
4,822
|
96.6%
|
$889
|
Moncton, NB
|
|
1,593
|
97.1%
|
$831
|
|
1,424
|
96.3%
|
$800
|
Fredericton, NB
|
|
1,394
|
96.3%
|
$896
|
|
1,293
|
97.8%
|
$846
|
Saint John, NB
|
|
1,143
|
94.4%
|
$746
|
|
1,143
|
93.6%
|
$747
|
St. John's , NL
|
|
813
|
97.0%
|
$849
|
|
742
|
97.8%
|
$776
|
Charlottetown, PE
|
|
906
|
95.6%
|
$878
|
|
687
|
91.6%
|
$871
|
Ontario
|
|
1,359
|
98.6%
|
$1,254
|
|
1,078
|
93.1%
|
$1,331
|
Other Atlantic Locations
|
|
469
|
95.3%
|
$798
|
|
431
|
96.1%
|
$776
|
Total Apartment Portfolio
|
|
12,647
|
96.3%
|
$915
|
|
11,620
|
95.9%
|
$888
|
|
|
|
|
|
|
|
|
|
1) Occupancy levels represent Killam's stabilized portfolio.
|
Killam's apartment occupancy was 96.3% at December 31, 2013, a 40 basis
point improvement from 95.9% at December 31, 2012. The Company
experienced softer occupancy levels in its apartment portfolio during
the first half of the year due to higher than normal new multi-family
rental construction in Halifax, Moncton and Charlottetown, and softness
in the Saint John economy. These short-term challenges are countered by
long-term positives, including population growth in Atlantic Canada's
urban centres and an aging population with an increasing tendency to
rent.
Killam reported a marked improvement in occupancy levels in Q3, with
occupancy of 97.1% at September 30, 2013, followed by a typical
seasonal decrease in Q4. Despite a decline in overall occupancy in the
year, Killam achieved rental rate growth and increased its same store
rental revenue. Killam's marketing and leasing initiatives, including
increasing the number of leasing agents, investment in marketing
promotions and expanding incentive offerings at specific properties,
contributed to occupancy improvements in the year. The Company's
increased investment in Ontario was beneficial in 2013 with improvement
in occupancy each quarter, ending the year with 98.6% occupancy in the
province.
Killam's MHC properties were 98.1% occupied at December 31, 2013,
consistent with the occupancy at December 31, 2012.
Acquisitions and Developments of $191 million in 2013
Killam completed $121.1 million in property acquisitions in 2013, in
line with its acquisition target of $75 to $125 million, and completed
$69.6 million of development projects. Combined, the addition of $190.7
million in new properties represents Killam's biggest year of growth
since 2005.
Acquisitions in 2013 included $50.4 million for two buildings in
Ontario, aligned with Killam's strategy to increase its geographic
diversification outside Atlantic Canada. The two Ontario properties
acquired include a 102-unit building in Ottawa ($10.4 million) and a
newly constructed mixed-use apartment and retail complex in downtown
Toronto ($40.0 million).
Development continues to be a growth vehicle for Killam. Following the
completion of four developments in 2013, the Company started two new
developments during the second half of the year, a 101-unit building
located adjacent the Company's recently completed Bennett House in St.
John's and a 122-unit building in Cambridge, on land acquired in Q1
2013. Management has negotiated fixed-rate contracts for construction
of both projects and expects all-cash yields of approximately 6.0%. The
buildings are expected to be completed in Q3 2014 and Q1 2015,
respectively.
Sale of MHC Portfolio in November 2013
Killam's NOI growth was partially offset by the disposition of its New
Brunswick MHC portfolio for net proceeds of $42.6 million during Q4.
The decision to sell was based on the opportunity to crystalize the
value of the properties at attractive capitalization rates
("cap-rates") and use the funds to accretively grow the apartment
portfolio and increase Killam's geographic diversification. The net
proceeds from the sale have been, and will be, used primarily to fund
growth of the apartment portfolio. The negative impact on FFO per share
due to the timing of the redeployment of funds is short-term and
Management is confident in its strategy to enhance long-term
shareholder value.
Lower Interest Costs in 2013
During 2013 Killam successfully refinanced $66.7 million of maturing
apartment mortgages at a weighted average interest rate of 3.03%, 155
basis points lower than the weighted average interest rate prior to
refinancing. The Company also refinanced $10.7 million of MHC mortgages
at a weighted average interest rate of 4.34%, 190 basis points lower
than the weighted average interest rate prior to refinancing. These
lower rates represent annualized interest savings of $1.2 million. The
Company's weighted average mortgage interest rate also improved to
4.05%, down 43 basis points from 4.48% at December 31, 2012. The
average number of years to mortgage maturity improved to 3.9 years from
3.4 years at December 31, 2012.
Killam's balance sheet remains conservative with debt as a percentage of
total assets at 52.9% at December 31, 2013, compared to 51.6% at
December 31, 2012. The Company's target level of total debt as a
percentage of total assets is between 55% and 65%. Killam's interest
coverage ratio for the last twelve months was 2.08 times, improved from
2.00 times at December 31, 2012.
$13 Million in Fair Value Gains in 2013
During 2013 Killam recorded $13.1 million in fair value gains related to
its portfolio compared to $37.7 million in 2012. This decrease
year-over-year related to reduced cap-rate compression in 2013 and a 25
basis point increase in cap-rates in the Saint John market in Q4. Gains
in real estate valuations do not impact the Company's FFO per share,
its key measure of performance.
Management's Comments
"We are pleased to report FFO per share growth in Q4 after facing higher
energy costs and increased vacancy in our core markets in the Maritimes
for the first half of 2013", noted Philip Fraser, Killam's President &
CEO. "The improvements realized during the second half of the year are
encouraging and we continue to see occupancy gains in many of our core
markets. These improvements are expected to lead to same store revenue
growth in 2014."
"As noted throughout the year, natural gas cost more than anticipated in
2013. We have benefitted from affordable natural gas in Atlantic Canada
for many years, with the cost far below that of heating oil. Although
natural gas continued to be more affordable than heating oil in 2013,
we experienced price volatility from our gas suppliers that we haven't
seen in the past. Pipeline capacity issues in the Maritimes and the
Northeastern US, coupled with increased demand from utilities during
peak periods of cold weather, pushed pricing to unprecedented levels.
In periods of warmer weather natural gas pricing was generally back to
"normal" levels, but we continue to see high pricing during the winter
season. We are experiencing the same issue in 2014, due to colder than
normal weather in the Northeastern US."
"As we learn more about the factors leading to natural gas price
volatility it is becoming apparent that our Nova Scotia and New
Brunswick properties that use natural gas may be exposed to price
volatility during periods of cold weather until additional pipeline
capacity is built to alleviate supply constraints and bring stabilized
pricing more in-line with other areas of North America. In the
short-term, we are managing our assets to control our exposure to
natural gas. In properties where we have dual-fired heating systems we
are prepared to switch to heating oil when the economics support the
change and we are exploring increasing our base of dual-fired systems.
In addition, we continue to invest in our properties with energy
efficient initiatives."
"Continuing to invest in Ontario will increase the diversification of
Killam's asset base. We were pleased to expand our Ontario portfolio
this past year and expect to continue to build on our base of 1,359
units in the year ahead. Our Ontario assets are performing well, with
strong year-over-year earnings growth. Our efforts to reposition a
portfolio of buildings in Ottawa are paying off and position us for NOI
growth in Ontario in the years ahead."
"We are also pleased with the assets we added to our portfolio in
Atlantic Canada in 2013, and with the value that we crystalized with
the sale our New Brunswick MHC portfolio. We are committed to adding
strategically to our asset base, with both new buildings and well
located older buildings with upside opportunities in our core markets.
We experienced short-term dilution in 2013 due to the timing of our
acquisitions; however, we are willing to be patient with our buying and
will continue to make acquisitions which we believe are best for the
Company, and our shareholders, in the long-term."
Financial Statements
Killam's 2013 Financial Statements and Notes, and Management's
Discussion and Analysis can be found under Financial Reports on
Killam's website at www.killamproperties.com/investor-relations.
Results Conference Call
Management will host a conference call to discuss these results on
Wednesday, February 19, 2014, at 10:00 AM Eastern. The dial-in numbers
for the conference call are 647-427-7450 (in Toronto) or 888-231-8191
(toll free, within North America).
A live audio webcast of the conference call will be accessible on the
Company's website at www.killamproperties.com/investor-relations/events-and-presentations and at www.newswire.ca.
Corporate Profile
Killam Properties Inc., based in Halifax, Nova Scotia, is one of
Canada's largest residential landlords, owning, operating and
developing multi-family apartments and manufactured home communities.
Non-IFRS Measures
There are measures included in this press release that do not have a
standardized meaning under IFRS and therefore may not be comparable to
similarly titled measures presented by other publicly traded companies.
The Company includes these measures as a means of measuring financial
performance.
-
Net operating income is calculated by the Company as income from
property operations.
-
Funds from operations are calculated by the Company as net income plus
deferred tax expense, loss on disposition and depreciation on
owner-occupied property, less fair value gains, gain on disposition and
non-controlling interest.
-
Same store results in relation to the Company are revenues and property
operating expenses for stabilized properties the Company has owned for
equivalent periods in 2013 and 2012.
-
Capitalization Rate is the rate calculated by dividing the forecasted
NOI from a property by the property's purchase price.
-
Interest coverage is calculated by dividing the earnings before
interest, tax, depreciation, and fair value adjustments by interest
expense.
Note: The Toronto Stock Exchange has neither approved nor disapproved of
the information contained herein. Certain statements in this report
may constitute forward-looking statements relating to our operations
and the environment in which we operate, which are based on our
expectations, estimates, forecast and projections, which we believe are
reasonable as of the current date. Such forward-looking statements
involve risks, uncertainties and other factors which may cause actual
results, performance or achievements of Killam to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. For more
exhaustive information on these risks and uncertainties, you should
refer to our most recently filed annual information form which is
available at www.sedar.com. Readers, therefore, should not place undue reliance on any such
forward-looking statements. 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. Other than as required by law,
Killam does not undertake to update any of such forward-looking
statements.
SOURCE Killam Properties Inc.