Acquisitions and the completion of three developments have added 1,601 apartments to Killam Apartment REIT’s portfolio so far in 2021, marking a watershed year for the Halifax-based trust.
President and CEO Philip Fraser made the comment as Killam (KMP-UN-T) revealed the acquisition of four additional apartment properties in its Q3 2021 financial report.
“This is a record year of growth for Killam, with $390 million in acquisitions year-to-date,” Fraser said during a webcast and conference call with analysts and investors. “After a quiet third quarter, we have acquired four new properties totalling 482 units in Charlottetown, Moncton and two in Edmonton.”
The properties include 140 Dale Dr., in Charlottetown, a new four-storey, 61-unit building; Emma Place at 1321 Mountain Rd., in Moncton, containing 118 units; and Heritage Village Central (123 units) and Nautical Luxury Suites at Summerside (180 units in three new buildings), both in Edmonton.
Killam’s new acquisitions
Some additional details about the acquisitions:
– 140 Dale Dr.: Acquired for $15.3 million ($251,000 per unit), this building contains 30 affordable rental units as part of the CMHC’s National Housing Strategy program, which offers a lower interest rate on debt financing, an operating grant and reduced property taxes. Currently 98 per cent leased, the building is part of Killam’s efforts to have 20 per cent of its portfolio designated as affordable by 2025.
– Emma Place: This new concrete building at 1321 Mountain Rd. in Moncton was acquired for $31.8 million ($269,500 per unit), representing a stabilized all-cash yield of 3.9 per cent. The property has a mix of large one- and two-bedroom units at an average size of 1,035 square feet and is 91 per cent leased.
– Heritage Valley Central: This new, wood-frame building at 11823 22nd Avenue SW was acquired for $28.9 million ($235,000 per unit), representing a stabilized all-cash yield of 4.7 per cent. This property has a mix of one- and two-bedroom units at an average monthly rent of $1,507 and is 90 per cent leased.
– Nautical Luxury Suites at Summerside: Killam expects to close this transaction for three newly constructed wood-frame buildings at 4203, 4207, and 4211 Savaryn Drive SW later this month. The $42.3 million ($235,000 per unit) purchase price represents a stabilized all-cash yield of 4.9 per cent. It contains one- and two-bedroom units and is 98 per cent leased. It features underground parking, state-of-the-art mechanical systems and exclusive beach access at the neighbouring lake.
While Killam is well known for its extensive presence in Atlantic Canada, Fraser said the Edmonton acquisitions reflect its efforts to diversify as well as its confidence in the Alberta economy.
“As part of our geographical diversification growth strategy, we are increasing our presence in Western Canada by using our established operating platform to absorb the management of these new assets,” Fraser said.
“(Alberta) is still heavily dependent on the price of oil and this rebound in the price of oil I think has positive effects for all of the province. We see it in terms of leasing and just talking to brokers or other developers out there . . . that they see increased traffic across the board.”
Killam’s portfolio remains weighted toward Atlantic Canada, with 67 per cent of its holdings (including 37 per cent in Halifax), but Ontario now comprises 23 per cent and its Calgary-Edmonton share is at seven per cent. It also owns some assets in Victoria.
Killam sees nationwide opportunities
Fraser said there are opportunities to expand in all of those markets.
“We’ve got our eye on a number of interesting opportunities in Atlantic Canada . . . but there is a lot of opportunity in Ontario which we are pretty excited about,” he said, noting Killam is focusing on trying to acquire properties with repositioning or additional development potential in Canada’s largest province.
“Out West there is lots of product available, in B.C. as well as Alberta.”
On the development front, during 2021 Killam has completed its 10 Harley and Shorefront developments in Charlottetown (a combined 116 units), as well as phase one at Nolan Hill in Calgary (233 apartments).
“They were fully leased within six months of completion and contributed $0.7 million in FFO in the third quarter,” Fraser said. They are forecast to provide about $3 million in new revenue on an annualized basis.
The REIT has five developments under construction, two in Ottawa (one in a partnership with RioCan REIT), and one each in Halifax, Mississauga and Kitchener.
“The cost increases have been minimal and we have experienced slight delays due to supply chain issues similar to all developers across the country today,” Fraser said, responding to a question about the progress of those sites.
Looking ahead, he said Killam has developments in Kitchener/Waterloo and Halifax, as well as phase two at Nolan Hill slated to break ground in 2022. He said despite industry-wide concerns about rising construction costs, supply-chain issues and labour shortages, the industry must keep building new product.
“There is such a demand for housing and new supply across this country that, no matter what, we are going to have to figure out a way to build it to house all the people, and all the new folks that are coming into the country, which gives us really a huge opportunity for the years to come,” he said.
Q3 2021 financial highlights
Some of the key highlights from Killam’s Q3 2021 report include (all are compared on a Q3 year-over-year basis):
– net income of $46.6 million, up $9.1 million from $37.5 million. Killam attributes this to growth via acquisitions, completed developments and increased earnings from the existing portfolio as well as fair value gains on investment properties driven by cap-rate compression;
– generated NOI of $50.5 million, a 16.8 per cent increase from $43.2 million;
– earned FFO per diluted unit of $0.30, an 11.1 per cent increase from $0.27;
– increased AFFO per diluted unit by 13.0 per cent to $0.26, from $0.23, and reduced the third-quarter AFFO payout ratio (diluted) 900 basis points to 66 per cent, from 75 per cent;
– achieved a 4.8 per cent increase in revenue for the same property portfolio;
– generated same-property NOI growth of 7.4 per cent and improved the NOI margin by 160 bps to 66.1 per cent.