Killam Apartment REIT (TSE:KMP.UN) posted solid second-quarter results, reporting significant growth in apartment revenue and net operating income (NOI) fueled by record-high occupancy levels and robust demand across Atlantic Canada.
Performance Metrics and Operational Strength
President and CEO Philip Fraser confirmed that the REIT achieved a 3.0% increase in same-property NOI across its entire portfolio, with the apartment segment specifically delivering a 4.6% boost. By the end of the quarter, same-property apartment occupancy reached an impressive 97.6%, climbing from 97.0% in the previous quarter.
“Our Atlantic Canada markets continue to be our strongest markets and the driver of our outperformance this year,” Fraser noted, highlighting that increased federal defense spending is already stimulating economic activity in the regions where Killam operates.
Rental Revenue and Market Opportunity
CFO Dale Noseworthy reported a 3.8% rise in same-property apartment revenue. Rental increases remained consistent with Q1 trends, averaging 5.0% on unit turns and 3.0% on renewals, resulting in a weighted average rental increase of 3.6%. Noseworthy emphasized that in-place rents are currently tracking approximately 10% below market rates, providing a clear runway for future growth. Consequently, the REIT maintains its full-year guidance of at least 3.5% growth in both apartment revenue and NOI.
Navigating Costs and Strategic Vacancies
While apartment operating expenses rose by 2.1%, management is actively monitoring utility pressures, including an anticipated 18% spike in Nova Scotia water rates and potential volatility in natural gas prices. Funds from Operations (FFO) reached C$39.6 million. Although FFO per unit remained steady at C$0.32, the company noted that results were impacted by a C$900,000 hit due to the vacancy at 50 Westmount Place following the departure of a major office tenant. Excluding this specific vacancy, FFO per unit would have seen a 2.3% year-over-year increase.
The “Defense Dividend” in Atlantic Canada
Executive Vice President Robert Richardson highlighted that occupancy in the Atlantic portfolio remains above 98%. Halifax, the REIT’s primary market, saw a 6.3% increase in apartment revenue and a 7.0% rise in NOI. Long-term demand is expected to be bolstered by massive federal investments, including C$2 billion in Nova Scotia defense projects and C$1 billion across the broader Atlantic region. Additionally, the National Shipbuilding Strategy and the upcoming submarine construction project in Halifax are expected to drive sustained employment and housing demand for years to come.
Portfolio Evolution and Redevelopment
Management plans to reposition the 50 Westmount Place asset into a mixed-use space featuring retail, office, and dining, with a projected investment of C$15 million to C$20 million. Completion is slated for late 2028. Meanwhile, the REIT continues its capital recycling strategy. Following the sale of an Ontario-based manufactured home community (MHC) portfolio for C$50.9 million, Killam has further assets under contract, with additional sales expected to close in the third and fourth quarters.
Capital Allocation and Development Pipeline
Killam aggressively utilized its normal course issuer bid, repurchasing 1.7 million trust units during the quarter. By the end of July, a total of 2.7 million units had been bought back, representing a deployment of over C$49.2 million. On the development front, the Brightwood project in Waterloo, Ontario, was completed ahead of schedule, while the 55-unit Eventide development in Halifax remains on track for a fourth-quarter launch, with pre-leasing efforts already underway.