From left to right: James Bugden, Project Manager; Jeremy Jackson, Vice President, Sales and Marketing Ruth Buckle, Vice President, Property Management;
PERTIES INC. S
ince the early 2000s, Killam Properties Inc. has developed a reputation as an owner, manager and developer of multi-family residential properties and manufactured home communities. By following a dedicated strategy of purchasing well-located properties, the company has been able to establish a strong presence in Atlantic Canadaâ€™s rental housing market, and has entered the Ontario market. Killamâ€™s focus on building a healthy portfolio of rental properties has also made it an attractive option for savvy real estate investors. The companyâ€™s commitment to provide affordable housing also demonstrates its dedication to giving back to the community.
[ Killam Properties ]
Pursuing a path of steady growth Killam Properties was the brainchild of Phillip Fraser, who witnessed a consolidation of Alberta multi-family real estate while working in Calgary. He recruited five other founding Directors with experience in different aspects of owning and/or investing in multi-residential properties in various Canadian markets. In 2000, the founders made a consolidation play with an initial public offering of two million common shares in the corporation’s capital, and listed the shares for trading on the TSX Venture Exchange. This established the firm as a capital pool company. Killam Properties made its qualifying acquisition in February 2002, which involved purchasing two new multi-family properties in Moncton and one in Halifax with a combined 147 units. The Moncton owner was interested in investing in the firm, so he accepted his portion of the purchase price for his buildings in shares. Killam Properties bought four more apartment buildings in Moncton and Halifax that year, giving them a total of 331 units. “These purchases helped to establish our foundation in Atlantic Canada,” said Robert Richardson, Executive Vice President and CFO.
“Killam is now one of the largest owners of rental properties in the four provinces. We own 14 percent of Atlantic Canada’s rental housing marketplace, and 12 percent of Halifax’s rental market, which makes us the dominant landlord in the region.” Killam Properties expanded into Newfoundland in 2003 and Prince Edward Island in 2004. While the company has increased its holdings in the region (86 percent of its operating revenue comes from Atlantic Canada), it has also geographically diversified its portfolio by entering other Canadian markets. Killam expanded into Ontario in 2004, Saskatchewan in 2005, Alberta in 2006, and British Columbia in 2007. In 2010, Killam Properties began construction of its first apartment development in Charlottetown, PEI. The following year, the company broke ground on four new apartment buildings in Halifax, Fredericton, St. John’s and Charlottetown. The firm’s strategy of purchasing existing multi-residential properties and manufactured home communities, and pursuing new development, has helped to grow its portfolio to more than $1.5 billion in real estate holdings.
“These purchases helped establish our foundation in Atlantic Canada. Killam is now one of the largest owners of rental properties in the four provinces.” – Robert Richardson, Executive Vice President and CFO
12 august 2013
[ Killam Properties ]
– James Bugden, Project Manager
“Our growth plan involves adding from $100 million to $125 million in existing property to our portfolio on an annual basis, while development will make up about five percent of our balance sheet,” said Robert. “Going forward, we plan to remain strong in Atlantic Canada. We want to be more geographically diverse, so we will continue to purchase properties in several Ontario nodes, as well as explore opportunities in the Alberta market, focusing on Calgary and Edmonton.” REOCs as an investment alternative Killam Properties operates as a real estate operating company (REOC), and is listed on the Toronto Stock Exchange (TSX:KMP). It pays a monthly dividend similar to a real estate investment trust (REIT). The REOC operates in the same space as a REIT, in that it allows people to invest in real estate. The company pays out monthly dividends to investors and offers a dividend reinvestment plan (DRIP). REOCs also have more flexibility with respect to the types of allowable real estate investments. People often view REOCs as defensive investments. Real estate (particularly rental housing) consists of assets that tend to increase in value, so they function as a hedge against inflation. Killam Properties provides a steady income stream with regularly paid dividends, which attracts conservative investors. By focusing on relatively younger rental properties (26 percent of its properties were built after 2001),
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the company has been able to maintain its property values and keep maintenance costs down, which affects the REOC’s overall value. “Over the long term, it is more expensive to maintain older properties, which affects returns,” said Robert. “The rental market is strong, and demand should increase for rental properties. As the population ages, people tend to move into multi-family rental housing and away from single homes, as they are more interested in a carefree lifestyle.” Investing in the right rental properties Since its inception, Killam Properties has focused on buying multifamily residential properties to build its investment portfolio. Rental properties in Nova Scotia, New Brunswick and Newfoundland are not subject to rent control. Atlantic Canada is a robust rental market with a lot of newer developments. The company has been able to focus its purchases on newer buildings, which require less maintenance and offer newer features and amenities. While location is very important for any real estate purchase, Killam Properties also follows the rule that bigger is better for apartment buildings. Larger rental properties tend to offer more amenities, which attracts better quality tenants who are willing to pay more for these features. They are also relatively easier to manage (as compared to several smaller buildings). “We’ll also invest in well-located older buildings, since location is very important to tenants,” said Robert. “Of course, we have to consider
[ Killam Properties ]
the condition of the building, as there are varying and significant costs associated with updating older buildings. However, location can offset building condition in certain markets.” Killam Properties has found that other markets have different rental housing issues than Atlantic Canada. For example, Ontario’s multi-family residential properties are relatively older, and often have significant amounts of deferred maintenance, which is not always reflected in cap rates. Rent control has made it less attractive for developers to build new rental properties instead of condos. Investors purchase a significant percentage of new condo units, which they then place into rental pools or rent privately.
“We’re taking the expertise we’ve developed into different markets, which helps to make all of our property managers that much better,” said Robert. “We prefer to manage properties ourselves so that we can be closer to our assets. Being hands on in our management approach enables us to develop more intimate knowledge of our investments, and better understand our tenants’ needs.” Using MHCs to enter new markets Killam Properties has employed the strategy of purchasing manufactured home communities (MHCs) to enter new geographic markets. For
“We prefer to manage properties ourselves so that we can be closer to our assets. Being hands on in our management approach enables us to develop more intimate knowledge of our investments and better understand our tenants’ needs.” – Robert Richardson, Executive Vice President and CFO
Since rental properties built after 1991 are not subject to rent control, Killam Properties has decided to key on newer buildings. The company is focusing on new product first in certain Ontario markets, such as Cambridge, Mississauga, London and Ottawa, and then considering well-located older buildings that offer turnaround opportunities. It has also purchased land in Cambridge, with plans to develop new rental property next year. Killam Properties also built its management team from scratch, so that the company could manage its own properties (except in Newfoundland, where it uses a third-party property manager). Most senior managers have been with the company from its early years, and have bought into the company’s long-term vision. Killam’s head office is located in Halifax, and it has regional offices in key cities throughout Atlantic Canada, as well as Ottawa (with an office for its manufactured home communities in Trenton).
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example, in 2003, the company purchased an MHC in the Niagara region to enter the southern Ontario market, which led to additional purchases throughout Ontario in 2005. It has also purchased MHCs in Atlantic Canada to expand its regional real estate holdings. At present, the firm owns 44 MHCs, and has more than 7,500 total units in its portfolio. “MHCs provide a foothold for entry into new markets for long-term growth,” said Robert. “They enable us to enhance our knowledge about a particular real estate market, and allow us to establish a management base that we can leverage for future apartment purchases.” Besides providing a foothold into new geographic markets, MHCs possess a number of traits that make them high quality investments. Purchasing an MHC involves buying the land, not the homes that sit on the land. There is no need to provide heating, so property owners are not exposed to rising energy costs. Owners also do not incur expenses related to upkeep, such as paint or carpeting. When the
[ Killam Properties ]
– Ruth Buckle, Vice President, Property Management tenant sells the home, rent continues unabated with the arrival of new owners. “MHCs offer excellent opportunities to build a position and consolidate investment, as they provide higher cap rates than apartments and a secure cash flow,” said Robert. “It’s a very strong financial model. Our properties average up to 98 percent occupancy, as it is much less expensive than renting an apartment. Our tenant base also has great pride of ownership, and it shows throughout our portfolio.” Leading the way in affordable housing Killam Properties is actively involved in providing affordable housing to people in need in New Brunswick, PEI and Nova Scotia. In 2008, the company partnered with Halifax’s Capital District Health Authority’s New Beginnings Mental Health department to create the Independent Supported Housing program. Under the pilot program, Killam provided 10 deeply subsidized units to New Beginnings client-tenants, who receive support services from New Beginnings. The 250 Homes Committee, which is affiliated with the Capital District Health Authority, had the goal of finding housing for people currently living in institutions who were ready to integrate into the
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community. Killam Properties offered to rent vacant units at a rate equal to the individual’s housing allowance. While the committee was responsible for the initial screening process and providing client support, the firm’s staff and property managers treated these individuals just like other tenants. “In addition to the most important aspects – giving back to the community and supporting our charitable giving focus – it has allowed us to fill vacancies and increase brand awareness,” said Ruth Buckle, Vice President, Property Management. “The tenants have the opportunity to live independently in a supported environment, and enjoy a safe, clean building in a good neighbourhood, all of which has proven to be beneficial to their overall health.” Due to its success, the Independent Supported Housing program has continued to grow over the past four years. Killam Properties now provides 46 subsidized units to New Beginnings client-tenants. The company has also taken its supported housing model to three other housing agencies (Shelter Nova Scotia, Phoenix House and VETS), providing these partners with 23 additional supported housing units. In 2010, Killam won a CMHC National Award for the Independent Supported Housing program.
[ Killam Properties ]
Killam Properties, in association with the Investment Property Owners Association of Nova Scotia (IPOANS), has worked to promote the Independent Supported Housing program and the efforts of various housing agencies to other rental property owners. Thanks to the leadership of Killam’s Vice President Jeremy Jackson, who is also President of IPOANS, 14 other landlords are now involved in the program and provide rental units to clients of the aforementioned agencies. “In 2011, we presented the independent supported housing model to senior officials at the Nova Scotia’s Community Services department,” said Jeremy Jackson, Vice President, Sales and Marketing. “Four months later, the government rolled out its Supported Housing Program. To date, this program has placed 249 client-tenants in seven housing agencies, which means that they are using available rental stock. This clearly demonstrates that independent supported housing works.” Killam Properties continues to be actively involved in supporting the affordable housing sector. Since 2010, Jeremy has been a speaker at numerous affordable housing conferences across the country, with the goal of encouraging other landlords to get involved in the supported housing program. New opportunities in development In 2011, Killam Properties took its first step in becoming a developer with the completion of Charlotte Court, a three-storey rental property with 49 units. Located in Charlottetown, the project resulted from winning a tender from PEI’s Provincial Government for redevelopment of an aging facility on the property. Units are subsidized and leased by PEI’s Department of Community Services and Seniors, which matched the program that was provided to tenants at the existing facility. This project laid the foundation for future developments of multifamily residential buildings. Killam Properties first looked to build on surplus land that was adjacent to its existing properties, which is less expensive and more efficient than tearing down an old building or buying new land. One of the goals was to develop new buildings with amenities that complemented the existing adjacent property. For example, S2 is a 63-unit building located in Bedford, Nova Scotia that includes a 3,000 square foot gym, yoga room, changing rooms and theatre, and it is next to an existing Killam building.
– Jeremy Jackson, Vice President, Sales and Marketing
20 august 2013
“The Plaza at Forest Hills in Fredericton is similar to S2, in that its amenities complement those in the existing building,” said James Bugden, Project Manager. “This 101-unit building has a 4,500 square foot gym, yoga and spin room, changing rooms, underground parking, and many other features that are available for use by tenants in the neighbouring building. Plaza’s tenants can also use the other building’s amenities, which include a pool.” Killam Properties also invested in land for development that was well situated in city centres. The company purchased the land for Bennett House in St. John’s, Newfoundland from Canada Lands Corporation, and
[ Killam Properties ]
was awarded the tender to redevelop Brighton House in Charlottetown (as with Charlotte Court). Both properties are very well located and were essentially fully rented upon completion. Killam Properties has focused on making its new buildings more energy efficient, which will help to reduce long-term operating costs. It has applied for LEED certification in two buildings (Plaza and S2). The company equipped the buildings and units with environmentally friendly and energy-saving features, such as grey water recycling, solar panels, radiant heating, LED lighting, electricity monitoring, green plugs (i.e., master switches) and low-flow faucets. “Many units are equipped with green switches, which enables the tenant to turn off everything on that circuit upon leaving the unit,” said James. “Several buildings have low-E argon glass windows, which keep interiors insulated from outside temperatures. We’ve also provided electronic car charger stations in our new buildings.” Taking marketing to the next level Innovative marketing is central to Killam Properties’ goal to promote its new developments and fill vacancies, and it has garnered a lot of attention
around the industry. It is very active in various forms of social media, and was the first property owner in Canada to use EBay to creatively rent out its apartments. The company has created a number of comedic videos to promote its properties to students (check out “Landlord Lou” and “Lost Plunger” on YouTube). Killam also ran a Free Rent Sweepstakes promotion, where one person would win free rent for a year. Killam Properties is using its innovative marketing strategies to launch an at-home care program that targets seniors. The company plans to work with at-home care providers and home care nurses, who will help seniors to stay in their homes longer. Tenants can purchase daily or weekly plans that provide light levels of assisted living, which includes in-home support, prepared meals and access to scheduled shuttle service. “The at-home care pilot program is designed for people who don’t need full assisted living,” said Jeremy. “They can choose a daily plan or a weekly plan, depending on their needs and budget, which will help them to be more independent and comfortable. It’s much less expensive to live at home and get some light care than it is to move into an assisted living facility.” RHB
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