• FFO per Unit: $0.30 in Q2 2024, consistent with Q2 2023.

• Same-Property NOI Growth: 8.5% overall; 8.8% in apartment portfolio, 7.4% in manufactured home community portfolio, 4.9% in commercial properties.

• Debt to Total Asset Ratio: 41.2%, the lowest in operating history.

• Apartment Occupancy: 98.2% at the end of the quarter.

• Fair Value Gains on Investment Properties: $85.5 million.

• Rental Rate Growth on Turnover: 20.2% average lift in Q2.

• Weighted Average Increase on Apartment Rental Rates: 8.2% across the same property portfolio.

• Same-Property Apartment Operating Margin: Improved 140 basis points to 66.5%.

• Same-Property Operating Expenses: Increased by 1.7% in Q2.

• Property Taxes: Increased by 6.6%.

• Utility and Fuel Expenses: Decreased by 4%.

• Year-to-Date Same-Property NOI Growth: 9.3%.

• 2024 NOI Growth Target: Over 8%, up from original target of over 6%.

• Turnover Year to Date: 10.5%, with an anticipated 18% turnover for the year.

• CMHC Insurance Coverage: 79.4% for apartment portfolio.

• Debt as a Percentage of Total Assets: 41.2%, down 170 basis points from year-end.

• Seasonal Resorts Occupancy: 99% at the end of Q2.

• Seasonal Resorts NOI Growth: 7.6% in Q2 2024.

• Urban and MHC Portfolio NOI Growth: 7.3% in Q2 2024.

• Solar Energy Revenue: $56,000 from 450,000 kWh produced in 2023.

• Land Acquisition: $4 million for a 2.5-acre site in Guelph, Ontario.

• Property Sales: Woolwich apartments for $19.2 million and Bridlewood Apartments for $8.4 million.

• Warning! GuruFocus has detected 9 Warning Signs with KMMPF.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Killam Apartment Real Estate Investment Trust (KMMPF) achieved 8.5% same-property NOI growth across its portfolio, with notable growth in its apartment and manufactured home community segments.

• The company reported a debt to total asset ratio of 41.2%, the lowest in its operating history, indicating strong balance sheet management.

• Killam achieved a 20.2% average rental rate growth on turnover, reflecting strong demand for its apartment units.

• The company has made significant progress in leasing its new developments, with properties like Civic 66 and The Governor fully leased.

• Killam's sustainability initiatives, including solar panel installations, have resulted in cost savings and additional revenue, aligning with its ESG goals.

Negative Points

• Higher interest expenses impacted FFO per unit growth in Q2, despite strong NOI growth.

• New developments were dilutive during the lease-up phase, affecting FFO per unit due to high vacancy and non-capitalized interest expenses.

• Property taxes increased by 6.6% in the quarter, contributing to cost pressures.

• The company faces challenges in capturing market rent growth, with some markets showing stabilization rather than significant increases.

• Killam's turnover rate is expected to be around 18% for the year, slightly below last year's 19%, indicating potential challenges in tenant retention.

Q & A Highlights

Q: Have you noticed any change in demand from international students with the change in the rules? A: Robert Richardson, Executive Vice President, stated that there hasn't been any notable change in demand from international students in any of their markets.

Q: The mark-to-market spread started coming down this quarter. Is this due to market rent growth slowing or capturing uplifts? What are your thoughts on market rent growth going forward? A: Dale Noseworthy, Chief Financial Officer, explained that the decrease is more about capturing uplifts and expanding analytics. They are not seeing market rents come down and expect continued growth, especially in strong markets like Kitchener-Waterloo, Toronto, and Halifax.

Q: Has there been any change in the buyer pool for property dispositions compared to the beginning of the year? A: Philip Fraser, President & CEO, noted that there is a lot of interest from repeat buyers, with over half of the buyers being those who purchased properties last year.

Q: Can you provide a range for the upward movement in market rent and which markets are experiencing this? A: Dale Noseworthy mentioned that they are seeing a 2% to 5% increase in market rents across almost all markets over the last six weeks, with the strongest growth in Kitchener-Waterloo, Toronto, and Halifax.

Q: How are you planning to tackle refinancing activity given the movement in rates and debt expiries next year? A: Dale Noseworthy stated that they are actively looking at opportunities to lock in early and are pleased to see rates coming down. They are considering longer-term options and leveraging CMHC-insured mortgages to mitigate interest expense exposure.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.