Killam Apartment REIT
Annual Report 2016
About Killam Apartment REIT
Profile
Killam Apartment Real Estate Investment Trust (“Killam”, or “Killam Apartment REIT”)
is a growth-oriented investment trust owning, operating and developing multi‐family
apartments and manufactured home communities (“MHCs”). Killam has a portfolio of
$2 billion in real estate assets, located in Atlantic Canada, Ontario and Alberta.
Growth Strategy
Killam’s strategy to maximize its value and long‐term profitability includes
concentrating on three key areas of growth:
Expanding the portfolio and diversifying geographically through accretive
Increasing the earnings from its existing portfolio,
acquisitions, with an emphasis on newer properties, and
Developing high‐quality properties in its core markets
Mission
To have caring staff deliver clean, safe, quality housing to tenants who are
proud to call our properties home.
Core Values
Build Community | Curb Appeal | Do the Right Thing
Strong Customer Relationships | Creative Solutions
2 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Net Operating Income
by Segment
Apartments • 89%
MHCs • 9%
Commercial • 2%
Net Operating Income
by Province
Nova Scotia • 43%
New Brunswick • 22%
Ontario • 19%
Newfoundland • 8%
PEI • 6%
Alberta • 2%
The Alexander, Halifax, NS
Letter to Unitholders
Asset Portfolio
Management’s Discussion
& Analysis
Financial Statements
Five-Year Summary
7
22
24
76
108
On the cover:
Saginaw Park, Cambridge, ON
2016 Highlights
19.3%
Total Unitholder Return
1.8%
Increase in Same
Property Revenue
$72
Million in Acquisitions
Completed
8.9%
Growth in FFO per Unit
4.0%
Increase in Same Property
Net Operating Income
$23
Million Invested in
Developments
78%
AFFO Payout Ratio
53.5%
Debt as a Percentage of
Total Assets as at
December 31, 2016
90%
Satisfaction Rating from
Tenant Survey
Southport, Halifax, NS
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 3
Financial & Operating Highlights
(Value in thousands, except per unit amounts)
As at and for the years ended
2016
2015
2014
Adjusted funds from operations (AFFO) (2)
$52,347
Operations
Property revenue
Net operating income
Net income
Funds from operations (FFO) (1)
FFO per unit/share (diluted)
AFFO per unit/share (diluted)
Distributions/dividends declared
per unit/share
AFFO payout ratio
Financial Position
Total assets
Total liabilities
Total equity
$175,269
$166,614
$147,507
$105,424
$71,439
$58,886
$0.86
$0.77
$0.60
78.2%
$98,390
$35,800
$49,016
$0.79
$42,639
$0.68
$0.60
87.7%
$84,601
$32,667
$40,162
$0.72
$34,023
$0.61
$0.60
98.1%
$1,987,633
$1,876,276
$1,775,234
$1,237,167
$1,190,948
$1,112,551
$750,466
$685,328
Units/shares outstanding (at Dec 31) (3)
71,736
62,863
Total debt as a percent of total assets
Interest coverage ratio
Portfolio Information
Apartment units
MHC sites
Average rent per apartment unit
Average rent per MHC site
53.5%
2.74
14,105
5,165
$973
$242
56.4%
2.34
13,681
5,165
$951
$236
$662,683
60,476
55.8%
2.21
13,427
5,165
$933
$227
(1) FFO, and applicable per unit amounts, are calculated as net income plus depreciation on owner occupied building, fair value
losses, interest expense related to exchangeable units, loss on disposition, deferred tax expense and REIT conversion costs, less
fair value gains, deferred tax recovery, unrealized gain on derivative liability and non-controlling interest.
(2) AFFO, and applicable per unit amounts and payout ratios, are calculated by Killam as FFO less $450 per apartment unit for
maintenance capital costs, which is an estimate in the industry range for the multifamily sector. Although the manufactured
home community (“MHC”) industry does not have a standard amount for maintenance related capital costs, a $100 per MHC site
estimate is used by Killam.
(3) Killam converted to a real estate investment trust (REIT) effective January 1, 2016. Units outstanding at December 31, 2016,
include 67,869,802 REIT Units and 3,865,836 Exchangeable Units. Shares outstanding at December 31, 2014 and 2015 are
common shares.
Saginaw Park, Cambridge, ON
4 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Property Revenue
in $ millions
$175
$167
$148
$141
$134
Value of Investment
Properties
in $ millions
$1,943
$1,840
$1,733
$1,476
$1,355
12 13 14 15 16
12 13 14 15 16
Funds from Operations
per unit/share (diluted)
AFFO Payout Ratio
$0.86
$0.79
98%
96% 96%
$0.71 $0.71$0.72
88%
78%
12 13 14 15 16
12 13 14 15 16
Debt as a % of
Total Assets
Interest Coverage
Ratio
55.8% 56.4%
52.7% 53.9%
53.5%
2.74
2.34
2.09 2.15 2.21
12 13 14 15 16
12 13 14 15 16
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 5
2016 Performance Summary
Growth in Same Property NOI
2016 Target
2016 Performance
2017 Target
Longer-term Target
Geographic Diversification
2016 Target
2016 Performance
2017 Target
Same property NOI growth of 1% to 3%.
Target exceeded.
Killam’s same property portfolio generated 4.0% growth, attributable to top line growth of
1.8% and a reduction in year-over-year total operating expenses.
Same property NOI growth of 1% to 3%.
Same Property NOI growth averaging over 2%.
Increase NOI generated outside Atlantic Canada.
Target achieved.
21.3% of NOI earned outside Atlantic Canada in 2016, up from 20.2% in 2015.
62% of acquisitions completed in 2016 were in Ontario, including $31.1M in Ottawa and
$13.4 in London.
At least 75% of acquisitions made outside Atlantic Canada and over 23% of 2017 NOI earned
outside Atlantic Canada.
Longer-term Target Over 30% of NOI generated outside Atlantic Canada by 2020.
Expanded Portfolio through Accretive Acquisitions
2016 Target
2016 Performance
A minimum of $50 million of acquisitions.
Target achieved.
Killam completed $71.5 million in acquisitions, including $70.0 million in NOI producing
assets and $1.5 million in land for future developments. The weighted average all cash yield
on the acquisitions is expected to be over 5% in the first year.
A minimum of $75 million of acquisitions.
2017 Target
Longer-term Target Grow the portfolio to $2.5 billion by 2020.
Development of High-Quality Properties
2016 Target
2016 Performance
Completion of the Southport Apartments development.
Target achieved.
Southport was completed in August and tenants started taking occupancy in September.
The development came in on budget, and exceeded management’s expectations on lease-up.
To remain on schedule to have the 240-unit Alexander development completed by Q1-2018
and the 93-unit Saginaw development completed by Q2-2018.
To add a minimum of $20M of value creation from Killam’s development program through to
the end of 2020.
2017 Target
Longer-term Target
Strengthened Balance Sheet
2016 Target
2016 Performance
Improve Killam’s debt metrics and increase capital flexibility.
Target achieved.
Debt as a percentage of total assets was reduced by 290 bps to 53.5%.
Killam expanded its acquisition line of credit to $30 million, up from $2 million.
2017 Target
Longer-term Target Debt as a percentage of assets to be less than 50% of assets by 2020, and an expanded
Further reduce debt as a percentage of assets.
acquisition line of credit of a least $50 million.
6 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Letter to Unitholders
Dear Unitholders,
I am pleased to report that we had another productive and rewarding year at
Killam. Our financial and operating results for 2016 include achieving funds
from operations (FFO) per unit growth of 8.9%, a noteworthy accomplishment
following 9.7% growth in FFO per unit in 2015. As always, our strategic
focus on delivering outstanding customer service, maximizing operational
efficiencies, and enhancing employee training contributed to our strong
financial results. In addition, market factors are cooperating: demographic
trends support a preference for renting, increased economic and population
growth in the majority of our core markets, and continued low interest rates.
We also made important improvements to our balance sheet during 2016.
We raised $98 million of equity in June amidst a strong capital market and
used $57.5 million of the proceeds to redeem the larger of two tranches of
convertible debentures. This transaction resulted in a marked improvement in
our debt to total asset ratio and we ended the year with debt as a percentage
of total assets down 290 basis points from a year earlier. Looking forward, we
have opportunities to further improve our debt levels, and have a debt to total
assets target of 50% by the year 2020. We believe this initiative is important
in reducing Killam’s risk profile and reflects our maturity as a well-established
Canadian real estate owner. Look for continued improvement in our debt
metrics in the year ahead.
We also secured a $28 million expansion to our acquisition line of credit during
2016, from $2 million to $30 million. Increasing the line improved Killam’s
acquisition capacity by approximately $90 million and enhanced our ability
to react quickly to opportunities. Our goal is to increase the line to $50 million
over the next four years, which will provide further capital flexibility. We plan
to achieve this by increasing our portfolio of debt-free properties that can be
pledged against an acquisition line.
We remain committed to maximizing Killam’s value and long-term profitability
by concentrating on three key areas of growth: 1) increasing earnings from our
existing portfolio; 2) expanding our portfolio and diversifying geographically
through accretive acquisitions, with an emphasis on newer assets; and 3)
developing high-quality properties in our core markets. All three of these
areas contributed to earnings growth in 2016.
Increasing earnings from our existing portfolio of assets is crucial in achieving
FFO per unit growth. Our portfolio performed very well in 2016, with
improved occupancy and higher rental rates and savings on energy and
other operating expenses. The Halifax portfolio, representing 36% of net
operating income, was especially strong. It led growth in our core markets for
both revenue and net operating income, achieving growth of 3.3% and 6.2%,
respectively. Ontario and Charlottetown also stood out as top performers.
Philip Fraser, President & CEO
“As always, our strategic
focus on delivering
outstanding customer
service, maximizing
operational efficiencies,
and enhancing employee
training contributed to our
strong financial results.”
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 7
As I’ve mentioned in past letters, the commitment and dedication of our 550
employees is key to our success. Providing high-quality customer service is a
top priority at Killam. We measure customer satisfaction through an annual
tenant survey administered by an independent market research firm. Last year
was the fourth consecutive year we performed this extensive survey, and I’m
pleased to report that the results were again exceptional. Of the over 2,000
tenants who completed the survey, 90% were “completely or mostly satisfied
with Killam as a landlord”.
We believe these results are amongst
the highest in the industry. I’m incredibly
proud of our team at Killam for their
ongoing commitment to exceptional
service.
One of the most important initiatives
to manage expenses at our properties
is our energy efficiency program.
“We will continue to
invest in our team
and our assets, and
to strengthen Killam
overall to ensure
long-term success.”
Although we’ve been investing in energy projects for many years, hiring an
energy specialist two years ago and expanding our operations department
has allowed us to increase our focus on, and investment in, energy and
water efficiencies. Following a comprehensive review last year, we identified
over $25 million in energy projects with an average payback of only four
years. These programs could translate into upwards of $7 million in energy
and water savings – a very exciting opportunity for Killam, and the best
investment we can make. We began to roll out the program in 2016, and are
planning to increase our investment in energy initiatives from $1.3 million in
2016 to at least $3 million in 2017. With a clear plan in place, we’re addressing
the biggest opportunities first. Look for updates on the rollout and return on
these initiatives over the next few years.
Acquisitions have always been an important part of Killam’s growth and
2016 was no exception with the completion of $72 million in acquisitions.
Two acquisitions stand out in particular. In June we acquired the remaining
51% interest in Garden Park Apartments in Halifax for $23.7 million. We have
been increasing our ownership interest in this 246-unit property since we first
acquired a 10.7% interest in 2005. The acquisition completed in June gave
us full control over one of the best-located apartment buildings in Halifax.
We have the opportunity to improve rents and net operating income at this
property with capital upgrades to the common areas and units. With $6
million in capital investments, we expect to increase the value of the asset by
over $15 million over the next 10 years. The repositioning project is already
underway, and the returns we’re achieving on our capital are very good, at an
average of 12%.
8 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
We also acquired a 50% interest in Kanata Lakes Apartments III, in Ottawa,
in June 2016. This 173-unit property was completed in late 2014 and is the
third of a five-building complex with a shared clubhouse. We already had a
50% interest in both Kanata Lakes Apartments I and II. On March 1st, 2017,
we acquired the remaining two buildings of the Kanata Lakes development,
known collectively as William’s Court. We have been acquiring an ownership
interest in the 739-unit development since the first building was completed
in 2012. These condo-quality apartments are attractive additions to our
portfolio. Our five-year relationship with the developer has been positive and
the acquisitions align with our strategy of increasing our ownership in newer
assets and expanding geographically outside Atlantic Canada. With strong
demand for the units and no major capital required for the foreseeable future,
we expect the properties to generate very attractive returns.
The benefit of our established development program stood out last year with
the successful completion of Southport Apartments in Halifax. The lease-
up exceeded our expectations and reinforced our strategy of adding value
through development. We are excited about two current projects underway:
the Alexander in Halifax and Saginaw Park in Cambridge , Ontario, and
our pipeline of over 1,000 units for future development. Development will
continue to be an important part of Killam’s growth strategy.
We are confident about Killam’s future. We remain committed to our strategy
and our core values. We will continue to invest in our team and our assets, and
to strengthen Killam overall to ensure long-term success.
During the February 2017 Board of Trustees meeting, the Board approved a
3.3% increase to Killam’s distribution. This marks the first distribution increase
in over three years, and reflects the strength of Killam’s results and the Board’s
outlook for the future.
Thank you for your interest and investment in Killam. I invite you to attend
Killam’s annual unitholders’ meeting on May 5th, 2017 at 10:00 AM Atlantic
Time at the Halifax Marriott Harbourfont Hotel, either in person or via
webcast. I look forward to providing progress updates on our strategic
initiatives over the coming months.
Yours truly,
Philip Fraser
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 9
Growth Strategy
Increase Earnings
from Existing Portfolio
Growing the earnings of Killam’s
existing portfolio is central to
unitholder value creation, generally translating
into increased funds from operations per unit and higher net
asset values per unit. This growth is accomplished by addressing
three critical factors: occupancy, rental rates and operating costs.
Killam focuses on customer service, investing in its properties,
leasing and marketing initiatives, training its employees and
operating efficiencies to maximize these outcomes. Killam’s same
property portfolio, representing properties owned for more than
two years, performed very well in 2016, achieving 4.0% growth in
net operating income.
Shaunslieve Apartments, Halifax, NS
1 0 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Growth Strategy
Increase Earnings
from Existing Portfolio
Apartment Occupancy
95.8%
2015: 95.4%
Operating Margin
60.1%
2015: 59.1%
Same Property
Revenue Growth
1.8%
2015: 2.2%
Same Property
NOI Growth
4.0%
2015: 4.2%
Brentwood Apartments, Halifax, NS
Brighton House, Charlottetown, PE
Bennett House, St. John’s, NL
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 1 1
Growth Strategy
Acquisitions
Killam is growing its portfolio through
accretive acquisitions, with an emphasis on
geographic diversification and newer properties. Since its first
acquisition in 2002, Killam’s portfolio has grown annually through
acquisitions. Killam is expanding its portfolio by acquiring
centrally located buildings in urban markets, increasing its
ownership in Ontario and Alberta, and adding to its established
portfolio in Atlantic Canada. Geographic diversification is a
priority - Killam’s strong operating platform can support a larger
and more geographically diverse portfolio. Increased investment
in core markets outside Atlantic Canada will enhance Killam’s
diversification and exposure to urban centres in Canada with
higher population growth. Through strategically acquiring
newer properties Killam has improved the quality of its portfolio
on an annual basis.
Garden Park, Halifax, NS
William’s Court, Ottawa, ON
1 2 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Annual Acquisition History
$ millions
180
160
140
120
100
80
60
40
20
0
Acquisitions Completed
in 2016
$88M
Average
$72M
2015: $54 million
07 08 09 10 11 12 13 14 15 16
Annual Apartment NOI
$ millions
Atlantic
Ontario & Alberta
100
90
80
70
60
50
40
30
20
2012
2013
2014
2015
2016
Apartment NOI Generated by
Year of Construction
22.5%
18.7%
2010 & Newer
2000 - 2009
1990 -1999
1980 -1989
1970 -1979
Pre 1970
9.2%
7.9%
18.5%
23.2%
In addition to development, Killam
looks to acquire newly constructed
assets. When available at accretive
returns, management believes that
increasing Killam’s ownership in new,
high-quality buildings will result in long-
term demand for its properties, reduce
annual capital requirements related to
deferred maintenance, and transform
Killam’s portfolio over time into one of
the highest quality portfolios in Canada.
Today, Killam has one of the newest
apartment portfolios in Canada with
37% of its apartment NOI generated
from properties built after 1999.
18.5%
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 1 3
Percentage of Apartment
NOI Earned from Properties
Built in 2000 or Later
37.1%
2014: 36.1%
NOI Generated Outside
Atlantic Canada
21.3%
2015: 20.2%
Annual Acquisition History
$ millions
180
160
140
120
Annual Acquisition History
100
$ millions
$88M
Average
180
160
140
120
100
80
60
40
20
0
80
60
40
20
$88M
0
Average
07 08 09 10 11 12 13 14 15 16
Atlantic
Ontario & Alberta
Killam exceeded its acquisition target
of $50 million in 2016, completing $72
Annual Apartment NOI
million in acquisitions, buying assets in
$ millions
Ottawa and London, Ontario, Halifax
100
and Fredericton.
90
80
70
60
50
40
30
20
Killam is actively growing its
portfolio in targeted markets
outside Atlantic Canada,
including Ottawa, the Greater
Toronto Area, Southwestern
2016
Ontario and Alberta. In 2016,
21.3% of Killam’s total NOI was
earned outside Atlantic Canada,
up from 20.2% in 2015. Longer-
term, Killam targets generating
18.7%
over 30% of its NOI outside
Atlantic Canada by 2020.
Apartment NOI Generated by
Year of Construction
22.5%
2014
2015
2013
2012
07 08 09 10 11 12 13 14 15 16
Annual Apartment NOI
$ millions
Ontario & Alberta
Atlantic
100
90
80
70
60
50
40
30
20
2012
2013
2014
2015
2016
Apartment NOI Generated by
Year of Construction
22.5%
18.7%
23.2%
2010 & Newer
2000 - 2009
1990 -1999
1980 -1989
1970 -1979
Pre 1970
9.2%
7.9%
18.5%
23.2%
2010 & Newer
2000 - 2009
1990 -1999
1980 -1989
1970 -1979
Pre 1970
9.2%
7.9%
Growth Strategy
Developments
Killam enhances its external growth opportunities with
development, building high-quality properties designed for people seeking the
convenience and flexibility of renting, but with the space, quality and amenities typically associated
with ownership. Killam began developing in 2010 and to-date has completed 8 properties totalling
$136 million and 626 units. Including two additional developments underway, Killam’s development
portfolio will increase to $200 million by 2018. Targeting a higher yield on development than
on acquisitions, Killam’s development program creates unitholder value. With an experienced
development team and a development pipeline of over 1,000 units, new developments will
continue to be an important growth component at Killam.
The Alexander
Killam and its 50% partner began
construction of The Alexander, a
240-unit property in downtown
Halifax, during the second half
of 2015. The property is uniquely
located beside Halifax’s historic
Brewery Market and will have
commanding views of the city
and Halifax harbour. The project
is expected to be completed in
Q1-2018. In conjunction with the
Alexander development, Killam is
investing in the attached Brewery
Market, which it acquired in
March 2015.
1 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Southport
Killam completed construction
of the 142-unit Southport
development, located in
downtown Halifax, in late August
2016. Killam owns a 50% interest
in the building, representing 70
rental units and 1,880 square
feet of commercial space. The
remaining 72 units are condo
units. Killam’s cost for the
development of $14.7 million
($210,000 per unit) came in on
time and on budget. Southport
was fully leased within three
months of opening, exceeding
expectations.
Saginaw Park
Following the very successful
Saginaw Gardens development
in 2015, Killam began
construction of its second
development in Cambridge,
Ontario, Saginaw Park, during Q3-
2016. The 93-unit development is
located beside Saginaw Gardens
and is expected to be completed
during Q2-2018.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 1 5
A Balanced Approach to Sustainability
Killam uses a balanced approach to its strategic planning. Annually, management sets
goals and targets for four important priorities: employees, customers, internal processes
and financials. Strategies to achieve annual goals are developed with the input of a diverse
group of senior leaders and the goals are shared with employees across the organization.
Attention to each of these components of the business is important to Killam’s long-term
sustainability. Management is committed to ensuring Killam is a responsible employer,
real estate owner, publicly traded trust and community member.
Killam’s 2016 Strategic Goals
OUR TEAM
Hire, train and retain the best people.
1. Increase employee engagement and
communication.
2. Maximize employee feedback and
employee goals linked to
strategic priorities.
3. Reduce the amount of time
jobs are vacant.
OUR PROCESSES
Maximize operational
efficiencies and mitigate risk.
1. Continue to provide a safe
OUR MISSION
To have caring staff
deliver clean, safe,
quality housing to
tenants who are proud
to call our properties
home.
OUR CUSTOMERS
Provide outstanding customer service
and a sense of community at our
properties.
1. Provide timely completion of
maintenance requests.
2. Decrease tenant turnover with
an effective retention program.
3. Ensure properties meet
Killam’s standards for curb
appeal.
OUR FINANCIALS
Grow FFO per unit on an
annual basis.
1. Maximize revenues.
2. Manage expenses and maximize
economies of scale.
3. Growth through acquisitions
and developments.
environment for employees and tenants.
2. Increase efficiencies for property
management, operations and leasing.
3. Effective management of the capital
program.
OUR CORE VALUES
1 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
OUR TEAM | Hire, Train and Retain the Best People
2016 GOAL
2016 HIGHLIGHTS
Increase
employee
engagement and
communication.
Maximize
employee
feedback and
employee
goals linked
to strategic
priorities.
Reduce the
amount of time
jobs are vacant.
100% of employees participated in senior management visits, events and/or presentations
in their regions.
Increased training programs provided for all groups of employees.
Achieved an overall engagement score of 90% in our 2016 employee survey, up from
87% in 2015.
98% of all employee performance reviews completed.
Variable compensation plans linked to FFO per unit targets and strategic goals were rolled
out for all resident managers, leasing agents and MHC property managers. By the end of
2016 over 80% of all employees had variable compensation plans linked to FFO performance.
Automated quarterly performance program developed for resident managers and property
managers linked to key property management performance indicators. This tool enables
the early identification of training opportunities and improved feedback on performance.
Hiring times for key property management and leasing roles were shortened by one week
following proactive programs to build a base of potential candidates in key areas.
Feedback through the automated quarterly scorecards contributed to identifying potential
employee changes earlier.
Achieved total employee turnover below 20%, Killam’s lowest turnover on record.
In addition to highlights linked to Killam’s employee-based 2016 strategic
goals noted above, Killam supports its employees at work and in their
communities in many other ways, including:
• Killam invests in employee education, such as bringing staff together
on a regular basis for training, accessible on-line training and coaching
programs, and proving financial
assistance for further education.
• Killam’s employee unit purchase
Performance Awards
plan encourages employees to become unitholders through
payroll deductions, and rewards longer-term employees with a 50%
investment match.
• Annual scholarship awards are available to children and
grandchildren of Killam employees to help them pursue post-
secondary education.
• Killam values communication with employees, producing quarterly
newsletters, hosting team summits and senior management staff visits.
Volunteer Day
• Quarterly, Killam recognizes employees who
demonstrate their commitment to Killam’s
core values through its core value awards
program.
• Killam promotes employees’ involvement in
the community by providing a full day of paid
leave per year for employees to volunteer with
a charity of their choice.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 1 7
OUR CUSTOMERS | Provide Outstanding Customer Service and a
Sense of Community at our Properties
2016 GOAL
Provide timely
completion of
maintenance
requests.
Decrease tenant
turnover with
an effective
tenant retention
program.
Ensure properties
meet Killam’s
standards for
curb appeal.
2016 HIGHLIGHTS
Successful roll-out of automated maintenance requests.
Increased training for resident managers, enhancing the opportunity for more maintenance
needs to be completed efficiently by on-site Killam staff.
Reporting process developed to measure the time to complete maintenance requests.
Implementation of an early lease renewal program to reduce turnover.
Expanded community events and tenant engagement programs across the portfolio with
property managers and resident managers initiating creative programs to bring Killam’s
residents together.
Increased feedback and communication with tenants on social programs and amenities.
Implementation of monthly scoring system for property inspections linked to resident
manager variable compensation.
Invested $33 million in capital upgrades across the portfolio.
90% satisfaction score on the 2016 tenant satisfaction survey completed by over 2,000
tenants.
Process improvements to modernize and standardize paint colours and renovations.
Tenant Survey Results
90%
satisfaction with
apartment on move-in
89%
would recommend Killam
to family and friends
90%
satisfaction with
Killam as landlord
98%
satisfaction with
apartment location
87%
s a t i s f a c t i o n w i t h t h e i r
R e s i d e n t M a n a g e r
Community Picnic
Community Picnic
1 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Blue Nose Marathon Participants
OUR PROCESSES | Maximize Operational Efficiencies
and Mitigate Risks
2016 GOAL
Continue to
provide a safe
environment for
employees and
tenants.
Increase
efficiencies
for property
management,
operating and
leasing.
Effective
management
of the capital
program.
2016 HIGHLIGHTS
Increased safety and mental health training for employees.
Enhanced process developed to monitor and manage safety compliance reports at
head office.
Fire safety and fire risk mitigation training to resident managers.
Successful upgrade of Killam’s accounting and property management software, Yardi,
allowing for increased mobile capabilities.
Process developed to improve efficiencies, reporting and increase returns on unit
renovations.
Expanded use of Yardi as a leasing tool.
Total capital spend within 3% of budget.
13.1% return achieved on unit renovations over $1,000.
Development of five-year energy and water efficiency program.
Killam’s Energy Efficiency Specialist,
Brennan Kilfoil, checks the new
water pressure system at Quinpool
Tower in Halifax. It is 75% more
efficient than the previous system.
MAKING ENERGY EFFICIENT
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 1 9
Increasing Capital Spending on
Environmental Efficiencies
Killam is committed to reducing its environmental footprint and
investing in energy efficient solutions. This investment allows for long-
term cost savings, and is the right thing to do. Through investments in
water and energy saving initiatives Killam expects to reduce its energy
intensity (measured as dollars per square foot of real estate) by 23%
over the next 5 years. Environmental initiatives in 2016 included:
• Completed an extensive five-year energy strategy, identifying over
$25 million in potential efficiency related opportunities with an average
payback of four years. Based on the energy strategy, Killam will increase
its annual investment in energy initiatives from $1.6 million in 2016 to
over $3.0 million in 2017, and beyond.
• Installed more than 2,500 ultra low-flow toilets across the portfolio,
with an estimated payback of 2.9 years.
• Invested in advance building control systems and boiler upgrades,
resulting in reduced energy consumption and increased comfort.
OUR FINANCIALS | Grow FFO per Unit on an Annual Basis
2016 GOAL
Maximize
revenues.
Manage
expenses and
maximize
economies of
scale.
Completion
of accretive
acquisitions and
developments.
2016 HIGHLIGHTS
Achieved improved occupancy and 1.6% growth in rental rates.
Expanded leasing hours and the leasing team to improve accessibility and service.
Successfully managed same property expenses.
Installation of over 2,500 low-flow toilets, and boiler and control installs to improve energy
efficiencies.
Negotiated improved pricing for paint, appliances and flooring.
Successful completion and lease-up of Southport.
$72 million in acquisitions completed, 62% of which were in Ontario.
21.3% of NOI earned outside Atlantic Canada in 2016, up from 20.2% in 2015.
William’s Court, Ottawa, ON
2 0 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Community Matters
Do the Right Thing is one of Killam’s five core values.
Killam staff continually reference this important core value in decision making. In addition
to remaining focused on strategic priorities, Killam is committed to being a responsible
community member.
Community Matters
Killam is a strong community supporter and believes that giving back to the community is an important
part of being a responsible corporate citizen. Killam also supports affordable housing alternatives in its
communities.
• Annually, Killam donates six furnished suites to hospitals in its core markets, providing comfortable
accommodations to families as they support loved ones through medical treatment.
• Killam was an active supporter of Syrian refugees in 2016, welcoming over 50 families to its properties.
• Killam provides financial support for various charities in Killam’s core markets, with an emphasis on
supporting employees, tenants and organizations focused on shelter and families.
• In addition to corporate initiatives, Killam’s Board of Trustees joins together annually to support a charity
or community organization. In 2016, members of the Board of Trustees donated $100,000 to the Nova Scotia
Nature Trust. So far, Trustees have donated $700,000 to organizations across Canada.
• Through its nationally recognized supported housing program, Killam has partnered with a variety of non-
profit housing agencies, including Housing First, Capital Health’s Mental Health Program, Shelter Nova Scotia,
YWCA, and Phoenix House, to provide over 90 subsided units to previously under-housed individuals.
• Killam’s Tenant Assistance Program offers temporary rent relief for tenants who are undergoing short-term
financial hardship.
Tour for Kids Fundraising Ride, Halifax, NS
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 2 1
Asset Portfolio
Apartment Portfolio
Halifax, NS
Year Built Units
146
1969
1 Oak Street
60
1978
10-214 Harlington Crescent
26
1987
125 Knightsridge Drive
81
1974
19 Plateau Crescent
25
1995
159 Radcliffe Drive
60
1978
175-211 Harlington Crescent
98
21 Parkland Drive
2002
80
26 Alton Drive & 36 Kelly Street 1969
58
1969
294-300 Main Street
70
1983
3 Veronica Drive
38
1998
31 Carrington Place
19
1958
3565 Connaught Avenue
1991
50 Barkton Lane
63
47
1993
5206 Tobin Street
41
1969
57 Westgrove Place
153
1978
59 Glenforest/21 Plateau
24
1965
6 Jamieson Street
9
1999
6087 South Street
30
2002
6101 South Street
60
1978
67-141 Harlington Crescent
1986
75 Knightsridge Drive
41
60
1978
85-127 Harlington Crescent
60
1974
9 Bruce Street
22
1975
9 Sybyl Court
46
1984
95 Knightsridge Drive
53
1987
Bedford Apartments
240
1968
Brentwood Apartments
11
n/a
Carlton/Hollis Street Houses
41
2004
Chapter House
1970s
Dillman Place
60
246
1980
Garden Park Apartments
80
1969
Glenforest Apartments
67
2000
Glenbourne Gate
28
1972
Glenmoir Terrace
50
1980
Hillcrest Apartments
135
1950
Kent Street Properties
396
1954
Lakefront Apartments
28
1950
Linden Lea & Pleasant Street
268
1965
Maplehurst Apartments
15
1965
Maplehurst Houses
1960/75
Parker Street Apartments
239
76
2002
Parkridge Place
67
2000
Paxton Place
198
1978
Quinpool Court
233
1978
Quinpool Towers
63
2013
S2
1978
Shaunslieve Apartments
154
82
1979
Sheradon Place
70
2016
Southport Apartments
1964
Spring Garden Terrace
201
83
2012
The Aspen
2008
The James
108
81
2011
The Linden
84
2014
The Willow
1954
Victoria Gardens
198
88
Waterview Place
1971
Halifax Total
5,160
Halifax Average Rent
$989
2 2 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Fredericton, NB
Year Built Units
64
2001
25 McKnight Street
45
1996
110 McKnight Street
48
1975
116 & 126 Wilsey Avenue
45
1998
120 McKnight Street
46
1985/92
127 & 157 Biggs Street
52
2001
200 Reynolds Street
38
1978
260 Wetmore Road
28
1979
270 Parkside Drive
52
2006
300 Reynolds Street
305 Reynolds Street
52
2010
50,60 Greenfields/190 Parkside 1977/86 72
44
75 Greenfields Drive
62
969 Regent Street
41
Carrington House
194
Elroy Apartments
151
Forest Hill Towers
141
Princess Place
47
Southgate Apartments
101
The Plaza
54
Venus Apartments
Westwood Apartment
45
1,422
Fredericton Total
$915
Fredericton Average Rent
1980
1997/01
2002
1973
1968/79
1968/79
2003
2013
1965
1975
Moncton, NB
2003
100 Archibald Street
1993
101 Archibald Street
2009
115 Kedgewick Drive
2010
133 Kedgewick Drive
2011
135 Gould Street
2008
155 Canaan Drive
1957
1111 Main Street
1991/96
276-350 Gauvin Road
1994
303 Normandie Street
1996
316 Acadie Avenue
1998
360 Acadie Avenue
1995
364-368 Gauvin Road
2001
46 & 54 Strathmore Avenue
2004
65 Bonaccord Street
2013
Gauvin Estates
2005
Belmar Plaza
1998
Buckingham Place
1994
Cambridge Court
1995
Cambridge Place
1981
Cameron Arms
1966/67
Cameron Street
Eagles Ridge Estates
1994
Gordon/Bonaccord Street 1950/84
1993
Hester & Church Street
1980/81
Lakeview Estates
1969
Lorentz Apartments
1950/75
Lutz & Kendra Street
1974
Pine Glen Apartments
2000
Suffolk Street
Moncton Total
Moncton Average Rent
60
60
25
23
69
48
16
84
70
48
60
80
40
35
48
50
55
45
63
81
81
59
41
64
48
102
40
54
80
1,629
$844
Saint John, NB
20 Technology Drive
37 Somerset Place
53 Somerset Place
115 Woodhaven Drive
Blue Rock Estates
Carleton Towers
Cedar Glen Apartments
Ellerdale Apartments
Fort Howe Apartments
Parkwood Apartments
Rocky Hill Apartments
Sydney Arms
The Anchorage
Woodward Gardens
Saint John Total
Saint John Average Rent
Year Built Units
59
2014
21
2007
16
1973
24
1977
60
2007
60
1968
204
1977
154
1975
153
1970
205
1947
42
2004
54
1961
51
2003
99
1962
1,202
$784
St. John’s, NL
71
2013
Bennett House
1981
69
Blackshire Court
2015 102
Chelsea Place
31
1976
Cornwall Manor
Freshwater Road Apartments 1972 159
1978
Forest Manor
65
1976 105
Meadowland Apartments
1976 100
Mount Pleasant Manor
36
1979
Pleasantview Manor
53
1983
Rutledge Manor
84
1972
Torbay Road Apartments
40
Village Manor
1978
915
St. John’s Total
$962
St. John’s Average Rent
Charlottetown, PE
198 Spring Park Road
27 Longworth Avenue
280 Shakespeare Drive
319-323 Shakespeare Drive
36 Westridge Crescent
505-525 University Avenue
Bridlewood Apartments
Browns Court
Brighton House
Burns/University
Charlotte Court
Country Place
DesBarres House
Ducks Landing
Horton Park
Kensington Court
Queen Street
Charlottetown Total
Charlottetown Average Rent
2006
1983
2010
2004
1985
2003
1998/99
1997
2013
2003
2011
1998/02
1978
2005/12
1987
1990
1978
32
24
26
22
8
35
66
52
47
95
49
39
51
138
69
105
48
906
$905
Grid 5, Calgary, AL
Cambridge, ON
100 Eagle Street
200 Eagle Street
Saginaw Gardens
Cambridge Total
Cambridge Average Rent
Year Built Units
119
2008
106
2004
122
2015
347
$1,514
London, ON
180 Mill Street
2011
1447 Trafalgar/ 298 Fairview 1960/65
1960
Bellwood Terrace
Richmond Hill Apartments
2009
London Total
London Average Rent
127
40
113
137
417
$1,337
Ottawa, ON
1090 Kristin Way
1425 Rosenthal Avenue
1440 Mayview Avenue
266 Bronson Avenue
350 Mayfield Avenue
50 Selkirk Street
621 Cummings Avenue
William‘s Court I (1)
William‘s Court II (1)
William‘s Court III (1)
Ottawa Total
Ottawa Average Rent
Toronto, ON
100 Lower Ossington Ave
1355 Silver Spear Road (1)
Toronto Total
Toronto Average Rent
Calgary, AB
Grid 5 (1)
Calgary Average Rent
1974
1962
1960
1968
1959
1959
1950
2012
2014
2015
102
54
103
43
61
75
44
146
152
173
953
$1,190
2012
1968
179
199
378
$1,110
1965
307
$1,188
Other
1974
Cabot House
1993
Edward Court
1998
Moxham Court
1995
Nevada Court
Northgate Apartments
2006
Ridgeview Terrace Apartments 1975
Terrace Apartments
1970/90
Other Total
Other Average Rent
88
96
51
48
38
59
89
469
$833
Total Apartment Portfolio 14,105
Total Apartment Average Rent $973
MHC Portfolio
Nova Scotia
Amherst Estates
Birch Hill Estates
Birchlee Estates
Cairdeil Estates
Cowan Place
Enfield Estates
Fairview Estates
Glen Aire Estates
Greenhill Estates
Heather Estates
Kent Drive Estates
Maple Ridge Estates
Mountainview Estates
Shamrock Estates
Silver Birch Estates
Valley View Hills
Nova Scotia Total
New Brunswick
Camper’s City (2)
New Brunswick Total
Newfoundland
Lakeview Court
Sunset Parkway
Newfoundland Total
Ontario
Cedardale (2)
Domaine le Village
Family Paradise (2)
Holiday Harbour (2)
Holiday Park Campground (2)
Lakewood Estates
Lynnwood Gardens
Millcreek Estates
Paradise Valley (2)
Pinehurst Estates
Pine Tree Village
Rockdale Ridge
Stanley Park
The Village at Listowel
Westhill Estates
Wood Haven Campground (2)
Ontario Total
Total MHC Portfolio
Acres Units
300
216
222
160
56
56
131
265
115
217
50
160
353
65
64
196
2,626
67
73
42
37
50
10
15
130
30
72
10
18
168
8
16
50
61
224
224
13
43
86
84
170
25
36
50
15
35
13
54
35
109
16
38
96
76
53
8
50
204
70
214
143
290
60
64
73
392
82
70
69
107
87
94
126
2,145
5,165
Total MHC Average Rent
$242
Commercial Portfolio
Halifax, NS
3700 Kempt Road (1)
3770 Kempt Road (1)
Brewery Market
Medical Arts Building
Halifax Total
Square Feet
38,000
34,000
158,000
18,000
248,000
Notes:
(1) Killam has a 50% ownership interest.
(2) Seasonal resort community.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 2 3
PART V
Per Unit Calculations
Funds from Operations
Adjusted Funds from Operations
Cash Generated from Operating Activities to AFFO
Reconciliation
PART VI
Investment Properties
Investment Properties Under Construction
Capital Improvements
Loans Receivable
Liquidity and Capital Resources
Mortgages and Other Loans
Unitholders’ Equity
48
49
50
51
52
53
54
57
57
58
61
PART VII
Quarterly Results & Discussion of Q4 Operations
62
PART VIII
Risk Management
Related Party Transactions
Critical Accounting Policies and Significant
Accounting Judgments, Estimates and Assumptions
Future Accounting Policy Changes
65
70
70
71
Disclosure Controls, Procedures and Internal Controls 72
Subsequent Events
73
TABLE OF CONTENTS
PART I
Basis of Presentation
Declaration of Trust
Forward‑looking Statements
Non‑IFRS Financial Measures
PART II
Key Performance Indictors (“KPIs”)
Financial and Operational Highlights
Summary of 2016 Results and Operations
Business Overview
Business Strategy
Outlook
Targets
Portfolio Summary
Unique Portfolio Features
Core Market Update
PART III
2016 Financial Overview
- Consolidated Results
- Apartments Results
- MHC Results
- Commercial Results
PART IV
Other Income and Expenses
- Other Income
- Financing Costs
- Depreciation Expense
- Amortization of Deferred Financing Costs
- Administration Expenses
- Fair Value Adjustment on Investment Property
- Fair Value Adjustment on Convertible Debentures
- Fair Value Adjustment on Unit-based Compensation
- Fair Value Adjustment on Exchangeable Units
- Deferred Tax Expense
2 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
25
25
26
26
27
28
29
30
30
32
34
35
36
37
39
39
40
44
45
45
45
45
46
46
46
47
47
47
48
48
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
PART I
Basis of Presentation
The following Management's Discussion and Analysis (“MD&A”) has been prepared by Management and focuses on key statistics
from the consolidated financial statements and pertains to known risks and uncertainties. This MD&A should be read in
conjunction with material contained in Killam Apartment Real Estate Investment Trust's audited consolidated financial statements
for the years ended December 31, 2016, and 2015, which have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These documents, along with
Killam’s 2015 Annual Information Form, are available on SEDAR at www.sedar.com.
Effective January 1, 2016, Killam Properties Inc. completed a plan of arrangement (the "Arrangement") to convert to a real estate
investment trust, known as Killam Apartment Real Estate Investment Trust ("Killam" or the "Trust"). Under the Arrangement, each
outstanding common share of Killam Properties Inc. was exchanged for one unit of the Trust ("trust unit"), unless a qualifying
Shareholder elected to receive exchangeable Class B limited partnership units (“exchangeable units”) in Killam Apartment Limited
Partnership, a partnership controlled by the Trust in exchange for its common shares. As the Arrangement was effective on January
1, 2016, information presented in this MD&A as at and for periods prior to or ended December 31, 2015, references Killam
Properties Inc., and information provided as at January 1, 2016, and later references Killam Apartment REIT. Therefore, as the
context requires, references to Killam, the Trust, we, or us mean, collectively, Killam Properties Inc. and Killam Apartment REIT.
The discussions in this MD&A are based on information available as at February 14, 2017. This MD&A has been reviewed and
approved by Management and the Board of Trustees.
Declaration of Trust
The investment guidelines and operating policies of Killam are outlined in Killam’s Amended and Restated Declaration of Trust (the
“DOT”) dated as of November 27, 2015, a copy of which is available on SEDAR (www.sedar.com). Some of the principal investment
guidelines and operating policies set out in the DOT are as follows:
Acquire, hold, develop, maintain, improve, lease and manage income producing real estate properties;
No investment will be made that would disqualify Killam as a “mutual fund trust” or a “unit trust” as defined within the Income
Tax Act (Canada);
Investments in joint ventures, partnerships (general or limited) and limited liability companies are permitted; and,
Investments in land for development that will be capital property for Killam are permitted.
Overall indebtedness is not to exceed 70% of Gross Book Value, as defined by the DOT;
Guarantees of indebtedness that would disqualify Killam as a “mutual fund trust” as defined within the Income Tax Act (Canada)
are not permitted; and,
Killam must maintain at all times property insurance coverage in respect of potential liabilities of the Trust.
At December 31, 2016, Killam was in compliance with all investment guidelines and operating policies stipulated in the DOT.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 2 5
2
Investment guidelines
•
•
•
•
•
Operating policies
•
•
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Forward-looking Statements
Certain statements in this MD&A constitute “forward-looking statements”. In some cases, forward-looking statements can be
identified by the use of words such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate”, "potential",
"continue" or the negative of these terms or other comparable terminology, and by discussions of strategies that involve risks and
uncertainties. Readers should be aware that these statements are subject to known and unknown risks, uncertainties and other
factors that could cause actual results to differ materially from those anticipated or implied, or those suggested by any forward
looking statements, including: competition, national and regional economic conditions and the availability of capital to fund
further investments in Killam's business. Further information regarding these risks, uncertainties and other factors may be found
under the heading "Risk Management" in this MD&A and in Killam's most recent Annual Information Form. Given these
uncertainties, readers are cautioned not to place undue reliance on any forward-looking statements contained, or incorporated by
reference, in this MD&A.
By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and
specific, that contribute to the possibility that the predictions, forecasts, projections and various future events may not occur.
Although Management believes that the expectations reflected in the forward-looking statements are reasonable, there can be no
assurance that future results, levels of activity, performance or achievements will occur as anticipated. Neither Killam nor any
other person assumes responsibility for the accuracy and completeness of any forward-looking statement, and no one has any
obligation to update or revise any forward-looking statement, whether as a result of new information, future events,
circumstances, or such other factors that affect this information, except as required by law. The forward-looking statements in this
document are provided for the limited purpose of enabling current and potential investors to evaluate an investment in Killam.
Readers are cautioned that such statements may not be appropriate and should not be used for any other purpose.
Non-IFRS Financial Measures
Management believes these non-IFRS financial measures are relevant measures of the ability of the REIT to earn revenue and to
evaluate Killam's financial performance. The non-IFRS measures should not be construed as alternatives to net income (loss) or
cash flow from operating activities determined in accordance with IFRS as indicators of Killam's performance or sustainability of
its distributions. These measures do not have a standardized meaning under IFRS and therefore may not be comparable to
similarly titled measures presented by other publicly-traded companies.
• Funds from operations ("FFO"), and applicable per unit amounts, are calculated by Killam as net income plus depreciation on
owner-occupied building, fair value losses, interest expense related to exchangeable units, loss on disposition, deferred tax
expense and REIT conversion costs, less fair value gains, deferred tax recovery, unrealized gain on derivative liability and non-
controlling interest. FFO, as per the definition of Killam, are calculated in accordance with the REALpac definition, except for the
add-back of REIT conversion costs as noted above; REALpac does not address this specific type of adjustment.
• Adjusted funds from operations ("AFFO"), and applicable per unit amounts and payout ratios, are calculated by Killam
as FFO less $450 per apartment unit for maintenance capital costs, which is an estimate in the industry range for the
multi-family sector. Although the manufactured home community ("MHC") industry does not have a standard amount
for maintenance related capital costs, a $100 per MHC site estimate is used by Killam.
• Same property results in relation to Killam are revenues and property operating expenses for stabilized properties Killam has
owned for equivalent periods in 2016 and 2015 (97% of the portfolio based on the December 31, 2016, unit count).
• Interest coverage is calculated by dividing earnings before interest, tax, depreciation, gain or loss on disposition and fair
value adjustments by interest expense adjusted for interest expense related to exchangeable units.
• Debt service coverage is calculated by dividing the earnings before interest, tax, depreciation, gain or loss on disposition and
fair value adjustments by interest expense adjusted for interest expense related to exchangeable units and principal
mortgage repayments.
• Earnings before interest, tax, depreciation and amortization ("EBITDA") is calculated by Killam as income before fair value
adjustments, loss on disposition, income taxes, interest, depreciation and amortization.
2 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
3
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
PART II
Key Performance Indicators ("KPIs")
Management measures Killam’s performance based on the following KPIs:
1)
2)
FFO per Unit – A standard measure of earnings for real estate entities. Management is focused on growing FFO per unit.
Payout Ratio – This ratio is not meant to be a measure of the sustainability of Killam's distributions. Although Killam's
expectation is to continue to sustain and grow distributions, the actual amount of distributions will depend up on various
factors, including, but not limited to, earnings, debt repayments, capital investments and other factors that may be beyond the
control of the REIT.
3)
Rental Increases – Management expects to achieve increases in average annual rental rates and tracks the average rate
increases achieved.
4) Occupancy – Management is focused on maximizing occupancy while also managing the impact of higher rents. This measure is
a percentage based on the amount of revenue lost to vacancy divided by gross potential residential rent (in dollars) of total
properties for the year.
5)
Same Property NOI Growth – This measure considers Killam’s ability to increase the same property NOI, removing the impact of
acquisitions, dispositions, developments and other non-same property operating adjustments.
6) Weighted Average Interest Rate of Mortgage Debt and Total Debt – Killam monitors the weighted average cost of its mortgage
debt and total debt.
7) Debt to Total Assets – Killam's primary measure of its leverage is debt as a percentage of total assets. Killam's DOT operating
policies outline that its overall indebtedness is to not exceed 70% of total assets. Debt to total assets is calculated by dividing
total interest bearing debt by total assets, adjusted for any non-controlling interest.
8) Weighted Average Years to Maturity – Management monitors the average number of years to maturity on Killam's debt.
9)
Interest Coverage Ratio – A common measure of credit risk used by lenders, this measure considers Killam’s ability to pay
interest on outstanding debt. Generally, the higher the interest coverage ratio, the lower the credit risk.
10) Debt Service Coverage Ratio – A common measure of credit risk used by lenders, this measure considers Killam’s ability to pay
both interest and principal on outstanding debt. Generally, the higher the debt service coverage ratio, the lower the credit risk.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 2 7
4
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Financial and Operational Highlights
The following table presents a summary of Killam’s key IFRS and non-IFRS financial measures and operational performance:
For the years ended December 31,
Operating Performance
Property revenue
Net operating income ("NOI")
Net income
FFO(1)
FFO per unit/share (diluted)(3)
AFFO per unit/share (diluted)(4)
Weighted average number of units/shares outstanding
(diluted) (000s)(3)
AFFO payout ratio (diluted)
Portfolio Performance
Same property NOI
Same property NOI margin
Same property apartment weighted average rental increase (5)
Same property apartment occupancy
As at December 31,
Leverage Ratios
Total debt to total assets
Weighted average mortgage interest rate
Weighted average years to debt maturity (years)
Debt service coverage(1)
Interest coverage(1)
2016
$175,269
$105,424
$71,439
$58,886
$0.86
$0.77
2015
$166,614
$98,390
$35,800
$49,016
$0.79
$0.68
Change (2)
5.2%
7.1%
99.6%
20.1%
8.9%
13.2%
73,519
62,360
17.9%
78%
88% (1,000) bps
$97,729
$93,980
60.0%
1.6%
95.8%
58.7%
1.1%
95.4%
4.0%
130 bps
50 bps
40 bps
2016
2015
Change
53.5%
3.01%
4.3
1.43x
2.74x
56.4%
3.27%
4.2
1.35x
2.34x
(290) bps
(26) bps
0.1
8 bps
40 bps
(1) FFO, AFFO, debt service coverage ratio and interest coverage ratio are not defined by IFRS do not have standard meanings and may not be
comparable with other industries or companies (see "Non-IFRS Financial Measures").
(2) Change expressed as a percentage or basis point ("bps")
(3) The calculation of weighted average units/shares outstanding for diluted FFO includes the convertible debentures for the year ended December
31, 2016, as they are dilutive, and excludes the convertible debentures for the year ended December 31, 2015, as they are anti-dilutive.
(4) The calculation of weighted average units/shares outstanding for diluted AFFO excludes the convertible debentures for the years ended
December 31, 2016, and 2015, as they are anti-dilutive. For AFFO purposes, the price used to calculate the conversion feature of the convertible
debentures is the conversion price of $13.40 for the 5.65% convertible debentures and $14.60 for the 5.45% convertible debentures.
(5) Year-over-year, as at December 31.
2 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Summary of 2016 Results and Operations
FFO per Unit Growth of 8.9%
Killam generated FFO per unit of $0.86 in 2016, 8.9% higher than the $0.79 generated in 2015. FFO growth was attributable to a 4.0%
increase in same property NOI, interest expense savings on mortgage refinancings, the July redemption of $57.5 million of
convertible debentures, and accretive returns from developments and acquisitions. This growth was partially offset by a 17.9%
increase in the weighted average number of units outstanding following the June 2016 equity raise.
Strengthened Balance Sheet and Increased Flexibility
Following the $98 million equity raise completed in June, Killam redeemed $57.5 million of convertible debentures on July 4, 2016.
This initiative contributed to a 290 bps improvement in Killam's leverage ratio, ending the year with 53.5% debt as a percentage of
total assets compared to 56.4% at December 31, 2015. Killam's interest coverage ratio improved by 40 bps during the year. Killam
used funds from the equity raise to increase its portfolio of unencumbered assets, facilitating a significant increase to its acquisition
credit facility, increasing it from $2 million to $30 million.
Higher Rents and Improved Occupancy Resulted in Same Property Revenue Growth
Killam achieved consolidated same property revenue growth of 1.8% in 2016. Both increased rents and higher occupancy levels
contributed to improved revenue. The Halifax market outperformed in 2016, achieving 3.3% same property revenue growth, the
highest revenue growth of Killam’s core markets. Halifax, representing 36% of Killam's NOI, is a strong rental market, benefiting from
economic growth, urbanization and strong demand for rental apartments from an older demographic transitioning from
homeownership to apartment rental. Killam’s Charlottetown and Ontario portfolios also achieved above average revenue growth, up
2.2% and 2.0%, respectively.
Warmer Temperatures and Efficiencies Contributed to Lower Operating Costs
Killam's same property expenses decreased by 1.2% in 2016, contributing to the 4.0% increase in NOI. A warmer than normal Q1
resulted in lower energy consumption and lower natural gas costs during the winter, a major contributor to the 6.2% reduction in
utility expense in the year. Efficiencies from energy and water reduction initiatives also contributed to savings. These savings,
combined with lower garbage collection rates and successful property tax appeals, offset the impact of higher operating costs, most
notably insurance costs.
Lower Interest Rates Contributed to Earnings Growth
Killam benefited from lower interest rates on mortgages refinanced during 2016, contributing to a 1.6% reduction in same property
interest expense for the year. During 2016, Killam successfully refinanced $120.0 million of maturing mortgages with $186.6 million
of new debt at a weighted average interest rate of 2.34%, 186 bps lower than the weighted average interest rate prior to refinancing.
Killam’s weighted average mortgage interest rate decreased 26 bps to 3.01% as at December 31, 2016, from 3.27% as at December
31, 2015.
Growth from Acquisitions and Developments
The $71.5 million in acquisitions completed during 2016 contributed positively to FFO, as did the NOI growth achieved from Killam’s
Saginaw development in Cambridge, which was completed in Q2-2015. Killam’s newest development, Southport Apartments,
completed at the end of August 2016, was fully leased by November and also contributed positively to FFO for the year.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Business Overview
Killam Apartment REIT, based in Halifax, NS, is one of Canada's largest residential landlords, owning, operating, managing and
developing multi-family residential and MHC properties. Killam’s current portfolio includes $2.0 billion in assets, and its
strategy to maximize its value and long-term profitability includes concentrating on three key areas of growth:
1) Increase earnings from the existing portfolio;
2) Expand the portfolio and geographic diversification through accretive acquisitions targeting newer properties; and
3) Develop high-quality properties in its core markets.
Killam was founded in 2000, based on the recognition of an opportunity to create value through the consolidation of apartments in
Atlantic Canada and MHCs across Canada. Killam entered the Ontario apartment market in 2010 and acquired an ownership
interest in its first apartment property in Calgary in 2014. Since 2010, Killam has complemented its acquisition program with the
construction of apartment buildings, has completed eight projects to date and currently has two additional properties under
construction.
The apartment business is Killam’s largest business segment, accounting for 89% of Killam’s NOI for the year ended December 31,
2016. As at December 31, 2016, Killam’s apartment portfolio consisted of 14,105 units, which include 977 units that Killam co-
owns 50% through a joint arrangement. Its 181 apartment properties are located predominantly in Atlantic Canada's six largest
urban centres (namely Halifax, Moncton, Saint John, Fredericton, St. John’s and Charlottetown), Ontario ("ON"- including Ottawa,
London, Toronto and Cambridge) and Calgary, Alberta ("AB"). Killam is Atlantic Canada’s largest residential landlord, with a 13.6%
market share of the multi-family rental units in its core Atlantic markets. Killam plans to expand its presence in Ontario and
Western Canada with additional acquisitions and developments.
Killam also owns 5,165 MHC sites, also known as land-lease communities or trailer parks, located in Ontario and Atlantic Canada.
Killam owns the land and infrastructure supporting each community and leases the lots to tenants who own their own homes and
pay Killam monthly site rent. The MHC portfolio accounted for 9% of Killam’s NOI for the year ended 2016. Killam also has a
portfolio of commercial properties, which accounted for 2% of Killam's NOI for the year ended December 31, 2016.
Business Strategy
Maximize NOI from Existing Portfolio
Management increases the value of its real estate portfolio by maximizing revenue and generating operating efficiencies. To achieve
NOI growth, Killam must address three critical factors: occupancy, rental rates and operating costs. Killam focuses on customer
service, investing in its properties, leasing and marketing initiatives and training its employees to maximize these outcomes. Killam
has increased its same property NOI an average of 3.0% per year over the last 10 years.
Historic Same Property NOI Growth
8.4%
5.1%
4.8%
2.1%
2.0%
0.3%
4.2%
4.0%
2007
2008
2009
2010
2011
2012
(0.4)% (0.9)%
2013
2014
2015
2016
Growth through Acquisitions
Killam is expanding its portfolio by acquiring centrally located buildings in urban markets and expanding its ownership interest in
Ontario and Alberta, as well as adding to its established portfolio in Atlantic Canada. Acquisition activity varies by year depending on
accretive opportunities and access to capital.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Annual Acquisitions ($ millions)
$200
$167
$125
$103
$115 $106
$121
$85
$45
$16
$36
$3
$160
$72
$54
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Growth through Development
Killam enhances its external growth opportunities with development. Killam started apartment developments in 2010 and has
completed $136 million of projects, which comprises eight properties totaling 626 units to date. Killam has an experienced
development team that oversees all projects. Killam's new property construction enables Management to directly control the quality
and features of its buildings and generally deliver higher returns than through acquisitions. Management expects to build to a 75 -
125 bps cap-rate or spread premium over the cap-rate used to value comparable assets, thereby enhancing Unitholders' value.
In order to manage the short‑term dilution impact associated with development, and mitigate development risk, Management plans
to limit new development to approximately 5% of Killam's balance sheet asset value on an annual basis.
Apartment Developments Completed ($ millions)
$70
$60
$50
$40
$30
$20
$10
$0
$16.7
$25.4
$19.0
$7.6
2013
$7.7
$25.3
$15.0
$14.1
2014
2015
2016
$5.0
2011
2012
Investment in New Properties
In addition to developing properties, Killam also acquires newly constructed buildings. When available at accretive returns,
Management believes that increasing Killam’s ownership in new, high-quality buildings will result in above-market rents and long-
term demand for its properties, reduce annual capital requirements related to deferred maintenance, and transform Killam’s
portfolio over time into one of the highest quality portfolios in Canada. Today, Killam has one of the newest apartment portfolios in
Canada; 37% of Killam's apartment NOI comes from properties built post 2000.
The majority of the new properties added to Killam's portfolio are condominium quality, providing tenants with features and
amenities traditionally associated with ownership. Management believes demand for newer rental accommodations will grow given
the increasing number of homeowners reaching retirement age and seeking alternatives to home ownership. Killam is also attracted
to the low capital spend requirements for new assets compared to older buildings. In addition, with energy efficient features, the NOI
margins are typically higher in newer buildings. With strong demand for the acquisition of apartments in recent years, cap-rates have
declined and the pricing differential between older and newer buildings has narrowed. This enables Killam to add newer apartments
to its portfolio without paying a significant premium for these higher quality assets.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Geographic Diversification
Geographic diversification is a priority for Killam. Killam's strong operating platform can support a larger and more geographically
diverse portfolio. Killam is actively building a portfolio in targeted markets outside of Atlantic Canada, including Ottawa, the
Greater Toronto Area, Southwestern Ontario and Alberta. Increased investment in Ontario and Western Canada will enhance
Killam'sdiversification and exposure to the urban centres in Canada with higher population growth than Atlantic Canada.
Management has set a long-term target to grow the NOI generated outside of Atlantic Canada.
% of Killam's NOI Generated Outside Atlantic Canada
4%
16%
4%
17%
12%
11%
13%
6%
4%
4%
11%
6%
6%
4%
8%
2009
2010
2011
2012
2013
2014
2015
2016
Apartment
MHC
Outlook
Increased Earnings from Killam's Same Property Portfolio
Management expects to generate same property NOI growth and improved operating margins by increasing rental revenue and
expense management. Top-line growth is expected to be driven primarily from increased rental rates. A growing number of baby
boomers and seniors looking to transition from home ownership to apartment-style living are expected to support strong demand
for apartment rentals for the foreseeable future. Population growth, fueled in part from increased international immigration levels
in Killam's core markets, most notably Halifax, is also expected to support a strong rental market.
Investments in energy initiatives and operational efficiencies are expected to contribute to improved operating margins and
mitigate operating expense pressures. Having identified over $25 million in efficiency related opportunities with an average
payback of four years, Management is doubling its investment in energy and water saving initiatives from approximately $1.6
million in 2016 to over $3 million in 2017, and going forward. These investments, including low-flow water solutions, heating
system upgrades, lighting solutions and temperature control solutions, are expected to augment Killam's annual same property
NOI growth.
Reduced natural gas rates in Nova Scotia in 2017 are also forecasted to contribute to NOI growth next year. Having absorbed
significant increases in natural gas prices in Atlantic Canada during 2013 and 2014, Killam has experienced more stable pricing in
2015 and 2016, especially in New Brunswick. Natural gas costs remained relatively high in Nova Scotia in 2016 due to fixed price
contracts put in place by Killam’s natural gas distributor, Heritage Gas, during 2015. Based on indications from Heritage Gas,
Management expects natural gas commodity charges in Nova Scotia to be lower in 2017. In addition, Heritage Gas reduced the
distribution rate on one of its rate classes effective April 2016 to deliver more competitive pricing versus alternative energy
sources. Killam is benefiting from this price change, which impacts approximately 30% of its apartment units heated with natural
gas in Nova Scotia. Longer-term, Management does not expect to experience the same level of volatility in natural gas prices as
was experienced in 2013 and 2014. Heritage Gas has committed to invest in both natural gas storage solutions and new pipeline
capacity in an effort to mitigate customers' exposure to periodically volatile winter gas markets, such as through Algonquin City
Gate. This is expected to reduce price volatility for Killam’s Nova Scotia portfolio. In addition, expansion projects have been
completed, and are planned to increase the capacity and alleviate bottlenecks in the New England market, which is expected to
help improve future price stability in Killam’s Maritime markets.
Overall, the outlook for same property NOI growth for 2017 is 1%-3%.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Acquisitions to Add Increased Geographic Diversification
Killam's strong operating platform can support a larger and more geographically diverse portfolio. Management is actively looking
for accretive acquisition opportunities in Ontario, Atlantic Canada and Alberta, with a focus on its core markets in Ontario.
Management expects its acquisition program will contribute to a higher percentage of Killam's total portfolio NOI being generated
outside Atlantic Canada, up from 21% during 2016. Subsequent to year-end, on January 16, 2017, Killam acquired its second
apartment property in Calgary for $13.4 million and has already committed to acquire a 50% interest in two new apartment
buildings in Ottawa: the two remaining buildings of the five-building complex, Kanata Lakes Apartments. After acquiring these two
properties, Killam will own 50% of the 739 suite, five-property asset. This $50 million acquisition of the two remaining Kanata
assets, is expected to close during the first quarter of 2017.
Developments to Contribute to NAV Growth
Killam is an experienced developer, having completed over $130 million in apartment developments. New developments will
continue to be an important component of Killam's growth strategy. Targeting a yield on development of 5.5% to 6.0% and an
anticipated cap-rate value on completion of 4.5% to 5.0%, Management expects its developments to be accretive and create
Unitholder value. Based on the two developments underway and additional projects expected to start in 2017, Killam forecasts
adding between $60 and $100 million of new developments to its portfolio during the next three years. These new properties are
expected to reinforce Killam's portfolio as one of the newest and highest quality apartment portfolios in Canada. See further
discussion on land held for future development in the “Investment Properties” section of the MD&A.
Strengthening Balance Sheet
The redemption of $57.5 million in convertible debentures on July 4, 2016, resulted in a reduction in Killam's leverage in 2016,
down 290 bps to 53.5% at December 31, 2016. Management has identified opportunities to further strengthen Killam's balance
sheet and is targeting a leverage level of 50% during the next few years. In addition, Management plans to expand its portfolio of
unencumbered assets and increase its $30 million acquisition line, providing additional capital flexibility.
Interest Savings
Killam has $145 million of mortgages maturing through to the end of 2018 at a weighted average interest rate of 3.55%,
approximately 135 bps and 75 bps higher than current 5 and 10-year Canadian Mortgage and Housing Corporation ("CMHC") insured
rates. Based on an expectation of yields remaining low in the near-term, Management expects to refinance its maturing mortgages at
lower interest rates, creating interest expense savings. Management also expects to up-finance approximately $40 million from
maturing mortgages through to the end of 2018. Assuming a weighted average interest rate of 2.5% on refinanced apartment
mortgages over the next two years, using a mix of 5 and 10-year debt, Killam could generate annualized interest savings of up to $0.5
million.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Targets
Growth in Same Property NOI
2016 Target
2016 Performance
2017 Target
Longer-term Target
Geographic Diversification
2016 Target
2016 Performance
2017 Target
Same property NOI growth of 1% to 3%.
Target exceeded.
Killam's same property portfolio generated 4.0% growth.
Attributable to top line growth of 1.8% and a 1.2% reduction in year-over-
year total operating expenses, primarily attributable to lower utility and fuel
expenses.
Same Property NOI growth of 1% to 3%.
Same Property NOI growth averaging over 2%.
Increase NOI generated outside Atlantic Canada.
Target achieved.
21.3% of NOI earned outside Atlantic Canada in 2016, up from 20.2% in 2015.
In addition, 62% of acquisitions completed in 2016 were in Ontario, including
$31.1 million in Ottawa and $13.4 million in London.
At least 75% of acquisitions made outside Atlantic Canada and to have over
23% of 2017 NOI earned outside Atlantic Canada.
Longer-term Target
Over 30% of NOI generated outside Atlantic Canada by 2020.
Expanded Portfolio through Accretive Acquisitions
2016 Target
2016 Performance
A minimum of $50 million of acquisitions.
Target achieved.
2017 Target
Longer-term Target
Development of High-Quality Properties
2016 Target
2016 Performance
2017 Target
Longer-term Target
Strengthened Balance Sheet
2016 Target
2016 Performance
2017 Target
Longer-term Target
Killam completed $71.5 million in acquisitions, including $70.0 million in NOI-
producing assets (and $1.5 million in land for future developments). A
summary of the acquisitions completed during 2016 is shown on page 53.
The weighted average all-cash yield on the acquisitions is expected to be over
5% in the first year.
A minimum of $75 million of acquisitions.
Grow the portfolio to $2.5 billion by 2020, from $1.9 billion at the end of
2016.
Completion of the Southport Apartments development.
Target achieved.
Southport was completed in August and tenants started taking occupancy in
September. The development came in on budget and exceeded
Management's expectations on lease-up.
To remain on schedule to have the 240-unit Alexander development
completed by Q1-2018 and the 93-unit Saginaw development completed by
Q2-2018.
To add a minimum of $20 million of value creation from Killam's development
program through to the end of 2020.
Improve Killam's debt metrics and increase capital flexibility.
Target achieved.
Debt as a percentage of total assets was reduced by 290 bps to 53.5%.
In addition, Killam expanded its acquisition line of credit to $30 million, up
from $2 million.
Further reduce debt as a percentage of assets.
Debt as a percentage of assets to be less than 50% by 2020, and an expanded
acquisition line of credit of a least $50 million.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Portfolio Summary
The following table summarizes Killam's apartment, MHC and commercial portfolio by market as at December 31, 2016:
Apartment Portfolio
Units (1)
Number of
Properties
NOI ($) (2) NOI (% of Total) (2)
Nova Scotia
Halifax
Sydney
New Brunswick
Moncton
Fredericton
Saint John
Miramichi
Ontario (3)
Ottawa
London
Toronto
Cambridge
Newfoundland & Labrador
St. John's
Grand Falls
Prince Edward Island
Charlottetown
Summerside
Alberta (3)
Calgary
Total Apartments
Nova Scotia
Ontario
New Brunswick
Newfoundland & Labrador
Total MHCs
Halifax, NS
Total Portfolio
5,160
139
5,299
1,629
1,422
1,202
96
4,349
953
417
378
347
2,095
915
148
1,063
906
86
992
59
2
61
31
21
14
1
67
10
4
2
3
19
12
2
14
17
2
19
307
14,105
1
181
Manufactured Home Community Portfolio
Sites
2,626
2,145
224
170
5,165
Number of
Communities
16
16
1
2
35
Commercial Portfolio
Square Footage
248,000
Number of
Properties
4
$38,147
1,263
$39,410
$8,279
8,582
5,088
559
$22,508
$4,942
3,644
3,290
4,120
$15,996
$7,091
798
$7,889
$5,920
499
$6,419
$2,166
$94,388
36.1%
1.2%
37.3%
7.9%
8.1%
4.8%
0.5%
21.3%
4.7%
3.5%
3.1%
3.9%
15.2%
6.7%
0.8%
7.5%
5.6%
0.5%
6.1%
2.1%
89.5%
NOI ($) (2) NOI (% of Total) (2)
4.1%
4.0%
0.2%
0.3%
8.6%
$4,312
4,173
178
323
$8,986
NOI ($) (2) NOI (% of Total) (2)
1.9%
100.0%
$2,050
$105,424
(1) Unit count includes properties held through Killam's joint arrangements.
(2) For the year ended December 31, 2016.
(3) Killam owns and manages four buildings located in Ontario and one building in Alberta through a joint arrangement, with Killam having a 50%
ownership interest in all five properties. Killam's ownership interest represents 489 of the 977 units in these properties.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Unique Portfolio Features
Atlantic Canada's Market Leader
Killam is the dominant residential landlord in Atlantic Canada with a 13.6% market share. A large portfolio in each core market
provides advantages, including brand recognition, a diverse selection of apartments in each city, higher operating margins from
economies of scale and the ability to attract and retain top talent. With improving rental fundamentals in Atlantic Canada, four of
Killam's six core markets experienced improved occupancy in October 2016 vs. October 2015, as disclosed in CMHC’s Fall 2016 Rental
Market Report. This compares favourably with the overall decline in occupancy for Canada as reported by CMHC, at 96.3% occupancy
in October 2016 compared to 96.5% in October 2015.
Market Share and Apartment NOI (%)
% of Apartment NOI
Killam's Market Share
40%
11%
9%
14%
18%
9%
8%
18%
14%
7%
5%
25%
Halifax
Moncton
Fredericton
St. John's
Charlottetown
Saint John
Limited Exposure to Rent Control
The majority of Killam’s portfolio is not impacted by rent control, allowing Killam to move rents to market on an annual basis. PEI is
the only province in Atlantic Canada with rent control for apartments, and this represents only 7.3% of Killam’s apartment units.
Ontario has rent control; however the legislation excludes properties built after 1991. Nine of Killam’s nineteen properties in Ontario
(1,261 of 2,095 units) are newer properties (built after 2004) and therefore do not fall under the rent control guideline. The balance
of Killam's Ontario properties can move rents to market on a unit-by-unit basis as they become vacant. Ontario and Nova Scotia both
have rent control for MHCs. In both provinces, owners may apply for above-guideline increases to offset significant capital
expenditures. Higher rent increases are also allowed for new tenants entering the communities. To determine rental increases for its
portfolio, Killam analyzes each property on a regular basis, considering its location, tenant base and vacancy, to evaluate the ability to
increase rents for both existing tenants and on turnovers.
CMHC Insured Debt Available for over 90% of Killam’s Portfolio
Canadian apartment owners can apply for CMHC mortgage loan insurance. The mortgage insurance guarantees the repayment of the
loan to the lender, eliminating default risk, which results in lower interest rates for the borrower than with conventional mortgages.
Killam uses CMHC insurance and has 77% of its apartments financed with CMHC insured debt. As mortgages are renewed or new
properties are financed, Killam expects to use CMHC insurance and increase the percentage of insured debt. CMHC insurance is not
available for the owners of MHCs; however, it is available for the individual manufactured home owners.
Focused on Service
Killam takes pride in providing tenants with well-maintained properties, being responsive to service requests and providing an
attractive value proposition for tenants’ housing needs. In-house educational programs enhance employees’ skills and experience to
best service tenants and prospective tenants. Annually, Management measures tenants’ satisfaction through an on-line survey
(approximately 2,100 respondents in 2016). Killam’s 2016 survey results support Killam’s focus on service with a 90% tenant
satisfaction rating, the same rating received in 2015.
Geographic Diversification
Killam is focused on increasing its geographic diversification by acquiring and developing more properties in its core markets in
Ontario and Alberta. In 2016, Killam’s apartment portfolio included 2,091 apartment units in Ontario, up from 225 units in 2010
when Killam first entered the Ontario apartment market, and includes properties in Ottawa, Toronto, London and Cambridge. During
2016, Killam added an additional 322 units to its Ontario portfolio. In addition to apartments, 42% of Killam’s MHC sites are located
in Ontario. Killam acquired its first apartment property in Alberta in 2014, a 50% interest in a 307-unit building in downtown Calgary,
and subsequent to year-end 2016, added an additional 66-unit building.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Core Market Update
Halifax
36% of Killam’s total NOI is earned from its Halifax apartment portfolio. The city's rental unit base is 46,097 units, accounting for
47.1% of the total rental universe in Atlantic Canada as measured by CMHC. Halifax is the largest city in the region and home to
17% of Atlantic Canadians. It is the region’s economic hub, producing 56% of Nova Scotia’s total GDP and home to 44% of the
province’s population. The city attracts a diverse population base, from rural areas of Nova Scotia, other regions in Atlantic
Canada, and internationally. With six degree-granting universities and three large community college campuses, Halifax is home
to over 35,000 students per year, including 5,800 international students. Halifax’s employment base is well diversified, with jobs
focused around public service, health care, education, and retail and wholesale trade among the largest sectors. Halifax is home
to the largest Canadian Armed Forces base by number of personnel, and the Department of National Defence is the largest
employer in the city.
Halifax has experienced improved occupancy and rental growth in 2016, attributable to economic and population growth in the
city, and increasing demand from the baby boomer generation shifting away from home ownership into apartment living.
Intraprovincial migration and international migration have also contributed to increased demand for apartments in the city. In its
2016 Rental Market Report, CMHC noted that the population of Halifax increased by more than 3,200 residents in 2015,
approximately 2,700 of whom were immigrants. The number of international immigrants is expected to be higher in 2016, as over
2,800 immigrants arrived in the city during the first six months of the year.
Increased numbers of rental units are being built to absorb this demand. Much of the new rental supply introduced into the
market in recent years has catered to this demographic, with spacious units of 1,200 square feet ("SF") or more, and monthly rents
of $1,300 and higher in the suburban areas. In the downtown core, an increased number of smaller rental units are being
constructed, catering to renters looking for a more urban lifestyle.
The following graph summarizes the total number of starts in Halifax for all housing types from 2007 to 2016, as reported by
CMHC. During the last ten years, the annual total housing starts averaged 2,350 units per year. As the graph highlights, a decrease
in single family starts is being offset by an increase in multi-family starts, resulting in relatively stable levels of total housing starts
and apartment occupancy. This trend continued in 2016, with 1,492 apartment and condo unit starts during the year compared to
843 single family, semi-detached and row housing starts, as per CMHC's Starts and Completions Survey. This compares with 2,005
apartment starts and 594 single family, semi-detached and row housing starts during 2015.
Halifax Total Housing Starts
Total Starts
Average Total Starts
Total Apartments/Condos Units
Total Singles/Semi-Detached/Row
3,500
3,000
2,500
2,000
1,500
1,000
500
0
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
Despite an increased rental inventory, units are being absorbed by strong demand in the city, as noted above. CMHC’s Fall Rental
Market Outlook reported Halifax’s vacancy to be 2.6% in October 2016, down from 3.4% in October 2015. CMHC forecasted vacancy
to increase to 3.2% in 2017 due to a higher than normal amount of rental completions expected in 2017.
Source: CMHC
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14
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
The population of Halifax has been growing at approximately 1% per year, driven by a combination of natural growth, international
immigration and intraprovincial migration. International immigration accelerated in 2016. Although annual numbers have not been
finalized, CMHC reports the arrival of 2,849 immigrants during the first six months of 2016 compared to 2,730 during the full year
before. The chart below highlights historical population growth for Halifax by source from 2005 - 2015:
Historical Population Growth and Source, Halifax
Annually from July 1 - June 30
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
á1,000
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
Total
Natural Growth
International
Interprovincial
Intraprovincial
Source: Statistics Canada
Management expects population growth in Halifax to continue to increase due to urbanization and local large-scale projects that
should drive employment opportunities. Irving Shipyard's $25 billion shipbuilding contract is expected to have positive long-term
implications for Halifax and Atlantic Canada. Large construction projects in the city, as well as steady growth in the service sector, will
also contribute to Halifax’s economic growth. A growing population base of those 60 years and older, many of whom are expected to
transition to rental units, will also drive long-term demand for apartments in Halifax.
With a diversified asset base of more then 5,100 well-located apartment units in Halifax and 1,100 MHC sites in and around the
city, Killam should benefit from the increased demand for housing that will come from population and economic growth plus the
growing base of aging homeowners transitioning to apartment rental.
New Brunswick
21% of Killam’s NOI is currently generated in New Brunswick, split between the province’s three major urban centres: Fredericton,
Moncton and Saint John. Fredericton is the provincial capital and home to the province's largest university. Moncton is the largest
city and is a transportation and distribution hub for Atlantic Canada. Moncton has experienced strong population growth in recent
years driven by urbanization from French communities in Northern New Brunswick. The Saint John market, representing 5% of
Killam’s NOI, is focused on industry and energy. After strong energy investments in the city in the mid-2000s, the city has seen a
reduction in new projects over recent years. However, new investments have started in the forestry sector, and the Energy East
Pipeline proposal to bring oil from Western Canada to refineries in Quebec and New Brunswick has potential to generate future
economic growth for the city and the province.
Following an increase in vacancy in New Brunswick in recent years, due partly to higher levels of new construction, CMHC
reported improved vacancy rates with fewer new rental projects being introduced into the market. CMHC reported that during
2015 and 2016 respectively, there were 355 and 310 new rental apartment unit starts in the province, a marked reduction from
the 876 and 812 new rental unit starts during 2012 and 2013.
CMHC reported improved occupancy in both Moncton and Fredericton in its Fall 2016 Rental Market Report; and stable vacancy in
Saint John. The improved occupancy in Moncton and Fredericton was driven primarily by intraprovincial and international
migration and increasing demand from retiring baby boomers. Moncton experienced the most improvement in occupancy, with
CMHC reporting 6.0% vacancy in 2016, a 140 bps improvement from 2015.
3 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
15
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Newfoundland and Labrador
7% of Killam’s apartment NOI is generated in St. John’s. After undergoing a transformation over the last ten years following
significant offshore investments, the city is now adjusting to the impact of lower oil prices. After maintaining very high occupancy
and record high rental rate growth in the St. John’s portfolio for most of the last eight years, Killam experienced more modest
revenue growth in 2016 of 0.8%. CMHC reported a 300 bps increase in vacancy in St. John's due to the economic pressures of
lower oil activity, with 7.9% vacancy in 2016, up from 4.9% in 2015.
Prince Edward Island
Killam has a 18% market share in Charlottetown, the provincial capital and economic center of Prince Edward Island. The
Charlottetown market represents 6% of Killam’s total NOI. The Prince Edward Island economy continues to realize GDP growth
following increases in merchandise exports since 2013. Demographics and international immigration are driving strong demand for
rental units. CMHC reported a 250 bps improvement in occupancy rates, reporting 98.3% occupancy in October 2016, compared to
95.8% in October 2015.
Ontario
Killam's Ontario apartment portfolio represents 15% of NOI. The Ontario rental market is strong, with CMHC reporting a second
year of 3.0% increases in average rents for the total Ontario rental market and a 30 bps point reduction in vacancy. In its Fall
Rental Market Report, CMHC reported vacancy of 2.1% in October 2016, down from 2.4% in October 2015. CMHC highlights three
of Killam's four markets in Ontario (Toronto, London and Ottawa) contributing most to the decline in the provincial vacancy rate.
The strength of the Ontario rental market is attributable to an improved economy, rising cost gap between owning and renting
and higher levels of international immigration. Looking forward, CMHC projects that vacancy rates will continue to edge lower in
2017 in most urban centres, driven by increased housing prices, international migration and an aging population.
Alberta
2% of Killam's NOI is earned in Alberta. The Alberta rental market has softened following lower oil prices. CMHC reported a
vacancy rate of 7.0% in October 2016 in Calgary, up from 5.1% in October 2016 and 1.4% a year earlier. Higher vacancy in the year
was attributable to an increased base of rental units and the continued weak labour market. CMHC forecasts improvements in
economic conditions to lead to lower vacancy rates in 2017 and 2018; however, new rental supply is expected to keep vacancy
levels above historical averages.
PART III
2016 Financial Overview
Consolidated Results
For the years ended December 31,
Total Portfolio
Same Property
Non-Same Property
2016
2015
%
Change
2016
2015
%
Change
2016
2015
%
Change
Property revenue
$175,269 $166,614
5.2% $162,965 $160,041
1.8%
$12,304
$6,573
87.2%
(896)
(492)
(775)
125.9%
92.3%
111.5%
Property operating expenses
Operating expenses
(29,097)
(27,590)
5.5%
(27,073)
(26,694)
1.4%
(2,024)
Utility and fuel expenses
(20,462)
(21,299)
(3.9)% (19,516)
(20,807)
(6.2)%
(946)
Property taxes
(20,286)
(19,335)
Total operating expenses
(69,845)
(68,224)
NOI
$105,424
$98,390
4.9%
2.4%
7.1%
(18,647)
(18,560)
0.5%
(1,639)
(65,236)
(66,061)
(1.2)%
(4,609)
(2,163)
113.1%
$97,729
$93,980
4.0%
$7,695
$4,410
74.5%
Operating margin %
60.1%
59.1% 100 bps
60.0%
58.7% 130 bps
62.5%
67.1% (460) bps
Total property revenue for the year ended December 31, 2016, was $175 million, a 5.2% increase in revenue over 2015. The growth
was generated through acquisitions, completed developments and a 1.8% increase in same property revenue.
Killam's total property expenses increased by 2.4% in 2016 compared to 2015, as a result of expenses associated with newly acquired
properties and completed developments. Killam's consolidated operating margin improved 100 bps year-over-year, primarily as a
result of adding high-quality assets to the portfolio and a 130 bps margin improvement from its same property portfolio.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 3 9
16
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Same property NOI reflects 206 stabilized properties that Killam has owned for equivalent periods in 2016 and 2015. The same
property analysis includes a combined total of 18,529 apartment units and MHC sites, which is 96.5% of Killam's portfolio. The same
property portfolio realized net revenue growth of 1.8% for the year ended December 31, 2016. Operational efficiencies combined
with the milder winter in 2016 generated a 1.2% savings in total operating expenses in comparison to the year ended December 31,
2015. Combining net revenue growth and savings in property expenses, same property NOI grew by 4.0% in 2016. These variances
are discussed in more detail in the Apartment and MHC sections of the MD&A.
Non-same property NOI consists of properties acquired in 2015 and 2016, development projects completed in 2015 and 2016, and
other non-stabilized properties and adjustments to normalize for non-operational revenue or expense items.
Apartment Results
For the years ended December 31,
Total
Same Property
Non-Same Property
2016
2015
%
Change
2016
2015
%
Change
2016
2015
%
Change
Property revenue
$155,839 $148,846
4.7% $148,284 $145,718
1.8%
$7,555 $3,128
141.5%
Property operating expenses
Operating expenses
(24,196)
(23,303)
3.8%
(23,453)
(23,158)
Utility and fuel expenses
(18,431)
(19,490)
(5.4)% (18,035)
(19,339)
1.3%
(6.7)%
0.4%
(743)
(396)
(785)
(145)
(151)
(197)
(493)
412.4%
162.3%
298.5%
290.3%
113.7%
Property taxes
(18,823)
(18,171)
Total operating expenses
(61,450)
(60,964)
NOI
$94,389
$87,882
3.6%
0.8%
7.4%
(18,038)
(17,974)
(59,526)
(60,471)
(1.6)%
(1,924)
$88,758
$85,247
4.1%
$5,631 $2,635
Operating margin %
60.6%
59.0%
160 bps
59.9%
58.5%
140 bps
74.5% 84.2% (970) bps
Apartment Revenue
Total apartment revenue for the year ended December 31, 2016, was $155.8 million, a 4.7% increase in revenue over 2015. This
growth was attributable to $71.5 million in acquisitions, $15 million in completed developments, growth in rental rates and improved
occupancy.
Same property apartment revenue increased 1.8% in 2016 due to a 1.6% increase in rental rates and a 40 bps improvement in same
property occupancy for the year.
Apartment Occupancy Analysis by Core Market (% of Residential Rent)(1)
Total Occupancy
Same Property Occupancy
2015
Change (bps)
For the years ended December 31,
# of Units
Halifax, NS
Moncton, NB
Fredericton, NB
Saint John, NB
St. John's, NL
Charlottetown, PE
Ontario
Alberta
Other Atlantic
5,160
1,629
1,422
1,202
915
906
2,095
307
469
Total Apartment (Weighted Average)
14,105
2016
96.1%
94.9%
94.8%
92.5%
95.2%
98.5%
96.9%
86.8%
97.7%
95.7%
2015
Change (bps)
94.9%
94.7%
94.4%
94.2%
96.5%
97.7%
95.0%
89.7%
97.6%
95.1%
120
20
40
(170)
(130)
80
190
(290)
10
60
2016
96.2%
94.9%
94.8%
93.0%
95.3%
98.5%
97.0%
86.8%
97.7%
95.8%
95.0%
94.7%
94.4%
94.3%
96.5%
97.7%
96.9%
89.7%
97.6%
95.4%
(1) Occupancy as a percentage of residential rent is calculated based on vacancy (in dollars) divided by gross potential residential rent (in dollars) for the year.
4 0 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
120
20
40
(130)
(120)
80
10
(290)
10
40
17
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Killam's Historic Apartment Occupancy & Rental Incentives (as a % of Residential Revenue)
Occupancy %
Rental Incentive
y
c
n
a
p
u
c
c
O
97%
96%
95%
94%
93%
92%
1.4%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
s
e
v
i
t
n
e
c
n
I
l
a
t
n
e
R
Q 1-2013
Q 2-2013
Q 3-2013
Q 4-2013
Q 1-2014
Q 2-2014
Q 3-2014
Q 4-2014
Q 1-2015
Q 2-2015
Q 3-2015
Q 4-2015
Q 1-2016
Q 2-2016
Q 3-2016
Q 4-2016
Average Rent Analysis by Core Market
As at December 31,
Halifax, NS
Moncton, NB
Fredericton, NB
Saint John, NB
St. Johns's, NL
Charlottetown, PE
Ontario
Alberta
Other Atlantic
# of Units
5,160
1,629
1,422
1,202
915
906
2,095
307
469
Total Apartment (Weighted Average)
14,105
Average Rent
Same Property Average Rent
2016
$989
$844
$915
$784
$962
$905
$1,274
$1,188
$855
$973
2015 % Change
$963
$830
$898
$779
$941
$899
$1,261
$1,354
$833
$951
2.7%
1.7%
1.9%
0.6%
2.2%
0.7%
1.0%
(12.3)%
2.6%
2.3%
2016
$984
$844
$917
$763
$913
$905
$1,271
$1,188
$855
$958
2015 % Change
$963
$830
$898
$757
$892
$899
$1,245
$1,354
$833
$943
2.2%
1.7%
2.1%
0.8%
2.4%
0.7%
2.1%
(12.3)%
2.6%
1.6%
Apartment Expenses
Total apartment expenses for the year ended December 31, 2016, were $61.5 million, a 0.8% increase over 2015. The expense
increase in the year is attributable to acquisitions and completed developments. Mitigating the increased costs are lower year-over-
year fuel and contract service costs. Killam realized a 160 bps improvement in its apartment operating margin for the year as a result
of a mild winter season, lower fuel pricing and consumption, operational efficiencies and the development and acquisition of newer
and more efficient buildings.
Total same property expenses for the year ended December 31, 2016, were $59.5 million, a 1.6% decrease over 2015. This decrease
is attributable to the ability to maintain and minimize total property operating costs, lower heating oil and natural gas consumption
and pricing, improved operating efficiencies and only a modest increase in overall property taxes.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 4 1
18
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Apartment Utility and Fuel Expenses - Same Property
For the years ended December 31,
Natural gas
Electricity
Water
Oil
Other
2016
$5,357
6,935
4,670
1,038
35
2015
$6,230
7,009
4,809
1,250
41
Total utility and fuel expenses
$18,035
$19,339
% Change
(14.0%)
(1.1%)
(2.9%)
(17.0%)
(14.6%)
(6.7%)
Utility and fuel expenses accounted for approximately 30% of Killam’s total apartment same property operating expenses in 2016.
Total utility and fuel expenses were 6.7% lower compared to 2015 due to warmer weather, lower commodity prices and investments
in efficiencies. Killam’s apartment properties are heated with a combination of natural gas (55%), electricity (35%), oil (8%) and
steam (2%). Electricity costs at the unit level are typically paid directly by tenants, reducing Killam’s exposure to the majority of the
4,900 units heated with electricity. Killam is primarily exposed to the electricity costs associated with common areas. Fuel costs
associated with natural gas or oil-fired heating plants are paid by Killam.
Killam’s same property natural gas costs decreased by 14.0% compared to 2015. The decrease was attributable to lower consumption
and average natural gas rates across Killam's portfolio as a result of a relatively mild winter. Killam's weighted average natural gas
cost per gigajoule ("GJ") was down approximately 12% in New Brunswick and 30% in Ontario in 2016. The weighted average cost of
gas per GJ was $15.96 in Nova Scotia, 5.7% lower than the 2015 weighted average cost of $16.93 per GJ. This decline in Nova Scotia
was due to a $5 per GJ reduction in the delivery rate introduced in April 2016. The impact of these price savings were augmented by
lower consumption attributable to a mild winter and improved efficiencies.
Heating oil costs decreased by 17.0% in 2016 compared to the prior year due to the lower world oil prices. Given lower oil prices,
Killam switched back to oil from natural gas at its buildings with dual burner capabilities.
Electricity costs were down by 1.1% due to milder winter weather and energy efficiencies. The number of units that include unit
electricity as a rental incentive remained fairly constant year-over-year. Killam prefers not to include electricity in rental rates, and
rents are typically increased to offset this additional expense; however, in competitive markets some landlords include electricity in
the rental rates. Killam does the same when the market conditions dictate.
Despite higher rates, water expense for same properties decreased by 2.9% for the year ended December 31, 2016. Killam has
installed 3,723 low-flow toilets during 2016 and is realizing marked decreases in water consumption from the program. The total cost
for the 2016 program was $1.3 million, with annualized savings of $0.4 million and payback period of an estimated 3.1 years.
Apartment Same Property NOI by Region
For the years ended December 31,
Halifax
Moncton
Fredericton
Saint John
Ontario
St. John's
Charlottetown
Alberta
Other
Property Revenue
Property Expenses
Net Operating Income
2016
2015 % Change
2016
2015 % Change
2016
2015 % Change
$59,060
17,039
14,863
9,912
22,194
9,890
10,548
$57,148
16,928
14,637
10,039
21,761
9,807
10,325
3.3%
0.7%
1.5%
(1.3)%
2.0%
0.8%
2.2%
(22,004)
(8,201)
(6,343)
(5,309)
(8,577)
(3,240)
(4,130)
(22,470)
(8,349)
(6,572)
(5,607)
(8,451)
(3,071)
(4,219)
2,668
3,063
(12.9)%
(879)
(880)
2,110
2,010
$148,284 $145,718
5.0%
1.8%
(843)
(59,526)
(852)
(60,471)
(2.1)%
(1.8)%
(3.5)%
(5.3)%
1.5%
5.5%
(2.1)%
(0.1)%
(1.1)%
(1.6)%
$37,056
8,838
8,520
4,603
13,617
6,650
6,418
$34,678
8,579
8,065
4,432
13,310
6,736
6,106
6.9%
3.0%
5.6%
3.9%
2.3%
(1.3)%
5.1%
1,789
2,183
(18.0)%
1,267
$88,758
1,158
$85,247
9.4%
4.1%
As shown above, Killam generated positive NOI growth in the majority of its core markets in 2016, with the exception of St. John's
and Alberta, which only account for 10% of the total same property NOI for the year. Overall, Killam generated apartment same
property portfolio NOI growth of 4.1%.
4 2 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
19
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Halifax
Halifax is Killam’s largest rental market, representing 42% of apartment same property NOI for the year ended December 31, 2016.
The Halifax same property apartment portfolio achieved 3.3% revenue growth in the year. Overall NOI growth in 2016 was a strong
6.9%, the highest NOI growth from any of Killam's core markets.
The 3.3% revenue increase was also the highest revenue growth from Killam's portfolio in 2016. Occupancy was up 120 bps and
average rent was up 2.2%. An increase in commercial occupancy, increased parking revenues and a reduction in bad debts year-over-
year also contributed to same property revenue growth. Total operating expenses decreased by 2.1% in the year. Savings generated
from reduced water consumption, lower natural gas pricing and heat consumption due to milder weather, and lower garbage
removal expense from recent contract negotiations offset increases in property taxes, insurance premiums and repairs and
maintenance costs.
New Brunswick
Killam’s three core markets in New Brunswick generated 25% of Killam's apartment same property NOI in 2016. In aggregate, the NB
portfolio achieved 4.2% NOI growth for the year. The improvements were attributable to overall increased revenues, up 0.5% from
2015, and lower total operating expenses, down 3.3% for the year ended December 31, 2016, due largely to substantial savings in
heating costs in Q1-2016.
Fredericton achieved the strongest revenue and NOI growth in NB in 2016. Revenue was up 1.5% and NOI was up 5.6% for the year.
Top-line growth was primarily attributable to increased rents, up an average of 2.1%, and a 40 bps increase in occupancy for the year.
Fredericton also benefited from a 3.5% reduction in total operating costs, due primarily to lower heating costs due to a milder winter
in 2016 and lower property taxes following successful tax assessment appeals.
Moncton ranked second in NB in revenue and NOI growth in 2016, with a 0.7% increase in net revenue and a 3.0% increase in NOI.
Moncton's average rents increased by 1.7% and apartment occupancy improved by 20 bps. These improvements were partially offset
by higher rental incentives and lower commercial occupancy in 2016. Expenses decreased 1.8% from 2015 as lower natural gas costs,
operating efficiencies, lower garbage removal costs and lower property tax expense from successful tax appeals offset increased
insurance and electricity costs during the year.
Saint John recorded a 1.3% decrease in property revenue in 2016, but still realized a 3.9% increase in NOI due to 5.3% savings
achieved in property operating expenses. A 130 bps decrease in occupancy for the year, along with the increased use of rental
incentives, more than offset rental rate growth of 0.8%. The Saint John rental market has been showing signs of softness during the
last two quarters. Killam has increased the use of incentive offerings and increased advertising efforts in response. Total operating
expense savings were achieved from lower fuel and utility costs due to milder weather in 2016 and energy efficiency initiatives at
various properties. As well, property tax savings from successful tax assessment appeals more than offset the increased insurance
and repairs and maintenance costs.
Ontario
Killam’s Ontario portfolio generated 15% of Killam’s apartment same property NOI for the year ended December 31, 2016. The same
property Ontario portfolio achieved 2.0% revenue growth and 2.3% NOI growth in 2016.
The top-line growth was realized from increased rents of 2.1%, a 10 bps gain in occupancy and a 30 bps improvement in bad debt
expense. Total operating expenses increased by only 1.5% in 2016 as savings from lower water consumption and lower natural gas
rates helped to offset increased contract services, repairs and maintenance and property tax expenses.
Newfoundland and Labrador
Killam’s St. John’s portfolio generated 7% of Killam’s apartment same property NOI for the year ended December 31, 2016. Same
property revenue for the St. John’s portfolio increased by 0.8% while NOI declined by 1.3% due to higher operating expenses.
Despite softness in the economy and rental market in St. John's following lower oil prices, the portfolio continues to achieve
revenue growth. A 2.4% increase in rental rates year-over-year was partially offset by a 120 bps decline in occupancy in 2016
compared to 2015. Total same property operating expenses increased by 5.5% in 2016, driven by higher insurance premiums and
an 18% increase in property tax expense as a result of higher tax assessments. These tax assessments are completed in a 3-year
cycle for the region and were effective January 1, 2016.
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20
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Prince Edward Island
Killam’s Charlottetown portfolio represents 7% of apartment same property NOI. Charlottetown achieved 2.2% revenue growth for
the year ended December 31, 2016. Combining net revenue gains with savings in property operating expenses, Charlottetown
recorded 5.1% in NOI growth for 2016.
Revenue growth was attributable to increased rents, up 0.7%, a 30 bps decrease in rental incentive offerings and an 80 bps
improvement in occupancy levels. Total operating expenses decreased 2.1% in 2016 as increases in insurance premiums and
property tax expense were offset by lower oil prices and a milder winter year-over-year.
Alberta
Killam has a 50% interest in a 307-unit building in downtown Calgary that represents 2% of same property apartment NOI for
2016. Overall, Alberta recorded a 18.0% decline in NOI for the year ended December 31, 2016.
Killam's Calgary asset recorded a 12.9% decline in revenue year-over-year as the Alberta rental market continued to soften
further. Average rental rates at this property have decreased 12.3% to $1,188. For 2016, occupancy was 86.8%, a 290 bps
decrease over 2015. The property continues to focus on leasing and targeted marketing campaigns in this challenging market.
Operating expenses were relatively stable, down only 0.1%.
MHC Results
For the years ended December 31,
Total Portfolio
Same Property
Non-Same Property
2016
2015
%
Change
2016
2015
%
Change
Property revenue
$14,715
$14,323
2.7% $14,681
$14,323
2.5%
Property operating expenses
Operating expenses
Utility and fuel expenses
Property taxes
(3,673)
(1,447)
(608)
(3,385)
(1,468)
(586)
Total operating expenses
(5,728)
(5,439)
NOI
$8,987
$8,884
8.5%
(1.4)%
3.8%
5.3%
1.2%
(3,621)
(1,481)
(608)
(3,536)
(1,468)
(586)
(5,710)
(5,590)
$8,971
$8,733
2.4%
0.9%
3.8%
2.1%
2.7%
2016
$34
(52)
34
—
(18)
$16
2015
$—
%
Change
NA
151
(134.4)%
—
—
NA
NA
151
(111.9)%
$151
(89.4)%
Operating margin %
61.1%
62.0% (90) bps
61.1%
61.0% 10 bps
47.1%
NA
NA
Killam's MHC business accounted for 9% of NOI from property operations during the years ended December 31, 2016, and 2015.
Killam's seven seasonal resorts contribute to the MHC segment NOI during the second and third quarters each year.
MHC same property revenue increased $0.4 million or 2.5% in 2016, compared to 2015. This was a result of an increase in the
weighted average rent per site to $242, up from $236 in 2015. Occupancy increased to 97.8%, which was a 30 bps increase from
97.5% in 2015. As well, increased focus on the seasonal campsite rentals in 2016 increased seasonal and transient revenues by
4.4%.
Total same property expenses increased by 2.1%. A milder winter and spring in 2016 resulted in less snow hauling, and capital
upgrades resulted in lower water consumption. This was offset by higher property taxes, repairs and maintenance, salaries and
community events associated with Killam's tenant retention initiatives.
Overall, the MHC portfolio generated same property NOI growth of 2.7% for the year ended December 31, 2016.
4 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
21
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Commercial Results
Killam has a commercial portfolio of four properties in Halifax, Nova Scotia, totaling 248,000 SF. The Brewery Market property
contains 158,000 SF of retail and office space and is adjacent land that Killam is currently developing its 240-unit apartment
building, The Alexander. The Medical Arts building on Spring Garden Road contains 18,000 SF of office space, and Killam plans
to redevelop this property in the future.
Along with the 50% ownership of two commercial properties, including Killam's head office in Halifax, this commercial portfolio
accounted for $2.1 million or 1.9% of Killam's total NOI in 2016, compared to $1.6 million or 1.7% for 2015. Overall occupancy
of this commercial portfolio was 98.9% for 2016, an 80 bps increase from 98.1% in 2015. As well, included in the apartment
segment is an additional 118,000 SF of ancillary commercial space in various residential properties across the portfolio.
PART IV
Other Income and Expenses
Other Income
For the years ended December 31,
Other income includes property management fees, interest on bank account balances, interest on loans receivable and net
revenue associated with the sale of homes in Killam’s MHC segment. The 17.9% decrease year-over-year relates to lower interest
revenue earned, as a $4.0 million mezzanine loan was repaid in August 2016.
2016
$1,227
2015
$1,495
% Change
(17.9)%
Financing Costs
For the years ended December 31,
Mortgage, loan and construction loan interest
Interest on exchangeable units
Amortization of fair value adjustments on assumed debt
Amortization of loss on interest rate hedge
Unrealized gain on derivative liability
Convertible debenture interest
Capitalized interest
2016
2015
% Change
$30,919
$31,808
2,659
(415)
59
(297)
4,178
(910)
—
(570)
59
—
6,836
(1,089)
$36,193
$37,044
(2.8%)
NA
(27.2%)
—%
NA
(38.9%)
(16.4%)
(2.3%)
Financing costs decreased $0.9 million or 2.3% for the year ended December 31, 2016, compared to the year ended December 31,
2015. On conversion to the REIT effective January 1, 2016, Killam had an IFRS requirement to record distributions relating to
exchangeable units as interest expense (see note 2 of consolidated financial statements). Excluding the expense associated with
the exchangeable units, interest expense decreased 9.5%. This decrease was due primarily to the redemption of $57.5 million in
convertible debentures on July 4, 2016, a change in Killam's accounting for the convertible debentures following the REIT
conversion and lower interest rates on refinancings in both 2015 and 2016.
Mortgage and loan interest expense was $30.9 million for the year ended December 31, 2016, down from $31.8 million in 2015, a
decrease of 2.8%. This decrease is attributable to mortgage refinancings at lower interest rates. The average interest rate on
refinancings for 2016 was 2.34%, 186 bps lower than the average interest rate before refinancing.
Interest expense associated with the convertible debentures decreased by $2.7 million for the year ended December 31, 2016. The
decrease was a result of the redemption of $57.5 million of convertible debentures, as well as a change in accounting treatment
related to Killam’s conversion to a REIT. Killam was required to fair value the convertible debentures at the time of conversion, and
Killam elected to measure the convertible debentures at fair value at the end of each period. In 2016, interest expense was
recorded based on the stated interest rate for each convertible debenture compared to the effective interest rate in 2015.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 4 5
22
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Capitalized interest decreased $0.2 million for the year ended December 31, 2016, compared to 2015. Capitalized interest will
vary depending on how many development projects are ongoing and how far along they are in the development cycle. Interest
costs associated with development projects are capitalized to the respective development property until substantial completion.
Killam manages interest rate risk by entering into fixed-rate mortgages and staggering the maturity dates, and may at times enter
into forward interest rate hedges. An annualized 100 bps change in the interest rate on Killam’s mortgage and vendor debt as at
December 31, 2016, would affect financing costs by approximately $10.1 million per year. However, only $73.1 million of Killam’s
fixed mortgage and vendor debt matures in the next twelve months. Assuming these mortgages are refinanced at similar terms,
except at a 100 bps increase/(decrease) in interest rates, financing costs would increase/(decrease) by $0.7 million per year.
Depreciation Expense
For the years ended December 31,
2016
$884
2015
$802
% Change
10.2%
Depreciation expense relates to Killam’s head office building, vehicles, heavy equipment and administrative office furniture,
fixtures and computer software and equipment. Although the vehicles and equipment are used at various properties, they are not
considered part of investment properties and are depreciated for accounting purposes. The increase year-over-year was primarily
due to increased costs associated with upgrades to Killam's accounting and property management software. The upgrades include
an enhanced mobile platform, which will allow for improved operational efficiencies and enhanced leasing capabilities. The
upgrade was completed in September 2016.
Amortization of Deferred Financing Costs
For the years ended December 31,
2016
$1,505
2015
$1,913
% Change
(21.3)%
Deferred financing costs include mortgage assumption fees, application fees and legal costs related to financings and refinancings.
These costs are amortized over the term of the respective mortgage. CMHC insurance fees are amortized over the amortization
period of the mortgage.
Deferred financing amortization decreased 21.3% for the year ended December 31, 2016, as a result of a change in accounting
treatment related to Killam’s convertible debentures upon conversion to the REIT. This change resulted in the write-off of the
remaining deferred financing costs associated with the convertible debentures through retained earnings on January 1, 2016.
This change was required as Killam elected to record the full outstanding amount of each convertible debenture at fair value for
accounting purposes.
Administration Expenses
For the years ended December 31,
Administration (including REIT conversion costs)
REIT conversion costs
Administration (excluding REIT conversion costs)
As a percentage of total revenues
2016
$12,733
(1,548)
$11,185
2015
% Change
$11,898
(1,654)
$10,244
7.0%
(6.4)%
9.2%
6.3%
6.1%
30 bps
Administration expenses include expenses that are not specific to an individual property. These expenses include TSX related
costs, management and head office salaries and benefits, marketing costs, office equipment leases, professional fees and other
head office and regional office expenses. Administration expense for the year ended December 31, 2016 and 2015, includes one-
time costs associated with the REIT conversion.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
For the year ended December 31, 2016, total general and administrative costs, excluding REIT conversion costs, increased $0.9
million or 9.2% compared to the year ended December 31, 2015, primarily driven by an increase of $0.7 million due to higher
non-cash unit-based compensation costs related to restricted trust units (“RTUs”). Vesting was accelerated for the RTU match
component for certain executives as a result of the plan’s retirement clause. The expense related to these units is therefore fully
recognized in the performance period as no further service requirement exists. Previously, the match component of the RTU plan
was expensed for all participants over three years. In 2017, Killam expects to manage general and administration expenses to
approximately 6% of total revenues. The remaining variance relates to increased salary costs and increased advertising initiatives.
During 2016, Killam’s Compensation Committee performed their periodic review of its incentive plan to consider alignment with
industry best practices. The Committee engaged a compensation consultant and is in the process of implementing revisions to
the incentive plan for the 2017 performance period.
Fair Value Adjustment on Investment Property
For the years ended December 31,
2016
2015
% Change
($3,749)
($6,103)
(38.6%)
Killam recorded a fair value loss of $3.7 million in 2016 compared to $6.1 million in 2015. The fair value loss is primarily
attributable to a fair value loss on its 50% ownership of a property in Calgary, due to reduced revenue expectations in that market.
Fair Value Adjustment on Convertible Debentures
For the years ended December 31,
2016
$1,118
2015
$—
% Change
NA
In connection with Killam's conversion to a REIT and the IFRS requirements for convertible debentures redeemable into trust units,
Killam has elected to record the full outstanding amount of its convertible debentures at fair value determined using the closing
trading price. Changes in fair value are recognized in the consolidated statement of income and comprehensive income. For the
year ended December 31, 2016, there was an unrealized gain of $1.1 million (December 31, 2015 - $nil) due to the change in
market price for the remaining $46 million of convertible debentures outstanding. Prior to the conversion to a REIT, the convertible
debentures were classified as other financial liabilities and recorded at amortized cost using the effective interest rate method, net
of deferred financing costs.
Fair Value Adjustment on Unit-based Compensation
For the years ended December 31,
2016
($826)
2015
$—
% Change
NA
Killam’s RTU Plan gives members of the senior executive team and director level employees the right to receive a percentage of their
annual bonus, and non-executive members of the Board of Trustees the right to receive a percentage of their annual retainer, in the
form of RTUs in lieu of cash. The RTUs are intended to facilitate long-term ownership of trust units and align the interests of Trustees
and senior management with those of Unitholders.
As a result of Killam being an open-ended mutual fund trust, whereby each Unitholder of trust units is entitled to redeem their units
in accordance with the conditions specified in Killam’s DOT, under IFRS, the underlying trust units relating to the RTU awards are not
classified as equity and are instead considered financial liabilities. As such, these RTU awards must be presented as liabilities and
remeasured at fair value at each reporting date. For the year ended December 31, 2016, there was an an unrealized loss of $0.8
million (December 31, 2015 - $nil) due to the change in market price of the underlying trust units. Prior to Killam converting to a REIT,
the related RTU expense was limited to the amortization of the fair value of the award over the applicable vesting period and was
included in administration costs within the consolidated statement of income and comprehensive income.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 4 7
24
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Fair Value Adjustment on Exchangeable Units
For the years ended December 31,
2016
($7,774)
2015
$—
% Change
NA
Killam’s exchangeable units were issued effective January 1, 2016, in connection with Killam’s conversion to a REIT. Distributions
paid on exchangeable units are based on the distributions paid to Killam’s Unitholders. The exchangeable units are exchangeable
on a one- for-one basis into trust units at the option of the holder. The fair value of these exchangeable units is based on the
trading price of Killam’s trust units.
In accordance with IFRS, Killam accounts for its exchangeable units as a financial liability and remeasures the liability at each
reporting period, and includes this re-measurement in the consolidated statement of income and comprehensive income. For the
year ended December 31, 2016, there was an unrealized loss on re-measurement of $7.8 million, due to changes in the market
price of the underlying Killam trust units. A description of the key components of the re-measurement of exchangeable units is
included in note 2 of Killam’s consolidated financial statements.
Deferred Tax Expense
Killam converted to a real estate investment trust effective January 1, 2016, and as such, now qualifies as a REIT pursuant to the
Canadian Income Tax Act (the “Tax Act”). The Tax Act contains legislation affecting the tax treatment of publicly traded trusts (the
“SIFT Legislation”) and the criteria for qualifying for the real estate investment trust exemption (the “REIT Exemption”), which
would exempt Killam from income tax under the SIFT Legislation. As such, Killam is now a flow-throw vehicle; therefore, only
deferred taxes of Killam’s corporate subsidiaries are recorded. If Killam fails to distribute the required amount of income to
Unitholders or if Killam fails to qualify as a REIT under the Tax Act, substantial adverse tax consequences may occur. Management
operates Killam in a manner that enables it to continually qualify as a REIT and is expected to distribute all of its taxable income to
Unitholders, and therefore is entitled to deduct such distributions for income tax purposes.
Effective January 1, 2016, Killam recorded the derecognition of a portion of the deferred tax liability in the amount of $40.0
million to reflect the tax status of the Trust as a flow-through vehicle. In Q3-2016, Killam recorded an adjustment to the deferred
tax liability of $1.6 million to reflect a change in allocation. For the year ended December 31, 2016, Killam recorded a net recovery
deferred tax of $27.6 million related to the corporate subsidiary entity of the REIT.
PART V
Per Unit Calculations
As Killam is an open-ended mutual fund trust, Unitholders are entitled to redeem their trust units, subject to certain restrictions. The
impact of this redemption feature causes Killam's trust units to be treated as financial liabilities under IFRS. Consequently, all per unit
calculations are considered non-IFRS measures. The following table explains the number of units used in the calculation of non-IFRS
financial measures on a per unit basis:
For the years ended December 31,
Trust units/common shares
Exchangeable units(1)
Basic number of units/shares
Plus:
Units under option plan
Units under restricted trust unit/restricted share unit plan(2)
Convertible debentures (3)
Dilutive number of units/shares
Weighted Average
Number of Units/Shares (000s)
Outstanding
Number of Units
2016
63,467
4,445
67,912
—
276
5,331
73,519
2015
62,097
—
62,097
82
181
—
2016
67,870
3,866
71,736
—
264
—
62,360
72,000
(1) See note 2 to the accompanying consolidated financial statements for details of the exchangeable units.
(2) See note 2 to the accompanying consolidated financial statements for details of Killam's RTU plan.
(3) The calculation of the diluted weighted average units outstanding includes the convertible debentures as they are dilutive for FFO for the year
ended December 31, 2016. The convertible debentures are excluded for AFFO for the year ended December 31, 2016, and for both FFO and
AFFO for December 31, 2015, as they are anti-dilutive.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Funds from Operations
FFO are recognized as an industry-wide standard measure for real estate entities’ operating performance, and Management
considers FFO per unit to be a key measure of operating performance. The calculation of FFO includes adjustments specific to the
real estate industry applied against net income to calculate a supplementary measure of performance that can be compared with
other real estate companies and real estate investment trusts. REALpac, Canada’s senior national industry association for owners and
managers of investment real estate, has recommended guidelines for a standard industry calculation of FFO based on IFRS. FFO does
not have a standardized meaning under IFRS and therefore may not be comparable to similarly titled measures presented by other
publicly traded companies. Killam calculates FFO in accordance with the REALpac definition with the exception of the add-back of
REIT conversion costs as REALpac does not address this specific type of adjustment. FFO for the years ended December 31, 2016, and
2015, are determined as follows:
For the years ended December 31,
Net income
Fair value adjustment on convertible debentures
Fair value adjustment on unit-based compensation
Fair value adjustment on exchangeable units
Fair value adjustment on investment properties
Loss on disposition
Non-controlling interest
Deferred tax (recovery) expense
Interest expense related to exchangeable units
Unrealized gain on derivative liability
Depreciation on owner-occupied building
REIT conversion costs
FFO
FFO unit/share - basic
FFO unit/share - diluted(1)
FFO (including effect of debenture conversions for diluted calculation)
Weighted average number of units/shares - basic (000s)
2016
2015
% Change
$71,439
$35,800
99.6%
(1,118)
826
7,774
3,749
264
(531)
(27,598)
2,659
(297)
171
1,548
—
—
—
6,103
109
(1,058)
6,216
—
—
192
1,654
$58,886
$49,016
$0.87
$0.86
$63,063
67,912
$0.79
$0.79
—
62,097
—%
—%
—%
(38.6%)
142.2%
(49.8%)
(544.0%)
—%
—%
(10.9%)
(6.4%)
20.1%
10.1%
8.9%
—
9.4%
Weighted average number of units/shares - diluted (000s)
(1) The calculation of weighted average units outstanding for diluted FFO includes the convertible debentures for the year ended December 31,
73,519
62,360
17.9%
2016, as they are dilutive, and excludes the convertible debentures for the year ended December 31, 2015, as they are anti-dilutive.
Killam earned FFO of $58.9 million, or $0.86 per unit (diluted) for the year ended December 31, 2016, compared to $49.0 million, or
$0.79 per share (diluted), for the year ended December 31, 2015. The increase in FFO is attributable to contributions from
acquisitions and completed developments ($3.0 million), same property NOI growth of 4.0% ($3.7 million), interest expense savings
on refinancings at lower interest rates ($1.6 million), interest and deferred financing expense savings due to the change in accounting
treatment of the convertible debentures on conversion to the REIT ($1.1 million), interest expense savings on the redemption of the
5.65% convertible debentures ($1.6 million), as well as the early pay-out of a head lease ($0.4 million). These increases were offset
by an increase in administration expense ($0.9 million) due mainly to accelerated vesting of RTUs for certain participants, as a result
of the RTU plan’s retirement clause, and reduction in corporate income ($0.4 million). FFO per unit was impacted by a 9.4% increase
in the number of weighted average units outstanding.
FFO have been adjusted for costs incurred for the years ended December 31, 2016, and 2015 to complete the conversion from a
corporation to a REIT effective January 1, 2016. These costs were unique to Killam’s corporate structure and therefore have been
removed for FFO purposes.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Adjusted Funds from Operations
AFFO is a non-IFRS supplemental measure used by real estate analysts and investors to represent FFO after taking into consideration
the capital spend related to maintaining the earning capacity of a portfolio. AFFO may not be comparable to similar measures
presented by other real estate trusts or companies. Management believes that significant judgment is required to determine the
annual capital expenditures that relate to maintaining earning capacity of an asset compared to the capital expenditures that will
lead to higher rents or more efficient operations.
Details of Killam's total actual capital expenditures by category are included in the Capital Improvements section on page 54 and
Killam's sources of funding are disclosed in the Liquidity and Capital Resources section on page 57.
In order to provide investors and other stakeholders with information to assist in assessing Killam's payout ratio, Management has
calculated AFFO using $450 per apartment unit for maintenance capital expenditures, which is in the range for AFFO calculations for
the multi-family sector. The MHC industry does not have a standard amount for “maintenance” related capital expenditures.
Management has assumed $100 per MHC site as an estimate of non-NOI enhancing capital expenditures per MHC site. The weighted
average number of rental units owned during the year was used to determine the capital adjustment applied to FFO to calculate
AFFO.
For the years ended December 31,
FFO
Maintenance Capital Expenditures
Apartments
MHCs
AFFO
AFFO per unit/share - basic
AFFO per unit/share - diluted(1)
AFFO payout ratio (2)
2016
2015
% Change
$58,886
$49,016
20.1%
(6,023)
(516)
(5,861)
(516)
$52,347
$42,639
$0.77
$0.77
78%
$0.69
$0.68
2.8%
—%
22.8%
11.6%
13.2%
88%
(1,000) bps
Weighted average number of units/shares - basic (000s)
67,912
62,097
9.4%
9.3%
Weighted average number of units/shares - diluted (000s)
(1) The calculation of weighted average units/shares outstanding for diluted AFFO excludes the convertible debentures for the years ended December
68,188
62,360
31, 2016, and 2015 as they are anti-dilutive.
(2) Based on Killam's annualized distribution/dividend of $0.60 for the years ended December 31, 2016, and 2015.
Killam's Annual Dividend Distribution & AFFO Payout Ratio
AFFO payout ratio
Dividend distribution
$0.60
$0.60
$0.60
$0.58
$0.58
$0.60
$0.59
$0.58
$0.57
$0.56
96%
90%
84%
78%
72%
2012
2013
2014
2015
2016
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Cash Generated from Operating Activities to AFFO Reconciliation
In compliance with Canadian Securities Administrators Staff Notice 52-306 (Revised), "Non-GAAP Financial Measures", the table
below reconciles cash generated from operating activities to AFFO.
For the years ended December 31,
Cash generated from operating activities
Adjustments:
Net change in non-cash operating activities
Non-controlling interest
Non-cash compensation expense
Interest expense related to exchangeable units
Unrealized gain on derivative liability
REIT conversion costs
Depreciation and amortization (net of depreciation on owner-occupied building)
Provision for maintenance property capital investments
2016
$63,584
2015
% Change
$50,947
24.8%
(4,963)
(531)
(896)
2,659
(297)
1,548
(2,220)
(6,537)
312
(1,690.7)%
(1,058)
(316)
—
—
1,654
(2,523)
(6,377)
(49.8)%
183.5%
—
—
(6.4)%
(12.0)%
2.5%
22.8%
AFFO
$52,347
$42,639
Distribution Reinvestment Plan ("DRIP") and Net Distributions Paid
For the years ended December 31,
Distributions declared on trust units/common shares
Distributions declared on exchangeable units
Distributions declared on awards outstanding under RTU/RSU plan
Total distributions declared
Less:
Distributions on trust units reinvested
Distributions on RTU/RSUs reinvested
Net distributions paid
Percentage of distributions reinvested
2016
2015
% Change
$38,328
$37,488
2,659
114
—
106
$41,101
$37,594
(6,849)
(114)
(7,299)
(106)
$34,138
$30,189
16.9%
19.7%
2.2%
— %
7.5%
9.3%
(6.2)%
7.5%
13.1%
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 5 1
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
PART VI
Investment Properties
As at December 31,
Investment properties
Investment properties under construction ("IPUC")
Continuity of Investment Properties
For the years ended December 31,
Balance, beginning of year
Acquisition of properties(1)
Disposition of properties
Transfer to IPUC
Transfer from IPUC
Capital expenditures
Fair value adjustment - Apartments
Fair value adjustment - MHCs
Fair value adjustment - Other
Balance, end of year
2016
2015
% Change
$1,887,302
$1,794,580
55,507
45,676
$1,942,809
$1,840,256
5.2%
21.5%
5.6%
2016
2015
% Change
$1,794,580
$1,693,055
48,214
(8)
—
15,490
32,775
(9,188)
5,896
(457)
41,924
—
(2,300)
36,147
31,857
(6,837)
734
—
$1,887,302
$1,794,580
6.0%
15.0%
—%
(100.0)%
(57.1)%
2.9 %
34.4 %
703.3 %
— %
5.2%
(1) The acquisition of the remaining 51% interest in Garden Park Apartments in June 2016 is not reflected in the acquisition of properties in the table
above since the property was already recorded at 100% as Killam had control over the property.
The key valuation assumption used to determine the fair market value, using the direct capitalization method, is the cap-rate. A
summary of the high, low and weighted average cap-rates used in the valuation model as at December 31, 2016 and 2015, as
provided by Killam's external valuator, is as follows:
Capitalization Rates
Apartments
MHCs
December 31, 2016
December 31, 2015
Low
4.12%
5.75%
High
8.00%
8.00%
Effective
Weighted
Average
5.49%
6.81%
Low
4.12%
5.75%
High
8.00%
8.00%
Effective
Weighted
Average
5.52%
6.82%
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29
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
2016 Acquisitions - Investment Properties
Location
Acquisition Date
Year Built
Units
Purchase Price(1)
Property
Apartments
Kanata Lakes III(2)
270 Parkside Drive
Garden Park Apartments(3)
960/970/980 Cheapside Street
Ottawa
Fredericton
Halifax
London
298 Fairview Avenue & 1447 Trafalgar Street
London
Other
Vacant Land
Vacant Land(4)
Total Acquisitions
Halifax
Halifax
10-Jun-16
17-Jun-16
30-Jun-16
22-Dec 16
22-Dec-16
2-Feb-16
24-Nov-16
2015
1979
1979
1960
1960/1965
173
28
128
113
40
482
$31,123
1,770
23,724
10,250
3,150
340
1,160
$71,517
(1) Purchase price does not include transaction costs.
(2) Purchase price represents 50% ownership in a 173-unit building, which includes 2,712 SF of commercial space and a 25% interest in a shared
clubhouse. This building is part of a five-building complex. Killam and its 50/50 partner now own three of the buildings and have the two remaining
buildings under contract with closings scheduled for Q1-2017.
(3) Purchase price represents Killam's acquisition of the remaining 51.02% interest in Garden Park Apartments. Post acquisition, Killam has a 100%
interest in the 246-unit building, which includes 8,159 SF of commercial space.
(4) Purchase price represents Killam's acquisition of remaining 50% interest in vacant land adjacent to the Brewery Market and The Alexander
development.
Investment Properties Under Construction
For the years ended December 31,
Balance, beginning of period
Capital expenditures
Interest capitalized
Land acquisitions
Land dispositions
Transfer from investment properties
Transfer to investment properties
Balance, end of period
2016
$45,676
24,411
910
—
—
—
(15,490)
$55,507
2015
% Change
$40,840
20,764
1,089
17,973
(1,143)
(36,147)
2,300
$45,676
11.8 %
17.6%
(16.4)%
(100.0)%
(100.0)%
(100.0)%
(773.5)%
21.5%
Killam currently has two projects under development. Killam has continued to expand its development program as it has recently
been able to generate yields in the range of 75-100 bps higher than available on the acquisition of similar quality assets. Killam's new
developments typically have higher operating margins, in the range of 70% as compared to 50%-60% on older stock, and also require
a lower annual capital spend. Killam's development program also enables quality control during construction and also allows Killam
to maximize its return on excess land within the portfolio.
Killam completed construction of the 142-unit Southport development, located in downtown Halifax, on September 1, 2016. Killam
owns a 50% interest in the project, representing 70 rental units and 1,880 SF of commercial space. The remaining 72 units are condo
units. Killam's construction cost for the development was $14.7 million ($210,000 per unit) resulting in an all-cash yield of
approximately 5.5%, an approximate 75 bps premium over the yield anticipated on acquisitions of similar quality assets. Southport's
lease-up exceeded Management's expectations and was fully leased within three months of opening. Killam did not provide any
rental incentives or discounts as part of the lease-up and also earned full parking rates.
Killam and its 50% partner began construction in downtown Halifax on a 240-unit building, The Alexander, late in the third quarter of
2015 and the project is expected to be completed in Q1-2018. The cost to develop is approximately $70.2 million ($290,000 per unit)
resulting in an expected all-cash yield of approximately 5.5%, an approximate 75 bps premium over the yield anticipated on
acquisitions of similar quality assets. As of December 31, 2016, Killam had invested $11.5 million in the project, representing its 50%
equity interest. Construction financing was obtained for the remainder of the project costs and the first loan draw took place in
November 2016. As Killam has control over the development for accounting purposes, 100% of the costs are included in IPUC.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 5 3
30
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
During Q3-2016 Killam commenced construction on a 93-unit, seven-story development in Cambridge, ON. The development is
adjacent Killam's 122-unit building, Saginaw Gardens, which was completed in June 2015. The new building will include underground
parking, a guest suite, fitness facility and tenant lounge. The units are expected to be approximately 30 SF larger than Saginaw
Gardens. The project is expected to cost approximately $25.0 million ($269,000 per unit) resulting in an all-cash yield of
approximately 5.4%, an approximate 65 bps premium over the yield anticipated on acquisitions of similar quality assets.
During Q4-2016, Killam acquired the remaining 50% interest in land adjacent to The Alexander development for $1.16 million. Killam
now has 100% ownership over the 42-unit development project.
As noted below, Killam has a robust development pipeline. Future developments that may begin in late 2017 or early 2018 include
Carlton Towers, an 18-storey, 104-unit development adjacent Killam's Spring Garden Terrace apartments in downtown Halifax. Killam
is also in the design and approval stage for its Silver Spear II development on excess land adjacent its 199-unit building in
Mississauga, ON. Killam will have a 50% ownership in the 12-storey, 128-unit development.
Killam has the following land available for future development:
Property
Silver Spear(1)
Spring Garden Terrace Land
The Governor
Carlton Houses
Medical Arts (Spring Garden)
1335 Hollis Street
Block 4
Topsail Road
Grid 5 vacant land(1)
Location
Mississauga, ON
Halifax, NS
Halifax, NS
Halifax, NS
Halifax, NS
Halifax, NS
St. John's, NL
St. John's, NL
Calgary, AB
Total Development Opportunities
(1) Represents Killam's 50% interest in the potential development units.
Capital Improvements
Development
Potential
(# of Units)
Status
In design and approval process
Approved development agreement
As of right
Future development
Future development
Future development
As of right
Approved development agreement
Future development
64
104
42
70
200
30
80
225
198
1,013
Killam invests capital to maintain and improve the operating performance of its properties. During the year ended December 31,
2016, Killam invested a total of $32.8 million in its portfolio, compared to $31.9 million for the year ended December 31, 2015.
For the years ended December 31,
Apartments
MHCs
Commercial
2016
2015
% Change
$30,139
$28,511
2,098
538
2,285
1,061
$32,775
$31,857
5.7%
(8.2)%
(49.3)%
2.9%
5 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
31
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Apartments - Capital Spend
A summary of the capital spend on the apartment segment is included below:
For the years ended December 31,
Building improvements
Suite renovations
Appliances
Boilers and heating equipment
Other
Equipment
Parking lots
Land improvements
Total capital spend
Average number of units outstanding
Capital spend - $ per unit
2016
2015
% Change
$17,103
$16,052
10,335
1,219
821
367
227
33
34
9,701
944
1,335
210
218
40
11
$30,139
$28,511
13,371
$2,254
13,171
$2,165
6.5%
6.5%
29.1%
(38.5)%
74.8%
4.1%
(17.5)%
209.1%
5.7%
1.5%
4.1 %
Annual capital investment includes a mix of maintenance capital and value enhancing upgrades. Maintenance capital varies with
market conditions and relates to investments that are not expected to lead to an increase in NOI, or increased efficiency, of a
building; however, it is expected to extend the life of a building. Examples of maintenance capital include roof and window repairs/
replacements and is in addition to regular repairs and maintenance costs that are expensed to NOI. Value enhancing upgrades are
investments in the properties that are expected to result in higher rents and/or increased efficiencies. These include unit and
common area upgrades and energy and water saving investments.
Average Capital Spend Per Unit by Building Age
For the years ended December 31
$4,000
$3,000
$2,000
$1,000
$0
2013
2014
2015
2016
0-10 years
11-20 years
21-30 years
31- 40 years
41 + years
As the above chart highlights, the capital spend per unit is less for newer (built in the past 10 years) properties, averaging $846 per
unit in 2016, compared to $2,620 per unit for buildings over 40 years old. Killam's focus on development and acquiring newer
properties results in a lower capital spend per unit versus acquiring older properties. Twenty-six percent of Killam's apartments, as a
percentage of anticipated 2017 NOI, have been built in the past ten years.
Killam invested $2,254 per unit for the year ended December 31, 2016, compared to $2,165 per unit for year ended December 31,
2015. Of the $30.1 million capital investment made in the apartment segment, approximately 57% was invested in building
improvements including common area renovations and energy efficiency investments to increase the quality of Killam's portfolio.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 5 5
32
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Killam has continued to complete energy efficiency projects across its portfolio. These value enhancing upgrades are investments
that are designed to decrease the energy intensity of the portfolio. In 2016, approximately $1.6 million was invested in ultra low-
flow toilets (estimated $0.5 million annualized savings with a 2.9 year payback), common area lighting retrofits (estimated $0.1
million in annualized savings with a 2.4 year payback) and the implementation of various condensed gas boiler controls and
upgrades.
Killam's 2017-2021 energy strategy has identified over $25 million in potential efficiency related opportunities with an average
payback of four years. This comprises over 700 projects with an estimated annual savings up to $7 million. At a 5% average cap-
rate, these savings could increase the net asset value of Killam's portfolio by $140 million.
As shown in the following chart, Killam has committed to doubling its energy investment in 2017, and in each of the following
four years, to over $3 million annually. This will allow Killam to decrease its energy intensity from its current $1.40 per SF to $1.10
per SF, a 23% decrease, by the end of 2021. Killam's energy intensity measures all energy sources (including water) used within its
properties, which is converted to one common measurement of dollars per SF. This $0.30 decline is an estimated $4.3 million in
annual energy costs, which will more than offset rising energy rates and other operating pressures.
Five Year Plan 2017-2021
Energy Project Budget and Energy Intensity $/SF
j
t
e
g
d
u
B
t
c
e
o
r
P
y
g
r
e
n
E
$3,750
$3,000
$2,250
$1,500
$750
$1.50
$1.40
$1.30
$1.20
$1.10
$1.00
)
F
S
/
$
(
y
t
i
s
n
e
t
n
I
y
g
r
e
n
E
2015
2016
2017
2018
2019
2020
2021
Actual Cost (000s)
Total Project Cost (000s)
Energy Intensity ($/SF)
Approximately 34% of the apartment capital investment in 2016 was invested in suite renovations. Killam continues to focus on
unit upgrades to maximize occupancy and rental increases.
Killam also continues to reposition properties that show significant value creation opportunities by upgrading suites and
generating increased NOI through higher rents. As an example, Garden Park Apartments in Halifax, the property that Killam now
owns 100%, was identified as a property with potential for repositioning and rental growth. In 2016, Killam completed 43 unit
renovations at this property with capital spending averaging $15,000 per unit turn, which includes new flooring, kitchen and
bathroom upgrades. These upgrades have achieved rental increases of approximately 22%, or $190 per month, and an average
return on investment of 16%. Killam expects to complete an additional 40-60 unit upgrades over the course of the next 24 months
as turnover permits.
The timing of capital spending is variable and is influenced by tenant turnover, market conditions and individual property
requirements. In addition, the length of time that Killam has owned a property and the age of the property also impacts capital
requirements.
Killam expects to invest between $33-35 million during 2017 on capital investments across its apartment portfolio.
5 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
33
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
MHCs - Capital Spend
A summary of the capital spend on the MHC segment is included below:
For the years ended December 31,
Water and sewer upgrades
Site expansion and land improvements
Other
Roads and paving
Equipment
Total capital spend - MHCs
Average number of units outstanding
Capital spend - $ per site
2016
$993
512
438
127
28
$2,098
5,165
$406
2015
$1,236
261
410
302
76
$2,285
5,165
$442
% Change
(19.7)%
96.2%
6.8%
(57.9)%
(63.2)%
(8.2)%
—%
(8.1)%
Management expects to invest between $300 - $500 in capital per MHC site on an annual basis. As with the apartment portfolio, a
portion of the MHC capital is considered maintenance capital and a portion is considered value enhancing. Management estimates
that $100 per unit is allocated to maintenance capital, including costs to support the existing infrastructure, and the remaining
amount increases the value of the properties, with improved roadways, ability to accommodate future expansion, and community
enhancements, such as the addition of playgrounds. The cost of most capital projects will be recovered through above guideline
increases in the provinces with rent control, leading to increased NOI from the investments.
The reduction in capital spend for the year ended December 31, 2016, compared to 2015 is based on timing of projects.
As with the apartment portfolio, the timing of MHC capital investment changes based on requirements at each community. Killam
expects to invest between $1.0-$3.0 million during 2017 on capital investments across its MHC portfolio.
Loan Receivable
On July 5, 2016, Killam received full repayment of the $4.0 million loan receivable outstanding. The mezzanine loan was issued in
May 2014 to a third-party developer for the construction of a multi-family residential property and earned interest at prime plus
7.0% or a minimum of 10.0%, paid quarterly.
Liquidity and Capital Resources
Management ensures there is adequate overall liquidity to fund major property improvements and property maintenance, debt
principal and interest payments, distributions to Unitholders and property acquisitions and developments. Killam’s sources of capital
include: (i)cash flows generated from operating activities; (ii) cash inflows from annual mortgage refinancings; (iii) mortgage debt
secured by investment properties; (iv) secured revolving demand credit facilities with two Canadian chartered banks; and (v) equity
and debt issuances.
Management expects to have sufficient liquidity for the foreseeable future based on its evaluation of capital resources as
summarized below:
(i)
(ii)
(iii)
(iv)
Cash flows from operating activities are expected to be sufficient to fund the current level of distributions.
Killam has a $30 million revolving demand credit facility to be used for Killam’s acquisition and development program,
as well as general business purposes. There is currently no balance drawn on the credit facility.
Killam’s available credit facilities and cash on hand provide Killam with approximately $45 million of capital for future
acquisitions and developments. Based on 60% mortgage debt on acquisitions, the capital is expected to support
future acquisitions of approximately $112 million.
A combination of the retained portion of its annual FFO and AFFO, mortgage refinancings, and the available borrowing
capacity of its revolving demand credit facilities is expected to be sufficient to fund ongoing property capital
investments, principal repayments and developments.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 5 7
34
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
(v)
Killam is well positioned to meet its mortgage renewals and refinancing goals for 2017 due to the continued
availability of CMHC insured financing. Management does not anticipate any difficulties in completing the renewal of
mortgages maturing during 2017 of approximately $71.5 million, which have effective interest rates of approximately
3.69%.
Killam is in compliance with all financial covenants contained in the DOT and credit facilities. Under the DOT, total indebtedness of
Killam is limited to 70% of gross book value determined as the greater of (i) the value of the assets of Killam as shown on the most
recent consolidated statement of financial position and (ii) the historical cost of the assets of Killam. Killam's total debt as a
percentage of assets as at December 31, 2016 was 53.5%.
Mortgages and Other Loans
Below are Killam's key debt metrics:
As at,
December 31, 2016
December 31, 2015
Change
Weighted average years to debt maturity (years)
Gross mortgage, loan and vendor debt as a percentage of total assets
Total debt as a percentage of total assets
Interest coverage
Debt service coverage
Debt to EBITDA
Weighted average mortgage interest rate
Weighted average interest rate of total debt
4.3
51.2%
53.5%
2.74x
1.43x
11.14x
3.01%
3.11%
4.2
51.1%
56.4%
2.34x
1.35x
11.73x
3.27%
3.60%
0.1
10 bps
(290) bps
40 bps
8 bps
(59) bps
(26) bps
(49) bps
Killam’s long-term debt consists largely of fixed-rate, long-term mortgage financings. In certain cases, Killam will also utilize vendor-
take-back mortgages as part of an acquisition. Mortgages are secured by a first or second charge against individual properties, and
the vendor financing is secured by a general corporate guarantee.
Killam’s December 31, 2016, weighted average interest rate on mortgages improved to 3.01% from 3.27% as at December 31,
2015, as a result of refinancing at lower interest rates during the year. This trend is expected to continue over the next 12
months with $71.5 million of mortgage balances maturing at rates above current mortgage interest rates.
Refinancings
For the year ended December 31, 2016, Killam refinanced the following mortgages:
Apartments
MHCs
Mortgage Debt
Maturities
$117,144
2,903
$120,047
4.18%
5.07%
4.20%
Mortgage Debt
on Refinancing
$179,384
7,251
$186,635
2.30%
3.29%
2.34%
Weighted
Average Term
6.7 years
5.0 years
6.5 years
Net Proceeds
$62,240
4,348
$66,588
5 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
The following table sets out the maturity dates and average interest rates of mortgage and vendor debt, and the percentage of
apartment mortgages that are CMHC-insured by year of maturity:
Apartments
MHC
Total
Year of
Maturity
Balance
December 31,
2016
Weighted Avg
Int. Rate %
% CMHC
Insured
Balance
December 31,
2016
Weighted Avg
Int. Rate %
Balance
December 31,
2016
Weighted Avg
Int. Rate %
2017
2018
2019
2020
2021
2022
2023
Thereafter
$57,370
88,597
169,192
188,414
132,755
31,760
93,562
190,724
$952,374
3.42%
3.64%
2.81%
2.56%
2.59%
3.18%
3.28%
3.00%
2.94%
43.3%
40.6%
96.6%
57.4%
84.3%
70.2%
84.4%
100.0%
77.3%
$15,715
11,629
18,886
6,960
7,145
—
—
—
4.66%
4.33%
3.85%
3.52%
3.30%
—
—
—
$73,085
100,226
188,078
195,374
139,900
31,760
93,562
190,724
$60,335
4.05%
$1,012,710
3.69%
3.72%
2.91%
2.59%
2.62%
3.18%
3.28%
3.00%
3.01%
(1) Excludes $16.2 million related to demand loans classified as current mortgage debt on the December 31, 2016, consolidated financial
statements.
Apartment Mortgages Maturities by Year
Amount maturing ($)
Weighted average interest rate (%)
3.42%
3.64%
2.81%
2.56%
2.59%
3.18%
3.28%
3.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
e
t
a
R
t
s
e
r
e
t
n
I
)
M
$
(
s
e
i
t
i
r
u
t
a
M
e
g
a
g
t
r
o
M
200
180
160
140
120
100
80
60
40
20
0
2017
2018
2019
2020
2021
2022
2023
thereafter
As at December 31, 2016, approximately 77% of Killam’s apartment mortgages were CMHC-insured (73% of total mortgages as MHC
mortgages are not eligible for CMHC insurance) (December 31, 2015 – 73% and 69%). The weighted average interest rate on the
CMHC-insured mortgages was 2.80% as at December 31, 2016 (December 31, 2015 – 3.01%).
Access to mortgage debt is essential in financing future acquisitions and in refinancing maturing debt. Management has intentionally
diversified Killam’s mortgages to avoid dependence on any one lending institution and has staggered the maturity dates of its
mortgages to manage interest rate risk. Management anticipates continued access to mortgage debt for both new acquisitions and
refinancings. Access to CMHC-insured financing gives apartment owners an advantage over other asset classes, as lenders are
provided a government guarantee on the debt and therefore are able to lend at more favourable rates.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 5 9
36
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
The following tables present the NOI for properties that are available to Killam to refinance at debt maturity in 2017 and 2018:
2017 Debt Maturities
Apartments with debt maturing
MHCs with debt maturing
2018 Debt Maturities
Apartments with debt maturing
MHCs with debt maturing
Number of
Properties
Estimated NOI
Principal Balance
(at maturity)
13
9
22
$7,411
2,787
$10,198
$56,352
15,151
$71,503
Number of
Properties
Estimated NOI
Principal Balance
(at maturity)
19
9
28
$9,523
802
$10,325
$84,093
10,604
$94,697
Future Contractual Debt Obligations
As at December 31, 2016, the timing of Killam's future contractual debt obligations is as follows:
For the year ending December 31,
2017
2018
2019
2020
2021
Thereafter
Convertible Debentures
Mortgage
and Loans
Payable
$111,862
125,005
196,479
193,097
131,931
261,741
Construction
Loans
Convertible
Debentures
Total
$9,719
8,790
—
—
—
—
$—
$121,581
46,000
—
—
—
—
179,795
196,479
193,097
131,931
261,741
$1,020,115
$18,509
$46,000
$1,084,624
On July 4, 2016, Killam completed the redemption of the $57.5 million, 5.65%, convertible unsecured debentures.
Killam’s remaining $46.0 million convertible unsecured subordinated debentures mature on June 30, 2018, bear interest at
5.45% and are convertible, at the holders’ option, to trust units at a price of $14.60. As of December 31, 2016, the debentures
are redeemable at face value. Upon maturity or redemption, Killam may elect to repay all or any portion of the debentures
outstanding by issuing the number of trust units obtained by dividing the aggregate of the principal amount of the debentures
that have matured or are being redeemed by 95% of the weighted average market price of the trust units for the preceding 20
days (ending five days preceding the fixed date for redemption or maturing). Management may redeem the remaining
convertible debentures with equity in the future and thereby further reduce Killam’s debt levels. Replacing the convertible
debentures with equity would reduce Killam's debt levels further, to below 52%.
Construction Loans
As at December 31, 2016, Killam had access to two floating rate non-revolving demand construction loans for the purpose of
financing development projects for $10.1 and $51.8 million. The $51.8 million construction loan relates to a joint development
project where Killam has a 50% interest. Payments are made monthly on an interest only basis. The construction loans have
interest rates of prime plus 0.625% - 0.75%.
As at December 31, 2016, $18.5 million (December 31, 2015 - $4.1 million) was drawn on the construction loans at a weighted
average interest rate of 3.39% (December 31, 2015 - 3.45%). The construction loan related to the Southport development project
for $9.7 million is expected to be repaid in full and replaced with a conventional mortgage in the first quarter of 2017. The
construction loan related to the Alexander development project is expected to be replaced with a conventional mortgage once
construction is completed and rental targets are achieved.
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37
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Credit Facilities
On July 20, 2016, Killam increased its $2.0 million revolving demand facility to $30.0 million. This facility can be used for
Killam’s acquisition program and general business purposes. The interest rate on this debt is prime plus 75 bps on prime rate
advances or 175 bps over banker’s acceptances (BAs). Killam has the right to choose between prime rate advances and BAs
based on available rates and timing requirements. At year-end 2016, Killam has assets with a carrying value of $46.4 million
pledged to the line and a balance outstanding of $nil. The agreement includes certain covenants and undertakings with
which Killam is in compliance.
Killam also has a $1.5 million revolving demand facility that can be used for Killam’s acquisition program and for general
business purposes. The interest rate on the debt is prime plus 175 bps on advances and 135 bps on issuance of letters of
credit in addition to 50 bps per annum. As at December 31, 2016, Killam had assets with a carrying value of $1.8 million
pledged as collateral and letters of credit totaling $1.2 million outstanding against the facility (December 31, 2015 - $1.5
million). The agreement includes certain covenants and undertakings, with which Killam is in compliance.
Unitholders’ Equity
Unitholders' equity represents the issued and outstanding trust units, including any units issued in connection with unit-based
incentive plans, as they have claims similar or identical to those of the trust units. Unitholders' equity excludes the exchangeable
units.
Under the reorganization of Killam to a real estate investment trust, the former Shareholders of the Corporation received trust
units or exchangeable units. The interests in Killam Apartment REIT are represented by two classes of units: a class described and
designated as "trust units", and a class described and designated as "special voting units". The special voting units are used to
provide voting rights to holders of exchangeable units that are exchangeable for trust units. The exchangeable units are classified
as a financial liability in accordance with IAS 32 and are discussed in note 2 of the consolidated financial statements.
By virtue of Killam being an open-ended mutual fund trust, Unitholders of trust units are entitled to redeem their trust units at
any time at prices determined and payable in accordance with the conditions specified in Killam’s DOT. As a result, under IFRS,
trust units are defined as financial liabilities; however, for the purposes of financial statement classification and presentation, the
trust units may be presented as equity instruments as they meet the puttable instrument exemption under IAS 32.
All trust units outstanding are fully paid, have no par value and are voting trust units. The DOT authorizes the issuance of an
unlimited number of trust units. Trust units represent a Unitholder’s proportionate undivided beneficial interest in Killam. No trust
unit has any preference or priority over another. No Unitholder has or is deemed to have any right of ownership in any of the
assets of Killam. Each unit confers the right to one vote at any meeting of Unitholders and to participate pro rata in any
distributions and, on liquidation to a pro rata share of the residual net assets remaining after preferential claims thereon of
debtholders.
Unitholders have the right to redeem their units at the lesser of (i) 90% of the market price of the trust unit (market price is
defined as the weighted average trading price of the previous 10 trading days) and (ii) the most recent closing market price
(closing market price is defined as the weighted average trading price on the specified date) at the time of the redemption. The
redemption price will be satisfied by cash, up to a limit of $50 thousand for all redemptions in a calendar month, or a note
payable. For the year ended December 31, 2016, no Unitholders redeemed units.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 6 1
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
PART VII
Quarterly Results & Discussion of Q4 Operations
Summary of Quarterly Results
An eight quarter trend highlighting key operating results is shown below:
Property revenue
NOI
Net income
Earnings per share - diluted(1)
FFO
FFO per unit/share - diluted
AFFO per unit/share - diluted
2016
2015
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$44,137 $45,078 $43,847
$42,207 $42,433 $43,193 $41,452 $39,536
$26,372 $28,350 $27,270 $23,430 $25,361 $27,178 $25,196 $20,655
$4,638 $17,966
$3,666 $45,169
$8,069 $11,620
$8,942
$7,169
$—
$—
$—
$—
$0.12
$0.17
$0.14
$0.11
$15,223 $17,021 $15,133 $11,509 $12,403 $14,779 $12,912
$8,922
$0.21
$0.19
$0.24
$0.21
$0.23
$0.20
$0.18
$0.16
$0.20
$0.17
$0.24
$0.21
$0.21
$0.18
$0.15
$0.12
Weighted average units/shares - diluted (000s)
75,022
75,045
73,361
63,184
62,951
70,104
62,360
61,035
(1) Upon conversion to a REIT, Killam is no longer required to disclose earnings per share.
Killam's total property revenue for the three months ended December 31, 2016, was $44.1 million, a 4.0% increase in revenue over
the same period of 2015. The growth was generated through revenue from acquisitions and developments, as well as increased
same property revenue. Total property expenses increased 4.1% in Q4-2016 compared to Q4-2015 as a result of expenses associated
with the addition of new acquisitions and completed developments.
Q4 Same Property NOI
For the three months ended December 31,
Total Portfolio
Apartments
MHCs
2016
2015
%
Change
2016
2015
%
Change
2016
2015
%
Change
Property revenue
$40,728
$39,998
1.8% $37,425
$36,767
1.8%
$3,303
$3,231
2.2%
Property operating expenses
Operating expenses
Utility and fuel expenses
Property taxes
(6,904)
(5,052)
(4,615)
(6,493)
(5,205)
(4,575)
6.3 %
(2.9)%
0.9 %
(5,973)
(4,722)
(4,453)
(5,667)
(4,893)
(4,427)
Total property expenses
(16,571)
(16,273)
1.8 % (15,148)
(14,987)
NOI
$24,157
$23,725
1.8% $22,277
$21,780
5.4 %
(3.5)%
0.6 %
1.1 %
2.3%
(931)
(330)
(162)
(826)
(312)
(148)
(1,423)
(1,286)
$1,880
$1,945
12.7 %
5.8 %
9.5 %
10.7 %
(3.3)%
Operating margin
59.3%
59.3%
—
59.5%
59.2%
30 bps
56.9%
60.2% (330) bps
Apartment Same Property
Killam’s same property apartment portfolio realized NOI growth of 2.3% for Q4-2016 due to a 1.8% increase in net revenues along
with a modest increase in total property operating expenses of 1.1%. Net apartment revenue growth of 1.8%, or $0.7 million,
quarter-over-quarter is the result of increased rental rates of 1.6% and a 40 bps increase in occupancy. The same property portfolio
achieved 96.1% occupancy during the fourth quarter of 2016.
Operating expenses increased 5.4% in the fourth quarter due to higher contract service costs, increased salaries and additional
advertising spend. Contract services increased as a result of higher snow removal contract pricing in certain regions for the 2016-17
winter season and early winter weather that required additional hauling in parts of Newfoundland and Ontario. Salary costs
increased as Management rolled out a new scorecard compensation program for the majority of property-level employees, adjusting
the timing of salary costs quarter-over-quarter. Higher advertising costs related to an increase in community events, as a part of
Killam's tenant retention program.
6 2 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Utility and fuel expenses decreased 3.5% in Q4-2016 compared to Q4-2015. Natural gas expense savings were realized due to
warmer weather and overall lower variable natural gas pricing predominately in Nova Scotia and Ontario. Water expense decreased
by 2.7% despite pricing increases quarter-over-quarter as Killam achieved water consumption savings from its low-flow toilet
installations across many properties.
Property taxes increased a modest 0.6% due to successful tax appeals offsetting rising property tax assessments and rates.
Q4-2016 Occupancy by Region
For the three months ended December 31,
Halifax, NS
Moncton, NB
Fredericton, NB
Saint John, NB
St. John's, NL
Charlottetown, PE
Ontario
Alberta
Other Atlantic
Total Apartment (Weighted Average)
Total Occupancy
Same Property Occupancy
2016
96.4%
95.4%
95.2%
92.5%
94.6%
99.4%
96.6%
90.1%
98.2%
95.9%
2015
96.0%
93.9%
95.1%
95.6%
96.2%
98.8%
95.8%
77.9%
97.5%
95.6%
Change
(bps)
40
150
10
(310)
(160)
60
80
1,220
70
30
2016
96.4%
95.4%
95.2%
93.1%
94.2%
99.4%
96.9%
90.1%
98.2%
96.1%
2015
96.0%
93.9%
95.1%
96.1%
95.7%
98.8%
96.8%
77.9%
97.5%
95.7%
Change
(bps)
40
150
10
(300)
(150)
60
10
1,220
70
40
Killam realized stronger occupancy in Halifax, Moncton, Alberta, Charlottetown, Fredericton, and Ontario in Q4-2016, increasing
same property apartment occupancy 40 bps in the fourth quarter to 96.1% compared to 95.7% in Q4-2015. Although overall
occupancy for Alberta was lower for the year, Q4-2016 occupancy was much stronger than Q4-2015 with a 1,220 increase to 90.1%.
Both the Saint John and St. John's markets have softened quarter-over-quarter and increased vacancy was realized in both markets.
Q4-2016 Apartment NOI by Region
For the three months ended December 31,
Property Revenue
Property Expenses
Net Operating Income
2016
2015 % Change
2016
2015 % Change
2016
2015 % Change
Halifax
Moncton
Fredericton
Saint John
Ontario
St. John's
Charlottetown
Alberta
Other
$14,936
$14,552
4,309
3,763
2,479
5,608
2,475
2,666
657
532
4,223
3,710
2,568
5,472
2,441
2,635
656
510
$37,425
$36,767
2.6%
2.0%
1.4%
(3.5)%
2.5%
1.4%
1.2%
0.2%
4.3%
1.8%
($5,551)
($5,718)
(2.9)%
$9,385
$8,834
(2,107)
(1,620)
(1,350)
(2,161)
(845)
(2,067)
(1,529)
(1,354)
(2,088)
(773)
(1,082)
(1,022)
(222)
(210)
(221)
(215)
1.9%
6.0%
(0.3)%
3.5%
9.3%
5.9%
0.5%
(2.3)%
2,202
2,143
1,129
3,447
1,630
1,584
435
322
2,156
2,181
1,214
3,384
1,668
1,613
435
295
($15,148)
($14,987)
1.1%
$22,277
$21,780
6.2%
2.1%
(1.7)%
(7.0)%
1.9%
(2.3)%
(1.8)%
—%
9.2%
2.3%
Halifax was the leader in Q4-2016, recording 6.2% growth in NOI. This market had strong rental rate growth of 2.2% and occupancy
improvements of 40 bps for the quarter, combined with operational efficiencies and lower natural gas costs. Moncton and Ontario
also posted positive same property results for Q4-2016 with rental rate growth, occupancy improvement and minimal expense
growth.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Despite a 2.4% increase in rental rates in St. John's, occupancy declined 150 bps, lowering net revenue gains to 1.4% for the quarter.
Along with St. John's, Fredericton and Charlottetown also realized modest net revenue growth (1.4% and 1.2%) in Q4-2016.
Combined with higher operating expenses, in particular, higher contract service costs, insurance premiums and property taxes, these
regions recorded NOI declines in the range of 1.7% - 2.3%.
Saint John's occupancy dropped 300 bps for the quarter, resulting in a net revenue decline of 3.5%. Despite flat operating expenses
quarter-over-quarter, Saint John realized a 7.0% decline in NOI in Q4-2016.
Alberta achieved the same NOI in Q4-2016 and Q4-2015. Revenues were relatively flat as decreases in rental rates of 12.2% were
offset by a 1,220 bps increase is occupancy. Operating costs remained flat with operational efficiencies mitigating the rising property
tax expense in the quarter.
MHC Same Property
The MHC same property portfolio recorded a 3.3% decline in NOI in Q4-2016. The portfolio continues to generate solid revenue
growth, up 2.2% from Q4-2015, driven by increased rental rates of 2.8% and a 30 bps occupancy improvement quarter-over-quarter.
Total same property expenses increased 10.7%, or $137 thousand, due to higher water consumption at three of the communities,
timing of repairs and maintenance, and increased property tax costs.
Q4 FFO and AFFO
For the three months ended December 31,
Net income
Fair value adjustments
Non-controlling interest
Deferred tax expense (recovery)
Interest expense related to exchangeable units
Unrealized loss on derivative liability
Depreciation on owner-occupied building
REIT conversion costs
FFO
FFO unit/share - diluted
AFFO per unit/share - diluted
AFFO payout ratio - diluted
2016
$4,638
1,657
7
8,467
580
(412)
46
240
$15,223
$0.21
$0.19
79%
2015
$8,069
7,651
(264)
(4,577)
—
—
47
1,477
$12,403
$0.20
$0.17
87%
% Change
(42.5)%
(78.3)%
(102.7)%
(285.0)%
NA
NA
(2.1)%
(83.8)%
22.7%
5.0%
11.8%
(800) bps
FFO was $15.2 million in the fourth quarter, up 22.7% from $12.4 million in the fourth quarter of 2015. FFO per unit was $0.21 in
Q4-2016, a 5% increase over the same period in 2015. This increase was related to increased earnings from the same property
portfolio ($0.7 million), acquisitions and developments ($0.8 million), lower administrative costs ($0.3 million), and interest expense
savings on the redemption of the 5.65% convertible debentures ($1.0 million), offset by a 19.2% increase in the weighted average
units outstanding.
Selected Consolidated Financial Information
For the years ended December 31,
Property revenue
Net income
Earnings per share - diluted(1)
FFO
FFO per unit/share - diluted
Investment properties
Total assets
Total liabilities
Distribution/dividend per unit/share
(1) Upon conversion to a REIT, Killam is no longer required to disclose earnings per share.
6 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
2016
$175,269
$71,439
$—
$58,886
$0.86
$1,942,809
$1,987,633
$1,237,167
$0.60
2015
$166,614
$35,800
$0.55
$49,016
$0.79
$1,840,256
$1,876,276
$1,190,948
$0.60
2014
$147,507
$32,667
$0.53
$40,162
$0.72
$1,733,895
$1,775,234
$1,112,551
$0.60
41
2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
PART VIII
Risk Management
Killam faces a variety of risks, the majority of which are common to real estate entities. Real estate investments are generally subject
to varying degrees of risk, depending on the nature of the property. These risks include (i) changes in general economic conditions,
(ii) changes in local conditions (such as an oversupply of units or a reduction in demand for real estate in the area), (iii) changes to
government regulations (such as new or revised residential tenant legislations), (iv) competition from others with available units, and
(v) the ability of the landlord or owner to provide adequate maintenance economically.
Real estate is relatively illiquid. Such illiquidity will tend to limit Killam’s ability to rebalance its portfolio promptly in response to
changing economic or investment conditions. In addition, financial difficulties of other property owners, resulting in distress sales,
may depress real estate values in the markets in which Killam operates.
Killam’s exposure to general risks associated with real estate investments is mitigated with both its geographic diversification and
investments in both apartments and MHCs.
Killam is exposed to other risks, as outlined below:
Interest Rate Risk
Interest rate risk is the risk that Killam would experience lower returns as the result of its exposure to a higher interest rate
environment. Killam is exposed to interest rate risk as a result of its mortgages and loans payable; however, this risk is mitigated
through Killam's strategy to have the majority of its mortgages payable in fixed-term arrangements. Killam also structures its
financings so as to stagger the maturities of its debt, minimizing Killam's exposure to interest rates in any one year.
As at December 31, 2016, no mortgages or vendor debt had floating interest rates except for four demand loans totaling $7.9 million
and two revolving demand facilities. These loans have an interest rate of prime plus 1.0%-2.0%. Killam also has two construction
loans with a total balance drawn of $18.5 million. The construction loans have interest rates of prime plus 0.625% - 0.75%, and
consequently, Killam is exposed to short-term interest rate risk on these loans.
Liquidity Risk
Liquidity risk is the risk that Killam may not have access to sufficient capital to fund its growth program and/or refinance its debt
obligations as they mature. Management manages Killam's cash resources based on financial forecasts and anticipated cash flows.
The maturities of Killam’s long-term financial liabilities are set out in note 24 of the consolidated financial statements. Killam
structures its financings so as to stagger the maturities of its debt, thereby minimizing Killam’s exposure to liquidity risk in any one
year. In addition, Killam’s apartments qualify for CMHC insured debt, reducing the refinancing risk on mortgage maturities. Killam’s
MHCs do not qualify for CMHC insured debt, however, they continue to have access to mortgage debt.
Increased Supply Risk
Increased supply risk is the risk of loss from increased competition from the addition of new rental units in Killam’s core markets.
Numerous other residential developers and apartment owners compete for potential tenants. Although it is Killam’s strategy to own
multi-family residential properties in premier locations in each market in which it operates, some of the apartments or MHCs of
Killam's competitors may be newer, better located, offer lower rents or more rental incentives. An increase in alternative housing
could have a material adverse effect on Killam’s ability to lease units, and the rents charged and could adversely affect Killam's
revenues and ability to meet its obligations. To mitigate against this risk, Killam has a geographically diverse asset base. Management
is expanding this diversification by increasing Killam’s investment in apartment markets outside Atlantic Canada.
Credit Risk
Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease term
commitments. Killam mitigates the risk of credit loss through the diversification of its existing portfolio and limiting its exposure to
any one tenant. Credit assessments are conducted with respect to all new leasing, and Killam also obtains a security deposit to assist
in potential recovery requirements. Killam’s bad debt expense has historically been less than 0.4% of revenues. None of Killam’s
tenants account for more than 1% of tenant receivables.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Cyber Security Risk
A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of Killam’s
information resources. More specifically, a cyber incident is an intentional attack or an unintentional event that can include gaining
unauthorized access to information systems to disrupt operations, corrupt data or steal confidential information. Killam’s primary
risks that could directly result from the occurrence of a cyber incident include operational interruption, damage to its reputation,
damage to Killam's business relationships with its vendors and tenants and disclosure of confidential vendor or tenant information.
Killam has implemented processes, procedures and controls to help mitigate these risks, but these measures, as well as its increased
awareness of a risk of a cyber-incident, do not guarantee that its financial results will not be negatively impacted by such an incident.
Development Risk
Development risk is the risk that costs of developments will exceed original estimates, unforeseen delays will occur and/or units will
not be leased in the timeframe and/or at rents anticipated. Killam minimizes its exposure to development risk by limiting the amount
of development underway at any one time to less than 5% of its consolidated statement of financial position. To reduce Killam’s
exposure to cost increases, Killam enters into fixed-rate contracts when possible. To reduce the lease-up risk, Killam does market
research in advance of each development to support expected rental rates and premarkets its properties early on in the process, to
increase demand for the new developments.
Environmental Risk
As an owner of real estate, Killam is subject to federal, provincial and municipal environmental regulations. These regulations may
require Killam to fund the costs of removal and remediation of certain hazardous substances on its properties or releases from its
properties. The failure to remediate such properties, if any, could adversely affect Killam’s ability to borrow using the property as
collateral or to sell the real estate. Killam is not aware of any material noncompliance with environmental laws at any of its
properties. Killam has made, and will continue to make, the necessary capital expenditures to comply with environmental laws and
regulations. Environmental laws and regulations can change rapidly, and Killam may be subject to more stringent environmental laws
and regulations in the future. Killam mitigates its risk of losses associated with oil tank leaks by enforcing the requirement for
appropriate insurance, performing regular oil tank inspections, and enforcing the removal of oil tanks when homes are sold at its
MHC communities.
General Uninsured Losses
Killam carries comprehensive general liability, fire, flood, extended coverage and rental loss insurance with policy specifications,
limits and deductibles customarily carried for similar companies. There are, however, certain types of risks (generally of a
catastrophic nature) that are either uninsurable or would not be economically insurable.
Rent Control Risk
Rent control exists in some provinces in Canada, limiting the percentage of annual rental increases to existing tenants. Killam is
exposed to the risk of the implementation of, or amendments to, existing legislative rent controls in the markets in which it operates,
which may have an adverse impact on Killam’s operations. In the provinces that Killam currently operates, Prince Edward Island and
Ontario have rent controls. As well, Nova Scotia has rent control for MHCs.
Utility, Energy and Property Tax Risk
Killam is exposed to volatile utility and energy costs and increasing property taxes. Utility and energy expenses, mainly consisting of
natural gas, oil, water and electricity charges, have been subject to considerable price fluctuations over the past several years. Killam
has the ability to raise rents on the anniversary date of its leases, subject to the overall rental market conditions, to offset rising
energy and utility costs; however, rental increases may be limited by market conditions. Killam invests in energy efficiency initiatives
to reduce its reliance on utility costs; however, Killam remains exposed to price volatility. Killam has the ability to fix rates through
the use of swap contracts for a portion of its oil and fixed contracts through suppliers for natural gas consumption to reduce the
impact of fluctuations in commodity prices. To address the risk of property tax increases, Killam, along with the assistance of outside
consultants, reviews property tax assessments and, where warranted, appeals them.
Potential Volatility of Unit Prices
One of the factors that may influence the market price of the trust units is the annual yield on the trust units. An increase in market
interest rates may lead purchasers of trust units to demand a higher annual yield, which accordingly could adversely affect the
market price of the trust units. In addition, the market price of the trust units may be affected by changes in general market
conditions, fluctuations in the markets for equity securities and numerous other factors beyond the control of the Trust.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Legal Rights Normally Associated with the Ownership of Shares of a Corporation
As holders of units, Unitholders do not have all of the statutory rights normally associated with ownership of shares of a company
including, for example, the right to bring “oppression” or “derivative” actions against the Trust. The units are not “deposits” within
the meaning of the Canada Deposit Insurance Corporation Act and are not insured under the provisions of that Act or any other
legislation. Furthermore, the Trust is not a trust company and, accordingly, is not registered under any trust and loan company
legislation as it does not carry on or intend to carry on the business of a trust company.
Fluctuation and Availability of Cash Distributions
Killam's distribution policy is established pursuant to the Declaration of Trust and may only be changed with the approval of a
majority of Unitholders. However, the Board of Trustees may reduce or suspend cash distributions indefinitely, which could have a
material adverse effect on the market price of the trust units. There can be no assurance regarding the amount of income to be
generated by Killam's properties. The ability of Killam to make cash distributions, and the actual amount distributed, will be entirely
dependent on the operations and assets of Killam, and will be subject to various factors including financial performance, obligations
under applicable credit facilities, fluctuations in working capital, the sustainability of income derived from the tenant profile of
Killam's properties and capital expenditure requirements. Distributions may be increased, reduced or suspended entirely depending
on Killam's operations and the performance of Killam's assets at the discretion of the Trustees. The market value of the trust units
will deteriorate if Killam is unable to meet its distribution targets in the future, and that deterioration may be significant. In addition,
the composition of cash distributions for tax purposes may change over time and may affect the after-tax return of investors.
Ability of Unitholders to Redeem Units
The entitlement of Unitholders to receive cash upon the redemption of their trust units is subject to the following limitations: (i) the
total amount payable by Killam in respect of such trust units and all other trust units tendered for redemption in the same calendar
month must not exceed $50,000 (provided that such limitation may be waived at the discretion of the Trustees); (ii) at the time such
trust units are tendered for redemption, the outstanding trust units must be listed for trading on a stock exchange or traded or
quoted on another market that the Trustees consider, in their sole discretion, provides fair market value prices for the trust units; (iii)
the trading of trust units is not suspended or halted on any stock exchange on which the trust units are listed (or, if not listed on a
stock exchange, on any market on which the trust units are quoted for trading) on the redemption date for more than five trading
days during the 10-day trading period commencing immediately after the redemption date; and (iv) the redemption of the trust units
must not result in the delisting of the trust units from the principal stock exchange on which the trust units are listed.
Exchangeable Units
Holders of exchangeable units may lose their limited liability in certain circumstances, including by taking part in the control or
management of the business of the Killam Apartment Limited Partnership (“Limited Partnership”). The principles of law in the
various jurisdictions of Canada recognizing the limited liability of the limited partners of limited partnerships subsisting under the
laws of one province but carrying on business in another province have not been authoritatively established. If limited liability is lost,
there is a risk that holders of exchangeable units may be liable beyond their contribution of capital and share of undistributed net
income of the Limited Partnership in the event of judgment on a claim in an amount exceeding the sum of the net assets of the
General Partner and the net assets of the Limited Partnership. Holders of exchangeable units remain liable to return to the Limited
Partnership for such part of any amount distributed to them as may be necessary to restore the capital of the Limited Partnership to
the amount existing before such distribution if, as a result of any such distribution, the capital of the Limited Partnership is reduced
and the Limited Partnership is unable to pay its debts as they become due.
Taxation-related Risks
Killam currently qualifies as a mutual fund trust for Canadian income tax purposes. It is the current policy of Killam to distribute all of
its taxable income to Unitholders and it is therefore generally not subject to tax on such amount. In order to maintain its current
mutual fund trust status, Killam is required to comply with specific restrictions regarding its activities and the investments held by it.
Should Killam cease to qualify as a mutual fund trust, the consequences could be adverse.
There can be no assurance that Canadian federal income tax laws in respect of the treatment of mutual fund trusts will not be
changed in a manner that adversely affects Killam or its Unitholders. If Killam ceases to qualify as a “mutual fund trust”, Killam will be
required to pay a tax under Part XII.2 of the Income Tax Act (“Tax Act”). The payment of Part XII.2 tax by Killam may have adverse
income tax consequences for certain of Killam’s Unitholders, including non-resident persons and trusts governed by registered
retirement savings plans, registered disability savings plans, deferred profit-sharing plans, registered retirement income funds, tax-
free savings accounts and registered education savings plans (“designated savings plans”), which acquired an interest in Killam
directly or indirectly from another Killam Unitholder. If Killam ceases to qualify as a “mutual fund trust” or “registered investment”
under the Tax Act and Killam units cease to be listed on a designated stock exchange, Killam units will cease to be qualified
investments for trusts governed by designated savings plans. Killam will endeavour to ensure trust units continue to be qualified
investments for trusts governed by the designated savings plans; however, there can be no assurance that this will be so. The Tax Act
imposes penalties for the acquisition or holding of non-qualified investments by such trusts. Unitholders should consult their own tax
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 6 7
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
advisors in this regard, including as to whether Killam Units are “prohibited investments” for registered retirement savings plans,
registered retirement income funds or tax-free savings accounts.
Certain rules in the Tax Act (the “SIFT Rules”) affect the tax treatment of “specified investment flow-through trusts (“SIFT trusts”),
and their Unitholders. A trust resident in Canada will generally be a SIFT trust for a particular taxation year for purposes of the Tax
Act if, at any time during the taxation year, investments in the trust are listed or traded on a stock exchange or other public market
and the trust holds one or more “non-portfolio properties” as defined in the Tax Act. Non-portfolio properties generally include
certain investments in real properties situated in Canada and certain investments in corporations and trusts resident in Canada and
in partnerships with specified connections to Canada. However, a trust will not be considered to be a SIFT trust for a taxation year if it
qualifies as a “real estate investment trust” (as defined in the Tax Act) for that year (the “REIT Exception”).
Pursuant to the SIFT Rules, distributions of a SIFT trust’s “non-portfolio earnings” are not deductible to the SIFT trust in computing its
income. Non-portfolio earnings are generally defined as income attributable to a business carried on by the SIFT trust in Canada or to
income (other than dividends) from, and taxable capital gains from the disposition of, non-portfolio properties. The SIFT trust is itself
liable to pay income tax on an amount equal to the amount of such non-deductible distributions at a rate that is substantially
equivalent to the combined federal and provincial general tax rate applicable to taxable Canadian corporations. Such non-deductible
distributions paid to a holder of units of the SIFT trust are generally deemed to be taxable dividends received by the holder of such
units from a taxable Canadian corporation. Such deemed dividends will qualify as “eligible dividends” for purposes of the enhanced
gross-up and dividend tax credit if paid to any individual resident in Canada. Distributions that are paid as returns of capital will not
attract this tax.
A trust that satisfies the REIT Exception is excluded from the definition of a SIFT trust in the Tax Act and is therefore not subject to
the SIFT Rules. In addition to the trust being resident in Canada throughout the year, the following five criteria must be met in order
for the Trust to qualify for the REIT Exception:
•
•
•
•
At each time in the Taxation Year, the total fair market value at that time of all “non-portfolio properties” that are “qualified
REIT properties” held by the Trust must be at least 90% of the total fair market value at that time of all non-portfolio
properties held bythe Trust;
Not less than 90% of the Trust’s “gross REIT revenue” for the taxation year is from one or more of the following: “rent from
real or immovable properties”, interest, capital gains from dispositions of “real or immovable properties” that are capital
properties, dividends, royalties and dispositions of “eligible resale properties”;
Not less than 75% of the Trust’s gross REIT revenue for the taxation year is derived from one or more of the following: rent
from real or immovable properties, interest from mortgages, on real or immovable properties, from dispositions of real or
immovable properties that are capital properties;
At no time in the Taxation Year can the total fair market value of properties comprising real or movable property that is
capital property, an “eligible resale property”, cash, deposits (within the meaning of the Canada Deposit Insurance
Corporation Act or with a branch in Canada of a bank or a credit union), indebtedness of Canadian corporations
represented by banker’s acceptances, and debt issued or guaranteed by the Canadian government or issued by a province,
municipal government or
certain other qualifying public institutions be less than 75% of the “equity value” (in each case, as defined in the Tax Act) of
the Trust at that time; and
•
Investments in the Trust must be, at any time in the taxation year, listed or traded on a stock exchange or other public
market.
The SIFT Rules contain a “look-through rule” under which a trust could qualify for the REIT Exception where it holds properties
indirectly through intermediate entities, provided that each such entity, assuming it were a trust, would satisfy paragraphs (1)
through (4) of the REIT Exception above.
The REIT Exception does not fully accommodate the current business structures used by many Canadian REITs, and contains a
number of technical tests that many Canadian REITs, including the Trust, may find difficult to satisfy. The Trust will endeavour to
ensure that the Trust will qualify for the REIT Exception at all times during each Taxation Year, and each direct and indirect subsidiary
of the Trust will qualify as an “excluded subsidiary entity” (as defined in the Tax Act) such that the Trust will not be a SIFT Trust within
the meaning of the SIFT Rules at any time. However, there can be no assurance that this will be so. There can also be no assurance
that the investments or activities undertaken by the Trust in a Taxation Year will not result in the Trust failing to qualify for the REIT
Exception for that Taxation Year.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
If the Trust does not qualify for the REIT Exception for a Taxation Year, the SIFT Rules will apply to the Trust for that year. Application
of the SIFT Rules may, depending on the nature of distributions from the REIT, including what portion of its distributions are income
and what portion are returns of capital, have a material adverse effect on the after-tax returns of certain Unitholders. Such adverse
tax consequences may impact the future level of cash distributions made by the Trust, the ability of the Trust to undertake future
financings and acquisitions and could also adversely affect the marketability of the Trust’s securities.
The REIT Exception is applied on an annual basis. Accordingly, if the Trust did not qualify for the REIT Exception in a particular
Taxation Year, it may be possible to restructure the Trust such that it may qualify in a subsequent Taxation Year. There can be no
assurances, however, that the Trust will be able to restructure such that it will not be subject to the tax imposed by the SIFT Rules, or
that any such restructuring, if implemented, would not result in material costs or other adverse consequences to the Trust and
Unitholders. The Trust intends to take such steps as are necessary to ensure that, to the extent possible, it qualifies for the REIT
Exception and any negative effects of the SIFT Rules on the Trust and Unitholders are minimized.
Other Canadian Tax Matters
There can be no assurance that Canadian federal income tax laws, the terms of the Canada-United States Income Tax Convention, or
the administrative policies and assessing practices of the Canada Revenue Agency, will not be changed in a manner that adversely
affects the REIT or Unitholders. Any such change could increase the amount of tax payable by the REIT or its affiliates and/or
Unitholders or could otherwise adversely affect Unitholders by reducing the amount available to pay distributions or changing the
tax treatment applicable to Unitholders in respect of distributions. In structuring its affairs, the Trust consults with its tax and legal
advisors and receives advice as to the optimal method in which to complete its business objectives while at the same time
minimizing or deferring taxes, where possible. There is no guarantee that the relevant taxing authorities will not take a different view
as to the ability of the Trust to utilize these strategies. It is possible that one or more taxing authorities may review these strategies
and determine that tax should have been paid, in which case the Trust may be liable for such taxes.
Competition for Real Property Investments
Killam competes for suitable real property investments with individuals, corporations and institutions (both Canadian and foreign)
that are presently seeking, or that may seek in the future, real property investments similar to those desired by Killam. Many of these
investors will have greater financial resources than those of the Trust. An increase in the availability of investment funds, and an
increase in interest of real property investments, would tend to increase competition for real property investments, thereby
increasing purchase prices and reducing yields therefrom. In addition, Killam may require additional financing to complete future real
property acquisitions, which may not be available on terms acceptable to Killam.
Future Acquisitions of Real Property Investments
Unitholders will have no advance opportunity to evaluate the merits and risks of any future acquisitions of real property investments
made by Killam and will need to rely on the experience and judgment of Management. There can be no assurance that any such
acquisitions will be successfully completed. Management and the Board will have responsibility for and substantial discretion in the
making of such acquisitions. Therefore, the future profitability of Killam will depend upon the ability of Management to identify and
complete commercially viable acquisitions.
Zoning and Approval
Future acquisitions and development projects may require zoning and other approvals from local government agencies. The process
of obtaining such approvals may take months or years, and there can be no assurance that the necessary approvals for any particular
project will be obtained. Holding costs accrue while regulatory approvals are being sought, and delays could render future
acquisitions and developments uneconomical.
Dependence on Key Personnel
The success of Killam will be largely dependent upon the quality of its Management and personnel. Loss of the services of such persons,
or the inability to attract personnel of equal ability, could adversely affect the Killam's business operations and prospects.
Market for Securities and Price Volatility
There can be no assurance that an active trading market in Killam's securities will be sustained. In addition, the market price for
Killam's securities could be subject to wide fluctuations. Factors such as announcements of quarterly variations in operating results,
changes in interest rates, as well as market conditions in the industry, may have a significant impact on the market price of the
securities of Killam. The stock market has from time to time experienced extreme price and volume fluctuations, which have often
been unrelated to the operating performance of particular companies. At times, following periods of volatility in the market price of
some companies' securities, securities litigation has been instituted against such companies. The institution of this type of litigation
against Killam could result in substantial costs and a diversion of Management's attention and resources, which could harm the
Trust's business and prospects.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Co-ownership
Killam has co-ownership of six properties, including the Trust’s interest in five properties that are subject to joint control and are joint
operations with KingSett and AIMCo. In addition, during 2015, Killam entered into a joint development agreement with another
company for the development of a 240-unit mixed-use building in downtown Halifax. Risks associated with co-ownership include the
risk of non-payment for operating and capital costs from the partner, risk of inability to finance a property associated with a joint
venture or limited partnership and the risk of a partner selling their interest in the properties.
Ground Leases
Three of Killam’s properties, including 6101 South Street and Chapter House located in Halifax, and 1033 Queen Street West in
Toronto, are subject to long-term ground leases in which the underlying land is owned by an arms-length third party and leased to
Killam. Under the terms of the ground lease, Killam must pay rent for the use of the land and is generally responsible for all the costs
and expenses associated with the building and improvements. Unless the lease term is extended, the land, together with all the
improvements made, will revert to the owner of the land upon the expiration of the lease. The leases are scheduled to expire in 2041
(there is an option for a ten year renewal), 2080 and 2060, respectively.
Related Party Transactions
Killam has a 50% interest in a commercial complex that houses its head office. The remaining 50% interest is owned by a
company controlled by an executive and Trustee of Killam. In addition, the property manager for the commercial complex is
controlled by the executive and Trustee of Killam and is paid an industry standard property management fee of 4.5%.
Occasionally, Killam will also pay market leasing placement fees or project management fees, to the company controlled by an
executive and director of Killam. Killam paid $nil (2015 - $45,000) in project management fees related to leasehold improvements
for a new commercial tenant.
On March 31, 2015, Killam acquired the Brewery Market, located in Halifax, NS, for $22.3 million, from Halkirk Properties Limited
("Halkirk"), a company that is partially owned by a Trustee of Killam. Killam also acquired a 50% interest in a corporation that
owns vacant land adjacent to the Brewery Market for future development for $5.2 million. The remaining 50% is also owned by
Halkirk.
During the third quarter of 2015, Killam and Halkirk began development of a 240-unit building on the vacant land adjacent to the
Brewery Market. Construction of the development is managed by Killam, and the cost of construction will be funded 50/50 by
each partner.
During the fourth quarter of 2016, Killam acquired the remaining 50% interest in a portion of vacant land held in the corporation
from Halkirk in exchange for $1.16 million in Killam trust units, as required per the original purchase and sale contract entered
into during 2015.
Critical Accounting Policies and Significant Accounting Judgments, Estimates and
Assumptions
Critical Judgment in Applying Accounting Policies
The following are the critical judgments, apart from those involving estimations (see Key Accounting Estimates and Assumptions
below) that have been made in applying the Trust’s accounting policies and that have the most significant effect on the reported
amounts in the consolidated financial statements:
(i) Income taxes
The Trust applies judgment in determining the tax rates applicable to its corporate subsidiaries and identifying the temporary
differences in each of such legal subsidiaries in respect of which deferred income taxes are recognized. Deferred taxes related to
temporary differences arising from its corporate subsidiaries are measured based on the tax rates that are expected to apply in the
year when the asset is realized or the liability is settled. Temporary differences are differences that are expected to reverse in the
future and arise from differences between accounting and tax asset values.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
(ii) Investment property and internal capital program
The Trust’s accounting policy relating to investment properties is described in note 2(g). In applying this policy, judgment is applied in
determining the extent and frequency of utilizing independent, third-party appraisals to measure the fair value of the Trust’s
investment properties. Additionally, judgment is applied in determining the appropriate classes of investment properties in order to
measure fair value. The Trust also undertakes internal capital improvements and upgrades. Such work is specifically identified, and
the Trust applies judgment in the estimated amount of directly attributable salaries to be allocated to capital improvements and
upgrades of its investment properties.
(iii) Financial instruments
The Trust’s accounting policies relating to financial instruments are described in note 2(m). Critical judgments inherent in these
policies related to applying the criteria set out in IAS 39 to designate financial instruments into categories i.e. FVTPL, etc., assess the
effectiveness of hedging relationships and determine the identification of embedded derivatives, if any, that are subject to fair value
measurement.
(iv) Basis of consolidation
The consolidated financial statements of the Trust include the accounts of Killam and its wholly-owned subsidiaries, as well as
entities over which the Trust exercises control on a basis other than ownership of voting interest within the scope of IFRS 10,
Consolidated Financial Statements. Judgment is applied in determining if an entity meets the criteria of control as defined in the
accounting standard.
Key Accounting Estimates and Assumptions
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the
reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year. Actual results could differ from estimates.
(i) Valuation of investment properties
The choice of valuation method and the critical estimates and assumptions underlying the fair value determination of investment
properties are set out in note 6. Significant estimates used in determining the fair value of the Trust’s investment properties include
capitalization rates and net operating income (which is influenced by inflation rates, vacancy rates and expected maintenance costs)
used in the overall capitalization rate valuation method as well as discount rates and forecasted cash flows used in the discounted
cash flow valuation method. A change to any one of these inputs could significantly alter the fair value of an investment property.
Please refer to note 6 for sensitivity analysis.
IPUC are also valued at fair value, except if such values cannot be reliably determined. In the case when fair value cannot be reliably
determined, such property is recorded at cost. The fair value of IPUC is determined using the direct income capitalization method.
(ii) Deferred unit-based compensation plan
The compensation costs relating to the deferred unit plan are based on estimates of how many deferred units will be awarded as
well as how many will actually vest and be exercised.
(iii) Deferred taxes
The amount of the temporary differences between the accounting carrying value of the Trust’s assets and liabilities held in various
corporate subsidiaries versus the tax bases of those assets and liabilities and the tax rates at which the differences will be realized are
outlined in note 19.
Future Accounting Policy Changes
The following new or amended accounting standards under IFRS have been issued or revised by the IASB; however, they are not
yet effective and as such have not been applied to the consolidated financial statements.
IFRS 9 Financial Instruments ("IFRS 9")
In July 2014, the IASB issued the final version of IFRS 9, which replaces IAS 39 and all previous versions of IFRS 9. IFRS 9 brings
together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and
hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted.
Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For
hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. Killam plans to adopt the
new standard on the effective date. During 2016, Killam performed a high level impact assessment of all three aspects of IFRS 9.
This preliminary assessment is based on currently available information and may be subject to changes arising from further
detailed analysis or additional reasonable and supportable information being made available to Killam in the future. Overall,
Killam expects no significant impact on its statement of financial position.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
IFRS 15 Revenue from Contracts with Customers ("IFRS 15")
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers.
Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in
exchange for transferring goods or services to a customer. The new revenue standard will supersede all current revenue
recognition requirements under IFRS. Either a full retrospective application or a modified retrospective application is required for
annual periods beginning on or after January 1, 2018 and early adoption is permitted. Killam is in the process of assessing the
impact IFRS 15 may have on future financial statements and plans to adopt the new standard on the required effective date;
however, Killam does not anticipate a significant impact on the financial results as revenue earned from leases is outside the scope
of the standard.
IAS 40, Investment Properties ("IAS 40")
During December 2016, the IASB issued an amendment to IAS 40 clarifying certain existing IAS 40 requirements. The amendment
requires that an asset be transferred to, or from investment property when, and only when, there is a change in use. A change in
use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change
in use. In isolation, a change in management's intentions for the use of a property does not provide evidence of a change in use.
These amendments are effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. These
amendments are not expected to have any significant impact on Killam's consolidated financial statements.
IFRS 16, Leases ("IFRS 16")
In January 2016, the IASB issued IFRS 16. The new standard requires that for most leases, lessees must initially recognize a lease
liability for the obligation to make lease payments and a corresponding right-of-use asset for the right to use the underlying asset for
the lease term. Lessor accounting, however, remains largely unchanged, and the distinction between operating and finance leases is
retained. This standard will be effective for Killam's annual periods beginning after January 1, 2019, with earlier adoption permitted
so long as IFRS 15 has been adopted by Killam. Killam will perform a detailed analysis which considers any leases that would be
affected by this and the impact it may have on the consolidated financial statements.
Disclosure Controls and Procedures and Internal Controls
Management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that its Disclosure Controls and
Procedures and Internal Controls will prevent or detect all error and all fraud. Because of the inherent limitations in all control
systems, an evaluation of controls can provide only reasonable, not absolute, assurance that all control issues and instances of fraud
or error, if any, within Killam have been detected.
Disclosure Controls and Procedures
As of December 31, 2016, Management evaluated the effectiveness of the operation of its disclosure controls and procedures
(“Disclosure Controls”), as defined under rules adopted by the Canadian Securities Administrators. This evaluation was performed
under the supervision of, and with the participation of, the Chief Executive Officer and the Chief Financial Officer.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in documents filed with
securities regulatory authorities is recorded, processed, summarized and reported on a timely basis, and is accumulated and
communicated to Management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
Based on the evaluation of Disclosure Controls, the Chief Executive Officer and the Chief Financial Officer have concluded that,
subject to the inherent limitations noted above, Disclosure Controls are effective in ensuring that material information relating to
Killam and its consolidated subsidiaries is made known to Management on a timely basis by others within those entities, and is
included as appropriate in this MD&A.
Internal Controls over Financial Reporting
Internal controls over financial reporting ("ICFR") are designed to provide reasonable assurance regarding the reliability of the
Killam’s financial reporting and its preparation of financial statements for external purposes in accordance with IFRS. Management’s
documentation and assessment of the effectiveness of Killam’s ICFR continues as of the date of this MD&A with the focus on
processes and controls in areas identified as being “key risks”.
As of the financial year ended December 31, 2016, the certifying Officers have evaluated the design and effectiveness of such ICFR,
or caused them to be designed and evaluated under their supervision. The certifying Officers have concluded that the design and
effectiveness of ICFR were operating effectively as at December 31, 2016, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The certifying Officers
have evaluated whether there were any changes to the ICFR during the year ended December 31, 2016, that have materially affected
or are reasonably likely to materially affect its ICFR. No changes were identified through their evaluation.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2016 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as otherwise noted)
Subsequent Events
On January 16, 2017, Killam acquired Spruce Grove Lane Apartments in Calgary. The property consists of 66 townhouse‐style
apartments. The acquisition cost was $12.8 million ($195,000 per unit). This acquisition increases Killam’s Calgary portfolio to 373
rental units.
On January 18, 2017, Killam announced a distribution of $0.05 per unit, payable on February 15, 2017, to Unitholders of record on
January 31, 2017.
On February 14, 2017, the Board of Trustees approved a 3.3% increase to Killam's annual distribution, to $0.62 per unit from $0.60
per unit. The monthly distribution will be $0.05167 per unit, up from $0.05 per unit. The increase will become effective for the
March 2017 distribution, to be paid in April 2017.
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2016 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
Management’s Responsibility for Financial Statements
The accompanying consolidated financial statements and management’s discussion and analysis of results of
operations and financial condition (MD&A) have been prepared by the management of Killam Apartment REIT in
accordance with International Financial Reporting Standards, and include amounts based on management’s
informed judgements and estimates. Management is responsible for the integrity and objectivity of these
consolidated financial statements. The financial information presented in the MD&A is consistent with that in the
consolidated financial statements in all material respects.
To assist management in the discharge of these responsibilities, management has established the necessary
internal controls designed to ensure that our financial records are reliable for preparing financial statements and
other financial information, transactions are properly authorized and recorded, and assets are safeguarded.
As at December 31, 2016, our Chief Executive Officer and Chief Financial Officer evaluated, or caused an evaluation
under their direct supervision of, the design and operation of our internal controls over financial reporting (as
defined in National Instrument 52‐109, Certification of Disclosure in Issuers’ Annual and Interim Filings) and, based
on that assessment, determined that our internal controls over financial reporting were appropriately designed
and operating effectively.
Ernst & Young LLP, the auditors appointed by the Unitholders, have examined the consolidated financial
statements in accordance with Canadian generally accepted auditing standards to enable them to express to the
Unitholders their opinion on the consolidated financial statements. Their report as auditors is set forth below.
The consolidated financial statements have been further reviewed and approved by the Board of Trustees and its
Audit Committee. This committee meets regularly with management and the auditors, who have full and free
access to the Audit Committee.
February 14, 2017
Philip Fraser
President and Chief Executive Officer
Robert Richardson
Executive Vice President and Chief Financial Officer
7 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Independent auditors’ report
To the Unitholders of
Killam Apartment Real Estate Investment Trust
We have audited the accompanying consolidated financial statements of Killam Apartment Real Estate
Investment Trust, which comprise the consolidated statements of financial position as at December 31, 2016
and 2015 and the consolidated statements of income and comprehensive income, changes in equity and cash
flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management's responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with International Financial Reporting Standards, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditors' responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those
standards require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free from material misstatement.
financial statements. The procedures selected depend on
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated
judgment,
including the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity's preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
the auditors'
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
its
Killam Apartment Real Estate
financial performance and cash flows for the years then ended in accordance with International Financial
Reporting Standards.
Investment Trust as at December 31, 2016 and 2015 and
Halifax, Canada
February 14, 2017
Chartered Professional Accountants
Licensed Public Accountants
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 7 5
Consolidated Statements of Financial Position
In thousands of Canadian dollars,
As at December 31,
ASSETS
Non-current assets
Investment properties
Property and equipment
Other non-current assets
Current assets
Cash
Rent and other receivables
Other current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Unitholders'/shareholders' equity
Accumulated other comprehensive loss ("AOCL")
Non-controlling interest
Total Equity
Non-current liabilities
Mortgages and loans payable
Convertible debentures
Other liabilities
Exchangeable units
Deferred tax
Deferred unit-based compensation
Current liabilities
Mortgages and loans payable
Construction loans
Accounts payable and accrued liabilities
Total Liabilities
TOTAL EQUITY AND LIABILITIES
Commitments and Contingencies
Financial guarantees
See accompanying notes to the consolidated financial statements.
Approved on behalf of the Board of Trustees
[15]
[16]
[19]
[20]
[12]
[13]
[14]
[25]
[26]
Note
2016
2015
[6]
[8]
[9]
[11]
[10]
$1,942,809
$1,840,256
4,787
950
4,973
4,965
$1,948,546
$1,850,194
$24,652
2,895
11,540
39,087
$14,298
2,080
9,704
26,082
$1,987,633
$1,876,276
$750,450
(97)
113
$750,466
[12] [26]
$885,652
$669,826
(156)
15,658
$685,328
$784,629
99,627
8,723
—
112,145
—
46,690
12,563
46,158
84,547
2,988
$1,078,598
$1,005,124
$111,862
18,509
28,198
158,569
$1,237,167
$1,987,633
$156,218
4,115
25,491
185,824
$1,190,948
$1,876,276
Trustee
Trustee
1
76
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Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Consolidated Statements of Income and Comprehensive Income
In thousands of Canadian dollars,
Note
[21]
[19]
For the years ended December 31,
Property revenue
Property operating expenses
Operating expenses
Utility and fuel expenses
Property taxes
Net operating income
Other income
Financing costs
Depreciation
Amortization of deferred financing costs
Administration
Income before fair value adjustments, loss on disposition
and income taxes
Fair value adjustment on convertible debentures
Fair value adjustment on unit-based compensation
Fair value adjustment on Exchangeable Units
Fair value adjustment on investment properties
Loss on disposition
Income before income taxes
Deferred tax recovery
Net income
Other comprehensive income
Item that may be reclassified subsequently to net income
Amortization of loss in AOCL to finance costs
Comprehensive income
Net income attributable to:
Unitholders/common shareholders
Non-controlling interest
Comprehensive income attributable to:
Unitholders/common shareholders
Non-controlling interest
See accompanying notes to the consolidated financial statements.
2016
$175,269
(29,097)
(20,462)
(20,286)
(69,845)
$105,424
1,227
(36,193)
(884)
(1,505)
(12,733)
$55,336
1,118
(826)
(7,774)
(3,749)
(264)
43,841
27,598
$71,439
59
$71,498
67,982
3,457
$71,439
68,041
3,457
$71,498
2015
$166,614
(27,590)
(21,299)
(19,335)
(68,224)
$98,390
1,495
(37,044)
(802)
(1,913)
(11,898)
$48,228
—
—
—
(6,103)
(109)
42,016
(6,216)
$35,800
42
$35,842
34,557
1,243
$35,800
34,599
1,243
$35,842
2
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 7 7
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Consolidated Statements of Changes in Equity
In thousands of Canadian dollars,
For the year ended December 31, 2016
Trust
Units
Capital
Stock
Contributed
Surplus
Other
Paid-in
Capital
Retained
Earnings AOCL
Non-
controlling
Interest
Total
Equity
As at January 1, 2016
$— $484,132
$2,150
$5,681 $177,863 ($156)
$15,658
$685,328
REIT conversion - See note 3
447,566
(484,132)
(1,355)
(5,681)
(12,463)
—
—
(56,065)
Unit capital
Exchange of exchangeable
units
Distribution reinvestment plan
Restricted trust unit plan
Issued for cash
Issuance of units for
acquisitions
Net income
Amortization of loss on forward
interest rate hedge
Distributions on non-controlling
interest
Acquisition of non-controlling
interest
Distributions on trust units
Distributions declared and paid
Distributions payable
11,043
6,482
323
93,623
1,160
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
67,982
—
—
(5,599)
— (34,908)
—
(3,417)
—
—
—
—
—
—
59
—
—
—
—
—
—
—
—
—
3,457
11,043
6,482
323
93,623
1,160
71,439
—
59
(505)
(505)
(18,497)
(24,096)
—
—
(34,908)
(3,417)
As at December 31, 2016
$560,197
$—
$795
$— $189,458
($97)
$113
$750,466
For the year ended December 31, 2015
As at January 1, 2015
Share capital
Dividend reinvestment plan
Stock options exercised
Issuance of shares for acquisitions
Restricted share units issued
Restricted share units redeemed
Repurchase through normal course
issuer bid
Net income
Amortization of loss on forward interest
rate hedge
Distribution to non-controlling interest
Dividends declared and paid
Dividends payable
At December 31, 2015
Capital
Stock
Contributed
Surplus
Other
Paid-in
Capital
Retained
Earnings
AOCL
Non-
controlling
Interest Total Equity
$459,138
$2,417
$5,681
$180,793 ($198)
$14,852
$662,683
6,907
3,458
14,535
—
286
(192)
—
—
—
—
—
—
(486)
—
797
(530)
(48)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
34,557
—
—
(34,326)
(3,161)
—
—
—
—
—
—
—
42
—
—
—
—
—
—
—
—
—
6,907
2,972
14,535
797
(244)
(240)
1,243
35,800
—
(437)
—
—
42
(437)
(34,326)
(3,161)
$484,132
$2,150
$5,681
$177,863 ($156)
$15,658
$685,328
See accompanying notes to the consolidated financial statements.
3
78
K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Consolidated Statements of Cash Flows
In thousands of Canadian dollars,
For the years ended December 31,
OPERATING ACTIVITIES
Net income
Add (deduct) items not affecting cash
Fair value adjustments
Depreciation and amortization
Non-cash compensation expense
Deferred income taxes
Loss on disposition
Net change in non-cash operating activities
Cash provided by operating activities
FINANCING ACTIVITIES
Deferred financing costs paid
Proceeds on issuance of units/common shares
Repurchase common shares through normal course issuer bid
Redemption of convertible debentures
Proceeds of repayment of mezzanine loan
Mortgage financing
Mortgages repaid on maturity
Mortgage principal repayments
Proceeds from construction loans
Construction loans repaid on maturity
Distributions paid to non-controlling interest
Distributions to unitholders/shareholders
Cash provided by financing activities
INVESTING ACTIVITIES
Increase in restricted cash
Net proceeds on sale of land
Acquisition of investment properties, net of debt assumed
Disposition of investment property
Development of investment properties
Capital expenditures
Cash used in investing activities
Net increase (decrease) in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements.
Note
2016
2015
$71,439
$35,800
[6], [16], [17]
[20]
[23]
[18]
11,231
2,389
896
(27,598)
264
4,963
$63,584
(4,685)
93,491
—
(57,500)
4,000
200,537
(105,831)
(31,662)
10,558
—
(24,610)
(31,515)
$52,783
(340)
—
(46,897)
8
(25,324)
(33,460)
($106,013)
10,354
14,298
$24,652
6,103
2,715
316
6,216
109
(312)
$50,947
(3,852)
2,874
(241)
—
—
201,797
(91,134)
(28,809)
15,383
(43,214)
(437)
(30,413)
$21,954
(908)
50
(23,889)
—
(21,853)
(32,778)
($79,378)
(6,477)
20,775
$14,298
4
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 7 9
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
1. Organization of the Trust
Killam Apartment Real Estate Investment Trust ("Killam" or the "Trust") is an unincorporated open-ended mutual fund trust
created pursuant to the amended and restated Declaration of Trust ("DOT"), dated November 27, 2015, under the laws of the
Province of Ontario. Killam specializes in the acquisition, management and development of multi-residential apartment
buildings and manufactured home communities ("MHCs") in Canada.
Effective January 1, 2016, Killam Properties Inc. (the "Company") completed its plan of arrangement to convert into a real
estate investment trust ("REIT") and approval was granted by the Toronto Stock Exchange ("TSX") on January 4, 2016 under
the symbol KMP.UN. Under the reorganization, shareholders of Killam received one trust unit ("Trust Unit") or one Class B
Limited Partnership Unit ("Exchangeable Unit") of a controlled limited partnership of the Trust, for each common share of
Killam held. Consequently, any references to common shares, shareholders and per share amounts relate to periods prior to
the conversion on January 1, 2016 and any references to Trust Units, unitholders and per unit amounts relate to periods
subsequent to January 1, 2016.
Since the Trust is a continuation of Killam Properties Inc., the prior year comparatives included in these consolidated
financial statements are those of the Company. The consolidated financial statements comprise the financial statements of
Killam and its subsidiaries as at and for the year ended December 31, 2016. Killam's head office operations are located at
3700 Kempt Road, Halifax, Nova Scotia, B3K 4X8 and the Trust's registered office is located at 2571 Windsor Street, Halifax,
Nova Scotia, B3K 5C4.
2. Significant Accounting Policies
(A) Statement of Compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
The consolidated financial statements of the Trust for the year ended December 31, 2016 were authorized for issue in
accordance with a resolution of the Board of Trustees of Killam on February 14, 2017.
(B) Basis of Presentation
The consolidated financial statements of Killam have been prepared on a historical cost basis, except for investment
properties, unit-based compensation, convertible debentures and Exchangeable Units, which have been measured at fair
value. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The
consolidated financial statements have been prepared on a going concern basis and are presented in Canadian dollars,
which is Killam’s functional currency, and all values are rounded to the nearest thousand ($000), except per unit, per share
amount or as noted.
(C) Basis of Consolidation
(i) Subsidiaries
The consolidated financial statements comprise the assets and liabilities of all subsidiaries and the results of all subsidiaries
for the financial year. Killam and its subsidiaries are collectively referred to as Killam in these consolidated annual financial
statements. Non-controlling interests represent the portion of profit or loss and net assets not held by Killam, and are
presented separately in the consolidated statements of income and comprehensive income and within equity in the
consolidated statements of financial position, separately from unitholders’/shareholders' equity.
Subsidiaries are entities controlled by Killam. The financial statements of subsidiaries are included in the consolidated
financial statements from the date that control commences until the date that control ceases. The accounting policies of
subsidiaries have been changed when necessary to align them with the policies adopted by Killam. In certain
circumstances, Killam has control over entities in which it does not own more than 50% of the voting power.
In its evaluation, Management considers whether Killam controls the entity by virtue of the following circumstances:
a) Power over more than half of the voting rights by virtue of an agreement with other investors;
b) Power to govern the financial and operating policies of the entity under a statute or an agreement;
c) Power to appoint or remove the majority of the members of the board of directors or equivalent governing body and
control of the entity is by that board or body; and
d) Power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of
the entity is by that board or body.
80
K I L L A M A PA R T M E N T R E I T | 2 0 1 6
5
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
2. Significant Accounting Policies (continued)
A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.
Losses are attributed to the non-controlling interest even if that results in a deficit balance.
Killam owns 50% of the shares of a Corporation, which owns a property under development. Killam has determined that it
controls the Corporation and therefore consolidates the Corporation's assets, liabilities and the results of its operations. As
Killam will purchase the remaining 50% of the shares in the Corporation upon the completion of the development, the
non-controlling interest is recorded as a liability and is included in other non-current long-term liabilities.
Killam's investment in subsidiaries, all of which are incorporated in Canada, are listed in the following table:
Subsidiary
% Interest
Killam Apartment General Partner Ltd.
Killam Apartment Limited Partnership
Killam Properties Inc.
Killam Properties SGP Ltd.
Killam Apartment Subsidiary Limited Partnership
661047 N.B Inc.
Killam Investments Inc.
Killam Investments (PEI) Inc.
Killam Properties Apartments Trust
Killam Properties MHC Trust
Blackshire Court Limited
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Blackshire Court Limited Partnership
96.94%
Killam KamRes (Silver Spear) Inc.
Killam KamRes (Grid 5) Inc.
Killam KamRes (Kanata Lakes) I Inc.
Killam KamRes (Kanata Lakes) II Inc.
Killam KamRes (Kanata Lakes) III Inc.
Killam KamRes (Kanata Lakes) IV Inc.
Killam - Keith Development Ltd.
50%
50%
50%
50%
50%
50%
50%
(ii) Joint arrangements
Killam has joint arrangements in and joint control of five properties. Killam has assessed the nature of its joint arrangements
as at December 31, 2016, and determined them to be joint operations. For joint operations, Killam recognizes its share of
revenues, expenses, assets and liabilities, which are included in their respective descriptions on the consolidated statements
of financial position and consolidated statements of income and comprehensive income. All balances and effects of
transactions between joint operations and Killam have been eliminated to the extent of its interest in the joint operations.
(D) Property Asset Acquisitions
At the time of acquisition of a property or a portfolio of investment properties, Killam evaluates whether the acquisition is a
business combination or asset acquisition. IFRS 3, Business Combinations (“IFRS 3”) is only applicable if it is considered that
a business has been acquired. A business according to IFRS 3 is defined as an integrated set of activities and assets
conducted and managed for the purpose of providing a return to investors or lower costs or other economic benefits
directly and proportionately to Killam. When determining whether the acquisition of an investment property or a portfolio
of investment properties is a business combination or an asset acquisition, Killam applies judgment when determining
whether an integrated set of activities is acquired in addition to the property or portfolio of properties.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 8 1
6
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
2. Significant Accounting Policies (continued)
When an acquisition does not represent a business as defined under IFRS 3, Killam classifies these properties or a portfolio
of properties as an asset acquisition. Identifiable assets acquired and liabilities assumed in an asset acquisition are
measured initially at their relative fair values at the acquisition date, except for financial instruments that are recognized
initially at fair value. Acquisition-related transaction costs are capitalized to the property.
All of Killam’s acquisitions have been classified as asset acquisitions.
(E) Revenue Recognition
(i) Rental income
Revenue from rental properties is recognized when a tenant commences occupancy of a rental unit or site and rent is due.
Rental income from investment properties is recognized on a straight-line basis over the lease term. Killam has not
transferred substantially all of the benefits and risks of ownership of its rental properties, and therefore accounts for
leases with its tenants as operating leases.
(ii) Other Income
Other corporate income includes interest and management fees. Interest income is recognized as earned and
management fees are recorded as services are provided.
(iii) Service charges and expenses recoverable from tenants
Income arising from expenses recovered from tenants is recognized gross of the related expenses in the period in which
the expense can be contractually recovered. Revenue related to laundry and parking are included gross of the related
costs.
(iv) Manufactured home sales
Where revenue is obtained from the sale of manufactured homes, it is recognized when the significant risks and rewards
have been transferred to the buyer. This will normally take place on the closing date of the home sale. Such sales are
considered sales of goods, and not sales of real estate, as Killam does not manufacture these homes.
(F) Tenant Inducements
Incentives such as cash, rent-free periods and move-in allowances may be provided to lessees to enter into a lease. These
incentives are amortized on a straight-line basis over the term of the lease as a reduction of rental revenue.
(G) Investment Properties
Investment properties include multi-family residential properties, manufactured home communities and commercial
properties held to earn rental income and properties that are under construction or development for future use as
investment properties. Killam considers its income properties to be investment properties under International Accounting
Standard ("IAS") 40, Investment Property ("IAS 40"), and has chosen the fair value model to account for its investment
properties in the consolidated financial statements. Fair value represents the amount at which the properties could be
exchanged between a knowledgeable and willing buyer and a knowledgeable and willing seller in an arm's length
transaction at the date of valuation.
Killam's investment properties have been valued on a highest and best use basis and do not include any portfolio premium
that may be associated with the economies of scale from owning a large portfolio or the consolidation of value from
having compiled a large portfolio of properties over a long period of time, many through individual property acquisitions.
Investment properties are measured initially at cost, including transaction costs. Transaction costs include deed transfer
taxes and various professional fees. Subsequent to initial recognition, investment properties are recorded at fair value. Fair
value is determined based on a combination of internal and external processes and valuation techniques. Gains and losses
arising from changes in fair values are included in the consolidated statements of income and comprehensive income in the
year in which they arise. Investment property is derecognized when it has been disposed of or permanently withdrawn
from use and no future economic benefit is expected. Any gains or losses on the retirement or disposal of investment
properties are recognized in the consolidated statements of income and comprehensive income in the year of retirement or
disposal.
82
K I L L A M A PA R T M E N T R E I T | 2 0 1 6
7
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
2. Significant Accounting Policies (continued)
Transfers are made to investment property when, and only when, there is a change in use, evidenced by the commencement
of operating leases. Transfers are made from investment property when, and only when, there is a change in use, evidenced
by commencement of redevelopment.
(i) Investment properties under construction ("IPUC")
Properties under development include those properties, or components thereof, that will undergo activities that will take a
substantial period of time to prepare the properties for their intended use as income properties.
The cost of a development property that is an asset acquisition comprises the amount of cash, or the fair value of other
consideration, paid to acquire the property, including transaction costs. Subsequent to acquisition, the cost of a development
property includes costs that are directly attributable to these assets, including development costs, property taxes and
borrowing costs on both specific and general debt. Direct and indirect borrowing costs, development costs and property
taxes are capitalized when the activities necessary to prepare am asset for development or redevelopment begin, and
continue until the date that construction is substantially complete and all necessary occupancy and related permits have
been received, whether or not the space is leased. If Killam is required as a condition of a lease to construct tenant
improvements that enhance the value of the property, then capitalization costs continues until such improvements are
completed. Capitalization of finance costs is suspended if there are prolonged periods when development activity is
interrupted.
Interest capitalized using Killam's weighted average cost of borrowing after adjusting for borrowing associated with specific
developments. Where borrowing is associated with specific developments, the amount capitalized is the gross interest
incurred on such borrowing less any investment income arising on temporary investment of such borrowing.
Properties under development are also adjusted for fair value at each consolidated balance sheet date with fair value
adjustments recognized in net earnings.
(H) Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation and consist mainly of head office
buildings, leasehold improvements and information technology systems. The estimated useful lives, residual values and
depreciation methods are reviewed at each year-end, with the effect of any changes in estimates accounted for prospectively.
These items are categorized into the following classes and their respective useful economic life is used to calculate the
amount of depreciation or amortization for each period.
Category
Building
Heavy equipment
Vehicles
Furnitures, fixtures and office
Computer software
Leaseholds
Useful Life / Depreciation Rate
Depreciation method used
40 years
7.5%
10%
10% to 30%
100%
Lease term
Straight-line
Declining balance
Declining balance
Declining balance
Declining balance
Straight-line
(I) Inventory
Inventory represents manufactured homes available for sale. The manufactured homes are valued at the lower of cost
(purchase price plus delivery and setup costs) and net realizable value. Net realizable value is the estimated selling price in
the ordinary course of business based on market prices at the reporting date less costs to complete and the estimated costs
of sale.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 8 3
8
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
2. Significant Accounting Policies (continued)
(J) Consolidated Statements of Cash Flows
Cash consists of cash on hand and bank account balances. Investing and financing activities that do not require the use
of cash or cash equivalents are excluded from the consolidated statements of cash flows and are disclosed separately
in the notes to the consolidated financial statements.
(K) Unit-based Compensation
Unit-based compensation benefits in the form of restricted trust units ("RTUs") are provided to officers, trustees and
certain employees and are intended to facilitate long-term ownership of Trust Units and provide additional incentives by
increasing the participants’ interest, as owners, in Killam. In accordance with IAS 32, Financial Instruments: Presentation
("IAS 32"), the RTUs are presented as a liability on the consolidated statements of financial position as the Trust is obliged
to provide the holder with Trust Units once the RTUs vest. Compensation expense is recognized over the vesting period
and included in administration costs.
Under IAS 19 – Employee Benefits, the RTUs are classified at fair value through profit or loss ("FVTPL") and are measured at
each reporting period at fair value with changes in fair value recognized in the consolidated statements of income and
comprehensive income. Fair value is determined with reference to the market price of the Trust’s Units.
(L) Financial Instruments
Financial instruments are accounted for, presented, and disclosed in accordance with IFRS 7, Financial Instruments:
Disclosures, IAS 32, and IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39"). Killam recognizes
financial assets and financial liabilities when it becomes a party to a contract. Financial assets and financial liabilities, with
the exception of financial assets classified at FVTPL, are measured at fair value plus transaction costs on initial
recognition. Financial assets classified at FVTPL are measured at fair value on initial recognition and transaction costs are
expensed when incurred.
Each type of fair value is categorized based on the lowest level input that is significant to the fair value measurement in its
entirety. The following summarizes Killam’s classification and measurement of financial assets and liabilities:
Type
Rent, loans and other receivables
Accounts payable, accrued and other liabilities
Mortgages, loans payable and construction loans
Convertible debentures
Exchangeable Units
Unit-based compensation
Classification
Loans and Receivables
Other Financial Liabilities
Other Financial Liabilities
FVTPL
FVTPL
FVTPL
Measurement
Amortized cost
Amortized cost
Amortized cost
Fair value
Fair value
Fair value
Financial liabilities at fair value through profit and loss
Convertible debentures issued by the Trust are convertible into Trust Units at the option of the holder and the number of
Trust Units to be issued does not vary with changes in their fair value. As the Trust’s Units are redeemable at the option of
the holder and are, therefore, considered puttable instruments in accordance with IAS 32, the convertible debentures are
considered a liability containing liability-classified embedded derivatives.
Effective January 1, 2016, the Trust elected to record the full outstanding amount of each convertible debenture at fair
value determined using the closing trading price, for each publicly traded convertible debenture. Changes in fair value are
recognized in the consolidated statements of income and comprehensive income (refer to note 3).
The Exchangeable Units of the Trust are exchangeable into units of the Trust at the option of the holder. These Exchangeable
Units are considered puttable instruments in accordance with IAS 32, and are required to be classified as financial liabilities
at FVTPL. The distributions paid on the Exchangeable Units are accounted for as financing costs.
Financial liabilities are classified as FVTPL if they meet certain conditions and are designated as such by Management, or
they are derivative liabilities. Financial liabilities classified as FVTPL are measured at fair value, with changes recognized in
the consolidated statements of income and comprehensive income.
84
K I L L A M A PA R T M E N T R E I T | 2 0 1 6
9
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
2. Significant Accounting Policies (continued)
Loans and receivables
Such receivables arise when Killam provides services to a third party, such as a tenant, and are included in other current
assets, except for those with maturities more than 12 months after the consolidated statement of financial position date,
which are classified as other non-current assets. Loans and receivables are accounted for at amortized cost.
Other financial liabilities
Other financial liabilities are financial liabilities that are not classified as FVTPL. Subsequent to initial recognition, other
financial liabilities are measured at amortized cost using the effective interest method. The effective interest method is a
method of calculating the amortized cost of an instrument and of allocating interest income over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash receipts (including all transaction costs and
other premiums or discounts) through the expected life of the debt instrument to the net carrying amount of the initial
recognition.
Trust Units
Killam's Trust Units are redeemable at the option of the holder and, therefore, are considered puttable instruments.
Puttable instruments are required to be accounted for as financial liabilities, except where certain conditions are met in
accordance with IAS 32, in which case the puttable instruments may be presented as equity. Killam's Trust Units meet the
conditions of IAS 32 as they are the most subordinate to all other classes of instruments and are, therefore, presented as
equity on the consolidated statements of financial position.
Restricted Trust Units ("RTUs")
The RTUs are considered a financial liability as there is a contractual obligation for the Trust to deliver Trust Units upon
conversion of the RTUs. As the Trust Units are redeemable at the option of the holder and are, therefore, considered
puttable instruments in accordance with IAS 32, the RTUs are also considered a financial liability. The RTUs are measured
at fair value using Killam's unit price on each reporting date with changes in fair value recognized in the consolidated
statements of income and comprehensive income.
Exchangeable Units
The Exchangeable Units are considered a financial liability as there is a contractual obligation for the Trust to deliver Trust
Units upon exchange of the Exchangeable Units. The distributions on the Exchangeable Units are recognized as financing
costs in the consolidated statements of income and comprehensive income. The distributions payable as at the reporting
date is reported under other current liabilities on the consolidated statements of financial position. On initial recognition,
the Exchangeable Units are measured at fair value, with the related fair value gain being recorded through retained
earnings. Subsequently, the Exchangeable Units are remeasured at each reporting date at fair value, with changes in fair
value recognized in the consolidated statements of income and comprehensive income.
Mortgages and loans payable
Mortgages and loans payable are initially recognized at fair value less directly attributable transaction costs. After initial
recognition, mortgages and loans payable are subsequently measured at amortized cost using the effective interest rate
method. Mortgage maturities and repayments due more than 12 months after the consolidated statements of financial
position date are classified as non-current.
Financing costs
Financing fees and other costs incurred in connection with debt financing are deducted from the cost of the debt and
amortized using the effective interest rate method. Upon refinancing, any financing costs associated with previous
mortgages are written off to income. Amortized cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the effective interest rate calculation.
Prepaid insurance premiums
Canada Mortgage and Housing Corporation ("CMHC") insurance premiums are presented within other non-current assets.
They are amortized over the amortization period of the underlying mortgage loans when incurred (initial period is typically
25 years) and are included in interest and other financing costs in the consolidated statements of income and
comprehensive income.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 8 5
10
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
2. Significant Accounting Policies (continued)
Transaction costs
Transaction costs related to financial assets classified as FVTPL are expensed as incurred. Transaction costs related to loans
and receivables and other liabilities, measured at amortized cost, are netted against the carrying value of the asset or liability
and amortized over the expected life of the instrument using the effective interest rate method. Transaction costs relating to
available-for-sale financial assets are included in the cost of the asset on initial recognition.
Determination of fair value
The fair value of a financial instrument on initial recognition is generally the transaction price, which is the fair value of the
consideration given or received. Subsequent to initial recognition, the fair value of financial instruments is remeasured based
on relevant market data. Killam classifies the fair value for each class of financial instrument based on the fair value hierarchy.
The fair value hierarchy distinguishes between market value data obtained from independent sources and Killam’s own
assumptions about market value. See note 6 for a detailed discussion of valuation methods used for financial instruments
quoted in an active market and instruments valued using observable data.
Derivatives
Derivative financial instruments are initially recognized at fair value on the date a derivative contract is entered into and
subsequently re-measured at fair value. The method of recognizing the resulting gain or loss depends on whether the
derivative financial instrument is designated as a hedging instrument and, if so, the nature of the item being hedged. For
Killam's accounting policy on hedging, see the Hedging Relationships section below. Derivatives not designated in a
hedging relationship are measured at fair value with changes therein recognized directly through the consolidated
statements of income and comprehensive income.
Embedded derivatives
Derivatives embedded in other financial instruments or contracts are separated from their host contracts and accounted for
as derivatives when their economic characteristics and risks are not closely related to those of the host contract; the terms
of the embedded derivative are the same as those of a free-standing derivative; and the combined instrument or contract is
not measured at fair value. These embedded derivatives are measured at fair value with changes therein recognized within
net income in the consolidated statements of income and comprehensive income.
(M) Hedging Relationships
Killam uses interest rate swaps to hedge its risks associated with interest rates. Such derivative financial instruments are
initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently
remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair
value is negative.
At the inception of a hedge relationship, Killam formally designates and documents the hedge relationship to which it
wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The
documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged and how Killam will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the
hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in
achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually
have been highly effective throughout the financial reporting periods for which they were designated.
Cash flow hedges
For the purpose of cash flow hedge accounting, hedges are classified as cash flow hedges when hedging exposure to
variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a
highly probable forecast transaction.
The effective portion of the gain or loss on the hedging instrument is recognized directly in equity through other
comprehensive income, while any ineffective portion is recognized immediately in the consolidated statements of income
and comprehensive income. Amounts taken to equity are transferred to profit or loss when the hedged transaction affects
profit or loss, such as when the hedged financial income or financial expense is recognized.
If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in equity are
transferred to the consolidated statements of income and comprehensive income. If the hedging instrument expires or is
sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts
previously recognized in equity remain in equity until the forecast transaction or firm commitment occurs.
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11
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
2. Significant Accounting Policies (continued)
(N) Comprehensive Income
Comprehensive income includes net income and other comprehensive income. Other comprehensive income includes the
effective portion of cash flow hedges less any amounts reclassified to interest and other financing costs and the associated
income taxes.
(O) Accumulated Other Comprehensive Loss
AOCL is included in the consolidated statements of financial position as equity and includes the unrealized gains and losses
of the changes in the fair value of cash flow hedges.
(P) Distributions
Distributions represent the monthly cash distributions on outstanding Trust Units and Exchangeable Units.
(Q) Provisions
In accordance with IAS 37, Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”), a provision is a liability of
uncertain timing or amount. Provisions are recognized when the entity has a present legal or constructive obligation as a
result of past events and when it is probable that an outflow of resources will be required to settle the obligation and the
amount can be reliably estimated.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the
date of the consolidated statements of financial position, taking into account the risks and uncertainties surrounding the
obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount
is the present value of those cash flows, where the time value of money is material. When some or all of the economic
benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an
asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.
Provisions reflect Killam’s best estimate at the reporting date. Killam’s provisions are immaterial and are included in other
payables.
(R) Taxation
Effective January 1, 2016, Killam qualified as a "mutual fund trust" as defined under the Income Tax Act (Canada) and as a
REIT eligible for the "REIT Exemption" in accordance with the rules affecting the tax treatment of publicly traded trusts.
Accordingly, the Trust is not taxable on its income provided that all of its taxable income is distributed to its unitholders.
This exemption, however, does not extend to the corporate subsidiaries of Killam that are subject to income taxes.
(i) Current income tax
Current income tax assets and liabilities are measured at the amount expected to be paid to tax authorities, net of
recoveries, based on the tax rates and tax laws enacted or substantively enacted at the reporting date. Current income tax
relating to items recognized directly in equity is recognized in equity and not profit or loss. Management periodically
evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to
interpretation and establishes provisions where appropriate.
(ii) Deferred income tax
Deferred income tax is provided using the liability method on all temporary differences at the reporting date between the
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, except where the temporary
difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business
combination that, at the time of the transaction, affects neither accounting nor taxable profit or loss.
Deferred income tax assets are recognized only to the extent that it is probable that taxable profit will be available against
which deductible temporary differences, carried forward tax credits, or tax losses can be utilized. The carrying value of
deferred income tax assets are reviewed at each reporting date and reduced to the extent it is no longer probable that the
income tax asset will be recovered. Killam determines the deferred tax consequences associated with temporary differences
relating to investment properties as if the carrying amount of the investment property is recovered entirely through sale.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset
is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the
reporting date.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 8 7
12
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
2. Significant Accounting Policies (continued)
(S) Earnings Per Unit
As a result of the redemption feature of Killam's Trust Units, these Units are considered financial liabilities under IAS 33,
Earnings per share, and they may not be considered as equity for the purposes of calculating net income on a per Unit basis.
Consequently, Killam has elected not to report earnings per Unit calculation, as permitted under IFRS.
3. REIT Conversion Adjustments
A description of the adjustments recorded effective January 1, 2016 related to Killam’s conversion to a REIT are as follows:
Exchangeable Units
Effective January 1, 2016, 4,748,061 Exchangeable Units were issued and $36.6 million was reclassified from unitholders'
equity to Exchangeable Units on the consolidated statements of financial position. The Exchangeable Units were recorded at
fair value using Killam’s unit price on January 4, 2016, and a fair value loss of $12.9 million was recorded through retained
earnings. Effective January 1, 2016, $1.4 million was reclassified from contributed surplus to unit-based compensation and a
fair value gain of $0.4 million was recorded through retained earnings. The unit-based compensation was calculated using
Killam’s unit price on the TSX on January 4, 2016.
Convertible debentures
Effective January 1, 2016, Killam elected to record the full outstanding amount of each convertible debenture at fair value
using the closing trading price for each convertible debenture on the TSX on each reporting date with changes in fair value
recognized in the consolidated statements of income and comprehensive income.
Effective January 1, 2016, the convertible debentures were remeasured at fair value. The difference between the fair value
and the carrying amount included $5.7 million recorded in other paid-in capital, which represented the value of the
conversion option of each convertible debenture on issuance. This balance net of $1.4 million in deferred financing costs was
reclassified to the convertible debentures liability. The modification of the convertible debentures as a result of the REIT
conversion was treated as an extinguishment and resulted in a fair value gain of $3.1 million included on the consolidated
statements of income and comprehensive income.
Restrictive Trust Units
Effective January 1, 2016, $1.4 million was reclassified from contributed surplus to unit-based compensation and a fair value
gain of $0.4 million was recorded through retained earnings. The unit-based compensation was calculated using Killam’s unit
price on the TSX on January 4, 2016.
Deferred Income Taxes
Effective January 1, 2016, Killam recorded the derecognition of a portion of the deferred tax liability to reflect the tax status
of the Trust as a flow-through vehicle. The deferred tax liability recorded on the consolidated statements of financial
position relates only to the corporate subsidiary entity of the REIT. The derecognition of the deferred tax liability was
recorded through net income.
The reconciliation of the deferred tax liability as at January 1, 2016, is as follows:
Deferred tax liability as at January 1, 2016, opening
$ 112,145
Derecognition on conversion to a REIT
(39,997)
Deferred tax liability as at January 1, 2016, closing
$ 72,148
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13
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
4. Critical Accounting Judgments, Estimates and Assumptions
Critical Judgments in Applying Accounting Policies
The following are the critical judgments, apart from those involving estimations (see Key Accounting Estimates and
Assumptions below) that have been made in applying the Trust’s accounting policies and that have the most significant effect
on the reported amounts in the consolidated financial statements:
(i) Income taxes
The Trust applies judgment in determining the tax rates applicable to its corporate subsidiaries and identifying the temporary
differences in each of such legal subsidiaries in respect of which deferred income taxes are recognized. Deferred taxes related
to temporary differences arising from its corporate subsidiaries are measured based on the tax rates that are expected to
apply in the year when the asset is realized or the liability is settled. Temporary differences are differences that are expected
to reverse in the future and arise from differences between accounting and tax asset values.
(ii) Investment property and internal capital program
The Trust’s accounting policy relating to investment properties is described in note 2(g). In applying this policy, judgment is
applied in determining the extent and frequency of utilizing independent, third-party appraisals to measure the fair value of
the Trust’s investment properties. Additionally, judgment is applied in determining the appropriate classes of investment
properties in order to measure fair value. The Trust also undertakes internal capital improvements and upgrades. Such work is
specifically identified, and the Trust applies judgment in the estimated amount of directly attributable salaries to be allocated
to capital improvements and upgrades of its investment properties.
(iii) Financial instruments
The Trust’s accounting policies relating to financial instruments are described in note 2(m). Critical judgments inherent in
these policies related to applying the criteria set out in IAS 39 to designate financial instruments into categories i.e. FVTPL,
etc., assess the effectiveness of hedging relationships and determine the identification of embedded derivatives, if any, that
are subject to fair value measurement.
(iv) Basis of consolidation
The consolidated financial statements of the Trust include the accounts of Killam and its wholly-owned subsidiaries, as well as
entities over which the Trust exercises control on a basis other than ownership of voting interest within the scope of IFRS 10,
Consolidated Financial Statements. Judgment is applied in determining if an entity meets the criteria of control as defined in
the accounting standard.
Key Accounting Estimates and Assumptions
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of
the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year. Actual results could differ from estimates.
(i) Valuation of investment properties
The choice of valuation method and the critical estimates and assumptions underlying the fair value determination of
investment properties are set out in note 6. Significant estimates used in determining the fair value of the Trust’s investment
properties include capitalization rates and net operating income (which is influenced by inflation rates, vacancy rates and
expected maintenance costs) used in the overall capitalization rate valuation method as well as discount rates and forecasted
cash flows used in the discounted cash flow valuation method. A change to any one of these inputs could significantly alter
the fair value of an investment property. Please refer to note 6 for sensitivity analysis.
IPUC are also valued at fair value, except if such values cannot be reliably determined. In the case when fair value cannot be
reliably determined, such property is recorded at cost. The fair value of IPUC is determined using the direct income
capitalization method.
(ii) Deferred unit-based compensation plan
The compensation costs relating to the deferred unit plan are based on estimates of how many deferred units will be
awarded as well as how many will actually vest and be exercised.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 8 9
14
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
4. Critical Accounting Judgments, Estimates and Assumptions (continued)
(iii) Deferred taxes
The amount of the temporary differences between the accounting carrying value of the Trust’s assets and liabilities held in
various corporate subsidiaries versus the tax bases of those assets and liabilities and the tax rates at which the differences will
be realized are outlined in note 19.
5. Future Accounting Policy Changes
The following new or amended accounting standards under IFRS have been issued or revised by the IASB; however, they
are not yet effective and as such have not been applied to the consolidated financial statements.
IFRS 9, Financial Instruments ("IFRS 9")
In July 2014, the IASB issued the final version of IFRS 9, which replaces IAS 39 and all previous versions of IFRS 9. IFRS 9
brings together all three aspects of the accounting for financial instruments project: classification and measurement,
impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early
application permitted. Except for hedge accounting, retrospective application is required but providing comparative
information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some
limited exceptions. Killam plans to adopt the new standard on the effective date. During 2016, Killam performed a high
level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available
information and may be subject to changes arising from further detailed analysis or additional reasonable and supportable
information being made available to Killam in the future. Overall, Killam expects no significant impact on its statement of
financial position.
IFRS 15, Revenue from Contracts with Customers ("IFRS 15")
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with
customers. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to
be entitled in exchange for transferring goods or services to a customer. The new revenue standard will supersede all
current revenue recognition requirements under IFRS. Either a full retrospective application or a modified retrospective
application is required for annual periods beginning on or after January 1, 2018 and early adoption is permitted. Killam is in
the process of assessing the impact IFRS 15 may have on future financial statements and plans to adopt the new standard
on the required effective date; however, Killam does not anticipate a significant impact on the financial results as revenue
earned from leases is outside the scope of the standard.
IAS 40, Investment Properties ("IAS 40")
During December 2016, the IASB issued an amendment to IAS 40 clarifying certain existing IAS 40 requirements. The
amendment requires that an asset be transferred to, or from investment property when, and only when, there is a change
in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property and
there is evidence of the change in use. In isolation, a change in management's intentions for the use of a property does not
provide evidence of a change in use. These amendments are effective for annual periods beginning on or after January 1,
2018, with earlier adoption permitted. These amendments are not expected to have any significant impact on Killam's
consolidated financial statements.
IFRS 16, Leases ("IFRS 16")
In January 2016, the IASB issued IFRS 16. The new standard requires that for most leases, lessees must initially recognize a
lease liability for the obligation to make lease payments and a corresponding right-of-use asset for the right to use the
underlying asset for the lease term. Lessor accounting, however, remains largely unchanged, and the distinction between
operating and finance leases is retained. This standard will be effective for Killam's annual periods beginning after January
1, 2019, with earlier adoption permitted so long as IFRS 15 has been adopted by Killam. Killam will perform a detailed
analysis which considers any leases that would be affected by this and the impact it may have on the consolidated financial
statements.
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Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
6. Investment Properties
As at December 31, 2016
Segment
Apartments
MHCs
Other
IPUC
Total
Balance, beginning of year
$1,636,744
$125,648
$32,188
$45,676 $1,840,256
Fair value adjustment on investment properties
Acquisitions
Dispositions
Transfer from IPUC
Capital expenditure on investment properties
Capital expenditure on IPUC
Interest capitalized on IPUC
Balance, end of year
As at December 31, 2015
Segment
Balance, beginning of year
Fair value adjustment on investment properties
Acquisitions
Dispositions
Transfer from IPUC
Transfer to IPUC
Capital expenditure on investment properties
Capital expenditure on IPUC
Interest capitalized on IPUC
Balance, end of year
(9,188)
48,214
—
15,490
30,139
—
—
5,896
(457)
—
(8)
—
2,098
—
—
—
—
—
538
—
—
—
—
—
(15,490)
—
24,411
910
(3,749)
48,214
(8)
—
32,775
24,411
910
$1,721,399
$133,634
$32,269
$55,507 $1,942,809
Apartments
MHCs
$1,568,203
$122,629
Other
$2,223
—
28,904
—
—
—
734
—
—
—
—
2,285
1,061
—
—
—
—
IPUC
Total
$40,840 $1,733,895
—
17,973
(1,143)
(36,147)
2,300
—
20,764
1,089
(6,103)
59,897
(1,143)
—
—
31,857
20,764
1,089
(6,837)
13,020
—
36,147
(2,300)
28,511
—
—
$1,636,744
$125,648
$32,188
$45,676 $1,840,256
During the year ended December 31, 2016, Killam acquired the following properties:
Property
Apartments
Kanata Lakes III(2)
270 Parkside Drive
Garden Park Apartments(3)
960/970/980 Cheapside Street
298 Fairview Avenue & 1447 Trafalgar Street
Other
Vacant Land
Vacant Land(4)
Total Acquisitions
Location
Acquisition Date Year Built
Units
Purchase
Price(1)
Ottawa
10-Jun-16
Fredericton
17-Jun-16
2015
1979
1979
1960
30-Jun-16
22-Dec 16
22-Dec-16
1960/1965
2-Feb-16
24-Nov-16
173
28
128
113
40
482
$31,123
1,770
23,724
10,250
3,150
340
1,160
$71,517
Halifax
London
London
Halifax
Halifax
(1) Purchase price does not include transaction costs.
(2) Purchase price represents 50% ownership in a 173-unit building, which includes 2,712 SF of commercial space and a 25% interest in a
shared clubhouse. This building is part of a five-building complex. Killam and its 50/50 partner now own three of the buildings and have the
two remaining buildings under contract with closings scheduled for Q1-2017.
(3) Purchase price represents Killam's acquisition of the remaining 51.02% interest in Garden Park Apartments. Post acquisition, Killam has
a 100% interest in the 246-unit building, which includes 8,159 SF of commercial space.
(4) Purchase price represents Killam's acquisition of the remaining 50% interest in vacant land for future development adjacent to the
Brewery Market and The Alexander development.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 9 1
16
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
6.
Investment Properties (continued)
During the twelve months ended December 31, 2016, Killam capitalized salaries of $3.0 million (December 31, 2015 - $3.0
million) as part of its project improvement, suite renovation and development programs.
For the twelve months ended December 31, 2016, interest costs associated with the general corporate borrowings used to
fund development were capitalized to the respective development projects using Killam's weighted average borrowing rate
of 3.11% (December 31, 2015 - 3.60%). Interest costs associated with construction loans were capitalized to the respective
developments using the actual borrowing rate associated with the loan.
Investment properties with a fair value of $1.9 billion as at December 31, 2016, (December 31, 2015 - $1.8 billion) have
been pledged as collateral against Killam's mortgages, construction loans and credit facilities.
Valuation methodology and processes
Investment properties carried at fair value are categorized by level according to the significance of the inputs used in making
the measurements. As the fair value of investment properties is determined with significant unobservable inputs, all
investment properties are classified as Level 3 assets.
Killam’s policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the event or change
in circumstances that caused the transfer. There were no transfers in or out of Level 3 fair value measurements for investment
properties during the year.
Killam’s internal valuation team consists of individuals who are knowledgeable and have recent experience in the fair value
techniques for investment properties. Killam’s internal valuation team is responsible for determining the fair value of
investment properties every quarter. The team reports directly to the Executive Vice President & Chief Financial Officer
("EVP") and the internal valuation team’s valuation processes and results are reviewed by Management at least once every
quarter, in line with Killam’s quarterly reporting dates.
Killam has also engaged leading independent national real estate appraisal firms with representation and expertise across
Canada to provide appraisals on approximately 20% of its portfolio by value annually. Properties are rotated annually to
ensure that every property is externally valued at least once every five years. These external valuations take place as at
December 31 and are prepared to comply with the requirements of IAS 40, IFRS 13, Fair Value Measurement, and
International Valuation Standards. On a quarterly basis, for properties that are not valued externally, appraisals are updated
by Killam’s internal valuation team for current leasing and market assumptions, utilizing market capitalization rates as
provided by the independent valuation firms. The externally appraised properties reflect a representative sample of the
Killam’s portfolio, and such appraisals and valuation metrics are then applied to the entire portfolio by the internal valuation
team.
At each external valuation date, the internal valuation team:
• Verifies all major inputs to the independent valuation report;
• Assesses property valuation movements when compared to the prior year valuation report; and
• Holds discussions with the independent appraiser.
Changes in fair values are analyzed at each reporting date during the quarterly valuation discussions between the EVP and the
internal valuation team. As part of this discussion, the internal valuation team presents a report that explains the reasons for
the fair value movements.
Valuation techniques underlying Management’s estimation of fair value
The investment properties were valued using the direct income capitalization method. In applying the direct income
capitalization method, the stabilized net operating income (“NOI”) of each property is divided by an overall capitalization
rate. The significant unobservable inputs include:
Stabilized net operating income: based on the location, type and quality of the properties and supported by the terms
•
of existing leases, other contracts or external evidence such as current market rents for similar properties, adjusted for
estimated vacancy rates based on CMHC’s 10-year average rents by region and expected maintenance costs; and
• Capitalization rate: based on location, size and quality of the properties and taking into account market data at the
valuation date.
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Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
6. Investment Properties (continued)
Valuation Basis
Using the direct income capitalization method, the apartment properties were valued using cap-rates in the range of
4.12% to 8.00%, applied to a stabilized NOI of $96.1 million (December 31, 2015 - 4.12% to 8.00% and $91.3 million),
resulting in an overall weighted average cap-rate of 5.49% (December 31, 2015 - 5.52%). The stabilized occupancy rates
used in the calculation of NOI were in the range of 93.0% to 98.1% (December 31, 2015 - 93.2% to 97.9%).
Using the direct income capitalization method, the MHC properties were valued using cap-rates in the range of 5.75% to
8.00%, applied to a stabilized NOI of $9.0 million (December 31, 2015 - 5.75% to 8.00% and $8.5 million), resulting in an
overall weighted average cap-rate of 6.81% (December 31, 2015 - 6.82%). The stabilized occupancy rate used in the
calculation of NOI was 97.9% (December 31, 2015 - 97.5%).
Investment property valuations are most sensitive to changes in the cap-rate. The cap-rate assumptions for the investment
properties are included in the following table by region:
Apartments
Halifax
Moncton
Fredericton
Saint John
St. John's
Charlottetown
Ontario
Alberta
Other Atlantic
MHCs
Ontario
Nova Scotia
New Brunswick
Newfoundland and Labrador
December 31, 2016
December 31, 2015
Low
High
Effective
Weighted
Average
Low
High
Effective
Weighted
Average
4.85%
5.15%
5.15%
6.00%
5.00%
5.50%
4.12%
4.75%
5.75%
7.00%
5.75%
8.00%
7.25%
7.33%
8.00%
6.50%
6.75%
6.00%
6.25%
5.02%
4.75%
8.00%
8.00%
7.00%
8.00%
7.25%
5.49%
5.51%
6.00%
5.98%
6.41%
5.68%
5.94%
4.63%
4.75%
6.83%
6.81%
7.49%
6.17%
8.00%
7.25%
5.00%
5.15%
5.15%
6.00%
5.00%
5.50%
4.12%
4.85%
5.75%
7.00%
5.75%
8.00%
7.25%
7.33%
8.00%
6.25%
6.75%
6.00%
6.25%
5.00%
4.85%
7.00%
8.00%
7.00%
8.00%
7.25%
5.52%
5.58%
6.04%
5.90%
6.40%
5.68%
5.94%
4.63%
4.85%
6.57%
6.82%
7.49%
6.22%
8.00%
7.25%
The key valuation assumption used to determine the fair market value, using the direct capitalization method, is the cap-rate.
A summary of the high, low and weighted average cap-rates used in the valuation model as at December 31, 2016 and 2015,
as provided by Killam's external valuator, is as follows:
Capitalization Rates
December 31, 2016
December 31, 2015
Apartments
MHCs
Low
4.12%
5.75%
High
8.00%
8.00%
Effective
Weighted
Average
5.49%
6.81%
Low
4.12%
5.75%
High
8.00%
8.00%
Effective
Weighted
Average
5.52%
6.82%
The quantitative sensitivity analysis shown below illustrates the value increase or decrease in Killam's portfolio of
properties given the change in the noted input:
18
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 9 3
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
6. Investment Properties (continued)
Class of property
Capitalization rate
Apartments
MHCs
10 basis points
increase
10 basis points
decrease
$(31,306)
$(1,913)
$32,468
$1,971
The investment property segment defined as "other" consists of three commercial properties.
7. Joint Operations and Investments in Joint Venture
Killam has interests in five properties that are subject to joint control and are joint operations. Accordingly, the consolidated
statements of financial position and consolidated statements of income and comprehensive income include Killam's rights to
and obligations for the related assets, liabilities, revenue and expenses.
8. Property and Equipment
As At
Land
Building
Heavy equipment
Vehicles
Furniture, fixtures and office equipment
Leasehold improvements
Less: accumulated depreciation
December 31, 2016
Accumulated
Depreciation
$—
271
102
550
4,153
226
5,302
Cost
$270
1,913
255
1,547
5,225
879
10,089
(5,302)
$4,787
December 31, 2015
Accumulated
Depreciation
$—
204
92
457
3,495
170
4,418
Cost
$270
1,836
225
1,318
4,847
895
9,391
(4,418)
$4,973
Land and building represents Killam’s ownership of a 50% interest in the property that its head office occupies. Under IFRS,
owner-occupied property is required to be accounted for as property and equipment and not investment property.
Property with a carrying value of $1.9 million (December 31, 2015 - $1.9 million) is pledged as collateral against Killam's
mortgage payable.
For the years ended December 31,
Balance, beginning of the year
Capital expenditures
Depreciation
Balance, end of year
9. Other non-current assets
2016
$4,973
698
(884)
$4,787
2015
$4,854
921
(802)
$4,973
Other non-current assets as at December 31, 2016, include a vendor take-back loan issued in June 2015 for $0.95 million and
bearing interest at a rate of 6.5%. As at December 31, 2015, Killam had a vendor take-back loan for $0.95 million, bearing
interest at a rate of 6.5%, and a $4.0 million mezzanine loan, bearing interest at prime plus 7% or a minimum of 10%, paid
quarterly.
94
K I L L A M A PA R T M E N T R E I T | 2 0 1 6
19
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
10. Other Current Assets
As at
Restricted cash
Prepaid expenses
Inventory
December 31, 2016
December 31, 2015
$7,279
4,162
99
$11,540
$6,939
2,734
31
$9,704
Restricted cash consists of security deposits, funds held in trust and property tax reserves. Inventory relates to
manufactured homes for which sales have not closed at year-end.
11. Rent and Other Receivables
As at
Rent receivable
Other receivables
December 31, 2016
December 31, 2015
$1,014
1,881
$2,895
$864
1,216
$2,080
Included in other receivables are laundry revenue, commission revenue and other non-rental income. The majority of these
receivables are less than 60 days old. Killam’s policy is to write off tenant receivables when the tenant vacates the unit and
any subsequent receipt of funds is netted against bad debts. Killam’s bad debt expense experience has historically been less
than 0.4% of revenue. As a result of the low bad debt experience, no allowance for doubtful accounts is recorded in the
accounts.
12. Mortgages and Loans Payable
As at
December 31, 2016
December 31, 2015
Weighted
Average Interest
Debt
Balance
Weighted
Average Interest
Debt
Balance
Mortgages and loans payable
Fixed rate
Variable rate
Vendor financing
Total
Current
Non-current
3.01%
4.28%
4.43%
$989,638
7,863
13
$997,514
111,862
885,652
$997,514
3.27%
4.34%
3.01%
$923,835
11,778
5,234
$940,847
156,218
784,629
$940,847
Mortgages are collateralized by a first charge on the properties of Killam and vendor mortgages are collateralized by either a
second charge on the property or a general corporate guarantee.
As at December 31, 2016, unamortized deferred financing costs of $22.9 million (December 31, 2015 - $19.8 million) and
mark-to- market premiums on mortgages assumed on acquisitions of $0.3 million (December 31, 2015 - $0.8 million) are
netted against mortgages and loans payable.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 9 5
20
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
12. Mortgages and Loans Payable (continued)
Estimated future principal payments and maturities required to meet mortgage obligations by twelve-month periods as at
December 31, 2016 are as follows:
Principal Amount
% of Total Principal
2017
2018
2019
2020
2021
Subsequent to 2021
Unamortized deferred financing costs
Unamortized mark-to-market adjustments
11.0%
12.3%
19.3%
18.9%
12.9%
25.6%
100.0%
$111,862
125,005
196,479
193,097
131,931
261,741
$1,020,115
(22,947)
346
$997,514
Killam has two credit facilities with major financial institutions, which are set out as follows:
I. A $30 million revolving demand credit facility to be used for Killam’s acquisition and development program, as well as
general business purposes. The interest rate on the credit facility is prime plus 75 bps on prime rate advances or 175 bps over
Banker's Acceptance. Killam has assets with an aggregate carrying value of $46.4 million pledged to the line. There is currently
no balance drawn on the credit facility. The agreement includes certain covenants and undertakings of which Killam is in
compliance.
II. A $1.5 million revolving demand facility that can be used for Killam’s acquisition program and for general business
purposes. The interest rate on the debt is prime plus 175 bps on advances and 135 bps on issuance of letters of credit in
addition to 50 bps per annum. As at December 31, 2016, Killam had assets with a carrying value of $1.8 million (December 31,
2015 - $1.6 million)pledged as collateral and letters of credit totaling $1.2 million were outstanding against the facility
(December 31, 2015 - $1.5 million). The agreement includes certain covenants and undertakings of which Killam is in
compliance.
13. Construction Loans
As at December 31, 2016, Killam had access to two floating rate non-revolving demand construction loans for the purpose
of financing development projects for $10.1 and $51.8 million. The $51.8 million construction loan relates to a joint
development project where Killam has a 50% interest. Payments are made monthly on an interest only basis. The
construction loans have interest rates of prime plus 0.625% - 0.75%.
Once construction has been completed and rental targets achieved, the construction loans will be repaid in full and
replaced with conventional mortgages. As at December 31, 2016, $18.5 million (December 31, 2015 - $4.1 million) was
drawn on the construction loans at a weighted average interest rate of 3.39% (December 31, 2015 - 3.45%).
14. Accounts Payable and Accrued Liabilities
As at
December 31, 2016
December 31, 2015
Accounts payable and other accrued liabilities
Mortgage interest payable
Security deposits
$19,969
2,240
5,989
$28,198
96
K I L L A M A PA R T M E N T R E I T | 2 0 1 6
$17,592
2,427
5,472
$25,491
21
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
15. Convertible Debentures
Face Interest Rate %
Conversion
Price
Face
Amount
5.65%
5.45%
Less: Deferred financing charges
$13.40
$57,500 November 30, 2017
Maturity Date December 31, 2016 (1) December 31, 2015 (2)
$55,873
$—
$14.60
$46,000
June 30, 2018
46,690
46,690
—
$46,690
45,160
101,033
(1,406)
$99,627
(1) Recorded at fair value based on closing market trading prices of the debentures.
(2) Recorded at carrying value net of unamortized deferred financing costs.
On July 4, 2016, Killam completed the redemption of its $57.5 million, 5.65% convertible debentures.
Killam’s $46.0 million convertible subordinated debentures are redeemable at face value. Upon maturity or redemption,
Killam may elect to repay all or any portion of the debentures outstanding by issuing the number of Trust Units obtained by
dividing the aggregate of the principal amount of the debentures that have matured or are being redeemed by 95% of the
weighted average market price of the Trust Units for the preceding 20 days (ending five days preceding the fixed date for
redemption or maturity).
Effective January 1, 2016, the convertible debentures were classified as FVTPL and measured at fair value (refer to note 3).
16. Exchangeable Units
The Exchangeable Units, representing an aggregate fair value of $46.2 million as at December 31, 2016 (December 31, 2015
- $nil), are non-transferable, but are exchangeable, on a one-for-one basis, into Killam Trust Units at any time at the option
of the holder. Prior to such exchange, distributions will be made on these Exchangeable Units in an amount equivalent to
the distributions that would have been made had the units been exchanged for Killam Trust Units.
Balance, beginning of year
Trust units exchanged for Exchangeable Units on conversion
Fair value adjustment on conversion
Exchangeable Units exchanged
Fair value adjustment
Balance, end of year
2016
Number of
Exchangeable Units
—
4,748,061
—
Value
$—
36,567
12,860
(882,225)
(11,043)
—
7,774
3,865,836
$46,158
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 9 7
22
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
17. Unitholders' Equity/Shareholders' Equity
Under the reorganization of the Company to a real estate investment trust, the former shareholders of the Company received
Trust Units or Exchangeable Units. The interests in Killam are represented by two classes of units: a class described and
designated as "Trust Units" and a class described and designated as "Special Voting Units". The Special Voting Units are used
to provide voting rights to holders of Exchangeable Units that are exchangeable for Trust Units. The Exchangeable Units are
classified as a financial liability in accordance with IAS 32 (refer to note 3).
By virtue of Killam being an open-ended mutual fund trust, unitholders of Trust Units are entitled to redeem their Trust Units
at any time at prices determined and payable in accordance with the conditions specified in Killam’s DOT. As a result, under
IFRS, Trust Units are defined as financial liabilities; however, for the purposes of financial statement classification and
presentation, the Trust Units may be presented as equity instruments as they meet the puttable instrument exemption under
IAS 32.
All Trust Units outstanding are fully paid, have no par value and are voting Trust Units. The DOT authorizes the issuance of an
unlimited number of Trust Units. Trust Units represent a unitholder’s proportionate undivided beneficial interest in Killam. No
Trust Unit has any preference or priority over another. No unitholder has or is deemed to have any right of ownership in any of
the assets of Killam. Each Unit confers the right to one vote at any meeting of unitholders and to participate pro rata in any
distributions and, on liquidation to a pro rata share of the residual net assets remaining after preferential claims thereon of
debtholders.
Unitholders have the right to redeem their units at the lesser of (i) 90% of the market price of the Trust Unit (market price is
defined as the weighted average trading price of the previous 10 trading days) and (ii) the most recent closing market price
(closing market price is defined as the weighted average trading price on the specified date) at the time of the redemption.
The redemption price will be satisfied by cash, up to a limit of $50 thousand for all redemptions in a calendar month, or a note
payable. For the year ended December 31, no unitholders redeemed units.
The units issued and outstanding are as follows:
Balance, January 1, 2015
Dividend reinvestment plan
Stock options exercised
Shares issued for acquisition
Restricted share units redeemed
Repurchase through normal course issuer bid
Balance December 31, 2015
REIT conversion, January 1, 2016
Distribution reinvestment plan
Restricted trust units redeemed
Units issued on exchange of Exchangeable Units
Units issued for cash
Units issued for acquisitions
Balance, December 31, 2016
Distribution Reinvestment Plan ("DRIP")
Number of Trust Units Number of Common Shares
Value
—
—
—
—
—
—
—
58,114,973
558,182
51,688
882,225
8,165,000
97,734
67,869,802
60,475,979
$459,138
667,594
367,907
1,341,859
30,695
(21,000)
6,907
3,458
14,535
286
(192)
62,863,034
$484,132
(4,748,061)
(36,567)
—
—
—
—
—
—
6,482
323
11,043
93,623
1,161
$560,197
Killam's DRIP allows unitholders to acquire additional units of the Trust through the reinvestment of distributions on their
units. Unitholders who participate in the DRIP receive additional units equal to 3% of the units reinvested. Units issued with
the DRIP are issued directly from the Trust at a price based on the 10-day volume weighted average closing price of the TSX
preceding the relevant distribution date, which typically is on or about the 15th day of the month following the distribution
declaration.
98
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23
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
17. Unitholders' Equity/Shareholders' Equity (continued)
New Units Issued
Price per Unit
Gross Proceeds Transaction Costs
Net Proceeds
Units Issued
Bought-deal (June 2, 2016)
Over-allotment (June 2, 2016)
$12.00
$12.00
Total
$85,200
12,780
$97,980
$3,846
511
$4,357
$81,354
12,269
$93,623
7,100,000
1,065,000
8,165,000
On November 24, 2016 Killam also issued 97,134 units at a price per unit of $11.87 to acquire the remaining 50% interest in a
piece of vacant land for future development for $1.2 million.
18. Distributions
Killam paid distributions to its unitholders in accordance with its DOT. Distributions declared by the Board of Trustees were
paid monthly, on or about the 15th day of each month.
For the years ended December 31, 2016, the distributions declared related to the Trust Units were $38.3 million (dividends
declared for the year ended December 31, 2015 - $37.5). For the year ended December 31, 2016, distributions declared
related to the Exchangeable Units were $2.7 million (year ended December 31, 2015 - $nil ). Distributions on the
Exchangeable Units are recorded in financing costs.
19. Deferred Income Tax
Trusts that satisfy the REIT Exemption are excluded from the specified investment flow-through ("SIFT") definition and
therefore will not be subject to taxation under the SIFT Rules. Effective January 1, 2016, Killam qualified for the REIT
Exemption and continues to meet the REIT Exemption as at December 31, 2016, and is therefore not subject to taxation to the
extent that income is distributed to unitholders. However, this exemption does not extend to the corporate subsidiaries of
Killam that are taxable legal entities. For the year ended December 31, 2016, the deferred tax expense relates to these
corporate subsidiaries.
The source of deferred tax balances and movements were as follows:
As at December 31,
Deferred tax assets (liabilities) related to:
Real estate properties
Loss carryforwards
Convertible debentures
Unrealized capital gains
Other
Recognized on
REIT conversion
January 1, 2016
2015
Revised
opening
balance
Recognized in
statement of
income and
comprehensive
income
2016
$108,785
($35,934)
$72,851
$11,111
$83,962
(194)
720
—
2,834
(1,273)
(1,467)
(2,393)
(3,860)
(720)
—
(2,070)
—
—
764
—
2,777
904
—
2,777
1,668
Net deferred tax liabilities
$112,145
($39,997)
$72,148
$12,399
$84,547
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 9 9
24
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
19. Deferred Income Tax (continued)
As at December 31,
Deferred tax assets (liabilities) related to:
Real estate properties
Loss carryforwards
Convertible debentures
Other
Net deferred tax liabilities
Recognized in
equity on
issuance of
shares
Recognized in
statement of
income and
comprehensive
income
Recognized in
other
comprehensive
loss
2014
$103,490
(374)
1,034
1,808
$105,958
$—
—
—
(46)
($46)
$5,295
180
(314)
1,055
$6,216
$—
—
—
17
$17
2015
$108,785
(194)
720
2,834
$112,145
The deferred tax expense for the year can be reconciled to the accounting profit as follows:
For the years ended December 31,
Net income before taxes
Statutory tax rate
Income tax expense at statutory rates
Amounts not subject to tax
Effect of provincial tax rate changes
Initial derecognition of deferred tax liability on REIT
conversion
Change to tax basis in excess of book basis
Other
Total tax (recovery) expense
20. Deferred Unit-based Compensation
2016
$43,841
29.7%
13,008
(12,113)
1,186
(39,997)
10,318
—
($27,598)
2015
$42,016
29.2%
12,260
(363)
(253)
—
(3,721)
(1,707)
$6,216
Unit/Stock Option Plan
Killam replaced its stock option plan with a restricted share unit plan in 2011. All remaining outstanding stock options were
exercised in May 2015. For the year ended December 31, 2016, there were no options granted (December 31, 2015 - nil).
Restricted Trust Units ("RTUs") / Restricted Share Units ("RSUs")
Killam’s Restricted Trust Unit Plan gives members of the senior executive team and directors the right to receive a
percentage of their annual bonus and non-executive members of the Board of Trustees the right to receive a percentage of
their annual retainer, in the form of RTUs in lieu of cash. The Compensation Committee has established the following
parameters on the percentage of the annual bonus and annual retainer that may be allocated to RTUs:
Non-executive Board members
Chief Executive Officer and Chief Financial Officer
Other executives and director-level employees
Minimum
Maximum
—%
50%
25%
100%
50%
50%
100
K I L L A M A PA R T M E N T R E I T | 2 0 1 6
25
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
20. Deferred Unit-based Compensation (continued)
Killam will match the elected amount in the form of RTUs having a value equal to the volume weighted average price of all
Trust Units traded on the TSX for the five trading days immediately preceding the date on which the compensation is
payable. The RTUs earn distributions based on the same distributions paid on the Trust Units, and such distributions are
used to acquire additional RTUs. The initial RTUs and RTUs acquired through distribution reinvestment are credited to each
person's account and are not issued to the employee or Board member until they redeem such RTUs. The RTUs will be
redeemed and paid out in Trust Units by December 31 of the year in which the RTUs have vested. The RTUs shall vest with
the following schedule: (a) 50% on the second anniversary of the grant rate; and (b) 50% on the third anniversary of the
grant date.
The RTUs are considered a financial liability because there is a contractual obligation for the Trust to deliver Trust Units
(which are accounted for as liabilities, but presented as equity instruments under IAS 32) upon conversion of the RTUs. The
RTUs are measured at fair value with changes flowing through the consolidated statements of income and comprehensive
income. The fair value for the year ended December 31, 2016, is $3.0 million (December 31, 2015 - $nil). As at
December 31, 2015, $1.4 million was included in contributed surplus related to the RSUs.
For the year ended December 31, 2016, compensation expense of $1.3 million (December 31, 2015 - $0.5 million) has been
recognized in respect of the RTUs/RSUs.
The details of the RTUs issued under the RTU Plan are shown below:
Outstanding, beginning of year
Granted
Redeemed
Forfeited
Additional restricted trust unit/share distributions
Outstanding, end of year
21. Financing Costs
For the years ended December 31,
Mortgage, loan and construction loan interest
Interest on exchangeable units
Amortization of fair value adjustments on assumed debt
Amortization of loss on interest rate hedge
Unrealized gain on derivative liability
Convertible debenture interest
Capitalized interest
2016
2015
Number of
RTUs
184,106
155,918
(89,656)
(530)
13,898
263,736
Weighted
Average Issue
Price
$10.40
10.93
10.44
10.88
11.89
$10.78
Number of
RSUs
140,513
82,328
(48,957)
—
10,222
184,106
Weighted
Average Issue
Price
$11.01
10.74
12.38
—
10.42
$10.40
2016
$30,919
2,659
(415)
59
(297)
4,178
(910)
$36,193
2015
$31,808
—
(570)
59
—
6,836
(1,089)
$37,044
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 1 0 1
26
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
22. Segmented Information
For investment properties, discrete financial information is provided on a property-by-property basis to members of
executive management, which collectively comprise the chief operating decision makers. The individual properties are
aggregated into segments with similar economic characteristics such as the nature of the property, vacancy rates, long-term
growth rates and other characteristics. Management considers that this is best achieved by aggregating into apartments,
MHCs and other segments. Consequently, Killam is considered to have three reportable segments, as follows:
• Apartment segment - acquires, operates, manages and develops multi-family residential properties across Canada;
• MHC segment - acquires and operates MHC communities in Ontario and Eastern Canada; and
• Other segment - includes three commercial properties, and Killam's head office and regional office administration costs.
Killam’s administration costs, other income, financing costs, depreciation and amortization, fair value adjustments, gain or loss
on disposition and deferred tax recovery are not reported to the members of executive management on a segment basis and
therefore are not presented below.
The accounting policies of these reportable segments are the same as those described in the summary of significant
accounting policies described in note 2 of the consolidated financial statements for the year ended December 31, 2016.
Reportable segment performance is analysed based on NOI. The operating results, and assets and liabilities, of the
reportable segments are as follows:
For the year ended December 31, 2016
Property revenue
Property operating expenses
Net operating income
For the year ended December 31, 2015
Property revenue
Property operating expenses
Net operating income
As at December 31, 2016
Total assets
Total liabilities
As at December 31, 2015
Total assets
Total liabilities
Apartments
$155,839
(61,450)
$94,389
Apartments
$148,846
(60,964)
$87,882
Apartments
$1,701,080
$966,870
Apartments
$1,639,988
$893,914
MHCs
$14,715
(5,728)
$8,987
MHCs
$14,323
(5,439)
$8,884
MHCs
$142,071
$61,367
MHCs
$126,394
$59,360
Other
$4,715
(2,667)
$2,048
Other
$3,445
(1,821)
$1,624
Total
$175,269
(69,845)
$105,424
Total
$166,614
(68,224)
$98,390
Other
$144,482
$208,930
Total
$1,987,633
$1,237,167
Other
Total
$109,894
$1,876,276
$237,674
$1,190,948
102
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27
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
23. Supplemental Cash Flow Information
For the years ended December 31,
2016
2015
Net income items related to investing and financing activities
Interest paid on mortgages payable and other
Interest paid on convertible debentures
Net change in non-cash operating assets and liabilities
Rent and other receivables
Inventory
Other current assets
Accounts payable and other accrued liabilities
$30,357
4,178
$34,535
($815)
—
(1,495)
7,273
$4,963
$31,202
5,756
$36,958
($126)
108
845
(1,139)
($312)
24. Financial Instruments and Financial Risk Management Objectives and Policies
During Q2-2016, Killam entered into an interest rate swap agreement fixing the rate on one $15.0 million commercial mortgage
at 3.14%, which matures in April 2023, for which hedge accounting is not being applied. The mark-to-market gain on the
derivative instrument for the year ended December 31, 2016 of $0.3 million has been been recorded in net income and the
swap derivative liability is recorded within other non-current liabilities on the consolidated statements of financial position.
Killam’s principal financial liabilities consist of mortgages, construction loans, convertible debentures and trade payables. The
main purpose of these financial liabilities is to finance investment properties and operations. Killam has various financial assets
such as trade receivables and cash, which arise directly from its operations.
Killam may also enter into derivative transactions, primarily interest rate swap contracts to manage interest rate risk arising
from fluctuations in bond yields, as well as natural gas and oil swap contracts to manage price risk arising from fluctuations in
these commodities. It is, and has been, Killam’s policy that no speculative trading in derivatives shall be undertaken. The main
risks arising from Killam’s financial instruments are interest rate risk, credit risk and liquidity risk. These risks are managed as
follows:
(i) Interest Rate Risk
Killam is exposed to interest rate risk as a result of its mortgages and loans payable; however, this risk is mitigated through
Management's strategy to have the majority of its mortgages payable in fixed-term arrangements, as well as, at times, entering
into cash flow hedges. Killam also structures its financings so as to stagger the maturities of its debt, minimizing the exposure to
interest rate volatility in any one year.
As at December 31, 2016, no mortgages or vendor debt had floating interest rates except for four demand loans totalling
$7.9 million and two revolving demand facilities. These loans and facilities have interest rates of prime plus 1.0% - 2.0%
(December 31, 2015 - prime plus 1.0% - 2.0%). As at December 31, 2016, Killam also had two construction loans with balances
drawn of $8.8 and $9.7 million with a weighted average floating interest rate of 3.39% and consequently, Killam is exposed to
short-term interest rate risk on these loans. An annualized 100 bps change in the interest rate on Killam’s entire mortgage and
vendor debt as at December 31, 2016 would affect financing costs by approximately $10.1 million per year. However, only $73.1
million of Killam’s fixed mortgage and vendor debt matures in the next 12 months. Assuming these mortgages are refinanced at
similar terms, except at a 100 bps increase in interest rates, financing costs would increase by $0.7 million per year.
(ii) Credit Risk
Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill their lease term
commitments. Killam mitigates the risk of credit loss through the diversification of its existing portfolio and limiting its exposure
to any one tenant. Credit assessments are conducted with respect to all new leasing and Killam also obtains a security deposit
to assist in potential recovery requirements. In addition, the receivable balances are monitored on an ongoing basis with the
result that Killam’s exposure to bad debt is not significant. Killam's bad debt expense experience has historically been less than
0.4% of revenue. None of Killam’s tenants account for more than 1% of the tenant receivables as at December 31, 2016 or
2015. The maximum exposure to credit risk is the carrying amount of each class of financial assets as disclosed in this note.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 1 0 3
28
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
24. Financial Instruments and Financial Risk Management Objectives and Policies (continued)
(iii) Liquidity Risk
Management manages Killam’s cash resources based on financial forecasts and anticipated cash flows. Killam structures its
financing so as to stagger the maturities of its debt, thereby minimizing Killam’s exposure to liquidity risk in any one year. In
addition, Killam's apartments qualify for CMHC insured debt, thereby reducing the refinancing risk upon mortgage maturities.
Killam’s MHCs do not qualify for CMHC insured debt; however, MHCs continue to have access to mortgage debt. Management
does not anticipate liquidity concerns on the maturity of its mortgages as funds continue to be accessible in the multi-
residential sector.
During the year ended December 31, 2016, Killam refinanced $117.1 million of maturing apartment mortgages with new
mortgages totalling $179.4 million for net proceeds of $62.3 million. As well, Killam refinanced $2.9 million of maturing MHC
mortgages with new mortgages totalling $7.3 million for net proceeds of $4.4 million.
The following table presents the principal payments (excluding interest) and maturities of Killam’s liabilities over the next five
years and thereafter:
For the twelve months
ending December 31,
Mortgage and loans
payable
Construction
loans
2017
2018
2019
2020
2021
Thereafter
$111,862
125,005
196,479
193,097
131,931
261,741
$9,719
8,790
—
—
—
—
Convertible
debentures
$—
46,000
—
—
—
—
Total
$121,581
179,795
196,479
193,097
131,931
261,741
$1,020,115
$18,509
$46,000
$1,084,624
Capital Management
The primary objective of Killam’s capital management is to ensure that it maintains a healthy capital ratio in order to support its
business and maximize Unitholder value. Killam manages its capital structure and makes adjustments to it in light of changes in
economic conditions. To maintain or adjust the capital structure, Killam may adjust the distribution payment to unitholders,
issue new units, issue debt securities or adjust mortgage financing on properties.
Killam monitors capital using a total debt to total assets ratio. Killam’s strategy, as outlined in the operating policies of its DOT, is
for its overall indebtedness not to exceed 70% of total assets. The calculation of the total debt to total assets is summarized as
follows:
As at
Mortgages, loans payables and construction loans
Convertible debentures
December 31, 2016
December 31, 2015
$1,011,623
$46,000
$943,044
$99,627
Total debt
Total assets(1)
Total debt as a percentage of assets
(1) Total assets adjusted for Killam's non-controlling interest related to The Alexander - $11.5 million (December 31, 2015 - total assets
$1,057,623
$1,976,133
$1,042,671
$1,850,076
53.5%
56.4%
adjusted for Killam's non-controlling interest related to The Alexander - $7.1 million and Garden Park - $19.1 million). Total Mortgages,
loans payables and construction loans adjusted for Killam's non-controlling interest related to The Alexander - $4.4 million (December 31,
2015- $1.9 million).
The above calculation is sensitive to changes in the fair value of investment properties, in particular cap-rate changes. A 10
bps increase in the weighted average cap-rate as at December 31, 2016 would increase the debt as a percentage of assets by
90 bps.
104
K I L L A M A PA R T M E N T R E I T | 2 0 1 6
29
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
24. Financial Instruments and Financial Risk Management Objectives and Policies (continued)
Fair Value of Financial Instruments
Fair value is the amount that would be received in the sale of an asset or would be paid to transfer a liability in an orderly
transaction between market participants at the measurement date. The fair value of interest-bearing financial assets and
liabilities is determined by discounting the contractual principal and interest payments at estimated current market interest
rates for the instrument. Current market rates are determined by reference to current benchmark rates for similar term and
current credit spreads for debt with similar terms and risks. The fair values of the Trust’s financial instruments were
determined as follows:
(i) the fair value of the loans receivable are based upon discounted future cash flows using discount rates that reflect current
market conditions for instruments with similar terms and risks. Such fair value estimates are not necessarily indicative of the
amounts Killam might receive or pay in actual market transactions;
the fair values of the mortgages payable are estimated based upon discounted future cash flows using discount rates
(ii)
that reflect current market conditions for instruments with similar terms and risks. Such fair value estimates are not
necessarily indicative of the amounts Killam might pay or receive in actual market transactions;
(iii)
the fair value of the convertible debentures are based on a quoted market price as at the reporting date;
(iv)
the fair value of the deferred unit-based compensation and the Exchangeable Units are estimates at the reporting
date, based on the closing market price of the Trust Units listed on the TSX. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in
estimates could significantly affect fair values. The significant financial instruments of Killam and their carrying values as at
December 31, 2016 and December 31, 2015 are as follows:
Classification
Financial assets carried at amortized cost:
Loans(1)
Financial liabilities carried at amortized cost:
Mortgages
Convertible debentures
Financial liabilities carried at FVTPL:
Exchangeable units
Convertible debentures
Deferred unit-based compensation
Derivative liability
December 31, 2016
December 31, 2015
Carrying
Value
Fair Value
Carrying
Value
Fair Value
$950
$955
$4,950
$4,949
$997,514
$1,036,288
$940,847
$—
$—
$99,627
$995,709
$102,160
$46,158
$46,690
$2,988
$296
$46,158
$46,690
$2,988
$296
$—
$—
$—
$—
$—
$—
$—
$—
(1)The $0.95 million loan receivable is included in the other non-current assets within the consolidated statements of financial position.
The interest rates used to discount the estimated cash flows, when applicable, are based on the five-year government yield
curve at the reporting date, plus an adequate credit spread, and were as follows:
As at
Mortgages - Apartments
Mortgages - MHC
December 31, 2016
December 31, 2015
2.34%
3.76%
1.73%
3.33%
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 1 0 5
30
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
24. Financial Instruments and Financial Risk Management Objectives and Policies (continued)
Assets and Liabilities Measured at Fair Value
The fair value hierarchy of assets and liabilities measured at fair value on a recurring basis in the consolidated statements of
financial position is as follows:
As at
Assets
Investment properties
Liabilities
Exchangeable units
Convertible debentures
Deferred unit-based compensation
Derivative liability
December 31, 2016
December 31, 2015
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
—
—
$46,690
—
—
—
$1,942,809
$46,158
—
$2,988
$296
—
—
—
—
—
—
—
—
—
—
$1,840,256
—
—
—
—
—
—
—
—
The three levels of the fair value hierarchy are described in note 2 to these consolidated financial statements. Transfers
between levels in the fair value hierarchy are recognized on the date of the event or change in circumstances that caused the
transfer. There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 during the years ended December
31, 2016 and 2015.
25. Commitments and Contingencies
Commitments primarily related to capital investment in investment properties of $26.9 million were outstanding as at
December 31, 2016 (December 31, 2015 - $8.1 million).
Killam is also committed to acquire a 50% interest in two new apartment buildings in Ottawa, the two remaining buildings of
the five-building Kanata Lakes Apartments, of which Killam is already a 50% owner. The $50.0 million acquisition for Killam is
expected to close in March 2017.
Killam is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are
generally covered by insurance. Management believes that the final outcome of such matters will not have a material adverse
effect on the financial position, results of operations or liquidity of Killam. However, actual outcomes may differ from
Management's expectations.
Killam entered into a physical supply contract for natural gas to hedge its own usage, which is summarized below:
Area
Ontario
Usage Coverage
Term
Cost
70%
November 1, 2016 - October 31, 2017
$12.60/m3
26. Financial Guarantees
Killam is the guarantor for 100% mortgage debt held through its joint operations. As at December 31, 2016, the maximum
potential obligation resulting from these guarantees is $87.9 million, all related to long‑term mortgage financing (December
31, 2015 - $71.4 million). These loans are secured by a first ranking mortgage over the associated investment properties. Half
of the total mortgages for these properties are recorded as a mortgage liability on the consolidated financial statements.
Killam also is the guarantor for 100% of the construction loan debt related to the Southport Apartments development
project. As at December 31, 2016, the maximum potential obligation resulting from this guarantee is $10.9 million.
Management has reviewed the contingent liability associated with its financial guarantee contracts and, as at December 31,
2016, determined that a provision is not required to be recognized in the consolidated statements of financial position
(December 31, 2015 ‑ $nil).
106
K I L L A M A PA R T M E N T R E I T | 2 0 1 6
31
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars
(except unit/share amounts, or as noted)
27. Related Party Transactions
Killam has a 50% interest in a commercial complex that houses its head office. The remaining 50% interest is owned by a
company controlled by an executive and Trustee of Killam. In addition, the property manager for the commercial complex
is controlled by the executive and Trustee of Killam and is paid an industry standard property management fee of 4.5%.
Occasionally, Killam will also pay market leasing placement fees or project management fees, to the company controlled by
an executive and director of Killam. Killam paid $nil (2015 - $45,000) in project management fees related to leasehold
improvements for a new commercial tenant.
On March 31, 2015, Killam acquired the Brewery Market, located in Halifax, NS, for $22.3 million, from Halkirk Properties
Limited ("Halkirk"), a company that is partially owned by a Trustee of Killam. Killam also acquired a 50% interest in a
corporation that owns vacant land adjacent to the Brewery Market for future development for $5.2 million. The remaining
50% is also owned by Halkirk.
During the third quarter of 2015, Killam and Halkirk began development of a 240-unit building on the vacant land adjacent
to the Brewery Market. Construction of the development is managed by Killam, and the cost of construction will be funded
50/50 by each partner.
During the fourth quarter of 2016, Killam acquired the remaining 50% interest in a portion of vacant land held in the
corporation from Halkirk in exchange for $1.16 million in Killam trust units, as required per the original purchase and sale
contract entered into during 2015.
Key management personnel remuneration
The remuneration of directors and other key management personnel, which include the Board of Directors, President &
Chief Executive Officer, EVP and Vice-Presidents of Killam, is as follows:
For the years ended December 31,
Salaries, board compensation and incentives
Restricted trust/share units
Total
28. Comparative Figures
2016
$3,318
2,070
$5,388
2015
$3,189
1,613
$4,802
Certain comparative figures have been reclassified to conform with the financial statement presentation adopted for the
current year. Killam reclassified a portion of cash related to security deposits from "other current assets" to "cash" as these
deposits are not required to be held in a restricted account.
29. Subsequent Events
On January 16, 2017, Killam acquired Spruce Grove Lane Apartments in Calgary. The property consists of 66 townhouse-style
apartments. The acquisition cost was $12.8 million ($195,000 per unit). This acquisition increases Killam’s Calgary portfolio to
373 rental units.
On January 18, 2017, Killam announced a distribution of $0.05 per unit, payable on February 15, 2017, to Unitholders of
record on January 31, 2017.
On February 14, 2017, the Board of Trustees approved a 3.3% increase to Killam's annual distribution, to $0.62 per unit
from $0.60 per unit. The monthly distribution will be $0.05167 per unit, up from $0.05 per unit. The increase will become
effective for the March 2017 distribution, to be paid in April 2017.
K I L L A M A PA R T M E N T R E I T | 2 0 1 6 1 0 7
32
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (except unit/share amounts, or as noted)
Five Year Summary
In thousands (except per unit and share data)
Statement of Income Information
Net operating income
Other income
Financing costs
Administration
Depreciation and amortization
Fair value adjustments
Loss on disposition
Current tax recovery (expense)
Deferred tax recovery (expense)
Net income
Net income attributable to
unitholders/common shareholders
Funds From Operations (FFO)
FFO
2016
2015
2014
2013
2012
$105,424
$98,390
$84,601
$83,040
$80,444
$1,227
$1,495
$2,065
$2,365
$2,189
($36,193)
($37,044)
($34,609)
($35,231)
($34,633)
($12,733)
($11,898)
($2,389)
($11,231)
($2,715)
($6,103)
($8,525)
($2,355)
$4,768
($264)
($109)
($1,257)
$ ‑
$ -
$1,451
($7,878)
($2,232)
$13,070
($1,401)
($1,451)
($8,832)
($2,145)
$37,726
($1,286)
$ -
$27,598
$71,439
($6,216)
($13,472)
($9,350)
($19,234)
$35,800
$32,667
$40,932
$54,229
$67,982
$34,557
$29,772
$39,779
$51,727
$58,886
$49,016
$40,162
$38,770
$36,096
FFO per unit/share (diluted)
$0.86
$0.79
$0.72
$0.71
$0.71
Statement of Financial Position Information
Total assets
Total liabilities
Total equity
$1,987,633
$1,876,826
$1,775,234
$1,532,431 $1,443,128
$1,237,167
$1,190,948
$1,112,551
$928,371
$854,692
$750,466
$685,328
$662,683
$604,060
$588,436
Statement of Cash Flow Information
Cash provided by operating activities
Cash provided by financing activities
$63,584
$52,783
$50,947
$51,524
$21,954
$142,603
$39,080
$49,238
$46,027
$43,878
Cash used in investing activities
($106,013)
($79,378)
($202,958)
($117,366)
($76,527)
Unit/Share Information
Weighted average number of units/shares (1)
Units/shares outstanding at December 31 (1)
Unit/share price at December 31
67,912
71,736
$11.94
62,097
62,863
$10.51
55,394
60,476
$10.26
54,143
54,459
$10.48
50,227
53,802
$12.49
(1) Units outstanding include Trust Units and Exchangeable Units.
1 0 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 6
Executive Team
Philip Fraser
President & Chief Executive Officer
Erin Cleveland, CPA, CA
Vice President, Finance
Colleen McCarville
Vice President, Human Resources
Robert Richardson, FCPA, FCA
Executive Vice President
& Chief Financial Officer
Pamela Crowell
Vice President, Tenant Experience
& MHC Management
Michael McLean
Vice President, Development
Ruth Buckle
Vice President, Property Management
Jeremy Jackson
Vice President, Marketing
Robert Richardson, FCPA, FCA
Executive Vice President & CFO,
Killam Apartment REIT
Halifax, Nova Scotia
Manfred Walt, CPA, CA(2)
President & CEO,
Walt & Co. Inc.
Toronto, Ontario
Wayne Watson, CPA, CA(1)(3)
Trustee,
Halifax, Nova Scotia
Auditors
Ernst & Young, LLP
Halifax, NS
Solicitors
Bennett Jones, LLP
Calgary, AB
Stewart McKelvey
Halifax, NS
Board of Trustees
Timothy Banks(3)
President & CEO,
APM Group of Companies
Charlottetown, Prince Edward Island
Philip Fraser
President & CEO,
Killam Apartment REIT
Halifax, Nova Scotia
Robert Kay(1)
Chairman of the Board,
Killam Apartment REIT
Chairman,
Springwall Group International
and Springwall Sleep Products Inc.
Moncton, New Brunswick
James Lawley(2)
General Manager, Scotia Fuels Ltd.
Halifax, Nova Scotia
Arthur Lloyd(2)
President, Office, North America,
Ivanhoé Cambridge
Calgary, Alberta
Karine MacIndoe (1)(3)
Trustee,
Toronto, Ontario
(1) member of the Audit Committee
(2) member of the Governance, Nomination
and Succession Committee
(3) member of the Compensation Committee
Dale Noseworthy, CPA, CA, CFA
Vice President, Investor Relations
& Corporate Planning
Registrar and Transfer Agent
Computershare Investor Services Inc.
1500 Robert-Bourassa Blvd
7th Floor
Montreal, Quebec
H3A 3S8
Unit Listing
Toronto Stock Exchange (TSX)
Trading Symbol: KMP.UN
Monthly Distribution
$0.05167 per unit
Head Office
Suite 100
3700 Kempt Road
Halifax, NS B3K 4X8
902.453.9000
866.453.8900
Investor Inquiries
investorrelations@killamreit.com
902.442.0388
Annual Meeting
The Annual Meeting of Unitholders will be held on Friday, May 5, 2017,
at 10:00 am Atlantic Time at the Halifax Marriott Harbourfront Hotel,
1919 Upper Water Street, Halifax, Nova Scotia.
Killam Apartment REIT
Suite 100
3700 Kempt Road
Halifax, Nova Scotia
B3K 4X8
1.866.453.8900
killamreit.com
TSX: KMP.UN