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KILLAM PROPERTIES INC. ANNOUNCES 2010 RESULTS INCLUDING $0.74 IN FFO PER SHARE AND 4.8% ANNUAL GROWTH IN SAME STORE NET OPERATI

^{Published on 2011-03-01 14:30:28 - Market Wire}
 

HALIFAX, March 1 /CNW/ - Killam Properties Inc. ("Killam" or the "Company") (TSX:KMP) today announced its financial results for the fourth quarter and fiscal year ended December 31, 2010.

Fourth Quarter Highlights

• Increased funds from operations ("FFO") by 12.8% to $7.2 million, from $6.4 million during the fourth quarter of 2009.
  
  
• Increased same store net operating income ("NOI") by 2.2% during the fourth quarter, including a 0.9% increase from the apartment portfolio and a 6.4% increase from the Manufactured Home Community ("MHC") portfolio.
  
  
• Generated FFO of $0.16 per share, a 5.9% decrease from $0.17 per share earned during the fourth quarter of 2009. The 12.8% growth in FFO in the quarter was offset by a 16.7% increase in the weighted average number of shares outstanding.
  
  
• Raised $57.5 million from a public offering of 5.65% convertible unsecured subordinated debentures. $42.2 million of the proceeds were used to redeem the Company's 6.5% convertible debentures on December 13, 2010.
  
  
• Completed $12.8 million in acquisitions, including an 81-unit building in Halifax, Nova Scotia, and a 105-unit building in St. John's, Newfoundland.
  
  
• Completed the fair market valuation of its investment properties under International Financial Reporting Standards ("IFRS") as at January 1, 2010. The fair market value of Killam's investment properties was determined to be approximately $890 million, representing a 25%, or $180 million, increase above the carrying value as at December 31, 2009 of $710 million under current generally accepted accounting principles.
  
  

2010 Highlights

• Increased FFO by 21.8% to $32.1 million in 2010, from $26.3 million in 2009.
  
  
• Increased same store NOI by 4.8% for both the apartment portfolio and the MHC portfolio. The same store NOI margin was 61.1% during 2010, up from 60.0% in 2009.
  
  
• Increased same store apartment rents an average of 2.2% and same store MHC rents an average of 4.5% during the year for a weighted average increase of 2.7%.
  
  
• Maintained high occupancy rates throughout the year, with average quarter-end occupancy of 98.3%, consistent with 98.3% in 2009.
  
  
• Completed $115.1 million in apartment acquisitions, including $79.7 million in Ontario and $35.4 million in Atlantic Canada. The acquisitions in Ontario, in London and Cambridge, marked Killam's first apartment acquisitions outside of Atlantic Canada.
  
  
• Generated FFO per share of $0.74, a 1.4% increase from $0.73 generated during 2009. The timing of the deployment of cash raised for acquisitions limited the annual growth in FFO per share in 2010.
  
  
• Strengthened the balance sheet, reducing total gross debt to gross book value of assets to 63.8%, from 65.2% at December 31, 2009.
  
  
• Successfully refinanced $52.1 million in mortgage debt that matured in 2010 at a weighted average interest rate of 4.22%, 107 basis points lower than the weighted average rate of 5.29% on the debt prior to refinancing.
  
  
• Completed 28 home sales and earned home placement fees on an additional 17 new homes, compared to 25 home sales and fees earned on 9 home sale placements during 2009. Home sales and home sale placements contributed $0.4 million to FFO in 2010, compared to $0.2 million in 2009.
  

Financial Highlights (in thousands, except per share information)

FFO of $0.16 Per Share in the Fourth Quarter

Killam generated $7.2 million in FFO in the fourth quarter of 2010, a 12.8% increase from the fourth quarter of 2009. The increase was primarily attributable to new properties acquired in 2010 and the 2.2% NOI growth from the Company's same store portfolio, partially offset by IFRS related costs and higher interest costs associated with the Company's convertible debentures.

Management considers FFO per share to be a key measure of operating performance and believes that many industry analysts and shareholders also find this to be a key measure. The Company provides the components of FFO and reconciliation between FFO and net income in its Management's Discussion and Analysis. FFO is a generally accepted measure of operating performance for real estate companies; however, it is a non-GAAP measurement and readers are cautioned that Killam's calculation of FFO may be different than that used by other companies. Killam calculates FFO as net income plus depreciation and amortization, stock compensation and non-cash debenture interest, less gains on debt retirement and future income tax recovery.

FFO per share for the fourth quarter of 2010 was $0.16 per share, compared with $0.17 per share earned during the same period of 2009. The 12.8% increase in FFO in the quarter, as noted above, was more than offset by a 16.7% increase in the weighted average number of shares outstanding, following the $50.6 million common share issue in March 2010.

FFO of $0.74 Per Share in 2010

FFO per share for the year ended December 31, 2010 increased by 1.4% to $0.74 per share, from $0.73 per share in 2009. Growth in FFO, which increased $5.8 million, or 21.8%, during the year, was largely offset by the 19.7% increase in the weighted average number of shares outstanding. 

The $5.8 million increase in FFO in the year related primarily to 4.8% NOI growth and lower interest costs from the Company's same store portfolio and the contribution from new properties acquired in 2010.

The weighted average number of shares outstanding increased by 19.7% during the year following a $24.7 million equity raise in July 2009 and a $50.6 million equity raise in March 2010. These funds were deployed throughout late 2009 and 2010 to reduce the Company's leverage and to acquire $115 million in apartment properties. The timing of deployment of funds, much of which were not deployed until the second quarter of 2010 and later in the year, adversely affected Killam's FFO per share results during the year. The full impact from the funds raised is expected to be realized in 2011 as the majority of the funds were deployed by year-end 2010.

4.8% Same Store NOI Growth in 2010

Killam achieved consolidated same store NOI growth of 4.8% during 2010, including 4.8% growth for each of the apartment and MHC portfolios. Same store properties accounted for 95% of the Company's portfolio in 2010.

Killam's apartment revenue increased by 2.8% in 2010 due primarily to increased rental rates.  The average monthly rent for the same store apartment portfolio increased by 2.2% from December 2009 to December 2010.  The portfolio also benefited from occupancy improvements. Total property expenses were flat year-over-year as higher operating costs and property taxes were mitigated by lower heating costs. Heating costs in 2009 included $1.0 million in hedge settlement costs that were not incurred in 2010, driving the majority of the cost savings.

MHCs realized same store revenue growth of 3.4% during 2010, benefiting from increased average rents. The average MHC rent increased by 4.5% from December 2009 to December 2010. Property expenses on the MHC portfolio remained relatively flat in 2010, increasing only $0.7%, or $55,000, as higher property taxes, water and electricity costs were offset by lower water infrastructure related repairs.

Vacancy of 1.7% at December 31, 2010

Killam maintained low vacancy throughout the year. Consolidated vacancy was 1.7% at December 31, 2010, compared to 1.6% at December 31, 2009. The apartment portfolio had a vacancy rate of 2.2% with an average monthly rent of $803. This compares to 2.3% vacancy for the apartment portfolio at December 31, 2009 with an average monthly rent of $758. The MHC portfolio had a vacancy rate of 1.2%, with an average monthly rent of $231. The average vacancy at December 31, 2009 was 1.0%, with an average monthly rent of $221. Not included in the MHC vacancy numbers are 144 MHC sites that had not been previously rented, including some expanded sites, and 376 transient sites in Killam's seasonal resort portfolio. These units are excluded from the December 31, 2010 vacancy statistics in the table below.

New Home Sales Activity

Killam completed 28 home sales during 2010 and earned home placement fees on 17 additional new homes, generating income from home sales of $0.4 million. This compares with the closing of 25 home sales and earning placement fees on 9 homes during 2009, which generated income of $0.2 million. The average gross margin on new homes sales was $16,000 per home, compared to $14,500 in 2009. Demand for homes has been steady in Nova Scotia, with the newly expanded Birchlee MHC in Halifax driving the most activity. Management expects that sales activity in 2011 will be similar to 2010 and is projecting total sales and home placements of between 40 and 50 new manufactured homes.

Stable Balance Sheet

At December 31, 2010, the Company's debt as a percentage of the gross book value of assets was 63.8%, consistent with the leverage at September 31, 2010 and 140 basis points improved from 65.2% as at December 31, 2009. Management's targeted debt ratio for 2010 was between 65% and 70%. Actual debt levels below the target reflect Management's focus to decrease the Company's leverage; Killam's debt levels have improved considerably over the last five years, down from 75.8% at December 31, 2006.

Killam's annualized interest coverage ratio was 2.0 at the end of 2010 compared to 1.8 as at December 31, 2009. Killam's weighted average interest rate on mortgages improved to 5.0%, from 5.2% as at December 31, 2009. The weighted average years to maturity on mortgage debt was 4.0 years as at December 31, 2010, compared to 4.1 years as at December 31, 2009.

During 2010, Killam successfully refinanced $52.1 million in maturing mortgages, including $37.8 million in apartment and $14.3 million in MHC mortgages. The related properties were refinanced with $75.5 million of fixed rate mortgages at a weighted average rate of 4.22%, including 3.85% for the apartments and 5.36% for the MHCs. The weighted average interest rate on the mortgages that matured in 2010 was 5.29%.

Killam has approximately $50.6 million of mortgages, representing 8.8% of total mortgages, due for refinancing during 2011, including $45.1 million of apartment mortgages and $5.5 million of MHC mortgages. The maturing mortgages have a weighted average interest rate of 5.55%.  Management does not anticipate any difficulties in renewing these mortgages.

$57.5 Million Convertible Debenture Offering

Killam capitalized on the low interest rate environment in 2010 by issuing convertible debentures in November. The $57.5 million convertible unsecured subordinated debentures bear interest at 5.65% and mature in 2017. The funds raised were primarily used to redeem Killam's $42.2 million debentures on December 13, 2010. The offering allowed Killam to reduce the interest rate on its convertible debentures and to extend the term to maturity another five years. The interest rate on the new debentures is 85 basis points lower than the rate on the debentures they replaced. The additional funds raised from the November offering are expected to be applied to property acquisitions and development projects in 2011.

$115 Million in Acquisitions in 2010

Killam completed acquisitions totalling $115.1 million in 2010, acquiring 769 apartment units. Acquisitions included three new luxury apartment buildings in Ontario and five buildings in Killam's core markets in Atlantic Canada. The weighted average capitalization rate on the properties acquired was approximately 6.0%, reflecting the quality of the properties purchased.

In addition to acquisitions, Killam began the process of growing its apartment portfolio through the development of new properties. During 2010, Killam started construction on its first apartment development. Charlotte Court in Charlottetown, Prince Edward Island, is a two-phase project with a total of 98 units and an estimated cost of $11 million. The first phase of the project is expected to be completed during the third quarter of 2011. Killam expects to begin construction of two other developments in 2011.

Fair Market Value of Properties for IFRS

Management will use the fair market value approach to account for its investment properties under IFRS. The fair market value of investment properties was determined to be approximately $890 million as at January 1, 2010, the first date requiring a fair market valuation. This represents a 25%, or $180 million, increase above the carrying value of Killam's real estate properties at December 31, 2009 of $710 million. Management engaged an accredited national appraisal firm to provide an independent appraisal of the Company's complete portfolio as at January 1, 2010. The individual properties were valued using capitalization rates ranging from 5.75% to 8.75% on the apartment portfolio, with a weighted average of 6.8%, and from 6.75% to 8.75% on the MHC portfolio, with a weighted average of 7.7%. The appraisals consider individual properties and do not include any additional value for a portfolio premium.

For additional information on Killam's transition to IFRS please refer to the Accounting Policy Changes section of the Management's Discussion and Analysis for the year ended December 31, 2010.

Management's Comments  

"2010 was a year of growth for Killam, including apartment acquisitions in new markets and the start of our apartment development program," noted Philip Fraser, Killam's President and Chief Executive Officer. "We are very pleased to have acquired three luxury apartments in Ontario and look forward to building on this base of assets in the future. We were also successful in acquiring five properties in Atlantic Canada last year, which complement our existing portfolio. The construction of Charlotte Court in Charlottetown is progressing well, and we look forward to the completion of Phase 1 this summer."

"Our equity raise last year provided capital to fund our 2010 acquisition program, and to strengthen our balance sheet. The timing of deployment of the funds raised impacted our FFO per share results. We look forward to benefiting from a full year of ownership from our new properties in 2011. Finally, with our current deal flow, we expect to continue to grow our real estate portfolio in 2011 with $100 to $150 million in acquisitions."

Financial Statements

Killam's December 31, 2010 Audited Financial Statements and Notes and Management's Discussion and Analysis can be found under the 2010 Financial Reports of the Investors section of Killam's website at [ www.killamproperties.com/investors.asp ].

Q4 Conference Call

Management will host a conference call to discuss these results on Wednesday, March 2, 2011 at 11:00 AM Atlantic time (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/events-and-presentations.asp ] and at [ www.newswire.ca ].

A replay will be available by dialing 416-849-0833 (Toronto) or 800-642-1687 (toll-free) and using the passcode 37872586 until March 9, 2011, or on the Company's website for 90 days after the conference call.

Corporate Profile

Killam Properties Inc, based in Halifax, Nova Scotia, is one of Canada's largest residential landlords, owning and operating multi-family apartments and manufactured home communities.

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.