Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties

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Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
Killam
Apartment
REIT
Investor
Presentation
January 2017

               1
Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
Cautionary
 CautionaryStatement
            Statement
 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.

                                                                                         2
Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
About
 KillamKillam Apartment
        Apartment  REIT REIT
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.

Market cap1                      $860M
Annual distribution              $0.60                                                NOI By Province
Distribution yield               5.0%
Avg. daily volume                133K     Net Operating Income (NOI)                          3%
                                                  by Sector                            6%

                                                 9%    2%                        8%
                                                                                            Nova Scotia
                                                                                            New Brunswick
                                                                                                            43%
                                                      Apartments                            Ontario
                                                      MHCs                 18%              NFLD
                                                      Commercial                            PEI
                                                                                            Alberta

1) Includes exchangeable units                              89%                         22%

                                                                                                            3
Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
Why
Why Invest
     Invest in
             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.

                                                                            4
Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
Clearly
 KillamDefined Strategy
        Apartment REIT
 Killam’s strategy is to maximize its value and long‐term profitability by concentrating on
 three key areas of growth:

              #1                               #2                               #3
  Increasing earnings from its    Expanding the portfolio and         Developing high‐quality
       existing portfolio          diversifying geographically     properties in its core markets
                                 through accretive acquisitions,
                                   with an emphasis on newer
                                            properties

                                                                                            5
Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
Clearly
 KillamDefined Strategy
        Apartment REIT
 #1) Increasing earnings from the existing portfolio.
                                                                                                                           Historic Same Property
                                                                                                                              Revenue Growth
   Revenue Growth            •           Improved occupancy

                                                                                                                    2.9%

                                                                                                                              2.6%
                             •           Growing rental rates

                                                                                                                                                                     2.2%
           +

                                                                                                                                         1.9%

                                                                                                                                                   1.8%

                                                                                                                                                                            1.8%
                                                                                                                                                            1.7%
       Expense               •           Reduced incentives
                             •           Capital upgrades
    Management
                             •           Quality product & service
           =
                             •           90% tenant satisfaction
    Increased Net                        rating
   Operating Income                                            Apartment Quarterly Occupancy
        (NOI)                                             $ occupancy as a % of gross potential rents 1

                                                                                            95.8%

                                                                                                                                                             95.8%
                                                                                                                                95.7%

                                                                                                                                           95.7%
                                                            95.6%

                                                                                                                                                    95.6%
                                                                                                    95.5%

                                                                                                                      95.3%
                                                                            94.9%

                                                                                                            94.8%
                                                                    94.7%

                                                                                    94.7%
                                                                                                                                        95.1% Average
                                 94.3%

                                                  94.2%
                                          93.6%

                           1. 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.                                                                                       6
Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
Clearly
 KillamDefined Strategy
        Apartment REIT
 #1) Increasing earnings from the existing portfolio.

   Revenue Growth             • Energy initiatives      • Employee training
          +                   • Water saving programs • Investment in technology
       Expense                • Maximizing economies of • Tenant education
                                scale
     Management
          =                        Same Property NOI Growth 2007-
                                               2016
    Increased NOI                                Average Growth of 3.0%
                                          8.4%

 Killam has increased
                           5.1%

                                                  4.8%

                                                                                                 4.7%
                                                                                          4.2%
 its same property NOI
 an average of 3.0%
                                   2.1%

                                                                 2.0%

 per year over the last
                                                         0.3%

                                                                                 (0.9%)
                                                                        (0.4%)

 10 years.

                          * Record high natural gas prices in Atlantic Canada impacted NOI
                          growth in 2013 & 2014.                                                        7
Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
Clearly
 KillamDefined Strategy
        Apartment REIT
 #2) Expanding the portfolio and diversifying geographically through
 accretive acquisitions, with an emphasis on newer properties.
                              Apartment Units & MHC Sites                              Annual Apartment NOI
                     15,000                                                                      $ millions
                                                                           $100
                                 Apartment                                                Alberta
                                 Units                                      $80           Ontario
                     10,000                                                               Atlantic Canada
                                 MHC Sites
       Units/sites

                                                                            $60

                                                                            $40
                      5,000
                                                                            $20

                                                                             $‐
                         0

  Since its first acquisition in 2002, Killam’s portfolio has grown        Killam's strong operating platform can support a larger
  annually through acquisitions. Killam is expanding its portfolio by      and more geographically diverse portfolio. Increased
  acquiring centrally located buildings in urban markets, increasing its   investment in core markets outside Atlantic Canada
  ownership in Ontario and Alberta, and adding to its established          will enhance Killam's diversification and exposure to
  portfolio in Atlantic Canada.                                            urban centres in Canada that have higher population
                                                                           growth.

                                                                                                                                     8
Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
Clearly
 KillamDefined Strategy
        Apartment REIT
 #3) Developing high-quality properties in its core markets.
 Killam augments its external growth opportunities with                       Developments Completed Per Year
 developments. Killam has invested over $130 million in                                        $ millions
 developments since its first project was completed in 2011.           $80

 With an experienced team and a development pipeline of
 over 1,200 units, developments are an important                       $60            $17
 component of Killam’s growth.

                                                                       $40            $25

                                                                       $20                           $25
                                                                                      $19                         $35
                                                                                                                        $24
                                                                                               $14          $15
                                                                             $5           $8         $8
                                                                        $0

                                                                                                                  * forecast

                                    Killam can develop to yields higher than those
                                    achievable through acquisition, contributing to net
                                    asset value (NAV) growth per unit.                                                   9
Killam Apartment REIT - Investor Presentation January 2017 - Killam Properties
Clearly
 KillamDefined Strategy
        Apartment REIT
 Over $130 million of developments completed.

 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

                                                                                                                10
                                   122 units ‐ Cambridge, ON     70 units – Halifax, NS
High‐Quality Portfolio
                                       Killam has one of the newest apartment portfolios in Canada; 37% of
                                       Killam’s apartment NOI comes from properties built in 2000 or later.
  Apartment NOI by Year of
       Construction                    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
                        18%            transform Killam’s portfolio into one of the highest quality portfolios in
      23%
                                       Canada.
            2010 and newer
                                                                                                        The annual capital spend
            2000‐2009                           Average Capital Spend Per Unit by                       per unit is lower
            1990‐1999
            1980‐1989                                     Building Age                                  for newer properties. For
            1970‐1979         19%                          For the years ended Dec 31                   example, Killam’s
            Pre 1970                                                                                    average spend for
                                                                                                        properties 0 to 10 years
    23%                                $3,000
                                                                                                        old was $700 per unit in
                                       $2,000                                                           2015 compared to
                        9%
                                                                                                        $2,600 per unit for
                8%
                                       $1,000                                                           buildings over 40 years
                                                                                                        old.
                                          $0
                                                    2013                 2014            2015           Overall, Killam’s average
                                                                                                        capital spend was $2,178
                                                    0 ‐ 10 years        11 ‐ 20 years   21 ‐ 30 years
                                                                                                        per apartment unit in
                                                    31 ‐ 40 years       41 + years                      2015.

                                    Killam is growing its portfolio of high‐quality properties by focusing
                                    on developments and acquiring newer properties.
                                                                                                                          11
Growing FFOPer
 9.7% FFO   & AFFO
               Shareper Unit 2015
                     Growth

              FFO & AFFO                       YTD FFO & AFFO
                                                                                FFO and AFFO per unit
                Per Unit                          Per Unit
                                            For the nine months ended Sept 30   growth has been
          For the years ended Dec 31
                                                                                attributable to:
              FFO       AFFO                          FFO       AFFO            • same property NOI
                              $0.79                                                 growth
                                                                    $0.65
  $0.71         $0.72
                                          $0.54
                                                        $0.59           $0.58   •   interest expense
                                                            $0.51
                                  $0.68       $0.46                                 savings
      $0.60         $0.61                                                       •   accretive acquisitions
                                                                                •   developments

   2013          2014          2015        2014          2015        2016

                                                                                                         12
Improving
  88% AFFOAFFO Payout
            Payout    Ratio
                   Ratio in 2015

               Killam’s Annual Dividend/Distribution & Payout
                                    Ratio
                           Dividend/Distribution                AFFO Payout Ratio
   $0.61                           98%                                                                100%

   $0.60
                 96%
                                                                                                      95%
                                                                                                                            81%
   $0.60                                             88%                                              90%
                                                                                                                               AFFO
   $0.59                                                                                                                      Payout
                                                                                                      85%
   $0.59                                                              80%                                                    Ratio at
   $0.58                                                                                75%
                                                                                                      80%                    Sept 30,
   $0.58                                                                                              75%                      2016
                 $0.58             $0.60            $0.60             $0.60            $0.60
   $0.57                                                                                              70%
                 2013             2014              2015             2016*             2017*

      *The 2016 and 2017 adjusted funds from operations (AFFO) payout ratio represents the consensus estimate based on the current annual
      distribution of $0.60.

                                                                                                                                            13
Financial & Operating Performance
Strengthened Balance
  Stable Balance     Sheet with Increased Flexibility
                 Sheet
                                                                                                                       Sept 30,    Dec 31,
    Debt as a % of Total                             Interest Coverage Ratio                                            2016        2015
          Assets                                            At Dec 31                    Mortgage debt as a % of

                                                                               2.81
                                                                                                                        50.9%       50.4%
        At Dec 31                                                                        total assets
                                   55.7%

                                                                        2.34
   55.2%

                                                                 2.21
                           54.9%

                                                          2.09
                                                                                         Weighted average interest

                                                   1.98
                                                                                                                        3.08%       3.27%
                                           53.2%
                   52.9%

                                                                                         rate on mortgage debt
           51.6%

                                                                                         Weighted average term to
                                                                                                                       4.2 years   4.2 years
                                                                                         maturity
                                                                                         Debt service coverage ratio
                                                                                                                         1.52        1.35
                                                                                         (rolling 12 months)

                                                                                         Interest coverage ratio
                                                                                                                         2.81        2.34
                                                                                         (rolling 12 months)

                                                                                         CMHC‐insured apartment
                                                                                                                         76%         73%
                                                                                         mortgages

 Killam completed a $98 million equity raise on June 2, 2016.
                                                                                      Credit Facility Expanded : Following the all cash
 Part of the proceeds were used to redeem $57.5 million of
                                                                                      acquisition of Garden Park Apartments on June
 convertible debentures on July 4, 2016. The interest
                                                                                      30, 2016, Killam established a new $30M demand
 coverage estimate at July 4, 2016 normalizes for the impact
                                                                                      credit facility and increased its acquisition
 of redeeming the $57.5 million of convertible debentures.
                                                                                      capacity to $100 million.

                                                                                                                                               14
Interest Saving Opportunities on Refinancings
                                                                  Mortgage Maturities by Year
                                                                      As at Sept 30, 2016
                                      Mortgage Maturities                                   Weighted Average Interest Rate (Apartments)
                                      5 year rate                                           10 year rate
                               $200                                                                                                8%
                               $180                                                                                                7%
    Mortgage Maturities ($M)

                               $160
                                                                                                                                   6%
                               $140

                                                                                                                                        Interest Rate
                               $120                                                                                                5%
                                         3.81%      3.69%     3.73%
                               $100                                                                   3.16%    3.28%     3.13%     4%
                                                                        2.92%               2.70%
                                $80                                                 2.59%                                          3%
                                $60
                                                                                                                                   2%
                                $40
                                $20                                                                                                1%
                                 $0                                                                                                0%

                                                    Current rate for 5‐year CMHC             Current rate for 10‐year CMHC
                                                    insured debt is approximately            insured debt is approximately
                                                    2.2%.                                    2.8%.

                                                                                                                                                        15
Robust Development Pipeline
    Development Opportunities
                                                                         Development
                                                                          Potential in
    Property                                  City                           Units                      Status
    Developments Underway
     The Alexander - Phase 1*                 Halifax, NS                     121        Under construction - 2017 completion
      Saginaw Phase II                         Cambridge, ON                  93         Start in Q3-2016
    Development Opportunities - 2017
      Spring Garden Terrace Land               Halifax, NS
      The Governor (Phase 2 of the Alexander)* Halifax, NS
                                                                              106
                                                                               50
                                                                                                   2014 &
                                                                                         Approved development agreement
                                                                                         As of right
      Silver Spear*                            Mississauga, ON                 64        In design and approval process
    Future Development Opportunities - 2018 and beyond
      Grid 5 Land*                             Calgary, AB                    198
                                                                                                   Q1 2015
                                                                                         Future development
      Carlton Houses                           Halifax, NS                     70        Future development
      Medical Arts (Spring Garden)             Halifax, NS                    200        Future development
      1335 Hollis Street                       Halifax, NS                     30        Future development
      Block 4                                  St. John's, NL                  80        As of right
      Topsail Road                             St. John's, NL                 225        Approved development agreement
    Total Development Opportunities                                          1,237
    * Represents Killam's 50% interest in potential development units.

                             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 Opportunity
Benefiting from Economic
Improved Economics        Growth
                    in Atlantic   in Atlantic Canada
                                Canada
                             (1)     Commitment/
  Province         Project                            Term           Estimated # of Jobs      Comments
                                     Size ($)
  Nova             Irving            $25 billion      25‑year        1,000‑1,500 direct       Irving finished a $350M modernization of the Halifax shipyard and began cutting
  Scotia           Shipbuilding                       contract.      up to 11,500 indirect    steel in September 2015 for phase I of the contract, 6 Arctic Offshore Patrol Ships.
                   Contract                           Started in                              The second and more significant phase of the contract, building ~15 surface
                                                      2015                                    combatant ships, is expected to begin in 2020.
                   Energy            $2.1 billion     6 years        Not available            Shell drilled its first exploration well during 2015. BP expects to drill its first
                   Exploration off   (British         (exploration                            exploration well in 2017. This offshore oil activity has the potential for long‑term
                   NS Coast          Petroleum and    phase)                                  investment and employment opportunities in the region.
                                     Shell Canada)    2013‐2019

                   Various Halifax $1‑2 billion       3‑4 years      Not available            Investments underway include the new convention centre, two new military
                   Construction                                                               facilities, and various real estate projects in Halifax.
                   Projects

  New              Saint John Mill   $450 million     3 years        600 direct               The two‐phase upgrade began in 2014, corresponding with a 20% increase in the
  Brunswick        Upgrade                            2014‐2017                               NB softwood that will be made available to the forestry industry.
                   Energy East       $12 billion     6 years      3,700 during                Application submitted to National Energy Board in 2014. An estimated $2.8
                   Pipeline          (proposed total (development development                 billion of GDP contribution for New Brunswick during the project.
                                     project cost)   phase)

  Newfoundland     Muskrat Falls     $7 billion       5 years        1,500 direct with peak    Construction of the 824 megawatt hydroelectric dam is underway, as well as the
  and Labrador     Hydro Project                      2012‐2017      of 3,100.                transmission line between Muskrat Falls and Churchill Falls.

                   Maritime Link     $1.6 billion     4 years        Average of 300 direct,   Subsea cable designed to transport electricity from NL to NS. Construction began
                                                      2013‐2017      with a peak of 600       in 2014. First power is planned for delivery in 2017.

                   Hebron Oil        $14 billion      10 years       3,000 ‑ 3,500 direct     The reserve estimate for Hebron is over 700 million barrels of oil. The project
                   Project                            2010‐2024                               started in 2010 and will run until 2024. Suncor has reconfirmed its commitment
                                                                                              to Hebron (Jan 13, 2015) and expects it to come online in 2017. Development
                                                                                              drilling 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.

                                             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
                                                                                                                                                                                 17
                                             largest city in Atlantic Canada.
Benefiting   from Improved Occupancy in Atlantic
Investment Opportunity
Improved Economics in Atlantic Canada
Canada
                                                                           CMHC Vacancy in Atlantic Canada
                                                                                           2014          2015          2016
   Atlantic Canada is

                                                                                                                                             9.0%
                                                      8.6%

                                                                                                                                                    8.5%
                                                                                                                                                           8.5%
   experiencing improved

                                                                                                                                      7.9%
                                                             7.4%
   apartment occupancy

                                                                    6.0%

                                                                                                  5.9%
                                                                              5.7%
   levels. In their Fall 2016

                                                                                        5.5%

                                                                                                                               4.7%
                                                                                                                        4.6%
                                                                                     4.4%
   Rental Market Report,

                                                                                                         4.2%
                                 3.8%

                                                                                                                                                                                3.7%
                                                                                                                                                                         3.5%
   CMHC reported lower                  3.4%

                                                                                                                                                                  3.0%
                                               2.6%
   vacancies in four of six

                                                                                                                1.7%
   of Killam’s core markets
   in Atlantic Canada,
   versus an overall
   increase for Canada.

                                Source: CMHC Fall 2015 and Fall 2016 Rental Market Reports.

                                                                                                                                                                                18
Focus on Developments
  Current    Developments
Southport – Completed
 Southport,            August 2016
             Halifax, NS
Rental Units: 70
Start Date: December 2014
Completion: August 2016
Move‐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)

                                      19
Focus on Developments
  Current    Developments
Southport – Completed
 Southport,            August 2016
             Halifax, NS

                                     20
Focus on Developments

The Alexander ‐ 2017 Completion
 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)

                                                     21
Focus on Developments

The Alexander ‐ 2017 Completion

 View from upper floors

                                  22
The Alexander, Halifax

                         23
The Alexander, Halifax

                         24
The Alexander, Halifax

                         25
The Alexander, Halifax

                         26
Future Developments
Focus on Developments

Saginaw
  Saginaw Gardens   II –ON
          2, Cambridge,  Started in Q3‐2016
  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)

                                              27
2016 Acquisitions
  2016  Acquisitions
Garden
 GardenPark
        ParkApartments,
             Apartments,Halifax
                         Halifax
 Building Description:
 246 apartment units
 8,195 sf of commercial space
 Location:
 1472 Martello Street, Halifax
 2016 Acquisition:
 Remaining 51.0% interest
 $23.7 million
 June 2016 closing

                                   28
2016 Acquisitions

270 Parkside Drive, Fredericton

   270 Parkside Drive is located in close
   proximity to 355 Killam units in Fredericton,
   and across from Killam’s regional office in
   the city.

        existing Killam properties

                                                   29
2016 Acquisitions
  2016  Acquisitions
Kanata
 KanataLakes
        LakesApartments IIIOttawa
              Apartments,
Building Description:
173 units
3rd of a five‐building portfolio with
a shared clubhouse
Location:
1047 Canadian Shield Ave, Kanata
2016 Acquisition:
50% of building III
$31.1 million
June 2016 closing
Previous Purchases:
2011 – 25% of building I
2014 – 50% of building II &
additional 25% of building I

                                        30
2016 Acquisitions
Kanata Lakes Apartments III

                              31
Well Positioned for Growth
 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.

                                                                                  32
Contact Information
                      Philip Fraser
                      President & CEO
                      902‐453‐4536
                      pfraser@killamreit.com

                      Robert Richardson, FCPA, FCA
                      Executive Vice President & CFO
                      902‐442‐9001
                      rrichardson@killamreit.com

                      Dale Noseworthy, CPA, CA, CFA
                      Vice President, Investor Relations &
                      Corporate Planning
                      902‐442‐0388
                      dnoseworthy@killamreit.com

                                                        33
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