Killam Apartment REIT - killamreit.com Presentation Jan 2017.pdf · Killam Apartment REIT is a...
Transcript of Killam Apartment REIT - killamreit.com Presentation Jan 2017.pdf · Killam Apartment REIT is a...
Killam Apartment REIT
Investor Presentation
January 2017
1
This presentation may contain forward‐looking statements with respect to Killam
Apartment REIT and its operations, strategy, financial performance and condition.
These statements generally can be identified by use of forward‐looking words such as
“may”, ”will”, “expect”, “estimate”, “anticipate”, “intends”, “believe” or “continue”
or the negative thereof or similar variations. The actual results and performance of
Killam Apartment REIT discussed herein could differ materially from those expressed
or implied by such statements. Such statements are qualified in their entirety by the
inherent risks and uncertainties surrounding future expectations. Important factors
that could cause actual results to differ materially from expectations include, among
other things, general economic and market factors, competition, changes in
government regulation and the factors described under “Risk Factors” in Killam'
annual information form and other securities regulatory filings. The cautionary
statements qualify all forward‐looking statements attributable to Killam Apartment
REIT and persons acting on its behalf. Unless otherwise stated, all forward‐looking
statements speak only as of the date to which this presentation refers, and the
parties have no obligation to update such statements.
Cautionary StatementCautionary Statement
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Killam Apartment REIT is a growth‐oriented Canadian real estate investment trust. Killam owns, manages and develops multi‐family residential properties in Atlantic Canada, Ontario and Alberta. Killam's portfolio includes $1.9 billion in real estate assets, including 13,952 apartment units and 5,165 manufactured home community (MHC) sites.
Killam Apartment REIT
Market cap1 $860MAnnual distribution $0.60Distribution yield 5.0%Avg. daily volume 133K
1) Includes exchangeable units
About Killam Apartment REIT
89%
9% 2%
Net Operating Income (NOI) by Sector
ApartmentsMHCsCommercial
43%
22%
18%
8%
6%3%
NOI By Province
Nova ScotiaNew BrunswickOntarioNFLDPEIAlberta
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Why Invest in Killam Clearly defined strategy – growth from same
property portfolio, acquisitions and developments.
High‐quality portfolio with investment in newer properties.
Growing funds from operations (FFO) & adjusted funds from operations (AFFO) per unit.
Stable distributions with improving payout ratio.
Strengthened balance sheet with increased flexibility.
Interest saving opportunities on refinancings.
Established development program with robust development pipeline.
Positioned to benefit from economic growth in Atlantic Canada and population growth in Central Canada.
Why Invest in Killam
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Killam Apartment REITClearly Defined StrategyKillam’s strategy is to maximize its value and long‐term profitability by concentrating on three key areas of growth:
#1
Increasing earnings from its existing portfolio
#2
Expanding the portfolio and diversifying geographically
through accretive acquisitions, with an emphasis on newer
properties
#3
Developing high‐quality properties in its core markets
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Killam Apartment REITClearly Defined Strategy
#1) Increasing earnings from the existing portfolio.
Revenue Growth+
Expense Management
=Increased Net
Operating Income (NOI)
2.9%
2.6%
1.9%
1.8%
1.7% 2.2%
1.8%
Historic Same Property Revenue Growth
• Improved occupancy• Growing rental rates• Reduced incentives• Capital upgrades• Quality product & service• 90% tenant satisfaction
rating94
.3%
93.6
% 94.2
%
95.6
%
94.7
%
94.9
%
94.7
%
95.8
%
95.5
%
94.8
% 95.3
% 95.7
%
95.7
%
95.6
%
95.8
%
Apartment Quarterly Occupancy$ occupancy as a % of gross potential rents 1
95.1% Average
61. This measures dollar occupancy achieved and is typically ~1% lower than occupancy on a unit count basis at the end of each quarter, but is better management information.
Killam Apartment REITClearly Defined Strategy
#1) Increasing earnings from the existing portfolio.
Revenue Growth+
Expense Management
=Increased NOI
• Energy initiatives• Water saving programs• Maximizing economies of
scale
Killam has increased its same property NOI an average of 3.0% per year over the last 10 years.
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5.1%
2.1%
8.4%
4.8%
0.3%
2.0%
(0.4
%)
(0.9
%)
4.2% 4.
7%
Same Property NOI Growth 2007-2016
Average Growth of 3.0%
* Record high natural gas prices in Atlantic Canada impacted NOI growth in 2013 & 2014.
• Employee training• Investment in technology• Tenant education
Killam Apartment REITClearly Defined Strategy
#2) Expanding the portfolio and diversifying geographically through accretive acquisitions, with an emphasis on newer properties.
0
5,000
10,000
15,000
Units/site
s
Apartment Units & MHC Sites
ApartmentUnits
MHC Sites
$‐
$20
$40
$60
$80
$100
Annual Apartment NOI$ millions
AlbertaOntarioAtlantic Canada
Killam's strong operating platform can support a larger and more geographically diverse portfolio. Increased investment in core markets outside Atlantic Canada will enhance Killam's diversification and exposure to urban centres in Canada that have higher population growth.
Since its first acquisition in 2002, Killam’s portfolio has grown annually through acquisitions. Killam is expanding its portfolio by acquiring centrally located buildings in urban markets, increasing its ownership in Ontario and Alberta, and adding to its established portfolio in Atlantic Canada.
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Killam Apartment REITClearly Defined Strategy
#3) Developing high-quality properties in its core markets.
$5 $8 $14 $8$15
$35$24
$19 $25
$25
$17
$0
$20
$40
$60
$80
Developments Completed Per Year$ millions
Killam augments its external growth opportunities with developments. Killam has invested over $130 million in developments since its first project was completed in 2011.
With an experienced team and a development pipeline of over 1,200 units, developments are an important component of Killam’s growth.
Killam can develop to yields higher than those achievable through acquisition, contributing to net asset value (NAV) growth per unit.
* forecast
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Killam Apartment REITClearly Defined StrategyOver $130 million of developments completed.
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49 units ‐ Charlottetown, PEI 63 units ‐ Halifax, NS 101 units ‐ Fredericton, NB
47 units – Charlottetown, PEI 71 units – St. John’s, NL 102 units – St. John’s, NL
122 units ‐ Cambridge, ON 70 units – Halifax, NS
High‐Quality Portfolio
18%
19%
9%8%
23%
23%
Apartment NOI by Year of Construction
2010 and newer2000‐20091990‐19991980‐19891970‐1979Pre 1970
Killam has one of the newest apartment portfolios in Canada; 37% of Killam’s apartment NOI comes from properties built in 2000 or later.
Management believes that increasing Killam’s ownership in new, high‐quality buildings will result in long‐term demand for its properties, reduce annual capital requirements related to deferred maintenance, and transform Killam’s portfolio into one of the highest quality portfolios in Canada.
$0
$1,000
$2,000
$3,000
2013 2014 2015
Average Capital Spend Per Unit by Building Age
For the years ended Dec 31
0 ‐ 10 years 11 ‐ 20 years 21 ‐ 30 years
31 ‐ 40 years 41 + years
Killam is growing its portfolio of high‐quality properties by focusing on developments and acquiring newer properties. 11
The annual capital spend per unit is lowerfor newer properties. For example, Killam’s average spend for properties 0 to 10 years old was $700 per unit in 2015 compared to $2,600 per unit for buildings over 40 years old.
Overall, Killam’s average capital spend was $2,178 per apartment unit in 2015.
9.7% FFO Per Share Growth 2015
$0.71 $0.72
$0.79
$0.60 $0.61
$0.68
2013 2014 2015
FFO & AFFO Per Unit
For the years ended Dec 31
FFO AFFO
Growing FFO & AFFO per Unit
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$0.54$0.59
$0.65
$0.46$0.51
$0.58
2014 2015 2016
YTD FFO & AFFO Per Unit
For the nine months ended Sept 30
FFO AFFO
FFO and AFFO per unit growth has been attributable to: • same property NOI
growth
• interest expense savings
• accretive acquisitions
• developments
$0.58 $0.60 $0.60 $0.60 $0.60
96%98%
88%
80%
75%
70%
75%
80%
85%
90%
95%
100%
$0.57
$0.58
$0.58
$0.59
$0.59
$0.60
$0.60
$0.61
2013 2014 2015 2016* 2017*
Killam’s Annual Dividend/Distribution & Payout Ratio
Dividend/Distribution AFFO Payout Ratio
88% AFFO Payout Ratio in 2015
*The 2016 and 2017 adjusted funds from operations (AFFO) payout ratio represents the consensus estimate based on the current annual distribution of $0.60.
Improving AFFO Payout Ratio
81% AFFO Payout Ratio atSept 30, 2016
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Financial & Operating Performance
Stable Balance Sheet55
.2%
51.6
%
52.9
% 54.9
%
55.7
%
53.2
%
Debt as a % of Total Assets
At Dec 31
Sept 30, 2016
Dec 31,2015
Mortgage debt as a % of total assets 50.9% 50.4%
Weighted average interest rate on mortgage debt 3.08% 3.27%
Weighted average term to maturity 4.2 years 4.2 years
Debt service coverage ratio (rolling 12 months) 1.52 1.35
Interest coverage ratio (rolling 12 months) 2.81 2.34
CMHC‐insured apartment mortgages 76% 73%
Strengthened Balance Sheet with Increased Flexibility
1.98
2.09
2.21
2.34
2.81
Interest Coverage RatioAt Dec 31
Killam completed a $98 million equity raise on June 2, 2016. Part of the proceeds were used to redeem $57.5 million of convertible debentures on July 4, 2016. The interest coverage estimate at July 4, 2016 normalizes for the impact of redeeming the $57.5 million of convertible debentures.
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Credit Facility Expanded : Following the all cash acquisition of Garden Park Apartments on June 30, 2016, Killam established a new $30M demand credit facility and increased its acquisition capacity to $100 million.
3.81% 3.69% 3.73%
2.92%2.59% 2.70%
3.16% 3.28% 3.13%
0%
1%
2%
3%
4%
5%
6%
7%
8%
$0$20$40$60$80$100$120$140$160$180$200
Interest Rate
Mortgage Maturities ($
M)
Mortgage Maturities by YearAs at Sept 30, 2016
Mortgage Maturities Weighted Average Interest Rate (Apartments)
5 year rate 10 year rate
Interest Saving Opportunities on Refinancings
Current rate for 5‐year CMHC insured debt is approximately 2.2%.
Current rate for 10‐year CMHC insured debt is approximately 2.8%.
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Robust Development Pipeline
2014 & Q1 2015
Property CityDevelopments UnderwayThe Alexander - Phase 1* Halifax, NS
Saginaw Phase II Cambridge, ONDevelopment Opportunities - 2017Spring Garden Terrace Land Halifax, NSThe Governor (Phase 2 of the Alexander)* Halifax, NSSilver Spear* Mississauga, ON
Future Development Opportunities - 2018 and beyondGrid 5 Land* Calgary, ABCarlton Houses Halifax, NSMedical Arts (Spring Garden) Halifax, NS1335 Hollis Street Halifax, NSBlock 4 St. John's, NLTopsail Road St. John's, NL
Total Development Opportunities* Represents Killam's 50% interest in potential development units.
Future development
Future development
As of rightApproved development agreement
106 Approved development agreement
Future development
198 Future development
Under construction - 2017 completion
In design and approval processAs of right
Status
93 Start in Q3-2016
1,237
Development Opportunities
225
Development Potential in
Units
64
200
8030
70
121
50
Killam is targeting yields of 5.5% ‐ 6.0% on developments, and cap rate values upon completion of 4.5% ‐ 5.0%, contributing to NAV per unit growth. 16
Investment OpportunityImproved Economics in Atlantic CanadaBenefiting from Economic Growth in Atlantic Canada
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Halifax is expected to have one of the fastest growing economies in Canada, with 2.9% growth expected in 2016, according to the Conference Board of Canada’s Winter 2016 Metropolitan Outlook. Approximately 36% of Killam’s NOI is generated in Halifax, the largest city in Atlantic Canada.
Commitment/Size ($)
1,000‑1,500 directup to 11,500 indirect
$2.1 bill ion(British Petroleum and Shell Canada)
Various Halifax Construction Projects
$1‑2 bill ion 3‑4 years Not available Investments underway include the new convention centre, two new military facil ities, and various real estate projects in Halifax.
New Brunswick
Saint John Mill Upgrade
$450 million 3 years2014‐2017
600 direct The two‐phase upgrade began in 2014, corresponding with a 20% increase in the NB softwood that will be made available to the forestry industry.
Energy East Pipeline
$12 bil l ion (proposed total project cost)
6 years (development phase)
3,700 during development
Application submitted to National Energy Board in 2014. An estimated $2.8 bill ion of GDP contribution for New Brunswick during the project.
Newfoundland and Labrador
Muskrat Falls Hydro Project
$7 bill ion 5 years2012‐2017
1,500 direct with peak of 3,100.
Construction of the 824 megawatt hydroelectric dam is underway, as well as the transmission l ine between Muskrat Falls and Churchill Falls.
Maritime Link $1.6 bill ion 4 years2013‐2017
Average of 300 direct, with a peak of 600
Subsea cable designed to transport electricity from NL to NS. Construction began in 2014. First power is planned for delivery in 2017.
Hebron Oil Project
$14 bil l ion 10 years2010‐2024
3,000 ‑ 3,500 direct The reserve estimate for Hebron is over 700 million barrels of oil. The project started in 2010 and will run unti l 2024. Suncor has reconfirmed its commitment to Hebron (Jan 13, 2015) and expects it to come online in 2017. Development dril l ing will continue until 2024.
(1) Project details including commitment, size, term and job growth are taken from various sources, such as company press releases, economic studies and related websites.
Province Project(1) Term Estimated # of Jobs Comments
Nova Scotia
Irving Shipbuilding Contract
$25 bil l ion 25‑year contract. Started in 2015
Irving finished a $350M modernization of the Halifax shipyard and began cutting steel in September 2015 for phase I of the contract, 6 Arctic Offshore Patrol Ships. The second and more significant phase of the contract, building ~15 surface combatant ships, is expected to begin in 2020.
Energy Exploration off NS Coast
6 years (exploration phase)2013‐2019
Not available Shell dril led its first exploration well during 2015. BP expects to dril l its first exploration well in 2017. This offshore oil activity has the potential for long‑term investment and employment opportunities in the region.
Investment OpportunityImproved Economics in Atlantic Canada
3.8%
8.6%
5.7% 5.9%
4.6%
9.0%
3.0%3.4%
7.4%
5.5%
4.2% 4.7%
8.5%
3.5%
2.6%
6.0%
4.4%
1.7%
7.9% 8.5%
3.7%
CMHC Vacancy in Atlantic Canada2014 2015 2016
Atlantic Canada is experiencing improved apartment occupancy levels. In their Fall 2016 Rental Market Report, CMHC reported lower vacancies in four of six of Killam’s core marketsin Atlantic Canada, versus an overall increase for Canada.
Source: CMHC Fall 2015 and Fall 2016 Rental Market Reports.
Benefiting from Improved Occupancy in Atlantic Canada
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Rental Units: 70
Start Date: December 2014
Completion: August 2016Move‐ins started in Sept 2016
Location: Downtown Halifax
Lease‐up: 100%
Cost: $14.7 million ($210,000/door)
Expected Yield: 5.5%
Expected Value: 4.75% cap rate
Average Unit Size: 636 sf
Average Rent: $1,400 ($2.20/sf)
Current Developments
Southport, Halifax, NSFocus on Developments
Southport – Completed August 2016
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Current Developments
Southport, Halifax, NSFocus on Developments
Southport – Completed August 2016
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Focus on Developments
The Alexander ‐ 2017 Completion
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Rental Units: 242 units, 6,500 sf of retail space
Ownership: Killam 50%, Partners 50%
Start Date: Q3‐2015
Projected Completion: Q4‐2017
Location: Downtown Halifax across from the waterfront
Cost: $35 million (Killam’s cost) ($276,000/ residential door)
Expected Yield: 5.5%
Expected Value: 4.75% cap rate
Average Unit Size: 740 sf
Average Rent: $1,740 ($2.35/sf)
Focus on Developments
The Alexander ‐ 2017 Completion
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View from upper floors
The Alexander, Halifax
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The Alexander, Halifax
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The Alexander, Halifax
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The Alexander, Halifax
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Future DevelopmentsSaginaw 2, Cambridge, ON
Rental Units: 93 units
Start Date: Q3‐2016
Projected Completion:Q1‐2018
Location: Adjacent Saginaw Gardens, Saginaw Parkway, Cambridge
Cost: $25.1 million ($269,000/door)
Expected Yield: 5.5%
Expected Value: 4.75% cap rate
Average Unit Size: 1,025 sf
Average Rent: $1,665 ($1.62/sf)
Focus on Developments
Saginaw Gardens II – Started in Q3‐2016
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Building Description: 246 apartment units8,195 sf of commercial space
Location: 1472 Martello Street, Halifax
2016 Acquisition:Remaining 51.0% interest$23.7 millionJune 2016 closing
2016 Acquisitions
Garden Park Apartments, Halifax2016 Acquisitions
Garden Park Apartments, Halifax
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2016 Acquisitions
270 Parkside Drive, Fredericton
existing Killam properties
270 Parkside Drive is located in close proximity to 355 Killam units in Fredericton, and across from Killam’s regional office in the city.
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Building Description: 173 units3rd of a five‐building portfolio with a shared clubhouse
Location: 1047 Canadian Shield Ave, Kanata
2016 Acquisition:50% of building III$31.1 millionJune 2016 closing
Previous Purchases:2011 – 25% of building I
2014 – 50% of building II &additional 25% of building I
2016 Acquisitions
Kanata Lakes Apartments, Ottawa2016 Acquisitions
Kanata Lakes Apartments III
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2016 Acquisitions
Kanata Lakes Apartments III
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Well Positioned for Growth
32
Killam is well positioned for long‐term success with a focus on the follow key initiatives:• Attention to curb appeal and long‐term value enhancement with capital
programs and customer‐focused service. • Cost management with ongoing process improvements.• Growing the portfolio and expanding geographically with accretive
acquisitions.• Augmenting the quality of the portfolio with developments in core markets.• Strengthening its balance sheet with lower debt levels.• Increasing capital flexibility with an expanded line‐of‐credit, growing portfolio
of unencumbered assets and improved AFFO payout ratio.
Contact Information
Philip FraserPresident & CEO902‐453‐[email protected]
Robert Richardson, FCPA, FCAExecutive Vice President & CFO902‐442‐[email protected]
Dale Noseworthy, CPA, CA, CFAVice President, Investor Relations & Corporate Planning902‐442‐[email protected]
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