"We are pleased to begin the year with another quarter of strong operating and financial results. We delivered double-digit same property NOI [net operating income] growth, driven by robust top-line growth and effective cost containment," noted
"We have made progress toward our strategic targets for the year. Following Q1 same property NOI growth of 10.3%, we have increased our same property NOI growth target for 2024 to exceed 8%. Developments are an important strategic priority, and they are advancing smoothly. Lease up of the three developments completed in 2023 are on target for full occupancy by early Q3 and are expected to augment FFO [funds from operations] per unit growth in the second half of 2024 and the first half of 2025. In addition, Killam broke ground this quarter on Eventide, a 55-unit building in
"Killam is also pleased to report continued strengthening of its balance sheet. We ended the first quarter with debt as a percentage of total assets of 42.1%, representing the lowest level in our history. Debt to normalized EBITDA [earnings before interest, tax, depreciation and amortization] also improved to 10.16x compared to 11.08x on
Q1-2024 Financial & Operating Highlights
- Reported net income of
$127.2 million , an increase of$43.8 million compared to$83.5 million in Q1-2023. The growth in net income is primarily attributable to$116.3 million of fair value gains on investment properties this quarter, driven by strong NOI growth. - Generated NOI of
$55.0 million , an 8.3% increase from$50.8 million in Q1-2023. - Earned FFO per unit of
$0.26 , a 4.0% increase from$0.25 in Q1-2023.2 - Adjusted funds from operations (AFFO) per unit of
$0.21 , compared to$0.20 in Q1-20233, and reduced the rolling 12-month AFFO payout ratio by 200 basis points (bps) to 72%, from 74% in Q1-2023.2 - Achieved a 5.9% increase in revenue for the same property portfolio compared to Q1-2023.
- Generated 10.3% same property NOI growth.4
______________________________ | ||
1 | Net debt to normalized adjusted EBITDA is a non-IFRS ratio. An explanation of the composition of this measure can be found under the heading "Non-IFRS Ratios." | |
2 | FFO, AFFO, FFO per unit, AFFO per unit and AFFO payout ratio are non-International Financial Reporting Standards (IFRS) measures that do not have a standardized meaning according to IFRS and, therefore, may not be comparable to similar measures presented by other issuers. For information regarding non-IFRS measures, including reconciliations to the most comparable IFRS measure, see "Non-IFRS Measures." | |
3 | The maintenance capital expenditures used to calculate AFFO and AFFO per unit (diluted) for Q1-2023 were updated to reflect the maintenance capex reserve of | |
4 | Same property NOI and same property revenue are supplementary financial measures. An explanation of the composition of these measures can be found under the heading "Supplementary Financial Measures." |
Three months ended | |||
(000s) | 2024 | 2023 | Change |
Property revenue | 3.1 % | ||
Net operating income | 8.3 % | ||
Net income | 52.5 % | ||
FFO (1) | 3.6 % | ||
FFO per unit (diluted) (1) | 4.0 % | ||
AFFO per unit (diluted) (1)(3) | 5.0 % | ||
AFFO payout ratio – diluted (1)(3) | 83 % | 85 % | (200) bps |
AFFO payout ratio – rolling 12 months(1)(3) | 72 % | 74 % | (200) bps |
Same property apartment occupancy (2) | 98.2 % | 98.3 % | (10) bps |
Same property revenue growth (2) | 5.9 % | 5.4 % | 50 bps |
Same property NOI growth | 10.3 % | 6.3 % | 400 bps |
(1) FFO, FFO per unit, AFFO and AFFO per unit are non-IFRS financial measures. A reconciliation from net income to FFO and a reconciliation from FFO to AFFO can be found under the heading "Non-IFRS Reconciliation." | |||
(2) Same property apartment occupancy and same property revenue are supplementary financial measures. An explanation of the composition of these measures can be found under the heading "Supplementary Financial Measures." | |||
(3) The maintenance capital expenditures used to calculate AFFO, AFFO per unit (diluted) and AFFO payout ratio for Q1-2023 were updated to reflect the maintenance capex reserve of |
Debt Metrics as at | Change | ||
Debt to total assets | 42.1 % | 42.9 % | (80) bps |
Weighted average mortgage interest rate | 3.23 % | 3.22 % | 1 bps |
Weighted average years to debt maturity | 3.7 | 3.9 | (0.2) years |
Interest coverage ratio(1) | 3.06x | 3.10x | (1.3) % |
(1) Interest coverage ratio is a non-IFRS ratio. An explanation of the composition of this measure can be found under the heading "Non-IFRS Ratios." |
Summary of Q1-2024 Results and Operations
Same Property NOI Growth of 10.3% Drives Margin Expansion
Killam achieved same property NOI growth of 10.3% and an operating margin increase of 250 bps during the quarter. The gains were driven by a 5.9% increase in same property revenue and a 0.7% reduction in same property operating expenses. Revenue growth is attributed to a 5.8% increase in apartment rental rates year-over-year and a 51% reduction in rental incentives. Killam expects its same property weighted average rental rate increase to trend higher throughout the remainder of 2024.
The 0.7% reduction in total same property operating expenses is attributable to lower natural gas prices in Q1-2024, resulting in a 10.0% decrease in utility and fuel expenses. This was partially offset by an increase in general operating expenses of 1.6% and a 6.0% increase in property tax expense due to higher property taxes across the portfolio and the absence of property tax subsidies in
Earned Net Income of
During the quarter, Killam earned net income of
Generated 4.0% of FFO per Unit Growth and 5.0% of AFFO per Unit Growth
Killam generated FFO per unit of
Development Program Continues to Support Growth in New High-Quality Assets
During Q1-2024, Killam broke ground on Eventide, an 8-storey, 55-unit building located in
Higher Interest Rates on Refinancings
The maturity dates of Killam's mortgages are staggered to mitigate interest rate risk. During Q1-2024, Killam refinanced
Additional Dispositions Subsequent to Quarter End
Conditions have been waived on the sale of Woolwich, an 84-unit apartment building located in
Financial Statements
Killam's condensed consolidated interim Financial Statements and Management's Discussion and Analysis (MD&A) for the three months ended
Results Conference Call
Management will host a webcast and conference call to discuss these results and current business initiatives on
The dial-in numbers for the conference call are as follows:
Overseas or local (
Profile
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 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 to similarly titled measures presented by other publicly traded organizations.
Non-IFRS Financial Measures
- FFO is a non-IFRS financial measure of operating performance widely used by the Canadian real estate industry based on the definition set forth by REALPAC. FFO, and applicable per unit amounts, are calculated by Killam as net income adjusted for fair value gains (losses), interest expense related to exchangeable units, gains (losses) on disposition, deferred tax expense (recovery), unrealized gains (losses) on derivative liability, internal commercial leasing costs, depreciation on an owner-occupied building, interest expense related to lease liabilities, and non-controlling interest. FFO is calculated in accordance with the REALPAC definition. A reconciliation between net income and FFO is included below.
- AFFO is a non-IFRS financial measure of operating performance widely used by the Canadian real estate industry based on the definition set forth by REALPAC. AFFO, and applicable per unit amounts and payout ratios, are calculated by Killam as FFO less an allowance for maintenance capital expenditures ("capex") (a three-year rolling historical average capital investment to maintain and sustain Killam's properties), commercial leasing costs and straight-line commercial rents. AFFO is calculated in accordance with the REALPAC definition. Management considers AFFO an earnings metric. A reconciliation from FFO to AFFO is included below.
- Adjusted earnings before interest, tax, depreciation and amortization ("adjusted EBITDA") is a non-IFRS financial measure calculated by Killam as net income before fair value adjustments, gains (losses) on disposition, income taxes, interest, depreciation and amortization.
- Normalized adjusted EBITDA is a non-IFRS financial measure calculated by Killam as adjusted EBITDA that has been normalized for a full year of stabilized earnings from recently completed acquisitions and developments, on a forward-looking basis.
- Net debt is a non-IFRS financial measure used by Management in the computation of debt to normalized adjusted EBITDA. Net debt is calculated as the sum of mortgages and loans payable, credit facilities and construction loans (total debt) reduced by the cash balances at the end of the period. The most directly comparable IFRS measure to net debt is debt.
Non-IFRS Ratios
- Interest coverage is calculated by dividing adjusted EBITDA by mortgage, loan and construction loan interest and interest on credit facilities.
- Per unit calculations are calculated using the applicable non-IFRS financial measures noted above, i.e. FFO and AFFO, divided by the diluted number of units outstanding at the end of the relevant period.
- Payout ratios are calculated using the distribution rate for the applicable period divided by the applicable per unit amount, i.e. AFFO per unit.
- Debt to normalized adjusted EBITDA is calculated by dividing net debt by normalized adjusted EBITDA.
Supplementary Financial Measures
- Same property NOI is a supplementary financial measure defined as NOI for stabilized properties that Killam has owned for equivalent periods in 2024 and 2023. Similarly, same property revenue is a supplementary financial measure defined as revenue for stabilized properties that Killam has owned for equivalent periods in 2024 and 2023.
- Same property apartment occupancy is a supplemental financial measure defined as actual residential rental revenue, net of vacancy, as a percentage of gross potential residential rent for stabilized properties that Killam has owned for equivalent periods in 2024 and 2023. Same property results represent 96% of the fair value of Killam's investment property portfolio as at
March 31, 2024 . Excluded from same property results in 2024 are acquisitions, dispositions and developments completed in 2023 and 2024, and non-stabilized commercial properties linked to development projects.
Non-IFRS Reconciliation (in thousands, except per unit amounts)
Reconciliation of Net Income to FFO | Three months ended | |
2024 | 2023 | |
Net income | ||
Fair value adjustments | (113,823) | (63,365) |
Non-controlling interest | — | (4) |
Internal commercial leasing costs | 90 | 90 |
Deferred tax expense | 16,969 | 8,942 |
Interest expense on Exchangeable Units | 682 | 682 |
Loss on disposition | 191 | 350 |
Unrealized loss on derivative liability | — | 96 |
Depreciation on owner-occupied building | 25 | 26 |
Change in principal related to lease liabilities | 6 | 6 |
FFO | ||
FFO per unit – diluted |
Reconciliation of FFO to AFFO | Three months ended | |
2024 | 2023 (1) | |
FFO | ||
Maintenance capital expenditures | (5,323) | (5,491) |
Commercial straight-line rent adjustment | (31) | 101 |
Internal commercial leasing costs | (64) | (87) |
AFFO | ||
AFFO per unit – diluted | ||
AFFO payout ratio – diluted | 83 % | 85 % |
AFFO payout ratio – rolling 12 months (2) | 72 % | 74 % |
Weighted average number of units – diluted (000s) | 122,610 | 121,072 |
(1) The maintenance capital expenditures used to calculate AFFO and AFFO per unit (diluted) for Q1-2023 were updated to reflect the maintenance capex reserve of |
(2) Based on Killam's annual distribution of |
Normalized Adjusted EBITDA | Twelve months ended, | ||
% Change | |||
Net income | 16.4 % | ||
Deferred tax expense | 41,186 | 33,158 | 24.2 % |
Financing costs | 71,960 | 69,398 | 3.7 % |
Depreciation | 799 | 669 | 19.4 % |
Loss on disposition | 3,861 | 4,021 | (4.0) % |
Fair value adjustment on unit-based compensation | 537 | 330 | 62.7 % |
Fair value adjustment on Exchangeable Units | 5,691 | 6,821 | (16.6) % |
Fair value adjustment on investment properties | (223,715) | (174,179) | 28.4 % |
Adjusted EBITDA | 210,435 | 206,551 | 1.9 % |
Normalizing adjustment (1) | 5,124 | 3,480 | 47.2 % |
Normalized adjusted EBITDA | 215,559 | 210,031 | 2.6 % |
Net debt | 1.3 % | ||
Debt to normalized adjusted EBITDA | 10.16x | 10.29x | (1.3) % |
(1) Killam's normalizing adjustment includes NOI adjustments for recently completed acquisitions, dispositions and developments to account for the difference between NOI booked in the period and stabilized NOI over the next 12 months. |
Note:
Readers should be aware that these statements are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated or implied, or those suggested by any forward-looking statements, including: the effects and duration of local, international and global events, any government responses thereto and the effectiveness of measures intended to mitigate any impacts thereof; competition; global, national and regional economic conditions (including rising interest rates and inflation); and the availability of capital to fund further investments in Killam's business. For more exhaustive information on these risks and uncertainties, readers should refer to Killam's most recently filed annual information form, as well as Killam's most recently filed MD&A, each of which are available on SEDAR+ at www.sedarplus.ca. Given these uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements contained in this press release. By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and various future events may not occur. Although Management believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that future results, levels of activity,
performance or achievements will occur as anticipated. 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. While Killam anticipates that subsequent events and developments may cause its views to change, Killam does not intend to update or revise any forward-looking statement, whether as a result of new information, future events, circumstances, or such other factors that affect this information, except as required by law. The forward-looking statements in this press release are provided for the limited purpose of enabling current and potential investors to evaluate an investment in Killam. Readers are cautioned that such statements may not be appropriate and should not be used for any other purpose. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.
SOURCE
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