Despite More Expenses, Killam Ups Profits Thanks To Higer Rents, Record Occupancy
HALIFAX — Locally owned corporate landlords Killam Apartment REIT made significantly less money last quarter compared to 2021. However, despite rising costs, the company continues to turn a profit thanks to rent increases and tight rental markets.
Killam’s newly released financial results show the REIT made $3.6 million in Q3. That’s down nearly 1,200 percent from the $46.6 million it brought in over the same period last year.
The drop in net profits came thanks to long-overdue corrections in the real estate market that took big chunks out of property values. While that 1,200-percent drop seems massive, Killam’s fundamental financial performance was strong.
Net operating income (NOI) is a better measure of a company’s financial health than net income, and Killam’s NOI rose 12.6 percent in Q3, shifting from $50.5 million in 2021 to $56.8 million in 2022.
The company was able to squeeze more money out of each of its rental units. Its earned funds from operations (FFO) per unit climbed 3.3 percent last quarter, from 30 cents to 31 cents. The company also bumped up its same-property net operating income by 5.1 percent in Q3.
Those gains came despite increased operating costs for the company driven by rising natural gas prices, higher wages, and modest property tax increases.
Despite those drags, the company was still able to boost net operating incomes of its properties by raising rents. It was also heped by the fact that the rental market is so tight.
Overall, the company raised rents by 3.6 percent. Meanwhile, more than 98 percent of all its rental units are now occupied. In cities like Halifax and Moncton, that number is 99 percent.
In a call with investors on November 9, Killam representatives said the company’s occupancy rate is the highest in its history.
As higher operating costs eat into profits, Killam said that most of its top-line growth in the near future will come from raising rents.
Killam executive vice-president Robert Richardson said Killam is seeing “strong demand and healthy rental growth.” He explained that the company is in the middle of upscaling a large swath of its units, which can be very lucrative. Richardson said it costs Killam, on average, about $26,000 to upgrade a unit and that the average return on investment is 13 percent.
Meanwhile, the company is slowing down on the development side of the business as borrowing money becomes more expensive.
“We believe now is not the time to be aggressive on the acquisition front,” Richardson said.
However, Killam is sticking to its target of generating more than 40 percent of its net operating income outside of Atlantic Canada by 2025. The company had been aggressively expanding in Ontario, Alberta, and British Columbia, both through acquisitions and new builds.
Killam has three developments underway that will add an additional 320 new units to the company portfolio in the next three years.
Trevor Nichols is Huddle’s editor, based in Halifax. Send him your feedback and story ideas: [email protected].