Killam Apartment REIT (TSE:KMP.UN) reported second-quarter operating results marked by growth in apartment revenue and net operating income, supported by high occupancy and continued strength in Atlantic Canada.
President and CEO Philip Fraser said the REIT generated 3.0% same-property net operating income, or NOI, growth across its portfolio and 4.6% same-property NOI growth in its apartment portfolio. Same-property apartment occupancy stood at 97.6% at the end of the quarter, up from 97.0% in the first quarter.
Revenue growth offsets higher interest expense and office vacancy
Chief Financial Officer Dale Noseworthy said same-property apartment revenue rose 3.8% in the quarter. The weighted average rental increase on renewed and turned apartment units was 3.6%, consistent with the first quarter. Rental increases averaged 5.0% on unit turns and 3.0% on renewals.
In-place rents remain about 10% below current market rents across the portfolio, according to Noseworthy. The REIT maintained its full-year target for same-property apartment revenue growth of at least 3.5%, while reaffirming targets of at least 3.5% apartment NOI growth and 2.5% consolidated portfolio NOI growth.
Apartment same-property expenses increased 2.1%, while same-property operating expenses across the consolidated portfolio rose 1.9%. In response to an analyst question, Noseworthy said the company is factoring in higher utility costs, including a Nova Scotia water-rate increase of roughly 18% in the third quarter and potential natural-gas cost pressure in the fourth quarter.
Funds from operations, or FFO, totaled C$39.6 million, up 0.5% from the second quarter of 2025, while FFO per unit was unchanged at C$0.32. Higher same-property NOI, contributions from The Carrick and lower administrative expenses were offset by increased interest expense and the vacancy at 50 Westmount Place following the April 1 departure of a large Sun Life office tenant.
The Westmount vacancy reduced second-quarter FFO by approximately C$900,000, Noseworthy said. Excluding that impact, FFO per unit would have increased 2.3% from the prior-year quarter.
Atlantic Canada remains a central growth market
Executive Vice President Robert Richardson said occupancy across Killam’s Atlantic portfolio remained above 98% during the second quarter. Halifax, the company’s largest market, posted 6.3% same-property apartment revenue growth and 7.0% same-property apartment NOI growth.
Richardson highlighted federal defense-related investment as a long-term source of demand in the region. Halifax is home to Canadian Forces Base Halifax, which has a combined 10,000 military and civilian employees, while Nova Scotia is expected to receive approximately C$2 billion in defense-related investment. An additional C$1 billion is expected across Atlantic Canada, primarily near CFB Gagetown outside Fredericton.
He also pointed to the National Shipbuilding Strategy and the Halifax shipyard, where more than 3,000 people are employed. Canada recently awarded ThyssenKrupp Marine Systems a contract for the construction and long-term maintenance of up to 12 submarines, six of which are expected to be permanently stationed and serviced in Halifax beginning in 2034.
Management said it did not have an estimate for employment growth from all the planned initiatives, but Fraser noted that Lockheed Martin, a contractor involved in shipbuilding work, has indicated it expects to hire another 300 people to support its contracts.
While Atlantic markets remain strong, management said July occupancy dipped modestly from second-quarter levels, primarily due to student-focused properties in London, Ontario, where new supply has created a more challenging leasing environment. Senior Vice President of Finance Erin Cleveland said September occupancy is expected to be generally in line with second-quarter levels rather than higher.
Westmount repositioning and capital recycling
Killam plans to reposition 50 Westmount Place into a mixed-use property with retail, office and dining uses. The redevelopment is expected to occur in three phases and be fully completed in late 2028. Fraser said the company currently estimates redevelopment spending of between C$15 million and C$20 million.
Before Sun Life’s departure, the asset generated approximately C$5.2 million in NOI, Fraser said. Once the repositioning is completed and the property is leased, management expects NOI to be about C$200,000 to C$300,000 below that prior level, while creating additional space for potential future retail development.
The REIT continued to recycle capital through manufactured home community, or MHC, asset sales. On Aug. 4, it completed the sale of an Ontario MHC portfolio comprising about 746 sites for gross proceeds of C$50.9 million. Net proceeds after debt were approximately C$40 million and were used to reduce the credit facility.
Killam also has a Nova Scotia MHC portfolio of nine communities and roughly 1,300 sites under an agreement of purchase and sale, expected to close in the third quarter. A separate 3,000-site portfolio of seasonal and year-round MHCs is under contract with an expected fourth-quarter close.
Following the Ontario disposition, debt as a percentage of total assets improved to 42.2%, from 42.8% at June 30. The weighted average mortgage interest rate was 3.62% at quarter-end, and approximately 95% of apartment mortgages were Canada Mortgage and Housing Corp. insured.
Buybacks and development progress
During the quarter, Killam spent C$31.3 million under its normal course issuer bid, repurchasing 1.7 million trust units for cancellation. Through the end of July, the REIT had repurchased 2.7 million units, representing more than C$49.2 million in capital deployed. Management said it expects unit repurchases to remain a key component of capital allocation in the second half of 2026, depending on unit pricing.
Killam’s Brightwood development in Waterloo, Ontario, reached substantial completion on June 1, ahead of schedule and below budget. The 128-unit property had a total development cost of C$55.1 million and was 45% leased, with stabilization expected in early 2027.
Its 55-unit Eventide development in Halifax remains on track for fourth-quarter completion and was 22% pre-leased. Fraser said the project’s location near Spring Garden Road, major hospitals, Dalhousie University and medical facilities supports expectations for a relatively fast lease-up.
About Killam Apartment REIT (TSE:KMP.UN)
Killam Apartment REIT, based in Halifax, Nova Scotia, is one of Canada’s largest residential real estate investment trusts, owning, operating and developing a $5.4 billion portfolio of apartments and manufactured home communities. Killam’s strategy to enhance value and profitability focuses on three priorities: 1) increasing earnings from existing operations, 2) expanding the portfolio and diversifying geographically through accretive acquisitions which target newer properties and through the disposition of non-core assets, and 3) developing high-quality properties in its core markets.
