Killam Properties (Symbol-KMP)

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Norbert Schlenker
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Killam Properties (Symbol-KMP)

Post by Norbert Schlenker »

Arby mentions this company in the REIT thread. A quick look at the most recent annual report indicates that it's basically an apartment landlord in Atlantic Canada, with a fair spicing of mobile home parks. Organized as a corporation, it's been making serial threatspromises to convert to REIT status. It has a dividend yield of about 8%, paid monthly.

But there's a quizzical expression on my face when I look at the financials. The company has lost money - pretty big money - the last two years. It has significantly negative retained earnings. AFAIK dividends can only be paid out of retained earnings. Positive retained earnings.

How are they paying dividends? And how can they possibly be classified as dividends for tax purposes?

[Edited symbol per DavidR's poke.]
Last edited by Norbert Schlenker on 29 Sep 2009 15:41, edited 1 time in total.
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Post by Michael D »

I have yet to look at this, but: Depreciation?

Creating negative retained earnings, yet on a cash-basis can still distribute FCF.
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Post by DavidR »

My understanding is that the Canada Business Corp Act (and the provincial acts) don't allow dividends if they would make the corporation insolvent. Killam of course has lots of equity, so I assume that is why they are able to declare a dividend.

There could be significant differences between 'taxable' retained earnings and 'accounting' retained earnings - if there have been large writedowns or share buy-backs or 'who knows what' then there may well be retained earnings for tax purposes.

BTW, don't you mean (Symbol KMP) ?
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Post by zaman »

From their Q2 report: Funds from operations (FFO) are calculated by the Company as net loss plus depreciation and amortization, stock compensation, non-cash debenture interest and future income taxes. FFO was 20 cents/share and IMO represents cash flow per share for a REIT or similar enterprise. I do agree, it is a little difficult to determine whether it is prudent for them to allocate something like "future income taxes or stock compensation" to current "earnings". I don't own any myself but am looking to add more REITS as well. I do agree that some of the more well known REITS appear expensive on a price/FFO basis.
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Re: Killam Properties (Symbol-KMP)

Post by Arby »

The announcement that Halifax has won a $25 Billion contract to build military vessels will be a huge benefit for Killam Properties. Killam is the largest owner of rental apartments in Atlantic Canada. It's estimated this contract will create thousands of new jobs in the Halifax area.
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Re: Killam Properties (Symbol-KMP)

Post by AltaRed »

Arby wrote:The announcement that Halifax has won a $25 Billion contract to build military vessels will be a huge benefit for Killam Properties. Killam is the largest owner of rental apartments in Atlantic Canada. It's estimated this contract will create thousands of new jobs in the Halifax area.
You think there will be enough new 'net' draw of workers to make a material difference? This is a 30 yr contract I believe.
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Re: Killam Properties (Symbol-KMP)

Post by FinEcon »

AltaRed wrote:
Arby wrote:The announcement that Halifax has won a $25 Billion contract to build military vessels will be a huge benefit for Killam Properties. Killam is the largest owner of rental apartments in Atlantic Canada. It's estimated this contract will create thousands of new jobs in the Halifax area.
You think there will be enough new 'net' draw of workers to make a material difference? This is a 30 yr contract I believe.
To Halifax, yes. Because it's a concentrated economic effect it may cannibalize demand from Killam's properties in other nearby areas of NS. I don't know the area of the country at all for market analysis but a recent CMHC event I was at many people mentioned they were blown away by the pace of development in the west compared to the east. It's been awhile since I looked but IIRC, Killam has one of the higher avg cap rates in the business.

A note because of what is posted above, you want to be looking at least a few things when analyzing REIT's:
1) AFFO or some carefully estimated near variant of it
2) at least some understanding of the stock of assets they hold and if those assets are in a catalyst area (university expansion, gentrification) or have a potential higher and better use (rezoning).
3) same as #2 except with respect to their tenant base. Are they located somewhere people want, or will want to be? Are they looking to move onward and upward in the tenant chain? That means higher margin tenant, not necessarily a better class of people :)
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Re: Killam Properties (Symbol-KMP)

Post by Arby »

AltaRed wrote:
Arby wrote:The announcement that Halifax has won a $25 Billion contract to build military vessels will be a huge benefit for Killam Properties. Killam is the largest owner of rental apartments in Atlantic Canada. It's estimated this contract will create thousands of new jobs in the Halifax area.
You think there will be enough new 'net' draw of workers to make a material difference? This is a 30 yr contract I believe.
The Conference Board of Canada says "the combat ship contract would create 11,500 additional jobs in Nova Scotia during the peak of construction in 2020" according to this article. Presumably the new jobs will start to build up to this level during the next few years.
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Re: Killam Properties (Symbol-KMP)

Post by ThinkDividends »

I was at a conference yesterday were the CEO of Killam presented. The key takeaway was that it will be very hard for them to find attractive properties to buy given that cap rates are so low these days.

Otherwise, no mention of this Halifax contract.
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Re: Killam Properties (Symbol-KMP)

Post by Arby »

ThinkDividends wrote:I was at a conference yesterday were the CEO of Killam presented. The key takeaway was that it will be very hard for them to find attractive properties to buy given that cap rates are so low these days. ...
That's probably why Killam has started to do it's own development in the Maritimes, rather than buying existing properties. I was a bit concerned about this initiative, because Killam didn't have experience with development. They appear to have done well with their initial development in Charlottetown - it was completed on time and on budget and is now 100% leased. They now have four more development projects underway in the Maritimes.
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Re: Killam Properties (Symbol-KMP)

Post by AltaRed »

Arby wrote:The Conference Board of Canada says "the combat ship contract would create 11,500 additional jobs in Nova Scotia during the peak of construction in 2020" according to this article. Presumably the new jobs will start to build up to this level during the next few years.
Not to be a spoil sport, but how many of the 11,500 will be soak up of the unemployed and/or underemployed already living in the region? How many of those jobs will go to natives that have been commuting west to Fort Mac for work but retain residences in Halifax-Dartmouth? My point being is I think this contract will primarily 'reverse' the economic slide of the region rather than give it a step change positive pop and I sure would not be investing in anything like this because of a 'one off' contract.
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Re: Killam Properties (Symbol-KMP)

Post by Shine »

Not to be an additional spoil sport, however the $25 Billion will not all be expended in the Maritimes. A major portion of this project for naval offensive vessels will include weapon systems and communications systems that might likely be contracted out to American or other companies not in Canada.
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Re: Killam Properties (Symbol-KMP)

Post by Shakespeare »

The hardware of the weapon systems will be American (missiles) or European (gun). The software will be Canadian.
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Re: Killam Properties (Symbol-KMP)

Post by Bylo Selhi »

Shakespeare wrote:The hardware of the weapon systems will be American (missiles) or European (gun). The software will be Canadian.
Sounds like the lead-in to a bad joke, ("Hell is where cooks are English, mechanics are French, police are Germans...") ;)
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Re: Killam Properties (Symbol-KMP)

Post by Arby »

If you owned Killam prior to it's conversion to a REIT on Jan 1 2016, there was a taxable event on conversion, due the disposition of the old shares. I'm trying to determine the correct value for the disposition of the shares. I found two different methods provided on Killam's website: use the value on the date of conversion (which was Jan 1 2016, when the markets were closed); use the 5-day volume weighted average price for the period immediately prior to the conversion, (and Killam says this equates to a disposition value of $10.60). To further complicate matters, the T5008 trading summary from my broker indicates a disposition value of $10.10 per share (but I'm not sure how they came up with this number).

I'm tempted to user my broker's disposition value of $10.10, since this results in a lower capital gain. What are other people seeing as a disposition value on their T5008 trading summary?
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Re: Killam Properties (Symbol-KMP)

Post by milton »

TD T5008 has it at $10.10 as well. Questrade T5008 classifies it as a 'Merger' without a dollar amount. I'm going with $10.10 for the reasons you mention and also because it keeps the paper trail easier: the broker has entered $10.10 as the average cost of the new shares.
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Re: Killam Properties (Symbol-KMP)

Post by Arby »

Thanks Milton.

I sent my question to Killam, and received an informative reply from the VP investor relations. He said the tax rules do not have a mandated methodology to value the transaction. Killam's tax adviser recommended using a 5-day volume weighted average price, since that is a common methodology for pricing this type of transaction. He said the $10.10 price from the broker probably corresponds with trading prices on the date the REIT units began trading on the TSX, which was January 7, 2016. I'm going with the $10.10 price.
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