Source: finance

Management’s Discussion and Analysis
Dollar amounts are in thousands of Canadian dollars (except as noted)

Apartment Property Revenue

Total apartment property revenue for the year ended December 31, 2013, was $121.3 million, a 9.8% increase over 2012. This growth was attributable to acquisitions, the completion of four development projects during the year and growth in rental rates.

Same store apartment net revenue increased 1.6% for the year ended December 31, 2013. Despite lower occupancy in the first half of the year, Killam achieved increased rental rates of 1.3%. Killam realized higher vacancy throughout 2013 compared to 2012 in its stabilized portfolio, but succeeded in achieving higher occupancy than 2012 for each of the last four months of 2013.

Based on current rents, an annualized 100 bps change in apartment vacancy rates would impact the annualized rental revenue by $1.3 million.

Apartment Occupancy by Core Market
As at December 31,

<table>
  <tr>
    <th rowspan="2"> </th>
    <th colspan="2">2013</th>
    <th colspan="2">2012</th>
    <th rowspan="2">Average Rent</th>
    <th rowspan="2">Change Occ (bps)</th>
    <th rowspan="2">% Change Avg Rent</th>
  </tr>
  <tr>
    <th>Units</th>
    <th>Occupancy(1)</th>
    <th>Units</th>
    <th>Occupancy(1)</th>
  </tr>
  <tr>
    <td>Halifax, NS</td>
    <td>4,970</td>
    <td>96.0%</td>
    <td>4,822</td>
    <td>96.6%</td>
    <td>$923</td>
    <td>(60) bps</td>
    <td>3.8%</td>
  </tr>
  <tr>
    <td>Moncton, NB</td>
    <td>1,593</td>
    <td>97.1%</td>
    <td>1,424</td>
    <td>96.3%</td>
    <td>831</td>
    <td>80 bps</td>
    <td>3.9%</td>
  </tr>
  <tr>
    <td>Fredericton, NB</td>
    <td>1,394</td>
    <td>96.3%</td>
    <td>1,293</td>
    <td>97.8%</td>
    <td>896</td>
    <td>(150) bps</td>
    <td>5.9%</td>
  </tr>
  <tr>
    <td>Saint John, NB</td>
    <td>1,143</td>
    <td>94.4%</td>
    <td>1,143</td>
    <td>93.6%</td>
    <td>746</td>
    <td>80 bps</td>
    <td>(0.1)%</td>
  </tr>
  <tr>
    <td>St. John’s, NL</td>
    <td>813</td>
    <td>97.0%</td>
    <td>742</td>
    <td>97.8%</td>
    <td>849</td>
    <td>776</td>
    <td>9.4%</td>
  </tr>
  <tr>
    <td>Charlottetown, PE</td>
    <td>906</td>
    <td>95.6%</td>
    <td>687</td>
    <td>91.6%</td>
    <td>878</td>
    <td>400 bps</td>
    <td>0.8%</td>
  </tr>
  <tr>
    <td>Ontario</td>
    <td>1,359</td>
    <td>98.6%</td>
    <td>1,078</td>
    <td>93.1%</td>
    <td>1,254</td>
    <td>550 bps</td>
    <td>(5.8)%</td>
  </tr>
  <tr>
    <td>Other Atlantic</td>
    <td>469</td>
    <td>95.3%</td>
    <td>431</td>
    <td>96.1%</td>
    <td>798</td>
    <td>(80) bps</td>
    <td>2.8%</td>
  </tr>
  <tr>
    <th>Total Apartments (weighted average)</th>
    <th>12,647</th>
    <th>96.3%</th>
    <th>11,620</th>
    <th>95.9%</th>
    <th>$915</th>
    <th>40 bps</th>
    <th>3.0%</th>
  </tr>
</table>

(1) Includes all stabilized properties.

Killam’s Historic Apartment Occupancy by Quarter

![Bar chart showing Killam's apartment occupancy by quarter from Q1-07 to Q4-13](https://i.imgur.com/3Q5z5QG.png)

Killam experienced softer occupancy levels in its apartment portfolio during the first half of 2013 followed by a strong uptick in occupancy in Q3 and a typical seasonal decrease in Q4. Overall Killam’s occupancy levels were down in both 2012 and 2013 compared to highs maintained throughout 2010 and 2011. The decreased occupancy was primarily attributable to higher than normal amounts of new multi-family rental construction in Halifax, Moncton and Charlottetown, and softness in the Saint John economy. Offsetting an increase in supply was continued strong demand for rental product, population growth in urban centres and an aging population with an increased tendency to rent. Despite a decline in occupancy, Killam achieved an average rental rate increase in its apartment portfolio of 1.3% in 2013. Occupancy remains strong for the Company’s MHC business, ending the year with 98.1% occupancy. MHC rents increased an average of 3.7% during the year.