ANNUAL REPORT 2019
KILLAM APARTMENT REIT
About Killam
PROFILE
Killam Apartment REIT
(Killam) is a growth-oriented
real estate investment trust,
which owns, operates,
manages and develops
multi-family apartments,
manufactured home
communities (MHCs) and
commercial properties.
Killam’s real estate portfolio
is located in Atlantic Canada,
Ontario, Alberta and British
Columbia.
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
STRATEGY
Killam’s strategy to maximize
its value and long-term
profitability is focused on
three key priorities:
• Increasing earnings from its
existing portfolio,
• Expanding the portfolio
and diversifying
geographically through
accretive acquisitions which
target newer properties,
and
• Developing high-quality
properties in its core
markets.
88%
7%
5%
Net Operating Income by Segment
APARTMENTS | MHCs | COMMERCIAL
23%
19%
40%
7%
6%
5%
Net Operating Income by Province
NS | ON | NB | AB | PE | NL
7
16
Letter to Unitholders
ESG Report
Management’s Discussion
& Analysis
Financial Statements
Five-Year Summary
39
95
133
On the cover, renderings of
planned developments including,
clockwise from top left: Latitude
(Ottawa); The Governor (Halifax);
The Kay (Mississauga); Harley
and Shorefront (Charlottetown).
2 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
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Westminster Apartments
(London). Suite upgrades are an
important part of Killam’s value
creation and growth strategy.
2019
Highlights
23%
Total Unitholder Return
4.3%Growth in FFO per Unit
3.0%
Distribution Increase
3.5%Increase in Same
Property Revenue
4.1%Increase in Same Property
Net Operating Income
43.4%Debt as a Percentage of
Total Assets as at
December 31, 2019
$191Min Acquisitions
Completed
$42MInvested in
Developments
$244M
Fair Value Gains on
Investment Properties
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Frontier, Ottawa, ON
Financial and Operating
Highlights
(Value in thousands, except per unit amount and portfolio information)
As at and for the years ended
2019
2018
2017
Operations
Property revenue
$241,749
$215,959 $187,377
Net operating income (NOI)
$152,336
$135,712 $115,220
Net income
$283,525
$175,171 $104,760
Funds from operations (FFO) (1)
$93,884
$81,808
$69,873
FFO per unit (diluted)
$0.98
$0.94
$0.90
Adjusted funds from operations (AFFO) (2)
$76,768
$66,275
$55,982
AFFO per unit (diluted)
Distributions declared per unit
AFFO payout ratio
Financial Position
Total assets
Total liabilities
Total equity
$0.80
$0.66
82%
$0.76
$0.64
84%
$0.72
$0.62
86%
$3,380,100 $2,824,406 $2,311,210
$1,777,773 $1,655,456 $1,343,488
$1,602,367 $1,168,950 $967,722
Units outstanding (3)
102,017
90,212
84,428
Total debt as a percent of total assets
Interest coverage ratio
Normalized debt to EBITDA
43.4%
3.20x
10.15x
49.8%
3.22x
48.7%
3.13x
10.62x
10.50x
Portfolio Information
Apartment units
MHC sites
16,325
15,883
14,983
5,786
5,427
5,165
Commercial square footage
739,000
551,000
254,000
Average rent per apartment unit
$1,126
$1,076
$1,017
Average rent per MHC site
$261
$254
$248
(1) FFO and applicable per unit amounts are calculated by Killam as net income adjusted for depreciation on
an owner-occupied building, fair value gains (losses), interest expense related to exchangeable units, gains
(losses) on disposition, deferred tax expense (recovery), unrealized gains (losses) on derivative liability, internal
commercial leasing costs, interest expense related to lease liabilities, insurance proceeds and non-controlling
interest. A reconciliation between net income and FFO is included on page 66 of this annual report.
(2) AFFO and applicable per unit amounts and payout ratios are calculated by Killam as FFO less an allowance
for maintenance capital expenditures, commercial leasing costs and straight-line commercial rents. A
reconciliation from FFO to AFFO is included on page 68, and the calculation of the maintenance capex
reserve is included on page 67.
(3) Units outstanding at December 31, 2019, include 97,863,244 REIT units and 4,153,520 exchangeable
units.
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2
3
3
$
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0
8
2
$
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8
2
2
$
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4
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1
$
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0
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8
2
6
.
%
5
1
6
.
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1
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6
.
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1
9
5
.
15 16 17 18 19
Value of
Real Estate
Portfolio
($ billions)
8
9
0
$
.
4
9
0
$
.
0
9
0
$
.
6
8
0
$
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9
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Funds from
Operations
per Unit
(diluted)
%
4
6
5
.
%
5
3
5
.
%
8
9
4
.
%
7
8
4
.
%
4
3
4
.
15 16 17 18 19
Operating
Margin %
6
6
0
$
.
4
6
0
$
.
2
6
0
$
.
0
6
0
$
.
0
6
0
$
.
15 16 17 18 19
Distribution
per Unit
%
3
4
2
.
%
9
2
2
.
%
3
9
1
.
%
6
6
1
.
%
3
8
.
15 16 17 18 19
15 16 17 18 19
Debt as a
% of Total
Assets
Total
Unitholder
Return
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Frontier, Ottawa, ON
2019 Performance Summary
Growth in Same
Property NOI
2019 Target
2019 Performance
Same property NOI growth of
3% to 5%.
Target met.
Same property NOI grew by 4.1%.
Expanded
Portfolio
Grow the portfolio to more than
$3.0 billion by the end of 2019,
with a minimum acquisition
target of $100 million.
Geographic
Diversification
Earn at least 30% of 2019 NOI
outside Atlantic Canada.
Development
of High-Quality
Properties
To complete Phase I (Frontier) of
the Ottawa development, break
ground on Silver Spear II, plus
one additional development
project.
Strengthened
Balance Sheet
Manage debt as a percentage
of total assets ratio below 49%.
Target exceeded.
Killam exceeded both targets,
increasing the portfolio to $3.3 billion
and completing $191.1 million in
acquisitions.
Target met.
30% of 2019 NOI generated outside
Atlantic Canada.
Target met.
Frontier completed in June 2019
and the commencement of The Kay
(Silver Spear II) development during
Q3-2019. Latitude (Phase II of the
Ottawa City Centre development)
also broke ground in Q2-2019.
Target exceeded.
Debt as a percentage of total assets
was 43.4% as at December 31, 2019.
The Factory on Hollis is
a newly designed and
renovated commercial space
within the historic Brewery
Market in downtown Halifax.
The Factory offers tenants
modern amenities and is
connected to Killam’s
newest Halifax multi-family
development, The Alexander.
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Letter to Unitholders
Dear Unitholder,
I am pleased to report on
another very positive year
for Killam. In addition to
achieving strong earnings
growth and a 23% total
return for unitholders, we
were successful in meeting
our strategic targets for the
year. In addition, apartment
fundamentals are the strongest we’ve seen in Killam’s 20-year history:
increased population growth, demographic trends supporting a
preference for renting and continued low interest rates.
We made important enhancements to our sustainability efforts and
disclosure over the past year. Killam has a long history of investing in
energy initiatives and being a responsible corporate citizen. With an
increased focus on environmental, social and governance (ESG) from
In addition to achieving
the investment community, we are
committed to position Killam as a
strong earnings growth
leader in sustainability amongst our
and a 23% total return
real estate peers. Please refer to the
for unitholders, we were
successful in meeting
our strategic targets
ESG section of this annual report to
learn about the many sustainability
highlights and achievements from
2019, and our goals for 2020.
for the year.
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, which targets new properties; and
3) developing high-quality properties in our core markets.
We are seeing the positive results from this focus, with all three areas
contributing to earnings growth in 2019.
Strong Growth from Our Existing Portfolio
Increasing earnings from our existing portfolio is important in
achieving long-term earnings growth, and the portfolio performed
very well in 2019. Growing rental rates and occupancy gains
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 7
contributed to top-line same property growth of 3.5%. Overall, Killam’s same property portfolio achieved
net operating income growth of 4.1%. The Halifax apartment portfolio, representing 36% of net operating
income, was especially strong in 2019, as were the Ontario and New Brunswick portfolios.
Killam’s team of more than 650 committed employees does an outstanding job of providing exceptional
service to our residents and ensuring properties are well maintained and perform at their best. This is
reflected in the feedback we receive from our annual resident survey administered by an independent
market research firm. The results of last year’s survey showed that 88% of Killam residents are satisfied with
Killam as a landlord. We believe these results are among the strongest in the industry. I’m very proud of our
team.
Growing rental rates
and occupancy gains
contributed to top-line
growth of 3.5%.
We continue to execute on initiatives to increase the value of our existing
portfolio base, including investing in suite renovations and energy initiatives.
Market demand for our newly renovated rental units is healthy across the
portfolio and, in response, Killam has accelerated its suite repositioning
program. In 2019 we upgraded and renovated 300 units that are expected
to generate an aggregate $1 million in additional net operating income. We
are increasing the program again in 2020, targeting 500 units for renovation. Killam’s opportunity to drive
value from this program is expansive, as we have identified 3,000 additional units for future repositionings
across all our core markets.
Other key operating initiatives include active management of expenses to optimize net operating income
in conjunction with sustainability. During 2019, Killam completed the third year of its five-year $25 million
energy efficiency plan focused on energy savings. These projects helped to lessen Killam’s carbon footprint
while mitigating the impact of expense increases from rising energy rates and other inflationary pressures.
Additional details around our energy initiatives are included in Killam’s ESG Report.
Portfolio Growth Through Acquisitions
This past year was another busy one on the acquisition front. We acquired $191 million in acquisitions, with
over half of the capital deployed in Ontario and Alberta. We continue to execute on our strategy of increasing
the percentage of our earnings generated outside Atlantic Canada.
Killam generated 30% of its NOI outside Atlantic Canada in 2019, and we are on our way to achieving our
target of generating 37% of earnings outside Atlantic Canada by 2022. Our strong operating platform
can support a larger portfolio, and expanding in Ontario and Western Canada gives us access to more of
Canada’s largest rental markets.
We grew our portfolio further geographically in 2020. In January 2020, we expanded our apartment
portfolio to Victoria, BC, with the acquisition of a 161-unit property and are looking for more opportunities
in the area. In adding the strong Victoria market to our portfolio, we are now a coast-to-coast REIT.
Development Expertise Driving Value
We continue to be passionate developers. Since we started developing our own assets ten years ago, we
have completed more than ten development projects in five provinces consisting of 1,200 units at a cost
of approximately $285 million. We are seeing the benefit of our established development process and
experienced development team.
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During 2019, we completed and leased up Frontier, a 228-unit building located in Ottawa that we co-
developed with RioCan. The project was completed on time and on budget, contributing to both earnings
and fair value gains in the year.
We start 2020 with four development projects underway, including projects in Ottawa, Mississauga and
Charlottetown. The Mississauga development, The Kay, is a $56 million property located adjacent to an
existing Killam asset, Silver Spear Apartments. We are pleased to have acquired 100% interest in both these
GTA-based assets during 2019 and look forward to delivering the 128-unit new development to the strong
Toronto market in 2021.
In addition, we expect to begin two other developments in 2020, including a 170-unit property in Kitchener.
With a development pipeline of approximately 2,600 units, development will continue to be an important
part of Killam’s growth strategy.
Advances in Technology
We are embracing change and investing in technology across the
organization: at our existing properties, in our new developments and
in how we manage the business. We believe the future of the multi-
family real estate business is to build new buildings to be green and
efficient, with geothermal heating, solar photovoltaic (PV) panels with
battery storage capacity and unit-level metered water.
The digital transformation
underway across the sector
is changing how we do
business, and I’m proud
that we have the team to
take on the challenge.
Killam rolled out a new customer relationship management (CRM) platform in 2019, automating and fully
integrating our online leasing, marketing and customer relationship process. In addition, investments in
a business intelligence platform to harnessing the power of the data stored across our systems is leading
to faster and more informed decision making. The digital transformation underway across the sector is
changing how we do business, and I’m proud that we have the team to take on the challenge.
2020 Outlook
Killam’s Board of Trustees approved a 3.0% increase in Killam’s distribution to $0.68 per unit, up from $0.66
per unit during its February 2020 meeting. This marks the fourth annual distribution increase in a row.
We entered 2020 with significant momentum. Nevertheless, we are well positioned to adjust and adapt to
the daily changes that are resulting from the COVID-19 pandemic that is presently affecting our country
and financial markets. I am proud of the responsiveness and professionalism the group has taken in keeping
our residents informed and safe. It is top of mind every day to ensure we are making proactive changes and
contingency plans to minimize the risk and impact to our employees, residents and unitholders.
Thank you for your interest and investment in Killam. Killam’s annual unitholders’ meeting will be held on
May 7th, 2020, at 1:30 PM Atlantic Time at 3700 Kempt Road, Halifax, Nova Scotia. I encourage you to
join via webcast if possible, as we are proactively committed to social distancing this year. I look forward to
providing progress updates on our strategic initiatives over the coming months.
Yours truly,
Philip Fraser
President & CEO
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GROWING EARNINGS
FROM KILLAM'S
EXISTING PORTFOLIO
Increasing the earnings from our existing
portfolio is an important strategy to create
long-term value. During 2019, we delivered
3.5% revenue growth from our same property
portfolio, which includes those properties
owned for more than two years. Strong
market fundamentals such as revenue growth
and energy efficiency savings further drove
same property earnings, resulting in 4.1%
same property NOI growth. Occupancy
levels and rental rates in many core markets
reached record highs as population growth
and demand out-paced the housing market
supply.
We have an extensive capital investment
program to ensure our properties are well
maintained and meet our high standard
for curb appeal. We invest in progressive
and innovative processes as we continue
to leverage and develop our operating
platforms.
We fully implemented an automated customer
relationship management platform in 2019,
giving Killam the ability to deliver high-quality
service to residents and prospective residents
while optimizing rental opportunities and
minimizing vacancy.
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%
3
7
9
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%
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6
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%
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%
6
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7
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%
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%
1
4
.
.
.
.
.
%
8
4
%
0
4
%
2
4
Same Property
Average Rental
%
Rate Growth
6
3
Same property average
rental rates have
consistently improved
each year for the past
four years due to strong
market fundamentals
and Killam’s revenue-
enhancing programs.
15 16 17 18 19
.
.
.
.
%
6
3
%
7
2
%
6
1
Same Property
Apartment
Occupancy
Killam’s same property
%
8
apartment portfolio
1
%
3
achieved a record-
1
high 97.3% occupancy
in 2019. Occupancy
levels were particularly
strong in the Maritimes
15 16 17 18 19
and Ontario due
to immigration and
demographics.
.
%
8
4
.
%
1
4
.
%
2
4
.
%
0
4
.
%
6
3
.
15 16 17 18 19
Same Property
Net Operating
Income Growth
Same property NOI
increased 4.1% in 2019
due to strong revenue
growth, and expenses
increased by only 2.4%.
Killam achieved a 40
basis point improvement
in its operating margin to
a record high of 63.0%.
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GROWING THROUGH
ACQUISITIONS
Acquisitions have always been an integral
Killam continued to execute its strategy
part of Killam’s growth strategy. In 2019,
of increasing the percentage of its NOI
Killam acquired $191 million of assets, adding
generated outside Atlantic Canada, with an
640 apartment units, approximately 220,000
increase from 27% in 2018 to 30% in 2019.
square feet of commercial space and 359
More than half of the acquisitions in 2019
MHC sites to its portfolio.
were in Ontario and Alberta.
These acquisitions expanded our presence
in Ontario, Alberta, PEI and New Brunswick.
The Link
Killam grew its Edmonton
portfolio in 2019 with the
$31 million purchase of
The Link, a new 105-unit
apartment building. Killam
has been growing its Alberta
portfolio since 2014 and
ended 2019 with 1,110 units
in the province.
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Dieppe Village
Dieppe Village was added to
Killam’s Moncton portfolio in June
2019. This $28M property consists
of 127 residential units and 45,500
square feet of grocery-anchored
commercial space located in the
fast-growing community of Dieppe.
The purchase also included 2.5
acres of vacant land for future
residential development.
Grid 5/Silver Spear
Killam was pleased to purchase
the remaining 50% interest in
two properties that we managed
and partially owned for more
than five years. Grid 5, a 307-unit
building located in Calgary, and
Silver Spear, a 199-unit building
in Mississauga, are both quality
assets key in the expansion of
Killam’s asset base outside Atlantic
Canada. As well, this purchase
included the site for a 128-unit
development, The Kay, adjacent to
Silver Spear, which broke ground
in Q3-2019.
Charlottetown Mall
Killam has been strategically
purchasing commercial centres
in its core markets with multi-
family development potential. In
May 2019, Killam acquired a 50%
interest in the Charlottetown Mall.
This 352,000 square-foot retail
complex features a stabilized,
grocery-anchored, enclosed
mall located in the heart of
PEI’s busiest retail node. We are
working on plans to redevelop and
maximize the retail operations, as
well as provide opportunity for a
development containing up to 300
units on the 32-acre site.
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GROWING THROUGH
DEVELOPMENTS
Developing high-quality properties in our
core markets is an important component
of Killam’s growth strategy. To date,
Killam has completed over $285 million
in development projects totalling more
than 1,200 units. The value of these
projects today is approximately $350
million, representing a 25% gain over
their development costs. In June 2019,
Killam completed the 228-unit Frontier
in Ottawa, which was co-developed
with RioCan. Frontier was completed on
budget and with a quick lease-up.
Killam has four additional projects
underway in Mississauga, Ottawa and
Charlottetown, and expects to break
ground on two new builds in 2020. With
this current robust activity, Killam expects
to complete a minimum of $200 million
in developments in the next three years.
Killam has an experienced development
team and growing pipeline of more
than 2,600 units across Canada that
will continue to be a significant lever
for Killam’s earnings growth and value
creation.
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Harley Street
This is a redevelopment site
in Charlottetown, replacing
an original three-storey, 29-
unit building with a new four-
storey, 38-unit building. Killam
broke ground in the third
quarter of 2019 and expects
this project to be completed
by the end of 2020.
The Kay
Killam broke ground on The
Kay in Mississauga in the third
quarter of 2019. Killam was
pleased to have purchased
the remaining 50% of this
128-unit development in June
2019. The Kay is expected to
be completed in mid-2021,
expanding Killam’s presence in
the highly sought-after Greater
Toronto Area market.
Shorefront
Killam’s 78-unit Shorefront
development is located in
one of Canada’s strongest
rental markets. Driven by
immigration, the demand
for new rental product in
Charlottetown is substantial,
and we expect a fast lease-up
following a mid-2020 opening.
Latitude
With the success of its first
phase, Frontier, in 2019, Killam
is excited to have Latitude
underway in Ottawa. This is
the second of a four-phase
residential development
that is co-developed with
RioCan REIT. The 209-unit
development broke ground in
Q2-2019 and is scheduled to
be completed in late 2021.
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2019 Environmental, Social
and Governance Report
Table of Contents
Letter from CEO & President
Our Sustainability Policy
Our ESG Strategy | 2019 Sustainability Targets
Materiality Assessment | 2020 Targets
2019 Highlights & Achievements
17
18
18
19
20
Social
Our Culture
Plant a Tree Day Feature
Our Employees
Engagement, Training & Development
United Nation’s Sustainable Development Goals 21
Employee Survey Results
27
27
28
28
28
28
Environment
Energy
22
22
Performance Management & Compensation 29
Awards & Recognition
Greenhouse Gas Emissions & Emissions Matter 22
Employee Benefits
Investing in Energy Efficiencies
LED Lighting
Water Conservation
Solar
Geothermal
Recycling & Waste Management
Acquisitions
Renovating to Maximize Efficiencies
Development
Electric Vehicle Chargers & Sustainable
Transportation
Renewable Resources
Sub-Metered Water
Changing the Landscape
23
23
23
23
23
24
24
24
25
25
25
25
25
Featured Communities | Saginaw Park & Frontier 26
Our Residents
Annual Resident Survey
Health, Well-Being & Safety
Our Communities
Supply Chain Responsibility
Governance
Board Structure
Independence
Ethics
Diversity & Inclusion
Gender Diversity
Risk Management & Cyber Security
Stakeholder Engagement
About this Report
Global Reporting Initiative Content Index
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29
29
30
30
30
31
31
32
32
32
32
32
33
33
33
34
34
Letter from the President & CEO
We are pleased to present Killam’s 2019
Environmental, Social and Governance (ESG) Report.
We believe sustainability is a vital component to
Killam’s long-term success.
2019 was an excellent year for Killam on many fronts.
We not only had strong operating and financial
performance, we were also successful in enhancing
our enterprise risk management program and
moving forward with new ESG initiatives. Killam has
always taken its responsibility regarding corporate
citizenship seriously, and our core values reflect 20
years of commitment to these environmental, social
and governance issues.
Killam’s Board of Trustees and governance processes
are another key to our success. Our eight non-
executive trustees bring significant real estate,
corporate finance, government relations and
management expertise to Killam. Our Governance &
ESG Committee has oversight and reviews our ESG
program, as well as monitors Killam’s performance
towards its ESG goals.
We are dedicated to reducing our environmental
impact and lowering our carbon footprint by
improving the efficiency of our current buildings
and developing energy-efficient apartments. We
recently completed our third year of a five-year,
$25-million energy program, and our investments
have already led to significant reductions in water
consumption and greenhouse gas (GHG) emissions.
In 2019, we completed our first development project
that incorporated geothermal heating. We currently
have four developments under construction that
incorporate technologies that maximize energy and
water efficiencies, including geothermal or solar
heating, innovative building insulation solutions and
water sub-metering. Investing in energy initiatives
reduces our carbon footprint and leads to higher
operating margins and earnings.
We are building stronger communities. We have
passionate employees who dedicate their time
and energy to a multitude of causes and charities.
Killam increased its employees’ participation in
its paid community volunteer day program and
supported our employees spending over 550 hours
volunteering at a variety of charitable organizations,
some of which we highlight in this report. We
understand affordability concerns across the country
and are part of the solution; we provide more than
750 subsidized affordable housing units. In addition,
we donate furnished suites to hospitals across our
markets and contribute financially to an array of
community organizations.
In 2019, we participated in the Global Real Estate
Sustainability Benchmark (GRESB) rating, a well-
known global ESG benchmark for real assets which
measures performance against sustainability
benchmarks including energy use, GHG emissions,
water and waste, performance improvement
programs and community engagement. We are
pleased with our initial submission and are pursuing
even more improvements that we will share with you
in mid-2020.
Sustainability remains a priority at Killam. We are
proud of our achievements within the ESG space.
We are committed to creating and maintaining
sustainable communities that benefit all stakeholders.
We are aware of the increasing importance of ESG
to all stakeholders and we plan to be a leader in
sustainability. This report highlights our commitment
to ESG issues. We thank you for taking the time to
read more about our ESG accomplishments and
plans.
Yours truly,
Philip Fraser
President & CEO
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 7
Our Sustainability Policy
Killam is a leader in ESG practices within the Canadian multi-residential real estate sector, and our sustainability
policy emphasizes our commitment. The policy applies to all Killam employees. It is recommended by the
Governance and ESG Committee and approved by the Board of Trustees. The following is Killam’s commitment
to ESG, included in the ESG policy:
•
Invest in new technology and initiatives to increase sustainability and lower our carbon footprint across the
portfolio with a focus on reducing waste as well as energy and water consumption.
• Support and invest in our employees through training and development opportunities and provide access
to a safe and positive workplace.
• Provide outstanding customer service and a sense of community at our properties.
• Support community initiatives in the communities in which we operate, with an emphasis on affordable
housing.
• Establish and implement robust governance policies and practices.
• Report annually on our ESG programs, new initiatives and performance against targets.
• Review our annual ESG benchmark ratings (from various industry bodies) and target areas for improvement
each year.
Our ESG Strategy
Killam launched an internal ESG Oversight Committee in early 2019
to provide guidance and ensure the integration of ESG into Killam’s
strategic objectives. This committee consists of a select interdisciplinary
group representing multiple departments across the REIT. This
committee is responsible for our ESG strategy and championing the
ESG initiatives throughout the year. In addition, management regularly
reports progress against ESG targets to the Board’s Governance and
ESG Committee.
Our approach is also underlined by our Core Values of Build Community
and Do the Right Thing. Killam works proactively and diligently to
monitor and reduce our environmental footprint, to ensure effective
and ethical governance and to invest in ways that stimulate sustainable
economic growth. We incorporate sustainable practices in our
operating, developing, investing and corporate activities.
Performance Against 2019 Targets
In our 2018 ESG report, we highlighted our targets for 2019.
ENERGY
CONSUMPTION
Goal: Invest $5 million
in energy-efficiency
initiatives.
Performance: Invested
$5 million in energy
projects with a payback
of 5.6 years.
GREENHOUSE
GAS EMISSIONS
Goal: Reduce GHG by
3%.
Performance: In
2019, Killam’s GHG
intensity decreased by
2.1%, measured on a
KgCO2e/SF basis (1).
RATING
PARTICIPATION
Goal: Participate in
initial GRESB rating.
Performance:
Completed initial
GRESB assessment
and actioned areas of
improvement.
SOCIAL
INITIATIVES
Goal: Invest in social
initiatives, focusing
both on our people
and our communities.
Performance: Hosted
dozens of resident and
community events
across Killam’s portfolio.
(1) In early 2019, Killam changed the way it measures GHG, to be more aligned with industry norms. See “Emissions Matter” on page 22.
1 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
Materiality Assessment
In 2019, Killam conducted an ESG materiality assessment to identify, assess and prioritize the ESG topics most
significant to our organization, our employees and our external stakeholders, which include residents, investors,
analysts, trustees, peers and communities. Through this process, we gained understanding of our greatest ESG
impacts, opportunities and risks.
The top right-hand quadrant of the following matrix shows the ESG factors that are most important to Killam.
This report focuses on the topics that are of highest importance and most relevant to internal and external
stakeholders.
Governance
Environmental
Social
Insurance & Risk
Management
Board Composition
& Governance
Regulatory Compliance
Data & Cyber Security
Ethics
Sustainable Development
Design & Product Quality
Resident Satisfaction
Energy & Water Management
Risk of Climate
Change
Greenhouse Gas
Emissions
Diversity & Inclusion
Waste Management
Sustainable Communities
Health, Wellbeing
& Safety
Supply Chain
Responsibility
Employee Engagement,
Training & Development
l
s
r
e
d
o
h
e
k
a
t
S
o
t
e
c
n
a
t
r
o
p
m
I
Importance to Killam
This assessment guides our sustainability improvement activities and annual reporting process. It is also
a key procedure that is required for compliance with the GRI sustainability reporting standards (GRI
Standards) and allows us to deliver a more comprehensive ESG report. We will ensure the most material
issues are addressed in this report, providing better insight into our ESG performance.
2020 Targets
Killam’s ESG Oversight Committee has confirmed the following as primary targets for 2020:
ENERGY
CONSUMPTION
Goal: Invest up to
$7 million in energy-
efficiency initiatives
including 1,000 kW
of new solar panel
installations.
RATING
PARTICIPATION
Goal: Increase Killam's
GRESB rating by 15
points.
SOCIAL
INITIATIVES
Goal: Increase
employee volunteer
days by 25%.
Goal: Improve the
asset level ESG
scorecard ratings.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 9
2019 Highlights and Achievements
Engaged leaders across
the REIT to form an ESG
oversight committee to
provide guidance and ensure
the integration of ESG into
Killam’s strategic objectives.
Completed an independent
2018 greenhouse gas
consumption review to
ensure accurate baseline and
benchmarking.
Created a sustainability
scorecard for all property
managers to promote and
measure initiatives across the
portfolio.
Donated over $300,000
in cash and in-kind gifts
to support organizations
across Canada.
Submitted initial GRESB
assessment. GRESB
validates, scores and
benchmarks ESG
performance data for real
estate entities.
Completed a materiality
assessment of Killam’s
largest risk factors that will
guide Killam’s sustainable
development improvement
activities.
Implemented additional
environmental policies and
due diligence procedures.
Hosted dozens of resident
and community events across
the portfolio.
Redesigned our urban
landscaping plan to become
more sustainable and hosted
our first tree planting day.
Achieved 88% resident
satisfaction rating in annual
resident survey.
Supported affordable
housing with more than
750 subsidized units
through community
partnerships.
Increased employee
communication and
engagement, including hosting
Killam’s first Killam Day.
2 0 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
United Nation’s Sustainable Development Goals (SDGs)
In September 2015, Canada and all other 192 United Nations Member States adopted the 2030 Agenda
for Sustainable Development at the UN General Assembly. This initiative is a global call to action to end
poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030. This 2030
Agenda is broken down into 17 global goals that countries, organizations, businesses and individuals alike
are working towards.
Killam has assessed these goals and we have aligned our corporate sustainability targets with the United
Nation’s SDGs. Although the vast majority of the SDGs can be supported by our business and employees,
we believe we can make a difference and impact the following four goals with these action items:
United Nation’s
Sustainable Development Goals
Killam’s Goals
Ensure access to affordable,
reliable and modern energy
services.
Install 1,000 kW of solar installations in 2020.
Invest in geothermal heating and cooling systems in
new developments.
Promote sustained, inclusive
and sustainable economic
growth, full and productive
employment and decent work
for all.
Increase employee satisfaction survey respondents by
5 points, to ensure all employees have an opportunity
to express their views on any and all areas, in order to
help guide improvement at Killam.
Make cities and human
settlements inclusive, safe,
resilient and sustainable.
Complete three developments in the next three years
with geothermal heating and cooling, low flow toilets
and LED lighting.
Ensure all properties provide adequate and safe
housing, upgrading 400-500 suites in 2020 to be
more energy efficient and sustainable.
Invest up to $7 million in energy-efficient upgrades in
2020.
Invest up to $75 million in capital projects for 2020
aimed at sustaining and improving Killam’s portfolio.
Ensure sustainable production
and consumption patterns.
Annually monitor, analyze and verify water and energy
consumption, along with greenhouse gas emissions
with targeted reductions.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 2 1
ENVIRONMENT
Energy
At Killam, we use resources in a responsible manner to preserve and protect the environment. Integrating
sustainable opportunities into our processes and decisions is the right thing to do and results in operating
cost savings.
Greenhouse Gas Emissions and Climate Change
Operating a multi-residential portfolio of more than 16,000 apartment units across Canada requires a significant
amount of energy, and consequently greenhouse gas emissions. These emissions contribute to the global climate
crisis we face today, as well as the dangerous shifts in the world’s climate and extreme weather conditions. The
burning of fossil fuels like coal, oil and gas for electricity, heat and transportation is the primary source of human-
generated emissions.
Killam strives to seek operational efficiencies to reduce resource consumption and dependence on fossil fuels,
therefore reducing our carbon footprint. Changing the way we develop and operate our portfolio is our part of
helping to combat global warming.
Emissions Matter
Our team has been tracking Killam’s GHG emissions since 2016. Since commencing a five-year, $25 million
energy-efficiency program in 2016, we have internally tracked our GHG intensity and realized a 15% reduction
over the first three years (2016-2018). This measure accounted for water consumption as well as energy intensity.
In the past year we took this a step further by engaging an independent party to review our greenhouse gas
emissions data for 2018 and 2019. This was to ensure accurate baseline and benchmarking for future years. Killam
has measured its footprint and reported scope 1 and scope 2 greenhouse gas emissions below:
Killam-managed
GHG Emissions
(tCO2e)
2018
2019
9
2
3
0
3
,
7
0
4
7
2
,
7
3
6
0
2
,
2
3
5
8
1
,
Killam’s GHG emission sources
include: electricity, natural gas,
Carbon Intensity
(kgCO2e/ft2)
propane, oil and steam.
Scope 1 includes all direct
emissions, and scope 2
includes indirect emissions.
.
9
5
3
3
.
.
.
1
3
9
2
0
6
8
2
8
9
9
2
Note: Killam has excluded scope 3 emissions, which take into account all other indirect
emissions, including tenant-controlled utilities. Killam has committed to measure scope
1 and 2, in compliance with ISO 14064-1. Scope 1 includes all direct emissions generated
and managed by Killam, including building fuel consumption and fleet vehicles. Scope
2 includes indirect emissions, purchased steam and electricity paid for by Killam. All
scope 1, 2 and 3 GHG inventory excludes refrigerant leakage, upstream and downstream
activities associated with our business operations, new developments and off-site waste
management.
Scope 1
Scope 2
15 16 17 18
For the past four years, calculating the energy our portfolio consumes has
been important to Killam. This data helps support our efficiency initiatives
to better manage our properties and make them more resource efficient,
and it aligns with the United Nation’s SDG 7: Affordable and Clean Energy
that we are working towards.
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Investing in Energy Efficiencies
Killam has a long history of investing in energy efficiencies. When natural gas was first introduced to the market in
Atlantic Canada in 2004, Killam was an early adopter. We converted over 98% of the portfolio in Nova Scotia and
New Brunswick from oil burning boilers to cleaner natural gas within six years. This rapid adoption and conversion
to natural gas has led to significant GHG reductions; over 50,000 tons of GHG reductions have been achieved
in the last 15 years from smart fuel switching. Eliminating the use and storage of oil on-site has also greatly
diminished Killam’s environmental risk associated with older properties.
Killam will continue to build on its successes to make buildings more sustainable and resilient to the impacts of
climate change. Killam’s green future is on track given the advanced building technologies we are planning and
piloting now. As Killam grows through new development and acquisitions, we challenge ourselves to ensure our
impact on the environment is minimized. Our portfolio of more than 200 properties provides opportunities to
invest in projects that improve the long-term sustainability of our assets, while generating average annual returns
of over 15%.
With a minimum of $5 million dedicated annually to energy-efficiency projects, we invest a significant amount of
our overall capital budget in gaining operating efficiencies, lowering operating costs and reducing our impact on
the environment.
LED Lighting
In 2017-2019 Killam identified, designed and retrofitted 100% of its portfolio with LED lighting. With
over 5 million kilowatt-hours being saved annually, buildings are not only consuming less electricity,
Killam has seen improved lighting levels and reduced maintenance costs with the LED program.
Water Conservation
Killam’s properties use 2 million cubic meters of water each year and we strive to
reduce water consumption across our portfolio. To align with the United Nation’s SDG
12: Responsible Consumption and Production, we are implementing solutions in both
common areas and apartment units to help conservation efforts.
Killam has completed the installation of low-flow toilets in more than 11,350 units in
our portfolio. Since the program started in 2015, over 700,000 cubic meters of water
have been saved by Killam and our residents. As well, newer developments such as Saginaw Park
and Frontier, which opened in 2018 and 2019, are sub-metering water usage at the resident level.
Solar
Killam has operational solar thermal heating systems at four properties. These systems together save
approximately 2,800 gigajoules (GJ) of natural gas usage to heat domestic hot water.
In 2020, Killam expects to invest up to $3 million in a minimum of 1,000 kW of new solar projects.
This will produce an estimated annual 1.1 gigawatts of power (that’s enough energy to offset
5 million kilometers driven by an average passenger vehicle!). As the cost of solar continues to
decline, Killam expects to implement solar at more properties. As not all properties are suitable for
on-site solar or have limited roof area to meet energy needs, we are exploring purchasing off-site
renewable electricity.
Geothermal
Killam is committed to increasing its investment in geothermal heating and cooling. In London,
Ontario, Killam’s 180 Mill Street property has a geothermal heating and cooling system that
takes water from an underground stream, which is then pumped through a heat exchanger
to individual heat pumps in each apartment unit. Phase one of a new 840-unit development,
Frontier, opened in June 2019 in Ottawa, and also incorporates geothermal heating and
cooling. Killam has two developments currently under construction (phase two of the 840-
unit Ottawa development and a 128-unit apartment The Kay, in Mississauga) and both have
geothermal heating and cooling systems installed.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 2 3
Recycling and Waste Management
We seek to continuously improve and
maintain our buildings, with a focus
on reducing waste, energy and water
consumption. To achieve this, we have
been finding practical solutions that
make the highest impact in reducing
the environmental footprint. Recycling,
composting and waste management
programs are available at the majority of
our properties, and a concentrated effort
is being made by our employees and our
residents to reduce waste that ends up in
landfills.
Acquisitions
During our acquisition due diligence
process, Killam analyzes and considers
a potential asset’s features and its ability
to contribute to sustainability and the
long-term value of our stakeholders. We
consider the potential acquisition’s location,
density, amenities, as well as the safety
features of the property. As part of our due
diligence, we also consider opportunities
to make the building “greener” through
capital investments in lower energy and
water usage.
Renovating to Maximize
Efficiencies
Killam has an extensive suite renovation
program that allows it to improve energy
efficiency and sustainability throughout
the apartment portfolio, while delivering
upgraded amenities to our residents.
We want to improve and maintain our
buildings with a focus on reducing water,
energy and waste. In addition to LED
lighting and low-flow toilet installations
on the majority of our portfolio, there is
a demand for upgraded units across our
portfolio.
With an apartment upgrade, we improve
unit performance and comfort by installing
the following:
• Energy Star kitchen appliances
• Energy-efficient lighting
•
Luxury vinyl plank flooring (water
resistant)
• Programmable thermostats
•
•
Low-odor paint
Low-flow faucets, shower heads and
toilets
Carbon Neutral Flooring
In 2019, Killam purchased
22,260 square meters of carbon
neutral flooring, resulting in the
retirement of 230 tCO2, which is
equivalent to 901,575 km of car
travel.
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Development
Our more than $280 million in new
developments have been designed and
built using strategies aimed at improving
performance across important metrics,
including energy savings, water efficiency,
the stewardship of resources and a
sensitivity to the environmental impact. We
focus our development activity in urban
cores and in highly walkable suburban sub-
markets. We use technology and renewable
resources whenever feasible with the intent
to create green and sustainable homes
for our residents. From LED lighting and
motion sensing technology to geothermal
heating and in-suite green switches, energy
conservation and a low carbon footprint are
important components of our development
designs.
Electric Vehicle Chargers and
Sustainable Transportation
Killam has seven properties with on-site
electric vehicle (EV) charging stations for
residents. All new developments being
built by Killam will incorporate EV chargers.
In addition to supporting electrification
of transportation, Killam is developing in
urbanized environments that support direct
access to public transportation. An example
of this is the new Frontier development in
Ottawa, which is adjacent to the city’s newly
expanded light-rail transit network.
Renewable Resources
Killam is committed to increasing its
investment in geothermal heating and
cooling. Phase one of a new 840-unit
development, Frontier, opened in June 2019
in Ottawa, and incorporates geothermal
heating and cooling. Killam has two
developments currently under construction
(phase two of the 840-unit Ottawa
development and a 128-unit apartment
The Kay, in Mississauga) and both have
geothermal heating and cooling systems
installed.
Solar PV systems are another option Killam’s
development team considers in the design
of our buildings. In 2019, Killam installed a
solar PV 100 kW system on its current 78-unit
Shorefront development in Charlottetown,
which will be completed in mid-2020. We are
committed to pursuing renewable resources
as the primary heating and cooling source for
all new developments.
Sub-Metered Water
Killam now incorporates separately
metered water consumption with all its
new developments. Starting with two
developments completed in 2018 and 2019,
residents are responsible for their water usage.
This reduces Killam’s exposure to water costs
and promotes conservative water use by
residents.
Changing the Landscape
Killam is changing focus from traditional methods of grassed areas to a more
eco-friendly substitute.
During the spring of 2020, Killam is rolling out a pilot project involving
the over-seeding of 20+ properties with white clover (Trifolium repens).
White clover has many benefits as an alternative to traditional grass, both
aesthetically and environmentally.
• White clover stays lush and green throughout the summer with little or
•
no irrigation.
It grows just 2”-8” in height, requiring less frequent mowing, which will
decrease Killam’s carbon footprint.
• The clover flower heads attract and provide pollen for beneficial insects.
• Clover is nitrogen fixing, with no need for additional fertilization or
•
herbicides, as it naturally out-competes other weeds.
It is tolerant of a range of soil qualities and is immune to pet waste and
road salt.
Killam plans to implement eco-friendly clover lawns across Killam’s coast to
coast portfolio in the near future.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 2 5
Featured Communities | Frontier & Saginaw Park
Saginaw Park
At Killam’s Saginaw Park development, opened
in 2018, shifting the water consumption to our
residents has become a significant conservation
effort. We have seen a 25% reduction in water
consumption over a 12-month period compared
to an adjacent and identical development that is
not sub-metered, Saginaw Gardens.
Frontier
Frontier is a 228-unit, 23-storey development
in the Gloucester neighborhood of Canada’s
capital city, Ottawa. This building is the first of a
four-phase, 840-unit development that is built
with innovation for sustainable performance and
a thoughtful design that residents are proud to
call home.
With energy performance a top priority, this
building has a high-efficiency vertical well
geothermal HVAC system. Geothermal heating
and cooling are considered the world’s greenest
and most energy-efficient heating method.
At Frontier, geothermal eliminates the need
for outdoor cooling equipment, significantly
reduces carbon emissions and saves on
electricity consumption in the building. The
building envelope was also designed with
optimal window glazing and insulation. The
water and hydro are separately metered to each
unit, which will typically result in a reduction of
water consumption by 25% over units where the
water is not accounted for.
Frontier opened in June 2019 and is now fully
leased. We expect to save over 100 tons of
carbon emissions annually, over 600,000 gallons
of fresh water and over 310,000 kWh
of electricity.
2 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
2 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
SOCIAL
Our Culture
Killam has a strong, vibrant culture supported by our five Core Values. We actively
embrace these values each day in the way we do business.
At Killam, we believe that communication and connection are essential in fostering
a strong culture. We ensure our executives and senior managers connect with
every member of the Killam team through a variety of staff events, social occasions
and training opportunities. In 2019, every region received multiple visits from head
office staff and shared several connections with our senior team. Taking this a step
further, in 2019 we celebrated our first “Killam Day” where simultaneous events
took place at seven different locations across the country, each event attended by a
senior manager from our corporate team and a local management representative.
Making use of technology, our senior executive team hosted a live broadcast from
Halifax, where they responded live to video questions about the organization
posed by employees across the country. This event allowed for candid responses
to employees’ important questions and introduced our entire team to our
management philosophies, and in many cases to each other, all while participating
in an event in their home community.
Build
Community
Curb
Appeal
Do the
Right
Thing
Strong
Customer
Relationships
Creative
Solutions
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 2 7
Killam’s Plant a Tree Day
Killam employees and residents took part in
tree planting events in Halifax and St. John’s
on National Tree Day in September 2019. The
events included guest speakers who discussed the
benefits of trees in our cities and the importance of
urban wilderness areas. As we continue our urban
landscape initiatives and plant more trees, we are
contributing to the United Nations Sustainable
Development Goal #15: Life of Land, which seeks
to “Protect, restore and promote sustainable use of
terrestrial ecosystems, sustainably manage forests,
combat desertification, and halt and reverse land
degradation and halt biodiversity loss.”
Our Employees
Engagement, Training & Development
Killam’s success is attributable to the hard work and dedication of our people. Our more than 700 employees
exemplify Killam’s Core Values and are the key to resident satisfaction.
Killam supports its employees at work and in their communities in many ways:
• Killam invests in employee education, leadership development and coaching programs and provides
financial assistance for learning.
• Killam’s employee unit purchase plan rewards employees with a 50% investment match after two years of
service.
• Scholarships are available to children and grandchildren of Killam employees who pursue post-secondary
education.
• Quarterly newsletters, team summits and senior management property visits foster an engaged workforce.
• Killam’s Employee and Family Assistance Program provides counseling and support for employees and
their family members experiencing depression, anxiety, stress, grief and other common issues.
Killam’s annual engagement survey is completed by an independent organization and has provided insight into
employee satisfaction and engagement levels for more than 10 years. In 2019, we were pleased to see strong
results again. The comprehensive data provided is invaluable in making improvements to continuously enhance
employee engagement.
Employee Survey Results*
91%
of employees
believe they are
treated with
respect
90%
of employees
believe Killam
enables a culture
of diversity
94%
of employees
like the work
they do
91%
of employees
are engaged in
their work
* 2019 Narrative Research, Independent Employee Survey
2 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
Performance Management & Compensation
Killam is committed to delivering competitive compensation for its
employees, along with considerable benefits, training and education
opportunities to foster career advancement. The majority of Killam
employees are measured quarterly on targets that are directly linked to
our corporate goals for the year, ensuring that compensation and results
are clearly linked. This practice increases both Killam’s ability to meet our
strategic targets and the commitment of our employees to our corporate
success.
Quarterly scorecard reports for property managers and site employees
are part of our regular performance management feedback program. The
program includes annual, quarterly and probationary review programs,
all offered through our user-friendly interactive employee portal.
Performance management includes career development and long-term
goal discussions. In 2019, we continued our participation in a 360° review
process, where leaders received one-on-one executive coaching. Our
performance and compensation plans are reviewed annually, ensuring
they align with market influences and internal requirements.
Killam’s success in providing career advancement opportunities is
measured through our internal promotion rates, recorded and reported
internally on an annual basis. In 2020, Killam saw more than twenty
permanent employees progress into senior professional or managerial
roles.
Awards and Recognition
We are proud to have been recognized by several external groups
through the receipt of workplace awards. In 2019, Killam received several
honours (featured to the right), based on a combination of survey results,
cultural assessments and further employee feedback.
Employee Benefits
FLEXIBLE BENEFITS PLANS
EMPLOYEE & FAMILY ASSISTANCE PROGRAM
PAID VOLUNTEER TIME
PAID TIME OFF (VACATION & PERSONAL)
PAID SICK LEAVE
ANNUAL INCENTIVE PLAN
EMPLOYEE UNIT PURCHASE PLAN
PROFESSIONAL ASSOCIATION REIMBURSEMENT
REFERRAL BONUSES
SHORT-TERM AND LONG-TERM DISABILITY COVERAGE
SUMMER HOURS
SCHOLARSHIPS
TUITION REIMBURSEMENT
DISCOUNT ON KILLAM APARTMENT RENTS
KILLAM PERKS (DISCOUNTS AT PARTNERS)
PARENTAL LEAVE PAY
201 8
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 2 9
Annual Resident Survey(1)
Satisfaction
with Killam as
Landlord
88%
Satisfaction
with Condition
of Apartment
88%
Satisfaction
with Resident
Manager
86%
Would Recommend
to Family & Friends
88%
Our Residents
Killam provides outstanding customer service and
fosters a sense of community at its properties. We
survey residents annually to measure our success
in meeting expectations and to identify areas for
improvement. In 2019, we received a satisfaction
rating of 88%(2) compared to the national average of
75%(3).
Providing exceptional customer service to our
prospective tenants and residents is key to ensuring
Killam is their sustainable choice of residence, today
and tomorrow. In 2019, we advanced our leasing
experience to include more online capabilities and
shortened our response time to maintenance service
requests.
Creating a sense of community is a priority at Killam.
Below are examples of programs, events and
amenities that contribute to resident engagement:
• Holiday gatherings, community barbecues,
meet and greets, pizza parties and movie nights.
•
Investment in community gardens, playgrounds,
fitness rooms, recreational facilities, as well
as waterfront and pool upgrades at seasonal
resorts.
• Killam’s online resident portal, along with a
mobile app version, and corporate website,
including the online live chat option, has
expanded communication options for existing
and prospective residents.
(1) Results from 2019 Narrative Research Resident Survey
(2) Results from 2018 CRA Independent Resident Survey
(3) 2018 Avison Young National Multi-Residential Tenant Survey
3 0 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
Health, Well-Being and Safety
The health and safety of our residents is of the
utmost importance to Killam. All our on-site staff
have mandatory fire and life safety training. Formal
fire plans and monthly inspections at every building
to identify and address safety concerns are a part
of our routine at Killam. In 2019, Killam rolled out a
cloud-based risk management software solution as
a part of our increased risk management program.
This solution allows mobile reporting and increases
data analytics associated with risk related incidents.
We monitor indoor air quality, avoid harsh cleaning
products, provide smoke-free common areas and
use low- to no-odor paints. Additionally, we promote
a healthier lifestyle for our residents with high-quality
amenities, such as fitness rooms, lounges and social
rooms.
Our Communities
Killam employees are active community
members. Killam grants paid leave each year
for employees to volunteer with a charity of
their choice. Many employees take advantage
of this day to give back to organizations in
their communities.
Killam has a Community Involvement
Committee that monitors all aspects of the
Trust’s community involvement and charitable
efforts on an ongoing basis.
Providing affordable units, along with
donating units to hospitals, has always been
important to Killam. Below are Killam’s key
community initiatives in 2019:
• Partnered with non-profit housing
agencies such as Housing First, Nova
Scotia Health Authority – Mental Health
Division, Shelter Nova Scotia, YWCA and
Phoenix. These relationships, along with
partnerships with multiple provincial
government housing boards, provide
more than 750 subsidized units to
previously under-housed individuals.
• Donated nine fully furnished units
to hospitals across our portfolio,
providing comfortable accommodation
to families as they support loved ones
through treatment.
• Provided financial assistance to
organizations that offer shelter and
support to individuals and families.
• Donated $110,000 to the United
Giving back is an
important part of being
a responsible corporate
citizen. A core value of
Killam is Do the Right
Thing, and part of
that is investing in our
communities through
various programs and
initiatives.
Jewish Appeals (Holocaust Survivor
Door-to-Door Program), which
members of Killam’s Board of Trustees
personally pledge $10,000 each annually to an organization of a
Trustee’s choice. Since beginning this annual donation program
in 2010, Killam’s Trustees have donated more than $1 million to
organizations across Canada.
• Provided assistance to residents who had fallen on hard times and
needed financial support through Killam’s Resident Relief Program.
Qualifying residents can receive up to six months of reduced rent.
Supply Chain Responsibility
Supply chain management is becoming increasingly important. Killam’s
major suppliers include skilled trades suppliers for maintenance and
major renovations in our buildings, and material suppliers for building
materials, cleaning supplies and first aid supplies. Killam fosters
relationships with suppliers that commit to green environmental policies,
as well as those that have a history of strong ethical and social practices.
Killam has a mandatory vendor checklist that is signed by the vendor
prior to commencing work. This checklist includes proof of both workers
compensation and liability insurance, as well as disclosure of any health
and safety infractions, fines and documentation of proper safety training.
In 2020, Killam will review this checklist to include mandatory waste
management procedures for all material vendors.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 3 1
Governance
Board Structure
Killam believes that effective corporate governance is
critical to our continued and long-term success and
will help to maximize unitholder value. The Trustees
strongly believe that their commitment to sound
governance practices is in the best interest of the
Trust and its unitholders and contributes to effective
and efficient decision making.
The Board carries out its responsibilities with
the support of several Board committees. The
Governance and ESG Committee is responsible for
the oversight of Killam’s ESG mandate and initiatives.
For more information on Killam’s Board Committees,
visit https://killamreit.com/investor-relations/
corporate-governance.
Independence
Killam’s Board of Trustees is currently comprised
of ten Trustees, six of whom are considered to be
independent. Killam believes that separating the
position of Chair of the Board and the position of the
CEO is key in effectively providing
independent Board oversight
and in holding management
accountable to the Board for
the Trust’s operations. Killam has
an independent, non-executive
Chair of the Board, and all
Board committee members are
independent. It is the Board’s policy
for non-management Trustees
to hold regularly scheduled meetings without the
attendance of management of the Trust (in-camera
meetings). Time is specifically reserved for in-camera
meetings at the beginning and/or end of the Board,
Audit, Compensation and Governance & ESG
Committee meetings.
Ethics
Killam is a good corporate citizen and maintains a
high standard of integrity in conducting business.
Killam’s Code of Business Conduct and Ethics (the
Code) establishes a framework of guidelines and
principles to oversee and foster ethical behaviour in
all business activities.
The principles in the Code are intended to:
• Establish ethical and fair practice in all business
relationships, dealings and activities.
• Ensure compliance with all laws, regulations and
Killam policies.
• Facilitate a safe working environment with
respect for people and a commitment to
diversity, equal opportunity and freedom
from exposure to improper conduct and
discrimination.
3 2 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
We hold ourselves to a
high level of corporate
social responsibility and
our code of ethics is the
foundation of how we
do business.
• Maintain professional integrity in all business
dealings.
• Protect Killam’s assets, ensuring only proper use
for Killam’s benefit.
• Safeguard the use of confidential information
and maintain proper reporting procedures.
• Provide additional, practical insight into applying
Killam’s Core Values, specifically Do the Right
Thing, to Killam’s everyday operations.
Diversity and Inclusion
Killam is committed to providing a supportive and
inclusive workplace for all employees. Employees
are encouraged to develop their full potential and
use their unique talents, maximizing the efficiency of
our team. Killam recognizes the benefits which arise
from employee diversity, including a strengthened
corporate culture, improved employee retention,
access to different perspectives and ideas and the
benefit of all available talent.
Killam is an equal opportunity
employer. All decisions regarding
recruitment, hiring, promotion,
compensation, employee
development and all other terms and
conditions of employment are made
without regard to race, nationality or
ethnic origin, colour, religion, age, sex,
sexual orientation, gender orientation,
marital status, civil status, physical or mental disability
or any other protected ground, as set out in Killam’s
Code of Business Conduct and Ethics and applicable
human rights legislation.
Killam’s commitment to a diverse and inclusive
workplace is apparent in the following initiatives,
policies and practices:
• Killam has both employee and Board of Trustees
diversity policies to promote inclusiveness,
diversity and leadership opportunities.
• Two of ten Board positions and seven of twelve
senior management positions are occupied by
females. The Board has a target of at least three
females by 2020.
• Killam’s commitment to diversity is evident in our
employee policies, handbooks, documents and
employee portal. More importantly, respect and
fair treatment are an essential part of our culture.
• Respectful workplace training is provided to
employees on a regular basis.
• Any discriminatory practices or behaviours in the
workplace are not tolerated and are addressed
immediately.
Educating our employees in cybersecurity is of the
utmost importance, and we have deployed software
that simulates phishing emails. Mandatory training is
required if employees fail the random simulations. At
Killam, we have email firewalls as front-line defence
for email security, multi-factor authentication for all
employees to access all corporate emails and data,
and cloud to cloud back-up and recovery systems.
We continue to develop our cyber defence through
continued investment in cyber technologies and
driving the education and awareness of our residents
and employees.
Stakeholder Engagement
We are committed to engaging with all our
stakeholders on ESG issues. In developing Killam’s
materiality matrix, we assessed and identified the
most significant stakeholder groups. Killam engages
with its stakeholders in the follow ways:
Residents – We annually survey our residents and
use the feedback to action and focus on issues of
importance.
Employees – We annually survey our employees
for feedback on a variety of topics including
compensations and benefits, career opportunities
and advancement, diversity and inclusion, as well as
safety and comfort in their workplace.
Investors – We regularly meet with investors at
conferences, private meetings and on property tours
to discuss a variety of topics including operations,
strategy, corporate governance and sustainability.
Communities – We are active participants in the
communities in which we operate and regularly
engage in dialogue with local groups on community
activities, as well as receive feedback on our
development projects.
In addition to effective stakeholder engagement,
we respond to investor and ESG-related emails
and inquiries on an ongoing basis. Any inquiries
or comments can be directed through our VP,
Investor Relations & Sustainability: Nancy Alexander,
nalexander@killamreit.com.
Gender Diversity | Female Composition
49% OF ALL EMPLOYEES
27% OF BOARD OF TRUSTEES
58% OF EXECUTIVE
53% OF MANAGERS & PROFESSIONALS
Risk Management & Cyber Security
Killam’s risk management program ensures we
assess our largest risks as well as stay informed on
emerging issues. The safety of Killam’s residents and
staff are a top priority. On a quarterly basis, Killam’s
Risk Management Committee, including senior
representatives from all departments, addresses
initiatives to improve the safety and security of our
properties.
Initiatives implemented in 2019 included the rollout
of an enhanced property safety inspection program,
expanded resident and employee education,
communication programs on risk mitigation and
the piloting of a firestopping product. During 2019,
Killam also rolled out a cloud-based risk management
software solution to expand mobile reporting and
increased data analytics associated with risk-related
incidents. In addition, weekly and monthly property
inspections by Killam’s property management team
identify and address risk mitigation.
Cyber security is a risk facing all organizations and
one Killam takes seriously. The protection of Killam’s
data is the foundation of our cyber security program,
and ensures resident and all proprietary data remain
safe and secure. We work to reduce our cyber threat
exposure, and have continued to enhance our cyber
capabilities in the past year by migrating all data to
cloud-based solutions with high-quality partners.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 3 3
About this Report
Killam’s ESG report covers sustainability and ESG activities for the 2019 fiscal year. Both 2018 and 2019
greenhouse gas emissions data has been independently reviewed for scope 1 and 2 emissions.
This report has been prepared in accordance with Global Reporting Initiative Standards: Core Option. For
reference, a GRI content index is attached. This report has not been assured.
For relevant supplemental financial performance results, please refer to https://killamreit.com/investor-relations/
financial-reports or https://sedar.com. For additional governance-related documents, please refer to
https://killamreit.com/investor-relations/corporate-governance.
Global Reporting Initiative Content Index
This GRI Content Index references the GFI Standards, and where applicable, the real estate section disclosures.
GRI Reporting Disclosure
Organizational Profile
GRI
Indicator Description
Explanation/Section
102-1
The name of the organization Killam Apartment REIT (“Killam”)
102-2
Activities, brands, products
and services
Killam is a growth-oriented Canadian real estate investment
trust owning, operating and developing apartments and
manufactured home communities. Killam owns a $3.3 billion real
estate portfolio located in Atlantic Canada, Ontario, Alberta and
British Columbia.
102-3
Location of headquarters
Killam’s corporate head office is located in Halifax, Nova Scotia,
with property management offices in all our major regions.
102-4
Location of operations
Killam’s operations are within Canada, for details on Killam’s
specific operating regions see About Killam p. 2
102-5
Ownership and legal form
Killam is an open-ended real estate investment trust (“REIT”)
formed under the laws of the Province of Ontario pursuant to
an amended and restated declaration of trust dated November
27, 2015 (the “Declaration of Trust”). The Declaration of Trust is
available on SEDAR at www.sedar.com.
102-6
Markets served
2019 Annual Report - About Killam, p. 2
102-7
Scale of the organization
As of December 31, 2019, Killam had approximately $3.3 billion
in portfolio assets and approximately 660 employees across
seven provinces within Canada.
2019 Annual Report - About Killam, p. 2 and Financial and
Operating Highlights, p. 4
Our Employees, p. 28
3 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
102-8
Information of employees
and other workers
102-9
Supply chain
Supply Chain Responsibility, p. 31
102-10
Significant changes to the
organization and its supply
chain
102-11
Precautionary principle or
approach
102-12
External initiatives
102-13 Membership of associations
Strategy
102-14
Statement from senior
decision-maker
Ethics and integrity
Killam did not undergo any significant changes to the
organization or its supply chain in 2019.
We are not currently reporting on this GRI indicator. Killam has
extensive risk management practices in place regarding the
safety of its tenants, however Killam recognizes an opportunity
to apply the precautionary approach to assess Killam’s impact on
the environment and implement environment risk management
practices into operational planning.
United Nations Sustainable Development Goals (“SDGs”) p. 21
Global Real Estate Sustainability Benchmark (“GRESB”) Killam
completed its initial GRESB assessment during 2019 and plans
to continue to report sustainability practices through GRESB
submissions annually.
Real Property Association of Canada (“REALPac”)
Investment Property Owners Association of Nova Scotia
(“IPOANS”)
Canadian Federation Apartment Association (“CFAA”)
Federation of Rental Housing Providers in Ontario (“FRPO”)
Greater Toronto Apartment Association (“GTAA”)
Letter from the President & CEO, p. 17
102-16
Values, principals, standards,
and norms of behaviour
Our Culture, p. 27
Ethics, p. 32
Governance
102-18 Governance structure
Governance, p. 32
https://killamreit.com/investor-relations/corporate-governance
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 3 5
Stakeholder engagement
102-40
List of stakeholder groups
Stakeholder Engagement, p. 33
102-41
102-42
102-43
102-44
Collective bargaining
agreements
Identifying and selecting
stakeholders
Approach to stakeholder
engagement
Key topics and concerns
raised
Reporting practice
102-45
Entities included in the
consolidated financial
statements
non-unionized; 0%
Stakeholder Engagement, p. 33
Stakeholder Engagement, p. 33
Nothing material to note.
Killam Apartment REIT and its principal subsidiaries as listed in
Killam’s Annual Information Form on sedar.com
102-46 Defining report content and
topic boundaries
Materiality Assessment, p. 19
102-47
List of material topics
Materiality Assessment, p. 19
102-48
Restatements of information None
102-49
Changes in reporting
None
102-50
Reporting period
102-51 Date of most recent report
All information in the report covers the year ended December
31, 2019, unless otherwise stated.
This is the first report prepared in accordance with GRI
Standards. Killam’s 2018 ESG Report provides comparable
information to 2019, but was not prepared in accordance with
GRI Standards.
102-52
Reporting cycle
Annual
102-53
102-54
Contact point for questions
regarding the report
Nancy Alexander, Vice President of Investor Relations &
Sustainability; nalexander@killamreit.com
Claims of reporting in
accordance with the GRI
Standards
This report has been prepared in accordance with the GRI
Standards: Core Option
102-55 GRI content index
GRI Context Index, p. 34
102-56
External assurance
None
Economic Performance
201
Management approach
disclosure
2019 Annual Report, Management Discussion and Analysis: Key
Performance Indicators p. 42 and Summary of 2019 Results and
Operations, p. 43
201-1
Direct economic value
generated and distributed
2019 Annual Report, Management Discussion and Analysis:
Financial and Operational Highlights, p. 43 and Distributions to
Unitholders, p. 69
Energy
302
Management approach
disclosure
Investing in Energy Efficiencies, p. 23
302-3
Energy Intensity
Emissions Matter, p. 22
3 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
Water and effluents
303
Management approach
disclosure
Water Conservation, p. 23
303-5
Water Consumption
Water Conservation, p. 23
Emissions
305
305-1
305-2
Management approach
disclosure
Direct (Scope 1) GHG
Emissions
Emissions Matter, p. 22
Emissions Matter, p. 22
Energy indirect (Scope 2) GHG
Emissions
Emissions Matter, p. 22
305-4
GHG emissions intensity
See Energy Intensity (302-3) disclosure above and Emissions
Matter, p. 22
Occupational Health & Safety
403
403-1
403-5
Management approach
disclosure
Occupational health and
safety management system
Worker training on
occupational health and safety
Training and Education
Health, Well-Being and Safety, p. 30
Health, Well-Being and Safety, p. 30
Health, Well-Being and Safety, p. 30
404
404-3
Management approach
disclosure
Engagement, Training & Development, p. 28
Percentage of employees
receiving regular performance
and career development
reviews
Diversity and Equal Opportunity
405
405-1
Management approach
disclosure
Diversity of governance
bodies and employees
Diversity and Inclusion, p. 32
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Customer Privacy
418
418-1
Management approach
disclosure
Substantiated complaints
concerning breaches of
customer privacy and losses
of customer data
Risk Management & Cyber Security, p. 33
Killam did not identify or receive any substantiated complaints
in 2019.
3 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
40
40
40
41
41
42
3
3
5
6
8
50
51
52
3
6
7
62
62
3
3
4
4
4
5
5
5
6
7
9
0
72
3
4
7
80
1
1
7
7
2
3
3
4
4
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 3 9
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART I
Business Overview
Killam Apartment REIT ("Killam", the "Trust", or the "REIT"), based in Halifax, Nova Scotia ("NS"), is one of Canada's largest residential
landlords, owning, operating, managing and developing a $3.3 billion portfolio of apartments, manufactured home communities
("MHCs") and commercial properties, across seven provinces. Killam was founded in 2000 to create value through the consolidation of
apartments in Atlantic Canada and MHCs across Canada. Killam entered the Ontario ("ON") apartment market in 2010, the Alberta
("AB") apartment market in 2014, and the British Columbia ("BC") apartment market in 2020. Killam broke ground on its first
development in 2010 and has completed eleven projects to date, with a further four projects currently under construction.
Killam’s strategy to drive value and profitability focuses on three priorities:
1) Increase earnings from the existing portfolio;
2) Expand the portfolio and diversify geographically through accretive acquisitions, targeting newer properties; and
3) Develop high-quality properties in its core markets.
The apartment business is Killam’s largest segment and accounted for 88.4% of Killam’s net operating income ("NOI") for the year
ended December 31, 2019. As at December 31, 2019, Killam’s apartment portfolio consisted of 16,325 units, including 968 units
jointly owned with institutional partners. Killam's 199 apartment properties are located in Atlantic Canada's six largest urban centres
(Halifax, Moncton, Saint John, Fredericton, Charlottetown and St. John's), Ontario (Ottawa, London, Toronto and Kitchener-Waterloo-
Cambridge), Alberta (Edmonton and Calgary), and British Columbia (Greater Victoria). Killam is Atlantic Canada’s largest residential
landlord, owning a 13% share of multi-family rental units in its core markets. Killam plans to continue increasing its presence outside
Atlantic Canada through acquisitions and developments, however, will continue to invest strategically in Atlantic Canada to maintain
its market presence.
In addition, Killam owns 5,786 sites in 38 MHCs, also known as land-lease communities or trailer parks, in Ontario and Atlantic
Canada. Killam owns the land and infrastructure supporting these communities and leases sites to tenants who own their own homes
and pay Killam site rent. The MHC portfolio accounted for 6.9% of Killam’s NOI for the year ended December 31, 2019. Killam also
owns 771,715 square feet of commercial space that accounted for 4.7% of Killam's NOI for the year ended December 31, 2019.
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 the Trust's audited consolidated financial statements for the years ended December 31, 2019 and 2018, 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 2018 Annual Information Form, are available on SEDAR at www.sedar.com.
The discussions in this MD&A are based on information available as at February 12, 2020. This MD&A has been reviewed and
approved by Management and the REIT's Board of Trustees.
Declaration of Trust
Killam's investment guidelines and operating policies are set out in Killam's Amended and Restated Declaration of Trust ("DOT")
dated November 27, 2015, which is available on SEDAR. A summary of the guidelines and policies is as follows:
Investment Guidelines
• The Trust will acquire, hold, develop, maintain, improve, lease and manage income-producing real estate properties;
• Investments in joint ventures, partnerships (general or limited) and limited liability companies are permitted;
• Investments in land for development that will be capital property for Killam are permitted; and
• Investments that would disqualify Killam as a "mutual fund trust" or a "unit trust" as defined within the Income Tax Act (Canada) are
prohibited.
Operating Policies
• 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" or a "unit trust" as defined within the Income Tax
Act (Canada) are prohibited; and
• Killam must maintain property insurance coverage in respect of potential liabilities of the Trust.
As at December 31, 2019, Killam was in compliance with all investment guidelines and operating policies.
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4 0 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
2
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as 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 or cash flow
from operating activities determined in accordance with IFRS, as indicators of Killam's performance, or sustainability of Killam's
distributions. These measures do not have standardized meanings under IFRS and therefore may not be comparable to similarly titled
measures presented by other publicly traded organizations.
• Funds from operations ("FFO"), and applicable per unit amounts, are calculated by Killam as net income adjusted for depreciation
on an owner-occupied building, fair value gains (losses), interest expense related to Exchangeable Units, gains (losses) on
disposition, deferred tax expense (recovery), unrealized gains (losses) on derivative liability, internal commercial leasing costs,
interest expense related to lease liabilities, insurance proceeds and non-controlling interest. FFO are calculated in accordance with
the REALpac definition, except for the adjustment of insurance proceeds as REALpac does not address this adjustment. A
reconciliation between net income and FFO is included on page 29.
• Adjusted funds from operations ("AFFO"), and applicable per unit amounts and payout ratios, are calculated by Killam as FFO less an
allowance for maintenance capital expenditures ("capex") (a three-year rolling historical average capital spend to maintain and
sustain Killam's properties), commercial leasing costs and straight-line commercial rents. AFFO are calculated in accordance with the
REALpac definition. Management considers AFFO an earnings metric. A reconciliation from FFO to AFFO is included on page 31.
• Adjusted cash flow from operations ("ACFO") is calculated by Killam as cash flow provided by operating activities with adjustments
for changes in working capital that are not indicative of sustainable cash available for distribution, maintenance capital
expenditures, commercial leasing costs, amortization of deferred financing costs and non-controlling interest. Management
considers ACFO a measure of sustainable cash flow. A reconciliation from cash provided by operating activities to ACFO is included
on page 32. ACFO is calculated in accordance with the REALpac definition.
• Earnings before interest, tax, depreciation and amortization ("EBITDA") is calculated by Killam as income before fair value
adjustments, gains (losses) on disposition, income taxes, interest, depreciation and amortization.
• Interest coverage is calculated by dividing EBITDA by interest expense, less interest expense related to exchangeable units.
• Debt service coverage is calculated by dividing EBITDA by interest expense, less interest expense related to exchangeable units, and
principal mortgage repayments.
• Debt to normalized EBITDA is calculated by dividing interest-bearing debt (net of cash) by EBITDA that has been adjusted for a full
year of stabilized earnings from recently completed acquisitions and developments.
• Same property results in relation to Killam are revenues and property operating expenses for stabilized properties that Killam has
owned for equivalent periods in 2019 and 2018. Same property results represent 80.2% of the fair value of Killam's investment
property portfolio as at December 31, 2019. Excluded from same property results in 2019 are acquisitions, dispositions and
developments completed in 2018 and 2019, non-stabilized commercial properties linked to development projects, and other
adjustments to normalize for revenue or expense items that relate to prior periods or are not operational.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 4 1
3
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART II
Key Performance Indicators
To assist Management and investors in monitoring Killam's achievement of its objectives, Killam has defined a number of key
performance indicators to measure the success of its operating and financial performance:
1)
2)
3)
FFO per Unit – A standard measure of earnings for real estate entities. Management is focused on growing FFO per unit.
AFFO per Unit – A standard measure of earnings for real estate entities. Management is focused on growing AFFO per unit.
Payout Ratio – Killam monitors its AFFO and ACFO payout ratios and targets improved payout ratios. The ACFO payout ratio is a
measure to assess the sustainability of distributions. The AFFO payout ratio is used as a supplemental metric. Although Killam
expects to sustain and grow distributions, the amount of distributions will depend on debt repayments and refinancings, capital
investments, and other factors, which may be beyond the control of the REIT.
4)
Same Property NOI – This measure considers Killam’s ability to increase its same property NOI, removing the impact of recent
acquisitions and dispositions, developments and other non-same property operating adjustments.
5) Occupancy – Management is focused on maximizing occupancy while also managing the impact of higher rental rates. This measure
is a percentage based on dollars of lost rent from vacancy divided by gross potential residential rent.
6)
Rental Increases – Management expects to increase average annual rental rates and tracks average annual rate increases.
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 stipulate that overall indebtedness is not to exceed 70% of Gross Book Value. Debt to total assets is calculated by dividing
total interest-bearing debt by total assets.
8) Weighted Average Interest Rate of Mortgage Debt and Total Debt – Killam monitors the weighted average cost of its mortgage and
total debt.
9) Weighted Average Years to Debt Maturity – Management monitors the weighted average number of years to maturity on its debt.
10) Debt to Normalized EBITDA – A common measure of leverage used by lenders, this measure considers Killam’s financial health and
liquidity. In normalizing for recently completed acquisitions and developments, Killam uses a full year of stabilized earnings.
Generally, the lower the debt to normalized EBITDA ratio, the lower the credit risk.
11) 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.
12)
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.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Financial and Operational Highlights
The following table presents a summary of Killam’s key IFRS and non-IFRS financial and operational performance measures:
For the years ended December 31,
Operating Performance
Property revenue
Net operating income
Net income
FFO (1)
FFO per unit - diluted (1)
AFFO (1)
AFFO per unit - diluted (1)
Weighted average number of units outstanding - diluted (000s)
Distributions paid per unit (3)
AFFO payout ratio - diluted (1)
Portfolio Performance
Same property NOI (1)
Same property NOI margin
Same property apartment occupancy
Same property apartment weighted average rental increase (4)
As at December 31,
Leverage Ratios and Metrics
Debt to total assets
Weighted average mortgage interest rate
Weighted average years to debt maturity
Debt to normalized EBITDA (1)
Debt service coverage (1)
Interest coverage (1)
2018
Change (2)
2019
$241,749
$152,336
$283,525
$93,884
$0.98
$76,768
$0.80
95,914
$0.66
82%
$215,959
$135,712
$175,171
$81,808
$0.94
$66,275
$0.76
87,185
$0.64
84%
$126,485
$121,482
62.9%
97.3%
3.6%
62.5%
96.9%
2.7%
11.9%
12.2%
61.9%
14.8%
4.3%
15.8%
5.3%
10.0%
3.1%
(200) bps
4.1%
40 bps
40 bps
90 bps
2019
2018
Change (2)
43.4%
2.90%
4.5
10.15x
1.57x
3.20x
49.8%
2.95%
4.4
10.62x
1.58x
3.22x
(640) bps
(5) bps
0.1 years
(4.4)%
(0.6)%
(0.6)%
(1) FFO, AFFO, AFFO payout ratio, debt to normalized EBITDA ratio, debt service coverage ratio, interest coverage ratio, and same property NOI are not
defined by IFRS, do not have standard meanings and may not be comparable with other industries or entities (see "Non-IFRS Financial Measures").
(2) Change expressed as a percentage or basis point ("bps").
(3) The Board of Trustees approved a 3.1% increase in Killam's distribution on an annualized basis to $0.66 per unit effective for the March 2019
distribution.
(4) Year-over-year, as at December 31.
Summary of 2019 Results and Operations
Achieved Net Income of $284 Million
Killam achieved net income of $284 million in 2019 compared to $175 million in 2018. The increase in net income is primarily
attributable to fair value gains on investment properties, growth through acquisitions and increased earnings from the existing portfolio,
offset by increased financing costs and deferred tax expense.
FFO per Unit Growth of 4.3% and AFFO per Unit Growth of 5.3%
Killam generated solid FFO and AFFO per unit growth in 2019. FFO per unit was $0.98 in 2019, 4.3% higher than 2018, and AFFO per unit
increased 5.3% in 2019. The growth is attributable to increased NOI due to strong same property performance and incremental
contributions from recent acquisitions and completed developments, partially offset by higher financing costs and a 10.0% increase in
the weighted average number of units outstanding from an aggregate $201 million of equity issued in 2019. AFFO was further enhanced
by the addition of newer high-quality assets to the portfolio, which require lower maintenance capital expenditure.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Portfolio Growth from Acquisitions and Continued Geographic Diversification
In 2019, Killam completed $191 million of acquisitions, adding 640 apartment units, approximately 220,000 square feet of commercial
space and 359 MHC sites to its portfolio. These acquisitions expanded Killam's presence in Ontario, Alberta, PEI and New Brunswick.
Killam has continued to execute on its strategy to increase the percentage of NOI generated outside Atlantic Canada, with an increase
from 27% in 2018 to 30% in 2019. More than 56% of the capital deployed for acquisitions in 2019 was in Alberta and Ontario.
Same Property NOI Growth of 4.1% and Improved Operating Margin
Killam achieved 4.1% growth in consolidated same property NOI and a 40 bps improvement in its operating margin during 2019. This
improvement was driven by rental rate growth and improved occupancy. Operating expenses increased 2.4%, in-line with inflationary
cost pressures.
Killam's same property apartment NOI increased 4.2% during the year, with Ontario, New Brunswick and Halifax all achieving NOI
growth of over 5.0%.
Rental Rate Growth of 3.6% Enhanced Top Line Performance
Same property revenue increased 3.5%, compared to 2018, as a result of a 3.6% increase in the average rental rate for the apartment
portfolio, a 40 bps increase in average apartment occupancy, a decrease in rental incentives and 2.6% top-line growth within the MHC
portfolio. With continued high occupancy levels, increasing rental rates is a key focus for revenue optimization.
Same property rental rate growth has accelerated over the last eight quarters, from 1.8% in Q4-2017 to 3.6% in Q4-2019. Rental rate
increases on unit turns and lease renewals averaged 5.8% and 2.1% in 2019, up from 4.7% and 1.7% a year earlier. Halifax and Ontario
led the apartment performance, achieving year-over-year same property apartment revenue increases of 4.7% and 4.1%.
Successful Repositioning Program Continues to Generate Above-average Returns
During 2019, Killam invested $6.8 million in repositionings and completed 304 unit upgrades. The average return on investment ("ROI")
on unit repositionings during the year was approximately 13%, based on an average renovation cost of $25,000 per unit. These
repositionings are expected to generate approximately an additional $1.0 million in NOI on an annualized basis, and approximately $20
million in Net Asset Value ("NAV") growth.
Cap-rate Compression and Strong NOI Growth Supported Fair Value Gains
Killam recorded $244.1 million in fair value gains related to its investment properties for the year ended December 31, 2019, as a result
of cap-rate compression in Halifax, Ontario and on the MHC portfolio and robust NOI growth driven by increasing rental rates and strong
apartment fundamentals across Killam's core markets. Killam's weighted average cap-rates for its apartment and MHC portfolios at
December 31, 2019, were 4.76% and 5.65%, a decrease of 39 bps and 111 bps compared to December 31, 2018.
Substantial Development Activity Underway
The Alexander and Saginaw Park developments, completed in 2018, and the Frontier development, completed in June 2019, contributed
positively to FFO per unit growth in 2019, together adding $3.1 million to FFO.
Killam continues to make progress on its current developments, investing $41.7 million during 2019. Killam ended 2019 with four
development projects underway, totaling 348 units, that have an expected value upon completion of approximately $160 million. In
addition, Killam holds a 10% interest in another active development in Calgary. Killam's current development pipeline includes over
2,650 units. Construction of approximately 1,500 of these units is expected to start within the next five years, with 53% of these future
units located outside of Atlantic Canada.
Investments in Technology and Data Analytics
Killam implemented a customer relationship management (CRM) software solution in 2019 to augment its high-quality service to
tenants and prospective tenants, optimize rental opportunities and further reduce vacancy. This has allowed potential tenants to book
appointments and complete applications online while Killam’s leasing teams focus on delivering exceptional customer service. Killam
also implemented a risk management software solution in 2019, and expanded its data analytics platform. Having real-time access to
leasing and operating data has increased Killam’s ability to rapidly analyze demand and make more timely and accurate operating
decisions.
Environmental, Social and Governance (ESG) Focused Initiatives
Killam is working towards reducing its impact on the environment and ensuring its buildings are sustainable and resilient to climate
change. Along with Killam’s on-going energy efficiency capital investments, Management completed its first Global Real Estate
Sustainability Benchmark (“GRESB”) rating in 2019, as well as a greenhouse gas audit. From this process, many new ESG initiatives were
developed and completed such as a property manager sustainability scorecard that measures asset-level sustainability and social
engagement.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Strategic Targets
Growth in Same Property NOI
2019 Target
2019 Performance
2020 Target
Longer-term Target
Expanded Portfolio
2019 Target
2019 Performance
2020 Target
Longer-term Target
Geographic Diversification
2019 Target
2019 Performance
2020 Target
Longer-term Target
Development of High-Quality Properties
2019 Target
2019 Performance
2020 Target
Longer-term Target
Strengthened Balance Sheet
2019 Target
2019 Performance
2020 Target
Longer-term Target
Same property NOI growth of 3% to 5%.
Killam achieved same property NOI growth of 4.1% in 2019.
Same property NOI growth of 3% to 5%.
Same Property NOI growth averaging over 3%.
Grow the portfolio to over $3.0 billion by the end of 2019, with a minimum
acquisition target of $100 million.
Killam exceeded both targets, increasing the portfolio to $3.3 billion and
completing $191.1 million in acquisitions.
Complete a minimum of $175.0 million in acquisitions.
Grow the portfolio to over $4.0 billion by the end of 2022.
Earn at least 30% of 2019 NOI outside Atlantic Canada.
Killam met its target, with 30% of 2019 NOI generated outside Atlantic
Canada.
Earn at least 32% of 2020 NOI outside Atlantic Canada.
Earn over 37% of NOI generated outside Atlantic Canada by 2022.
To complete Phase I (Frontier) of the Ottawa development, break ground on
Silver Spear II, plus one additional development project.
Killam met its target, with Frontier completed in June 2019 and the
commencement of the Kay (Silver Spear II) development during Q3-2019.
Latitude (Phase II of the Gloucester City Centre development) also broke
ground in Q2-2019.
To complete the Shorefront development, and break ground on two
additional development projects.
To complete a minimum of $200 million in developments between 2020 and
2022.
Manage debt as a percentage of total assets ratio below 49%.
Debt as a percentage of total assets was 43.4% as at December 31, 2019.
Maintain debt as a percentage of assets ratio below 47%.
Reduce debt as a percentage of assets below 45% by the end of 2021.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Outlook
Strong Operating Fundamentals and Population Growth Expected to Drive Above-average Rental Growth
Population growth from immigration, baby boomers and seniors transitioning from home ownership to apartment living, a growing
number of people living alone and a trend for younger Canadians to delay homeownership are all expected to support strong rental
demand for the foreseeable future. An increase in single-family home prices is also increasing demand for rental units.
These strong demand drivers are resulting in tight rental markets across Canada, including Atlantic Canada. Per Canada Mortgage and
Housing Corporation's ("CMHC") Fall 2019 Housing Market Outlook report, Halifax vacancy hit an all-time low of 1.0%, 60 bps below
the vacancy rate for the same period in 2018, and CMHC forecasts vacancy will remain below 2.0% into 2020. This tight rental market
is expected to support above-average rental rate growth.
With one of the newest and highest-quality apartment portfolios in Canada, Killam is well positioned to respond to the increasing
demand for quality rental housing. Management expects to grow revenue by optimizing rental rates, while maintaining high
occupancy levels. With the majority of Killam’s portfolio not exposed to rent controls, Management has the flexibility to move rents to
market on lease renewals on an annual basis. In rent-controlled Ontario, Management expects to maximize the rental rates on unit
turns as extremely tight rental markets are expected to lead to demand-driven rental rate growth.
Expanded Suite Repositioning Program
Management is committed to continuing to invest in its repositioning program, investing a total of $6.8 million in repositioning 304
suites in 2019 to meet market demand and enhance revenue growth and the NAV of its portfolio. Suite repositionings represent unit
upgrades above $10,000. Killam targets an ROI of at least 10% and monthly rental rate increases of 10%–30% upon completion of the
renovation. Given the success to date, in 2020 Killam expects to expand the program further, targeting the completion of 500 suites.
A review of Killam's portfolio has identified a minimum of 3,000 units having repositioning potential. Killam plans to expand this
program on an annual basis.
Investing in Energy Efficiency Opportunities to Reduce Consumption and Increase Margins
Investments in energy and water-saving initiatives, and operational efficiencies, are expected to continue to reduce Killam's resource
consumption and improve operating margins. Killam is in its fourth year of a five-year, $25.0 million, program to reduce the carbon
footprint of its buildings through the installation of low-flow water fixtures, boiler, ventilation and cooling system upgrades, and the
retrofit of temperature control and lighting systems. Management is forecasting investments of $5.0 million in both 2020 and 2021
on projects with an average payback of approximately six years. These projects should improve same property NOI by lowering
consumption, thereby reducing Killam’s exposure to fluctuating energy costs.
Enhancing Efficiencies through Technology
Management continues to invest in technology to improve efficiencies and enhance processes and communication with employees and
tenants. After successfully implementing enhancements to its online marketing and leasing platform in 2019, Management is focused on
technology to improve potential tenants' online experiences, as well as tenant mobile and online communication experiences.
Additional technology investments in 2020 include the use of a business intelligence platform to expand the use of data analytics across
Killam, to drive leasing decisions, optimize rental growth and maximize returns. At the property level, Killam is actively seeking
opportunities to maximize the efficiency of operating systems, as well as automation to increase tenant safety and comfort.
On Track with Geographic Diversification Targets
Management remains focused on increasing its presence in Ontario and Western Canada. Killam's 2019 NOI generated outside
Atlantic Canada was approximately 30%, up from 27% in 2018. In January 2020, Killam completed its first acquisition in Greater
Victoria, BC, with a 161-unit apartment property, expanding its presence across Canada. Looking forward, Killam's recent acquisitions
and developments, strong development pipeline outside Atlantic Canada and focused acquisition strategy should support Killam in
achieving its medium-term target of 37% of its NOI generated outside Atlantic Canada by the end of 2022.
Driving FFO and NAV Growth with Developments
Development remains an important component of Killam's growth strategy. Frontier was completed in June 2019 and is currently
97% leased. Killam recorded $9.5 million in fair value gains on the development. Killam currently has four development projects
underway, including two in Charlottetown and projects in both Ottawa and Mississauga. Killam also has a 10% interest in a
development in Calgary.
Additionally, Killam owns land supporting a development pipeline of approximately 2,650 units, representing a potential additional
investment of $850 million (net of land costs). Killam is moving forward with development planning for its recently acquired
development lands in Waterloo and Kitchener and targets beginning construction in 2020 and 2021. Killam expects to complete over
$200.0 million of development projects over the next three years. Developments reinforce Killam's position as the owner of 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 this MD&A.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Focus on Improving Debt Metrics and Increasing Capital Flexibility
Killam manages its balance sheet to maximize capital flexibility. Killam continues to improve its key debt metrics, reducing its debt to
total asset ratio 640 bps from 49.8% at the end of 2018 to 43.4% at the end of 2019. Killam is also focused on increasing its pool of
unencumbered assets by acquiring properties with no debt and repaying its highest interest rate debt. Where possible, Killam uses
the opportunity to reduce its MHC mortgage debt that has higher interest rates, as MHCs do not qualify for CMHC insurance.
Repositioning of Brewery Market Expected to Drive FFO and NAV Growth Beyond 2019
Killam continues to reposition its 150,000 square foot ("SF") commercial asset, the Brewery Market in Halifax, located adjacent
Killam's 240-unit Alexander apartment property. Integrating these two properties is expected to both generate long-term growth in
apartment rental rates and attract new commercial tenants. In early Q2-2019, planned tenant turnover at the Brewery Market
provided Killam with an opportunity to redevelop the vacant space and attract a more diverse tenant base, at higher net rents, which
complements the increased residential density in the area. Due to tenant turnover, earnings at the Brewery Market were $0.5 million
lower in 2019 compared to 2018; however, this is expected to be more than offset by long-term NAV growth. In 2020, the Brewery
Market is forecasted to achieve a $0.5 million increase in NOI over 2019, with further growth expected in 2021.
Stable Interest Rates Expected on Refinancings
Killam has apartment mortgage maturities of $209.5 million in 2020, having a weighted average interest rate of 2.63%, which is
slightly above the prevailing 5-year and 10-year CMHC-insured rates. MHC mortgages of $13.6 million are also maturing in 2020 at a
weighted average interest rate in line with current market rates for MHCs. Although interest rates may be lower on refinancings, due
to up-financing opportunities on mortgage renewals, the overall interest expense on the refinanced portfolio is expected to be
relatively flat.
The average interest rates on apartment mortgages maturing in 2021 and 2022 are also in line with current existing market interest
rates. Management has laddered its debt maturities and reduced its overall leverage ratios to lessen its exposure to potentially rising
interest rates. Management plans to maintain its conservative debt ratios and continue to flatten its debt maturity schedule as
mortgages mature.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART III
Business Strategy
Increase Earnings from the Existing Portfolio
Killam increases the value of its portfolio by maximizing revenue and managing expenses. To achieve NOI growth, Killam must address
three critical factors: occupancy, rental rates and operating costs. Killam focuses on providing superior customer service and employee
training, using technology and analytics to drive leasing and marketing, maximizing rental rates on renewals and completing unit
renovations and repositionings, to maximize revenue on turns. Operating cost management is focused on energy efficiencies,
technology investments, economies of scale, risk management, and staff and tenant education. Killam has increased same property NOI
by an average of 2.7% per annum over the past decade; in the last five years, averaging 4.1%.
Historic Same Property NOI Growth
4.2%
4.0%
3.6%
4.8%
4.1%
2015
2016
2017
2018
2019
Expand the Portfolio through Acquisitions
Killam is expanding its portfolio through the acquisition of centrally located buildings in its target markets of Ontario, Alberta and most
recently British Columbia, and continuing to add to its established portfolio in Atlantic Canada. Acquisition activity varies by year
depending on opportunities and access to capital. In 2019, Killam acquired $191 million in assets. On average, Killam has acquired over
$117 million of properties each year since its first acquisition in 2002.
Killam operates one of Canada's newest apartment portfolios and targets the acquisitions of newer properties as modern, high-quality
buildings are in greater demand by tenants and require less maintenance capital to operate.
Annual Acquisitions ($ millions)
$200
$167
$103 $125
$45
$16
$36
$3
$115 $106 $85
$121
$160
$54
$72
$315
$200
$191
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
2 0 1 6
2 0 1 7
2 0 1 8
2 0 1 9
Annual Acquisitions
Average
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Develop High-quality Properties in Core Markets
Killam enhances its organic and acquisition growth opportunities with development. Killam started developing apartments in 2010 and
has completed eleven projects to date, investing approximately $285 million to construct nearly 1,200 units. Killam has an experienced
development team, including an in-house architect and engineers, that oversee all projects. New property construction enables Killam to
control the quality and features of its buildings. Killam targets yields of 5.0%–6.0% on development, and expects to build at a 50–150
bps discount to the market capitalization rates ("cap-rates") on completion, creating value for its unitholders. Killam currently has a
development pipeline of approximately 2,650 units.
Apartment Developments Complete ($ millions)
$69
$33
$14
$15
$5
$105
$38
2013
2014
2015
2016
2017(1)
2018(2)
2019(3)
$5
2011
$—
2012
(1) Relates to Killam's 50% interest in the podium portion (55 units) of The Alexander.
(2) 2018 includes Saginaw Park and The Alexander. Killam was the development manager for 100% of the $85 million Alexander development and
purchased the remaining 50% interest in December 2018.
(3) 2019 includes Killam's 50% interest in Frontier.
Diversify Geographically through Accretive Acquisitions
Geographic diversification is a priority for Killam, and it is focused on increasing the amount of NOI generated outside Atlantic Canada.
Killam is targeting expansion in selected markets including Ottawa, the Greater Toronto Area, Southwestern Ontario, Calgary, Edmonton
and Victoria. Killam's strong operating platform can support a larger and more geographically diverse portfolio. Increased investment in
Ontario and Western Canada will enhance Killam's diversification and exposure to the urban centres in Canada, which traditionally have
higher rates of population growth.
% of Killam's NOI Generated Outside Atlantic Canada
Apartment
MHC
Commercial
4%
16%
4%
17%
4%
19%
2%
3%
3%
4%
22%
23%
6%
6%
4%
8%
4%
11%
2012
2013
2014
2015
2016
2017
2018
2019
12%
4%
2010
11%
6%
2011
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Committed to ESG
Killam takes its responsibilities as a corporate citizenship seriously, with its core values of Build Community and Do the Right Thing
guiding its commitment to ESG programs and initiatives.
Killam believes that effective corporate governance is critical to its continued and long-term success and contributes to maximizing
Unitholder value. The Trustees strongly believe that commitment to sound governance practices is in the best interest of Killam
stakeholders, and contributes to effective and efficient decision-making.
Killam has a long history of investing in energy efficiencies. When natural gas was first introduced in the market in Atlantic Canada in
2004, Killam was an early adopter. Starting in 2016, Killam commenced a five-year, $25 million energy-efficiency program, focused on
reducing its greenhouse gas emissions, gaining operating efficiencies and lowering operating costs. In the past four years, Killam has
progressed with its green projects, including the installation of low-flow toilets and LED lighting retrofits across the entire apartment
portfolio. This is in addition to many other efficient heating projects and the installation of solar and geothermal heating systems in new
developments.
Giving back has always been an important part of being a responsible corporate citizen at Killam. Killam invests in its communities
through various programs and initiatives, and partners with non-profit housing agencies to provide more than 600 subsidized units
across its portfolio. The focus on providing outstanding customer service and fostering a sense of community is a priority at Killam.
Killam is committed to providing a supportive and inclusive workplace for all employees. Employees are encouraged to develop their full
potential and use their unique talents, maximizing the efficiency of Killam’s teams. Killam recognizes the benefits which arise from
employee diversity, including a strengthened corporate culture, improved employee retention and access to different perspectives and
ideas.
Killam’s ESG Oversight Committee provides guidance and ensures the integration of ESG into Killam’s strategic objectives. In addition,
management regularly reports progress against ESG targets to the Board’s Governance & ESG Committee.
Sustainability Policy
Killam has developed a sustainability policy that emphasizes its commitment to ESG practices. The policy applies to all Killam employees.
It is supported by the Governance and ESG Committee and approved by the Board of Trustees. The following is Killam’s commitment to
ESG, included in the ESG policy:
• Invest in new technology and initiatives to increase sustainability and lower our carbon footprint across the portfolio with a focus on
reducing waste, energy and water usage.
• Support and invest in our employees through training and development opportunities and providing access to a safe and positive
workplace.
• Provide outstanding customer service and a sense of community at our properties.
• Support community initiatives in the communities in which we operate, with an emphasis on affordable housing.
• Establish and implement robust governance policies and practices.
• Report annually on our ESG programs, new initiatives and performance against targets.
• Review our annual ESG benchmark ratings (from various industry bodies) and target areas for improvement each year.
2019 ESG Highlights and Achievements
• Engaged leaders across the REIT to form an ESG oversight committee to provide guidance and ensure the integration of ESG into
Killam’s strategic objectives.
• Submitted initial GRESB assessment.
• Completed a third party 2018 greenhouse gas consumption audit to ensure accurate baseline and benchmarking.
• Created a sustainability scorecard for all Property Managers to promote and measure initiatives across the portfolio.
• Researched and evaluated LEED, BOMA BEST and other building certifications.
• Implemented additional environmental policies and due diligence procedures.
• Hosted dozens of tenant and community events across the portfolio.
• Redesigned our urban landscaping plan to become more sustainable and hosted Killam’s first tree planting day.
• Completed a materiality assessment of Killam’s largest risk factors that will guide Killam’s sustainable development improvement
activities in 2020.
Killam is committed to being a part of the community where it operates and to decrease its carbon footprint and its impact on climate
change.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Portfolio Summary
The following table summarizes Killam's apartment, MHC and commercial portfolios by market as at December 31, 2019:
Apartment Portfolio
Units (1)
Number of
Properties
NOI ($) (2)
NOI (2)
(% of Total)
Nova Scotia
Halifax
Sydney
New Brunswick
Moncton
Fredericton
Saint John
Miramichi
Ontario
Ottawa
London
Cambridge-GTA
Newfoundland & Labrador
St. John's
Grand Falls
Prince Edward Island
Charlottetown
Summerside
Alberta
Calgary
Edmonton
Total Apartments
Nova Scotia
Ontario
New Brunswick (4)
Newfoundland & Labrador
Total MHCs
Prince Edward Island
Ontario
Nova Scotia
New Brunswick (4)
Total Commercial
Total Portfolio
5,753
139
5,892
1,804
1,529
1,202
96
4,631
1,216
523
818
2,557
915
148
1,063
986
86
1,072
531
579
1,110
16,325
63
2
65
34
23
14
1
72
9
5
6
20
12
2
14
19
2
21
3
4
7
199
Manufactured Home Community Portfolio
Sites
2,749
2,284
529
224
5,786
Commercial Portfolio (3)
Square
Footage (1)
187,500
297,000
254,000
33,215
771,715
Number of
Communities
17
17
2
2
38
Number of
Properties (1)
1
1
4
1
7
244
$53,545
$1,408
$54,953
$10,836
$10,778
$6,200
$638
$28,452
$9,472
$5,378
$10,404
$25,254
$6,931
$741
$7,672
$7,741
$570
$8,311
$4,834
$5,262
$10,096
$134,738
NOI ($) (2)
$4,662
$5,330
$122
$350
$10,464
NOI ($) (2)
$1,084
$4,578
$1,230
$242
$7,134
$152,336
35.1%
0.9%
36.0%
7.1%
7.1%
4.1%
0.4%
18.7%
6.2%
3.5%
6.8%
16.5%
4.5%
0.5%
5.0%
5.1%
0.4%
5.5%
3.2%
3.5%
6.7%
88.4%
NOI (2)
(% of Total)
3.1%
3.5%
0.1%
0.2%
6.9%
NOI (2)
(% of Total)
0.7%
3.0%
0.8%
0.2%
4.7%
100.0%
(1) Unit count and square footage include properties held through Killam's joint arrangements. Killam has a 50% ownership interest in two apartment properties in Ontario,
representing a proportionate ownership of 484 units of the 968 units in these properties. Killam manages the operations of all the co-owned apartment properties. Killam
also has a 50% interest in a commercial property located in Prince Edward Island, which is managed by the co-owner.
(2) For the year ended December 31, 2019.
(3) Killam also has 151,100 square feet of ancillary commercial space in various residential properties across the portfolio, which is included in apartment results.
(4) Killam's New Brunswick MHC community has seasonal operations that commence in mid-May annually. Killam's New Brunswick commercial property was acquired in June
2019 and the NOI reflects six months of income during the period.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Unique Portfolio Features
Atlantic Canada's Market Leader
Killam is the single largest multi-residential landlord in Atlantic Canada, with a 13% market share of apartments in its core markets as of
December 31, 2019. A large portfolio in each core market provides advantages, including brand recognition, a diverse selection of
apartments in each city, improved operating margins from economies of scale and the ability to attract and retain top management
talent.
Market Share and Apartment NOI (%)
% of Apartment NOI
Killam's Market Share
40%
13%
17%
14%
7%
7%
18%
22%
13%
5%
5%
4%
Halifax
Moncton
Fredericton
Charlottetown
St. John's
Saint John
With strong rental fundamentals in Atlantic Canada, CMHC's Fall 2019 Rental Market Report highlighted improved occupancy in Killam's
Halifax and Moncton markets versus October 2018. Rental fundamentals also remain strong in Fredericton, Saint John and
Charlottetown, while St. John's remains soft. This corresponds with Killam's experience in the market.
Relatively Modest Exposure to Rent Control
Over 75% of Killam's current apartment portfolio is not impacted by rent control, allowing Killam to move rents to market rates annually.
Prince Edward Island, representing 6.2% of Killam’s apartment NOI, is the only province in Atlantic Canada with rent control for
apartments. Killam's Ontario portfolio, accounting for 18.7% of apartment NOI, is also subject to rent control. In Ontario, landlords 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, rent controls do not apply to new tenants. Overall, only 28.6% of Killam's NOI is generated in markets subject to rent control;
however, owners may apply for above-guideline increases ("AGIs")to offset significant capital expenditures in these regions. British
Columbia, Killam's newest apartment market, also has rent control. Killam analyzes each property on a regular basis, considering its
location, tenant base and vacancy, to evaluate the ability to optimize rents on renewal and on turn. Management has increased its focus
on applying for AGIs in Ontario, where increases above the annual guideline are supported by significant capital investments into
Killam's assets.
CMHC-insured Debt Available for Over 85% of Killam’s Portfolio
Apartment owners are eligible for CMHC mortgage loan insurance. These policies eliminate default risk for lenders, resulting in lower
interest rates than those available for conventional mortgages. Approximately 85% of Killam's apartment debt is CMHC-insured. As
mortgages are renewed and new properties are financed, Killam expects to increase the percentage of apartment mortgages with
CMHC-insured debt. CMHC insurance is not available for commercial properties or the owners of MHCs; however, the financing is
available to manufactured home owners, increasing the affordability of these homes.
Focused on Customer Service
Annually, Management engages an independent market research firm to measure tenants’ satisfaction through an on-line survey
(approximately 3,695 respondents in 2019). Killam’s 2019 survey results support Killam’s focus on service, with tenants giving Killam an
impressive 88% satisfaction rating, consistent with the prior years. Killam takes pride in offering tenants well-maintained properties,
responding to service requests in a timely manner and providing an attractive housing value proposition. In-house educational programs
and adoption of new technology enhance employees’ skills to provide exemplary service to current and prospective tenants.
Geographic Diversification
Killam is focused on increasing its geographic diversification through the acquisition and development of properties in its core markets in
Ontario, Alberta and British Columbia. Killam’s current apartment portfolio consists of 2,557 apartment units in Ontario, up from 225
units in 2010 when Killam first entered the market, and includes properties in Ottawa, Toronto, London, and Kitchener-Waterloo-
Cambridge. Killam has also assembled a portfolio of 1,110 units in Calgary and Edmonton, of which 259 units were acquired in 2019. In
January 2020, Killam acquired its first apartment property in Greater Victoria, BC, and now owns 161 units in the province. In addition to
apartments, 39% of Killam’s MHC sites and 38% of Killam's commercial square footage is located in Ontario.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Core Market Update
Halifax
Thirty-five percent of Killam’s NOI is generated by its Halifax apartment properties. Halifax is the largest city in Atlantic Canada and is
home to 18% of Atlantic Canadians. The city's rental market totals 51,400 units, with an additional 4,000 rental units currently under
construction. According to CMHC's Fall 2019 Rental Market Outlook, demand for apartments is expected to support new housing
start activity. Halifax’s diverse economy generates 55% of Nova Scotia’s GDP and is home to 45% of the province’s population. With
six degree-granting universities and three large community college campuses, Halifax has approximately 41,000 students, including
6,700 international students. Halifax’s employment base is diversified, with the largest sectors focused on public service, health care,
education, and retail and wholesale trade. Halifax is home to the largest Canadian Forces Base by number of personnel, and the
Department of National Defence is the city's largest single employer.
Scotiabank’s October 2019 Provincial Pulse report notes that Nova Scotia continues to experience population growth, with high-
earning industries such as scientific & technical and health care services expected to continue to increase population. These sectors
saw growth from April 1 to July 1, 2019 of 1.3%, the strongest quarterly growth since 1973. The province has committed to increase
capital spending by over 10% for 2020, which is expected to support the Port of Halifax expansion and shipbuilding contracts with the
federal government.
According to RBC's December 2019 Provincial Outlook, Nova Scotia is experiencing the fastest population growth since 1986, which has
coincided with strong demand for labour. Over 300 companies are participating in ocean-sector business in Nova Scotia, with more than
80 innovators of new, high-tech products and services. The Ocean Frontier Institute provides funds for ocean research and advancement
to faculty at Dalhousie University, creating new opportunities for Dalhousie researchers. There is tremendous opportunity to leverage
science and technology in Canada's ocean sectors, furthering the knowledge-based ocean economy. Canada's Ocean Supercluster aims
to build Canada's ocean economy into one of the country's most significant and sustainable economic segments, through federal
government and private sector co-investment of more than $300 million over the next four years. Technology is another expanding
sector of growth for Halifax, with public funding recently announced for local tech incubators. The Halifax Index 2019 reported that
more than 60 start-up companies have been founded in Halifax over the past five years, and Halifax ranked eighth among Canadian
cities for both number and value of venture and private equity investment deals in 2018.
The following chart summarizes Halifax's population growth from 2005 to 2018, the most recent year for which detailed population
growth data is available:
Historical Population Growth, Halifax
Annually from July 1 - June 30
9,000
7,500
6,000
4,500
3,000
1,500
0
2 0 0 6-0 7
2 0 0 7-0 8
2 0 0 8-0 9
2 0 0 9-1 0
2 0 1 0-1 1
2 0 1 1-1 2
2 0 1 2-1 3
2 0 1 3-1 4
2 0 1 4-1 5
2 0 1 5-1 6
2 0 1 6-1 7
2 0 1 7-1 8
Source: Statistics Canada
According to statistics released in early 2019, Halifax is now among the fastest growing cities in Canada. Halifax's population growth in
each of the last three years was 1.6%, 1.9% and 2.0%, primarily driven by immigration and urbanization. Over this three-year period,
Statistics Canada has reported that Halifax's overall population grew by over 22,000 people. CMHC reported net provincial migration in
2019 was 3,300, with the past four years seeing positive migration. Halifax has seen an increase in international immigration,
representing 63% of Halifax's population growth in 2018. This immigration is reflected in local university enrollment; all three
universities experienced an overall enrollment increase of 1.1% and the number of international students increased 4.6%.
According to CMHC's Rental Market Report, released in early 2020, Halifax currently has over 4,000 rental units under construction,
which is the highest level seen at any point in time. CMHC predicts high net migration and demand from an aging population switching
to the rental market will support on-going demand for rental units. Additionally, rising home prices are expected to negatively impact
affordability for first-time home buyers. CMHC's Rental Market Report reported Halifax's vacancy hit an all time low at 1.0% in October
2019, compared to 1.6% in October 2018. With expected population growth and strong demand from both young and older renters,
CMHC forecasts that the Halifax market will remain solid, with vacancy rates forecast for 2020 and 2021 of 1.3% and 2.0%, well below
the historic average.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
The following chart summarizes Halifax's housing start activity from 2007 to 2019:
Halifax Total Housing Starts
Total Singles/Semi-Detached/Row
Total Starts
Average Total Starts
Total Apartment/Condo Units
Apartment Vacancy
l
e
u
a
V
x
e
d
n
I
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Source: CMHC
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
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
7
1
0
2
8
1
0
2
9
1
0
2
New Brunswick
Nineteen percent of Killam’s NOI is generated by apartments in New Brunswick's three major urban centres – Fredericton, Moncton
and Saint John. Fredericton is the provincial capital and home to the province's largest university and a significant public sector
workforce. Moncton is the province's largest city and is a transportation and distribution hub for Atlantic Canada. According to the
Conference Board of Canada’s 2018 Autumn Provincial Outlook, large corporations are in the process of setting up customer and
business service centres, which will drive economic growth. TD Bank announced in April 2018 that it was planning to create over 1,000
new jobs in the Moncton, Dieppe and Riverview areas over the next three years. As of July 2019, they have filled over 500 of these
positions and are ahead of schedule in the process. Moncton and Fredericton each represent 7% of Killam’s NOI, with the Saint John
market representing 4%.
CMHC expects a favorable housing resale market to encourage previously hesitant sellers and increase the flow of seniors into the rental
market. This, along with an increased volume of immigration being attracted through the Atlantic Immigration Pilot Program, is
expected to enhance rental housing demand. Actual vacancy rates reported by CMHC for Fredericton, Moncton and Saint John were
1.4%, 2.2% and 3.3% in October 2019, down from 2.1%, 2.7% and 3.7%, respectively, in October 2018.
St. John's, Newfoundland
Five percent of Killam’s NOI is generated in St. John's, Newfoundland. RBC's December 2019 Provincial Outlook reported
Newfoundland's economy was expected to grow 2.0% in 2019 and 1.1% in 2020. Employment has risen 1.3% in 2019, and the
unemployment rate reached its lowest level in five years in October 2019, at 11.1%; however, CMHC reported 6.9% vacancy in St.
John's in October 2019, a slight increase from 6.3% in October 2018.
Prince Edward Island
Killam has an 18% share of the Charlottetown market, the provincial capital and the economic centre of Prince Edward Island. The
Charlottetown apartment market accounted for 5% of Killam’s total NOI in 2019. According to RBC’s December 2019 Provincial
Outlook report, PEI’s economy continues to thrive on rapid population growth, leading the country's population growth for a third
year in a row at 2.2%, which is expected to continue into 2020. The provincial economy is expected to grow by 2.0% in 2020 and 2021.
CMHC reported Charlottetown vacancy of 1.2% in October 2019, an increase over 20 bps in October 2018, as the housing market
appears to be responding to the record low vacancy experienced in 2018 with increased supply.
Ontario
Killam's Ontario apartment portfolio generated 17% of NOI in 2019. The Ontario rental market is strong, as the province continues to
experience economic and population growth attributable to high levels of international immigration. A widening gap between the
cost of home ownership and renting is increasing the demand for rental stock. RBC’s December 2019 Provincial Outlook reported
overall conditions in Ontario are favorable and the economy is growing at a more sustainable pace. Overall, Ontario vacancy per
CMHC was 2.0% for October 2019, up slightly from 1.8% in October 2018.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Ottawa
According to CMHC’s 2019 Housing Market Outlook, Ottawa's vacancy rates have continued to decline. Vacancy in October 2019 was
1.8%, compared to 1.6% in October 2018 and 1.7% in October 2017. Looking forward, CMHC forecasts vacancy will remain under 2.0%
through 2020 and 2021. Rental demand has continued to be strong, supported by continued population growth, with an important
driver being immigration. CMHC reported steady net migration levels, with Ottawa's population growing at an average annual rate of
2.4% over the last three years. The average rent for a two-bedroom unit rose by 8.0% year-over-year (to $1,410 per unit), as the 1.8%
Ontario rent increase guideline encouraged property owners to look for larger increases on unit turns.
Kitchener-Waterloo-Cambridge
Known as Canada's Silicon Valley since the 1980s, the region saw vacancy rates decrease between 2014 and 2017 from 3.0% to a low of
1.9% in October 2017. In October 2019, CMHC reported a decrease in overall vacancy to 2.1% from 2.9% in October 2018; however, the
high vacancy in 2018 was primarily driven by a large supply of new units in that period. CMHC is forecasting a slight increase in vacancy
to approximately 2.5% in 2020 and 2021. Rental demand is expected to continue to be strong in this region, fueled by population growth
coupled with the increase in mortgage carrying costs, making it more difficult for individuals to purchase a home.
London
The London primary rental market saw a decrease in overall vacancy, from 2.1% in 2018 to 1.8% in 2019, and CMHC's Housing Market
Outlook expects vacancy to remain relatively stable over the next two years. Population growth has been increasing in London, with
strong net migration levels and rising permanent resident admissions.
Greater Toronto Area
According to CMHC’s 2019 Outlook, home ownership costs in the Greater Toronto Area are keeping demand for rental units strong in
both primary and secondary markets. CMHC reported a slight increase in vacancy from 1.1% in October 2018 to 1.5% in October 2019
and forecast this vacancy rate to decrease slightly over the next two years. Growth in rental rates and strong occupancy has led
developers to begin building more rental units in the region; however, they are still significantly lower than condo starts.
Alberta
Seven percent of Killam's NOI was earned in Alberta. Despite concern for the province's economy related to oil pricing and an impasse
between federal and provincial governments about the new Trans Mountain Pipeline Project, there were positive trends in the multi-
family markets in both Calgary and Edmonton. While RBC's December 2019 Provincial Outlook expected growth to be only be 0.6% in
2019, growth is projected to be 1.7% in 2020 and 2.3% in 2021. RBC reports gradual lifting of mandated oil production cuts will set the
stage for a significant increase in energy output and operation of the Canadian section of Enbridge's Line 3 pipeline should help fuel
growth.
Calgary
In its 2019 Housing Market Report, CMHC reported 3.9% vacancy for Calgary, consistent with 2018, and forecasts a decline to 3.2% and
2.8% in 2020 and 2021, based on improving fundamentals and stronger population growth. The average rent for a two-bedroom unit
rose by 2.6% year-over-year (to $1,305 per unit). Calgary's population grew by 2.3% in 2019, up from 1.8% in 2018.
Edmonton
In Edmonton, CMHC reported 4.9% vacancy in October 2019, versus 5.3% in October 2018, and an average monthly rental rate of
$1,257 for a two-bedroom apartment, up 0.8% from a year earlier. CMHC's 2019 Housing Market Outlook expects vacancy to
continue decreasing gradually in 2020 to 3.4% and increase to 4.3% in 2021 as a result of increased rental supply. To date, Killam's
assets in Edmonton have not experienced this level of recovery.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART IV
2019 Financial Overview
Consolidated Results
For the years ended December 31,
Total Portfolio
Same Property
Non-Same Property
2019
2018 % Change
2019
2018 % Change
2019
2018 % Change
Property revenue
$241,749 $215,959
11.9% $201,200 $194,439
3.5%
$40,549
$21,520
88.4%
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
37,187
23,515
28,711
33,447
21,705
25,095
Total operating expenses
$89,413
$80,247
11.2%
8.3%
14.4%
11.4%
31,131
20,892
22,692
30,078
20,723
22,156
$74,715
$72,957
NOI
$152,336 $135,712
12.2% $126,485 $121,482
3.5%
0.8%
2.4%
2.4%
4.1%
6,056
2,623
6,019
3,369
982
2,939
$14,698
$7,290
$25,851
$14,230
79.8%
167.1%
104.8%
101.6%
81.7%
Operating margin %
63.0%
62.8%
20 bps
62.9%
62.5%
40 bps
63.8%
66.1% (230) bps
For the year ended December 31, 2019, Killam recognized strong total portfolio performance. Revenue grew 11.9%, offset by total
operating expense increases of 11.4% due to inflationary pressures and the increased size of Killam's portfolio. In aggregate, NOI
increased 12.2% for the year ended December 31, 2019.
Same property results included properties owned during comparable 2019 and 2018 periods. Same property results represent 80.2% of
the fair value of Killam's investment property portfolio as at December 31, 2019. Non-same property results include acquisitions,
dispositions and developments completed in 2018 and 2019, commercial assets acquired for future residential development, as well as
adjustments to normalize for non-operational revenues or expenses.
Same property revenue grew by 3.5% for the year ended December 31, 2019, as compared to the same period of 2018. This growth is
attributable to higher rental rates, improved occupancy and lower rental incentive offerings, as a result of strong market fundamentals
and execution of Killam's rent optimization program. Total same property operating expenses increased 2.4% for the year ended
December 31, 2019. Overall, same property NOI grew by 4.1% and Killam's operating margin improved by 40 bps.
Killam's net operating margin percentage has increased steadily over the past five years, reaching 63.0% in 2019, a 20 bps increase over
2018. The increases can be attributed to higher rental revenues and expense reductions through efficiency projects as well as the
acquisition and development of higher-quality and more efficient properties, generating higher margins.
Operating Margin %
59.1%
60.1%
57.4%
61.5%
62.8%
63.0%
2014
2015
2016
2017
2018
2019
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Apartment Results
For the years ended December 31,
Total
Same Property
Non-Same Property
2019
2018 % Change
2019
2018 % Change
2019
2018 % Change
Property revenue
$211,143 $190,048
11.1% $184,371 $178,012
3.6%
$26,772 $12,036
122.4%
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
30,274
21,081
25,050
27,533
19,523
22,321
Total operating expenses
$76,405
$69,377
10.0%
8.0%
12.2%
10.1%
27,053
19,462
21,924
26,120
19,242
21,392
$68,439
$66,754
NOI
$134,738 $120,671
11.7% $115,932 $111,258
3.6%
1.1%
2.5%
2.5%
4.2%
3,221
1,619
3,126
1,413
281
929
$7,966
$2,623
$18,806
$9,413
128.0%
476.2%
236.5%
203.7%
99.8%
Operating margin %
63.8%
63.5%
30 bps
62.9%
62.5%
40 bps
70.2%
78.2% (800) bps
Apartment Revenue
Total apartment revenue for the year ended December 31, 2019, was $211.1 million, an increase of 11.1% over 2018. Revenue growth
was augmented by contributions from recently acquired and developed properties, higher rental rates and improved occupancy.
Same property apartment revenue increased 3.6% for the year ended December 31, 2019, with strong leasing activity contributing to a
40 bps improvement in same property occupancy for the year and a 3.6% increase in average rental rates. As well, rental incentives for
the year ended December 31, 2019, declined compared to the same period of 2018, as fewer incentives were offered given strong
market conditions. Ancillary revenue also increased, including parking and laundry revenue.
Apartment Occupancy Analysis by Core Market (% of Residential Rent) (1)
For the year ended December 31,
# of Units
2019
2018
Change
(bps)
2019
2018
Change
(bps)
Total Occupancy
Same Property Occupancy
Nova Scotia
Halifax
Ontario
Ottawa (2)
London
Cambridge-GTA
New Brunswick
Moncton
Fredericton
Saint John
Newfoundland and Labrador
St. John's
Prince Edward Island
Charlottetown
Alberta
Calgary
Edmonton
Other Atlantic
5,753
98.3%
96.9%
140
98.3%
97.7%
60
1,216
523
818
1,804
1,529
1,202
93.0%
97.5%
98.5%
98.3%
97.9%
96.8%
96.8%
96.0%
94.6%
97.4%
97.5%
96.6%
(380)
150
390
90
40
20
97.1%
97.5%
98.5%
98.3%
97.9%
96.8%
97.4%
96.0%
98.6%
97.4%
97.5%
96.6%
(30)
150
(10)
90
40
20
915
91.5%
93.0%
(150)
91.5%
93.0%
(150)
986
99.5%
99.5%
—
99.5%
99.5%
—
531
579
469
94.7%
89.8%
97.1%
97.0%
94.5%
86.1%
95.3%
96.3%
20
370
180
70
93.1%
88.4%
97.1%
97.3%
93.3%
86.3%
95.3%
96.9%
(20)
210
180
40
Total Apartments (weighted average)
16,325
(1) Occupancy as a percentage of residential rent is calculated as vacancy (in dollars) divided by gross potential residential rent (in dollars) for the period.
(2) Total occupancy is impacted by Frontier, which was undergoing initial lease-up during 2019.
For discussion on changes in occupancy levels during the quarter, refer to page 22 of this MD&A under section "Apartment Same
Property NOI by Region".
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Historic Same Property Apartment Occupancy & Rental Incentives (as a % of Revenue)
Occupancy %
Rental Incentives (as a % of Revenue)
96.0%
96.1%
96.5%
96.9%
97.3%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
y
c
n
a
p
u
c
c
O
98%
97%
96%
95%
94%
93%
Q 1-2015
Q 2-2015
Q 3-2015
Q 4-2015
Q 1-2016
Q 2-2016
Q 3-2016
Q 4-2016
Q 1-2017
Q 2-2017
Q 3-2017
Q 4-2017
Q 1-2018
Q 2-2018
Q 3-2018
Q 4-2018
Q 1-2019
Q 2-2019
Q 3-2019
Q 4-2019
Average Rent Analysis by Core Market
As at December 31,
Nova Scotia
Halifax
Ontario
Ottawa
London
Cambridge-GTA
New Brunswick
Moncton
Fredericton
Saint John
Newfoundland and Labrador
St. John's
Prince Edward Island
Charlottetown
Alberta
Calgary
Edmonton
Other Atlantic
Total Apartments (weighted average)
16,325
Average Rent
Same Property Average Rent
# of Units
2019
2018
% Change
2019
2018
% Change
5,753
$1,140
$1,100
3.6%
$1,095
$1,055
3.8%
1,216
523
818
1,804
1,529
1,202
$1,753
$1,314
$1,493
$926
$1,018
$844
$1,655
$1,266
$1,433
$868
$960
$807
5.9%
3.8%
4.2%
6.7%
6.0%
4.6%
$1,704
$1,314
$1,475
$894
$999
$844
$1,646
$1,266
$1,411
$862
$960
$807
3.5%
3.8%
4.5%
3.7%
4.1%
4.6%
915
$992
$980
1.2%
$992
$980
1.2%
986
$1,011
$1,005
0.6%
$970
$948
2.3%
531
579
469
$1,241
$1,484
$910
$1,126
$1,160
$1,444
$889
$1,076
7.0%
2.8%
2.4%
4.6%
$1,212
$1,452
$910
$1,079
$1,169
$1,449
$889
$1,042
3.7%
0.2%
2.4%
3.6%
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20
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Same Property Rental Increases – Tenant Renewals versus Unit Turns
Killam turns approximately 30% to 35% of its units each year, with a declining trend in recent years. Upon turn, Killam will typically
generate rental increases by raising rates to market and, where market demand exists, by upgrading units for returns of 10%–15% on
capital invested. Killam has increased its same property weighted average rental increases by 90 bps to 3.6% in 2019, compared to 2.7%
for the same period of 2018. Given strong fundamentals and Killam's rent optimization program, there has been notable appreciation in
rental rates on unit turns. The following chart details the average rental increases realized upon turns and lease renewals on a same
property basis:
For the years ended December 31,
Lease renewals
Unit turns - regular
Unit turns - repositioned
Weighted average rental increase
2019
2018
Rental
Increases
2.1%
5.8%
28.5%
3.6%
Turnovers and
Renewals (1)
77.2%
25.6%
2.0%
Rental
Increases
1.7%
4.7%
26.3%
2.7%
Turnovers and
Renewals (1)
75.5%
27.9%
0.8%
(1) The percentage of units renewed and turned during the year is based on the number of units at the end of the year.
Apartments - Historical Same Property Rental Rate Growth
6%
4%
2%
—%
7
1
0
2
-
Q 1
7
1
0
2
-
Q 2
7
1
0
2
-
Q 3
7
1
0
2
-
Q 4
8
1
0
2
-
Q 1
8
1
0
2
-
Q 2
8
1
0
2
-
Q 3
8
1
0
2
-
Q 4
9
1
0
2
-
Q 1
9
1
0
2
-
Q 2
9
1
0
2
-
Q 3
9
1
0
2
-
Q 4
Upon Lease Renewal
Upon Unit Turn - Combined
Combined Average Increase %
Apartment Expenses
Total operating expenses for the year ended December 31, 2019, were $76.4 million, a 10.1% increase over the same period of 2018,
due primarily to incremental costs associated with recent acquisitions and developments, property tax increases and general operating
cost increases. Killam's apartment operating margin increased by 30 bps during the year ended December 31, 2019, as higher occupancy
and revenue optimization more than offset incremental operating costs.
Total same property operating expenses for the year ended December 31, 2019, were 2.5% higher compared to 2018. Property tax
expense increased 2.5% for the year ended December 31, 2019. Killam continues to appeal tax assessment increases whenever possible
to minimize this impact. Killam also realized general operating expense increases of 3.6% for the year ended December 31, 2019, due to
general inflationary cost pressures, an expanded leasing team and increased insurance premiums, partially offset by operational
efficiencies. In total, the same property operating margin improved by 40 bps during the year ended December 31, 2019.
Apartment Utility and Fuel Expenses - Same Property
For the years ended December 31,
2019
2018
% Change
Natural gas
Electricity
Water
Oil & propane
Other
Total utility and fuel expenses
$6,466
$6,044
6,734
4,861
1,350
51
6,955
4,750
1,433
60
$19,462
$19,242
7.0%
(3.2)%
2.3%
(5.8)%
(15.0)%
1.1%
Killam’s apartments are heated with natural gas (58%), electricity (32%), oil (6%), steam (2%), geothermal (2%) and propane (less than
1%). Electricity costs relate primarily to common areas, as unit electricity costs are typically paid by tenants, reducing Killam’s exposure
to the majority of the 5,200 units heated with electricity. Fuel costs associated with central natural gas or oil-fired heating plants are
paid by Killam.
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21
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Utility and fuel expenses accounted for approximately 28% of Killam’s total apartment same property operating expenses for the year
ended December 31, 2019. Total same property utility and fuel expenses increased a modest 1.1% for the year ended December 31,
2019.
Same property natural gas expense increased by 7.0% for the year ended December 31, 2019. The increased costs compared to the prior
year were primarily attributable to higher distribution rates and increases in commodity prices in Nova Scotia, New Brunswick and
Ontario of 1.0%, 0.8% and 9.5%, respectively, in addition to higher consumption during the Q1-2019 heating season as a result of colder
temperatures.
Electricity costs for the year ended December 31, 2019, were 3.2% lower than 2018, primarily due to consumption savings from LED
lighting retrofits, more than offsetting rising rates, as well as a reduction of unit electricity being included as part of a tenants' monthly
rent in certain regions given strong market fundamentals.
Water expense increased by 2.3% for the year ended December 31, 2019, primarily due to municipal water rate increases across Killam's
regions, partially offset by reduced volumes from Killam's water conservation initiatives. Since 2015, Killam has installed over 11,350
low-flow toilets, saving an estimated 700 million litres of water annually across the portfolio and generating approximately $1.4 million
in water consumption savings.
Heating oil and propane costs decreased by 5.8% for the year ended December 31, 2019, compared to the same period of 2018, as a
result of lower consumption due to increased efficiencies from boiler upgrades and switching to natural gas at certain properties.
Apartment Same Property NOI by Region
For the years ended December 31,
Property Revenue
Property Expenses
Net Operating Income
2019
2018 % Change
2019
2018 % Change
2019
2018 % Change
Nova Scotia
Halifax
Ontario
Ottawa
London
Cambridge-GTA
New Brunswick
Moncton
Fredericton
Saint John
Newfoundland & Labrador
St. John's
Prince Edward Island
Charlottetown
Alberta
Calgary
Edmonton
Other Atlantic locations
$71,435
$68,216
71,435
68,216
11,638
11,322
7,942
12,344
31,924
18,170
17,114
12,020
47,304
7,563
11,789
30,674
17,652
16,509
11,601
45,762
4.7%
4.7%
2.8%
5.0%
4.7%
4.1%
2.9%
3.7%
3.6%
3.4%
($25,423)
($24,459)
(25,423)
(24,459)
3.9%
3.9%
$46,012
$43,757
46,012
43,757
(3,724)
(3,912)
(4.8)%
(2,653)
(2,593)
(3,954)
(3,727)
(10,331)
(10,232)
2.3%
6.1%
1.0%
7,914
5,289
8,390
7,410
4,970
8,062
21,593
20,442
(8,081)
(8,116)
(0.4)%
(6,919)
(6,846)
(5,807)
(5,657)
(20,807)
(20,619)
10,089
10,195
6,213
9,536
9,663
5,944
26,497
25,143
6,931
6,931
6,182
6,182
2,291
3,089
5,380
3,337
7,230
7,230
6,009
6,009
2,343
3,115
5,458
3,219
1.1%
2.7%
0.9%
5.1%
5.1%
1.3%
1.3%
9.1%
5.2%
6.8%
3.4%
10,025
10,025
10,175
10,175
(1.5)%
(1.5)%
(3,094)
(2,945)
(3,094)
(2,945)
10,339
10,339
10,114
10,114
3,380
4,651
8,031
5,313
3,341
4,600
7,941
5,130
$184,371 $178,012
2.2%
2.2%
1.2%
1.1%
1.1%
3.6%
3.6%
(4,157)
(4,105)
(4,157)
(4,105)
(1,089)
(998)
(1,562)
(1,485)
(2,651)
(2,483)
(1,976)
(1,911)
($68,439)
($66,754)
2.5% $115,932 $111,258
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5.2%
5.2%
6.8%
6.4%
4.1%
5.6%
5.8%
5.5%
4.5%
5.4%
(4.1)%
(4.1)%
2.9%
2.9%
(2.2)%
(0.8)%
(1.4)%
3.7%
4.2%
22
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Halifax
Halifax is Killam's largest rental market, contributing approximately 40% of apartment same property NOI for the year ended
December 31, 2019. Same property apartment revenue increased 4.7% for the year ended December 31, 2019, due to a 3.8% increase
in average rent and a 60 bps increase in occupancy to 98.3% for the year.
Total operating expenses for the year ended December 31, 2019, were 3.9% higher than the same period of 2018. The increased
expense was driven by higher natural gas and fuel costs as a result of higher consumption and increased commodity pricing, higher
property taxes and increased insurance premiums. The net impact was 5.2% growth in NOI for the year ended December 31, 2019.
Ontario
Killam's Ontario portfolio generated approximately 19% of apartment same property NOI for the year ended December 31, 2019.
Revenue increased by 4.1% for the year ended December 31, 2019, driven by a 3.9% increase in average rental rates, improved
occupancy in London, decreased rental incentives and increased parking revenue.
Total operating expenses increased a modest 1.0% compared to the same period of 2018. Increased insurance premiums and contract services
costs were partially offset by lower advertising costs. In aggregate, same property NOI was 5.6% higher than the year ended December 31, 2018.
New Brunswick
Killam's apartments in Moncton, Fredericton and Saint John accounted for approximately 23% of apartment same property NOI for
the year ended December 31, 2019. In aggregate, same property revenue increased 3.4% for the year ended December 31, 2019,
following rental rate growth in Moncton, Fredericton and Saint John of 3.7%, 4.1% and 4.6%, respectively, and increased occupancy in
all three regions.
Total operating expenses were 0.9% higher for the year ended December 31, 2019, compared to the same period in 2018, as higher
natural gas costs and increased insurance premiums were partially offset by lower advertising and electricity costs.
Newfoundland and Labrador
Killam's St. John's properties accounted for approximately 6% of apartment same property NOI for the year ended December 31, 2019.
Same property revenue decreased 1.5% for the year ended December 31, 2019, as compared to 2018. While rental rates have increased
by 1.2%, occupancy was 150 bps lower for the year. Lower occupancy in the region is due to softness in the economy, driven by reduced
activity in the offshore oil sector and declines in other natural resource sectors, on which the Newfoundland economy is heavily reliant.
Total operating expenses for the year ended December 31, 2019, were 5.1% higher than the same period of 2018. The increase in
operating expenses was primarily due to higher staffing costs with an expanded leasing team in place to target the increase in vacancy.
In addition, electricity costs were higher in 2019 due to a 6.8% average increase in electricity rates in Newfoundland effective July 1,
2018. In aggregate, same property NOI was 4.1% lower for the year ended December 31, 2019.
Prince Edward Island
Killam's Charlottetown portfolio contributed approximately 5% of apartment same property NOI for the year ended December 31,
2019. Charlottetown achieved 2.2% revenue growth for the year ended December 31, 2019, as rental rates grew 2.3% and occupancy
remained strong at 99.5%.
Total operating expenses for the year ended December 31, 2019 were 1.3% higher compared to 2018. The increase was primarily due
to higher contract services costs, increased property taxes and increased insurance costs. Overall, Charlottetown achieved 2.9% NOI
growth for the year ended December 31, 2019, compared to the same period in 2018.
Alberta
Killam's Calgary properties accounted for approximately 2% of apartment same property NOI for the year ended December 31, 2019.
Calgary achieved same property revenue increases of 1.2% for the year ended December 31, 2019, compared to the same period of
2018, due to rental rate growth of 3.7% partially offset by a 20 bps decrease in occupancy and an increase in rental incentives.
Total operating expenses for the year ended December 31, 2019, increased 9.1%, as a result of increased staffing costs and higher
repairs and maintenance costs. Overall, Calgary saw a decrease in NOI of 2.2% for the year ended December 31, 2019.
Killam's Edmonton portfolio accounted for 3% of apartment same property NOI for the year ended December 31, 2019. Same property
revenues increased 1.1% for the year ended December 31, 2019, as a result of a 0.2% increase in rental rates and a 210 bps increase in
occupancy. The stabilization of the two Edmonton properties acquired in 2017, Waybury and Tisbury, has taken longer than expected
as a result of the softness in the Edmonton economy. Management is targeting stabilization of these assets during 2020.
Same property operating expenses increased 5.2% for the year ended December 31, 2019. The increase in operating expenses was
primarily due to the addition of on-site leasing staff and increased property tax assessments, partially offset by lower repairs and
maintenance costs. Overall, Edmonton saw decreased NOI of 0.8% for the year ended December 31, 2019.
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23
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
MHC Results
For the years ended December 31,
Total Portfolio
Same Property
Non-Same Property
2019
2018 % Change
2019
2018 % Change
Property revenue
$16,806
$15,850
Property operating expenses
6,342
6,095
NOI
$10,464
$9,755
6.0%
4.1%
7.3%
$15,932
$15,523
5,893
5,827
$10,039
$9,696
2.6%
1.1%
3.5%
2019
$874
449
$425
Operating margin %
62.3%
61.5%
80 bps
63.0%
62.5%
50 bps
48.6%
2018 % Change
$327
268
$59
—%
N/A
N/A
N/A
—
The MHC segment generated 6.9% of Killam's NOI for the year ended December 31, 2019. The MHC portfolio generates its highest
revenues and NOI during the second and third quarters of each year due to the contribution from its nine seasonal communities that
earn approximately 60% of their NOI between July and September.
MHC same property revenue increased 2.6% for the year ended December 31, 2019, compared to the same period in 2018. Rents rose
by 2.8%, to $261 per site from $254 per site in 2018, due primarily to rental increases at permanent communities as well as strong
revenue growth at the seasonal communities. Occupancy for the year ended December 31, 2019, was 97.8%, compared to 97.9% in
2018.
Total same property expenses increased modestly by 1.1% for the year ended December 31, 2019, primarily due to increases in contract
services and administration costs, partially offset by lower utility costs and property taxes. Overall, the same property MHC portfolio
generated NOI growth of 3.5% for the year ended December 31, 2019, and saw a 50 bps improvement in same property operating
margin to 63.0%.
2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Commercial Results
For the year ended December 31,
Total Portfolio
Same Property
Non-Same Property
2019
2018 % Change
Property revenue
$13,800 $10,061
Property operating expenses
6,666
4,775
NOI
$7,134
$5,286
37.2%
39.6%
35.0%
2019
$897
383
$514
2018 % Change
2019
2018 % Change
$904
376
$528
(0.8)% $12,903
$9,157
1.9%
6,283
4,399
(2.7)%
$6,620
$4,758
40.9%
42.8%
39.1%
Killam's commercial property portfolio contributed $7.1 million, or 4.7%, of Killam's total NOI for the year ended December 31, 2019.
Killam's commercial property portfolio contains 771,715 SF, located in four of Killam's core markets. The majority of Killam's commercial
properties are not included in the same property results as they were recently acquired or are slated for redevelopment and not
operating as stabilized properties. Commercial occupancy was 89.6% for the year ended December 31, 2019, compared to 97.1% in
2018. The decrease in occupancy is primarily due to the redevelopment of the Brewery Market in Halifax, resulting in increased vacancy
during the renovation process.
In early Q2-2019, planned tenant turnover at the Brewery Market provided Killam with an opportunity to redevelop the vacant space
and attract a more diverse tenant base that complements the increased residential density in the area. Due to this turnover, earnings at
the Brewery Market were $0.5 million lower in 2019 compared to 2018. Following the lease-up of the renovated space at the Brewery
Market, Management expects NOI to increase by 15% to 20%, from pre-renovated levels.
In 2019, Killam expanded its commercial portfolio with two acquisitions. During May 2019, Killam completed the acquisition of a 50%
interest in the Charlottetown Mall, a grocery-anchored enclosed retail complex totaling 352,450 SF located in Charlottetown, PE. This
grocery-anchored plaza was 89.4% occupied in 2019. Killam is in the process of preparing a redevelopment plan for the property, which
is a 32-acre commercial site with future apartment development opportunities for approximately 300 units.
In June 2019, Killam completed the acquisition of three residential apartment buildings totaling 127 units, one mixed-use commercial
and residential building and an adjacent IGA-branded grocery store totaling 33,215 SF located in Dieppe, NB. The commercial space is
currently 100% occupied.
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25
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART V
Other Income and Expenses
Other Income
For the years ended December 31,
Other income includes property management fees for jointly held properties, interest on bank balances, net revenue associated with
the sale of homes in Killam's MHC segment and net insurance proceeds. The 527.9% increase for the year ended December 31, 2019,
was due to net insurance proceeds ($5.8 million) related to a fire that occurred in July 2019 at a 29-unit apartment building.
2019
$6,059
2018
$965
% Change
527.9%
Financing Costs
For the years ended December 31,
2019
2018 % Change
Mortgage, loan and construction loan interest
$41,954
$37,674
Interest on credit facilities
Interest on Exchangeable Units
Amortization of deferred financing costs
Unrealized loss on derivative asset
Amortization of loss on interest rate hedge
Amortization of fair value adjustments on assumed debt
Interest on lease liabilities
Capitalized interest
1,266
2,727
3,093
235
—
137
298
1,075
2,453
4,354
129
37
95
—
11.4%
17.8%
11.2%
(29.0)%
82.2%
(100.0)%
44.2%
N/A
(2,267)
(3,169)
(28.5)%
$47,443
$42,648
11.2%
Total financing costs increased $4.8 million, or 11.2%, for the year ended December 31, 2019, as compared to the same period of
2018.
Mortgage, loan and construction loan interest expense increased $4.3 million, or 11.4%, for the year ended December 31, 2019,
compared to 2018. Killam's mortgage, loan and construction loan liability balance increased by $110.1 million over the past twelve
months as Killam refinanced its existing portfolio's maturing mortgages, obtained financing for acquisitions and developments and
repaid certain variable rate debt. The average interest rate on refinancings for the year ended December 31, 2019, was 2.66%, 20 bps
lower than the average interest rate on expiring debt.
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 costs decreased 29.0% for the year ended December 31, 2019, as
management had expected, due to timing of recognition of CMHC premiums linked to refinancings in 2018 resulting in higher
expense in that year. Based on the current portfolio, normalized deferred financing costs are expected to be approximately $3.0
million per year. This expense may fluctuate with refinancings.
Capitalized interest decreased $0.9 million for the year ended December 31, 2019, compared to the same period of 2018. Capitalized
interest will vary depending on the number of development projects underway and their stages in the development cycle. Interest
costs associated with development projects are capitalized to the respective development property until substantial completion.
The interest on lease liabilities expense relates to the new requirements under IFRS 16 to record lease obligations at their present
value and recognize interest expense over the life of the right-of-use asset. Refer to Note 12 of the consolidated financial statements
for the year ended December 31, 2019, for further details.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Depreciation Expense
For the years ended December 31,
Depreciation expense relates to Killam’s head office building, vehicles, heavy equipment, office furniture, fixtures and computer
equipment. Although the vehicles and equipment are used at various properties, they are not considered investment properties and
are depreciated for accounting purposes. The decrease in depreciation expense for the year ended December 31, 2019, compared to
2018, was primarily due to the timing of depreciation of software costs.
2019
$720
2018 % Change
$859
(16.2)%
Administration Expenses
For the years ended December 31,
Administration
As a percentage of total revenues
2019
2018 % Change
$14,881
$14,201
4.8%
6.0%
6.5%
(50) bps
Administration expenses include expenses that are not specific to individual properties, including 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.
For the year ended December 31, 2019, total administration expenses increased $0.7 million, or 4.8%, compared to 2018, due to
increased software costs, higher compensation and training costs as a result of increased staffing related to portfolio growth, and
higher restricted trust unit ("RTU") expense related to stronger REIT performance. Administration expense as a percentage of total
revenues is 6.0% for 2019, 50 bps lower than 2018.
Fair Value Adjustments
For the years ended December 31,
Investment properties
Deferred unit-based compensation
Exchangeable units
2019
2018
% Change
$244,130
$134,803
81.1%
(1,590)
(12,461)
(553)
(187.5)%
(6,373)
(95.5)%
$230,079
$127,877
79.9%
Killam recognized $244.1 million in fair value gains on investment properties for the year ended December 31, 2019, recognizing the
strength of the accelerated revenue growth achieved over the year and overall strong operating performance in Killam's core markets,
as well as cap-rate compression in both Killam's apartment and MHC portfolios. Recent transactions support cap-rate compression for
Killam's Halifax and Ontario apartments, as well as Killam's MHC portfolio.
RTUs governed by Killam's RTU Plan are awarded to certain members of Management as a portion of their compensation. Non-
executive members of the Board of Trustees have the right to receive a percentage of their annual retainer in the form of RTUs. This
aligns the interests of Management and the Trustees with those of unitholders. For the year ended December 31, 2019, there was an
unrealized fair value adjustment of $1.6 million, versus a $0.6 million adjustment in 2018, due to appreciation in the market price of
the underlying Killam Trust Units.
The exchangeable units are redeemable on a one-for-one basis into trust units at the option of the holder and distributions paid on
exchangeable units are consistent with distributions paid to Killam’s unitholders. The fair value of the exchangeable units is based on
the trading price of Killam’s trust units. For the year ended December 31, 2019, there was an unrealized adjustment of $12.5 million,
compared to an unrealized adjustment of $6.4 million in 2018, due to an appreciation in the market price of Killam's trust units.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Loss on Disposition
For the years ended December 31,
During the year, Killam disposed of a development site in Edmonton and two apartment properties located in Ottawa. The loss on
disposition represents the difference between the proceeds from disposition compared to the fair value of the properties less the
carrying costs of the related mortgages, as well as deferred financing fees, professional fees and any other directly attributable costs.
2019
$1,269
2018 % Change
$197
544.2%
Deferred Tax Expense
For the years ended December 31,
2019
2018
% Change
$40,636
$31,478
29.1%
Killam converted to a real estate investment trust effective January 1, 2016, and as such qualifies as a REIT pursuant to the Income
Tax Act (Canada) (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. Killam is classified as a flow-through 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 Killam to continually qualify as a REIT and expects to distribute all of its taxable income to unitholders, and
therefore is entitled to deduct such distributions for income tax purposes.
Killam's deferred tax expense increased $9.2 million for the year ended December 31, 2019, compared to 2018, primarily due to the
changes in fair value gains on investment properties.
PART VI
Per Unit Calculations
As Killam is an open-ended mutual fund trust, unitholders may redeem their trust units, subject to certain restrictions. As a result,
Killam's trust units are classified as financial liabilities under IFRS. Consequently, all per unit calculations are considered non-IFRS
measures. The following table reconciles 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
Exchangeable units
Basic number of units
Plus:
Units under RTU plan
Diluted number of units
Weighted Average
Number of Units (000s)
2019
91,565
4,154
95,719
2018 % Change
10.2%
83,122
3,827
86,949
8.5%
10.1%
195
236
95,914
87,185
(17.4)%
10.0%
Outstanding
Number of Units
(000s)
2019
97,863
4,154
102,017
—
102,017
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Funds from Operations
FFO are recognized as an industry-wide standard measure of real estate entities’ operating performance, and Management considers
FFO per unit to be a key measure of operating performance. 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. Killam
calculates FFO in accordance with the REALpac definition except for the deduction of income recorded for accounting purposes related
to insurance proceeds. Notwithstanding the foregoing, 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. FFO for the years ended December 31, 2019 and
2018 are calculated as follows:
Years ended December 31,
Net income
Fair value adjustments
Loss on disposition
Non-controlling interest
Internal commercial leasing costs
Deferred tax expense
Interest expense on exchangeable units
Net insurance proceeds (1)
Unrealized loss on derivative liability
Depreciation on owner-occupied building
Change in principal related to lease liabilities
FFO
FFO unit - basic
FFO unit - diluted
Weighted average number of units - basic (000s)
Weighted average number of units - diluted (000s)
2019
2018 % Change
$283,525
$175,171
(230,079)
(127,877)
1,257
11
317
40,636
2,727
(5,022)
235
147
130
197
(27)
131
31,478
2,453
—
129
153
—
61.9%
79.9%
538.1%
(140.7)%
142.0%
29.1%
11.2%
N/A
82.2%
(3.9)%
N/A
$93,884
$81,808
14.8%
$0.98
$0.98
95,719
95,914
$0.94
$0.94
86,949
87,185
4.3%
4.3%
10.1%
10.0%
(1) The FFO adjustment for net insurance proceeds relates to proceeds covering property damage, net of demolition costs.
Killam earned FFO of $93.9 million, or $0.98 per unit (diluted), for the year ended December 31, 2019, compared to $81.8 million, or
$0.94 per unit (diluted), for the year ended December 31, 2018. FFO growth is primarily attributable to contributions from acquisitions
and completed developments ($8.8 million), same property NOI growth ($5.0 million) and lower deferred financing costs ($1.3 million).
These increases were partially offset by higher interest expense ($1.2 million), lower property revenue related to the timing of
recognition of forgivable government loans ($1.1 million) higher administration costs ($0.7 million) and a 10.0% increase in the number
of weighted average number of units outstanding.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Adjusted Funds from Operations
AFFO is a non-IFRS supplemental measure used by real estate analysts and investors to assess FFO after taking into consideration capital
spent to maintain 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 the earning capacity of an asset compared to the capital expenditures that generate 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 37, and
Killam's sources of funding are disclosed in the Liquidity and Capital Resources section on page 44 of this MD&A.
Calculating Maintenance Capex Reserve for AFFO
In February 2017, REALpac issued "White Paper on Funds From Operations & Adjusted Funds From Operations for IFRS", updating their
guidance on maintenance capital expenditures ("maintenance capex") to be used in the calculation of AFFO and ACFO. Killam has
elected to adopt a maintenance reserve based on a three-year historical average of the capital invested to maintain and sustain Killam's
properties, an approach endorsed by REALpac. The following table details Killam's capital investments attributable to value-enhancing
and maintenance projects for each of the past three years:
Maintenance Capex Reserve - Apartments
Total capital investments
Value-enhancing capital investment
Building
Suite upgrades
Equipment & other
Maintenance capex
Maintenance capex - % of total capital
Number of units (1)
Maintenance capex per unit
2019
$52,861
(17,407)
(18,718)
(1,987)
(38,112)
$14,749
28%
15,513
$951
2018
$39,912
(13,004)
(12,361)
(866)
(26,231)
$13,681
34%
14,685
$932
2017
$26,959
(5,365)
(9,753)
(749)
(15,867)
$11,092
41%
13,712
$809
Maintenance capex - three-year average
(1) Weighted average number of units outstanding during the year, adjusted for Killam's 50% ownership in jointly held properties.
$897
Value-enhancing capital investment includes building enhancements, suite upgrades and equipment purchases supporting NOI growth.
Value-enhancing capital classified as building enhancements includes energy efficiency projects and an allocation to represent building
upgrades, including window replacements, and common area and amenity space upgrades. Suite upgrades represent a capital
investment on suite turns with an expected minimum 10% return on investment.
Maintenance capex includes all structural work and suite renovation investment required to maintain current revenues. For the year
ended December 31, 2019, Killam updated its maintenance capex reserve to reflect the actual capital investment for the most recent
three years (2017 - 2019), which is equivalent to approximately $897 per unit. Based on this calculation, Management has selected $900
per unit for its maintenance capex reserve for 2019, which is consistent with the 2018 reserve of $900 per unit. Management will
maintain this reserve in its calculation of AFFO throughout 2020 until the three-year average is updated at year-end with actual results.
The allocations above were the result of a detailed review of Killam's historical capital investment. Significant judgment was required to
allocate capital between value-enhancing and maintenance activities. Management believes these allocations are reflective of Killam's
capital program. The maintenance capex as a percentage of total capital investment decreased in 2019, and this reflects KIllam's
increased investment in its suite repositioning program as well as its energy efficiency program, both of which are value enhancing. In
2019, approximately 28% of annual capital investment was attributable to maintaining and sustaining properties.
Maintenance Capex Reserve - MHCs and Commercial
The capital investment specific to the MHC portfolio was also reviewed for the three years ended December 31, 2019, and categorized
into value-enhancing and maintenance capex. Value-enhancing capital investment includes site expansions, land improvements and
NOI-enhancing water and sewer upgrades. Maintenance capex includes capital investment related to roads and paving, as well as the
majority of water and sewer capital invested to maintain the infrastructure in each community. On a per site basis, maintenance capex
has ranged from $295 to $377 over the past three years. Management selected $300 per MHC site for its maintenance capex reserve for
2019, consistent with its 2018 reserve of $300 per site.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Killam began taking a maintenance capex allowance for its commercial properties in 2018. Based on the expected average annual
maintenance capital investment in these assets, Killam has taken an annual capex reserve of $0.70 per square foot.
The weighted average number of units, sites and square footage owned during the year was used to determine the capital adjustment
applied to FFO to calculate AFFO:
For the years ended December 31, 2019
FFO
Maintenance capital expenditures
Apartments
MHCs
Commercial
Commercial straight-line rent adjustment
Commercial leasing costs
AFFO
AFFO per unit - basic
AFFO per unit - diluted
AFFO payout ratio - diluted (1)
2019
2018
% Change
$93,884
$81,808
14.8%
(13,953)
(13,216)
(1,810)
(1,731)
(474)
(423)
(456)
(289)
(143)
(154)
$76,768
$66,275
$0.80
$0.80
82%
$0.76
$0.76
5.6%
4.6%
64.0%
195.8%
196.1%
15.8%
5.3%
5.3%
84%
(200) bps
Weighted average number of units - basic (000s)
95,719
86,949
10.1%
Weighted average number of units - diluted (000s)
(1) Based on Killam's annual distribution of $0.65666 for the year ended December 31, 2019, and $0.63664 for the year ended December 31, 2018.
95,914
87,185
10.0%
The payout ratio of 82% for the year ended December 31, 2019, has improved 200 bps from the payout ratio of 84% for the year ended
December 31, 2018. The improvement is attributable to a 15.8% increase in AFFO driven by contributions from acquisitions and
developments and same property NOI growth, partially offset by the impact of the increase in the weighted average number of units
outstanding.
Killam’s Board of Trustees (the "Board") evaluates the Trust’s payout ratio quarterly. The Board has not established an AFFO payout
target.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Adjusted Cash Flow from Operations
ACFO was introduced in February 2017 in REALpac's "White Paper on Adjusted Cash Flow from Operations (ACFO) for IFRS" as a
sustainable, economic cash flow metric. Upon review of REALpac's white paper, Management has incorporated ACFO as a useful
measure to evaluate Killam's ability to fund distributions to unitholders. ACFO should not be construed as an alternative to cash flows
provided by or used in operating activities determined in accordance with IFRS.
Killam calculates ACFO in accordance with the REALpac definition but may differ from other REITs' methods and, accordingly, may not be
comparable to ACFO reported by other issuers. In the calculation of ACFO, Killam makes an adjustment for certain working capital items
that are not considered indicative of sustainable economic cash flow available for distribution. Examples include working capital changes
relating to development projects, sales and other indirect taxes payable or receivable from applicable governments, and changes in the
security deposit liability. ACFO continues to include the impact of fluctuations from normal operating working capital, such as changes to
rent receivable from tenants and accounts payable and accrued liabilities.
A reconciliation from cash provided by operating activities (refer to the consolidated statement of cash flows for the year ended
December 31, 2019 and 2018) to ACFO is as follows:
For the years ended December 31,
Cash provided by operating activities
Adjustments:
2019
2018
% Change
$95,208
$89,738
6.1%
Changes in non-cash working capital not indicative of sustainable cash flows
2,049
(1,245)
264.6%
Maintenance capital expenditures
Apartments
MHCs
Commercial
Commercial leasing costs
Amortization of deferred financing costs
Interest expense related to lease liability
Non-controlling interest
ACFO
Distributions declared (1)
Excess of ACFO over cash distributions
ACFO payout ratio - diluted (2)
(1)
Includes distributions on trust units, exchangeable units and restricted trust units, as summarized on page 43.
(13,953)
(13,216)
(1,810)
(1,731)
(474)
(264)
(289)
(143)
5.6%
4.6%
64.0%
84.6%
(3,093)
(4,354)
(29.0)%
(133)
(11)
—
(12)
$77,519
$68,748
63,805
56,321
$13,714
$12,427
N/A
(8.3)%
12.8%
13.3%
10.4%
82%
82%
— bps
(2) Based on Killam's annual distribution of $0.65666 for the year ended December 31, 2019, and $0.63664 for the year ended December 31, 2018.
Killam's ACFO payout ratio is 82% for the year ended December 31, 2019, consistent with the payout ratio for the year ended December
31, 2018. For the year ended December 31, 2019, Killam retained $13.7 million of adjusted cash flow from operations to fund future
growth, including investments in NOI-enhancing capital upgrades, acquisitions and developments.
Cash Provided by Operating Activities and Distributions Declared
As required by National Policy 41-201, "Income Trusts and Other Indirect Offerings", the following table outlines the differences
between cash provided by operating activities and total distributions declared, as well as the differences between net income and total
distributions, in accordance with the guidelines.
For the years ended December 31,
Net income
Cash provided by operating activities
Total distributions declared
Excess of net income over total distributions declared
Excess of net income over net distributions paid
Excess of cash provided by operating activities over total distributions declared
2019
2018
$283,525
$175,171
$95,208
$63,805
$89,738
$56,321
$219,720
$118,850
$238,253
$133,591
$31,403
$33,417
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART VII
Investment Properties
As at December 31,
Investment properties
Investment properties under construction ("IPUC")
Land for development
Continuity of Investment Properties
As at December 31,
Balance, beginning of period
Impact of change in accounting policy
Acquisition of properties
Transfer to assets held for sale
Transfer from IPUC
Impact of right-of-use asset
Capital expenditures and development costs (1)
Fair value adjustment - Apartments
Fair value adjustment - MHCs
Fair value adjustment - Other
2019
2018
% Change
$3,234,410
$2,701,502
46,867
39,327
37,163
61,028
$3,320,604
$2,799,693
19.7%
26.1%
(35.6)%
18.6%
2019
2018
% Change
$2,701,502
$2,171,372
24.4%
7,115
185,763
(15,099)
36,215
1,804
71,495
208,624
38,540
(1,549)
—
N/A
248,186
(25.2)%
—
N/A
104,283
(65.3)%
—
46,488
118,601
5,271
7,301
N/A
53.8%
75.9%
631.2%
(121.2)%
Balance, end of period
19.7%
(1) Development costs are costs incurred related to development projects subsequent to when they were transferred from IPUC to investment properties.
$3,234,410
$2,701,502
The key valuation assumption in the determination of 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 models as at December 31, 2019 and December 31,
2018, is as follows:
For the years ended December 31,
Capitalization Rates
Apartments
MHCs
2019
High
8.00%
6.50%
Effective
Weighted
Average
4.76%
5.65%
Low
3.75%
5.75%
2018
High
8.00%
8.00%
Effective
Weighted
Average
5.15%
6.76%
Low
3.50%
5.00%
Killam's weighted average cap-rate for its apartment and MHC portfolios as at December 31, 2019 was 4.76% and 5.65%, a decrease of
39 bps and 111 bps compared to December 31, 2018. The cap-rate compression relates to continued downward pressure on cap-rates
across the industry, most notably in Ontario and Halifax, and recent comparable transactions for MHC properties.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
2019 Acquisitions - Investment Properties
Purchase Price (1)
Income-
producing
Properties
$—
8,100
23,750
42,700
Land for
Development
$1,500
—
—
—
Property
Location
Acquisition
Date
Ownership
Interest
9 Dietz
11 Harold Doherty
Charlottetown
Mall
Grid 5 (2)
Waterloo, ON
Fredericton, NB
15-Jan-19
18-Apr-19
Charlottetown, PE 17-May-19
Calgary, AB
14-Jun-19
100%
100%
50%
100%
Property Type
Units/SF
Development land
Apartment
—
59
Retail
176,225
154
100%
14-Jun-19
Mississauga, ON
Silver Spear (2)
Kitchener, ON
59 Irvin
Dieppe Village (3)
Moncton, NB
150 Lian
Fredericton, NB
690 University Ave Charlottetown, PE
Shediac, NB
Oceanic
Moncton, NB
125 & 145 Canaan
The Link
Edmonton, AB
Total Acquisitions
(1) Purchase price does not include transaction costs.
(2) Killam acquired a 50% interest in each property and now holds 100% ownership. The units shown above represent 50% of the total apartment units.
(3) Dieppe Village includes 127 apartment units ($21.4 million) and commercial space ($6.6 million).
21-Jun-19
27-Jun-19
20-Aug-19
15-Oct-19
1-Nov-19
22-Nov-19
25-Nov-19
—
28,000
9,250
1,150
3,800
9,520
31,500
184,970
150
900
—
—
—
—
—
6,150
100%
100%
100%
50%
100%
100%
100%
Apartment
Apartment &
development land
Development land
Apartment & retail
Apartment
Retail
Seasonal campground
Apartment
Apartment
—
127
27,200
3,600
100
11 Harold Doherty
On April 18, 2019, Killam completed the acquisition of this newly constructed 59-unit concrete apartment building in Fredericton, NB, for
$8.1 million, representing an all-cash yield of 5.8%.
Charlottetown Mall
On May 17, 2019, Killam completed its previously announced acquisition of a 50% interest in the Charlottetown Mall, located in
Charlottetown, PE, from RioCan REIT ("RioCan") at a purchase price of $23.8 million for an all-cash yield of 6.7%. This stabilized, grocery-
anchored, enclosed mall is a 352,450 SF retail complex and is the dominant shopping centre in Prince Edward Island. It is located on 32
acres with future multi-family development opportunities of up to 300 units. The retail portion of the property will continue to be
managed by RioCan, with the future residential project being managed by Killam. On October 15, 2019, Killam also jointly acquired an
adjacent parcel of land with two commercial tenants.
Grid 5 / Silver Spear
On June 14, 2019, Killam acquired its joint venture partner's 50% interest in Grid 5 (Calgary, AB) and 1355 Silver Spear (Mississauga, ON)
plus the development site located adjacent to the Silver Spear property. The purchase price includes $3.6 million for the development
site and $69.9 million for the remaining 50% interest in the two apartment buildings. The purchase price of the apartments represents a
cap-rate of approximately 4.2%.
Dieppe Village
On June 27, 2019, Killam purchased a 127-unit apartment and 45,500 SF commercial complex in Dieppe, NB, for $28.9 million. This
Moncton property consists of three four-storey wood frame residential apartment buildings, a mixed-use building with retail and
residential, and an anchor IGA-branded grocery store. The purchase also included 2.5 acres of vacant land for future residential
development. The residential occupancy is 99% and the average rent is $1,143 ($1.03 per square foot).
150 Lian
On August 20, 2019, Killam completed the acquisition of a 48-unit apartment building in Fredericton, NB, for $9.3 million, representing
an all-cash yield of 5.6%.
125 & 145 Canaan
On November 22, 2019, Killam completed the acquisition of a 48-unit apartment building in Dieppe, NB, for $9.5 million, representing an
all-cash yield of 5.0%.
The Link
On November 25, 2019, Killam completed the acquisition of a 105-unit apartment building in Edmonton, AB, for $31.5 million,
representing an all-cash yield of 4.5%.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
2019 Dispositions - Investment Properties
Property
Location
Disposition
Date
Ownership
Interest
Property Type
Units
Sale Price (1)
Land for
Development
Income-
producing
Properties
$6,728
8,272
—
$15,000
350 Mayfield
50 Selkirk
Cameron Heights
Total Dispositions
(1) Sale price does not include transaction costs. Outstanding mortgages and loans were repaid in the amount of $8.9 million with proceeds from the dispositions.
Apartment
Apartment
Development land
Ottawa, ON
Ottawa, ON
Edmonton, AB
15-May-19
15-May-19
16-Aug-19
$—
—
4,401
$4,401
100%
100%
100%
61
75
—
Investment Properties Under Construction
As at December 31,
Balance, beginning of period
Fair value adjustment
Capital expenditures
Interest capitalized
Transfer to investment properties
Transfer from land for development
Balance, end of period
2019
$37,163
774
29,341
754
(36,215)
15,050
$46,867
2018
% Change
$80,226
4,919
53,336
1,692
(104,283)
1,273
$37,163
(53.7)%
(84.3)%
(45.0)%
(55.4)%
(65.3)%
1,082.2%
26.1%
Killam's definition of IPUC includes only active development projects that have broken ground. Land for future development that is
not yet in active development is classified as land for development. Developments underway as at December 31, 2019 include:
Property
Shorefront
10 Harley Street
Latitude
Ownership
100%
100%
50%
Number of
Units (1)
78
38
104
Project Budget
(millions) (3) Start Date
Estimated
Year of
Completion
Anticipated All-
cash Yield
$22.0
$10.4
$43.5
2018
2019
2019
2020
2020
2021
2021
5.25% - 5.5%
5.25% - 5.5%
5.0% - 5.25%
4.75% - 5.0%
The Kay
Total (2)
(1) Represents Killam's ownership interest and number of units in the development.
(2) Killam also holds a 10% interest in the Nolan Hill development project in Calgary, totaling 23 units, which is included in IPUC.
(3) Project budget excluding land costs.
$131.9
$56.0
100%
2019
348
128
Gloucester City Centre
In 2017, Killam and RioCan formed a joint venture to develop a residential rental community at Gloucester City Centre in Ottawa, with
Killam acquiring a 50% interest in a 7.1-acre development site for $8.0 million ($16 million at 100%). Killam and RioCan each own a 50%
interest in the land and participate on the same basis in this development. RioCan is the development manager and Killam is the
residential property manager. The site has zoning approval for four residential towers with an aggregate total of 840 units.
The first phase of the development, Frontier, a 23-storey tower containing 228 units, was completed in June 2019. The total cost of
the development of Phase I was approximately $75.0 million ($37.5 million for Killam's 50% interest), resulting in an all-cash yield in
the range of 5.0% - 5.25%. The building is currently 97% leased. Construction of Latitude, the second phase of the development,
containing 209 units, broke ground during the second quarter of 2019 and is expected to take 24 months to complete. The total cost
is budgeted at $87.0 million ($43.5 million for Killam's 50% interest).
Shorefront
During 2018, Killam acquired land to commence construction on the 78-unit, five-storey, Shorefront development in Charlottetown,
PE. The project budget is approximately $22.0 million ($282,000/unit), resulting in an expected all-cash yield in the range of 5.25% -
5.5%, 50–75 bps premium over the market cap-rate of a similar quality asset. The development broke ground in October 2018 and is
scheduled for completion in mid-2020.
The Kay
During 2018, Killam received final approval from the city of Mississauga to proceed with The Kay development on land adjacent to its
existing 199-unit building. The budget for this development is $56.0 million, or $437,500 per door, with an anticipated all-cash yield in
the range of 4.75% - 5.0%, approximately a 125–175 bps premium over the market cap-rate for a similar quality asset.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
The development broke ground during the third quarter and is expected to take 24 months to complete.
10 Harley Street
In July 2019, there was a fire at Killam's three-storey, 29-unit apartment building located in Charlottetown, resulting in loss of the building.
Killam commenced reconstruction in September 2019 and increased the building size to four storeys and 38 units. The budget for the
redevelopment is approximately $10.4 million ($264,000/unit). Insurance proceeds from the loss will cover a portion of the reconstruction costs.
Nolan Hill
Killam's Nolan Hill development located in Calgary, of which Killam has a 10% interest, broke ground during Q4-2019 and is expected to be
completed in 2021. Killam has a commitment to acquire the remaining 90% interest in the building upon completion of Phase 1. The
acquisition price upon completion is fixed at $55.0 million.
Land for Development
As at December 31,
Balance, beginning of period
Fair value adjustment
Capital expenditures
Interest capitalized
Acquisitions
Dispositions
Transfer to IPUC
Transfer to held for sale
Balance, end of period
2019
$61,028
(1,663)
5,700
1,513
6,200
—
(15,050)
(18,401)
$39,327
2018
$28,165
1,800
3,972
1,477
28,347
(1,460)
(1,273)
—
$61,028
% Change
116.7%
(192.4)%
43.5%
2.4%
(78.1)%
(100.0)%
1,082.2%
N/A
(35.6)%
During 2019, Killam disposed of land held for development in Edmonton, AB. In addition, Killam's 40% interest in a development site in
Calgary is currently being marketed and was transferred to assets held for sale during the year.
Killam has a robust development pipeline. Seventy percent of Killam's development pipeline is outside Atlantic Canada. Killam targets
yields of 5.0% to 6.0% on developments, 50–150 bps higher than the expected cap-rate value on completion. Building out the $850
million pipeline at a 100 bps spread should create approximately $200 million in NAV growth for unitholders. Killam currently has the
following land available for future development:
Property
Location
Killam's
Interest
Development
Potential
(# of Units) (1) Status
Estimated
Year of
Completion
50%
100%
100%
100%
100%
Halifax, NS
Kitchener, ON
Waterloo, ON
12 In design and approval process
170 In design and approval process
114 In design
Charlottetown, PE 100%
Ottawa, ON
Waterloo, ON
Developments expected to start in the next 24 months
The Governor (2)
Weber Scott Pearl
Westmount Place (Phase 1)
Developments expected to start in 2022-2026
Haviland Street
Gloucester City Centre (Phase 3-4)
Westmount Place (Phase 2-5)
Additional future development projects
Gloucester City Centre (Phase 5)
Carlton Terrace
Kanata Lakes
Christie Point
Medical Arts
Carlton Houses
Topsail Road
Block 4
Total development opportunities
(1) Represents Killam's interest/# of units in the potential development units.
(2) This development is adjacent The Alexander, Killam's newly completed development, and will include 12 large-scale luxury suites.
(3) In addition, Killam owns a 10% interest in a four-phase 829-unit development project in Calgary, Nolan Hill. Phase 1 is currently under construction.
312 Future development
200 Future development
80 Future development
225 Future development
80 Future development
Ottawa, ON
Halifax, NS
Ottawa, ON
Victoria, BC
Halifax, NS
Halifax, NS
St. John's, NL
St. John's, NL
100 In design and approval process
104 In design and approval process
40 In design and approval process
50%
100%
50%
100%
100%
100%
100%
100%
99 In design
200 In design
908 In design
2,644
2021
2022
2022
2022
2024
2028
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Assets Held for Sale
Killam determined that a parcel of land for development in Calgary met the criteria for classification as assets held for sale as at
December 31, 2019. The property has a carrying value of $14.2 million (Killam's 40% interest).
During the third quarter, Killam completed the sale of one parcel of land in Edmonton previously classified as held for sale.
Capital Improvements
Capital improvements are a combination of maintenance capex and value-enhancing upgrades. Maintenance capex investments are not
expected to increase the NOI or efficiency of a building; however, these expenditures will extend the life of the asset. Examples of
maintenance capex include roof, window and building envelope repairs and are in addition to repairs and maintenance costs that are
expensed to NOI. Value-enhancing capital investments are expected to result in higher rents or lower operating costs. These
investments include unit and common area upgrades and energy efficiency projects. Killam's AFFO discussion provides further disclosure
on the allocation between maintenance capex and value-enhancing capex investments.
During the year ended December 31, 2019, Killam invested $62.0 million, compared to $46.5 million for the year ended December 31, 2018.
Killam expects to invest between $70 and $75 million during 2020 in capital improvements. This increase reflects additional capital allocated
to Killam's expanded repositioning and energy efficiency programs, as well as targeted spending for curb appeal projects to enhance value
and timing of multi-phase cladding and building envelope upgrades. Killam has also increased capital associated with its commercial
portfolio, specifically with leaseholds for new tenants at its Brewery Market and curb appeal investments at Westmount Place.
For the years ended December 31,
Apartments (1)
MHCs
Commercial
2019
2018
% Change
$52,861
$39,912
5,016
4,162
3,666
2,910
$62,039
$46,488
32.4%
36.8%
43.0%
33.5%
(1) 2019 apartment capital improvements excludes $9.5 million in capital expenditures related to new developments and recent acquisitions included
in Killam's investment property continuity schedule in note 5 of the consolidated financial statements.
Apartments - Capital Investment
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
Total capital invested
Average number of units outstanding (1)
Capital invested - $ per unit
2019
2018
% Change
$25,881
$22,222
18,515
12,421
2,700
3,496
2,269
1,625
2,246
1,398
$52,861
$39,912
15,513
$3,408
14,685
$2,718
16.5%
49.1%
66.2%
55.7%
62.3%
32.4%
5.6%
25.4%
(1) Weighted average number of units, adjusted for Killam's 50% ownership in jointly held properties.
Killam invested $3,408 per unit for the year ended December 31, 2019, compared to $2,718 per unit for the year ended December 31,
2018. This increase is attributable to Killam's additional capital investment related to value-enhancing improvements at its properties,
which is supporting accelerating rental rate growth.
Killam's focus on development and acquisition of newer properties translates into a lower capital investment per unit than many other
apartment owners in Canada. Thirty-three percent of Killam's apartments, as a percentage of 2020 forecasted NOI, were built in the past
10 years, and the average age of Killam's portfolio is 28 years. This portfolio of newer assets allows Killam to focus on value-enhancing
opportunities as the maintenance capital requirements are lower.
Maintenance capital requirements vary significantly by age of property. As the following chart illustrates, the approximate 2019
maintenance capex for properties built in the past 10 years was $500 per unit vs. $1,020 per unit for units that were 40+ years old.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
$2,000
$1,500
$1,000
$500
$0
Average Maintenance Capital Investment per Unit by Building Age
(Based on 2019 Actual Investment)
2,100
500
760
800
1,020
0-10 years
11-20 years
21-30 years
31- 40 years
41 + years
Maintenance Capex per unit
As well, the chart below highlights that the total capital investment per unit is less for newer properties (built in the last 10 years),
averaging $1,220 per unit, compared to $4,460 per unit for buildings over 40 years old.
Average Capital Spend per Unit by Building Age
$4,000
$3,000
$2,000
$1,000
$—
2015
2016
2017
2018
2019
0-10 years
11-20 years
21-30 years
31-40 years
41+ years
Building Improvements
Of the $52.9 million total capital investment in the apartment segment for the year ended December 31, 2019, approximately 49%
was invested in building improvements, compared to 56% of the total capital spend for the year ended December 31, 2018. These
investments include exterior cladding and brick work, balcony refurbishments, roof upgrades, common area renovations and energy
and water efficiency investments, such as LED lighting upgrades, to increase the quality and efficiency of Killam's portfolio. The year-
over-year variance relates primarily to the timing of multi-phase building envelope projects, exterior and interior upgrades to
modernize properties and an increase in energy efficiency investments.
Suite Renovations and Repositionings
Killam invested $18.5 million in suite renovations during the year ended December 31, 2019, a 49.1% increase over the total
investment of $12.4 million for the year ended December 31, 2018. This increase is due to the recent acceleration of Killam's
repositioning program. Killam continues to focus on unit renovations to maximize occupancy and rental increases. Killam targets a
minimum return on investment of 10% for its suite renovations with monthly rental rate increases of 10%–30%. The timing of suite
renovation investment is influenced by tenant turnover, market conditions and individual property requirements. The length of time
that Killam has owned a property and the age of the property also impact capital requirements. During 2019, Killam has completed
upgrades to 304 units, with an average investment of approximately $25,000 per suite, an average ROI of 13%.
Killam plans to complete 500 suite repositions in 2020. The opportunity to reposition units within Killam's current portfolio totals
approximately 3,000 units, which could generate an estimated $10.0 million in additional annualized revenue and an approximate
$195 million increase in NAV.
Expanding our Sustainability Focus
Killam continued to execute on its energy efficiency plan during the year, in 2020, Killam plans to invest $6.0 million in additional energy
efficiency initiatives, which will include the installation of photovoltaic solar panels at select properties, water conservation projects and
heating efficiencies. In addition to its expansive energy projects, Killam expects to augment its sustainability programs and improve its
Global Real Estate Sustainability Benchmark (“GRESB”) rating. Killam is committed to lowering, benchmarking with third-party validation
and reporting on its greenhouse gas emissions.
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38
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Energy Investment by Type
(For the three years ended December 31, 2019)
$6.2 million
$2.3 million
$3.8 million
Low-flow toilets
LED Lighting
Heating efficiency
Over the last three years, Killam has invested $2.3 million in low-flow toilets, $3.8 million in the installation of LED lighting and $6.2
million in heating efficiency projects, including condensing gas boilers, system recommissioning, insulation upgrades and thermostat
replacements.
MHCs - Capital Investment
A summary of the capital spend for 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 invested - MHCs
Average number of sites
Capital invested - $ per site
2019
2018
% Change
$1,946
$1,625
465
1,507
748
350
375
972
592
102
$5,016
$3,666
5,486
$914
5,252
$698
19.8%
24.0%
55.0%
26.4%
243.1%
36.8%
4.5%
30.9%
Management expects to invest between $700 and $950 per MHC site annually. Consistent with the apartment portfolio, a portion of
the MHC capital is considered maintenance capital and a portion is considered value enhancing. Maintenance capital includes costs
to support the existing infrastructure, and value-enhancing capital includes improvements to roadways, work to accommodate future
expansion, and various community enhancements. A portion of MHC capital may be recovered through above guideline increases in
provinces with rent control, leading to increased NOI from the investments.
Total capital investment during the year ended December 31, 2019 was $5.0 million, up from $3.7 million for the year ended
December 31, 2018. The increase in capital spend is due to increased investment in various community enhancements. As with the
apartment portfolio, the timing of MHC capital investment changes based on requirements at each community.
Commercial - Capital Investment
During 2019, KIllam invested an additional $4.2 million in its commercial portfolio, up from $2.9 million for the year ended December 31,
2018 . This investment relates primarily to significant upgrades at the Brewery Market as Killam continues to reposition this property, as
well as common area upgrades at Westmount Place.
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39
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Mortgages and Other Loans
The table below outlines Killam's key debt metrics:
As at December 31,
Weighted average years to debt maturity
Total debt to total assets
Interest coverage
Debt service coverage
Debt to normalized EBITDA (1)
Weighted average mortgage interest rate
Weighted average interest rate of total debt
(1) Ratio calculated net of cash.
2019
4.5
43.4%
3.20x
1.57x
10.15x
2.90%
2.92%
2018
4.4
Change
0.1 years
49.8%
(640) bps
3.22x
1.58x
10.62x
2.95%
3.10%
(0.6)%
(0.6)%
(4.4)%
(5) bps
(18) bps
Killam’s long-term debt consists largely of fixed-rate, long-term mortgages. Mortgages are secured by a first or second charge against
individual properties. Killam’s weighted average interest rate on mortgages as at December 31, 2019, was 2.90%, 5 bps lower
compared to the rate as at December 31, 2018.
Total debt as a percentage of total assets was 43.4% as at December 31, 2019, compared to 49.8% as at December 31, 2018. The
reduction in total leverage is attributable to higher valuations associated with investment properties, a lower balance on Killam's credit
facilities at December 31, 2019, versus December 31, 2018, a reduction in variable rate debt and an increase in unencumbered assets.
Killam does anticipate a slight uptick in the debt to total assets ratio in Q1-2020, when debt is placed on an acquisition completed in all-
cash late in 2019. Management is focused on maintaining conservative debt levels. Total debt to total assets 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, 2019, would increase the debt as a percentage of assets by 80 bps.
Refinancings
For the year ended December 31, 2019, Killam refinanced the following mortgages:
Apartments
MHCs
Mortgage Debt
Maturities
$154,058
9,368
$163,426
2.78%
4.21%
2.86%
Mortgage Debt
on Refinancing
Weighted
Average Term
Net Proceeds
$218,584
13,820
$232,404
2.61%
3.49%
2.66%
6.2 years
5.0 years
6.1 years
$64,526
4,452
$68,978
The following table details 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:
Year of
Maturity
2020
2021
2022
2023
2024
Thereafter
Apartments
MHCs & Commercial
Total
Balance
December 31
$209,510
129,017
103,122
176,531
248,860
497,185
Weighted
Avg
Int. Rate %
2.63%
2.50%
2.64%
3.27%
2.72%
%
CMHC
Insured
49.2%
85.8%
70.8%
80.5%
94.7%
3.00% 100.0%
Balance
December 31
$13,614
12,603
22,829
32,701
13,659
—
$1,364,225
2.85%
85.2%
$95,406
Weighted
Avg
Int. Rate %
3.45%
Balance
December 31 (1)
$223,124
3.55%
3.67%
3.77%
3.49%
—%
3.63%
141,620
125,951
209,232
262,519
497,185
$1,459,631
Weighted
Avg Int. Rate
%
2.68%
2.59%
2.82%
3.35%
2.76%
3.00%
2.90%
(1) Excludes unamortized deferred financing costs and $10.8 million in variable rate demand loans secured by development properties, which
are classified as mortgages and loans payable as at December 31, 2019.
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40
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Apartment Mortgage Maturities by Year
Amount maturing ($)
Weighted average interest rate (%)
)
M
$
(
s
e
i
t
i
r
u
t
a
M
e
g
a
g
t
r
o
M
400
350
300
250
200
150
100
50
0
2.63%
2.50%
2.64%
3.27%
2.72%
3.06%
3.08%
2.52%
8%
7%
6%
5%
4%
3%
2%
1%
0%
I
n
t
e
r
e
s
t
R
a
t
e
2020
2021
2022
2023
2024
2025
2026
Thereafter
Access to mortgage debt is essential in refinancing maturing debt and financing acquisitions. Management has diversified Killam’s
mortgages to avoid dependence on any one lending institution and has staggered maturity dates to manage interest rate risk.
Management anticipates continued access to mortgage debt for both acquisitions and refinancings. Access to CMHC-insured
financing gives apartment owners an advantage over other asset classes as lenders are provided a government guarantee and
therefore are able to lend at more favorable rates. As at December 31, 2019, approximately 85.2% of Killam’s apartment mortgage
debt were CMHC-insured (79.6% of total mortgages, as MHC and commercial mortgages are not eligible for CMHC insurance)
(December 31, 2018 - 84.6% and 79.7%). The weighted average interest rate on the CMHC-insured mortgages was 2.77% as at
December 31, 2019 (December 31, 2018 - 2.95%).
The following tables present the NOI for properties that are available to Killam to refinance at debt maturity in 2020 and 2021:
2020 Debt Maturities
Apartments with debt maturing
MHCs with debt maturing
2021 Debt Maturities
Apartments with debt maturing
MHCs with debt maturing
Number of
Properties Estimated NOI
41
4
45
$21,560
957
$22,517
Number of
Properties Estimated NOI
37
4
41
$16,543
1,061
$17,604
Principal
Balance
(at maturity)
$212,031
6,075
$218,106
Principal
Balance
(at maturity)
$126,713
5,987
$132,700
Future Contractual Debt Obligations
As at December 31, 2019, the timing of Killam's future contractual debt obligations is as follows:
Twelve months ending December 31,
Mortgage and Loans
Payable
Construction
Loans
2020
2021
2022
2023
2024
Thereafter
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$276,568
173,589
149,355
212,901
238,491
419,529
$1,470,433
$23,120
—
1,731
—
—
—
$24,851
Total
$299,688
173,589
151,086
212,901
238,491
419,529
$1,495,284
41
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted)
2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Credit Facilities
Killam has access to two credit facilities with credit limits of $70.0 million and $5.0 million (December 31, 2018 - $70.0 million and
$5.0 million) that can be used for acquisition and general business purposes.
The $70.0 million facility bears interest at prime plus 70 bps on prime rate advances or 170 bps over bankers' acceptances ("BAs").
The facility includes a $30.0 million demand revolver and a $40.0 million committed revolver as well as an accordion option to
increase the $70.0 million facility by an additional $20.0 million. Killam has the right to choose between prime rate advances and BAs
based on available rates and timing. As at December 31, 2019, Killam had assets with a carrying value of $84.1 million pledged as first
mortgage ranking and $353.2 million pledged as second mortgage ranking to the line. The agreement includes certain covenants and
undertakings with which Killam was in compliance as at December 31, 2019.
The $5.0 million facility bears interest at prime plus 125 bps on advances and 135 bps on issuance of letters of credit in addition to 50
bps per annum. As at December 31, 2019, Killam had assets with a carrying value of $2.2 million pledged as collateral (December 31,
2018 - $2.1 million). The agreement includes certain covenants and undertakings with which Killam was in compliance as at December
31, 2019.
As at December 31, 2019
$70.0 million demand facility
$5.0 million demand facility
Total
As at December 31, 2018
$70.0 million demand facility
$5.0 million demand facility
Total
Maximum Loan
Amount (1)
$90,000
5,000
$95,000
Maximum Loan
Amount (1)
$90,000
5,000
$95,000
Amount
Drawn
Letters of
Credit
$—
—
$—
$—
1,282
$1,282
Amount
Drawn
$53,350
—
$53,350
Letters of
Credit
$—
958
$958
Amount
Available
$90,000
3,718
$93,718
Amount
Available
$36,650
4,042
$40,692
(1) Maximum loan includes a $20.0 million accordion option, for which collateral is pledged.
Construction Loans
As at December 31, 2019, Killam had access to two floating rate non-revolving demand construction loans, for the purpose of
financing development projects, totaling $43.5 million. Payments are made monthly on an interest-only basis. The construction loans
have an interest rate of 125–201 bps above BAs. Once construction is complete and rental targets achieved, the construction loans
will be repaid in full and replaced with conventional mortgages. The underlying assets with a carrying value of $62.6 million are
pledged as collateral against these loans.
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42
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Unitholders’ Equity
As Killam is 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. Consequently, under IFRS, trust units are
defined as financial liabilities; however, for purposes of financial statement classification and presentation, 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, 2019, no unitholders redeemed units.
During Q1-2019, Killam increased its monthly distribution by 3.1% to $0.055, effective for the March 2019 distribution ($0.66 per unit
annualized). Killam's Distribution Reinvestment Plan ("DRIP") allows unitholders to elect to have all cash distributions from the Trust
reinvested in additional units. Unitholders who participate in the DRIP receive an additional distribution of units equal to 3% of each
cash distribution reinvested. The price per unit is calculated by reference to the 10-day volume weighted average price of Killam's
units on the Toronto Stock Exchange preceding the relevant distribution date, which typically is on or about the 15th day of the
month following the distribution declaration.
Killam's Annual Distribution and AFFO Payout Ratio
80%
60%
40%
20%
—%
88%
$0.60
91%
$0.60
86%
$0.62
84%
$0.64
82%
$0.66
2015
2016
2017
2018
2019
AFFO payout ratio
Distribution
$0.80
$0.60
$0.40
$0.20
$—
The following table highlights Killam's distributions paid and trust units reinvested.
Distribution Reinvestment Plan and Net Distributions Paid
For the years ended December 31,
Distributions declared on trust units
Distributions declared on exchangeable units
Distributions declared on awards outstanding under RTU plan
Total distributions declared
Less:
Distributions on trust units reinvested
Distributions on RTUs reinvested
Net distributions paid
Percentage of distributions reinvested
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2019
2018
% Change
$60,795
$53,564
2,727
283
2,453
304
$63,805
$56,321
(18,250)
(14,437)
(283)
(304)
$45,272
$41,580
29.0%
26.2%
13.5%
11.2%
(6.9)%
13.3%
26.4%
(6.9)%
8.9%
43
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Liquidity and Capital Resources
Management ensures there is adequate liquidity to fund major property maintenance and improvements, 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 mortgage refinancings; (iii) mortgage debt secured by investment
properties; (iv) 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:
(i)
(ii)
(iii)
Cash flows from operating activities are expected to be sufficient to fund the current level of distributions and maintenance
capex.
Killam's $70.0 million revolving credit facility has an accordion feature to increase the facility up to $90.0 million. Including this
feature, Killam's credit facilities, using 60% mortgage leverage, provided acquisition capacity over $225 million as at December
31, 2019.
The retained portion of annual ACFO, mortgage refinancings and construction loans are expected to be sufficient to fund
value-enhancing capex, principal repayments and developments.
(iv)
Upcoming mortgage maturities are expected to be renewed through Killam's mortgage program.
Killam is in compliance with all financial covenants contained in the DOT and through its 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 Killam's assets as shown on
the most recent consolidated statement of financial position and (ii) the historical cost of Killam's assets. Total debt as a percentage
of assets as at December 31, 2019 was 43.4%.
PART VIII
Quarterly Results & Discussion of Q4 Operations
Summary of Quarterly Results
An eight-quarter trend highlighting key operating results is shown below:
2019
2018
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Property revenue
$62,685
$62,834
$59,139
$57,091
$58,041
$55,532
$52,937
$49,449
NOI
Net income
FFO
FFO per unit - diluted
AFFO per unit - diluted
$39,932
$41,349
$37,510
$33,545
$36,889
$36,484
$33,916
$28,423
$126,805
$46,839
$82,789
$27,092
$44,273
$27,120
$34,864
$68,914
$24,997
$26,247
$23,752
$18,887
$20,611
$23,355
$21,035
$16,807
$0.25
$0.21
$0.27
$0.23
$0.25
$0.20
$0.21
$0.16
$0.23
$0.18
$0.26
$0.22
$0.25
$0.20
$0.20
$0.16
Weighted average units - diluted (000s)
99,781
96,044
95,807
91,938
89,517
89,176
85,236
84,790
Killam's total property revenue for the three months ended December 31, 2019 was $62.7 million, an 8.0% increase over the same
period in 2018, due to the contributions from recent acquisitions, as well as increased same property revenue. NOI increased 8.2% in
Q4-2019, compared to Q4-2018. Net income increased by $82.5 million in the quarter due to increased NOI and a net $115.2 million of
fair value gains in Q4-2019, compared to net fair value gains of $36.1 million in Q4-2018.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Q4 Consolidated Results
For the three months ended December 31,
Total Portfolio
Same Property
Non-Same Property
2019
2018 % Change
2019
2018 % Change
2019
2018 % Change
Property revenue
$62,685
$58,041
8.0%
$50,631
$48,941
3.5%
$12,054
$9,100
32.5%
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
9,947
5,360
7,446
8,993
5,639
6,520
Total operating expenses
$22,753
$21,152
NOI
$39,932
$36,889
10.6%
(4.9)%
14.2%
7.6%
8.2%
8,154
4,622
5,674
7,726
4,688
5,574
$18,450
$17,988
$32,181
$30,953
5.5%
(1.4)%
1.8%
2.6%
4.0%
1,793
1,267
41.5%
738
1,772
951
946
$4,303
$3,164
$7,751
$5,936
(22.4)%
87.3%
36.0%
30.6%
Operating margin %
63.7%
63.6%
10 bps
63.6%
63.2%
40 bps
64.3%
65.2%
(90) bps
For the three months ended December 31, 2019, Killam recognized strong total portfolio performance. Revenue grew 8.0%, offset by
total operating expense increases of 7.6% due to inflationary pressures and the increased size of Killam's portfolio. In aggregate, NOI
increased 8.2% for the three months ended December 31, 2019. Consolidated same property revenue grew 3.5% for the three months
ended December 31, 2019, compared to the same period of 2018. Total same property operating expenses increased by 2.6%, overall
resulting in consolidated same property NOI 4.0% higher in Q4-2019, compared to Q4-2018.
Q4 Same Property NOI
For the three months ended December 31,
Property revenue
$46,855
$45,206
3.6%
$3,567
$3,506
1.7%
2019
2018 % Change
2019
2018 % Change
2019
$209
2018 % Change
$229
(8.7)%
Apartments
MHCs
Commercial
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
7,158
4,182
5,479
6,759
4,252
5,383
Total property expenses
$16,819
$16,394
NOI
$30,036
$28,812
5.9%
(1.6)%
1.8%
2.6%
4.2%
942
427
160
920
423
157
$1,529
$1,500
$2,038
$2,006
2.4%
0.9%
1.9%
1.9%
1.6%
54
13
35
$102
$107
47
13
34
$94
14.9%
—%
2.9%
8.5%
$135
(20.7)%
Operating margin
64.1%
63.7%
40 bps
57.1%
57.2%
(10) bps
51.2%
59.0% (780) bps
Apartment Same Property
Killam’s same property apartment portfolio realized NOI growth of 4.2% for the three months ended December 31, 2019, as compared
to the three months ended December 31, 2018, due to a 3.6% increase in revenues and a 2.6% increase in total property operating
expenses. The revenue growth was generated from a 3.6% increase in the average rental rate and a 10 bps increase in occupancy for the
quarter. Occupancy for the three months ended December 31, 2019, was 97.6%.
General operating expenses increased 5.9% in the fourth quarter of 2019, compared to the same period in 2018, due to higher repairs
and maintenance costs and insurance premiums. General operating expense increases were partially offset by decreased advertising
costs due to strong occupancy in the majority of Killam's core markets.
Utility and fuel expenses were 1.6% lower for the quarter ended December 31, 2019, as compared to the quarter ended December 31,
2018. Electricity expenses were 1.8% lower due to the installation of LED lighting over the past 12 months, in addition to a reduction of
inclusion of unit electricity as a rental incentive. Oil costs were down 19.6% during Q4-2019, compared to Q4-2018, as a result of
switching select properties to more efficient heating sources. Natural gas expenses were relatively flat quarter-over-quarter. Property
taxes increased 1.8% quarter-over-quarter due to higher property tax assessments and rate increases.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Q4-2019 Occupancy
Apartment Occupancy Analysis by Core Market (% of Residential Rent) (1)
Three months ended December 31,
# of Units
2019
2018 Change (bps)
2019
2018 Change (bps)
Total Occupancy
Same Property Occupancy
Halifax
Ottawa (2)
London
Cambridge-GTA
Moncton
Fredericton
Saint John
St. John's
Charlottetown
Calgary
Edmonton
Other Atlantic
5,753
1,216
523
818
1,804
1,529
1,202
915
986
531
579
469
Total Apartments (weighted average)
16,325
98.9%
92.5%
98.6%
98.5%
98.8%
98.4%
96.5%
91.4%
99.5%
95.9%
92.2%
96.0%
97.4%
96.9%
97.0%
97.4%
98.1%
97.6%
99.0%
96.5%
91.1%
99.7%
95.9%
86.9%
98.4%
96.7%
200
(450)
120
40
120
(60)
—
30
(20)
—
530
(240)
70
98.9%
95.2%
98.6%
98.5%
98.8%
98.4%
96.5%
91.4%
99.4%
93.9%
91.1%
96.1%
97.6%
98.4%
98.1%
97.4%
99.3%
97.6%
99.0%
96.5%
91.1%
99.8%
92.6%
88.0%
98.4%
97.5%
50
(290)
120
(80)
120
(60)
—
30
(40)
130
310
(230)
10
(1) Occupancy as a percentage of residential rent is calculated as vacancy (in dollars) divided by gross potential residential rent (in dollars) for the period.
(2) Total occupancy is impacted by Frontier, which is undergoing initial lease-up.
Overall apartment occupancy increased 70 bps to 97.4% in the fourth quarter of 2019, compared to 96.7% for the fourth quarter of
2018. Same property occupancy was 97.6%, a 10 bps gain over Q4-2018. Ottawa same property occupancy is down 290 bps in Q4-2019,
compared to Q4-2018, primarily due to increased vacancy at Killam's Kanata properties during the quarter due to new product in the
area. The new product has now been absorbed, and Killam expects the Kanata properties to lease back up in Q1-2020.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Apartment Same Property NOI by Region
Three months ended December 31,
Property Revenue
Property Expenses
Net Operating Income
2019
2018 % Change
2019
2018 % Change
2019
2018 % Change
($6,223)
($6,002)
(6,223)
(6,002)
3.7%
3.7%
$12,050
$11,444
12,050
11,444
Nova Scotia
Halifax
Ontario
Ottawa
London
Cambridge-GTA
New Brunswick
Moncton
Fredericton
Saint John
Newfoundland & Labrador
St. John's
Prince Edward Island
Charlottetown
Alberta
Calgary
Edmonton
Other Atlantic locations
$18,273
$17,446
18,273
17,446
2,891
2,042
3,127
8,060
4,613
4,382
3,040
2,892
1,949
3,002
7,843
4,466
4,243
2,930
12,035
11,639
2,508
2,508
2,599
2,599
847
1,206
2,053
1,327
2,495
2,495
2,549
2,549
841
1,070
1,911
1,323
$46,855
$45,206
4.7%
4.7%
0.0%
4.8%
4.2%
2.8%
3.3%
3.3%
3.8%
3.4%
0.5%
0.5%
2.0%
2.0%
(950)
(683)
(1,005)
(2,638)
(1,946)
(1,671)
(1,344)
(4,961)
(982)
(700)
(947)
(2,629)
(1,915)
(1,659)
(1,300)
(4,874)
(779)
(779)
(759)
(759)
(1,060)
(1,060)
(1,055)
(1,055)
0.7%
12.7%
7.4%
0.3%
3.6%
(288)
(389)
(677)
(481)
(239)
(357)
(596)
(479)
($16,819)
($16,394)
(3.3)%
(2.4)%
6.1%
0.3%
1.6%
0.7%
3.4%
1.8%
2.6%
2.6%
0.5%
0.5%
20.5%
9.0%
13.6%
0.4%
2.6%
1,941
1,359
2,122
5,422
2,667
2,711
1,696
7,074
1,729
1,729
1,539
1,539
559
817
1,376
846
1,910
1,249
2,055
5,214
2,551
2,584
1,630
6,765
1,736
1,736
1,494
1,494
602
713
1,315
844
$30,036
$28,812
5.3%
5.3%
1.6%
8.8%
3.3%
4.0%
4.5%
4.9%
4.0%
4.6%
(0.4)%
(0.4)%
3.0%
3.0%
(7.1)%
14.6%
4.6%
0.2%
4.2%
Halifax revenue grew by 4.7% during the fourth quarter of 2019 due to a 3.8% increase in average rental rates. Property operating
expense growth was 3.7%, compared to Q4-2018, due to timing of repairs and maintenance and contract services costs and increases in
property tax expense, which were slightly offset by lower utility costs and advertising expenses. Halifax's Q4-2019 same property NOI
increased 5.3%, or $0.6 million, from Q4-2018.
Ontario revenue increased by 2.8%, despite a 100 bps decrease in occupancy, as a result of a 3.8% increase in rental rates. In addition,
total operating expenses increased only 0.3%, as increased property taxes and higher utility costs were mostly offset by lower repairs
and maintenance costs. Ottawa achieved a 3.6% rental rate increase during Q4-2019; however, revenue growth was flat quarter-over-
quarter as a result of new product in the Kanata area increasing vacancy in Killam's nearby assets. Overall, Ontario's NOI increased by
4.0% compared to Q4-2018.
Performance in New Brunswick was strong in the fourth quarter, with Fredericton, Moncton and Saint John recording quarter-over-
quarter NOI gains of 4.9%, 4.5% and 4.0%, respectively, as compared to the same period in 2018. Rental rates grew by an average of
3.5% across the province, and the average occupancy improved by 20 bps for the quarter, as population growth and a lack of new supply
continue to create a tight rental market. Property expenses increased slightly compared Q4-2018 as hydro and water expense savings
from energy initiatives partially offset higher property tax and insurance premiums. In total, New Brunswick achieved a 4.6% increase in
NOI, as compared to Q4-2018.
Killam's St. John's portfolio saw a slight 1.1% increase in rental rates and realized a 30 bps increase in occupancy over Q4-2018. There
continues to be softness in the Newfoundland economy as a result of reduced offshore oil activity. Although net revenue in St. John's
increased slightly at 0.5% for Q4-2019, slightly higher operating expenses resulted in a reduction in NOI by 0.4% in Q4-2019.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
The Charlottetown market remains strong, with rental rate increases of 2.4% in Q4-2019, compared to Q4-2018. Despite a 40 bps
decrease in occupancy in Q4-2019, compared to Q4-2018, occupancy remained strong at 99.4%. Property expenses were a modest 0.5%
higher than the same period in 2018, primarily due to higher contract services costs and property tax increases. Overall, Charlottetown
achieved NOI growth of 3.0% for the three months ended December 31, 2019.
Revenues in Alberta increased 7.4%, given a 250 bps improvement in occupancy and a 1.0% increase in rental rates. Operating costs
increased 13.6% compared to the quarter ended December 31, 2018, due to higher staffing costs as the leasing team has expanded and
higher property taxes. In total, NOI was 4.6% higher in Q4-2019, compared to Q4-2018.
MHC Results
For the three months ended December 31,
Total Portfolio
Same Property
Non-Same Property
Property revenue
$3,624
$3,569
1.5%
$3,567
$3,506
1.7%
2019
2018 % Change
2019
2018 % Change
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
995
437
172
1,023
(2.7)%
422
163
3.6%
5.5%
942
427
160
920
423
157
Total operating expenses
1,604
1,608
(0.2)%
1,529
1,500
NOI
$2,020
$1,961
3.0%
$2,038
$2,006
2.4%
0.9%
1.9%
1.9%
1.6%
Operating margin %
55.7%
54.9%
80 bps
57.1%
57.2% (10) bps
2019
$57
2018 % Change
$63
N/A
53
10
12
75
($18)
—%
103
(1)
6
108
($45)
—%
N/A
N/A
N/A
N/A
N/A
—%
MHC Same Property
The MHC same property portfolio generated a 1.6% increase in NOI in Q4-2019, compared to Q4-2018. Revenues grew by 1.7% quarter-
over-quarter due to a 2.8% rental rate increase at the permanent MHC communities. Total same property expenses increased 1.9%, or
$29.0 thousand, due to higher contract services and property taxes.
Commercial Results
For the three months ended December 31,
Total Portfolio
Same Property
Non-Same Property
2019
2018 % Change
Property revenue
$3,586
$2,930
Property operating expenses
1,663
1,295
NOI
$1,923
$1,635
22.4%
28.4%
17.6%
2019
$209
102
$107
2018 % Change
2019
2018 % Change
$230
(9.1)%
$3,377
$2,700
94
8.5%
1,561
1,201
$136
(21.3)%
$1,816
$1,499
25.1%
30.0%
21.1%
Killam's overall commercial portfolio achieved a 22.4% increase in revenue and a 17.6% increase in NOI, compared to Q4-2018 due to
commercial properties acquired in 2019. The same property results in Q4-2019 represent two properties in Halifax, one of which
includes the location of Killam's head office. During the fourth quarter, Killam experienced tenant turnover (6,500 SF), which resulted in
a short-term decrease in NOI during Q4-2019.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Q4 FFO and AFFO
For the three months ended December 31,
2019
2018
% Change
Net income
Fair value adjustments
Loss on disposition
Non-controlling interest
Deferred tax expense
Interest expense related to exchangeable units
Net insurance proceeds
Unrealized loss (gain) on derivative liability
Internal commercial leasing costs
Depreciation on owner-occupied building
Change in principal related to lease liabilities
FFO
FFO per unit - diluted
AFFO per unit - diluted
AFFO payout ratio - diluted
Weighted average number of units - basic (000s)
Weighted average number of units - diluted (000s)
$126,805
(115,158)
28
26
17,278
685
(4,754)
(67)
79
39
36
$44,273
(36,059)
16
(15)
11,423
626
—
245
66
36
—
$24,997
$20,611
186.4%
219.4%
75.0%
(273.3)%
51.3 %
9.4%
N/A
(127.3)%
19.7%
8.3%
N/A
21.3%
8.7%
16.7%
$0.25
$0.21
80%
99,588
99,781
$0.23
$0.18
87%
(700) bps
89,283
89,517
11.5%
11.5%
Killam earned FFO of $25.0 million, or $0.25 per unit (diluted), for the three months ended December 31, 2019, compared to $20.6
million, or $0.23 per unit (diluted), for the three months ended December 31, 2018. FFO growth is primarily attributable to contributions
from acquisitions and completed developments ($2.4 million), a reduction in amortization of deferred financing costs ($1.9 million) and
same property NOI growth ($1.2 million). These increases were offset by lower revenue related to the timing of recognition of forgivable
government loans in 2018 ($1.1 million), higher interest expense ($0.2 million) and an 11.5% increase in the weighted average number
of units outstanding from an equity raises completed in March and November 2019.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART XI
Selected Consolidated Financial Information
For the years ended December 31,
Property revenue
Net income
FFO
FFO per unit - diluted
Investment properties
Total assets
Total liabilities
Distribution per unit
Risk Management
2019
2018
2017
$241,749
$283,525
$93,884
$0.98
$215,959
$175,171
$81,808
$0.94
$187,377
$104,760
$69,873
$0.90
$3,320,604
$2,799,693
$2,279,763
$3,380,100
$2,824,406
$2,311,210
$1,777,733
$1,655,456
$1,343,488
$0.66
$0.64
$0.62
Killam faces a variety of risks, the majority of which are common to real estate entities. 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 an
area), (iii) changes to government regulations (such as new or revised residential tenant legislation), (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 by its geographic and sector diversification due to investments in apartments and MHCs, and commercial
properties.
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, 2019, $35.7 million of Killam's debt had variable interest rates, including two construction loans for $24.9 million,
and two demand loans totaling $10.8 million. These loans and facilities have interest rates of prime plus 0.55% - 1.00% or 125-201 bps
above BAs (December 31, 2018 - prime plus 0.63% - 2.0% or 125 bps above BAs) 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 or refinance its debt obligations
as they mature. Killam manages cash resources based on financial forecasts and anticipated cash flows. The maturities of Killam’s long-
term financial liabilities are set out in note 26 to the consolidated financial statements. Killam staggers the maturities of its debt,
minimizing exposure to liquidity risk in any year. In addition, Killam’s apartments qualify for CMHC-insured debt, reducing the
refinancing risk on maturity. Killam’s MHCs and commercial properties 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 competition from new rental units in Killam’s core markets. Numerous 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 have additional 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.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Credit Risk
Credit risk arises from the possibility that tenants may experience financial difficulty and be unable to fulfill the commitments of their
lease. 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 for all new leases, 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, and none of Killam’s tenants account for more
than 3% of tenant receivables.
Cyber Security Risk
A cyber incident is any adverse event that threatens the confidentiality, integrity or availability of Killam’s information technology
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
relationships with its vendors and tenants and disclosure of confidential vendor or tenant information. Killam has implemented
processes, procedures and controls to 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. To reduce Killam’s exposure to cost increases, Killam enters into fixed-price
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 non-compliance 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 customary for the industry. 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 in which Killam currently operates, Prince Edward Island, Ontario and
British Columbia 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. 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 or regulation. Killam invests in energy efficiency initiatives to reduce its reliance on utility costs;
however, Killam remains exposed to price volatility and carbon tax on natural gas and heating oil. 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.
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.
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Dollar amounts in thousands of Canadian dollars (except as noted)
Fluctuation and Availability of Cash Distributions
Killam's distribution policy is established pursuant to the DOT 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 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 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 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”).
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Dollar amounts in thousands of Canadian dollars (except as noted)
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 by
the 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.
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 is income and
what portion is 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.
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Dollar amounts in thousands of Canadian dollars (except as noted)
2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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 by
the 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.
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 is income and
what portion is 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 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.
Co-ownership
Killam has co-ownership of three properties (six buildings), two development projects and two parcels of land for future development
that are subject to joint control and are joint operations. 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
Four of Killam’s properties, including 6101 South Street and Chapter House located in Halifax, Oceanic Camping located in Shediac, New
Brunswick, 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 2040 (there is an option for a ten-year renewal), 2080, 2105 and 2059, respectively. The total ground lease
payments for the year ended December 31, 2019 were $0.1 million (December 31, 2018 - $0.1 million).
Climate Change
Killam is exposed to climate change risk from rising sea levels, natural disasters and severe weather, such as heavy rain and flooding,
high winds, wildfires, blizzards, ice storms and thunderstorms that may cause damage to investment properties. As weather becomes
more erratic, damage to investment properties may result in increased restoration costs, loss of revenue in the event of business
disruption, potential decrease in property values and increased costs to insure properties against climate related risks.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Critical Accounting Policies and Significant 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) to the consolidated financial statements. 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) to the consolidated financial statements.
Critical judgments inherent in these policies related to applying the criteria set out in IFRS 9 to determine the appropriate recognition
model, 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.
(v) Revenue recognition
The Trust applies judgment about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a
customer. The Trust concluded that revenue for property management and ancillary services is to be recognized over time because the
tenant simultaneously receives and consumes the benefits provided by the Trust. Rents charged to tenants are generally charged on a
gross basis, inclusive of property management and ancillary services. If a contract is identified as containing more than one performance
obligation, the Trust allocates the total transaction price to each performance obligation in an amount based on an expected cost plus a
margin approach.
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 5 to the consolidated financial statements. Significant estimates used in determining the fair value of the Trust’s investment
properties include capitalization rates and stabilized net operating income used in the overall capitalization rate valuation method. A change to
any one of these inputs could significantly alter the fair value of an investment property. Please refer to note 5 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
The compensation costs relating to deferred unit-based compensation are based on estimates of how many deferred units will be
awarded as well as how many will actually vest and be exercised, as well as valuation models, which by their nature are subject to
measurement uncertainty.
(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 23 to the consolidated financial statements.
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2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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.
Amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates and
Errors: Definition of Material
In October 2018, the IASB issue amendments to IAS 8 to align the definition of material across the standards and to clarify certain
aspects of the definition. The new definition states that information is material if omitting, misstating or obscuring it could reasonably
be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial
statements, which provide financial information about a specific reporting entity. The amendments clarify that materiality will depend
on the nature or magnitude of information, or both. An entity will need to assess whether the information, either individually or in
combination with other information, is material in the context of the financial statements.
The amendments explain that information is obscured if it is communicated in a way that would have a similar effect as omitting or
misstating the information. Material information may, for instance, be obscured if information regarding a material item, transaction or
other event is scattered throughout the financial statements, or disclosed using a language that is vague or unclear. Material
information can also be obscured if dissimilar items, transactions or other events are inappropriately aggregated, or conversely, if similar
items are inappropriately disaggregated.
The amendment is effective for annual reporting periods beginning on or after January 1, 2020. Killam will apply the amendment from
its effective date and does not expect a significant impact on its consolidated financial statements.
Disclosure Controls, Procedures and Internal Controls
Management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that Killam’s 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, 2019, 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, with the assistance of
Management.
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 President and 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 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 at December 31, 2019, Killam’s President and Chief Executive Officer and its Chief Financial Officer, with the assistance of
Management, assessed the effectiveness of the ICFR using the criteria set forth in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in 2013 and, based on that assessment, determined that
the ICFR were designed and operating effectively as at December 31, 2019. Killam did not make any changes to the design of ICFR in
2019 that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 9 3
56
2019 Management’s Discussion & AnalysisDollar amounts in thousands of Canadian dollars (except as noted) 2019 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Related Party Transactions
Killam has construction management and development agreements with APM Construction ("APM") and MacLean Contracting Ltd.
("MacLean"), companies owned by a Trustee of Killam, to provide construction services related to the Shorefront apartment
development and reconstruction of the Harley Street apartment building in PEI. APM will be paid a market rate development and
construction management fee. For the year ended December 31, 2019, APM and MacLean were paid $2.4 million in development and
construction management fees and construction labour (December 31, 2018 - $0.3 million).
Killam owns a 50% interest in two commercial properties located at 3700 & 3770 Kempt Road in Halifax, NS, the remaining 50% interest
in these properties is owned by Bloomfield Holdings Ltd. (“Bloomfield”), a company owned by an executive and Trustee of Killam. These
properties are managed by an arm's length third party. Killam's head office occupies approximately 23,000 square feet of one of the
buildings with base rent of approximately $13.00 per square foot, of which 50% is paid to the related party based on the ownership
interest.
The remuneration of directors and other key management personnel, which include the Board of Trustees, President & Chief Executive
Officer, Executive Vice President, Chief Financial Officer and other Vice-Presidents of Killam, is as follows:
For the years ended December 31,
Salaries, board compensation and incentives
Deferred unit-based compensation
Total
Subsequent Events
2019
$3,928
1,822
$5,750
2018
$4,079
1,455
$5,534
On January 15, 2020, Killam announced a distribution of $0.055 per unit, payable on February 17, 2020, to unitholders of record on
January 31, 2020.
On January 15, 2020, Killam acquired a 161-unit apartment building in Greater Victoria, BC, for $54.0 million. The acquisition was
funded with cash and Killam's credit facility.
On January 31, 2020, Killam acquired a 54-unit apartment building in Halifax, NS, for $8.8 million. The acquisition was funded with
cash and the assumption of $3.5 million of debt.
On February 12, 2020, the Board of Trustees approved a 3.0% increase to Killam's annual distribution, to $0.68 per unit from $0.66
per unit. The monthly distribution will be $0.05667 per unit, up from $0.055 per unit. The increase will become effective for the
March 2020 distribution to be paid in April 2020.
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9 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
57
2019 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 (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, 2019, 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 12, 2020
Philip Fraser
President and Chief Executive Officer
Dale Noseworthy
Chief Financial Officer
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 9 5
Independent auditor's report
To the Unitholders of
Killam Apartment Real Estate Investment Trust
Opinion
We have audited the consolidated financial statements of Killam Apartment Real Estate Investment Trust and
its subsidiaries [the "Group"), which comprise the consolidated statements of financial position as at
December 31, 2019 and 2018 and the consolidated statements of income and comprehensive income,
consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended,
and notes to the consolidated financial statements, including a summary of sjgnificant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Group as at December 31, 2019 and 2018, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards ["IFRSs"].
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
•
•
Management's Discussion and Analysis
The information, other than the consolidated financial statements and our auditor's report thereon, in the
Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information, and in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management's Discussion & Analysis prior to the date of this auditor's report. If, based on the work
we have performed, we conclude that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor's report. If based on the
work we will perform on this other information, we conclude there is a material misstatement of other information,
we are required to report that fact to those charged with governance.
EV A member firm of Ernst & Young G!obal Limited
9 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 9 7
9 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
Consolidated Statements of Financial Position
In thousands of Canadian dollars,
Note
December 31, 2019
December 31, 2018
ASSETS
Non-current assets
Investment properties
Property and equipment
Other non-current assets
Current assets
Cash
Rent and other receivables
Other current assets
Assets held for sale
TOTAL ASSETS
EQUITY AND LIABILITIES
Unitholders' equity
Non-controlling interest
Total Equity
Non-current liabilities
Mortgages and loans payable
Lease liabilities
Exchangeable Units
Deferred income tax
Deferred unit-based compensation
Current liabilities
Mortgages and loans payable
Credit facilities
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
Trustee
Trustee
$3,320,604
$2,799,693
7,113
295
5,659
530
$3,328,012
$2,805,882
$12,801
9,025
16,099
37,925
14,163
$3,789
3,025
11,710
18,524
—
$3,380,100
$2,824,406
$1,602,254
$1,168,814
113
136
$1,602,367
$1,168,950
$1,161,702
$1,060,082
8,919
78,668
175,048
5,363
—
66,207
134,684
4,579
$1,429,700
$1,265,552
$276,568
—
24,851
46,614
348,033
$1,777,733
$3,380,100
$232,394
53,350
60,502
43,658
389,904
$1,655,456
$2,824,406
[5]
[8]
[10]
[9]
[6]
[17]
[11]
[12]
[16]
[23]
[19]
[11]
[13]
[14]
[15]
[28]
[29]
1
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 9 9
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Consolidated Statements of Income and Comprehensive Income
In thousands of Canadian dollars,
Property revenue
Property operating expenses
Operating expenses
Utility and fuel expenses
Property taxes
Net operating income
Other income
Financing costs
Depreciation
Administration
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 expense
Net income
Other comprehensive income
Item that may be reclassified subsequently to net income
Amortization of loss in AOCL to financing costs
Comprehensive income
Net income (loss) attributable to:
Unitholders
Non-controlling interest
Comprehensive income (loss) attributable to:
Unitholders
Non-controlling interest
See accompanying notes to the consolidated financial statements.
Note
[20]
Year ended December 31,
2019
2018
$241,749
$215,959
[21]
[22]
[16]
[5]
[23]
(37,187)
(23,515)
(28,711)
(89,413)
(33,447)
(21,705)
(25,095)
(80,247)
$152,336
$135,712
6,059
(47,443)
(720)
(14,881)
(1,590)
(12,461)
244,130
(1,269)
324,161
(40,636)
965
(42,648)
(859)
(14,201)
(553)
(6,373)
134,803
(197)
206,649
(31,478)
$283,525
$175,171
—
37
$283,525
$175,208
283,536
175,144
(11)
27
$283,525
$175,171
283,536
175,181
(11)
27
$283,525
$175,208
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2
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Consolidated Statements of Changes in Equity
In thousands of Canadian dollars,
Year ended December 31, 2019
As at January 1, 2019
Distribution reinvestment plan
Deferred unit-based compensation
Issued for cash
Net income
Distributions on non-controlling interest
Distributions declared and paid
Distributions payable
As at December 31, 2019
Trust Units
Contributed
Surplus
Retained
Earnings
Non-
controlling
Interest
Total Equity
$798,473
$795
$369,546
$136
$1,168,950
17,651
1,298
191,744
—
—
—
—
—
—
—
—
—
—
—
—
—
—
283,536
—
(55,349)
(5,440)
—
—
—
(11)
(12)
—
—
17,651
1,298
191,744
283,525
(12)
(55,349)
(5,440)
$1,009,166
$795
$592,293
$113
$1,602,367
Year ended December 31, 2018
Trust Units
Contributed
Surplus
Retained
Earnings
AOCL
Non-
controlling
Interest
Total Equity
As at January 1, 2018
$718,858
$795
$247,965
($37)
$141
$967,722
Exchange of Exchangeable Units
Distribution reinvestment plan
Deferred unit-based compensation
Issued for cash
Issuance of units for acquisitions
Net income
Amortization of loss on forward interest
rate hedge
Distributions on non-controlling interest
Distributions declared and paid
Distributions payable
As at December 31, 2018
1,054
13,919
678
54,852
9,112
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
175,144
—
—
(48,936)
(4,627)
—
—
—
—
—
—
37
—
—
—
—
—
—
—
—
27
—
(32)
—
—
1,054
13,919
678
54,852
9,112
175,171
37
(32)
(48,936)
(4,627)
$798,473
$795
$369,546
$—
$136
$1,168,950
See accompanying notes to the consolidated financial statements.
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3
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Consolidated Statements of Cash Flows
In thousands of Canadian dollars,
OPERATING ACTIVITIES
Net income
Add (deduct) items not affecting cash
Fair value adjustments
Depreciation
Amortization of deferred financing
Non-cash compensation expense
Deferred income taxes
Loss on disposition
Loss on derivative liability
Interest expense on Exchangeable Units
Straight-line rent
Interest expense on lease liability
Net change in non-cash operating activities
Cash provided by operating activities
FINANCING ACTIVITIES
Deferred financing costs paid
Net proceeds on issuance of Units
Cash paid on vesting of restricted Units
Cash paid on lease liabilities
Mortgage financing
Mortgages repaid
Mortgage principal repayments
Credit facility (repayments) proceeds
Proceeds from construction loans
Construction loans repayments
Distributions paid to non-controlling interest
Distributions to Unitholders and Exchangeable Unitholders
Cash provided by financing activities
INVESTING ACTIVITIES
Decrease in restricted cash
Acquisition of investment properties, net of debt assumed
Disposition of investment properties
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.
Year ended December 31,
Note
2019
2018
$283,525
$175,171
(230,080)
(127,877)
[20]
720
3,093
1,918
40,364
1,269
235
2,727
(423)
298
(8,438)
$95,208
(5,384)
191,729
(1,424)
(133)
332,658
(191,892)
(44,792)
(53,350)
28,726
(64,377)
(12)
859
4,354
1,513
31,478
197
129
2,453
154
—
1,307
$89,738
(8,429)
54,852
(1,289)
—
286,609
(85,579)
(39,662)
53,350
19,455
—
(32)
(45,041)
(41,618)
$146,708
$237,657
811
574
(133,426)
(229,349)
11,520
(38,390)
(73,419)
1,460
(60,477)
(47,814)
($232,904)
($335,606)
9,012
3,789
$12,801
(8,211)
12,000
$3,789
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4
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except 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,
manufactured home communities ("MHCs") and commercial properties in Canada.
The consolidated financial statements comprise the financial statements of Killam and its subsidiaries as at and for the year
ended December 31, 2019. Killam's head office operations are located at 3700 Kempt Road, Halifax, Nova Scotia, B3K 4X8.
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, 2019 were authorized for issue in
accordance with a resolution of the Board of Trustees of Killam on February 12, 2020.
(B) Basis of Presentation
The consolidated financial statements of Killam have been prepared on a historical cost basis, except for investment properties,
deferred unit-based compensation, a derivative asset 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 amounts 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 interest represents the portion of profit or loss and net assets not held by Killam and is presented separately in
the consolidated statements of income and comprehensive income and within equity in the consolidated statements of financial
position, separately from unitholders’ 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.
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5
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
Killam's investments in subsidiaries, all of which are incorporated in Canada, are listed in the following table:
Subsidiary
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
Killam - Keith Development Ltd.
Killam KamRes (Silver Spear) Inc.
Killam KamRes (Grid 5) Inc.
Blackshire Court Limited Partnership
Killam KamRes (Kanata Lakes) I Inc.
Killam KamRes (Kanata Lakes) II Inc.
Killam KamRes (Kanata Lakes) III Inc.
Killam KamRes (Kanata Lakes) IV Inc.
Riotrin Properties (Gloucester 3) Inc.
AKK 4th Avenue Inc.
% Interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
97%
50%
50%
50%
50%
50%
40%
(ii) Joint arrangements
Killam has interests in three properties (seven buildings), two development projects and land for future development that are
subject to joint arrangements. Killam has assessed the nature of its joint arrangements as at December 31, 2019 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.
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6
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
2. Significant Accounting Policies (continued)
Killam's investments in subsidiaries, all of which are incorporated in Canada, are listed in the following table:
Subsidiary
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
Killam - Keith Development Ltd.
Killam KamRes (Silver Spear) Inc.
Killam KamRes (Grid 5) Inc.
Blackshire Court Limited Partnership
Killam KamRes (Kanata Lakes) I Inc.
Killam KamRes (Kanata Lakes) II Inc.
Killam KamRes (Kanata Lakes) III Inc.
Killam KamRes (Kanata Lakes) IV Inc.
Riotrin Properties (Gloucester 3) Inc.
AKK 4th Avenue Inc.
% Interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
97%
50%
50%
50%
50%
50%
40%
(ii) Joint arrangements
Killam has interests in three properties (seven buildings), two development projects and land for future development that are
subject to joint arrangements. Killam has assessed the nature of its joint arrangements as at December 31, 2019 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.
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. 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 represents the majority of Killam’s revenue and includes rents from tenants under leases, parking
income, laundry income and other miscellaneous income paid by the tenants under the terms of their existing leases. Rental
revenue from investment properties is recognized on a straight-line basis over the lease term. Rental payments are due from
tenants at the beginning of the month. The operating leases entered into with tenants create a legally enforceable right to control
the use of an identified asset by the tenant for a period of time and also require Killam to provide additional services. IFRS 16,
Leases (“IFRS 16”), provides guidance on “lease components” such as base rent, realty tax and insurance recoveries, which
therefore are outside of the scope of IFRS 15., Revenue from Contracts with Customers ("IFRS 15"). Property management and
ancillary income (such as utilities, parking and laundry) are considered non-lease components and are within the scope of IFRS 15,
Revenue from Contracts with Customers. The performance obligation for the property management and ancillary services is
satisfied over time, which is generally the lease term. The Trust applies the practical expedient in paragraph 121 of IFRS 15 and
does not disclose information about remaining performance obligations that have original expected durations of one year or less.
(ii) Other income
Other corporate income includes interest income 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 is included gross of the related costs.
(iv) Manufactured home sales
Where revenue is obtained from the sale of manufactured homes, it is recognized when control has 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.
(v) Straight-line rent
Certain commercial lease agreements contain changes in rental rates over the term of the lease. Total rental income is recorded
on a straight-line basis over the life of the lease agreement. An accrued rent receivable is recorded for the difference between the
straight-line rent recorded in property revenue and the rent that is contractually due from tenants. Tenant incentives are
amortized on a straight-line basis over the term of existing leases and the amortization is shown as a reduction in property
revenue.
(vi) Common area maintenance ("CAM") services
Killam has an obligation to commercial tenants to provide CAM services in exchange for CAM recoveries, which are considered
non-lease components. CAM services are performed during the period in which the tenants occupy the premises, therefore CAM
recoveries are recognized in revenue based on actual costs incurred.
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Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(vii) Lease cancellation fees
Amounts payable by tenants to terminate a lease prior to the contractual expiry date are included in rental revenue as lease
cancellation fees at the effective date of the lease termination.
(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, MHC's and commercial properties held to earn rental income
and properties that are under construction or development for future use as investment properties and land held for future
development. Killam considers its income properties to be investment properties under 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, mostly 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.
Properties under development are also adjusted for fair value at each consolidated statement of financial position, with fair value
adjustments recognized in net income.
(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, directly
attributable labour costs 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 an 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 of these costs continues until such improvements are
completed. Capitalization of finance costs is suspended if there are prolonged periods when development activity is interrupted.
Interest is 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.
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Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Amounts payable by tenants to terminate a lease prior to the contractual expiry date are included in rental revenue as lease
cancellation fees at the effective date of the lease termination.
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.
(vii) Lease cancellation fees
(F) Tenant Inducements
(G) Investment Properties
Investment properties include multi-family residential properties, MHC's and commercial properties held to earn rental income
and properties that are under construction or development for future use as investment properties and land held for future
development. Killam considers its income properties to be investment properties under 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, mostly 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.
Properties under development are also adjusted for fair value at each consolidated statement of financial position, with fair value
adjustments recognized in net income.
(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, directly
attributable labour costs 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 an 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 of these costs continues until such improvements are
completed. Capitalization of finance costs is suspended if there are prolonged periods when development activity is interrupted.
Interest is 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.
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
2. Significant Accounting Policies (continued)
(H) Assets Held for Sale
Assets held for sale include assets that meet the held for sale criteria in accordance with IFRS 5, Non-current Assets Held for Sale
and Discontinued Operations. These assets have carrying amounts that will be recovered principally through a sale and are
available for immediate sale in their present condition. Assets that are classified as assets held for sale are carried at the lower of
fair value and cost.
(I) Property and Equipment
Property and equipment are stated at historical cost less accumulated depreciation and consist mainly of Killam's head office
buildings, leasehold improvements, vehicles 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 for each period.
Useful Life/Depreciation Rate
Depreciation Method Used
Category
Building
Heavy equipment
Vehicles
40 years
8%
10%
Furniture, fixtures and office equipment
10% to 30%
Leasehold improvements
Lease term
Straight-line
Declining balance
Declining balance
Declining balance
Straight-line
(J) 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) Consolidated Statements of Cash Flows
Cash consists of cash on hand and bank account balances excluding cash on hand held for security deposits. 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.
(L) Deferred unit-based Compensation
Unit-based compensation benefits 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 Restricted Trust Units ("RTUs") are presented as a
liability on the consolidated statements of financial position as the Trust Units are considered puttable instruments in accordance
with IAS 32.
The fair value of performance-based RTUs is estimated using a Monte Carlo pricing model. The fair value estimate requires
determination of the most appropriate inputs to the pricing model including the expected life, volatility, and dividend
yield. The grant date fair value of the deferred unit-based compensation is determined based on the market value of the Trust's
Units on the date of grant and 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.
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Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(M) Financial Instruments
Financial instruments are accounted for, presented, and disclosed in accordance with IFRS 7, Financial Instruments: Disclosures,
IAS 32, and IFRS 9, Financial Instruments ("IFRS 9"). 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
Classification
Measurement
Rent, loans and other receivables
Financial assets
Amortized cost
Accounts payable, accrued liabilities
Financial liabilities
Amortized cost
Mortgages, loans payable and construction loans
Financial liabilities
Amortized cost
Exchangeable Units
Deferred unit-based compensation
Other assets
FVTPL
FVTPL
FVTPL
Fair value
Fair value
Fair value
Financial liabilities at FVTPL
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.
Financial assets
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.
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 rate method. The effective interest rate 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.
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Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(M) Financial Instruments
Financial instruments are accounted for, presented, and disclosed in accordance with IFRS 7, Financial Instruments: Disclosures,
IAS 32, and IFRS 9, Financial Instruments ("IFRS 9"). 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
Classification
Measurement
Rent, loans and other receivables
Financial assets
Amortized cost
Accounts payable, accrued liabilities
Financial liabilities
Amortized cost
Mortgages, loans payable and construction loans
Financial liabilities
Amortized cost
Exchangeable Units
Deferred unit-based compensation
Other assets
FVTPL
FVTPL
FVTPL
Fair value
Fair value
Fair value
Financial liabilities at FVTPL
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.
Financial assets
Financial liabilities
Trust Units
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 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 rate method. The effective interest rate 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.
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.
2. Significant Accounting Policies (continued)
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 are reported
under other current liabilities on the consolidated statements of financial position. The Exchangeable Units are measured at each
reporting date at fair value, which is based off of the unit price of the Trust given the Exchangeable Units can be converted into
Trust units. Changes in fair value are 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 statement 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 netted against mortgages and loans payable. They
are amortized over the amortization period of the underlying mortgage loans on a straight-line basis (initial period is typically
25-30 years) and are included as a component of financing costs. Should Killam refinance an existing mortgage, CMHC premiums
associated with the new mortgage will be reflected in deferred financing costs. Other unamortized CMHC premiums and fees
associated with the property that are no longer linked to a current mortgage will be amortized in the period in which the
refinancing occurs.
Transaction costs
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.
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 26 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.
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Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(N) Hedging Relationships
Killam may use 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.
(O) 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.
(P) 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.
(Q) Distributions
Distributions represent the monthly cash distributions on outstanding Trust Units and Exchangeable Units.
(R) 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 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 accounts payable and accrued
liabilities.
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Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
2. Significant Accounting Policies (continued)
(N) Hedging Relationships
Killam may use 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
transaction.
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
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.
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
AOCL is included in the consolidated statements of financial position as equity and includes the unrealized gains and losses of the
Distributions represent the monthly cash distributions on outstanding Trust Units and Exchangeable Units.
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 it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably
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 accounts payable and accrued
liabilities.
(O) Comprehensive Income
taxes.
(P) Accumulated Other Comprehensive Loss
changes in the fair value of cash flow hedges.
(Q) Distributions
(R) Provisions
estimated.
(S) 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 values 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.
(T) 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 did not report earnings per Unit calculations, as permitted under IFRS.
(U) Adoption of Accounting Standards
(i) IFRS 16, Leases
On January 13, 2016, the IASB issued IFRS 16, replacing IAS 17 and related interpretations. IFRS 16 provides a comprehensive
framework for recognition, measurement and disclosure for accounting for leases. Lessor accounting under IFRS 16 is substantially
unchanged and lessors will continue to classify all leases as either operating or finance leases using similar principles as in IAS 17.
Therefore, IFRS 16 does not have an impact for leases where Killam is the lessor.
Killam adopted the standard on January 1, 2019 using the modified retrospective approach and elected to use the transition
practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying IAS 17
and IFRIC 4, Determining Whether an Arrangement Contains a Lease at the date of initial application. Killam has also elected to
use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and
do not contain a purchase option, and lease contracts for which the underlying asset is of low value.
As part of the adoption of this standard, Killam reviewed all lease contracts in which it is a lessee and concluded that all leases,
with the exception of three ground leases, were assets of low value and therefore had no impact upon adoption. The
implementation of IFRS 16 resulted in a right-of-use asset and lease liability being recorded in the amount of $7.1 million (current
balance sheet amount is $8.9 million). Refer to Note 12 to the consolidated financial statements for additional information.
In accordance with IFRS 16, at the commencement date of any new leases, Killam will recognize a liability to reflect the present
value of the lease obligations and an asset representing the right to use the underlying asset during the lease term. Land leases
meet the definition of investment property under IAS 40, Investment Property; therefore, the fair value model is applied to these
assets. Interest expense on the lease liability and the fair value gain or loss on the right-of-use asset is recognized separately on
the consolidated statements of income and comprehensive income.
12
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 1 1
13
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
Killam measures lease liabilities at the present value of the lease payments to be made over the lease term. The lease payments
include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The variable lease payments that
do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the
payment occurs.
In calculating the present value of lease payments, Killam uses the incremental borrowing rate at the lease commencement date if
the interest rate implicit in the lease is not readily determinable. After the commencement date, the lease liabilities are increased
to reflect the accretion of interest and reduced for lease payments made. The carrying amount of lease liabilities are remeasured
if there are modifications, a change in the lease terms, a change in the in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
IFRIC Interpretation 23, Uncertainty over Income Tax Treatment ("IFRIC 23")
In June 2017, the IASB issued IFRIC 23, which addresses the accounting for income taxes when tax treatments involve uncertainty
that affects the application of IAS 12, Income Taxes ("IAS 12") and does not apply to taxes or levies outside the scope of IAS 12,
nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The
interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments collectively;
•
•
The assumptions an entity makes about the examination of tax treatments by taxation authorities;
How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and
tax rates; and
How an entity considers the effect of changes in facts and circumstances.
•
An entity applies IFRIC 23 for annual reporting periods beginning on or after January 1, 2019. The requirements are applied by
recognizing the cumulative effect of initially applying them in retained earnings, or in other appropriate components of equity, at
the start of the reporting period in which an entity first applies them, without adjusting comparative information. Full
retrospective application is permitted, if an entity can do so without using hindsight.
The IFRIC interpretation did not have a material impact on Killam’s consolidated financial statements.
3. 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.
1 1 2 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
14
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
3. Critical Accounting Judgments, Estimates and Assumptions (continued)
Killam measures lease liabilities at the present value of the lease payments to be made over the lease term. The lease payments
include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The variable lease payments that
do not depend on an index or a rate are recognized as an expense in the period in which the event or condition that triggers the
payment occurs.
In calculating the present value of lease payments, Killam uses the incremental borrowing rate at the lease commencement date if
the interest rate implicit in the lease is not readily determinable. After the commencement date, the lease liabilities are increased
to reflect the accretion of interest and reduced for lease payments made. The carrying amount of lease liabilities are remeasured
if there are modifications, a change in the lease terms, a change in the in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
IFRIC Interpretation 23, Uncertainty over Income Tax Treatment ("IFRIC 23")
In June 2017, the IASB issued IFRIC 23, which addresses the accounting for income taxes when tax treatments involve uncertainty
that affects the application of IAS 12, Income Taxes ("IAS 12") and does not apply to taxes or levies outside the scope of IAS 12,
nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The
interpretation specifically addresses the following:
• Whether an entity considers uncertain tax treatments collectively;
The assumptions an entity makes about the examination of tax treatments by taxation authorities;
How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and
•
•
•
tax rates; and
How an entity considers the effect of changes in facts and circumstances.
An entity applies IFRIC 23 for annual reporting periods beginning on or after January 1, 2019. The requirements are applied by
recognizing the cumulative effect of initially applying them in retained earnings, or in other appropriate components of equity, at
the start of the reporting period in which an entity first applies them, without adjusting comparative information. Full
retrospective application is permitted, if an entity can do so without using hindsight.
The IFRIC interpretation did not have a material impact on Killam’s consolidated financial statements.
3. 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 IFRS 9 and IAS 32 to determine the appropriate recognition model, 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.
(v) Revenue Recognition
The Trust applies judgment about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract
with a customer. The Trust concluded that revenue for property management and ancillary services is to be recognized over time
because the tenant simultaneously receives and consumes the benefits provided by the Trust. Rents charged to tenants are
generally charged on a gross basis, inclusive of property management and ancillary services. If a contract is identified as containing
more than one performance obligation, the Trust allocates the total transaction price to each performance obligation in an
amount based on an expected cost plus a margin approach.
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 5. Significant estimates used in determining the fair value of the Trust’s investment properties
include capitalization rates and stabilized net operating income used in the overall capitalization rate valuation method. A change
to any one of these inputs could significantly alter the fair value of an investment property. Please refer to note 5 for sensitivity
analysis.
IPUC and land held for development 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.
(ii) Deferred unit-based compensation
The compensation costs relating to deferred unit-based compensation are based on estimates of how many deferred units will be
awarded as well as how many will actually vest and be exercised, as well as valuation models, which by their nature are subject to
measurement uncertainty.
(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 23.
14
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 1 3
15
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
4. 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.
Amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates
and Errors: Definition of Material
In October 2018, the IASB issued amendments to IAS 8 to align the definition of material across the standards and to clarify certain
aspects of the definition. The new definition states that information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of
those financial statements, which provide financial information about a specific reporting entity. The amendments clarify that
materiality will depend on the nature or magnitude of information, or both. An entity will need to assess whether the information,
either individually or in combination with other information, is material in the context of the financial statements.
The amendments explain that information is obscured if it is communicated in a way that would have a similar effect as omitting
or misstating the information. Material information may, for instance, be obscured if information regarding a material item,
transaction or other event is scattered throughout the financial statements, or disclosed using a language that is vague or unclear.
Material information can also be obscured if dissimilar items, transactions or other events are inappropriately aggregated, or
conversely, if similar items are inappropriately disaggregated.
The amendment is effective for annual reporting periods beginning on or after January 1, 2020. Killam will apply the amendment
from its effective date and does not expect a significant impact on its consolidated financial statements.
Amendments to IAS 1, Presentation of Financial Statements, Amendments to classification of liabilities as current or non-
current
In January 2020, the IASB issued amendments to IAS 1 to specify the requirements for classifying liabilities as current or non-
current. The amendments clarify the definition of a right to defer settlement and specify that the conditions which exist at the end
of the reporting period are those which will be used to determine if a right to defer settlement of a liability exists.
The amendments are effective for annual periods beginning on or after January 1, 2022. The amendments must be applied
retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application is
permitted. Killam is in the process of assessing the impact the amendments may have on future financial statements and plans to
adopt the new standard retrospectively on the required effective date.
1 1 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) 4. 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.
Amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates
and Errors: Definition of Material
In October 2018, the IASB issued amendments to IAS 8 to align the definition of material across the standards and to clarify certain
aspects of the definition. The new definition states that information is material if omitting, misstating or obscuring it could
reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of
those financial statements, which provide financial information about a specific reporting entity. The amendments clarify that
materiality will depend on the nature or magnitude of information, or both. An entity will need to assess whether the information,
either individually or in combination with other information, is material in the context of the financial statements.
The amendments explain that information is obscured if it is communicated in a way that would have a similar effect as omitting
or misstating the information. Material information may, for instance, be obscured if information regarding a material item,
transaction or other event is scattered throughout the financial statements, or disclosed using a language that is vague or unclear.
Material information can also be obscured if dissimilar items, transactions or other events are inappropriately aggregated, or
conversely, if similar items are inappropriately disaggregated.
Amendments to IAS 1, Presentation of Financial Statements, Amendments to classification of liabilities as current or non-
current
In January 2020, the IASB issued amendments to IAS 1 to specify the requirements for classifying liabilities as current or non-
current. The amendments clarify the definition of a right to defer settlement and specify that the conditions which exist at the end
of the reporting period are those which will be used to determine if a right to defer settlement of a liability exists.
The amendments are effective for annual periods beginning on or after January 1, 2022. The amendments must be applied
retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application is
permitted. Killam is in the process of assessing the impact the amendments may have on future financial statements and plans to
adopt the new standard retrospectively on the required effective date.
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
5. Investment Properties
As at December 31, 2019
Segment
Apartments
MHCs Commercial
IPUC
Land for
Development
Total
Balance, January 1, 2019
Impact of change in accounting policy (1)
Restated balance, beginning of year
$2,425,158
7,115
$153,509
—
$122,835
—
$37,163
—
$61,028 $2,799,693
7,115
—
2,432,273
153,509
122,835
37,163
61,028
2,806,808
Fair value adjustment on investment properties
Acquisitions
Transfer from IPUC
Capital expenditures
Transfer from land for development
Transfer to held for sale
Impact of change in right-of-use asset
Interest capitalized on IPUC and land for development
208,624
149,654
36,215
62,317
—
(15,099)
423
—
38,540
3,985
—
5,016
—
—
1,381
—
(1,549)
32,124
4,162
774
—
— (36,215)
29,341
— 15,050
—
—
—
—
754
—
(1,663)
6,200
—
5,700
(15,050)
(18,401)
—
1,513
244,726
191,963
—
106,536
—
(33,500)
1,804
2,267
The amendment is effective for annual reporting periods beginning on or after January 1, 2020. Killam will apply the amendment
from its effective date and does not expect a significant impact on its consolidated financial statements.
As at December 31, 2018
Balance, end of year
$2,874,407
$202,431
$157,572
$46,867
$39,327 $3,320,604
Segment
Apartments
MHCs Commercial
IPUC
Balance, beginning of year
Fair value adjustment on investment properties
Acquisitions
Dispositions
Transfer from IPUC
Transfer from land for development
Capital expenditures
Interest capitalized on IPUC and land for development
$1,995,144
118,601
167,218
—
104,283
—
39,912
—
$139,783
5,271
4,789
—
—
—
3,666
—
$80,226
$36,445
4,919
7,301
—
76,179
—
—
— (104,283)
1,273
—
53,336
2,910
1,692
—
Land for
Development
Total
$28,165 $2,279,763
137,892
276,533
(1,460)
—
—
103,796
3,169
1,800
28,347
(1,460)
—
(1,273)
3,972
1,477
Balance, end of year
(1) Refer to note 12- Lease Liabilities
$2,425,158
$153,509
$122,835
$37,163
$61,028 $2,799,693
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 1 5
17
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
5. Investment Properties (continued)
During the year ended December 31, 2019, Killam acquired the following properties:
Purchase Price (1)
Property
9 Dietz
Location
Acquisition
Date
Ownership
Interest
Waterloo, ON
15-Jan-19
11 Harold Doherty
Fredericton, NB
18-Apr-19
Calgary, AB
Charlottetown Mall Charlottetown, PE
Grid 5 (2)
Silver Spear (2)
59 Irvin
Dieppe Village (3)
150 Lian
Mississauga, ON
Fredericton, NB
Kitchener, ON
Moncton, NB
17-May-19
14-Jun-19
14-Jun-19
21-Jun-19
27-Jun-19
20-Aug-19
690 University Ave Charlottetown, PE
15-Oct-19
Oceanic
Shediac, NB
1-Nov-19
125 & 145 Canaan
Moncton, NB
22-Nov-19
The Link
Edmonton, AB
25-Nov-19
100%
100%
50%
100%
100%
100%
100%
50%
100%
100%
100%
Property Type
Development land
Apartment
Retail
Apartment
Income-
producing
Properties
$—
8,100
23,750
42,700
27,200
—
Development land
Apartment & retail
28,000
Apartment
Retail
Seasonal campground
Apartment
9,250
1,150
3,800
9,520
Apartment
31,500
Land for
Development
$1,500
—
—
—
3,600
150
900
—
—
—
—
—
100% Apartment & development land
Total Acquisitions
(1) Purchase price does not include transaction costs.
(2) Killam acquired a 50% interest in each property and now holds 100% ownership.
(3) Dieppe Village includes 127 apartment units ($21.4M) and 45,500 square feet of commercial space ($6.6M).
184,970
6,150
During the year ended December 31, 2019, Killam capitalized salaries of $3.8 million ( December 31, 2018 - $3.1 million), as part of
its project improvement, suite renovation and development programs. For the year ended December 31, 2019, 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 2.94% (December 31, 2018 - 2.91%). Interest costs associated with
development specific loans were capitalized to the respective developments using the actual borrowing rate associated with the
loan.
Investment properties with a fair value of $3.1 billion as at December 31, 2019 (December 31, 2018 - $2.8 billion) have been
pledged as collateral against Killam's mortgages, construction loans and credit facilities.
Valuation methodology
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (i.e. an exit price). Expectations about future improvements or modifications to be made to the
investment property to reflect its highest and best use may be considered in the valuation.
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. See note 26 for further details.
1 1 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
18
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
5. Investment Properties (continued)
During the year ended December 31, 2019, Killam acquired the following properties:
Property
9 Dietz
Location
Acquisition
Ownership
Date
Interest
Property Type
Waterloo, ON
15-Jan-19
Development land
11 Harold Doherty
Fredericton, NB
18-Apr-19
Charlottetown Mall Charlottetown, PE
17-May-19
Calgary, AB
14-Jun-19
Grid 5 (2)
Silver Spear (2)
59 Irvin
Dieppe Village (3)
150 Lian
Fredericton, NB
20-Aug-19
690 University Ave Charlottetown, PE
15-Oct-19
125 & 145 Canaan
Moncton, NB
22-Nov-19
The Link
Edmonton, AB
25-Nov-19
Total Acquisitions
100%
100%
50%
100%
100%
100%
100%
50%
100%
100%
100%
Mississauga, ON
14-Jun-19
100% Apartment & development land
Kitchener, ON
21-Jun-19
Moncton, NB
27-Jun-19
Development land
Apartment & retail
28,000
Oceanic
Shediac, NB
1-Nov-19
Seasonal campground
Purchase Price (1)
Income-
producing
Properties
Land for
Development
$1,500
Apartment
Retail
Apartment
Apartment
Retail
Apartment
$—
8,100
23,750
42,700
27,200
—
9,250
1,150
3,800
9,520
3,600
150
900
—
—
—
—
—
—
—
—
(1) Purchase price does not include transaction costs.
(2) Killam acquired a 50% interest in each property and now holds 100% ownership.
(3) Dieppe Village includes 127 apartment units ($21.4M) and 45,500 square feet of commercial space ($6.6M).
During the year ended December 31, 2019, Killam capitalized salaries of $3.8 million ( December 31, 2018 - $3.1 million), as part of
its project improvement, suite renovation and development programs. For the year ended December 31, 2019, 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 2.94% (December 31, 2018 - 2.91%). Interest costs associated with
development specific loans were capitalized to the respective developments using the actual borrowing rate associated with the
Investment properties with a fair value of $3.1 billion as at December 31, 2019 (December 31, 2018 - $2.8 billion) have been
pledged as collateral against Killam's mortgages, construction loans and credit facilities.
loan.
Valuation methodology
Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date (i.e. an exit price). Expectations about future improvements or modifications to be made to the
investment property to reflect its highest and best use may be considered in the valuation.
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. See note 26 for further details.
5. Investment Properties (continued)
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.
Valuation processes
Internal valuations
Killam measures the vast majority of its investment properties using valuations prepared by its internal valuation team. This team
consists of individuals who are knowledgeable and have specialized industry experience in real estate valuations and report directly to
a senior member of Killam’s management. The internal valuation team's processes and results are reviewed and approved by senior
management of Killam, including the President & Chief Executive Officer; Chief Financial Officer; and other executive members, in line
with Killam's quarterly reporting dates.
External valuations
Depending on the property asset type and location, management may at times use external valuations to support its fair value,
obtaining valuations from independent third-party firms that employ experienced valuation professionals. During the year, Killam
obtained a total of 22 external property appraisals, which supported an IFRS fair value of approximately $379.6 million or 12% of
Killam's investment property portfolio as at December 31, 2019. The internal valuation team also verifies all major inputs used by the
external valuator in preparing the valuation report, compares the fair value against the fair value determined in internal models, and
holds discussions with the external valuator.
Apartment
31,500
184,970
6,150
Valuation techniques underlying Management’s estimation of fair value
Income properties
The apartment and MHC investment properties were valued using the direct income capitalization method. In applying the direct
income capitalization method, the stabilized net operating income (“SNOI”) of each property is divided by a capitalization rate. The
significant unobservable inputs include the following:
•
•
SNOI is based on budgeted rents and expenses and supported by the terms of any existing leases, other contracts or external
evidence such as current market rents for similar properties. Budgeted rents and expenses are adjusted to incorporate
allowances for vacancy rates, management fees, expected post sale property taxes and market-based maintenance and
salary costs. The resulting capitalized value is then adjusted for other costs inherent in achieving and maintaining SNOI,
including structural reserves for capital expenditures.
Capitalization rate is based on location, size and quality of the properties and takes into account market data at the valuation
date.
IPUC and land for development
Management uses an internal valuation process to estimate the fair value of properties under development and land for development.
Where a site is partially developed, the direct capitalization method is applied to capitalize the pro forma NOI, stabilized with market
allowances, from which the costs to complete the development are deducted. The significant unobservable inputs are based on the
following:
•
•
•
Pro forma SNOI is based on the location, type and quality of the properties and supported by the terms of actual or
anticipated future leases, other contracts or external evidence such as current market rents for similar properties. Vacancy
rates are based on expected future market conditions, and estimated maintenance costs are based on management's
experience and knowledge of the market conditions.
Costs to complete are derived from internal budgets based on management's experience and knowledge of the market
conditions.
Capitalization rate is risk-adjusted taking into consideration the inherent risk of the development project based on location,
size and quality of the properties and taking into account market data at the valuation date.
18
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 1 7
19
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
5. Investment Properties (continued)
The primary method of valuation for land acquired for development is the comparable sales approach, which considers recent sales
activity for similar land parcels in the same or similar markets. Land values are estimated using either a per acre or per buildable
square foot basis based on highest and best use. Such values are applied to Killam's properties after adjusting for factors specific to
the site, including its location, intended use, zoning, servicing and configuration.
Valuation Basis
Using the direct income capitalization method, the apartment properties were valued using cap-rates in the range of 3.5% to 8.00%,
applied to a SNOI of $137.0 million (December 31, 2018 - 3.75% to 8.00% and $126.0 million), resulting in an overall weighted
average cap-rate of 4.76% (December 31, 2018 - 5.15%). The stabilized occupancy rates used in the calculation of SNOI were in the
range of 93.5% to 99.0% (December 31, 2018 - 94.0% to 99.0%).
Using the direct income capitalization method, the MHC properties were valued using cap-rates in the range of 5.0% to 6.5%,
applied to a SNOI of $10.0 million (December 31, 2018 - 5.75% to 8.00% and $10.0 million), resulting in an overall weighted average
cap-rate of 5.65% (December 31, 2018 - 6.76%). The stabilized occupancy rate used in the calculation of SNOI was 97.8%
(December 31, 2018 - 97.8%).
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
December 31, 2019
December 31, 2018
Low
3.50%
3.75%
4.99%
5.00%
5.75%
5.00%
5.28%
3.50%
4.47%
5.75%
5.00%
5.00%
5.00%
5.80%
6.00%
Effective
Weighted
Average
4.76%
4.49%
5.54%
5.72%
6.04%
5.63%
5.77%
4.06%
4.69%
6.65%
5.65%
5.96%
5.30%
6.06%
6.00%
High
8.00%
5.60%
7.00%
6.00%
6.25%
6.00%
6.00%
5.08%
5.00%
8.00%
6.50%
6.50%
6.00%
6.50%
6.00%
Low
3.75%
4.50%
5.15%
5.00%
5.75%
5.00%
5.28%
3.75%
4.50%
5.75%
5.75%
6.50%
5.75%
7.50%
7.00%
Effective
Weighted
Average
5.15%
5.22%
5.73%
5.73%
6.04%
5.62%
5.74%
4.33%
4.72%
6.67%
6.76%
7.35%
6.21%
7.50%
7.00%
High
8.00%
6.00%
7.00%
6.00%
6.25%
6.00%
6.00%
5.08%
5.00%
8.00%
8.00%
8.00%
7.00%
7.50%
7.00%
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:
Class of property
Capitalization rate
Apartments
MHCs
10 basis points ("bps")
increase
($59,153)
($3,445)
10 basis points ("bps")
decrease
$61,692
$3,569
1 1 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
20
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
5. Investment Properties (continued)
6. Assets Held for Sale
The primary method of valuation for land acquired for development is the comparable sales approach, which considers recent sales
activity for similar land parcels in the same or similar markets. Land values are estimated using either a per acre or per buildable
square foot basis based on highest and best use. Such values are applied to Killam's properties after adjusting for factors specific to
the site, including its location, intended use, zoning, servicing and configuration.
Valuation Basis
Using the direct income capitalization method, the apartment properties were valued using cap-rates in the range of 3.5% to 8.00%,
applied to a SNOI of $137.0 million (December 31, 2018 - 3.75% to 8.00% and $126.0 million), resulting in an overall weighted
average cap-rate of 4.76% (December 31, 2018 - 5.15%). The stabilized occupancy rates used in the calculation of SNOI were in the
range of 93.5% to 99.0% (December 31, 2018 - 94.0% to 99.0%).
Using the direct income capitalization method, the MHC properties were valued using cap-rates in the range of 5.0% to 6.5%,
applied to a SNOI of $10.0 million (December 31, 2018 - 5.75% to 8.00% and $10.0 million), resulting in an overall weighted average
cap-rate of 5.65% (December 31, 2018 - 6.76%). The stabilized occupancy rate used in the calculation of SNOI was 97.8%
(December 31, 2018 - 97.8%).
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
Other Atlantic
Ontario
Alberta
MHCs
Ontario
Nova Scotia
New Brunswick
Newfoundland
December 31, 2019
December 31, 2018
Effective
Weighted
Average
Effective
Weighted
Average
Low
3.50%
3.75%
4.99%
5.00%
5.75%
5.00%
5.28%
3.50%
4.47%
5.75%
5.00%
5.00%
5.00%
5.80%
6.00%
High
8.00%
5.60%
7.00%
6.00%
6.25%
6.00%
6.00%
5.08%
5.00%
8.00%
6.50%
6.50%
6.00%
6.50%
6.00%
4.76%
4.49%
5.54%
5.72%
6.04%
5.63%
5.77%
4.06%
4.69%
6.65%
5.65%
5.96%
5.30%
6.06%
6.00%
Low
3.75%
4.50%
5.15%
5.00%
5.75%
5.00%
5.28%
3.75%
4.50%
5.75%
5.75%
6.50%
5.75%
7.50%
7.00%
High
8.00%
6.00%
7.00%
6.00%
6.25%
6.00%
6.00%
5.08%
5.00%
8.00%
8.00%
8.00%
7.00%
7.50%
7.00%
5.15%
5.22%
5.73%
5.73%
6.04%
5.62%
5.74%
4.33%
4.72%
6.67%
6.76%
7.35%
6.21%
7.50%
7.00%
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:
Class of property
Capitalization rate
10 basis points ("bps")
10 basis points ("bps")
Apartments
MHCs
increase
($59,153)
($3,445)
decrease
$61,692
$3,569
Killam determined that a parcel of land for development located in Calgary, AB, met the criteria for classification as assets held for
sale as at December 31, 2019. The property has a carrying value of $14.2 million (Killam's 40% interest).
7. Joint Operations and Investments in Joint Ventures
Killam has interests in three properties (seven buildings), two development projects and land for future development 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. As at December 31, 2019, the fair value of the investment properties subject to joint control was $261.2
million (December 31, 2018 - $286.8 million).
8. Property and Equipment
As at
Land
Building
Heavy equipment
Vehicles
Furniture, fixtures and office equipment
Leasehold improvements
Less accumulated depreciation
9. Other Current Assets
As at
Restricted cash
Deposits
Prepaid expenses
Inventory
December 31, 2019
December 31, 2018
Cost
$270
2,119
342
2,540
6,594
2,818
14,683
(7,570)
$7,113
Accumulated
Depreciation
$—
480
138
931
5,504
517
Cost
$270
1,922
276
2,156
6,320
1,613
7,570
12,557
(6,898)
$5,659
Accumulated
Depreciation
$—
383
124
784
5,204
403
6,898
December 31, 2019
December 31, 2018
$6,594
4,433
5,060
12
$16,099
$6,828
577
4,029
276
$11,710
Restricted cash consists of security deposits and property tax reserves. Deposits consist of funds held in trust for future
acquisitions. Inventory relates to manufactured homes for which sales have not closed at year end.
20
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 1 9
21
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
10. Rent and Other Receivables
As at
Rent receivable
Other receivables
December 31, 2019
December 31, 2018
$1,311
7,714
$9,025
$996
2,029
$3,025
Included in other receivables are laundry revenue, insurance receivables 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 0.3%
of revenue. As a result of the low bad debt experience, no allowance for doubtful accounts is recorded in the accounts.
11. Mortgages and Loans Payable
As at
December 31, 2019
December 31, 2018
Weighted
Average Interest
Debt
Balance
Weighted
Average Interest
Debt
Balance
Mortgages and loans payable
Fixed rate
Variable rate
Total
Current
Non-current
2.90%
4.63%
$1,427,470
10,800
$1,438,270
276,568
1,161,702
$1,438,270
2.95%
5.42%
$1,275,990
16,486
$1,292,476
232,394
1,060,082
$1,292,476
Mortgages are collateralized by a first charge on the properties of Killam.
As at December 31, 2019, unamortized deferred financing costs of $32.2 million (December 31, 2018 - $30.1 million) and mark-to-
market adjustments on mortgages assumed on acquisitions of $0.01 million (December 31, 2018 - $0.4 million) are netted against
mortgages and loans payable.
Estimated future principal payments and maturities required to meet mortgage obligations by the 12 month period ending
December 31 are as follows:
Principal Amount
% of Total Principal
2020
2021
2022
2023
2024
Subsequent to 2024
Unamortized deferred financing costs
Unamortized mark-to-market adjustments
$276,568
173,589
149,355
212,901
238,491
419,529
$1,470,433
($32,170)
$7
$1,438,270
18.8%
11.8%
10.2%
14.5%
16.2%
28.5%
100.0%
1 2 0 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
22
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
12. Lease Liabilities
In accordance with the adoption of IFRS 16, right-of-use assets and lease liabilities of $7.1 million were recognized as at January 1,
2019. The lease liabilities were discounted at the incremental borrowing rate as at January 1, 2019. The weighted average
discount rate was 4.04%. Killam transitioned to IFRS 16 in accordance with the modified retrospective approach, and as such prior
year figures were not adjusted. On November 1, 2019, Killam acquired a property with an existing land lease in place. Killam
recognized an addition to the right-of-use assets and lease liabilities of $1.7 million during the year. The addition was discounted
at the incremental borrowing rate as at November 1, 2019.
As at December 31, 2019, the right-of-use assets and lease liabilities are $8.9 million. The right-of-use assets are classified as part
of investment properties and the lease liabilities are classified in lease liabilities on the consolidated statement of financial
position. The total lease payments for the year ended December 31, 2019, were $0.1 million.
Gross lease liabilities at January 1, 2019
Discounting
Lease liabilities at January 1, 2019
Additions
Net change in existing lease liabilities
Lease liabilities as at December 31, 2019
13. Credit Facilities
$18,374
(11,259)
7,115
1,677
127
$8,919
Killam has access to two credit facilities with credit limits of $70.0 million and $5.0 million (December 31, 2018 - $70.0 million and
$5.0 million) that can be used for acquisition and general business purposes.
The $70.0 million facility bears interest at prime plus 70 bps on prime rate advances or 170 bps over bankers' acceptances ("BAs").
The facility includes a $30.0 million demand revolver and a $40.0 million committed revolver as well as an accordion option to
increase the $70.0 million facility by an additional $20.0 million. Killam has the right to choose between prime rate advances and
BAs based on available rates and timing. As at December 31, 2019, Killam had assets with a carrying value of $84.1 million pledged
as first mortgage ranking and $353.2 million pledged as second mortgage ranking to the line. The agreement includes certain
covenants and undertakings with which Killam was in compliance as at December 31, 2019.
The $5.0 million facility bears interest at prime plus 125 bps on advances and 135 bps on issuance of letters of credit in addition to
50 bps per annum. As at December 31, 2019, Killam had assets with a carrying value of $2.2 million pledged as collateral
(December 31, 2018 - $2.1 million). The agreement includes certain covenants and undertakings with which Killam was in
compliance as at December 31, 2019.
10. Rent and Other Receivables
As at
Rent receivable
Other receivables
December 31, 2019
December 31, 2018
$1,311
7,714
$9,025
$996
2,029
$3,025
Included in other receivables are laundry revenue, insurance receivables 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 0.3%
of revenue. As a result of the low bad debt experience, no allowance for doubtful accounts is recorded in the accounts.
11. Mortgages and Loans Payable
As at
December 31, 2019
December 31, 2018
Weighted
Average Interest
Debt
Balance
Weighted
Average Interest
Debt
Balance
2.90%
4.63%
2.95%
5.42%
$1,427,470
10,800
$1,438,270
276,568
1,161,702
$1,438,270
Mortgages are collateralized by a first charge on the properties of Killam.
As at December 31, 2019, unamortized deferred financing costs of $32.2 million (December 31, 2018 - $30.1 million) and mark-to-
market adjustments on mortgages assumed on acquisitions of $0.01 million (December 31, 2018 - $0.4 million) are netted against
Estimated future principal payments and maturities required to meet mortgage obligations by the 12 month period ending
Principal Amount
% of Total Principal
Mortgages and loans payable
Fixed rate
Variable rate
Total
Current
Non-current
mortgages and loans payable.
December 31 are as follows:
2020
2021
2022
2023
2024
Subsequent to 2024
Unamortized deferred financing costs
Unamortized mark-to-market adjustments
$1,275,990
16,486
$1,292,476
232,394
1,060,082
$1,292,476
18.8%
11.8%
10.2%
14.5%
16.2%
28.5%
100.0%
$276,568
173,589
149,355
212,901
238,491
419,529
$1,470,433
($32,170)
$7
$1,438,270
Maximum Loan
Amount (1)
$90,000
5,000
$95,000
Maximum Loan
Amount (1)
Amount Drawn
Letters of Credit Amount Available
$—
—
$—
$—
1,282
$1,282
$90,000
3,718
$93,718
Amount Drawn
Letters of Credit
Amount Available
As at December 31, 2019
$70.0 million demand facility
$5.0 million demand facility
Total
As at December 31, 2018
$70.0 million demand facility
$5.0 million demand facility
$90,000
5,000
$53,350
—
—
958
$958
$36,650
4,042
$40,692
Total
(1) Maximum loan includes a $20.0 million accordion option, for which collateral is pledged.
$95,000
$53,350
22
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 2 1
23
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Condensed Consolidated Interim Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
[unaudited]
14. Construction Loans
As at December 31, 2019, Killam had access to two floating rate non-revolving demand construction loans, for the purpose of
financing development projects, totaling $43.5 million. Payments are made monthly on an interest-only basis. The construction
loans have an interest rate of 125–201 bps above BAs. Once construction is complete and rental targets achieved, the
construction loans will be repaid in full and replaced with conventional mortgages. The underlying assets with a carrying value
of $62.6 million are pledged as collateral against these loans.
As at December 31, 2019, $24.9 million was drawn on the two construction loans (December 31, 2018 - $60.5 million). The
weighted-average interest rate is 3.32% (December 31, 2018 - 4.28%).
15. Accounts Payable and Accrued Liabilities
As at
December 31, 2019
December 31, 2018
Accounts payable and other accrued liabilities
Distributions payable (1)
Mortgage interest payable
Security deposits
(1)
Includes distributions on exchangeable units.
16. Exchangeable Units
$28,960
5,668
3,202
8,784
$46,614
$27,991
4,627
2,852
8,188
$43,658
Balance, beginning of year
Issuance of units for acquisitions
Exchangeable Units exchanged
Fair value adjustment
Balance, end of year
2019
2018
Number of
Exchangeable Units
Value
Number of
Exchangeable Units
Value
4,153,520
$66,207
3,863,336
54,937
—
—
—
—
—
12,461
360,434
5,951
(70,250)
(1,054)
—
6,373
4,153,520
$78,668
4,153,520
$66,207
The Exchangeable Units 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.
17. Unitholders' Equity
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.
1 2 2 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
24
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Condensed Consolidated Interim Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
[unaudited]
14. Construction Loans
As at December 31, 2019, Killam had access to two floating rate non-revolving demand construction loans, for the purpose of
financing development projects, totaling $43.5 million. Payments are made monthly on an interest-only basis. The construction
loans have an interest rate of 125–201 bps above BAs. Once construction is complete and rental targets achieved, the
construction loans will be repaid in full and replaced with conventional mortgages. The underlying assets with a carrying value
of $62.6 million are pledged as collateral against these loans.
As at December 31, 2019, $24.9 million was drawn on the two construction loans (December 31, 2018 - $60.5 million). The
weighted-average interest rate is 3.32% (December 31, 2018 - 4.28%).
As at
December 31, 2019
December 31, 2018
$28,960
5,668
3,202
8,784
$46,614
$27,991
4,627
2,852
8,188
$43,658
15. Accounts Payable and Accrued Liabilities
Accounts payable and other accrued liabilities
Distributions payable (1)
Mortgage interest payable
Security deposits
(1)
Includes distributions on exchangeable units.
16. Exchangeable Units
Balance, beginning of year
Issuance of units for acquisitions
Exchangeable Units exchanged
Fair value adjustment
Balance, end of year
2019
Number of
2018
Number of
Exchangeable Units
Value
Exchangeable Units
Value
4,153,520
$66,207
3,863,336
54,937
—
—
—
—
—
12,461
360,434
5,951
(70,250)
(1,054)
—
6,373
4,153,520
$78,668
4,153,520
$66,207
The Exchangeable Units 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.
17. Unitholders' Equity
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.
17. Unitholders' Equity (continued)
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, 2019, no unitholders redeemed Units.
The Units issued and outstanding are as follows:
Balance, December 31, 2018
Distribution reinvestment plan
Restricted Trust Units redeemed
Units issued for cash
Balance, December 31, 2019
Units issued for cash
Number of Trust Units
86,058,671
931,832
74,241
10,798,500
97,863,244
Value
$798,473
17,651
1,298
191,744
$1,009,166
Price per Unit Gross Proceeds Transaction Costs Net Proceeds
Units Issued
Bought-deal (March 6, 2019)
Over-allotment (March 6, 2019)
Bought-deal (November 4, 2019)
Over-allotment (November 14, 2019)
$17.10
$17.10
$19.90
$19.90
$75,069
11,260
100,495
13,930
$3,356
$71,713
503
4,524
627
10,757
95,971
13,303
4,390,000
658,500
5,050,000
700,000
Total
$200,754
$9,010
$191,744
10,798,500
Distribution Reinvestment Plan ("DRIP")
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 Toronto Stock
Exchange ("TSX") preceding the relevant distribution date, which typically is on or about the 15th day of the month following the
distribution declaration.
18. Distributions
Killam paid distributions to its unitholders during 2019 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 year ended December 31, 2019, the distributions declared related to the Trust Units were $60.8 million (year ended
December 31, 2018 - $53.6 million). For the year ended December 31, 2019, distributions declared related to the Exchangeable
Units were $2.7 million (year ended December 31, 2018 - $2.5 million). The distributions on the Exchangeable Units are
recorded in financing costs.
24
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 2 3
25
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
19. Deferred Unit-based Compensation
Restricted Trust Units ("RTUs") are awarded to members of the senior executive team and director-level employees as a
percentage of their compensation. The Trust also grants RTUs subject to performance conditions under the RTU Plan for certain
senior executives. Non-executive members of the Board of Trustees have the right to receive a percentage of their annual
retainer in the form of RTUs.
The number of RTUs awarded are based on 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 awarded. The RTUs earn distributions based on the
same distributions paid on the Trust Units, and such distributions translate into 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. For employees, the RTUs will be redeemed and paid out in Trust Units by December 31
of the year in which the RTUs have vested. Effective Q3-2017, RTUs issued to Trustees will be redeemed and paid, in the
issuance of Trust Units, upon retirement from the Board.
The RTUs subject to performance conditions will be subject to both internal and external measures consisting of both absolute
and relative performance over a three-year period. Killam accounts for the RTUs subject to performance conditions under the
fair value method of accounting, and uses the Monte-Carlo simulation pricing model to determine the fair value, which allows
for the incorporation of the market-based performance hurdles that must be met before the RTUs subject to performance
conditions vest.
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 of the vested RTUs as at December 31, 2019, is $5.4 million, which includes $1.4 million related to RTUs subject to
performance conditions (December 31, 2018 - $5.4 million and $0.5 million). For the year ended December 31, 2019,
compensation expense of $1.9 million (year ended December 31, 2018 - $1.5 million) has been recognized in respect of the
RTUs.
The details of the RTUs issued are shown below:
For the years ended December 31,
Outstanding, beginning of year
Granted
Redeemed
Forfeited
Additional Restricted Trust Unit distributions
Outstanding, end of year
2019
2018
Number of
RTUs
403,730
98,928
(151,222)
(1,529)
14,968
364,875
Weighted
Average Issue
Price
$13.12
17.44
12.64
12.83
18.88
$14.73
Number of
RTUs
432,688
127,452
(174,467)
(2,380)
20,437
403,730
Weighted
Average Issue
Price
$12.09
13.18
10.81
12.83
14.91
$13.12
1 2 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
26
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Restricted Trust Units ("RTUs") are awarded to members of the senior executive team and director-level employees as a
percentage of their compensation. The Trust also grants RTUs subject to performance conditions under the RTU Plan for certain
senior executives. Non-executive members of the Board of Trustees have the right to receive a percentage of their annual
retainer in the form of RTUs.
The number of RTUs awarded are based on 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 awarded. The RTUs earn distributions based on the
same distributions paid on the Trust Units, and such distributions translate into 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. For employees, the RTUs will be redeemed and paid out in Trust Units by December 31
of the year in which the RTUs have vested. Effective Q3-2017, RTUs issued to Trustees will be redeemed and paid, in the
issuance of Trust Units, upon retirement from the Board.
The RTUs subject to performance conditions will be subject to both internal and external measures consisting of both absolute
and relative performance over a three-year period. Killam accounts for the RTUs subject to performance conditions under the
fair value method of accounting, and uses the Monte-Carlo simulation pricing model to determine the fair value, which allows
for the incorporation of the market-based performance hurdles that must be met before the RTUs subject to performance
conditions vest.
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 of the vested RTUs as at December 31, 2019, is $5.4 million, which includes $1.4 million related to RTUs subject to
performance conditions (December 31, 2018 - $5.4 million and $0.5 million). For the year ended December 31, 2019,
compensation expense of $1.9 million (year ended December 31, 2018 - $1.5 million) has been recognized in respect of the
RTUs.
The details of the RTUs issued are shown below:
For the years ended December 31,
Outstanding, beginning of year
Granted
Redeemed
Forfeited
Additional Restricted Trust Unit distributions
Outstanding, end of year
2019
2018
Weighted
Average Issue
Weighted
Average Issue
Number of
RTUs
403,730
98,928
(151,222)
(1,529)
14,968
364,875
Price
$13.12
17.44
12.64
12.83
18.88
$14.73
Number of
RTUs
432,688
127,452
(174,467)
(2,380)
20,437
403,730
Price
$12.09
13.18
10.81
12.83
14.91
$13.12
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
19. Deferred Unit-based Compensation
20. Revenue
In accordance with IFRS 15, Management has evaluated the lease and non-lease components of its revenue and has
determined the following allocation:
Rental revenue
Property expense recoveries
Ancillary revenue
21. Other Income
Insurance claim recovery
Management fee revenue
Interest revenue
Home sale revenue
For the years ended December 31,
2019
2018
$174,059
$155,491
58,020
9,670
51,830
8,638
$241,749
$215,959
For the years ended December 31,
2019
$4,966
756
175
105
$6,002
2018
$—
651
309
5
$965
Insurance claim recovery represents proceeds realized on an insurance settlement from Killam's insurance providers relating to
one building, consisting of 29 apartment units located in Charlottetown, PEI, that was lost by fire earlier in 2019. Killam is
currently in the process of redeveloping a 38 unit property at the site.
22. Financing Costs
Mortgage, loan and construction loan interest
Interest on credit facilities
Interest on Exchangeable Units
Amortization of deferred financing costs
Unrealized loss on derivative asset
Amortization of loss on interest rate hedge
Amortization of fair value adjustments on assumed debt
Interest on lease liabilities
Capitalized interest
For the years ended December 31,
2019
$41,954
2018
$37,674
1,266
2,727
3,093
235
—
137
298
1,075
2,453
4,354
129
37
95
—
(2,267)
$47,443
(3,169)
$42,648
26
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 2 5
27
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
23. 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 December 31, 2018, Killam qualified for the REIT Exemption and
continues to meet the REIT Exemption as at December 31, 2019, 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, 2019, the deferred tax expense relates to the corporate subsidiary entity of the
REIT.
As at December 31,
Deferred tax liabilities (assets) related to:
Real estate properties
Loss carryforwards
Unrealized capital gains
Other
Net deferred tax liabilities
As at December 31,
Deferred tax liabilities (assets) related to:
Real estate properties
Loss carryforwards
Unrealized capital gains
Other
Net deferred tax liabilities
Recognized in
consolidated
statement of
income and
comprehensive
income
$45,893
(6,407)
513
365
2018
$134,662
(6,412)
3,363
3,071
2019
$180,555
(12,819)
3,876
3,436
$134,684
$40,364
$175,048
Recognized in
consolidated
statement of
income and
comprehensive
income
$32,926
(3,225)
944
833
2017
$101,736
(3,187)
2,419
2,238
2018
$134,662
(6,412)
3,363
3,071
$103,206
$31,478
$134,684
The deferred tax expense for the year can be reconciled to the accounting profit as follows:
For the years ended December 31,
Income before income taxes
Statutory tax rate
Income tax expense at statutory rates
Amounts not subject to tax
Income taxed at a lower amount
Effect of provincial tax rate changes
Other
Change to tax basis in excess of book basis
Total tax expense
2019
2018
$324,161
$206,649
29.5%
95,692
(93,292)
(3,876)
(1,047)
(68)
43,227
$40,636
29.6%
61,147
(58,730)
(3,478)
(17)
(624)
33,180
$31,478
1 2 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
28
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
23. Deferred Income Tax
24. Segmented Information
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 December 31, 2018, Killam qualified for the REIT Exemption and
continues to meet the REIT Exemption as at December 31, 2019, 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, 2019, the deferred tax expense relates to the corporate subsidiary entity of the
REIT.
As at December 31,
Deferred tax liabilities (assets) related to:
Real estate properties
Loss carryforwards
Unrealized capital gains
Other
Net deferred tax liabilities
As at December 31,
Deferred tax liabilities (assets) related to:
Real estate properties
Loss carryforwards
Unrealized capital gains
Other
Net deferred tax liabilities
For the years ended December 31,
Income before income taxes
Statutory tax rate
Income tax expense at statutory rates
Amounts not subject to tax
Income taxed at a lower amount
Effect of provincial tax rate changes
Other
Total tax expense
Change to tax basis in excess of book basis
$134,684
$40,364
$175,048
Recognized in
consolidated
statement of
income and
comprehensive
income
$45,893
(6,407)
513
365
2018
$134,662
(6,412)
3,363
3,071
Recognized in
consolidated
statement of
income and
comprehensive
income
$32,926
(3,225)
944
833
2017
$101,736
(3,187)
2,419
2,238
29.5%
95,692
(93,292)
(3,876)
(1,047)
(68)
43,227
$40,636
2019
$180,555
(12,819)
3,876
3,436
2018
$134,662
(6,412)
3,363
3,071
29.6%
61,147
(58,730)
(3,478)
(17)
(624)
33,180
$31,478
The deferred tax expense for the year can be reconciled to the accounting profit as follows:
$103,206
$31,478
$134,684
2019
2018
$324,161
$206,649
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 maker ("CODM"). 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 ten commercial properties.
Killam’s administration costs, other income, financing costs, depreciation, fair value adjustments, loss on disposition and deferred
tax expense are not reported to the CODM on a segment basis.
The accounting policies of these reportable segments are the same as those described in the summary of significant accounting
policies described in note 2 to the consolidated financial statements for the year ended December 31, 2019. Reportable
segment performance is analyzed based on NOI. The operating results, and assets and liabilities, of the reportable segments are
as follows:
Year ended December 31, 2019
Property revenue
Property operating expenses
Net operating income
Year ended December 31, 2018
Property revenue
Property operating expenses
Net operating income
As at December 31, 2019
Total assets
Total liabilities
As at December 31, 2018
Total assets
Total liabilities
Apartments
$211,143
(76,405)
$134,738
Apartments
$190,048
(69,377)
$120,671
Apartments
$2,987,201
$1,551,097
Apartments
$2,492,830
$1,448,761
MHCs
$16,806
(6,342)
$10,464
MHCs
$15,850
(6,095)
$9,755
MHCs
$234,366
$100,658
MHCs
$177,795
$92,184
Other
$13,800
(6,666)
$7,134
Other
$10,061
(4,775)
$5,286
Other
$158,533
$125,978
Other
$153,781
$114,511
Total
$241,749
(89,413)
$152,336
Total
$215,959
(80,247)
$135,712
Total
$3,380,100
$1,777,733
Total
$2,824,406
$1,655,456
28
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 2 7
29
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
25. Supplemental Cash Flow Information
Net income items related to investing and financing activities
Interest paid on mortgages payable and other
Interest paid on credit facilities
Net change in non-cash operating assets and liabilities
Rent and other receivables
Other current assets
Accounts payable and other liabilities
Years ended December 31,
2018
2019
$41,979
1,266
$43,245
($5,999)
(5,294)
2,855
($8,438)
$38,351
1,075
$39,426
($670)
(1,326)
3,303
$1,307
26. Financial Instruments and Financial Risk Management Objectives and Policies
Killam’s principal financial liabilities consist of mortgages, credit facilities, construction loans and trade payables. The main purpose
of these financial liabilities is to finance investment properties and operations. Killam has various financial assets, such as tenant
receivables and cash, which arise directly from its operations.
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 values of the mortgages payable are estimated 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 pay or receive in actual market transactions;
(ii) the fair value of the deferred unit-based compensation and the Exchangeable Units is estimated at the reporting date, based
on the closing market price of the Trust Units listed on the TSX. The performance based RTUs are determined using a pricing
model. 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;
(iii) the fair value of the derivative asset is calculated based on an estimate of the mid-market arbitrage-free price of the swap.
The arbitrage-free price comprises the present value of the future rights and obligations between two parties to receive or
deliver future cash flows or exchange other assets or liabilities. Future obligations are valued as the sum of the present values as
of the valuation date of contractually fixed future amounts and expected variable future amounts, the expected size of which is
calculated from the projected levels of underlying variables. Future rights are valued as the sum of the present values of the
expected values of contingent future amounts, the existence and size of which are calculated from the projected levels of
underlying variables.
1 2 8 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted)
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
26. Financial Instruments and Financial Risk Management Objectives and Policies (continued)
The significant financial instruments and their carrying values as at December 31, 2019, and December 31, 2018, are as follows:
As at
Classification
December 31, 2019
December 31, 2018
Carrying
Value
Fair Value
Carrying
Value
Fair Value
Financial assets carried at FVTPL:
Derivative asset (1)
Financial liabilities carried at amortized cost:
Mortgages and loans payable
Financial liabilities carried at FVTPL:
Exchangeable Units
Deferred unit-based compensation
(1) The $0.3 million derivative asset is included in other non-current assets within the consolidated statements of financial position.
$78,668
$5,363
$78,668
$5,363
$66,207
$4,579
$1,438,270
$1,478,413
$1,292,476
$530
$295
$295
$530
$1,319,513
$66,207
$4,579
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 - MHCs
December 31, 2019
December 31, 2018
2.59%
3.84%
2.88%
4.68%
Assets and Liabilities Measured at Fair Value
Fair value measurements recognized in the consolidated statements of financial position are categorized using a fair value
hierarchy that reflects the significance of inputs used in determining the fair values:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Quoted prices in active markets for similar assets or liabilities or valuation techniques where significant inputs are
based on observable market data.
Level 3: Valuation techniques for which any significant input is not based on observable market data.
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
Derivative asset
Liabilities
Exchangeable Units
Deferred unit-based compensation
December 31, 2019
December 31, 2018
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
—
—
—
—
— $3,320,604
$295
$78,668
$3,987
—
—
$1,376
—
—
—
—
— $2,799,693
$530
$66,207
$3,944
—
—
$635
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 year ended
December 31, 2019.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 2 9
31
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
26. Financial Instruments and Financial Risk Management Objectives and Policies (continued)
Risk Management
Killam may 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 structure the majority of its mortgages 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, 2019, $35.7 million of Killam's debt had variable interest rates, including two construction loans for $24.9
million, and two demand loans totaling $10.8 million. These loans and facilities have interest rates of prime plus 0.55% - 1.00% or
125-201 bps above BAs (December 31, 2018 - prime plus 0.63% - 2.0% or 125 bps above BAs) and consequently, Killam is exposed
to short-term interest rate risk on these loans.
Killam’s fixed mortgage debt, which matures in the next 12 months, totals $223.1 million. Assuming these mortgages are
refinanced at similar terms, except at a 100 bps increase in interest rates, financing costs would increase by $2.2 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 for all prospective tenants and Killam also obtains a security deposit to assist in potential
recoveries. In addition, receivables balances are monitored on an ongoing basis. Killam's bad debt expense experience has
historically been less than 0.3% of revenue. None of Killam’s tenants account for more than 4% of the tenant receivables as at
December 31, 2019 or 2018. The maximum exposure to credit risk is the carrying amount of each class of financial assets as
disclosed in this note.
(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 Canadian Mortgage and Housing Corporation ("CMHC") insured debt, reducing the
refinancing risk upon mortgage maturities.
Killam’s MHCs do not qualify for CMHC insured debt; however, MHCs have access to conventional 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, 2019, Killam refinanced $154.1 million of maturing apartment mortgages with new
mortgages totaling $218.6 million, generating net proceeds of $64.5 million. In addition, during the year ended December 31,
2019, Killam refinanced $9.4 million of maturing MHC mortgages with new mortgages totaling $13.8 million, generating net
proceeds of $4.4 million. The following table presents the principal payments (excluding interest) and maturities of Killam’s
liabilities for the next five years and thereafter:
For the twelve months ending December 31,
Mortgage and loans
payable
Construction
loans
2020
2021
2022
2023
2024
Thereafter
1 3 0 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
$276,568
173,589
149,355
212,901
238,491
419,529
$1,470,433
$23,120
—
1,731
—
—
—
$24,851
Total
$299,688
173,589
151,086
212,901
238,491
419,529
$1,495,284
32
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
27. Capital Management
Capital Management
The primary objective of Killam’s capital management is to ensure a healthy capital structure to support the 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 additional
Units, issue debt securities or adjust mortgage financing on properties.
Killam's primary measure of capital management is the 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 and loans payable
Credit facilities
Construction loans
Total interest bearing debt
Total assets (1)
Total debt as a percentage of total assets
(1)
Excludes right-of-use asset of $8.9M as at December 31, 2019.
December 31, 2019
December 31, 2018
$1,438,270
$1,292,476
—
24,851
$1,463,121
$3,371,477
43.4%
53,350
60,502
$1,406,328
$2,824,406
49.8%
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
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, 2019, would increase the debt as a percentage of assets by 80 bps.
28. Commitments and Contingencies
Killam has entered into commitments for development costs of $52.0 million as at December 31, 2019 (December 31, 2018 -
$7.7 million).
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 owns a 10% interest of a planned four-phase 829-unit development project in Calgary, Alberta. At the completion of
construction of the first phase and the achievement of certain conditions of Phase 1, Killam has a $55.0 million commitment in
place to purchase three, four-storey apartment buildings, containing 233 residential units.
Killam entered into a supply contract for electricity to hedge its own usage, which is summarized below:
Area
Alberta
Utility
Hydro
Usage Coverage
Term
Cost
50%
January 1, 2020- December 31, 2020
$58.39/MWh
29. Financial Guarantees
Killam is the guarantor on a joint and several basis for certain mortgage debt held through its joint operations. As at December 31,
2019, the maximum potential obligation resulting from these guarantees is $85.1 million, related to long term mortgage financing
(December 31, 2018 - $128.5 million). During 2019, Killam acquired its partners' interest in two of the previous joint operation
properties. The loans held through its joint operations are secured by a first ranking mortgage over the associated investment
properties. Killam's portion of the total mortgages for these properties are recorded as a mortgage liability on the consolidated
statements of financial position.
Management has reviewed the contingent liability associated with its financial guarantee contracts and, as at December 31, 2019,
determined that a provision is not required to be recognized in the consolidated statements of financial position (December 31,
2018 - $nil).
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 3 1
33
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
26. Financial Instruments and Financial Risk Management Objectives and Policies (continued)
Killam may 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:
Risk Management
(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 structure the majority of its mortgages 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, 2019, $35.7 million of Killam's debt had variable interest rates, including two construction loans for $24.9
million, and two demand loans totaling $10.8 million. These loans and facilities have interest rates of prime plus 0.55% - 1.00% or
125-201 bps above BAs (December 31, 2018 - prime plus 0.63% - 2.0% or 125 bps above BAs) and consequently, Killam is exposed
to short-term interest rate risk on these loans.
Killam’s fixed mortgage debt, which matures in the next 12 months, totals $223.1 million. Assuming these mortgages are
refinanced at similar terms, except at a 100 bps increase in interest rates, financing costs would increase by $2.2 million per year.
Credit assessments are conducted for all prospective tenants and Killam also obtains a security deposit to assist in potential
recoveries. In addition, receivables balances are monitored on an ongoing basis. Killam's bad debt expense experience has
historically been less than 0.3% of revenue. None of Killam’s tenants account for more than 4% of the tenant receivables as at
December 31, 2019 or 2018. The maximum exposure to credit risk is the carrying amount of each class of financial assets as
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 Canadian Mortgage and Housing Corporation ("CMHC") insured debt, reducing the
refinancing risk upon mortgage maturities.
Killam’s MHCs do not qualify for CMHC insured debt; however, MHCs have access to conventional mortgage debt. Management
does not anticipate liquidity concerns on the maturity of its mortgages as funds continue to be accessible in the multi-residential
During the year ended December 31, 2019, Killam refinanced $154.1 million of maturing apartment mortgages with new
mortgages totaling $218.6 million, generating net proceeds of $64.5 million. In addition, during the year ended December 31,
2019, Killam refinanced $9.4 million of maturing MHC mortgages with new mortgages totaling $13.8 million, generating net
proceeds of $4.4 million. The following table presents the principal payments (excluding interest) and maturities of Killam’s
liabilities for the next five years and thereafter:
For the twelve months ending December 31,
Mortgage and loans
Construction
(ii) Credit Risk
any one tenant.
disclosed in this note.
(iii) Liquidity Risk
sector.
2020
2021
2022
2023
2024
Thereafter
payable
$276,568
173,589
149,355
212,901
238,491
419,529
loans
$23,120
1,731
—
—
—
—
Total
$299,688
173,589
151,086
212,901
238,491
419,529
$1,470,433
$24,851
$1,495,284
32
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
30. Related Party Transactions
Killam has construction management and development agreements with APM Construction ("APM") and MacLean Contracting
Ltd. ("MacLean"), companies owned by a Trustee of Killam, to provide construction services related to the Shorefront apartment
development and reconstruction of the Harley Street apartment building in PEI. APM will be paid a market rate development and
construction management fee. For the year ended December 31, 2019, APM and MacLean were paid $2.4 million in development
and construction management fees and construction labour (December 31, 2018 - $0.3 million).
Killam owns a 50% interest in two commercial properties located at 3700 & 3770 Kempt Road in Halifax, NS, the remaining 50%
interest in these properties is owned by Bloomfield Holdings Ltd. (“Bloomfield”), a company owned by an executive and Trustee of
Killam. These properties are managed by an arm's length third party. Killam's head office occupies approximately 23,000 square
feet of one of the buildings with base rent of approximately $13.00 per square foot, of which 50% is paid to the related party
based on the ownership interest.
The remuneration of directors and other key management personnel, which include the Board of Trustees, President & Chief
Executive Officer, Executive Vice President, Chief Financial Officer and other Vice-Presidents of Killam, is as follows:
For the years ended December 31,
Salaries, board compensation and incentives
Deferred unit-based compensation
Total
2019
$3,928
1,822
$5,750
2018
$4,079
1,455
$5,534
31. Subsequent Events
On January 15, 2020, Killam announced a distribution of $0.055 per unit, payable on February 17, 2020, to unitholders of record
on January 31, 2020.
On January 15, 2020, Killam acquired a 161-unit apartment building in Greater Victoria, BC, for $54.0 million. The acquisition
was funded with cash and Killam's credit facility.
On January 31, 2020, Killam acquired a 54-unit apartment building in Halifax, NS, for $8.8 million. The acquisition was funded
with cash and the assumption of $3.5 million of debt.
On February 12, 2020, the Board of Trustees approved a 3.0% increase to Killam's annual distribution, to $0.68 per unit from
$0.66 per unit. The monthly distribution will be $0.05667 per unit, up from $0.055 per unit. The increase will become effective
for the March 2020 distribution to be paid in April 2020.
1 3 2 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
34
Notes to the Consolidated Financial StatementsDollar amounts in thousands of Canadian dollars (expect as noted) Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
30. Related Party Transactions
Killam has construction management and development agreements with APM Construction ("APM") and MacLean Contracting
Ltd. ("MacLean"), companies owned by a Trustee of Killam, to provide construction services related to the Shorefront apartment
development and reconstruction of the Harley Street apartment building in PEI. APM will be paid a market rate development and
construction management fee. For the year ended December 31, 2019, APM and MacLean were paid $2.4 million in development
and construction management fees and construction labour (December 31, 2018 - $0.3 million).
Killam owns a 50% interest in two commercial properties located at 3700 & 3770 Kempt Road in Halifax, NS, the remaining 50%
interest in these properties is owned by Bloomfield Holdings Ltd. (“Bloomfield”), a company owned by an executive and Trustee of
Killam. These properties are managed by an arm's length third party. Killam's head office occupies approximately 23,000 square
feet of one of the buildings with base rent of approximately $13.00 per square foot, of which 50% is paid to the related party
based on the ownership interest.
The remuneration of directors and other key management personnel, which include the Board of Trustees, President & Chief
Executive Officer, Executive Vice President, Chief Financial Officer and other Vice-Presidents of Killam, is as follows:
For the years ended December 31,
Salaries, board compensation and incentives
Deferred unit-based compensation
Total
2019
$3,928
1,822
$5,750
2018
$4,079
1,455
$5,534
31. Subsequent Events
on January 31, 2020.
On January 15, 2020, Killam announced a distribution of $0.055 per unit, payable on February 17, 2020, to unitholders of record
On January 15, 2020, Killam acquired a 161-unit apartment building in Greater Victoria, BC, for $54.0 million. The acquisition
was funded with cash and Killam's credit facility.
On January 31, 2020, Killam acquired a 54-unit apartment building in Halifax, NS, for $8.8 million. The acquisition was funded
with cash and the assumption of $3.5 million of debt.
On February 12, 2020, the Board of Trustees approved a 3.0% increase to Killam's annual distribution, to $0.68 per unit from
$0.66 per unit. The monthly distribution will be $0.05667 per unit, up from $0.055 per unit. The increase will become effective
for the March 2020 distribution to be paid in April 2020.
Five Year Summary
In thousands (except per unit and share data)
Statement of Income Information
2019
2018
2017
2016
2015
Net operating income
$152,336
$135,712
$115,220
$105,424
$98,390
Other income
Financing costs
Administration
Depreciation
Fair value adjustments
Loss on disposition
$6,059
$965
$847
$1,227
$1,495
($47,443)
($42,648)
($34,846)
($37,698)
($38,957)
($14,881)
($14,201)
($12,958)
($12,733)
($11,898)
($720)
($859)
($787)
($884)
($802)
$230,079
$127,877
$56,202
($11,231)
($6,103)
$(1,269)
($197)
($259)
($264)
($109)
Deferred tax recovery (expense)
($40,636)
($31,478)
($18,659)
$27,598
($6,216)
Net income
$283,525
$175,171
$104,760
$71,439
$35,800
Net income attributable to
unitholders/common shareholders
Funds From Operations (FFO)
$283,536
$175,144
$104,732
$67,982
$34,557
FFO
$93,884
$81,808
$69,873
$58,886
$49,016
FFO per unit/share (diluted)
$0.98
$0.94
$0.90
$0.86
$0.79
Statement of Financial Position Information
Total assets
Total liabilities
Total equity
$3,380,100 $2,824,406 $2,311,210 $1,987,929 $1,876,826
$1,777,733 $1,655,456 $1,343,488 $1,237,463 $1,190,948
$1,602,367 $1,168,950
$967,722
$750,466 $685,328
Statement of Cash Flow Information
Cash provided by operating activities
$95,208
$89,738
$82,916
$64,011
$50,947
Cash provided by financing activities
$146,708
$237,657
$154,460
$52,356
$21,954
Cash used in investing activities
($232,904)
($335,606)
($250,028)
($106,013)
($79,378)
Unit Information (1)
Weighted average number of units (2)
Units outstanding at December 31(2)
95,719
102,017
86,949
90,212
77,575
84,428
67,912
71,736
Unit price at December 31
$18.94
$15.89
$14.22
$11.94
62,097
62,863
$10.51
Market Capitalization at December 31(2)
$660,690
(1) Killam converted to a real estate investment trust (REIT) effective January 1, 2016. References to REIT units prior to
$1,932,201 $1,433,469 $1,200,566
$856,528
that date relate to common shares of Killam Properties Inc.
(2) Includes Trust Units and Exchangeable Units.
34
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 3 3
Executive Team
Philip Fraser
President & Chief Executive Officer
Robert Richardson, FCPA, FCA
Executive Vice President
Dale Noseworthy, CPA, CA, CFA
Chief Financial Officer
Ruth Buckle
Senior Vice President,
Property Management
Erin Cleveland, CPA, CA
Senior Vice President, Finance
Michael McLean
Senior Vice President,
Developments
Nancy Alexander, CPA, CA
Vice President, Investor Relations
& Sustainability
Pamela Crowell
Carrie Curtis, P. Eng.
Vice President, Commercial Leasing Vice President, Ontario
& MHC Management
and Alberta
Jeremy Jackson
Vice President, Marketing
Brian Jessop P.Eng, CPM
Vice President, Operations
Colleen McCarville
Vice President,
Human Resources
1 3 4 K I L L A M A PA R T M E N T R E I T | 2 0 1 9
Board of Trustees
Timothy Banks
President & CEO,
APM Group of Companies
Charlottetown, Prince Edward Island
Trust Information
Auditors
Ernst & Young, LLP
Halifax, NS
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
Aldéa Landry(2)
President, Landal Inc.
Moncton, NB
James Lawley
President, Salters Gate Developments
Halifax, Nova Scotia
Arthur Lloyd(2)
President, ADAM Capital
Calgary, Alberta
Karine MacIndoe (1)(3)
Trustee, Toronto, Ontario
Robert Richardson, FCPA, FCA
Executive Vice President,
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
(1) member of the Audit Committee
(2) member of the Governance and ESG Committee
(3) member of the Compensation Committee
Solicitors
Bennett Jones, LLP
Calgary, AB
Stewart McKelvey
Halifax, NS
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
2019 Annual Distribution
$0.66 per unit
Head Office
3700 Kempt Road
Suite 100
Halifax, NS B3K 4X8
902.453.9000
866.453.8900
Investor Inquiries
investorrelations@killamreit.com
902.442.0374
Annual Meeting
The Annual Meeting of Unitholders
will be held on Thursday, May 7,
2020, 1:30 pm Atlantic Time in
person at 3700 Kempt Road, Halifax,
NS, or via webcast.
K I L L A M A PA R T M E N T R E I T | 2 0 1 9 1 3 5
Killam Apartment REIT
Suite 100, 3700 Kempt Road
Halifax, Nova Scotia B3K 4X8
1.866.453.8900 | killamreit.com
TSX: KMP.UN
1 3 6 K I L L A M A PA R T M E N T R E I T | 2 0 1 9