Halifax-based Killam Apartment REIT reports strong third quarter
Killam Apartment REIT based in Halifax reported its third quarter results for the three months ended Sept. 30 on Tuesday.
Killam reported net income of $46.8 million compared to $27.1 million in the same quarter last year. And, net operating income of $41.3 million, a 13.3 per cent increase from $36.5 million in the third quarter of 2018.
The increase in net income, according to management, is primarily attributable to fair value gains on investment properties, growth through acquisitions and increased earnings from the existing portfolio, offset by increased financing costs and deferred tax expense.
Earned funds from operations per diluted unit of 27 cents, which was a 3.8 per cent increase from third quarter last year. Adjusted funds from operations were 23 cents per diluted unit, which was a 4.5 per cent increase from the same period last year.
Killam management said it achieved a 3.4 per cent increase in the weighted average of same-property rental rate in Q3 2019, and is continuing to gain momentum over the last seven quarters.
Apartment occupancy was 97.3 per cent, compared to 96.9 per cent in the same quarter last year -- a 40 basis point improvement.
The REIT generated same property net operating income growth of 4.5 per cent in third quarter over the third quarter last year, increased the net operating income margin by 60 bps to 66 per cent.
Killam said its recognized fair value gains on investment properties of $35.8 million, reflecting higher rental rates and cap rate compression in the Halifax market.
The capitalization rate is determined by dividing the net operating income by the total value of the property. Sometimes the values of properties are bid up by the market even when net operating income remains unchanged, thus lowering the cap rate – commonly referred to as cap rate compression.
Killam generated funds from operations per unit of 27 cents in the third quarter, 3.8 per cent higher than the 26 cents per unit generated in the same quarter last year. Funds from opeations growth was attributable to increased net operating income from same property performance and incremental contributions from recent acquisitions and completed developments, according to Killam management. The growth was partially offset by a 7.7 per cent increase in the weighted average number of units outstanding from Killam's $86.3 million equity issuance in March 2019.
Killam has funds from operations, per unit growth of 3.8 per cent and adjusted funds from operations per unit growth of 4.5 per cent. Adjusted funds from operations per unit increased 4.5 per cent in the quarter to 23 cents compared to 22 cents in the third quarter of 2018.
Same Property net operating income growth of 4.5 per cent Killam achieved 4.5 per cent growth in same property net operating income and a 60 basis points improvement in its operating margin during the quarter. This improvement was driven by strong rental rate growth and improved occupancy.
Operating expenses increased 2.1 per cent, as higher property tax and general operating expenses were offset by a reduction in utility costs.
Killam's same property apartment net operating income increased 4.4 per cent during the third quarter, with Ontario at 7.8 per cent and Halifax at 5.5 per cent leading net operating income growth. New Brunswick markets generating 4.3 per cent net operating income growth during the quarter.