Investor
Presentation
January
2016
Cautionary 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 forwardlooking 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
Killam Apartment REIT has $1.8
billion in residential real estate
assets in Atlantic Canada, Ontario
and Alberta.
Apartment units
MHC* sites
Market cap
Distribution
Dividend yield
Avg. daily volume
13,655
5,165
$630 M
$0.60
5.9%
116 K
*manufactured home community
3
Diversified Real Estate Portfolio
Halifax, NS
Moncton, NB
Fredericton, NB
Saint John, NB
5,064 units
1,629 units
1,394 units
1,202 units
St. John’s, NL
Charlottetown, PE
Ottawa, ON
Toronto, ON
915 units
906 units
780 units
378 units
Cambridge, ON
Calgary, AB
London, ON
Non-core Regions
347 units
307 units
264 units
469 units
Killam’s MHC portfolio includes 5,165 units in Nova
Scotia, Ontario, Newfoundland and New Brunswick.
4
Diversified Real Estate Portfolio
NOI by Sector
Apartments
MHCs
Commercial
Apartment NOI by
Type of Property
2%
9%
high rise
33%
elevatored
mid-rise 35%
89%
walk-ups
30%
town-houses
2%
5
Diversified Real Estate Portfolio
% of Apartment NOI by Core
Market
Calgary
3%
Saint John
5%
Other
3%
% of MHC NOI by Province
New
NFLD Brunswick
3%
3%
PEI
7%
St. John's
8%
Halifax
40%
Ontario
46%
Fredericton
9%
Moncton
9%
Nova
Scotia
48%
Ontario
16%
Killam is the dominant landlord in Atlantic Canada with a
14% market share of the region’s urban centres.
6
Killam’s Strategy
1) Maximize earnings from the
existing portfolio.
2) Expand the portfolio and
diversify geographically
through acquisitions.
3) Develop high-quality
properties in core markets.
7
Ki l l a m ’s Str a te gy
Maximizing Same Store Earnings
Q1-Q3
2015
2014
2013 (0.4%)
2.0%
2012
0.3%
2011
2010
2009
2008
2007
2006
(0.9%)
4.3%
4.8%
Record high natural
gas prices in Atlantic
Canada impacted
NOI growth in 2013 &
2014.
2.1%
2.6%
5.1%
8.4%
Same Store NOI Growth
2006-2015
The average NOI growth from Killam’s same store
portfolio from 2006 – 2014 was 2.7%.
8
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
$3
$45
$53
$36
$16
$85
$121
$106
$115
$160
$125
$103
$200
$167
Ki l l a m ’s Str a te gy
Annual Growth Through Acquisitions
Annual Acquisitions
$ millions
9
Ki l l a m ’s Str a te gy
Active Development Program
Developments Completed
Per Year
$ millions
$80
$60
$16.7
$40
$25.4
$20
$19.0
$0
$5.0
$21.5
$25.3
$33.0
$14.7
$7.6 $14.1 $7.7
* expectation
Since completing its first development in 2011, Killam has invested over $100
million in developments. Killam expects to spend between $30 - $60 million
per year on apartment developments.
10
Killam’s Strategy
Increased Geographic Diversification
% of Apartment NOI Generated Outside Atlantic
Canada
19%
14%
11%
8%
7%
5%
0%
2009
2010
2011
2012
2013
2014
2015*
* expectation
84% of the $160 million in acquisitions completed in 2014
were in Ontario and Alberta.
11
Financial & Operating Performance
9.3% FFO Per Share Growth YTD in 2015
FFO Per Share Growth
Q1 – Q3 2015
$0.59
$0.53
Primary drivers of FFO growth
in 2015:
• 4.3% same store NOI
growth
• Acquisitions and
developments
$0.54
• Interest expense savings
on refinancings
Q1-Q3 '13
Q1-Q3 '14
Q1-Q3 '15
12
F i n a n c i a l Pe r fo rm ance
4.3% Same Store NOI Growth YTD
Same Store Results
9 months ended Sept 30, 2015
Revenue
4.2%
Expenses
NOI
4.8%
4.2%
4.3%
3.4%
2.4%
2.2%
(0.4%)
Apartments
0.0%
MHCs
Consolidated
13
F i n a n c i a l & O p e ra ti n g Pe r fo rman ce
2.4% Same Store Revenue Growth in 2015
Same Store Revenue
Growth
2.9%
2.6%
2.4%
1.9% 1.8%
1.7%
2010
2011
2012
2013
2014 Q1-Q3
2015
Revenue growth in 2015 is attributable to occupancy gains,
increased rents and a decrease in incentive offerings.
14
F i n a n c i a l & O p e ra ti n g Pe r fo rman ce
Three Quarters of Above Average Growth
Historic Change in Same Store Revenue Growth
2010-2015
Average quarterly
same store revenue
growth of 2.2% from
2010-2015.
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Q3 2015
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
Q1 2010
15
F i n a n c i a l & O p e ra ti n g Pe r fo rman ce
Improved Occupancy Levels in 2015
95.3%
95.5%
95.5%
95.8%
94.7%
94.9%
94.7%
95.6%
94.2%
93.6%
94.3%
Apartment Quarterly Occupancy Levels
Average apartment
occupancy from 20132015 is 94.9%
Same store average rents are up 1.2% over the last
year and incentives are down 50 basis points.
16
F i n a n c i a l & O p e ra ti n g Pe r fo rman ce
Improved Occupancy Levels in 2014 & 2015
Apartment Occupancy by Quarter
2013
2014
2015
96%
95%
94%
93%
92%
Q1
Q2
Q3
Q4
60 basis point occupancy improvement in Q3 2015
Vs. Q3 2014.
17
F i n a n c i a l & O p e ra ti n g Pe r fo rman ce
$460K Savings in Rental Incentives
Incentives as a Percentage of Rental Revenue
Same Store Apartment Properties
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
A decrease in incentive offerings has contributed to same
store revenue growth.
18
F i n a n c i a l & O p e ra ti n g Pe r fo rman ce
Lower Natural Gas Prices in 2015 Vs. 2014
Commodity Charge per GJ
NS Natural Gas
NB Natural Gas
$20
$18
$16
$ per GJ
$14
$12
$10
$8
$6
$4
$2
$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015
19
F i n a n c i a l & O p e ra ti n g Pe r fo rman ce
Propane Offers Energy Saving Opportunities
Per GJ Cost of Propane Vs. Natural Gas1
NB Gas
Propane
NS Savings Potential
NB Savings Potential
$40
70%
$35
60%
Fuel Price /GJ
$30
50%
$25
40%
$20
30%
$15
20%
$10
10%
$5
Percent Savings with Propane
NS Gas
0%
$Aug Sept Oct
Nov Dec
Jan
Feb Mar
Apr May June Jul
2014 2014 2014 2014 2014 2015 2015 2015 2015 2015 2015 2015
1) Historic natural gas pricing is based on Killam’s total natural gas costs per month
divided by total consumption per month.
20
F i n a n c i a l & O p e ra ti n g Pe r fo rman ce
Efficiency Projects = Savings
Water Consumption Initiatives
•
Installing low-flow toilets will generate annualized savings
and a payback of 2.7 years.
Building System Controls
•
Installing smart automated controls in the boiler rooms
of 10 properties, will conserve $75,000 in natural gas
costs each year.
•
Payback of 1.7 years.
Efficiency NS Direct Install Program
•
Upgrading, in partnership with Efficiency Nova Scotia,
over 20,000 LED light bulbs and thousands of low-flow
showerheads in our largest buildings in Halifax will
save tenants over $140,000 in electricity costs per year,
and Killam over $40,000 in annual water costs.
21
F i n a n c i a l & O p e ra ti n g Pe r fo rman ce
Water Savings Initiatives Underway
Killam’s Low-flow Toilet Installs
1000
$350,000
900
$300,000
700
$250,000
600
$200,000
500
400
$150,000
300
$100,000
Cumulative Savings
Toilet Installs
800
200
$50,000
100
0
$Q2-15
Q3-15
Q4-15
Q1-16
Number of Toilet Installs
Q2-16
Q3-16
Q4-16
Total Cumulative Savings
22
Financial & Operating Performance
Stable Balance Sheet
Debt as a % of Total
Assets
At Dec 31, except 2015
55.4%
55.2%
54.9%
51.6%
2012
2013
Dec 31,
2014
Total gross debt as a % of total
assets
55.4%
54.9%
Mortgage debt as a % of total
assets
50.1%
47.6%
Weighted average interest rate
on mortgage debt
3.32%
3.60%
4.3 years
4.4 years
Debt service coverage ratio
(rolling 12 months)
1.37
1.34
Interest coverage ratio (rolling
12 months)
2.33
2.21
CMHC-insured apartment
mortgages
74%
75%
Weighted average term to
maturity
52.9%
2011
Sept 30,
2015
2014
Q3-15
23
Investment Opportunity
• Killam is trading at a discount to net
asset value.
• Stable distributions with improving
payout ratio
• Interest saving opportunities on
refinancings.
• Positioned to benefit from improved
economic growth in Atlantic Canada.
• High quality portfolio with increasing
investment in newer properties and
established development program.
• Growth through acquisitions and
development.
24
Investment Opportunity
Trading at a Discount to Net Asset Value (NAV)
Killam’s Share Price Vs. Analysts’ NAV
Estimate
Share/Unit Price
$12.50
$12.00
$11.50
$11.00
$10.50
$10.00
$9.50
NAV per Analysts
Recent
KMP.UN
trading
represents a
17% discount
to the average
analyst
estimate of
NAV.
$9.00
The average analyst NAV estimate is $12.07 per unit,
based on an average cap rate of 5.8%.
25
Investment Opportunity
Stable Distribution & Improving Payout Ratio
Killam’s Annual Dividend / Distribution
Dividend/Distribution
AFFO Payout Ratio*
100%
$0.61
$0.60
$0.60
$0.60
$0.60
$0.59
$0.58
$0.58
85%
$0.57
$0.57
$0.56
90%
$0.58
$0.56
80%
$0.55
75%
$0.54
70%
2010
2011
2012
2013
2014
2015*
AFFO Payout Ratio
95%
2016*
*The 2015 and 2016 adjusted funds from operations (AFFO) payout ratios
represents the consensus estimate of 88% and 82% based on the current
annual distribution of $0.60.
26
In ve s tmen t O p p o rtun i ty
Interest Expense Savings Expected
Apartment Mortgage Maturities by Year
Refinanced in 2015
Weighted Average Interest Rate
$180
8%
$160
7%
$140
6%
$120
$100
$80
5%
4.20%
3.43%
3.79%
3.64%
2.82%
3.16%
2.55%
$60
3.30%
3.33%
4%
3%
$40
2%
$20
1%
$0
0%
Current rate for 5-year
CMHC insured debt is
approximately 1.7%.
Interest Rate
Mortgage Maturities ($M)
Mortgage Maturities by Year
Current rate for 10-year
CMHC insured debt is
approximately 2.4%.
27
Investment Opportunity
Improved Economics in Atlantic Canada
Real GDP Growth Expected in NS & NB
Nova Scotia
New Brunswick
2.0%
1.0%
0.0%
2012
-1.0%
2013
2014
2015F
2016F
2017F
Source: RBC Provincial Outlook, December 2015
Following a period of low to negative Real GDP Growth, Nova
Scotia and New Brunswick are both expected to experience
improved GDP in 2016, as projected by RBC in their December
2015 Provincial Outlook.
28
Investment Opportunity
Improved Economics in Atlantic Canada
Nova Scotia:
• Manufacturing, including shipbuilding
• Construction, including Maritime Link, MacDonald bridge
and multi-family projects
• Increased non-energy exports, including seafood
• Offshore exploration
• Improved net migration
New Brunswick:
• Non-energy exports – food and mining
• Manufacturing – food and forestry
• Construction activity – road and bridge construction
Newfoundland:
• Stabilizing of oil production
• Mining expected to increase from 2015 levels
Halifax is expected
to have one of the
fastest growing
economies in
Canada, with 3.0%
growth expected in
2016, according to
the Conference
Board of Canada’s
autumn 2015
Metropolitan
Outlook.
29
Investment Opportunity
Improved Economics in Atlantic Canada
In their Fall 2015 Rental Market Report, CMHC reporting lower vacancies in five out
of six of Killam’s markets in Atlantic Canada, vs. an increase in Canada.
CMHC Vacancy – Fall 2015 Survey
2014
2015
9.0%
8.6%
8.5%
7.4%
5.7%
5.9%
5.4%
4.6%4.7%
3.8%
3.4%
4.1%
3.5%
3.0%
Source: CMHC Fall 2015 Rental Market Report
30
In ve s tmen t O p p o rtun i ty
Halifax Vacancy Down Despite Increased Starts
Halifax Rental Apartment Starts and
Completions
Rental Starts
Rental Completions
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2005
2006
Source: CMHC
2007
2008
2009
2010
2011
2012
2013
2014
2015
31
In ve s tmen t O p p o rtun i ty
Increased Rental Demand Driving Multi Starts
Halifax New Construction by Type
Single Family Home
3,500
Row & Semi-Detached
Total Apartment
Average total starts
of 2,424 per year
from 1990-2015.
3,000
2,500
2,000
1,500
1,000
500
0
Source: CMHC
The breakdown of new starts is changing to included more multifamily units, reflecting demand from the baby boomer generation.
32
Investment Opportunity
Growing Portfolio of Newer Properties
33% of Killam’s apartment NOI comes from properties built 2001 or later.
Average Capital Spend Per Unit by
Building Age
0 - 10 years
11 - 20 years
21 - 30 years
31 - 40 years
41 + years
$3,500
$3,000
$2,500
$2,000
$1,500
The per unit annual
capital spend is lower
for newer properties.
The average spend for
newer properties was
$575 per unit in 2014,
compared to $3,271
per unit for buildings
over 40 years old.
$1,000
$500
$0
2012
2013
2014
Killam is expanding its portfolio of high-quality new
properties with developments and acquisitions.
33
Investment Opportunity
Developments Contribute to AFFO and NAV Growth
An example of the value of development in today’s market:
Assumptions:
AFFO/Unit and NAV/Unit Sensitivity:
1. Units developed: 100
2016 AFFO/Unit Accretion (Dilution)
Cap Rate Value at Completion
4.0%
4.5%
5.0%
5.5%
6.0%
4.0%
(0.40%) (0.40%) (0.40%) (0.40%) (0.40%)
4.5%
(0.02%) (0.02%) (0.02%) (0.02%) (0.02%)
5.0%
0.30%
0.30%
0.30%
0.30%
0.30%
5.5%
0.54%
0.54%
0.54%
0.54%
0.54%
6.0%
0.75%
0.75%
0.75%
0.75%
0.75%
2. Average Rent: $1,600
Yield to
Construct
3. Occupancy: 97.5%
5. Debt: 55%
6. Interest Rate: 2.3%
7. KMP.UN Share Price: $10.50
8. Cost to Raise Equity: 3%
9. NAV/Unit pre development:
$12.00
NAV/Unit Post Development (assuming $12.00 pre development)
Cap Rate Value at Completion
4.0%
4.5%
5.0%
5.5%
6.0%
4.0%
$11.91 $11.87 $11.84 $11.81 $11.77
4.5%
$11.97 $11.94 $11.91 $11.87 $11.84
5.0%
$12.03 $12.00 $11.96 $11.93 $11.89
5.5%
$12.07 $12.04 $12.00 $11.97 $11.94
6.0%
$12.11 $12.07 $12.04 $12.01 $11.97
Yield to
Construct
4. Margin: 70%
Killam’s target development yields and
post development values are in this range.
34
D e ve l o p me nts
Future Development Opportunities
Property
City
Development
Potential in
Units
Status
240
Under construction 2017 completion
70
Under construction Q3-16 completion
110
93
In design and approval process
In design and approval process
98
40
70
200
30
80
225
40
1,296
Approved development agreement
As of right
Future development
Future development
Future development
As of right
Approved development agreement
Approved development agreement
Developments Underway
The Alexander - Phase 1*
Halifax, NS
Southport - Barrington Street
Halifax, NS
Development Opportunities - 2016
Silver Spear*
Mississauga, ON
Saginaw Phase II
Cambridge, ON
Future Development Opportunities - 2017 and beyond
Spring Garden Terrace Land
Halifax, NS
The Alexander - Phase 2*
Halifax, NS
Carlton Houses
Halifax, NS
Medical Arts (Spring Garden)
Halifax, NS
1335 Hollis Street
Halifax, NS
Block 4
St. John's, NL
Topsail Road
St. John's, NL
Archibald Street
Moncton, NB
Total Development Opportunities
* 50% ownership
2014 &
Q1 2015
Killam’s portfolio includes land for the development of
1,300 apartment units.
35
2 0 1 5 D e ve l o p me nts
Saginaw Gardens, Cambridge, ON
• $25.3 million total
development cost
• 5.8% yield
• 4.75% cap rate for
IFRS
• 122 apartment units
• Completed June
2015
• Fully leased
• Land for an
additional 93 units
located beside
Saginaw Gardens
36
2 0 1 5 D e ve l o p me nts
Saginaw Gardens, Cambridge, ON
27 one-bedroom
units
• average size:
800 sf
• average rent:
$1,170
95 two-bedroom
units
• average size:
1,050 sf
• average rent:
$1,520
37
2 0 1 5 D e ve l o p me nts
Chelsea Place, St. John’s, NL
• 102 units
• $21.8 million ($213,000/door)
• 6% yield
• 5.15% cap rate for IFRS
• Completed March 2015
• 100% leased
2014 &
Q1 2015
38
C u r r ent D e ve l o p m en ts
Southport, Halifax, NS
Building Description:
142 units - 70 rental, 72 condo
Ownership:
Killam 50%, Urban Capital 50%
Start Date:
December 2014
Projected Completion:
Q3-2016
Location:
Downtown Halifax
Construction Cost:
$14.7 million, $210,000/door
(Killam’s cost)
Expected Yield:
5.5%
Expected Value:
4.75% cap rate
39
C u r r ent D e ve l o p m en ts
Southport, Halifax, NS
40
C u r r ent D e ve l o p m en ts
The Alexander (Phase I), Halifax, NS
Building Description:
240 units
24 storeys
230 underground parking stalls
6,200 square feet of retail space
Ownership:
Killam 50%, Partners 50%
Start Date:
Q4 2015
Projected Completion:
2017
Location:
Downtown Halifax across from the waterfront
Construction Cost:
$35 million, $276,000/ residential door (Killam’s cost)
Expected Yield:
5.5%
Expected Value:
4.75% cap rate
41
C u r r ent D e ve l o p m en ts
T he Alexander (Phase 1), Halifax, NS
Construction of The Alexander began in September
2015.
42
2 0 1 5 Ac q u i s i ti ons
Brewery Market, Halifax, NS
• Acquisition completed March
31, 2015
• $22.3 million for existing
property
• $5.2 million for 50% interest in
land for development
• 240-unit development “The
Alexander” started in August
2015
2014 &
Q1 2015
• Capacity for 40 additional units
The cap rate on the Brewery Market acquisition was 7%. The
Alexander will be built beside the existing Brewery Market.
43
2 0 1 5 Ac q u i s i ti ons
Brewery Market, Halifax, NS
Tracing its roots back to the early 1800s, the
Brewery Market has been fully modernized.
44
2 0 1 5 Ac q u i s i ti ons
Medical Arts Property, Halifax
• $8.4 million
• Closed Aug 5, 2015
• Development
potential
for up to 200 units
• 18,000 square feet
of office space at
$25 per square foot
(gross)
• Located across
Killam’s Spring
Garden Terrace
2014 &
Q1 2015
45
2 0 1 5 Ac q u i s i ti ons
Medical Arts Property, Halifax
46
2 0 1 5 Ac q u i s i ti ons
20 Technology Drive, Saint John
•
•
•
•
•
•
$8.3 million
Closed June 17, 2015
59 units ($140,000 per unit)
6.1% cap rate
Completed in late 2014
Located beside existing Killam asset
47
2 0 1 5 Ac q u i s i ti ons
20 Technology Drive, Saint John
• Insulated concrete form
(ICF) construction
• 19 one-bedroom units
• 40 two-bedroom units
• Average rent of $1,210
2014 &
Q1 2015
48
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
49