Large landlord reports biggest operating income increase for Halifax apartments in last 5 years

Halifax-based landlord Killam Apartment REIT reported its largest increase in net operating income in Halifax in the last five years, according to the company's new 2024 year-end financial report.

Killam took in $67.32 million in net operating income — revenues made after subtracting the expenses of operating a building — from its Halifax apartments last year. Net operating income is not the same as profit because it excludes expenses like mortgage payments. 

"Halifax and Kitchener-Waterloo-Cambridge remain two of Killam's strongest markets," said executive vice-president Robert Richardson during the company's fourth-quarter earnings call with analysts on Feb. 13.

Killam owns 5,600 apartments in Halifax and more than 18,000 across Canada.

A key topic discussed on the earnings call was a sharp decline at the end of 2024 in Killam's estimate of how much higher market rents are compared to its average rent  — a financial metric called the "mark-to-market spread."

Killam, like other landlords, tries to boost an apartment's rent to the higher market rate when new tenants move in. In Nova Scotia, the province's rent cap only applies to lease renewals.

"It's a … key part of their ability to grow revenue over time," said Neil Lovitt, a vice-president with real estate consulting company Turner Drake.

As the gap closes between Killam's rents and the market rate, there's less opportunity to raise rents.

"Killam's apartment portfolio rents have room to move [upward], likely in the 15 per cent range," Richardson said, referring to the company's apartments across Canada. 

In its year-end report, the company said it partners with non-profits and governments to address the need for affordable housing.

The report points to stabilizing market rents as a reason for the decline in Killam's mark-to-market spread.

"We're getting to a point where … the growth in market rents have hit somewhat of a ceiling," said Lovitt, adding that this is a broad pattern both in Halifax and across Canada.

Rents in Nova Scotia increased by 4.8 per cent on average in December compared to the same month in 2023, according to Statistics Canada. That's down significantly from a peak rent inflation rate of 14.6 per cent in October 2023. 

Still, Killam estimates that market rents in Halifax are about 25 per cent higher than its average rent — the highest differential among the regions it has apartments in, according to Killam's earnings call slide show.

Chief financial officer Dale Noseworthy said the company's success in raising rents to the market rate is also part of the reason why its opportunity to do so has decreased.

"We've achieved some really strong rents," Noseworthy said during the earnings call. "I'd say … both those markets [Halifax and Kitchener-Waterloo-Cambridge] are holding up very well."