Killam Apartment REIT (TSE:KMP.UN) reported 2.2% growth in third-quarter same-property net operating income, as gains in its apartment and manufactured home community portfolios offset a sharp decline in commercial income following the expiry of a major lease.
Funds from operations, or FFO, were CAD 0.34 per unit for the quarter and CAD 0.93 per unit for the first nine months of 2026, unchanged from the comparable periods a year earlier. Chief Financial Officer Dale Noseworthy said higher interest expense and vacancy at Westmount Place offset gains from same-property growth and development activity.
Apartment rents rise as costs increase
Same-property apartment revenue rose 3.3% in the third quarter, while apartment NOI increased 3%. Occupancy was 97.3%, compared with 97.2% a year earlier. The combined rental increase on units that turned over or renewed was 3.5%, including a 5.6% increase on turnovers and a 2.8% increase on renewals.
Same-property apartment operating expenses rose 4.3%, including a 4.8% increase in utilities and a 4.2% increase in property taxes. Noseworthy attributed higher utility costs primarily to increased water rates in Nova Scotia. She said property tax pressures were likely to persist, while further water rate increases would also add pressure.
For the first nine months of 2026, apartment same-property NOI rose 3.8% and consolidated same-property NOI increased 3%. Noseworthy said Killam remained on track to meet its full-year targets of more than 3.5% apartment NOI growth and more than 2.5% consolidated NOI growth.
Senior Vice President of Finance Erin Cleveland said rental incentives, which were less than 1% of same-property apartment revenue, were expected to remain around that level. She said incentives were concentrated mainly in Ontario and Alberta. Cleveland also described a 3% to 3.5% range as reasonable for blended rental increases in 2027.
Asset sales fund buybacks
Killam is selling manufactured home community assets as it redirects capital toward its apartment business. President and CEO Philip Fraser said the REIT completed a CAD 50.5 million sale of 746 sites in August, using the proceeds for unit repurchases and to reduce its outstanding credit facility.
Another 1,354 sites in Nova Scotia are under agreement to sell for CAD 50 million, with closing expected in the third week of November. A separate agreement to sell 3,021 sites for gross proceeds of CAD 93.8 million is expected to close in the first quarter of 2027.
Fraser said Killam had not grown the manufactured home community business in many years and was recycling capital into apartments. He said the REIT was holding its remaining sites for now, including an expanded park where it was still selling homes.
During the third quarter, Killam repurchased and canceled 2.35 million units at an average price of CAD 18.41 each. By the end of October, it had invested approximately CAD 88.7 million to repurchase 4.9 million units during the year. Fraser said future capital allocation would depend on factors including the unit price and available opportunities.
Total debt was 42.8% of assets at September 30, while debt to normalized EBITDA was 9.87 times. Noseworthy said financing costs rose 9.4% in the quarter, reflecting higher refinancing rates and lower capitalized interest. She noted that 12.3% of mortgage debt matures before the end of 2027.
Atlantic markets and development projects
Fraser identified Atlantic Canada as Killam’s strongest-performing region. Halifax same-property apartment revenue rose 5.6% in the third quarter and 6% for the first nine months. In St. John’s, occupancy was 97.8%, with rental growth of 7.7% in the quarter.
Killam estimates its portfolio-wide apartment mark-to-market spread at approximately 10%, representing the gap between existing and market rents. During the call, Noseworthy corrected an error in the slide deck concerning Halifax, saying the city’s spread was approximately 16% based on the latest data and relatively flat from the prior quarter. She said the materials would be updated.
Fraser said Killam was interested in small acquisition opportunities in stronger markets, including St. John’s, but had no development projects ready to begin in 2027. Its Brightwood project in Waterloo was 69% leased after reaching substantial completion in June, while the 55-unit Eventide project in Halifax was 38% pre-leased and expected to be completed within two to three weeks.
At Westmount Place, where changes reduced third-quarter FFO by CAD 840,000, Executive Vice President Robert Richardson said Killam had about 250,000 square feet of potential tenant interest. He said the first phase of work was expected to finish in four months.
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.
