Killam Properties Inc.’s $33.3 million purchase of a luxury apartment building in London in late December is notable for two reasons.
The acquisition of the newly built building was the second buy in the southwestern Ontario city and is part of a larger foray in the country’s most populous province.
Secondly, the purchase of the 127-unit apartment complex is the first acquisition that Killam has made with Kuwait Finance House (KFH), one of the world’s leading Islamic banks in the world with total assets in excess of US$46 billion.
Just over a year ago, Killam reached a $100-million equity partnership agreement with KFH and sees the partnership as a way to fast track its multi-family expansion beyond its east coast base. “They have been looking to come to Canada and we have been looking to enter Ontario specifically in a bigger way. We only purchased our first assets in Ontario in 2010,” said Dale Noseworthy, Killam’s Vice President, Investor Relations and Corporate Planning.
“So it is a way for us to partner with them to get a bigger hold faster in Ontario,” she said. “They have some ownership and we manage the properties.”
The Killam-Kuwait Finance House agreement is a $100 million equity commitment with the Islamic bank putting up $75 million and its Halifax partner putting up the rest. With leverage, Killam expects it can buy up to $250-million worth of real estate. “We will be looking to do more acquisitions with them in order to fill that initial commitment.” Most of those will likely be in Ontario. “In order to really continue to grow as a company Ontario really makes sense.”
Specific areas of interest for Killiam in the province include London, Cambridge, Ottawa and the greater Toronto area.
The unusual partnership between Killam and KFH can be traced back to the connections of Sigma Real Estate Advisor founder and former Summit REIT Chief Executive (and Halifax-area native) Lou Maroun. “After Summit REIT was acquired by ING in 2006, Lou started former these relationships with some people in the Middle East about coming to invest in Canada,” said Noseworthy. “Sigma pretty much brought the two companies together.”
Under its most recent deal, Killam takes a 25% ownership interest in the 180 Mill Rd. Apartments complex in downtown London. Completed in the first quarter of 2011 and 60% leased currently, the complex features a energy efficient geothermal heating system with water being taken from an underground stream and pumped through a heat exchanger to individual heat pumps in each unit.
Geographically, buying the complex (the 12-storey building and seven adjacent townhouses) also makes sense for Killam. The 180 Mill Rd. purchase “will allow for efficiencies with the management of Killam's 137-unit Richmond Hill Apartments, acquired in 2010,” said Philip Fraser, Killam's President and CEO in announcing the deal.
Near the end of 2011, Killam also bought the Milford Manufactured Home Community, a 156-site MHC located in Saint John, New Brunswick, for $2.5 million.
For the calendar year, Killam completed a total of $104.4 million in acquisitions.
“We have approximately 200 properties” and approximately $1.2 billion in total assets, said Noseworthy. “Fifty-six are manufactured home communities, so about one-quarter of our business is manufactured home communities or land-lease, or trailer parks as most people know them as, across Canada with our biggest ownership in Ontario.”
As well, over the past 10 years, Killam has acquired 145 apartment buildings, primarily in Atlantic Canada, giving it a 12% market share of the apartment market in the region’s six largest cities.