Killam REIT Expects 20% Tenant Turnover Amid Slowing Rent Growth

UPDATE: In a critical announcement, Halifax-based Killam Apartment REIT forecasts a 20% turnover of its apartments this year, as the rental market shows signs of slowing growth in Atlantic Canada. CEO Philip Fraser revealed this strategy during the company’s second-quarter earnings call on August 7, 2023, aiming to leverage new tenant arrivals to maintain profitability.

As rental rates stagnate, Killam anticipates that increased tenant turnover will counterbalance the declining rent growth. Fraser noted, “A lot of the … turnover will be units where we do have a good, healthy mark-to-market,” indicating a strategic focus on maximizing rental income through new leases. Currently, Killam’s rents in Halifax are estimated to be 22% below market rates, presenting a significant opportunity for revenue increases as new tenants move in.

The company reports that about 20% of its more than 18,000 apartments across Canada are expected to turn over to new tenants this year, a slight increase from 18% in 2024. Chief Financial Officer Dale Noseworthy emphasized the shift in housing choice for renters, stating, “People have choice today [of housing], where they didn’t have a year ago, two years ago.”

Despite the challenges in the rental market, Killam reported a net operating income of $34.31 million from its Halifax apartments in the first half of the year, marking a 7.6% increase from the same period last year. This figure highlights the resilience of its rental portfolio in a shifting economic landscape.

The company’s strategy includes repositioning approximately 250 units by the end of the year, which involves renovations aimed at attracting higher-income renters. Noseworthy stated, “I think we’re … 40 to 50% rent growth in terms of those repositioning,” reflecting an aggressive approach to capitalize on market opportunities.

Analysts are closely monitoring these developments as Killam strives to adapt to the competitive rental landscape. The company’s rental gains for new leases are noted as the largest in its history, marking a significant milestone amid a challenging market.

Fraser and Noseworthy’s remarks echo broader trends in the rental sector, where landlords are increasingly focused on attracting affluent renters to sustain profitability. The recent financial report reveals that most new units entering the market will have monthly rents exceeding $2,500, considerably higher than Killam’s average.

As the rental market evolves, stakeholders are advised to stay alert for further updates on Killam’s performance and strategic initiatives. With rental growth slowing, the focus on tenant turnover and repositioning could redefine the competitive dynamics of the housing market across Atlantic Canada.

What’s Next: As Killam continues to navigate this transitional phase, industry experts suggest that monitoring the effectiveness of these strategies will be crucial. The next earnings call will likely provide deeper insights into how these measures are influencing overall performance and market positioning.

Stay tuned for more updates on this developing story as it unfolds.