2021
ANNUAL
REPORT
PAGE 1
Killam Apartment REIT | 2021 AT KILLAM
our definition of success includes the amount of good we do for our people, our community,
and our planet. We are committed to earnings and portfolio growth, but we are also
committed to providing our tenants with exceptional service, supporting and developing
our team members, reducing our impact on the environment and making positive
differences in each of our communities. When you invest in Killam, you are investing in a
strong, innovative and sustainable real estate business committed to doing the right thing.
Cover: The Alexander, 240 suites, Halifax, NS
PAGE 2
Killam Apartment REIT | 2021 About Killam
Letter to Unitholders
Executing on Killam’s Growth Strategy
Environmental, Social & Governance Update
Management’s Discussion & Analysis
Financial Statements
4
7
12
24
26
83
Five-Year Summary
120
Our Team
121
PAGE 3
Killam Apartment REIT | 2021 ABOUT KILLAM
PROFILE
Killam Apartment REIT (Killam) is a growth-oriented
real estate investment trust that 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.
NET OPERATING INCOME BY SEGMENT
Apartments
MHCs
89%
6%
5%
Commercial
NET OPERATING INCOME BY PROVINCE
NS
ON
NB
37%
23%
20%
AB
7%
PE
6%
NL
4%
BC
3%
MISSION
To have caring staff deliver clean, safe, quality
housing to tenants who are proud to call our
properties home.
STRATEGY
Killam’s strategy to drive value and profitability
focuses on three key priorities:
•
•
Increasing earnings from its existing portfolio;
Expanding the portfolio and diversifying
geographically through accretive acquisitions
that target newer properties; and
• Developing high-quality properties in its core
markets.
PAGE 4
Killam Apartment REIT | 2021
CORE VALUES
Killam has a strong, vibrant culture supported by its five Core
Values. The communication and connection amongst all Killam
employees are the foundation of its strong culture.
KILLAM’S FIVE
CORE VALUES
Build
Community
Creative
Solutions
Do the
Right Thing
Curb
Appeal
Strong Customer
Relationships
PAGE 5
Killam Apartment REIT | 2021 2021H I G H L I G H T S
7.0%
5.1%
Growth in FFO per Unit(1)
Same Property NOI Growth(2)
8.4%
$399M
Growth in AFFO per Unit(1)
Acquisitions Completed
$73M
Invested in Developments
40%
Improvement in ESG Score(4)
45.0%
Total Debt as a Percentage of Total
Assets(3) as at Dec. 31, 2021
$240M
Fair Value Gains on
Investment Properties
(1) FFO per unit and AFFO per unit are non-IFRS financial ratios. For a full description and reconciliation of non-IFRS measures, see pages 29 and 54, respectively.
(2) Same property NOI growth is a supplementary financial measure. For a full description of same property metrics, see page 29.
(3) Total debt as a percentage of total assets is a capital management measure. For a full description of total debt as a percentage of total assets see page 29.
(4) Improvement over its initial 2019 submission.
PAGE 6
Killam Apartment REIT | 2021$ 2021
PHILIP FRASER
President and CEO
“
LETTER TO UNITHOLDERS
Dear Unitholder,
I am pleased to write this year’s annual letter to unitholders to report on Killam’s financial and operating highlights, and
to comment on our priorities for 2022.
2021 was another year that required everyone at Killam to be ever vigilant in meeting COVID-19 protocols that changed
frequently in most provinces, as well as with the seasons. I am extremely proud of how Killam’s team navigated these
changes with commitment and compassion. Our 750 employees were impressive as they built on their remote
working experience from 2020 to manage and lease our portfolio of properties.
Despite the challenges surrounding the pandemic, our business was incredibly resilient. We saw strong Canada-wide
demand for our apartment suites and maintained our pre-COVID residential rent collection rate of 99.5%.
Killam’s financial and operating results for 2021 were very strong. We achieved 5.1% same property net operating
income (NOI) growth(1), and earned $1.07 per unit FFO(2), a 7% increase from $1.00 per unit in 2020. In addition to
achieving a 41% total return for unitholders, we were successful in meeting our strategic targets 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 portfoilio and diversifying geographically through accretive acquisitions, which target new properties.
3) Developing high-quality properties in our core market.
We are seeing the positive results from this focus, with all three areas contributing to earnings growth in 2021.
Strong Growth from Our Asset Base
Increasing earnings from our existing portfolio is key to our strategy. We invest in revenue-enhancing and expense-
saving initiatives that deliver excellent returns on investment. Our suite renovation program is an important and
growing initiative that meets the market’s demand for modern suites. We have fine-tuned the process of repositioning
suites over the past four years to optimize the upgrades and minimize the downtime for renovation work, providing
residents with the best finishes based on appeal, functionality, and durability. We do this in a responsible way – we
upgrade only those suites that are vacant and do not engage in any programs to influence suite turns through
aggressive rent hikes or incentive offerings. In 2021, we repositioned 551 suites, representing approximately 12% of
the suites turned and 3% of our total portfolio.
(1) Same property NOI growth is a supplementary financial measure. For a full description of same property metrics, see page 29.
(2) FFO per unit is a non-IFRS financial ratio. For a full description and reconciliation of non-IFRS measures, see pages 29 and 54, respectively.
PAGE 7
Killam Apartment REIT | 2021 LETTER TO UNITHOLDERS (CONTINUED)
We have identified approximately 5,500 suites in our portfolio that are eligible for this repositioning program, and
we look forward to repositioning several buildings we purchased in 2021.
Record Year for Acquisitions
This was a record year on the acquisition front, as Killam added an additional 1,600 suites to our coast-to-coast
portfolio. We completed $399 million in acquisitions and further expanded our geographic diversification, with 78% of
the capital deployed in Ontario and Alberta.
One of our most exciting acquisitions in 2021 was the purchase of a 785-suite portfolio in Kitchener and Waterloo,
Ontario. Kitchener-Waterloo-Cambridge is one of Ontario’s strongest rental markets, with a diverse and vibrant
economy and a growing population. This acquisition significantly increased Killam’s Ontario presence to 3,342 suites.
Further, we have an additional 485 suites currently under development in the province. Combined, Killam’s Ontario
portfolio is expected to represent approximately 27% of Killam’s net operating income in 2022, compared to 22.6%
in 2020.
Atlantic Canada remains an important market for Killam; in 2021 it represented 16% of Killam’s acquisitions, adding 200
apartment suites in the region. In addition, we increased our ownership in Royalty Crossing (formally, the Charlottetown
Mall) by 25% to 75% for $10 million and purchased 14 acres of adjacent land for multi-residential development for $3.4
million. Overall, 6% of acquisition dollars were allocated to future residential development.
Killam generated 33% of its NOI outside Atlantic Canada in 2021, and we are on our way to exceeding our target of
generating 40% of earnings outside Atlantic Canada by 2025. Our strong operating platform can support a larger
portfolio, and expanding in Ontario and Western Canada provides access to more of Canada’s larger rental markets.
Increasing the Supply of Housing for Canadians
Development remains an important part of Killam’s growth strategy, and one that distinguishes us from our peers.
Killam completed two developments in 2021, The Harley, a 38-suite building located in Charlottetown, and Nolan Hill,
a 233-suite property located in Calgary. We finished the year with six developments underway in Calgary, Mississauga,
Ottawa, Kitchener and Halifax. We are excited to complete construction and lease up these new buildings to increase
both funds from operations and net asset value growth. With a total budgeted investment of over $245 million,
representing 520 suites, these properties will bring meaningful growth to Killam’s portfolio.
Commitment to Sustainability
We are committed to being amongst the leaders in ESG initiatives for Canadian multi-residential REITs as we work to
reduce Killam’s environmental footprint. Our 2021 GRESB(1) results earned us a green, two-star designation and in the
last two years we have increased our GRESB score by 40%. We are also proud to have earned an A-rating on the
GRESB public disclosure survey, outperforming our GRESB and global comparison groups.
We piloted several different building certification programs this year, considering the benefits and challenges for
each. These certifications include BOMA Best, FitWel and the Certified Rental Building Program, and help ensure
our buildings have the best operating and healthy living standards for our residents. We will build on this work and
continue to roll out certification programs in the coming year.
Our energy efficiency investments totaled $8.2 million in 2021. This included solar photovoltaic (PV) installations,
boiler and heat pump replacements, along with electricity and water conservation projects. We are proud that this
investment also included geothermal heating and cooling installations at three of our development sites, helping to
reduce Killam’s impact on the environment.
(1) GRESB is a mission-driven and investor-led organization that provides actionable and transparent ESG data to financial markets.
PAGE 8
Killam Apartment REIT | 2021 Commitment to Sustainability (continued)
In 2021, we started on our climate-change journey, reporting under the Task Force on Climate-Related Financial
Disclosure framework. We have a commitment to increase our climate change initiatives and disclosure in the coming
years.
Innovation for a Greener Future
Killam believes the future of the multi-residential business is to build better buildings that are greener and more
efficient, using geothermal heating, solar PV panels with battery storage capacity, and unit-level metered water. We
learn more about our buildings as we embrace change and invest in new technologies across our existing portfolio.
We then use this knowledge to improve our new developments, so they have smaller carbon footprints.
There is a steep learning curve involved in being innovative, but it’s imperative for Killam to successfully transition to
a net-zero economy. As first movers, we are learning about the complexity of the electric utilities in our markets, the
future of heating and cooling systems, and how electric vehicle (EV) chargers will fit into the service offerings at our
buildings. Today’s challenges and green steps forward will help secure Killam’s place as a leading multi-residential
REIT for decades to come.
Looking Forward to 2022
We are optimistic that the worst of the global pandemic is behind us and look forward to the opportunities ahead.
We continue to execute a balanced approach regarding Killam’s rental strategy as we work to mitigate the inflationary
pressures we expect to encounter this coming year. We remain committed to growing our existing portfolio as well
as pursuing growth through acquisitions and development in our markets. We are confident this strategy will yield
impressive earnings and NAV growth for many years to come.
In August 2021, the Board of Trustees approved a 2.9% increase in Killam’s distribution to $0.70 per unit, up from $0.68
per unit. This marks the fifth annual distribution increase in a row and placed Killam in the S&P/TSX Canadian Dividend
Aristocrats Index as of February 1, 2022. The inclusion in this index reflects the strength of our multi-residential real
estate portfolio and our ability to provide an attractive distribution yield.
Killam’s annual unitholders’ meeting will be
held on May 6, 2022, at 9:00 AM Atlantic
Time at Courtyard By Marriott, 5120 Salter
Street, Halifax, Nova Scotia. Thank you for
your interest and investment in Killam.
Yours truly,
Philip Fraser
President & CEO
PAGE 9
Killam Apartment REIT | 2021 FINANCIAL AND OPERATING HIGHLIGHTS
(Value in thousands, except per unit amount and portfolio information)
As at and for the years ended
2021
2020
2019
Operations
Property revenue
$290,917
$261,690
$242,164
Net operating income (NOI)
$183,235
$163,854
$152,336
Net income
$285,527
$146,040
$283,525
Funds from operations (FFO)(1)
$119,235
$104,678
$93,884
FFO per unit (diluted)(1)
$1.07
$1.00
$0.98
Adjusted funds from operations (AFFO) (2)
$100,438
$86,816
$76,768
AFFO per unit (diluted)(2)
Distributions declared per unit
AFFO payout ratio(2)
Financial Position
Total assets
Total liabilities
Total equity
$0.90
$0.69
76%
$0.83
$0.68
82%
$0.80
$0.66
82%
$4,578,507
$3,776,560
$3,380,100
$2,467,038
$2,008,302
$1,777,773
$2,111,469
$1,768,258
$1,602,367
Units outstanding (3)
114,562
107,314
102,017
Total debt as a percentage of total assets(4)
Interest coverage ratio(5)
Debt to normalized EBITDA(5)
Portfolio Information
Apartment suites
MHC sites
45.0%
3.53x
11.33x
18,685
5,875
44.6%
3.36x
10.78x
17,048
5,875
43.4%
3.20x
10.15x
16,325
5,786
Commercial square footage
941,000
750,000
739,000
Average rent per apartment suite
Average rent per MHC site
$1,227
$263
$1,184
$260
$1,126
$261
(1) FFO, and applicable per unit amounts, are calculated by Killam as net income adjusted for 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, depreciation on an owner-occupied building, interest expense related to lease liabilities, and
non-controlling interest. FFO is calculated in accordance with the REALPAC definition. A reconciliation
between net income and FFO is included on page 54.
(2) 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 investment to maintain and sustain Killam’s properties), commercial leasing costs and straight-
line commercial rents. AFFO is calculated in accordance with the REALPAC definition. Management
considers AFFO an earnings metric. A reconciliation from FFO to AFFO is included on page 56.
(3) Units outstanding at December 31, 2021 include 110,557,466 REIT units and 4,004,270 exchangeable units.
(4) Total debt as a percentage of total assets is a capital management measure. For a full description of total
debt as a percentage of total assets see page 29.
(5) Interest coverage ratio and debt to normalized EBITDA and are non-IFRS financial ratios. For a full
description and reconciliation of non-IFRS measures, see pages 29 and 59, respectively.
PAGE 10
Killam Apartment REIT | 2021
7
0
.
1
$
0
0
.
1
$
8
9
0
$
.
.
4
9
0
$
0
9
0
$
.
.
4
5
4
$
.
.
4
7
3
2 $
3
3
0 $
8
2
8 $
2
2
$
.
.
17 18 19 20 21
17 18 19 20 21
Funds from
Operations
per Unit (diluted)(1)
Value of Real
Estate Portfolio
($ billions)
.
%
8
9
% 4
7
8
4
.
%
0
3
6
.
%
9
2
6
.
%
8
2
6
.
%
6
2
6
.
%
0
5
4
.
%
5
.
1
6
.
%
6
4
% 4
4
3
4
.
17 18 19 20 21
17 18 19 20 21
Total Debt as a
Percentage of
Total Assets(4)
Operating
Margin (%)
%
3
4
2
.
%
9
2
2
.
%
6
6
1
.
%
8
0
4
.
)
%
5
2
.
(
9
6
0
$
.
8
6
0
$
.
6
6
0
$
.
.
4
6
0
2 $
6
0
$
.
17 18 19 20 21
17 18 19 20 21
Total
Unitholder
Return (%)
Distribution per
Unit to Unitholder
PAGE 11
Killam Apartment REIT | 2021 2021/2022
P E R F O R M A N C E S U M M A R Y & S T R AT E G I C TA R G E T S
Grow Same Property NOI(1)
2021 Target: >2%
2021 Performance: Exceeded. 5.1%
2022 Target: 2.0%-3.0%
Expand the Portfolio through Acquisitions
2021 Target: Acquire a minimum of $100M.
2021 Performance: Exceeded. Acquired $399M.
2022 Target: Acquire a minimum of $150M.
Diversify Geographically
2021 Target: Earn >32% of 2021 NOI outside Atlantic Canada.
2021 Performance: Exceeded. 33% of 2021 NOI was from outside Atlantic Canada.
2022 Target: Earn >35% of 2022 NOI outside Atlantic Canada.
(1) Same property NOI growth is a supplementary financial measure. For a full description of same property metrics, see page 29.
PAGE 12
Killam Apartment REIT | 2021 2021/2022
P E R F O R M A N C E S U M M A R Y & S T R AT E G I C TA R G E T S
Strengthen the Balance Sheet
2021 Target: Maintain total debt as a % of total assets(2) ratio below 47%.
2021 Performance: Exceeded. 45.0% as of December 31, 2021.
2022 Target: Maintain total debt as a % of total assets ratio below 45%.
Develop High-Quality Properties
2021 Target: Complete two developments and break ground
on two additional developments.
2021 Performance: Completed a 38-suite development, 10 Harley, and broke
ground at the 12-suite Governor. Two more developments totaling 336 suites
will be completed in early 2022.
2022 Target: Complete four developments and break ground on two
additional developments.
Improve Sustainability
2021 Target: Invest a minimum of $5M in energy initiatives.
2021 Performance: Exceeded. Invested $8.2M.
2022 Target: Invest a minimum of $8.0M in energy initiatives to reduce
Killam’s carbon footprint.
(2) Total debt as a percentage of total assets is a capital management measure. For a full description of total debt as a percentage of total assets see page 29.
PAGE 13
Killam Apartment REIT | 2021 GROWING EARNINGS THROUGH
EXISTING PORTFOLIO
Increasing earnings from its existing portfolio is an important part of Killam’s strategy to maximize long-term value for
its unitholders. With population growth and demand out-pacing the housing supply in our core markets, Killam had a
very successful year of high occupancy and optimizing rental rate growth on suite turns. Despite the ongoing COVID-19
pandemic, Killam’s markets across the country maintained their positive momentum and assisted Killam to generate 4.0%
revenue growth from its same property portfolio.
The increasing demand for apartments, the rebound of our seasonal manufactured home communities, and strong leasing
in our commercial business combined with managed expense growth, resulted in 5.1% overall same property NOI growth(1)
for 2021.
Killam’s suite repositioning program continued to expand, upgrading 551 suites in 2021. The program is meeting the
market demand for new, high-quality finishes across the portfolio. By fine-tuning the upgrade process, Killam provides its
residents with the best finishes based on appeal, functionality and durability.
(1) Same property NOI growth is a supplementary financial measure. For a full description of same property metrics, see page 29.
GRID 5, CALGARY
180 MILL, LONDON
ELROY, FREDERICTON
40 WELDON, MONCTON
40 WELDON, MONCTON
40 WELDON, MONCTON
GRID 5, CALGARY
PAGE 14
Killam Apartment REIT | 2021 %
6
3
.
%
4
3
.
%
0
3
.
%
7
2
.
%
8
.
1
17 18 19 20 21
%
3
7
9
.
%
1
.
7
9
%
2
7
9
.
%
7
6
9
.
%
5
6
9
.
17 18 19 20 21
%
1
.
5
%
8
4
.
%
1
.
4
%
6
3
.
%
3
2
.
Same Property Apartment
Average Rental Rate Growth(1)
Killam produced healthy same property
apartment property rental rate growth of
3.0%. Strong market fundamentals and
Killam’s revenue-enhancing programs
continued to optimize top-line growth.
(1) Same property average rental rate growth is a
supplementary financial measure. For a full
description of same property metrics, see page 29.
Same Property
Apartment Occupancy
Killam’s same property apartment
portfolio recorded solid occupancy of
97.2% in 2021. Occupancy continues to
be particularly strong in the Maritimes
due to interprovincial migration,
immigration and demographics.
Same Property Net Operating
Income Growth(2)
Same property NOI increased 5.1% in
2021 due to overall revenue growth
of 4.0% and expense increase of only
2.1%. Killam achieved a 70 basis point
improvement in its operating margin
to 62.9%.
17 18 19 20 21
(2) Same property NOI growth is a supplementary
financial measure. For a full description of same
property metrics, see page 29.
FORT HOWE, Saint John
Suite upgrades are an important part of Killam’s value creation and growth strategy. Fort Howe is a 153-suite property
in Saint John, New Brunswick that was built in 1970, and had dated finishes. By replacing the flooring and updating the
kitchens and bathrooms, the product offering for this building has changed. In 2021, Killam realized an average rental
increase of 32% per upgraded suite, representing a 14% return on an average $24,000 per suite investment.
PAGE 15
Killam Apartment REIT | 2021 GROWING EARNINGS THROUGH
ACQUISITIONS
In 2021, Killam had a record year of acquisitions, purchasing $399 million of assets. We added to our footprint in many of our
markets, from Edmonton to St. John’s. Our largest acquisition was in Kitchener-Waterloo, with a portfolio purchase of 785
suites for $190.5 million.
Killam continued to execute its geographic diversification strategy with more than 78% of acquisition equity deployed
outside Atlantic Canada. During the year, 33% of Killam’s NOI was generated from Ontario, Alberta and British Columbia,
up from 32% in 2020.
Nolan Hill
CALGARY
Killam expanded its Calgary portfolio with the
purchase of the new Nolan Hill development.
This property consists of a mix of one, two and
three-bedroom suites, averaging 823 square
feet. It was fully leased within six months of
opening. Seventy-eight suites have rents at 70%
of market rates, aiding in Killam’s goal to increase
its portfolio of affordable housing suites.
Purchased: Q1-2021 | $49.5M
233-Suite Property
PAGE 16
Killam Apartment REIT | 2021 Emma Place
MONCTON
Killam acquired Emma Place, a new concrete building in Moncton, for $31.8 million.
This 118-suite property consists of large luxury one- and two-bedroom suites with
many amenity offerings onsite and in the immediate neighborhood.
Purchased: Q4-2021 | $31.8M
118-Suite Property
Royalty Crossing
CHARLOTTETOWN
Killam was pleased to acquire an additional 25% interest in Royalty Crossing for
$10.1 million, increasing its ownership to 75%. This stabilized, grocery-anchored,
enclosed mall is located on 32 acres in the heart of Prince Edward Island’s busiest
retail node, and adjacent to the University of PEI campus. Killam has taken over
the management of the Crossing and will reposition the property to improve
occupancy, decrease expenses and improve the carbon footprint.
Purchased: Q2-2021 | $10.1M(1)
(1) Representing 25% ownership, increasing
Killam’s ownership interest to 75%.
383,000 Sq. Ft. Retail Property
PAGE 17
Killam Apartment REIT | 2021 GROWING EARNINGS THROUGH
ACQUISITIONS
Heartwood
EDMONTON
The Heartwood is a newly constructed wood-frame building in Edmonton that Killam acquired for $28.9 million in October 2021. The 123-suite
property is close to Killam’s existing assets and is ideally situated to serve the incoming medical professionals that will staff the new Edmonton
hospital that is being built nearby.
Purchased: Q4-2021 | $28.9M
123-Suite Property
140 Dale
CHARLOTTETOWN
140 Dale includes 61 suites in a four-storey apartment building in Charlottetown. Purchased for $15.3 million, 140 Dale contains 30 affordable
suites with rents at 65% of market rates. With the Nolan Hill and 140 Dale acquisitions, Killam increased its affordable suite base by 14% (108 units)
in 2021. Killam has a five-year Environmental, Social and Governance (“ESG”) goal to increase its affordable housing suites by 20%, to 900 by
2025.
Purchased: Q4-2021 | $15.3M
61-Suite Property
Nautical Suites
EDMONTON
Killam acquired the Nautical Luxury Suites at Summerside in Edmonton for $42.3 million. This 180-suite purchase expands Killam’s presence in
Edmonton to 882 suites. Nautical Suites has quality luxurious finishes, underground parking, state-of-the-art mechanical systems and exclusive
beach access at the neighbouring lake.
Purchased: Q4-2021 | $42.3M
180-Suite Property
PAGE 18
Killam Apartment REIT | 2021
Kitchener Waterloo Portfolio
ONTARIO
Killam expanded its presence in the
Kitchener-Waterloo-Cambridge market
with the acquisition of a 785-suite
portfolio. This $190.5 million acquisition
aligns with Killam’s strategic goals
of accretive growth and geographic
diversification. The four properties are
located in desirable neighborhoods of
both Kitchener and Waterloo, and
have been very well maintained. The
properties have both
indoor and
outdoor amenity spaces and there are
opportunities for modern upgrades
and energy efficiencies, fitting well
with our suite repositioning and energy
efficiency programs.
Purchased:
Q2-2021 | $190.5M
Ridgeway & Somerset
KITCHENER
214-Suite
Property
The Estates
KITCHENER
137-Suite
Property
Heritage Place
KITCHENER
160-Suite
Property
Northfield Gardens
WATERLOO
274-Suite
Property
PAGE 19
Killam Apartment REIT | 2021 GROWING THROUGH
DEVELOPMENT
Developing high-quality properties in our core markets is an important component of Killam’s long-term growth strategy. Since
starting its development program in 2010, Killam has completed over $300 million in development projects, totaling more
than 1,300 suites in 13 development projects. Killam continued to advance its development pipeline with the completion of
10 Harley, a 38-suite building in Charlottetown, in early 2021. This property, along with a 78-suite development completed in
late 2020 and a 233-suite newly purchased development in January 2021, were all fully leased by mid-2021 and contributed
to FFO growth during the year.
We ended the year with five active developments underway
in Ottawa, Mississauga, Kitchener and Halifax. These
developments will add an additional 497 suites to Killam’s
portfolio in the next 12 months. Killam has an experienced
development team and a growing pipeline of approximately
3,800 suites across Canada that will continue to be a significant
lever for Killam’s earnings growth and value creation.
Latitude
OTTAWA
Completed: Q1-2022
209-Suite Property
Cost(1): $43.5M
(1) Killam has a 50% ownership interest.
The five developments underway in 2021 will add an additional 497 high-quality suites to Killam’s
Ottawa, Mississauga, Kitchener-Waterloo and Halifax markets in the next twelve months.
PAGE 20
Killam Apartment REIT | 2021“ The Kay
MISSISSAUGA
Completion:
Q2-2022
128-Suite
Property
Cost:
$57.0M
Luma
OTTAWA
Completion:
Q2-2022
168-Suite
Property
Cost(1):
$45.8M
(1) Killam has a 50%
ownership interest.
PAGE 21
Killam Apartment REIT | 2021 GROWING THROUGH
DEVELOPMENT
The Governor
HALIFAX
Completion: Q3-2022
12-Suite Property
Cost: $22.8M
PAGE 22
Killam Apartment REIT | 2021 Civic 66
KITCHENER
Completion: Q1-2023
169-Suite Property
Cost: $69.7M
PAGE 23
Killam Apartment REIT | 2021 2021 ENVIRONMENTAL, SOCIAL
AND GOVERNANCE UPDATE
From the Chair of the Governance & ESG Committee
Killam is committed to being a leader in ESG for Canadian multi-residential REITs. I am proud of Killam’s dedication to
reducing its environmental footprint, ensuring effective and ethical governance, and making investments to maintain
sustainable economic growth.
After setting five-year ESG goals in 2020, Killam made great progress in 2021 with all eight targets, from increasing
its affordable housing base to its very high satisfaction rating among our residents. Killam incorporates ESG principles
into its long-term business strategy and is seeking the best ways to transition into the future net zero economy.
We encourage you to read our most current ESG disclosure on our website at esg.killamreit.com and look forward to
issuing Killam’s 2021 ESG report in April 2022.
– Manfred Walt, Trustee and Chair, Killam’s Governance & ESG Committee
Killam’s ESG Targets
In 2020, Killam committed to ambitious but realistic ESG targets to work towards in the next five years, and we made
great progress in 2021. These goals aim to mitigate expense growth, lower our carbon footprint, maintain good
corporate citizenship and create long-term value for its stakeholders.
ESG
Environmental
Social
Governance
LONG-TERM TARGETS
LONG-TERM TARGETS
LONG-TERM TARGETS
•
•
•
Reduce GHG emissions by
15%(1) by 2030.
Produce a minimum of 10%
of electricity(2) consumed by
portfolio through renewable
energy sources by 2025.
Pursue building certifications
across a minimum of 20% of
Killam’s portfolio by 2025.
•
•
Increase employee volunteer
hours by 25% by 2025.
Increase number of affordable
housing suites by 20% by 2025.
• Maintain resident satisfaction
score above 85%, annually.
•
•
Continue to participate in GRESB(3) survey
annually, targeting a minimum increase
of 5% each year to reach GRESB 4 Star
ranking by 2025, and continue to expand
ESG disclosure.
Increase the diversity of employees,
including a 25% increased representation
of employees who identify as racialized,
as persons with a disability, and as
LGBTQ2+ by 2025.
(1) Scope 1 and 2 emissions from 2020 levels.
(2) Operational controlled electricity.
(3) GRESB is a mission-driven and investor-led organization that provides actionable and transparent ESG data to financial markets.
PAGE 24
Killam Apartment REIT | 2021 Killam’s 2021 ESG Progress
Killam made solid progress towards all its ESG targets in 2021.
With the $8.2 million invested in energy efficiency projects, including both solar photovoltaic
and geothermal heating and cooling installations, Killam will reap the benefits of reduced
energy consumption and reduced greenhouse gas emissions in the years to come.
Piloting building and healthy-living certifications was a focus for 2021. Ensuring our buildings have the best operating
and healthy living standards for Killam’s residents is inherent with these certification practices, and we recognized many
benefits from implementing these certifications. Killam will continue to pursue additional building certifications each year.
We are very proud of our employees and teams across the country.
In 2021, Killam conducted its bi-annual diversity survey in partnership
with the Canadian Centre of Diversity and Inclusion. This third-party
partner assisted in benchmarking and analyzing our results. The
survey results indicate notable increases in the representation of
racialized and indigenous persons, persons with a disability as well
as those who identify as LGBTQ2+. We continue to develop and
foster a more diversified employee base across the company.
Killam increased paid
annual volunteer days from
one to three days, with
frequently communicated
opportunities to encourage
employees to volunteer in
their communities.
We recognize that housing affordability is a challenge in Canada and we want to do our part. With acquisitions in Calgary
and Charlottetown this year, Killam increased its affordable housing suites by 14%, ending 2021 with approximately 850
affordable suites.
We are very pleased to report that despite the on-going challenges of the pandemic, Killam achieved a strong 86%
resident satisfaction score(1) for 2021.
As well, it was a successful year with an increase in our GRESB rating, for which we earned a green, two-star designation
for our 2021 real estate assessment. Since its initial participation in GRESB in 2019, Killam has achieved a 40% score
improvement. Killam also earned a GRESB Public Disclosure survey rating of “A”, outperforming both its GRESB determined
comparison group and global ratings.
Finally, we reported our ESG information in alignment with the Sustainability Accounting Standards Board standards
for the first time in Killam’s 2021 ESG Report. We have also started on our climate-change journey, reporting under the
Task Force on Climate-Related Financial Disclosure framework and with a commitment to increasing our climate change
initiatives and disclosure in the coming years.
(1) Performed by Narrative Research, a third-party provider.
Killam’s ESG & Sustainability information can be found at esg.killamreit.com
This annual report may contain forward-looking statements with respect to Killam and its operations, strategy, financial performance and condition. These
statements generally can be identified by use of forward-looking words such as “may”, “will”, “expect”, “estimate”, “anticipate”, “intends”, “believe” or “con-
tinue”, “maintain”, “target” or the negative thereof or similar variations. 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 con-
tained therein 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. The actual results and performance of Killam
discussed herein could differ materially from those expressed or implied by such statements. For a discussion of such risks, uncertainties and other factors,
see “Forward-Looking Statements” on page 28. The cautionary statements qualify all forward-looking statements attributable to Killam and persons acting
on its behalf. All forward-looking statements in this annual report speak only as of the date to which this presentation refers, and Killam does not intend to
update or revise any such statements, unless otherwise required by applicable securities laws.
PAGE 25
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Table of Contents
PART I
Business Overview
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
multi-residential property owners, owning, operating, managing and developing a $4.5 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 thirteen projects to-date, with a
further five projects currently under construction.
Adjusted Funds from Operations
Funds from Operations
Per Unit Calculations
PART VI
27
27
27
Basis of Presentation
Declaration of Trust
Forward-looking Statements
Adjusted Cash Flow from Operations
Killam’s strategy to drive value and profitability focuses on three priorities:
Non-IFRS Financial Measures
1) Increase earnings from the existing portfolio;
PART VII
2) Expand the portfolio and diversify geographically through accretive acquisitions, targeting newer properties; and
PART II
3) Develop high-quality properties in its core markets.
Key Performance Indicators
Liquidity & Capital Resources
Mortgages & Other Loans
Financial & Operational Highlights
Summary of 2021 Results & Operations
The apartment business is Killam’s largest segment and accounted for 88.5% of Killam’s net operating income (NOI) for the
year ended December 31, 2021. As at December 31, 2021, Killam’s apartment portfolio consisted of 18,685 units, including
968 units jointly owned with institutional partners. Killam's 221 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 owner of multi-residential apartments and plans to continue increasing its presence outside
Atlantic Canada through acquisitions and developments; however, it will continue to invest strategically in Atlantic Canada to
maintain its market presence.
Investment Properties Under Construction
Investment Properties
Capital Improvements
Land of Development
Unitholders’ Equity
Strategic Targets
Outlook
32
34
33
31
PART III
Business Strategy
In addition, Killam owns 5,875 sites in 39 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 6.4% of Killam’s NOI for the year ended
December 31, 2021. Killam also owns 941,372 square feet (SF) of commercial space that accounted for 5.1% of Killam's NOI
for the year ended December 31, 2021.
Quarterly Results & Discussion of Q4 Operations
PART VIII
35
38
37
Committed to ESG
Portfolio Summary
Unique Portfolio Features
39
PART IX
PART IV
Core Market Update
Basis of Presentation
The following Management's Discussion and Analysis (MD&A) has been prepared by Management and focuses on key
statistics from the annual consolidated financial statements, including the notes thereto, 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, 2021 and 2020, 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
2020 Annual Information Form (AIF), are available on SEDAR at www.sedar.com.
Critical Accounting Policies and Significant Ac-
counting Judgements, Estimates and
Assumptions
Future Accounting Policy Changes
Risk Management
Selected Consolidated Financial Information
40
42
42
2021 Financial Overview
- Consolidated Results
- Apartment Results
The discussions in this MD&A are based on information available as at February 16, 2022. This MD&A has been reviewed
and approved by Management and the REIT's Board of Trustees.
Disclosure Controls, Procedures and Internal
Controls
- MHC Results
49
- Commercial Results
50
Related Party Transactions
PART V
Declaration of Trust
Killam's investment guidelines and operating policies are set out in its Amended and Restated Declaration of Trust (DOT)
51
dated November 27, 2015, which is available on SEDAR. A summary of the guidelines and policies is as follows:
Other Income & Expenses & Net Income
Subsequent Events
- Net Income
- Financing Costs
Investment Guidelines
• The Trust will acquire, hold, develop, maintain, improve, lease and manage income-producing real estate properties;
51
• Investments in joint ventures, partnerships (general or limited) and limited liability companies are permitted;
52
- Administration Expenses
• Investments in land for development that will be capital property for Killam are permitted; and
- Fair Value Adjustments
• Investments that would disqualify Killam as a "mutual fund trust" or a "unit trust" as defined within the Income Tax Act
- Deferred Tax Expense
(Canada) are prohibited.
53
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 reasonable potential liabilities of the Trust.
PAGE 26
28
29
30
43
51
52
53
54
54
57
58
59
62
63
64
66
69
70
75
75
80
81
82
82
82
2
Killam Apartment REIT | 2021
Per Unit Calculations
Funds from Operations
Adjusted Funds from Operations
Adjusted Cash Flow from Operations
53
54
54
57
2021 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 multi-
residential property owners, owning, operating, managing and developing a $4.5 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 thirteen projects to-date, with a further five 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 88.5% of Killam’s net operating income (NOI) for the year
ended December 31, 2021. As at December 31, 2021, Killam’s apartment portfolio consisted of 18,685 units, including 968 units
jointly owned with institutional partners. Killam's 221 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 owner of
multi-residential apartments and plans to continue increasing its presence outside Atlantic Canada through acquisitions and
developments; however, it will continue to invest strategically in Atlantic Canada to maintain its market presence.
In addition, Killam owns 5,875 sites in 39 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 6.4% of Killam’s NOI for the year ended December 31, 2021. Killam also
owns 941,372 square feet (SF) of commercial space that accounted for 5.1% of Killam's NOI for the year ended December 31, 2021.
Basis of Presentation
The following Management's Discussion and Analysis (MD&A) has been prepared by Management and focuses on key statistics from
the annual consolidated financial statements, including the notes thereto, 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, 2021 and
2020, 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 2020 Annual Information Form (AIF), are available on
SEDAR at www.sedar.com.
The discussions in this MD&A are based on information available as at February 16, 2022. 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 its 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 reasonable potential liabilities of the Trust.
As at December 31, 2021, Killam was in compliance with all investment guidelines and operating policies.
PAGE 27
2
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Forward-Looking Statements
Certain statements contained in this MD&A may contain forward-looking statements and forward-looking information (collectively,
“forward-looking statements”) including within the meaning of applicable securities law.
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", "target", "committed", "priority", "remain", "strategy", or the negative of
these terms or other comparable terminology, and by discussions of strategies that involve risks and uncertainties.
Such forward-looking statements contained in this MD&A may include, among other things, statements regarding: Killam’s expectations
with regard to market demand and rent growth; the effect of government imposed rental rate restrictions; Killam's growth strategy; net
asset value growth; planned growth of the property portfolio; the expansion of the land portfolio for future developments; future
acquisitions; including the amount expected to be invested in such acquisitions, the location of such acquisitions, improvements in
profitability of Killam’s property portfolio, Killam’s property developments, including cost and timing of completion thereof, and
Management’s expectations regarding capital improvement costs; short and longer term targets relating to same property NOI growth,
portfolio growth, NOI generated outside of Atlantic Canada, investment in completed developments, debt maintenance or reductions,
ESG investment, return on investment, and affordable housing; Killam's joint venture partners; Killam's ability to mitigate cost increases;
maintenance costs; the effect of completed developments on Killam's business; the expansion of Killam's repositioning program;
uncertainties and risks arising as a result of the spread of the COVID-19 pandemic, including uncertainty surrounding disruptions to
financial markets, regional economies and the world economy; the return to pre-pandemic employment levels; interest rate
fluctuations; credit availability; financing costs; market values; pace and scope on future acquisitions, construction, development and
renovation, renewals and leasing; the ability to expand into other geographical regions of Canada in an economically viable way and
geographically diversity Killam's portfolio; the estimated population and economic growth in key markets; the rate of transition from
rental to homeownership; the GDP growth across the country post-pandemic; the continued capital investment from governments and
the private sector in key markets; the availability of capital to fund further acquisitions and investments in Killam's business; replacing
construction financing with permanent mortgage financing; Killam's commitment to ESG and its ESG policy, including investment in ESG
initiatives and technology and its impact on Killam's energy consumption and costs; augmenting Killam's sustainability programs and
improving its GRESB rating; reducing Killam's impact on the environment; and the benefit of building certifications and high operating
and living standards.
Readers should be aware that these forward-looking 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: the effects, duration and government responses to the COVID-19 pandemic and the effectiveness of measures
intended to mitigate the impact of COVID-19, 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 "Risk
Management" section at the end of this document and Killam's most recent AIF. 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 contained therein 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.
While Killam anticipates that subsequent events and developments may cause Killam's view to change, Killam does not intend 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 applicable 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.
PAGE 28
3
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Non-IFRS Financial Measures
Management believes the following non-IFRS financial measures, ratios and supplementary information are relevant measures of the
ability of Killam to earn revenue and to evaluate Killam's financial performance. 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.
Non-IFRS Financial Measures
• Funds from operations (FFO) is a non-IFRS financial measure of operating performance widely used by the Canadian real estate
industry based on the definition set forth by REALPAC. FFO, and applicable per unit amounts, are calculated by Killam as net income
adjusted for 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, depreciation on an owner-
occupied building, interest expense related to lease liabilities, and non-controlling interest. FFO is calculated in accordance with the
REALPAC definition. A reconciliation between net income and FFO is included on page 54.
• Adjusted funds from operations (AFFO) is a non-IFRS financial measure of operating performance widely used by the Canadian real
estate industry based on the definition set forth by REALPAC. 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 investment to maintain and sustain Killam's properties), commercial leasing costs and straight-line commercial rents. AFFO is
calculated in accordance with the REALPAC definition. Management considers AFFO an earnings metric. A reconciliation from FFO to
AFFO is included on page 56.
• Adjusted cash flow from operations (ACFO) is a non-IFRS financial measure of operating performance widely used by the Canadian
real estate industry based on the definition set forth by REALPAC. 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, interest expense related to
lease liabilities 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 57. ACFO is calculated in accordance with the REALPAC definition.
• Adjusted earnings before interest, tax, depreciation and amortization ("adjusted EBITDA") is calculated by Killam as net income
before fair value adjustments, gains (losses) on disposition, income taxes, interest, depreciation and amortization. A reconciliation is
included on page 59.
• Normalized adjusted EBITDA is calculated by Killam as adjusted EBITDA that has been normalized for a full year of stabilized earnings
from recently completed acquisitions and developments, on a forward-looking basis. A reconciliation is included on page 59.
• Net debt is a non-IFRS measure used by Management in the computation of debt to normalized adjusted EBITDA. Net debt is
calculated as the sum of mortgages and loans payable, credit facilities and construction loans (total debt) reduced by the cash
balances at the end of the period. The most directly comparable IFRS measure to net debt is debt.
Non-IFRS Ratios
• Interest coverage is calculated by dividing adjusted EBITDA by mortgage, loan and construction loan interest and interest on credit
facilities. The calculation is included on page 59.
• Debt service coverage is calculated by dividing adjusted EBITDA by mortgage loan and construction loan interest, interest on credit
facilities and principal mortgage repayments. The calculation is included on page 59.
• Per unit calculations are calculated using the applicable non-IFRS financial measures noted above, i.e. FFO, AFFO and/or ACFO,
divided by the basic or diluted number of units outstanding at the end of the relevant period.
• Payout ratios are calculated using the distribution rate for the period divided by the applicable per unit amount, i.e. AFFO and/or
ACFO.
• Debt to normalized adjusted EBITDA is calculated by dividing net debt by normalized adjusted EBITDA. The calculation is included on
page 59.
Supplementary Financial Measure
• Same property NOI is a supplementary financial measure defined as NOI for stabilized properties that Killam has owned for
equivalent periods in 2021 and 2020. Same property results represent 85.0% of the fair value of Killam's investment property
portfolio as at December 31, 2021. Excluded from same property results in 2021 are acquisitions, dispositions and developments
completed in 2020 and 2021, and non-stabilized commercial properties linked to development projects.
• Same property average rent is calculated by taking a weighted average of the total residential rent for the last month of the
reporting period, divided by the relevant number of the units per region for stabilized properties that Killam has owned for
equivalent periods in 2021 and 2020. For total residential rents, rents for occupied units are based on contracted rent and rents for
vacant units are based on estimated market rents if the units were occupied.
Capital Management Financial Measure
• Total debt as a percentage of total assets is a capital management financial measure and is calculated by dividing total debt by total
assets, excluding right-of-use assets. This measure is reconciled in Note 26 of the consolidated financial statements.
PAGE 29
4
Killam Apartment REIT | 2021 2021 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 utilizes 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 lower payout ratios. The ACFO payout ratio is a
measure to assess the sustainability of distributions. The AFFO payout ratio is used as a supplementary measure. 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, dispositions and developments.
5) Occupancy – Management is focused on maximizing occupancy while also managing the impact of higher rental rates. This measure
is a percentage based on gross potential residential rent less dollars of lost rent from vacancy, divided by gross potential residential
rent.
6)
7)
Rental Increases – Management expects to increase average annual rental rates and tracks average annual rate increases.
Total Debt as a Percentage of Total Assets – Killam's primary measure of its leverage is total 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. Total debt as a
percentage of total assets is calculated by dividing total interest-bearing debt by total assets, excluding right-of-use 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 Adjusted EBITDA – A common measure of leverage used by lenders, this measure considers Killam’s financial
health and liquidity. In normalizing recently completed acquisitions and developments, Killam uses a forward-looking full year of
stabilized earnings. Generally, the lower the debt to normalized adjusted EBITDA ratio, the lower the credit risk.
11) Debt Service Coverage – 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 – 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.
PAGE 30
5
Killam Apartment REIT | 2021 2021 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,
2021
2020
Change (1)
Operating Performance
Property revenue
Net operating income
Net income
FFO (2)
FFO per unit – diluted (2)
AFFO (1)
AFFO per unit – diluted (2)
Weighted average number of units outstanding – diluted (000s)
Distributions paid per unit (3)
AFFO payout ratio – diluted (2)
Portfolio Performance
Same property NOI (2)
Same property NOI margin (2)
Same property apartment occupancy
Same property apartment weighted average rental increase (4)
As at December 31,
Leverage Ratios and Metrics
Total Debt as a Percentage of Total assets
Weighted average mortgage interest rate
Weighted average years to debt maturity
Debt to normalized EBITDA (2)
Debt service coverage (2)
Interest coverage (2)
$290,917
$183,235
$285,527
$119,235
$1.07
$100,438
$0.90
111,626
$0.69
76%
$261,690
$163,854
$146,040
$104,678
$1.00
$86,816
$0.83
104,503
$0.68
82%
$165,112
$157,035
62.9%
97.2%
3.0%
62.2%
96.7%
3.4%
11.2%
11.8%
95.5%
13.9%
7.0%
15.7%
8.4%
6.8%
1.5%
(600) bps
5.1%
70 bps
50 bps
(40) bps
2021
2020
Change (2)
45.0%
2.58%
4.0
11.33x
1.53x
3.53x
44.6%
2.69%
40 bps
(11) bps
4.6
(0.6) years
10.78x
1.57x
3.36x
55 bps
(4) bps
17 bps
(1) Change expressed as a percentage, basis points (bps) or years.
(2) 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 and Supplementary
Financial Measures").
(3) The Board of Trustees approved a 2.9% increase in Killam's distribution on an annualized basis to $0.70 per unit, effective for the September 2021
distribution.
(4) Year-over-year, as at December 31.
PAGE 31
6
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Summary of 2021 Results and Operations
Largest Acquisition Year in Killam's History
In 2021, Killam had a record year for acquisitions, acquiring $399.4 million in properties, bringing its total investment property
portfolio to $4.5 billion. Killam added 1,597 apartment units to its portfolio, expanding its geographic diversification, with 78% of
acquisitions in 2021 located outside of Atlantic Canada, principally in Ontario and Alberta. Killam's geographic diversification strategy
is succeeding, as the percentage of NOI generated outside of Atlantic Canada is now 33%, up from 32% in 2020.
Delivered FFO per Unit Growth of 7.0% and AFFO per Unit Growth of 8.4%
FFO per unit was $1.07 in 2021, a 7.0% increase from $1.00 in 2020, and AFFO per unit increased 8.4% to $0.90, compared to $0.83 in
2020. The growth in FFO and AFFO were primarily attributable to increased NOI from strong same property performance and
incremental contributions from recent acquisitions and completed developments. This growth was partially offset by a 6.8% increase in
the weighted average number of units outstanding.
Revenue Gains Drive Same Property NOI Growth of 5.1%
Killam achieved 5.1% same property NOI growth during the year, with a 4.1% increase from the apartment portfolio, a 17.6% increase
from the commercial portfolio and a 9.3% increase from the MHC portfolio. Revenue growth of 4.0% was driven by rental rate growth
from all three business segments along with a 50 bps increase in apartment occupancy. Operating expense growth remained modest as
operating and energy efficiencies, lower utility costs and successful property tax assessment appeals helped mitigate inflationary cost
pressures.
Strong Rent Growth and Cap-rate Compression Support $240 Million in Fair Value Gains
Killam recorded $239.7 million in fair value gains related to its investment properties in 2021, supported by cap-rate compression across
most of the regions in which Killam operates, most notably in New Brunswick and Ontario, as well as robust NOI growth driven by strong
apartment fundamentals. Killam's weighted average cap-rate for its apartment portfolio as at December 31, 2021 was 4.41%, a 26 bps
reduction from December 31, 2020.
Invested in Substantial Development Activity
Killam advanced its development pipeline, completing one 38-unit project early in 2021 (which is fully occupied) and investing an
additional $73.0 million in its five active development projects. These projects total 685 units (497 units representing Killam's
percentage ownership) for a total investment of $238.8 million. Four of the active projects are expected to be completed in 2022.
Lower Interest Rates Contributed to Earnings Growth
Killam benefited from lower interest rates on mortgages refinanced in 2021. During the year, Killam refinanced $132.0 million of
maturing mortgages with $184.5 million of new debt at a weighted average interest rate of 2.13%, 24 bps lower than the weighted
average interest rate of the maturing debt. Lower interest expense on Killam's same property portfolio contributed to FFO per unit
growth in 2021.
Substantial Advancement in Environmental, Social and Governance (ESG) Focused Initiatives
Killam continues to reduce its environmental impact and ensure its buildings are sustainable and resilient to climate change. In 2021,
Killam invested $8.2 million in energy projects, which included $1.9 million in geothermal installations at three of its development
projects. As well, Killam installed photovoltaic solar panels, modern boilers, heat pumps and electricity and water conservation
measures. Killam also introduced building certifications at its properties with a focus on health living standards in 2021 benefiting both
Killam and its tenants.
PAGE 32
7
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Strategic Targets
Growth in Same Property NOI
2021 Target
2021 Performance
2022 Target
Longer-Term Target
Expanded Portfolio
2021 Target
2021 Performance
2022 Target
Longer-Term Target
Geographic Diversification
2021 Target
2021 Performance
2022 Target
Longer-Term Target
Development of High-Quality Properties
2021 Target
2021 Performance
2022 Target
Longer-Term Target
Strengthened Balance Sheet
2021 Target
2021 Performance
2022 Target
Longer-Term Target
Sustainability
2021 Target
2021 Performance
2022 Target
Longer-Term Target
Same property NOI growth over 2.0%.
Killam exceeded its target, achieving 5.1% same property NOI growth in 2021.
Same property NOI growth averaging 2.0% – 3.0%.
Same property NOI growth averaging 2.0% – 4.0%.
Complete a minimum of $100 million in acquisitions.
Killam exceeded its target, completing $399.4 million in acquisitions during
2021.
Complete a minimum of $150 million in acquisitions.
Grow the portfolio to over $6.0 billion by the end of 2025.
Earn at least 32% of 2021 NOI outside Atlantic Canada.
Killam exceeded its target, generating 33% of 2021 NOI outside Atlantic
Canada.
Earn at least 35% of 2022 NOI outside Atlantic Canada.
Earn at least 40% of NOI outside Atlantic Canada by 2025.
To complete the construction of two buildings totalling 166 units, and break
ground on two additional developments totalling a minimum of 150 units.
The 38-unit development, 10 Harley, reached substantial completion in
March 2021, and the Governor broke ground at the beginning of 2021. The
128-unit development, The Kay, originally expected to be completed in
Q4-2021, is now expected to be completed in April 2022.
To complete construction of four buildings and break ground on two
additional developments in 2022.
To complete a minimum of $350 million in developments between 2022 and
2025.
Maintain debt as a percentage of total assets ratio below 47%.
Killam achieved its target, as debt as a percentage of total assets was 45.0%
as at December 31, 2021.
Maintain debt as a percentage of total assets ratio below 45%.
Reduce debt as a percentage of total assets below 40% by the end of 2025.
Minimum investment of $5.0 million in energy initiatives in 2021, to reduce
Killam's carbon footprint and increase sustainability.
Killam exceeded its target, investing $8.2 million in energy-efficiency
initiatives.
Minimum investment of $8.0 million in energy initiatives in 2022.
Reduce Killam's GHG emissions by 15% by 2030, and produce a minimum of
10% of the portfolio's electricity through renewable sources by 2025.
PAGE 33
8
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Outlook
Demand for Apartments Remains Strong
Killam expects robust demand for apartments to continue in 2022. Management expects to move rents higher as vacant units are
released, which is expected to lead to continued top-line growth. For renewals, however, rent growth is likely to be tempered by
government-imposed rental rate restrictions in two of Killam's core markets, namely Ontario (capped at 1.2% in 2022) and Nova Scotia
(capped at 2.0% in 2022 and 2023). Canada's immigration target to add 1.2 million new permanent residents from 2021 to 2023 is
contributing to the strong demand for apartments.
In 2021, Atlantic Canada saw a record number of people moving to the region, including an increase in net interprovincial migration. In
the first and second quarters of 2021, net interprovincial migration to the Atlantic region was higher than 2019 and 2020 combined. The
surge in the second quarter alone was the largest since 1961, when data collection began. More than half (55%) of Canadians who
migrated to Atlantic Canada in Q2-2021 settled in Nova Scotia, with Halifax being the fastest-growing city (Census Metropolitan Area) in
the country in 2021 in terms of population. A longer-term trend of population growth in Atlantic Canada is expected to be positive for
Killam's portfolio.
Acquisition Capacity of Over $400 Million
Following a successful equity raise that closed on February 4, 2022, Killam has access to over $200 million in capital through its credit
facilities and cash on hand, which could support over $400 million in future acquisitions. With an active acquisition pipeline, Killam has
targeted over $150 million of acquisitions in 2022.
$169 Million of Developments Expected to be Completed in 2022
Development remains an important component of Killam's growth strategy, and Killam expects to complete $169 million in
development projects in 2022. Latitude, located in Ottawa, opened to tenants in January 2022 and is 34% leased. The Kay, located in
Mississauga, is expected to open in the second quarter of 2022, and is currently 29% pre-leased. The completion and stabilization of the
developments underway will contribute positively to Killam’s future FFO per unit growth. In addition, Killam has almost 4,000 units in its
pipeline for future development.
Continued Expansion of Unit Repositioning Program
Management is committed to Killam's unit repositioning program, completing 551 repositions in 2021, and plans to expand the program
to over 600 units in 2022. In addition, Killam is improving repositioning efficiencies and targeting improved performance metrics,
including the percentage of repositionings completed in 28 days. Unit repositionings represent unit upgrades costing more than
$10,000, and Killam targets a return on investment (ROI) of at least 10%. Killam has been successful and will continue to mitigate
construction cost increases through the use of bulk purchasing of renovation products, as well as the use of in-house labour. Killam has
over 5,500 units that are eligible for repositioning as they come vacant.
Investments in Energy-Efficiency Programs to Reduce CO2 Emissions and Mitigate Rising Operating Costs
Investments in energy and water-saving initiatives, and operational efficiencies, are expected to continue reducing Killam's energy
consumption and help offset rising operating costs, including property taxes and insurance. Management expects to invest a minimum
of $8.0 million in energy-related projects in 2022. These projects should contribute to same property NOI growth by lowering
consumption and also improve Killam’s sustainability metrics.
Rising Interest Rates
Killam has $162.1 million of mortgages maturing in 2022, with an average interest rate of 2.81%. Interest rates are forecasted to rise in
2022; however, Management has diversified Killam’s mortgages to avoid dependence on any one lending institution and has staggered
maturity dates to mitigate interest rate risk. Killam's mortgage maturity schedule is included on page 60. Killam is also focused on
reducing its debt levels with a longer-term target of maintaining debt to total assets less than 40% by the end of 2025.
Increasing Risk of Inflation, Higher Commodity Pricing and Increasing Property Taxes
Killam monitors inflation closely given the risk of increasing operating and capital costs in an inflationary environment, especially
increased commodity pricing. With approximately 58% of units heated with natural gas, fluctuations in natural gas pricing impacts
Killam's operating costs. Domestic and international natural gas markets have continued to experience cost pressures in early 2022. The
fixed component of Killam’s natural gas cost represents 48% of total costs, which partially mitigates its exposure to volatile natural gas
pricing. Additionally, Killam has pricing agreements in place for an additional 9% of total costs, limiting exposure to uncertain pricing for
57% of its natural gas costs. Killam continues to invest in energy-efficiency projects targeted at reducing consumption. In addition, Killam
has received property tax assessments for 2022 from the Province of New Brunswick with an average increase of 23%. This would
impact property tax expense in this region and Killam has submitted assessment appeals for all of these properties.
Positive Same Property NOI Expected
Despite inflationary pressures, Killam expects top-line revenue growth to drive same property NOI growth in 2022. Management's target
for NOI growth in 2022 is 2.0%–3.0%.
PAGE 34
9
Killam Apartment REIT | 2021 2021 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 manage
three critical factors: occupancy, rental rates and operating costs. Killam focuses on providing superior employee training and customer
service, using technology and analytics to drive leasing and marketing, and completing unit renovations and repositionings to maximize
revenue on unit turnover. 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 2.9% per annum over the past decade; in the last five years, Killam has
averaged 4.0% growth.
Historic Same Property NOI Growth
3.6%
4.8%
4.1%
5.1%
2.3%
2017
2018
2019
2020
2021
Expand the Portfolio through Acquisitions
Killam is expanding its portfolio by acquiring well located assets in Ontario, Alberta and 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 2021,
Killam acquired $399.4 million in assets, a record year for acquisition growth.
Killam owns and operates one of Canada's newest apartment portfolios. These properties require less maintenance capital to operate
and are generally preferred by tenants. Killam also acquires well-maintained, well located, older properties that offer attractive earnings
potential.
Annual Acquisitions ($ millions)
$200
$167
$125
$103
$115 $106 $85
$121
$45
$16
$36
$3
$160
$54 $72
$399
$315
$200
$191 $211
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
2 0 2 0
2 0 2 1
PAGE 35
10
Killam Apartment REIT | 2021 2021 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 with development. Killam started developing apartment properties in 2010 and has
completed thirteen projects to date, investing $316 million to construct approximately 1,300 units. Killam has an experienced
development team who hold architectural and engineering degrees and oversee all projects. New property construction enables Killam
to control the quality and features of its buildings. Killam targets yields of 4.0%–5.0% on development, and expects to build at a 50–150
bps discount to the market capitalization rates ("cap-rates") on completion, creating value for its unitholders. Killam currently has a
development pipeline of approximately 4,000 units.
Apartment Developments Complete ($ millions)
$169
$69
$105
$5
$—
$33
$14
$15
$5
$38
$22
$10
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022(1)
(1) Developments expected to be completed in 2022.
Diversify Geographically Through Accretive Acquisitions
Geographic diversification is a priority, and Killam is focused on increasing the amount of its NOI generated outside Atlantic Canada.
Killam is targeting expansion in select markets, such as 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, that traditionally have
higher rates of population growth.
% of Killam's NOI Generated Outside Atlantic Canada
Apartment
MHC
Commercial
40%
30%
20%
10%
—%
6%
6%
4%
8%
4%
11%
4%
16%
4%
17%
4%
19%
2%
3%
3%
4%
3%
3%
3%
3%
22%
23%
26%
27%
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
PAGE 36
11
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Committed to ESG
Killam's core values of Build Community and Do the Right Thing guide 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 know 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. Starting in 2016, Killam commenced a five-year, $25.0 million energy-
efficiency program, focused on reducing its greenhouse gas emissions, gaining operating efficiencies and lowering operating costs. In the
past five years, Killam's green projects include the installation of solar panels, installation of electric vehicle (EV) chargers, air-sealing
apartment units, installation of low-flow toilets and LED lighting retrofits across the entire apartment portfolio. This is in addition to the
installation of solar, EV chargers and geothermal heating systems in new development projects. Killam has identified over $30.0 million
of energy-efficiency projects throughout its portfolio and is committed to investing annually in the program.
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, including partnering with non-profit housing agencies to provide more than 750 subsidized
apartment units throughout its portfolio. The focus on fostering a sense of community is a priority at Killam.
Killam is also 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 enrichment that
comes from employee diversity and inclusion, including a strengthened corporate culture, improved employee retention and the benefit
of 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 and ESG Committee.
Sustainability Policy
Killam has a sustainability policy detailing its commitment to ESG practices. The policy applies to all Killam employees, and it is
supported by the Governance and ESG Committee and approved by the Board of Trustees. The following outlines Killam’s commitment
to ESG, through its ESG policy:
• Invest in new technology and initiatives to increase sustainability and lower its carbon footprint across the portfolio with a focus on
reducing waste, greenhouse gas emissions and water usage.
• Support and invest in its 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 its properties.
• Support community initiatives in the communities in which it operates, with an emphasis on affordable housing.
• Establish and implement robust governance policies and practices.
• Report annually on its ESG programs, new initiatives and performance against targets.
• Review its annual ESG benchmark ratings (from various industry bodies) and target areas for improvement each year.
Killam's 2021 ESG Progress
Killam made solid progress towards all of its ESG targets in 2021. With the $8.2 million invested in energy-efficiency projects, including
both solar photovoltaic and geothermal heating and cooling installations, Killam will reap the benefits of reduced energy consumption
and reduced greenhouse gas emissions in the years to come.
Piloting building and healthy-living certifications was a focus for 2021. Ensuring its buildings have the best operating and healthy living
standards for Killam’s residents is inherent with these certification practices, and Killam recognized many benefits from implementing
these certifications. Killam will continue to pursue additional building certifications each year.
Killam is very proud of its employees and teams across the country. In 2021, Killam conducted its bi-annual diversity survey in
partnership with the Canadian Centre of Diversity and Inclusion. This third-party partner assisted in benchmarking and analyzing the
results. The survey results indicate notable increases in the representation of racialized and indigenous persons, persons with a disability
as well as those who identify as LGTBQ2+. Killam continues to develop and foster a more diversified employee base across the company.
As well, Killam increased paid annual volunteer days from one to three days, with frequently communicated opportunities to encourage
employees to volunteer in their communities.
Killam recognizes that housing affordability is a challenge in Canada and is committed to doing its part. With acquisitions in Calgary and
Charlottetown this year, Killam increased its affordable housing suites by 14%, ending 2021 with approximately 850 affordable suites.
We are very pleased to report that despite the on-going challenges of the pandemic, Killam achieved a strong 86% resident satisfaction
score for 2021, which was performed by Narrative Research, a third-party provider.
As well, it was a successful year with an increase in our GRESB rating, for which Killam earned a green, two-star designation for its 2021
real estate assessment. Since its initial participation in GRESB in 2019, Killam has achieved a 40% score improvement. Killam also earned
a GRESB Public Disclosure survey rating of “A”, outperforming both its GRESB-determined comparison group and global ratings.
Finally, Killam reported that its ESG information aligned with the Sustainability Accounting Standards Board standards for the first time
in Killam’s 2021 ESG Report. It has also started on its climate change journey, reporting under the Task Force on Climate-Related
Financial Disclosure framework and with a commitment to increasing its climate change initiatives and disclosure in the coming years.
PAGE 37
12
Killam Apartment REIT | 2021 2021 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, 2021:
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
Kitchener-Waterloo-Cambridge-GTA
Newfoundland & Labrador
St. John's
Grand Falls
Prince Edward Island
Charlottetown
Summerside
Alberta
Calgary
Edmonton
British Columbia
Victoria
Total Apartments
Nova Scotia
Ontario
New Brunswick (3)
Newfoundland & Labrador
Total MHCs
Prince Edward Island (5)
Ontario
Nova Scotia (6)
New Brunswick
Total Commercial
Total Portfolio
5,816
139
5,955
2,246
1,529
1,202
96
5,073
1,216
523
1,603
3,342
955
148
1,103
1,163
86
1,249
764
882
1,646
65
2
67
39
23
14
1
77
9
5
10
24
13
2
15
24
2
26
4
6
10
$59,047
$1,281
$60,328
$16,002
$12,204
$7,059
$672
$35,937
$10,435
$5,493
$15,170
$31,098
$6,967
$781
$7,748
$8,286
$591
$8,877
$6,438
$6,683
$13,121
32.2%
0.7%
32.9%
8.8%
6.7%
3.9%
0.4%
19.8%
5.7%
3.0%
8.3%
17.0%
3.8%
0.3%
4.1%
4.5%
0.3%
4.8%
3.6%
3.6%
7.2%
Manufactured Home Community Portfolio
317
18,685
2
221
$4,947
$162,056
2.7%
88.5%
Sites
2,749
2,284
672
170
5,875
Number of
Communities
17
17
3
2
39
Commercial Portfolio (4)
Square
Footage (5)
383,222
306,106
218,829
33,215
941,372
Number of
Properties
1
1
5
1
8
268
NOI ($) (2)
$4,964
$5,964
$424
$402
$11,754
NOI ($) (2)
$2,266
$4,755
$1,963
$441
$9,425
$183,235
NOI (2)
(% of Total)
2.7%
3.3%
0.2%
0.2%
6.4%
NOI (2)
(% of Total)
1.2%
2.6%
1.1%
0.2%
5.1%
100.0%
(1) Unit count includes the total unit count of 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.
(2) For the year ended December 31, 2021.
(3) Two of Killam's New Brunswick MHC communities have seasonal operations, which typically commence in mid-May and run through the end of October.
(4) Killam also has 181,117 square feet of ancillary commercial space in various residential properties across the portfolio, which is included in apartment results.
(5) Square footage represents 100% of the commercial property located in PEI. In Q2-2021, Killam acquired an additional 25% interest, increasing its ownership percentage to
75%. Killam also took over property management of the asset.
(6) Square footage includes Killam's 50% ownership interest in two office properties, that are third-party managed.
PAGE 38
13
Killam Apartment REIT | 2021
2021 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 largest multi-residential property owner in Atlantic Canada, which 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.
Diversified Exposure to Rent Control
Approximately 36% of Killam's portfolio is not impacted by rent control restrictions, which provides Killam the opportunity to move
rents to market rates in these regions. There is no rent control in New Brunswick, Newfoundland and Alberta. Killam is also not
restricted on rental increases for its commercial or seasonal resort properties.
Prince Edward Island
Prince Edward Island, representing 5.5% of Killam’s apartment NOI, is the only province in Atlantic Canada with permanent rent
control for apartments. The government announced a maximum allowable rental increase of 1.0% for 2022.
Nova Scotia
Killam's Nova Scotia portfolio accounts for 37.2% of apartment NOI. Although Nova Scotia doesn't have permanent rent control, in
November 2020, the province announced a temporary rent restriction measure, limiting rental increases on lease renewals to 2.0% to
address the economic impact of the COVID-19 pandemic. These temporary measures are in place until the end of 2023. Nova Scotia
has rent control for MHCs; however, it does not apply on turnover.
Ontario
Killam's Ontario portfolio, accounting for 19.2% of apartment NOI, is subject to rent control. In response to the COVID-19 pandemic, the
Ontario government passed legislation to freeze rents at 2020 levels in 2021 and capped rental rate increases at 1.2% for 2022.
However, property owners can move rents to market on a unit-by-unit basis as they become vacant. Rent control also does not apply to
new construction in Ontario completed after November 25, 2018. Ontario has rent control for MHCs; however, like PEI, it does not apply
on turnover.
British Columbia
Killam's newest market, British Columbia, making up 3.1% of Killam's apartment NOI, also has rent control, and the government
announced a maximum allowable rental increase of 1.5% for 2022.
In all of the regions impacted by permanent rent control, owners may apply for above-guideline increases (AGIs) to offset significant
capital expenditures. Killam analyzes each property on a regular basis, considering its location, tenant base and vacancy, to evaluate the
ability to optimize rents on renewals and on turns.
CMHC-Insured Debt Available for Killam’s Apartment 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 75% of Killam's apartment debt is currently 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,
CMHC financing is available to manufactured home owners, increasing the affordability of these manufactured homes.
A Focus on Affordable Housing
Killam has continued to increase its affordable housing initiatives. In 2021, Killam added 108 units to its portfolio, with 78 of those units
at Nolan Hill, with rents at 70% of market rate through CMHC’s Rental Construction Financing initiative, a National Housing Strategy
program. The remaining 30 affordable units were added through an acquisition with a provincial affordable housing agreement. This
brings Killam's total number of affordable units to approximately 850, or approximately 5% of its apartment portfolio. Killam's MHC
portfolio also provides an affordable living alternative for a single-family home, with average monthly land rent at permanent MHCs of
$283 per site. Killam has a 2025 goal to increase its number of affordable apartment units by 20%, from its base of 750 in 2020.
Focused on Customer Service
Annually, Management engages an independent market research firm to measure tenants’ satisfaction through an online survey (4,004
respondents in 2021). Killam’s 2021 survey results support its focus on service, with tenants giving Killam an impressive 86% satisfaction
rating. 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 better 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 Ontario apartment portfolio consists of 3,342 apartment units, up from 225 units in 2010
when Killam first entered the market, and includes properties in Ottawa, Toronto, London, and Kitchener-Waterloo-Cambridge. Killam
owns a portfolio of 1,646 units in Calgary and Edmonton, adding 233 units to its Calgary portfolio in Q1-2021 and 303 units to its
Edmonton portfolio in Q4-2021. In January 2020, Killam acquired its first apartment property in Greater Victoria and now owns 317 units
in the province. In addition to apartments, 39% of Killam’s MHC sites and 33% of Killam's commercial square footage is located in
Ontario.
PAGE 39
14
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Mark-to-Market Rent Opportunity
Management estimates market rental rates are approximately 10-15% higher than Killam's total apartment weighted average rent.
Killam's weighted average rental rate was approximately $1.44 per square foot for the year ended December 31, 2021. The differential
between market and in-place rents reflects Killam's relative affordability within its markets, as well as opportunities for rental increases
when natural turnover arises.
Diverse Tenant Demographics Contribute to Stable Occupancy
Killam's tenant base includes a diverse mix of tenants, including young professionals, seniors, empty nesters, families, and students. The
diversity of Killam's tenant base is expected to contribute to continued stable occupancy. The following chart illustrates Killam's 2021
tenant demographic by age.
Under 20
20 to 25
25 to 35
35 to 55
55 to 65
65 to 75
75 Plus
2021 Tenant Demographic by Age
75 Plus, 10.6%
Under 20, 2.5%
65 to 75, 10.0%
20 to 25, 15.5%
55 to 65, 9.7%
35 to 55, 24.4%
25 to 35, 27.3%
Core Market Update
Halifax
Thirty-two percent of Killam’s NOI is generated by its Halifax apartment properties. Halifax is the largest city in Atlantic Canada and is
home to 17% of Atlantic Canadians. The city's rental market totals 55,860 units, with an additional 6,600 rental units currently under
construction. Halifax’s diverse economy generates 56% of Nova Scotia’s GDP and is home to 42% of the province’s population. With six
degree-granting universities and three large community college campuses, Halifax has approximately 41,000 full-time students,
including 7,600 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 January 2022 provincial analysis report noted that Halifax remains Atlantic Canada's high wage services hub, showing
resilience with greater capacities for work to be carried out remotely, which is expected to contribute to continued provincial migration.
The economic outlook forecasts year-over-year gains in 2022 for Nova Scotia's GDP growth, employment rates and Consumer Price
Index.
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 totalling more than $300 million over the next four
years. Over 300 companies are participating in ocean-sector businesses 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 for faculty at Dalhousie
University, creating new opportunities for Dalhousie researchers.
The following chart summarizes Halifax's population growth from 2005 to 2021, the most recent year for which detailed population
growth data is available:
Historical Population Growth, Halifax
Annually from July 1 - June 30
r
a
e
Y
t
n
e
r
r
u
C
n
o
i
t
a
u
p
o
P
l
h
t
w
o
r
G
12,000
10,000
8,000
6,000
4,000
2,000
—
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
2 0 2 0
2 0 2 1
Population
Population Growth
Source: Statistics Canada
PAGE 40
500,000
400,000
300,000
l
P
o
p
u
a
t
i
o
n
T
o
t
a
l
15
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Halifax's population growth has been growing by approximately 2.0% a year since 2016, primarily driven by immigration and
urbanization. Halifax is one of Canada's fastest-growing cities, second only to Oshawa. Nova Scotia as a whole is benefiting from
increased population growth. Statistics Canada reported that during the first quarter of 2021, 5,696 people moved to Nova Scotia, and
the population grew by 2,877, the largest increase in a first quarter in fifty years. RBC's December 2021 Provincial Outlook expects
momentum to slow slightly in 2022, with forecasted GDP growth of 2.5%, compared to the projected 4.0% in 2021, as the economy hits
capacity constraints. However, stronger population growth, residential investment and growing export opportunities provide scope for
the provincial economy to expand.
In response to an increasing population, there has been an increase in housing starts over the last five years. Despite this increase,
housing price increases were up by 22.2% in December 2021 compared to December 2020, Killam's Halifax apartment vacancy rate were
at record lows, and market rents continue to increase.
The following chart summarizes Halifax's housing start activity from 2007 to 2021:
Halifax Total Housing Starts
Total Singles/Semi-Detached/Row
Apartment Vacancy
Total Apartment/Condo Units
Average Total Starts
Total Starts
s
t
i
n
U
f
o
r
e
b
m
u
N
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
V
a
c
a
n
c
y
P
e
r
c
e
n
t
a
g
e
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
0
2
0
2
1
2
0
2
Source: CMHC
New Brunswick
Twenty 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. New Brunswick saw
a significant increase in net migration from other provinces during the pandemic, as noted in Scotiabank's January 2022 Provincial
Analysis, the vast majority from Ontario. New Brunswick saw an increase in both immigration and net interprovincial migration in the
last six years, leading to population growth in the province and its core cities. According to RBC's December 2021 Provincial Outlook,
New Brunswick's outlook for 2022 is positive, with expected growth of 4.1% 2021 and 2.6% in 2022, which is expected to more than
reverse the 3.2% decline in 2020. RBC reports New Brunswick's economic growth is expected to remain strong as lumber and energy
exports, demand for housing, and tourism continue to drive growth. Moncton, Fredericton and Saint John represent 8.8%, 6.7% and
3.9% of Killam's 2021 NOI, respectively.
St. John's, Newfoundland
Four percent of Killam’s NOI is generated in St. John's, Newfoundland. RBC's December 2021 Provincial Outlook reported that
Newfoundland's economy is projected to have a more delayed recovery from the 2020 downturn, compared to other provinces, as
the projected 3.0% GDP growth rate in 2021 and 2.5% in 2022 will come up short of the province fully recovering. Newfoundland's oil
production volumes soared in 2020, but the momentum did not continue in 2021, with production falling by 7.4%. However, higher
mineral production, retail sales growth and rebounding tourism will drive economic growth in 2022.
Prince Edward Island
The Charlottetown apartment market accounted for 5% of Killam’s total NOI in 2021. According to RBC’s December 2021 Provincial
Outlook report, PEI’s economy appears to have fully recovered to pre-pandemic levels in 2021, with economic growth projected to be
3.6% in 2021. In 2022, strong residential investment, further recovery in the manufacturing sector and consumer spending are
expected to drive GDP growth at a rate of 2.7%. Prince Edward Island and Charlottetown are seeing strong population growth driven
by immigration and net interprovincial migration.
Ontario
Killam's Ontario apartment portfolio generated 17% of NOI in 2021. RBC’s December 2021 Provincial Outlook reported Ontario's
projected growth to be 4.4% for 2021 and 2022, as a slower re-opening and residents migrating to other provinces was more than
offset by high vaccination rates leading to strong spending power, as residents returned to restaurants, gyms and events throughout
the year. Despite this growth, Ontario did not see full recovery in 2021, due to ongoing supply chain disruption issues; however, full
recovery is expected for 2022 as supply chain issues ease and consumer spending continues to expand.
Alberta
Seven percent of Killam's NOI was earned in Alberta. RBC's December 2021 Provincial Outlook reported Alberta experienced a
significant recovery with the rebound of the oil and gas markets, projecting GDP growth of 5.9% for 2021. Alberta has not fully
recovered to pre-pandemic levels, after the nearly 8.0% decline in GDP in 2020.
PAGE 41
16
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Recovery of Alberta's economy is expected to take longer than most Canadian provinces, while 4.7% growth is projected for 2022,
RBC predicts it could take until 2023 to fully reverse 2020's damage. Increased oil production and capital investments into the energy
sector, increased housing starts and recovery of the agricultural sector are expected to have positive impacts on the economy in 2022.
British Columbia
Killam earned 3% of NOI in the British Columbia market. RBC's December 2021 Provincial Outlook reported British Columbia having
one of the stronger recoveries in Canada for 2021, despite the series of natural disasters that struct the province, with 5.6% GDP
growth. Growth for 2022 is predicted to remain strong, forecasted at 4.2%, with the wider re-opening of the Canadian boarder
contributing to renewed immigration and tourism, leading to increased consumption and investment. Net migration from other
provinces reached a 25-year high during the pandemic, RBC expects a sharp rise in immigration in 2022 will boost population growth
to pre-pandemic levels.
PART IV
2021 Financial Overview
Consolidated Results
For the years ended December 31,
Total Portfolio
Same Property (1)
Non-Same Property
Property revenue
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
Total operating expenses
NOI
Operating margin %
2021
2020 % Change
11.2%
$290,917 $261,690
$262,439 $252,318
2020 % Change
4.0%
2021
$28,478
2020 % Change
203.9%
$9,372
2021
42,418
47,482
23,240
24,683
32,178
35,517
$107,682
$97,836
$183,235 $163,854
62.6%
63.0%
11.9%
6.2%
10.4%
10.1%
11.8%
40 bps
42,931
22,721
31,675
$97,327
41,140
22,764
31,379
$95,283
$165,112 $157,035
62.2%
62.9%
4.4%
(0.2) %
0.9%
2.1%
5.1%
70 bps
4,551
1,962
3,842
$10,355
$18,123
63.6%
1,278
476
799
$2,553
$6,819
72.8%
256.1%
312.2%
380.9%
305.6%
165.8%
(920) bps
(1) Same property results excludes acquisitions and developments completed during the comparable 2021 and 2020 periods, which are classified as non-
same property. For the year ended December 31, 2021 NOI contributions from acquisitions and developments completed in 2020 and 2021 were $11.1
million and $7.0 million. For the year ended December 31, 2020, NOI contributions from acquisitions and developments completed in 2020 was $6.8
million.
Killam achieved strong overall portfolio performance for the year ended December 31, 2021. This strength, along with contributions
from acquisitions and developments, resulted in 11.8% NOI growth for the year.
Same property results include properties owned during comparable 2021 and 2020 periods and represent 85.0% of the fair value of
Killam's investment property portfolio as at December 31, 2021. Non-same property results include acquisitions, dispositions and
developments completed in 2020 and 2021 and commercial assets acquired for future residential development.
Same property revenue grew by 4.0% for the year ended December 31, 2021, as compared to the same period of 2020. This growth was
driven by a 50 bps increase in apartment occupancy, rental rate growth, increased seasonal operations at Killam's resort communities
and growth in commercial revenues.
Total same property operating expenses increased 2.1% for the year ended December 31, 2021. The 4.4% increase in general operating
expenses driven by inflationary pressures was mitigated somewhat by a small 90 bps increase in property taxes as a result of successful
appeals, and a 0.2% decrease in utility and fuel expenses. The year-over-year decrease in utility and fuel costs was driven by reduced
consumption due to energy-efficiency projects, decreases in natural gas pricing in New Brunswick, warmer-than-average temperatures
during the first quarter of 2021, and a decrease in the inclusion of unit electricity as part of the monthly rent. Overall, same property NOI
grew by 5.1% for the year ended December 31, 2021.
Operating Margin % (Total Portfolio)
62.8%
62.9%
62.6%
63.0%
60.1%
61.5%
2016
2017
2018
2019
2020
2021
PAGE 42
17
Killam Apartment REIT | 2021 2021 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
2021
2020 % Change
2021
2020 % Change
2021
2020 % Change
Property revenue
$254,955 $228,915
11.4%
$228,012 $220,162
3.6%
$26,943 $8,753
207.8%
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
39,699
21,866
31,334
35,077
20,537
27,961
Total operating expenses
$92,899
$83,575
13.2%
6.5%
12.1%
11.2%
35,602
20,081
27,815
33,974
20,101
27,310
$83,498
$81,385
4.8%
(0.1) %
1.8%
2.6%
4,097
1,785
3,519
1,103
436
651
$9,401 $2,190
NOI
$162,056 $145,340
11.5%
$144,514 $138,777
4.1%
$17,542 $6,563
271.4%
309.4%
440.6%
329.3%
167.3%
Operating margin %
63.6%
63.5%
10 bps
63.4%
63.0%
40 bps
65.1%
75.0%
(990) bps
Apartment Revenue
Total apartment revenue for the year ended December 31, 2021, was $255.0 million, an increase of 11.4% over the same period of 2020.
Revenue growth was augmented by contributions from recently acquired and developed properties. Same property apartment revenue
increased 3.6% for the year ended December 31, 2021, driven by increased rental rates and a 50 bps increase in occupancy during the
year. Strong revenue growth contributed to a 10 bps operating margin expansion on Killam's apartment portfolio. The operating margin
on Killam's same property apartment portfolio was up 40 bps to 63.4%.
PAGE 43
18
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Apartment Occupancy Analysis by Core Market (% of Residential Rent) (1)
For the years ended December 31,
# of Units
2021
2020
Change
(bps)
2021
2020
Change
(bps)
Total Occupancy
Same Property Occupancy
Nova Scotia
Halifax
Ontario
Ottawa
London
KWC-GTA
New Brunswick
Moncton (2)
Fredericton
Saint John
Newfoundland and Labrador
St. John's
Prince Edward Island
Charlottetown (3)
Alberta
Calgary (4)
Edmonton
British Columbia
Victoria
Other Atlantic
5,816
98.2%
97.8%
40
98.2%
97.8%
40
1,216
523
1,603
2,246
1,529
1,202
94.0%
97.3%
98.7%
97.3%
97.7%
97.7%
94.1%
96.8%
98.0%
98.1%
97.8%
96.7%
(10)
50
70
(80)
(10)
100
94.0%
97.3%
98.9%
98.5%
97.7%
97.7%
94.1%
96.8%
98.2%
98.4%
97.8%
96.7%
(10)
50
70
10
(10)
100
955
92.0%
87.7%
430
91.8%
87.6%
420
1,163
95.6%
97.1%
(150)
99.2%
99.4%
(20)
764
882
317
469
87.6%
94.0%
97.9%
96.6%
96.6%
94.4%
(680)
93.5%
50
95.3%
93.4%
96.5%
260
320
10
92.8%
94.1%
N/A
96.2%
97.2%
94.4%
(160)
93.5%
60
N/A
93.8%
96.7%
N/A
240
50
Total Apartments (weighted average)
18,685
(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 for Moncton was impacted by Emma Place, a recently acquired 118-unit property, which was undergoing initial lease-up upon
acquisition in Q4-2021.
(3) Total occupancy for Charlottetown was impacted by the lease-up of two recently completed developments, Shorefront, a 78-unit building, and 10
Harley, a 38-unit building, both of which were undergoing initial lease-up during the first half of 2021.
(4) Total occupancy for Calgary was impacted by the lease-up of Nolan Hill, a 233-unit property acquired in January 2021.
Historical Same Property Apartment Occupancy & Rental Incentives (as a % of Revenue)
Occupancy %
Rental Incentives (as a % of Revenue)
97.7%
97.2%
96.1%
96.5%
96.5%
y
c
n
a
p
u
c
c
O
98%
97%
96%
95%
94%
93%
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
Q 1-2020
Q 2-2020
Q 3-2020
Q 4-2020
Q 1-2021
Q 2-2021
Q 3-2021
Q 4-2021
PAGE 44
98.1%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
19
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Average Rent Analysis by Core Market
As at December 31,
Nova Scotia
Halifax
Ontario
Ottawa
London
KWC-GTA
New Brunswick
Moncton
Fredericton
Saint John
Newfoundland and Labrador
St. John's
Prince Edward Island
Charlottetown
Alberta
Calgary
Edmonton
British Columbia
Victoria
Other Atlantic
Average Rent
Same Property Average Rent
# of Units
2021
2020
% Change
2021
2020
% Change
5,816
$1,232
$1,184
4.1%
$1,231
$1,184
4.0%
1,216
523
1,603
2,246
1,529
1,202
$1,818
$1,388
$1,421
$1,092
$1,121
$920
$1,798
$1,371
$1,556
$1,046
$1,064
$882
1.1%
1.2%
(8.7) %
4.4%
5.4%
4.3%
$1,818
$1,388
$1,597
$1,798
$1,371
$1,556
$995
$963
$1,121
$1,064
$920
$882
1.1%
1.2%
2.6%
3.3%
5.4%
4.3%
955
$1,012
$1,006
0.6%
$1,019
$1,006
1.3%
1,163
$1,120
$1,080
3.7%
$1,041
$1,025
1.6%
764
882
317
469
$1,277
$1,492
$1,263
$1,476
$1,771
$1,729
$947
$924
1.1%
1.1%
2.4%
2.5%
3.6%
$1,272
$1,480
$1,263
$1,476
N/A
$947
N/A
$924
$1,199
$1,164
0.7%
0.3%
N/A
2.5%
3.0%
Total Apartments (weighted average)
18,685
$1,227
$1,184
Same Property Rental Increases – Tenant Renewals Versus Unit Turns
Killam historically turned approximately 30% – 32% of its units each year; however, the trend has declined over the past two years.
Turnover levels in 2020 were down 160 bps from 2019, at approximately 29%, with a further decrease in 2021 to approximately 26%,
due to the tightening of the housing and rental markets across Canada.
Upon turn, Killam will typically generate rental increases by moving rental rates to market and, where market demand exists, by
upgrading units for unlevered returns of 10%–15% on capital invested. Killam saw a 40 bps decrease in its same property weighted
average rental increase, to 3.0%, compared to 3.4% for 2020. This decline was a result of lower turnover and modest rental increases on
lease renewals, driven mainly by a rent freeze in Ontario for 2021 and a temporary rent cap in Halifax. Rental increases on unit turns
decreased slightly year-over-year; however, there was an upward trend in the mark-to-market opportunity in the fourth quarter of
2021.
For the years ended December 31,
Lease renewal
Unit turn – regular
Unit turn – repositioned (2)
Rental increase (weighted avg)
2021
2020
Rental
Increases
1.5%
5.0%
29.2%
3.0%
Turnovers &
Renewals (1)
74.1%
22.4%
3.5%
Rental
Increases
1.7%
5.7%
27.3%
3.4%
Turnovers &
Renewals (1)
71.2%
26.3%
2.5%
(1) The percentage of total units renewed and turned during the year is based on the number of units at the end of the year.
(2) The weighted average rental lift on the repositioned units is based on the 626 units re-leased during the year ended December 31, 2021.
PAGE 45
20
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
The following chart illustrates Killam's same property rental rate growth over the past five years.
Apartments - Historical Same Property Rental Rate Growth
10.0%
5.0%
—%
40.0%
30.0%
20.0%
6.4%
6.3%
8.2%
7.8%
3.4%
1.0%
1.8%
1.7%
2.7%
2.1%
3.6%
3.4%
3.0%
1.7%
1.5%
2017
2018
2019
2020
2021
Upon Lease Renewal
Upon Unit Turn - Combined
Combined Average Increase %
Percentage of Units Turned Annually
35.0%
31.8%
30.4%
28.8%
25.9%
2017
2018
2019
2020
2021
Apartment Expenses
Total operating expenses for the year ended December 31, 2021, were $92.9 million, an 11.2% increase over the same period of 2020.
The increase was due primarily to incremental costs associated with recent acquisitions and developments.
Total apartment same property operating expenses for the year ended December 31, 2021, were 2.6% higher than 2020. The increase
was primarily due to inflationary cost pressures, higher contract service costs and insurance premiums, and property tax expense
increases of 1.8%, over 2020. These increases were partially offset by decreased utility costs of 0.1%. Utility savings were attributable to
a reduction of unit electricity being included in monthly rent, lower natural gas rates in New Brunswick, reduced consumption from
energy-efficiency initiatives and a mild winter.
Property Operating Expenses
Property operating expenses for the apartment portfolio include repairs and maintenance, contract services, insurance, property
management and property management wages and benefits, uncollectible accounts, marketing, advertising and leasing costs. The
increase in same property general operating costs of 4.8% for the year ended December 31, 2021, was largely due to higher insurance
premiums, increased contract service costs and higher repairs and maintenance costs as a result of relatively lower maintenance work
inside units in Q2 and Q3-2020 due to COVID-19 restrictions.
PAGE 46
21
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Same Property Utility and Fuel Expenses
For the years ended December 31,
Natural gas
Electricity
Water
Oil & propane
Other
Total utility and fuel expenses
2021
2020
% Change
$6,099
$5,941
7,038
5,775
1,101
68
7,434
5,728
937
61
$20,081
$20,101
2.7%
(5.3) %
0.8%
17.5%
11.5%
(0.1) %
Killam’s apartments are heated with natural gas (58%), electricity (32%), oil (6%), district heat (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 its 6,000 apartments heated with electricity. Fuel costs associated with central natural gas or oil-fired
heating plants are paid by Killam.
Utility and fuel expenses accounted for approximately 24% of Killam’s total apartment same property operating expenses for the year
ended December 31, 2021 and decreased 0.1% year-over-year.
Same property natural gas expense increased by 2.7% for the year ended December 31, 2021. The increase in natural gas expense was
primarily attributable to increases in commodity prices in Nova Scotia and Ontario of 12%, partially offset by a reduction in both delivery
charges and the commodity price in New Brunswick, resulting in a 9% decline in that province for the year. Increased efficiencies from
boiler upgrades as well as above-average temperatures during the heating season contributed to reduced consumption levels partially
offsetting the rising rates.
Electricity costs were 5.3% lower for the year ended December 31, 2021, primarily due to a reduction of unit electricity being included as
part of a tenant's monthly rent in certain regions given strong market fundamentals, as well as consumption savings from LED lighting
retrofits and warmer temperatures.
Water expense increased by 0.8% for the year ended December 31, 2021. Increased water rates were offset partially by lower
consumption year-over-year, as consumption was on average higher in 2020 as a result of tenants being at home more during the onset
of the COVID-19 pandemic.
Heating oil and propane costs increased by 17.5% for the year ended December 31, 2021, compared to 2020, as oil price increases of
25% were partially offset by a mild winter and increased efficiencies from boiler upgrades. The majority of Killam's heating oil and
propane costs are in Prince Edward Island.
Property Taxes
Same property tax expense for the year ended December 31, 2021, was $27.8 million, a 1.8% increase from the same period of 2020.
Killam experienced property tax increases across the majority of its markets; however, these were offset by a number of successful
property tax appeals across the portfolio. Killam actively reviews its property tax assessments and appeals tax assessment increases
wherever possible to minimize this impact.
PAGE 47
22
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Apartment Same Property NOI by Region
For the years ended December 31,
Property Revenue
Property Expenses
Net Operating Income
2021
2020 % Change
2021
2020 % Change
2021
2020 % Change
Nova Scotia
Halifax
Ontario
Ottawa
London
KWC-GTA
New Brunswick
Moncton
Fredericton
Saint John
Newfoundland & Labrador
St. John's
Prince Edward Island
Charlottetown
Alberta
Calgary
Edmonton
$85,712
$82,012
4.5%
($28,975) ($27,986)
85,712
82,012
4.5%
(28,975)
(27,986)
15,724
15,492
8,484
8,239
17,037
16,396
41,245
40,127
22,220
21,463
20,279
19,397
13,148
12,432
55,647
53,292
10,344
10,344
9,770
9,770
12,066
11,916
12,066
11,916
7,980
9,559
8,096
9,712
17,539
17,808
3.5%
3.5%
2.0%
4.8%
$56,737
$54,026
56,737
54,026
10,550
10,419
5,493
5,386
(5,174)
(5,073)
(2,991)
(2,853)
(5,336)
(5,401)
(1.2) %
11,701
10,995
(13,501)
(13,327)
1.3%
27,744
26,800
(9,768)
(9,567)
(8,085)
(7,865)
(6,099)
(5,998)
(23,952)
(23,430)
(3,490)
(3,441)
(3,490)
(3,441)
(5,023)
(4,814)
(5,023)
(4,814)
2.1%
2.8%
1.7%
2.2%
1.4%
1.4%
4.3%
4.3%
(3,052)
(2,871)
6.3%
(3,381)
(3,527)
(4.1) %
12,452
11,896
12,194
11,532
7,049
6,434
31,695
29,862
6,854
6,854
7,043
7,043
4,928
6,178
6,329
6,329
7,102
7,102
5,225
6,185
(6,433)
(6,398)
(2,124)
(1,989)
0.5%
6.8%
11,106
11,410
3,335
3,248
1.5%
3.0%
3.9%
2.8%
3.5%
4.5%
5.8%
4.4%
5.9%
5.9%
1.3%
1.3%
(1.4) %
(1.6) %
(1.5) %
4.2%
Other Atlantic locations
5,459
5,237
$228,012
$220,162
3.6%
($83,498) ($81,385)
2.6%
$144,514
$138,777
PAGE 48
5.0%
5.0%
1.3%
2.0%
6.4%
3.5%
4.7%
5.7%
9.6%
6.1%
8.3%
8.3%
(0.8) %
(0.8) %
(5.7) %
(0.1) %
(2.7) %
2.7%
4.1%
23
Killam Apartment REIT | 2021 2021 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
2021
2020 % Change
2021
2020 % Change
Property revenue
$18,578
$17,393
Property operating expenses
6,824
6,541
NOI
$11,754
$10,852
6.8%
4.3%
8.3%
$18,270
$17,110
6,680
6,509
$11,590
$10,601
6.8%
2.6%
9.3%
2021
$308
144
$164
$283
32
$251
2020 % Change
Operating margin %
63.3%
62.4%
90 bps
63.4%
62.0%
140 bps
53.2%
—%
N/A
N/A
N/A
—
The MHC business segment generated 6.4% of Killam's NOI for the year ended December 31, 2021. 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 resorts
that earn approximately 60% of their annual NOI between July and September. Overall, the MHC portfolio generated same property
NOI growth of 9.3% for the year ended December 31, 2021. This growth is mainly attributable to increased seasonal revenue, as the
majority of the seasonal resorts were able to open on time and at capacity in 2021.
For the years ended December 31,
Property Revenue
Property Expenses
Net Operating Income
2021
2020 % Change
2021
2020 % Change
2021
2020 % Change
Permanent MHCs
$12,116
$11,790
2.8%
($4,293)
($4,234)
Seasonal Resorts
6,154
5,320
15.7%
($2,387)
($2,275)
$18,270
$17,110
6.8%
($6,680)
($6,509)
1.4%
4.9%
2.6%
$7,823
$7,556
3.5%
3,767
3,045
23.7%
$11,590
$10,601
9.3%
For the year ended December 31, 2021, same property permanent MHCs generated a 3.5% increase in NOI. Average rent increased
2.2%, to $283 per site at December 31, 2021, compared to $277 per site at December 31, 2020, and occupancy for the year
increased to 98.3%, compared to 97.8% in the same period of 2020.
Killam's seasonal resorts experienced increased activity in 2021, resulting in a 15.7% increase in same property revenue for the year
compared to the same period of 2020. Activity at the majority of the communities increased significantly with easing of COVID-19
restrictions and augmented inter-provincial travel.
PAGE 49
24
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Commercial Results
For the years ended December 31,
Total Portfolio
Same Property
Non-Same Property
2021
2020 % Change
2021
2020 % Change
2021
2020 % Change
Property revenue
$17,384 $15,382
13.0%
$16,157 $15,046
7.4%
$1,227
$336
Property operating expenses
7,959
7,717
3.1%
7,149
7,389
(3.2) %
NOI
$9,425
$7,665
23.0%
$9,008
$7,657
17.6%
810
$417
328
$8
N/A
N/A
N/A
Killam's commercial portfolio contains 941,372 SF, located in four of Killam's core markets. The commercial portfolio includes
Westmount Place, a 300,000 SF retail and office complex located in Waterloo; Royalty Crossing, a 383,000 SF shopping mall in PEI for
which Killam has a 75% interest; the Brewery Market, a 146,000 SF retail and office property in downtown Halifax, as well as other
smaller properties located in Halifax and Moncton. Total commercial occupancy was 90.6% for 2021, compared to 88.7% in 2020. On
June 1, 2021, Killam acquired an additional 25% ownership interest in Royalty Crossing for $10.1 million, increasing its ownership to 75%
and now manages the property. Killam is working with its new partner on redevelopment of the property to drive new leasing and
revenue growth.
Killam's commercial property portfolio contributed $9.4 million, or 5.1%, of Killam's total NOI for the year ended December 31, 2021.
The increase in NOI during the year ended December 31, 2021, relates to an increase in occupancy, as well as a reduction in bad debt
expense and tenant abatements provided in conjunction with the federal government's Canada Emergency Commercial Rental
Assistance program in the second and third quarters of 2020, which assisted tenants impacted by COVID-19. Commercial same property
results represent approximately 82% of Killam's commercial square footage. Same property results do not include properties that were
recently acquired or those that are slated for redevelopment and are not operating as stabilized properties.
In 2021, Killam successfully leased a net new 75,000 SF of commercial space across the portfolio. Killam has also renewed over 135,000
SF of commercial space during 2021, with a weighted average net rate increase of 8.66%.
PAGE 50
25
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART V
Other Income and Expenses and Net Income
Net Income and Comprehensive Income
For the years ended December 31,
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
Income before income taxes
Deferred tax expense
Net income and comprehensive income
2021
2020 % Change
$183,235
$163,854
1,059
641
(51,521)
(48,919)
(573)
(630)
(15,988)
(13,936)
11.8%
65.2%
5.3%
(9.0) %
14.7%
(1,869)
59
(3,267.8) %
(26,107)
7,676
(440.1) %
239,684
46,885
327,920
155,630
411.2%
110.7%
(42,393)
(9,590)
342.1%
$285,527
$146,040
95.5%
Net income and comprehensive income increased $139.5 million for the year ended December 31, 2021, as a result of $239.7 million
of fair value gains on Killam's investment properties and a $19.4 million increase in net operating income driven by acquisitions and
same property NOI growth. These factors were offset by a $32.8 million increase in deferred tax expense, as well as a $28.0 million
fair value loss associated with the mark-to-market adjustments on Killam's unit-based compensation and exchangeable units.
Financing Costs
For the years ended December 31,
2021
2020 % Change
Mortgage, loan and construction loan interest
$46,683
$44,055
Interest on credit facilities
Interest on exchangeable units
Amortization of deferred financing costs
Amortization of fair value adjustments on assumed debt
Unrealized (gain) loss on derivative liability
Interest on lease liabilities
Capitalized interest
1,063
2,766
3,784
65
(167)
386
671
2,784
3,126
88
483
385
(3,059)
(2,673)
$51,521
$48,919
6.0%
58.4%
(0.6) %
21.0%
(26.1) %
(134.6) %
0.3%
14.4%
5.3%
Total financing costs increased $2.6 million, or 5.3%, for the year ended December 31, 2021, as compared to the same period of
2020. Mortgage, loan and construction loan interest expense increased $2.6 million, or 6.0%, which coincides with an increase in
Killam's mortgage debt of $319.9 million over the past year, as Killam obtained financing for acquisitions and developments and up-
financed maturing mortgages within its existing portfolio. The average interest rate on refinancings for the year ended December 31,
2021, was 2.13%, 24 bps lower than the weighted average interest rate on maturing debt. Interest on Killam's credit facilities
increased $0.4 million, as the balance on Killam's credit facilities increased to fund acquisitions completed in the latter part of 2021.
Deferred financing costs include mortgage assumption and application fees, and legal costs related to financings and refinancings.
These costs are amortized over the term of the respective mortgage, and CMHC insurance fees are amortized over the amortization
period of the mortgage. Deferred financing amortization costs increased $0.7 million or 21.0% for the year ended December 31,
2021, following new debt placement on acquisitions and mortgage refinancings. This expense may fluctuate annually with
refinancings.
Capitalized interest increased $0.4 million for the year ended December 31, 2021, compared to the same period of 2020. 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.
PAGE 51
26
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Administration Expenses
For the years ended December 31,
Administration
As a percentage of total revenues
2021
2020 % Change
$15,988
$13,936
5.5%
5.3%
14.7%
20 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, 2021, total administration expenses increased by 14.7%, compared to the same period of 2020,
due to costs associated with Killam's annual incentive plan based on year-end results as well as higher information technology costs.
Administration expenses as a percentage of total revenues were 5.5% for 2021, 20 bps higher than 2020.
Fair Value Adjustments
For the years ended December 31,
Investment properties
Deferred unit-based compensation
Exchangeable units
2021
2020
% Change
$239,684
$46,885
411.2%
(1,869)
(26,107)
59
N/A
7,676
(440.1) %
$211,708
$54,620
287.6%
Killam recognized $239.7 million in fair value gains related to investment properties for the year ended December 31, 2021, compared
to $46.9 million for the year ended December 31, 2020. The majority, or $223.9 million of the fair value gains, related to Killam's
apartment portfolio, driven by strong NOI growth and recent market transactions supporting lower cap-rates. Killam's MHC portfolio
recognized $12.9 million in fair value gains, and $2.9 million of the fair value gains related to Killam's commercial portfolio.
Restricted Trust Units (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,
2021, there was an unrealized fair value loss of $1.9 million, versus a $0.1 million gain in the same period of 2020, due to changes in
the market price of the underlying Killam trust units.
Distributions paid on exchangeable units are consistent with distributions paid to Killam’s unitholders. The exchangeable units are
redeemable on a one-for-one basis into trust units at the option of the holder. The fair value of the exchangeable units is based on the
trading price of Killam’s trust units. For the year ended December 31, 2021, there was an unrealized loss of $26.1 million, compared to
an unrealized gain of $7.7 million in the same period of 2020, due to changes in the market price of Killam's trust units.
PAGE 52
27
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Deferred Tax Expense
For the years ended December 31,
2021
2020
% Change
$42,393
$9,590
342.1%
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 $32.8 million for the year ended December 31, 2021, compared to the same period of 2020,
primarily due to an increase in fair value gains on investment properties year-over-year.
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 (1)
Diluted number of units
Weighted Average
Number of Units (000s)
2021
107,435
2020 % Change
7.2%
100,225
4,030
4,115
111,465
104,340
161
163
111,626
104,503
(2.1) %
6.8%
(1.2) %
6.8%
Outstanding
Number of Units
(000s) as at
December 31,
2021
110,557
4,004
114,561
—
—
(1) Units are shown on an after-tax basis. RTUs are net of attributable personal taxes when converted to REIT units.
PAGE 53
28
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Funds from Operations
FFO is recognized as an industry-wide standard measure of a real estate entity's 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. Notwithstanding the foregoing, FFO does not have a standardized meaning
under IFRS and is considered a non-IFRS financial measure; therefore, may not be comparable to similarly titled measures presented by
other publicly traded companies. FFO for the years ended December 31, 2021 and 2020 are calculated as follows:
For the years ended December 31,
Net income
Fair value adjustment on unit-based compensation
Fair value adjustment on exchangeable units
Fair value adjustment on investment properties
Non-controlling interest
Internal commercial leasing costs
Deferred tax expense
Interest expense on exchangeable units
Unrealized (gain) loss on derivative liability
Depreciation on owner-occupied building
Change in principal related to lease liabilities
FFO
FFO per unit – basic
FFO per unit – diluted
Weighted average number of units – basic (000s)
Weighted average number of units – diluted (000s)
2021
2020 % Change
$285,527
$146,040
95.5%
1,869
26,107
(59)
(3,267.8) %
(7,676)
(440.1) %
(239,684)
(46,885)
(411.2) %
(13)
302
42,393
2,766
(167)
106
29
(16)
264
9,566
2,784
483
146
31
$119,235
$104,678
$1.07
$1.07
111,465
111,626
$1.00
$1.00
104,340
104,503
(18.8) %
14.4%
343.2%
(0.6) %
134.6%
(27.4) %
(6.5) %
13.9%
7.0%
7.0%
6.8%
6.8%
Killam earned FFO of $119.2 million, or $1.07 per unit (diluted), for the year ended December 31, 2021, compared to $104.7 million, or
$1.00 per unit (diluted), for the year ended December 31, 2020. FFO growth is primarily attributable to contributions from acquisitions
and completed developments ($8.2 million), same property NOI growth ($6.5 million) and lower interest costs ($1.5 million). These
increases were partially offset by a 6.8% increase in the weighted average number of units outstanding.
Adjusted Funds from Operations
AFFO is a non-IFRS financial measure used by real estate analysts and investors to assess FFO after taking into consideration capital
invested 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 66, and
Killam's sources of funding are disclosed in the Liquidity and Capital Resources section on page 58 of this MD&A.
Calculating Maintenance Capex Reserve for AFFO
In February 2017, REALPAC issued the "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 average of the capital invested to maintain and sustain its 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:
PAGE 54
29
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Maintenance Capex Reserve – Apartments
Total capital investments
Value-enhancing capital investment
Building
Unit upgrades
Equipment & other
Maintenance capex
Maintenance capex – % of total capital
Number of units (1)
Maintenance capex per unit
Maintenance capex – three-year average
2021
$70,711
(21,264)
(26,588)
(6,226)
(54,078)
$16,633
24%
17,364
$958
2020
$57,961
(14,055)
(22,956)
(7,704)
(44,715)
$13,246
23%
16,209
$817
$909
2019
$52,861
(17,407)
(18,718)
(1,987)
(38,112)
$14,749
28%
15,513
$951
(1) Weighted average number of units outstanding during the year, adjusted for Killam's 50% ownership in jointly held properties.
Value-enhancing capital investment includes building enhancements, unit 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. Unit upgrades represent a capital
investment on unit turns with an expected minimum 10% return on investment.
Maintenance capex includes all building improvements and unit renovation investment required to maintain current revenues. For the
year ended December 31, 2021, Killam updated its maintenance capex reserve to reflect the actual capital investment for the most
recent three years (2019–2021), which is equivalent to $909 per unit. Based on this calculation, Management has selected $900 per unit
for its maintenance capex reserve for 2021, which is consistent with the 2020 reserve of $900 per unit. Management will maintain this
reserve in its calculation of AFFO throughout 2022, 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 2020 and 2021 compared to 2019, and
this reflects Killam's increased investment in its unit repositioning program as well as its energy efficiency program, both of which are
value enhancing. In 2021, approximately 24% 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, 2021, 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 $285 to $345 over the past three years. Management selected $300 per MHC site for its maintenance capex reserve for
2021, consistent with its 2020 reserve of $300 per site.
PAGE 55
30
Killam Apartment REIT | 2021 2021 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. The allowance was based on the expected
average annual maintenance capital investment, which was estimated at $0.70 per square foot, as Killam did not have historical
information on which to base the allowance. In 2020, due to an increase in capital investment in its commercial properties, Killam
increased its annual capex reserve to $0.80 per square foot. For 2021, Killam updated its maintenance capex reserve to reflect the actual
capital investment for the most recent three years (2019–2021), which is equivalent to approximately $0.75 per square foot. Based on
this calculation, Management has selected $0.80 per square foot for its commercial maintenance capex reserve for 2021 to remain
consistent with the prior year, as total capital investment may fluctuate annually.
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,
FFO
Maintenance capital expenditures
Commercial straight-line rent adjustment
Internal and external commercial leasing costs
AFFO
AFFO per unit – basic
AFFO per unit – diluted
AFFO payout ratio – diluted (1)
2021
2020 % Change
$119,235
$104,678
(18,023)
(16,860)
(356)
(418)
(555)
(447)
$100,438
$86,816
$0.90
$0.90
76 %
$0.83
$0.83
13.9%
6.9%
(35.9) %
(6.5) %
15.7%
8.4%
8.4%
82 %
(600) bps
Weighted average number of units – basic (000s)
Weighted average number of units – diluted (000s)
111,465
104,340
111,626
104,503
6.8%
6.8%
(1) Based on Killam's annual distribution of $0.6867 for the year ended December 31, 2021, and $0.6767 for the year ended December 31, 2020.
The payout ratio of 76% for the year ended December 31, 2021, improved 600 bps compared to the year ended December 31, 2020. The
stability is attributable to a 15.7% increase in AFFO, driven by contributions from acquisitions and developments and same property NOI
growth, 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.
PAGE 56
31
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Adjusted Cash Flow from Operations
ACFO is a non-IFRS financial measure and 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
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. ACFO is adjusted each quarter for fluctuations in non-cash working capital not indicative
of sustainable cash flows, including prepaid property taxes, prepaid insurance and construction holdbacks related to developments. ACFO
is also adjusted quarterly for capital expenditure accruals, which are not related to sustainable operating activities.
A reconciliation from cash provided by operating activities (refer to the consolidated statements of cash flows for the years ended
December 31, 2021 and 2020) to ACFO is as follows:
For the years ended December 31,
Cash provided by operating activities
Adjustments:
Changes in non-cash working capital not indicative of sustainable cash flows
Maintenance capital expenditures
External 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)
2021
$140,860
2020
$123,514
% Change
14.0%
(13,894)
(18,023)
(224)
(3,784)
(29)
(13)
$104,893
77,925
$26,968
74%
(15,892)
(16,860)
(212)
(3,126)
(31)
(16)
$87,377
71,731
$15,646
82%
(12.6) %
6.9%
5.7 %
21.0%
(6.5) %
(18.8) %
20.0%
8.6%
72.4%
(800) bps
(1) Includes distributions on trust units, exchangeable units and restricted trust units, as summarized on page 69.
(2) Based on Killam's annual distribution of $0.68668 for the year ended December 31, 2021, and $0.6767 for the year ended December 31, 2020
Killam's ACFO payout ratio is 74% for the year ended December 31, 2021. Similar to the AFFO payout ratio, Killam's first quarter typically
has the highest ACFO payout ratio due to the lower operating margin in the period attributable to higher heating costs in the winter
months, and the fact the MHC portfolio typically generates its highest revenues and NOI during the second and third quarters of the year.
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 (1)
Excess of cash provided by operating activities over total distributions declared
2021
2020
$285,527
$146,040
$140,860
$123,514
$77,925
$207,602
$233,506
$62,935
$71,731
$74,309
$95,834
$51,783
(1) Killam has a distribution reinvestment plan, which allows unitholders to elect to have all cash distributions from the Trust reinvested in additional units.
PAGE 57
32
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART VII
Liquidity and Capital Resources
Management oversees Killam's 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)
Cash flows from operating activities are expected to be sufficient to fund the current level of distributions and maintenance
capex.
(ii) On February 4, 2022, Killam closed its public offering of trust units for gross proceeds of $98.1 million. These proceeds were
used to repay the outstanding balance on Killam's credit facilities. Killam currently has total capacity of approximately $200.0
million of capital under its credit facilities and cash on hand and acquisition capacity of over $400.0 million.
(iii) Mortgage refinancings and construction loans are expected to be sufficient to fund value-enhancing capex, principal
repayments and developments. Killam has $162.1 million of mortgage debt scheduled for refinancing in 2022, expected to
lead to upfinancing opportunities of approximately $50.0 million.
(iv) Upcoming mortgage maturities are expected to be renewed through Killam's mortgage program. Killam's mortgage program
has remained stable since COVID-19, with renewals proceeding as scheduled.
(v) Unencumbered assets of approximately $40.0 million, for which debt could be placed.
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, 2021, was 45.0%.
Killam has financial covenants on its credit facilities. The covenants require Killam to maintain a leverage limit of not more than 70%
of debt to total assets, debt to service coverage of not less than 1.3 times and unitholders' equity of not less than $900.0 million. As
at February 16, 2022, Killam was in compliance with these covenants.
The table below outlines Killam's key debt metrics:
As at December 31,
Weighted average years to debt maturity
Total debt as a percentage of 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.
2021
4.0
45.0%
3.53x
1.53x
11.33x
2.58%
2.52%
2020
4.6
44.6%
3.36x
1.57x
10.78x
2.69%
2.69%
Change
(0.6) years
40 bps
17 bps
(4) bps
55 bps
(11) bps
(17) bps
Killam's primary measure of capital management is the total debt as a percentage of total assets ratio. The calculation of the total debt
as a percentage of total assets is summarized as follows:
As at
Mortgages and loans payable
Credit facilities
Construction loans
Total debt
Total assets (1)
Total debt as a percentage of total assets
December 31, 2021
December 31, 2020
$1,915,334
$1,631,689
61,730
77,596
$2,054,660
$4,568,903
45.0 %
7,029
41,345
$1,680,063
$3,766,987
44.6 %
(1) Excludes right of use asset of $9.6 million as at December 31, 2021 (December 31, 2020 - $9.6 million)
Total debt as a percentage of total assets was 45.0% at December 31, 2021, compared to 44.6% at December 31, 2020. The increase in
total leverage is attributable to debt being placed on recently acquired assets partially offset by fair value gains related to cap-rate
compression and strong NOI growth. Subsequent to December 31, 2021, Killam's debt to total asset ratio decreased following the
closing of its public offering of trust units for gross proceeds of $98.1 million and repayment of the balance on Killam's credit facilities.
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.
PAGE 58
33
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
The quantitative sensitivity analysis shown below illustrates the value increase or decrease in Killam's debt to asset ratio given the
change in the noted input:
Cap-rate Sensitivity
Increase (Decrease)
(0.50) %
(0.25) %
—%
0.25%
0.50%
Fair Value of Investment
Properties (1)
$5,158,358
$4,882,245
$4,540,877
$4,161,252
$3,964,314
Total Assets
$5,186,384
$4,910,271
$4,568,903
$4,189,278
$3,992,340
Total Debt as % of Total
Assets
39.6%
41.8%
45.0%
49.0%
51.5%
Change (bps)
(540)
(310)
—
410
650
(1) The cap-rate sensitivity calculates the impact on Killam's apartment and MHC portfolios, which are valued using the direct income capitalization
method, and Killam's commercial portfolio which is valued using the discounted cash flow method.
Normalized Adjusted EBITDA
The following table reconciles Killam's net income to Normalized Adjusted EBITDA for the years ended December 31, 2021 and 2020:
Twelve months ending,
Net Income
Deferred tax expense
Financing costs
Depreciation
Fair value adjustment on unit-based compensation
Fair value adjustment on exchangeable units
Fair value adjustment on investment properties
Adjusted EBITDA
Normalizing adjustment (1)
Normalized adjusted EBITDA
Net debt
Debt to normalized adjusted EBITDA
December 31, 2021
December 31, 2020
% Change
285,527
42,393
51,521
573
1,869
26,107
(239,684)
168,306
12,999
181,305
$2,054,225
11.33x
146,040
9,590
48,919
630
(59)
(7,676)
(46,885)
150,559
5,120
155,679
$1,677,507
10.78x
95.5%
342.1%
5.3%
(9.0) %
N/A
(440.1) %
411.2%
11.8%
153.9%
16.5%
22.5%
55 bps
(1) Killam's normalizing adjustment includes NOI adjustments for recently completed acquisitions and developments, to account for the difference
between NOI booked in the period and stabilized NOI over the next twelve months.
Interest and Debt Service Coverage
Twelve months ending,
Adjusted EBITDA
Interest expense (1)
Interest coverage ratio
Principal repayments
Interest expense (1)
Debt service coverage ratio
December 31, 2021
December 31, 2020
% Change
168,306
47,746
3.53x
62,246
47,746
1.53x
150,559
44,726
3.36x
51,413
44,726
1.57x
11.8%
6.8%
17 bps
21.1%
6.8%
(4) bps
(1) Interest expense includes mortgage, loan and construction loan interest and interest on credit facilities as presented in Note 21 to the consolidated
financial statements.
Mortgages and Other Loans
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, 2021, was 2.58%, 11 bps lower
compared to the rate as at December 31, 2020.
Refinancings
For the year ended December 31, 2021, Killam refinanced the following mortgages:
Apartments
MHCs and Commercial
Mortgage Debt
Maturities
$124,011
7,983
$131,994
2.28%
3.64%
2.37%
Mortgage Debt
on Refinancing
Weighted
Average Term
Net Proceeds
$172,294
12,220
$184,514
2.07%
2.90%
2.13%
5.0 years
6.7 years
5.1 years
$48,283
4,237
$52,520
PAGE 59
34
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
The following table details the maturity dates and average interest rates of mortgage and vendor debt, as well as the percentage of
apartment mortgages that are CMHC-insured by year of maturity:
Apartments
MHCs and Commercial
Total
Balance
December 31
Weighted Avg
Int. Rate %
Year of
Maturity
2022
2023
2024
2025
2026
Thereafter
Balance
December 31
$141,528
252,007
296,713
345,759
234,879
557,762
$1,828,648
Weighted Avg
Int. Rate %
2.68%
2.99%
2.55%
1.99%
2.33%
2.72%
2.54%
% CMHC
Insured
47.7%
52.3%
73.3%
54.8%
88.2%
100.0%
75.0%
$22,988
33,613
25,975
21,602
7,956
4,100
$116,234
Balance
December 31 (1)
$164,516
285,620
322,688
367,361
242,835
561,862
$1,944,882
Weighted Avg
Int. Rate %
2.81%
3.06%
2.57%
2.03%
2.34%
2.73%
2.58%
3.58%
3.62%
2.88%
2.61%
2.69%
2.90%
3.19%
(1) Excludes $8.3 million in variable rate demand loans secured by land for future development, which are classified as mortgages and loans
payable as at December 31, 2021.
Apartment Mortgage Maturities by Year
Amount maturing ($)
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
2.68%
2.99%
2.55%
1.99%
2.33%
2.85%
3.23%
2.34%
8%
7%
6%
5%
4%
3%
2%
1%
0%
I
n
t
e
r
e
s
t
R
a
t
e
2022
2023
2024
2025
2026
2027
2028
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 favourable rates. As at December 31, 2021, approximately 75.0% of Killam’s apartment mortgages
were CMHC-insured (70.5% of total mortgages, as MHC and commercial mortgages are not eligible for CMHC insurance) (December
31, 2020 - 85.2% and 79.9%). The weighted average interest rate on the CMHC-insured mortgages was 2.54% as at December 31,
2021 (December 31, 2020 - 2.60%).
The following tables present the NOI for properties that are available to Killam to refinance at debt maturity in 2022 and 2023:
2022 Debt Maturities
Apartments with debt maturing
MHCs with debt maturing
2023 Debt Maturities
Apartments with debt maturing
MHCs with debt maturing
PAGE 60
Number of
Properties Estimated NOI
Principal
Balance
(at maturity)
22
9
31
$15,496
$139,744
3,153
22,316
$18,649
$162,060
Number of
Properties Estimated NOI
Principal
Balance
(at maturity)
36
11
47
$26,075
$239,349
4,119
29,249
$30,194
$268,598
35
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Future Contractual Debt Obligations
As at December 31, 2021, the timing of Killam's future contractual debt obligations is as follows:
Twelve months ending December 31,
2022
2023
2024
2025
2026
Thereafter
Mortgage and
Loans Payable
$236,943
Construction
Loans (1) Credit Facilities (2)
$—
$77,596
329,091
337,872
352,522
218,936
477,788
—
—
—
—
—
—
61,730
—
—
—
Total
$314,539
329,091
399,602
352,522
218,936
477,788
$1,953,152
$77,596
$61,730
$2,092,478
(1) Construction loans are demand loans that are expected to be replaced with permanent mortgage financing on development completion lease-up.
(2) Killam's $155.0 million credit facility was amended and extended on December 15, 2021.
Construction Loans
As at December 31, 2021, Killam had access to five variable rate non-revolving demand construction loans, for the purpose of
financing development projects, totalling $179.1 million. As at December 31, 2021, $77.6 million was drawn on the construction loans
(December 31, 2020 - $41.3 million). Payments are made monthly on an interest-only basis. The weighted-average contractual
interest rate on amounts outstanding at December 31, 2021, was 2.01% (December 31, 2020 - 2.37%). Once construction is complete
and rental targets achieved, construction financing is expected to be replaced with permanent mortgage financing.
Credit Facilities
Killam has access to two credit facilities with credit limits of $155.0 million ($175.0 million with the accordion feature) and $15.0
million (December 31, 2020 - $110.0 million and $10.0 million) that can be used for acquisition and general business purposes. The
$15.0 million facility was increased from $10.0 million during Q3-2021 and the $155.0 million facility was increased from $110.0
million during Q4-2021.
The $155.0 million facility bears interest at prime plus 55 bps on prime rate advances or 155 bps over bankers' acceptances (BAs). The
facility includes a $30.0 million demand revolver and a $125.0 million committed revolver, as well as an accordion option to increase
the $155.0 million facility by an additional $20.0 million. The agreement includes certain covenants and undertakings with which
Killam was in compliance as at December 31, 2021. The facility was renewed on December 15, 2021.
The $15.0 million demand 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. The agreement includes certain covenants and undertakings with which Killam was in compliance as at
December 31, 2021.
As at December 31, 2021
$155.0 million facility
$15.0 million facility
Total
As at December 31, 2020
$110.0 million facility
$10.0 million facility
Total
Maximum Loan
Amount (1)
$175,000
15,000
$190,000
Maximum Loan
Amount (1)
$130,000
10,000
$140,000
Amount
Drawn
$54,500
7,230
$61,730
Amount
Drawn
$5,000
2,029
$7,029
Letters of
Credit
$—
1,745
$1,745
Letters of
Credit
$—
1,773
$1,773
Amount
Available
$120,500
6,025
$126,525
Amount
Available
$125,000
6,198
$131,198
(1) Maximum loan includes a $20.0 million accordion option, for which collateral is pledged.
PAGE 61
36
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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 year
Acquisition of properties
Transfer from IPUC
Capital expenditures and development costs (1)
Fair value adjustment - Apartments
Fair value adjustment - MHCs
Fair value adjustment - Commercial
Impact of change in right-of-use asset
Balance, end of year
2021
2020
% Change
$4,284,030
$3,570,198
201,319
55,528
128,100
43,620
$4,540,877
$3,741,918
20.0%
57.2%
27.3%
21.4%
2021
2020
% Change
$3,570,198
$3,234,410
393,028
17,254
76,940
210,829
12,844
2,937
—
206,616
22,117
65,693
53,765
1,820
639
10.4%
90.2%
(22.0) %
17.1%
292.1%
605.7%
N/A
20.0%
(14,862)
(119.8) %
$4,284,030
$3,570,198
(1) Development costs are costs incurred related to development projects subsequent to when they were transferred from IPUC to investment
properties.
Killam reviewed its valuation of investment properties in light of COVID-19 as at December 31, 2021, assessing the impact on cap-rates,
rental rate growth and occupancy assumptions. It is not possible to forecast with certainty the duration and full scope of the economic
impact of COVID-19 and other consequential changes on Killam's business and operations, both in the short term and in the long term.
The increase in fair value gains on Killam's apartment portfolio recorded during the quarter is supported by cap-rate compression and
robust NOI growth driven by strong apartment fundamentals.
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, 2021 and December 31,
2020, is as follows:
For the years ended December 31,
Capitalization Rates
Apartments
MHCs
2021
High
7.00%
6.50%
Effective
Weighted
Average
4.41%
5.59%
Low
3.25%
5.00%
2020
High
7.00%
6.50%
Effective
Weighted
Average
4.67%
5.64%
Low
3.00%
5.00%
Killam's effective weighted average cap-rates for its apartment and MHC portfolios at December 31, 2021, were 4.41% and 5.59%, 26
bps and 5 bps lower than the cap-rates as at December 31, 2020.
Fair Value Sensitivity
The following table summarizes the impact of changes in capitalization rates and stabilized NOI on the fair value of Killam's investment
properties:
Change in Capitalization
Rate
(0.50) %
(0.25) %
—%
0.25%
0.50%
(2.00) %
$437,724
160,655
(85,500)
(305,658)
(503,742)
Change in Stabilized NOI (1)
(1.00) %
$485,813
205,917
(42,750)
(265,154)
(465,259)
— %
$533,902
251,178
—
(224,650)
(426,777)
1.00%
$581,991
296,440
42,750
(184,147)
(388,294)
2.00%
$630,081
341,702
85,500
(143,643)
(349,812)
(1) Includes Killam's apartment and MHC portfolios, which are valued using the direct income capitalization method, and commercial assets valued using
a discounted cash flow approach.
PAGE 62
37
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
2021 Acquisitions – Investment Properties
Property
Nolan Hill (2)
Sherwood Crossing Land
1313-1321 Hollis Street (3)
54 Assomption Blvd
Southport
5735 College Street
Royalty Crossing (4)
38 Pasadena Crescent
KWC Portfolio (5)
131 Queensway Drive (6)
140 Dale Drive
Emma Place
Heritage Valley
160 Dale Drive (3)
Nautical Suites
1350 Hollis Street
155 Kedgwick Drive
Total Acquisitions
Charlottetown, PE
St. John's, NL
Kitchener/Waterloo, ON
Location
Calgary, AB
Charlottetown, PE
Halifax, NS
Moncton, NB
Stratford, PE
Acquisition
Date
21-Jan-21
29-Jan-21
29-Jan-21
01-Feb-21
01-Feb-21
Halifax, NS 07-May-21
01-Jun-21
08-Jun-21
30-Jun-21
Moncton, NB 15-Sept-21
06-Oct-21
Stratford, PE
18-Oct-21
Moncton, NB
28-Oct-21
Edmonton, AB
29-Oct-21
Stratford, PE
9-Nov-21
Edmonton, AB
1-Dec-21
Halifax, NS
20-Dec-21
Moncton, NB
Ownership
Property Type
Interest
100%
Apartment
100% Development Land
100% Development Land
100%
Apartment
100% Development Land
100% Development Land
Commercial
25%
Apartment
100%
Apartment
100%
MHC Land
100%
Apartment
100%
Apartment
100%
100%
Apartment
100% Development Land
Apartment
100%
Apartment
100%
Apartment
100%
Units/
SF
233
—
—
23
—
—
95,750
40
785
—
61
118
123
—
180
3
31
Purchase Price (1)
$49,500
3,400
3,000
5,600
3,800
1,300
10,100
4,200
190,500
385
15,300
31,800
28,900
1,500
42,300
1,300
6,500
$399,385
(1) Purchase price does not include transaction costs.
(2) Killam had a 10% interest in the Nolan Hill development of $4.8 million and acquired the remaining 90% interest in January 2021, based on the
purchase price of $55.0 million, for a 100% interest.
(3) Revenue-generating properties acquired for future development potential.
(4) Killam acquired an additional 25% interest in Royalty Crossing for $10.1 million, increasing its ownership to 75%. Royalty Crossing is a stabilized,
grocery-anchored, enclosed mall, located on 32 acres in PEI’s busiest retail node and adjacent to the University of PEI campus. Killam’s former joint
venture partner, RioCan REIT, sold their 50% interest to Killam and a local PEI real estate operator. The local presence will bring a regional leasing
perspective, further development expertise and community-level involvement to revitalize the centre. Killam has taken over the management of the
mall and has identified opportunities to reduce the property’s operating expenses and carbon footprint in the near future. The total square footage of
the commercial property is 383,222.
(5) The portfolio of 785 units consists of 297 units located in Kitchener, ON, and 488 units in Waterloo, ON.
(6) Killam acquired a parcel of land adjacent to its Camper City seasonal resort.
Investment Properties Under Construction
As at December 31,
Balance, beginning of year
Fair value adjustment
Capital expenditures
Interest capitalized
Acquisitions
Transfer to investment properties
Transfer from land for development
Balance, end of year
2021
$128,100
11,097
73,005
2,239
—
(17,254)
4,132
$201,319
2020
% Change
$46,867
173.3%
10,184
76,050
1,686
3,968
(22,117)
11,462
$128,100
9.0%
(4.0) %
32.8%
(100.0) %
(22.0) %
(64.0) %
57.2%
PAGE 63
38
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Land for Development
As at December 31,
Balance, beginning of year
Fair value adjustment
Capital expenditures
Interest capitalized
Acquisitions
Transfer to IPUC
Transfer from held for sale (1)
Balance, end of year
2021
$43,620
—
1,905
820
13,315
(4,132)
—
$55,528
2020
% Change
$39,327
(4,022)
3,339
987
1,237
(11,462)
14,214
$43,620
10.9%
(100.0) %
(42.9) %
(16.9) %
976.4%
(64.0) %
(100.0) %
27.3%
(1) In 2020, Killam determined that this parcel of land for development, previously classified as held for sale, no longer met the criteria for this
classification. As at March 31, 2020, Killam reclassified the land to investment properties.
Killam's development projects currently underway as at December 31, 2021, include the following five projects:
Property
Latitude
The Kay
Luma
Governor
Civic 66
Total (2)(3)
Location Ownership
Number of
Units (1)
Project Budget
(millions) Start Date
Estimated
Completion
Anticipated All-
Cash Yield
Ottawa, ON
Mississauga, ON
Ottawa, ON
Halifax, NS
Kitchener, ON
50%
100%
50%
100%
100%
104
128
84
12
169
497
$43.5
$57.0
$45.8
$22.8
$69.7
$238.8
2019
2019
2019
2021
2020
January 2022
April 2022
Q2-2022
Q3-2022
Q1-2023
4.40%–4.60%
4.50%–4.75%
4.00%–4.25%
4.25%–4.75%
4.75%–5.00%
(1) Represents Killam's ownership interest in the number of units in the development.
(2) In addition, Killam has a 10% interest in the second phase (234 units) of the Nolan Hill development in Calgary, AB, which broke ground during the
fourth quarter of 2021 and is expected to be completed in 2023. Killam has a $65.0 million commitment in place to purchase the remaining 90%
interest of the second phase, following completion of construction and the achievement of certain conditions.
(3) In addition, Killam has a 50% interest in the construction of 18 townhouses for future sale on a portion of the Sherwood Crossing land in
Charlottetown, which are expected to be completed in Q3-2022.
Latitude
Latitude, containing 209 units, broke ground during Q2-2019 and opened to tenants on January 1, 2022. Final construction is ongoing,
with the total estimated cost being $87.0 million ($43.5 million for Killam's 50% interest). Since initial acquisition of the land for
development, Killam has recognized $10.6 million in fair value gains. The property is currently 34% leased.
The Kay
The Kay, containing 128 units, broke ground in Q3-2019 and is expected to be completed in April 2022. Delays in municipal site visits and
approvals contributed to the completion extension. The total estimated cost is $57.0 million. Leasing to date for this asset has been
strong, with 29% of the units currently pre-leased.
Luma
Luma, containing 168 units, broke ground in Q3-2019 and is expected to be completed in Q2-2022. Killam’s 50% interest in the cost to
construct has increased approximately 3.0%, to $45.8 million.
Governor
The Governor, containing 12 luxury apartment units and 3,500 SF of ground floor commercial space, broke ground in early 2021. The
building is located adjacent to Killam's 240-unit building, The Alexander, in Halifax, NS. The budget for the development is $22.8 million.
Construction financing is in place, with the first draw expected in Q1-2022.
Civic 66
Civic 66, containing 169 apartment units and 3,000 SF of ground floor commercial space, broke ground in July 2020, and it is expected to
be completed at the beginning of 2023. The budget for the development is $69.7 million. Construction financing was placed during
Q2-2021, and all remaining development costs will be funded through this financing.
PAGE 64
39
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Future Development Pipeline
Killam has a development pipeline with over half of the future projects located outside of Atlantic Canada. Killam targets yields of 4.0%–
5.0% on developments, 50–150 bps higher than the expected market cap-rate on completion. Building out the approximate $1.3 billion
pipeline at a 100 bps spread should create in excess of $300 million in net asset value (NAV) growth for Unitholders. Below is a listing of
land currently available for future development:
Property
Location
Killam's
Interest
Development
Potential
(# of Units) (1) Status
Estimated
Year of
Completion
Waterloo, ON
Halifax, NS
Charlottetown, PE
Charlottetown, PE
Halifax, NS
Waterloo, ON
Halifax, NS
Ottawa, ON
Calgary, AB
Developments expected to start in 2022
Westmount Place Phase 1
Eventide & Aurora
Developments expected to start in 2023-2027
Stratford land
Sherwood Crossing
Medical Arts
Westmount Place Phase 2
Hollis Street
Gloucester City Centre Phase 3
Nolan Hill Phase 3 (2)
Additional future development projects
Nolan Hill Phase 4 (2)
Calgary, AB
Christie Point
Victoria, BC
Gloucester City Centre (Phase 4-5) Ottawa, ON
Westmount Place (Phase 3-5)
Kanata Lakes
St. George Street
15 Haviland
Topsail Road
Block 4
Total Development Opportunities
Waterloo, ON
Ottawa, ON
Moncton, NB
Charlottetown, PE
St. John's, NL
St. John's, NL
100%
100%
100%
100%
100%
100%
100%
50%
10%
10%
100%
50%
100%
50%
100%
100%
100%
100%
139 Final planning approval pending
120 Final planning approval pending
100 In design
325 In design
200 Concept design
150 In design
100 Concept design
200 Concept design
200 In design
200 Future development
312 Development agreement in place
400 Future development
800 Future development
80 Future development
60 Future development
60-90 Future development
225 Future development
80 Future development
3,766
2024
2024
2025
2025
2025
2026
2026
2026
2026
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
(1) Represents total number of units in the potential development.
(2) Killam has a 10% interest in the remaining two phases of the Nolan Hill development in Calgary, AB, with the potential to purchase the remaining 90%
interest upon completion of each phase.
PAGE 65
40
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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 and/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, 2021, Killam invested $78.9 million of capital in its existing portfolio, compared to $65.7 million for
the year ended December 31, 2020. This increase year-over-year reflects a catch-up on construction delays from 2020 as a result of
COVID-19, coupled with Killam's growing asset base, as well as the timing of larger multi-phase capital projects, increased investment in
energy initiatives and Killam's repositioning program.
For the year ended December 31,
Apartments
MHCs
Commercial
Apartment Portfolio
A summary of the capital investment on the apartment segment is included below:
For the year ended December 31,
Building improvements
Unit renovations
Appliances
Energy
Common area
Total capital invested
Average number of units outstanding (1)
Capital invested – $ per unit
2021
2020
% Change
$70,711
$57,961
5,423
2,744
4,392
3,340
$78,878
$65,693
22.0%
23.5%
(17.8) %
20.1%
2021
2020
% Change
$27,899
$23,290
27,784
23,971
4,482
8,165
2,381
2,995
4,801
2,904
$70,711
$57,961
17,364
$4,072
16,209
$3,576
19.8%
15.9%
49.6%
70.1%
(18.0) %
22.0%
7.1%
13.9%
(1) Weighted average number of units, adjusted for Killam's 50% ownership in jointly held properties.
Killam invested $4,072 per unit for the year ended December 31, 2021, compared to $3,576 per unit for the same period of 2020. The
increase relates to the continued expansion of Killam's unit repositioning program and work on larger capital projects focused on
increasing the resiliency of its buildings. Killam's focus on development and acquisition of newer properties translates into a lower
maintenance capex per unit than many other apartment owners in Canada. Thirty-seven percent of Killam's apartments, as a percentage
of 2021 forecasted NOI, were built in the past 10 years, and the average age of Killam's portfolio is 29 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 2021
maintenance capex for properties built in the past 10 years was $385 per unit vs. $1,465 per unit for units that were 41+ years old.
Average Maintenance Capital Investment per Unit by Building Age
(Based on 2021 Actual Investment)
$1,500
$1,000
$500
$0
385
780
850
630
1,465
0-10 years
11-20 years
21-30 years
31- 40 years
41 + years
Maintenance Capex per unit
PAGE 66
41
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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 $1,300 per unit, compared to $5,385 per unit for buildings over 40 years old.
Average Capital Spend per Unit by Building Age
$4,000
$3,000
$2,000
$1,000
$—
2017
2018
2019
2020
2021
0-10 years
11-20 years
21-30 years
31-40 years
41+ years
Building Improvements
Of the $70.7 million total capital invested in the apartment segment for the year ended December 31, 2021, approximately 39% was
invested in building improvements, consistent with 40% of the total capital investment for the year ended December 31, 2020. These
investments include larger building improvement projects such as exterior cladding and brick work, balcony refurbishments, and roof
upgrades, as well as projects such as plumbing improvements, fire safety, security systems and window upgrades. The increase in
building investments for the year ended December 31, 2021, compared to the same period of 2020, relates primarily to the timing of
multi-phase building envelope projects and the increase in the size of Killam's apartment portfolio.
Unit Renovations and Repositionings
For the year ended December 31, 2021, Killam invested $27.8 million in unit renovations, a 15.9% increase over the total investment
of $24.0 million for the same period of 2020. This increase reflects Killam's continued focus on renovations in order to maximize
occupancy and rental growth. Killam targets a minimum ROI of 10% for its unit renovations, earning rental growth of 10%–30%. The
timing of unit 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. In 2021, Killam
repositioned 551 units, up from 495 units in 2020, with an average investment of approximately $27,900 per unit, generating an
average ROI of 13%. A summary of the repositioning activities for the year ended December 31, 2021 is set out below:
Region
Nova Scotia
Ontario
New Brunswick
Newfoundland
Total (weighted average)
2021 Repositioning Program
Units
Repositioned
Average
Investment per
Unit
Avg Return on
Investment
317
45
183
6
551
$25,650
$47,900
$26,700
$32,620
$27,900
13%
12%
13%
10%
13%
Killam achieved its target of completing 550 repositionings in 2021. Killam estimates that repositioning opportunity within its
portfolio is approximately an additional 5,500 units, which should generate an estimated $20.0 million in additional annualized
revenue, representing an approximate $325.0 million increase in NAV.
Energy
After the successful completion of Killam's five-year energy-efficiency program in 2020, it continues to invest in additional energy-
efficiency initiatives augmenting its sustainability programs and improving its GRESB rating. Killam is committed to continuously
lowering and reporting on its greenhouse gas emissions and also completing benchmarking using third-party validation. Energy-related
projects completed in 2021 include the installation of photovoltaic solar panels at select properties, installation of electric vehicle
chargers, boiler, heat pump and window replacements, insulation upgrades, as well as electricity and water conservation projects. Killam
also installed geothermal heating and cooling at three of its active development projects.
PAGE 67
42
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
MHC Portfolio
A summary of the capital investment for the MHC segment is included below:
For the year 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
2021
2020
% Change
$1,749
$2,164
(19.2) %
843
1,871
558
402
571
1,177
351
129
$5,423
$4,392
5,875
$923
5,855
$750
47.6%
59.0%
59.0%
211.6%
23.5%
0.3%
23.1%
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 invested during the year ended December 31, 2021, was $5.4 million, compared to $4.4 million for the year ended
December 31, 2020. The increase in capital investment relates to various community enhancements, land improvements and water
and sewer upgrades. As with the apartment portfolio, the timing of MHC capital investment changes based on requirements at each
community.
Commercial Portfolio
During the year ended December 31, 2021, Killam invested $2.7 million in its commercial portfolio, compared to $3.3 million for the
year ended December 31, 2020. These investments relate primarily to property upgrades and tenant improvements for new leasing
opportunities at Killam's three standalone commercial properties, The Brewery, Westmount Place and Royalty Crossing. The timing of
capital investment will vary based on tenant turnover.
PAGE 68
43
Killam Apartment REIT | 2021
2021 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, 2021, no unitholders redeemed units.
During Q3-2021, Killam increased its monthly distribution by 2.9% to $0.05833, effective for the October 2021 distribution ($0.69 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.
The following chart 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
2021
2020
% Change
$74,912
$68,696
2,766
247
2,784
251
$77,925
$71,731
(25,657)
(21,274)
(247)
(251)
$52,021
$50,206
33.2 %
30.0 %
9.0%
(0.6) %
(1.6) %
8.6%
20.6%
(1.6) %
3.6%
PAGE 69
44
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART VIII
Quarterly Results & Discussion of Q4 Operations
Summary of Quarterly Results
An eight-quarter trend highlighting key operating results is shown below:
2021
2020
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Property revenue
$76,998 $76,244 $70,300 $67,375 $66,845 $66,653 $64,899 $63,293
NOI
Net income
FFO
FFO per unit - diluted
AFFO
$47,921 $50,455 $44,596 $40,263 $41,496 $43,198 $41,318 $37,842
$74,801 $46,634 $136,672 $27,420 $48,563 $37,465 $21,509 $38,503
$30,514 $34,246 $29,369 $25,106 $26,537 $28,512 $26,617 $23,012
$0.27
$0.30
$0.27
$0.23
$0.25
$0.27
$0.26
$0.22
$25,669 $29,510 $24,774 $20,485 $22,012 $24,099 $22,136 $18,569
AFFO per unit – diluted
$0.22
$0.26
$0.23
$0.19
$0.21
$0.23
$0.22
$0.18
Weighted average units – diluted (000s)
114,571 114,250 109,929 107,669 107,300 105,691 102,620 102,358
Q4 Consolidated Results
For the three months ended December 31,
Total Portfolio
Same Property
Non-Same Property
2021
2020 % Change
2021
2020 % Change
2021
2020 % Change
Property revenue
$76,998
$66,845
15.2%
$66,485
$63,426
4.8%
$10,513
$3,419
207.5%
Property operating expenses
General operating expenses
13,616
11,725
Utility and fuel expenses
Property taxes
6,332
9,129
5,391
8,233
16.1%
17.5%
10.9%
11,727
11,250
5,491
7,881
5,169
7,869
Total operating expenses
$29,077
$25,349
14.7%
$25,099
$24,288
NOI
$47,921
$41,496
15.5%
$41,386
$39,138
4.2%
6.2%
0.2%
3.3%
5.7%
1,889
841
1,248
475
222
364
297.7%
278.8%
242.9%
$3,978
$1,061
274.9%
$6,535
$2,358
177.1%
Operating margin %
62.2%
62.1%
10 bps
62.2%
61.7%
50 bps
62.2%
69.0%
(680) bps
For the three months ended December 31, 2021, Killam recognized 15.5% NOI growth. Revenue grew 15.2%, offset by total operating
expense increases of 14.7% from the growth in Killam's portfolio through acquisitions completed over the last twelve months.
Consolidated same property revenue grew 4.8% for the three months ended December 31, 2021, compared to the same period of 2020,
due to higher apartment occupancy and rental rates. Total same property operating expenses increased by 3.3%, resulting in
consolidated same property NOI growth of 5.7% in Q4-2021, compared to Q4-2020.
PAGE 70
45
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Q4 Same Property NOI
For the three months ended December 31,
Apartments
MHCs
Commercial
2021
2020 % Change
2021
2020 % Change
2021
2020 % Change
Property revenue
$58,213
$55,711
4.5%
$4,075
$3,933
3.6%
$4,197
$3,782
11.0%
Property operating expenses
General operating expenses
Utility and fuel expenses
Property taxes
9,843
4,735
6,939
9,387
4,453
6,881
Total property expenses
$21,517
$20,721
NOI
$36,696
$34,990
4.9%
6.3%
0.8%
3.8%
4.9%
1,157
1,149
514
185
492
194
$1,856
$1,835
$2,219
$2,098
0.7%
4.5%
(4.6) %
1.1%
5.8%
727
242
757
714
224
794
$1,726
$1,732
1.8%
8.0%
(4.7) %
(0.3) %
$2,471
$2,050
20.5%
Operating margin
63.0%
62.8%
20 bps
54.5%
53.3%
120 bps
58.9%
54.2%
470 bps
Apartment Same Property
Killam’s same property apartment portfolio realized NOI growth of 4.9% for the three months ended December 31, 2021, compared to
the three months ended December 31, 2020, due to a 4.5% increase in revenues and a 3.8% increase in total property operating
expenses. Revenue growth was generated from a 3.1% increase in the average rental rate and a 160 bps increase in occupancy for the
quarter, from 96.5% to 98.1%.
General operating expenses increased 4.9% in the fourth quarter of 2021 compared to the same period in 2020 due to inflationary cost
pressures, including higher contract service and repairs and maintenance costs, as well as an increase in staffing costs.
Utility and fuel expenses were 6.3% higher for the three months ended December 31, 2021, as compared to the same period in 2020.
Electricity expenses were 7.6% lower due to a reduction of inclusion of unit electricity as a rental incentive. Oil costs increased 65.9%
compared to Q4-2020, as a result of a 54% increase in commodity pricing. Natural gas expenses increased 21.1%, due to an increase in
the weighted average natural gas pricing across Killam's core markets.
Property taxes increased a modest 0.8% quarter-over-quarter, as higher property tax assessments and rate increases were partially
offset by successful tax appeals.
Q4-2021 Occupancy
Apartment Occupancy Analysis by Core Market (% of Residential Rent) (1)
For the three months ended December 31, # of Units
Halifax
Ottawa
London
KWC-GTA
Moncton
Fredericton
Saint John
St. John's
Charlottetown
Calgary
Edmonton
Victoria
Other Atlantic
5,816
1,216
523
1,603
2,246
1,529
1,202
955
1,163
764
882
317
469
Total Apartments (weighted average)
18,685
Total Occupancy
Same Property Occupancy
2021
98.9%
94.7%
99.5%
99.0%
98.4%
97.6%
98.6%
95.0%
99.3%
97.0%
95.2%
99.2%
98.0%
98.1%
2020
97.3%
95.0%
97.1%
97.7%
97.0%
98.1%
96.7%
86.7%
90.9%
92.7%
94.5%
98.6%
93.9%
96.0%
Change
(bps)
160
(30)
240
130
140
(50)
190
830
840
430
70
60
410
210
2021
98.9%
94.7%
99.5%
99.3%
99.0%
97.6%
98.6%
95.0%
99.3%
96.3%
96.0%
N/A
98.0%
98.1%
2020 Change (bps)
97.3%
95.0%
97.1%
97.9%
98.1%
98.1%
96.7%
86.7%
99.4%
92.7%
94.5%
N/A
93.9%
96.5%
160
(30)
240
140
90
(50)
190
830
(10)
360
150
N/A
410
160
(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.
Overall apartment occupancy increased 210 bps to 98.1% in the fourth quarter of 2021, compared to 96.0% for the fourth quarter of
2020, due to strong market fundamentals. Same property occupancy was 98.1%, a 160 bps increase versus Q4-2020.
PAGE 71
46
Killam Apartment REIT | 2021
2021 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
2021
2020 % Change
2021
2020 % Change
2021
2020 % Change
Nova Scotia
Halifax
Ontario
Ottawa
London
KWC-GTA
New Brunswick
Moncton
Fredericton
Saint John
$21,930
$20,791
21,930
20,791
3,973
2,181
4,316
3,950
2,118
4,150
10,470
10,218
5,659
5,178
3,384
5,445
4,969
3,173
14,221
13,587
5.5%
5.5%
0.6%
3.0%
4.0%
2.5%
3.9%
4.2%
6.6%
4.7%
($7,481)
($7,150)
4.6%
$14,449
$13,641
(7,481)
(7,150)
4.6%
14,449
13,641
(1,342)
(1,307)
(795)
(762)
2.7%
4.3%
(1,393)
(1,412)
(1.3) %
(3,530)
(3,481)
1.4%
(2,507)
(2,371)
(2,070)
(1,958)
(1,463)
(1,445)
(6,040)
(5,774)
2,631
1,386
2,923
6,940
3,152
3,108
1,921
8,181
2,643
1,356
2,738
6,737
3,074
3,011
1,728
7,813
5.9%
5.9%
(0.5) %
2.2%
6.8%
3.0%
2.5%
3.2%
11.2%
4.7%
Newfoundland & Labrador
St. John's
Prince Edward Island
Charlottetown
Alberta
Calgary
Edmonton
Other Atlantic locations
2,694
2,694
3,037
3,037
2,050
2,413
4,463
1,398
2,992
2,992
1,956
2,418
4,374
1,320
2,429
2,429
10.9%
10.9%
(919)
(919)
(912)
(912)
1.5%
1.5%
(1,336)
(1,219)
(1,336)
(1,219)
1,775
1,775
1,517
1,517
17.0%
17.0%
1,701
1,701
1,773
1,773
(4.1) %
(4.1) %
4.8%
(0.2) %
(817)
(859)
(772)
(883)
5.8%
(2.7) %
2.0%
5.9%
(1,676)
(1,655)
(535)
(530)
1.3%
0.9%
1,233
1,554
2,787
863
1,184
1,535
2,719
790
5.7%
5.7%
1.2%
4.6%
0.8%
0.8%
9.6%
9.6%
$58,213
$55,711
4.5%
($21,517) ($20,721)
3.8%
$36,696
$34,990
PAGE 72
4.1%
1.2%
2.5%
9.2%
4.9%
47
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
MHC Results
For the three months ended December 31,
Total Portfolio
Same Property
Non-Same Property
2021
2020 % Change
2021
2020 % Change
2021
2020 % Change
Property revenue
$4,161
$4,058
2.5%
$4,075
$3,933
3.6%
$86
$125
N/A
Property operating expenses
General operating expenses
1,159
1,151
Utility and fuel expenses
Property taxes
513
190
491
198
Total operating expenses
$1,862
$1,840
NOI
$2,299
$2,218
0.7%
4.5%
(4.0) %
1.2%
3.7%
1,157
1,149
514
185
492
194
$1,856
$1,835
$2,219
$2,098
0.7%
4.5%
(4.6) %
1.1%
5.8%
2
(1)
5
2
(1)
4
$6
$80
$5
$120
N/A
N/A
N/A
N/A
N/A
Operating margin %
55.3%
54.7%
60 bps
54.5%
53.3%
120 bps
$—
$—
—%
The MHC same property portfolio generated a 5.8% increase in NOI in Q4-2021, compared to Q4-2020. Revenues grew by 3.6%
quarter-over-quarter due to a 2.0% increase in rental rates and increased revenue from Killam's seasonal resorts. Total same property
operating expenses increased a modest 1.1% due to higher utility and contract service costs, partially offset by lower property taxes
and repairs and maintenance costs.
Commercial Results
For the three months ended December 31,
Total Portfolio
Same Property
Non-Same Property
2021
2021 % Change
2021
2020 % Change
Property revenue
$4,689
$3,845
22.0%
$4,197
$3,782
11.0%
Property operating expenses
2,046
1,803
13.5%
1,726
1,732
(0.3) %
NOI
$2,643
$2,042
29.4%
$2,471
$2,050
20.5%
2021
$492
320
$172
2020 % Change
$63
71
($8)
681.0%
350.7%
N/A
Killam's overall commercial portfolio saw a 22.0% increase in revenue and a 13.5% increase in property operating expenses, resulting in
a 29.4% increase in NOI compared to Q4-2020 as a result of the acquisition of an additional 25% interest in Royalty Crossing in June
2021.
The same property results in Q4-2021 include Westmount Place, located in Waterloo, Killam's initial ownership interest in Royalty
Crossing (50%) in Charlottetown, the Brewery Market in downtown Halifax, as well as three commercial properties, one of which is
Killam's head office, located in Halifax, and a small commercial property in Moncton. Overall, same property commercial revenue grew
10.9% during Q4-2021 from increased occupancy, higher percentage rent, and lower discounts and incentives upon lease-up.
PAGE 73
48
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Q4 FFO
For the three months ended December 31,
2021
2020
% Change
Net income
Fair value adjustment on unit-based compensation
Fair value adjustment on exchangeable units
Fair value adjustment on investment properties
Non-controlling interest
Deferred tax expense
Interest expense related to exchangeable units
Unrealized 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
FFO per unit – diluted
Weighted average number of units – basic (000s)
Weighted average number of units – diluted (000s)
$74,801
$48,563
831
9,370
(66,012)
(4)
10,716
701
(69)
147
26
7
32
(1,025)
(28,521)
(3)
6,717
697
(6)
51
24
8
$30,514
$26,537
$0.27
$0.27
114,408
114,571
$0.25
$0.25
107,139
107,300
54.0%
2496.9%
1014.1%
131.5%
33.3%
59.5%
0.6%
1050.0%
188.2%
8.3%
(12.5) %
15.0%
8.0%
8.0%
6.8%
6.8%
Killam earned FFO of $30.5 million, or $0.27 per unit (diluted), for the three months ended December 31, 2021, compared to $26.5
million, or $0.25 per unit (diluted), for the three months ended December 31, 2020. FFO growth is primarily attributable to contributions
from acquisitions and completed developments ($3.2 million), same property NOI growth ($1.7 million), and a reduction in interest
expenses ($0.3 million). These increases were offset by a 6.8% increase in the weighted average number of units outstanding from an
equity raise completed in May 2021.
Q4 AFFO
For the three months ended December 31,
2021
2020
% Change
FFO
Maintenance capital expenditures
Commercial straight-line rent adjustment
Internal and external commercial leasing costs
AFFO
AFFO per unit – basic
AFFO per unit – diluted
AFFO payout ratio – diluted
$30,514
$26,537
(4,666)
(4,271)
(47)
(132)
(109)
(145)
$25,669
$22,012
$0.22
$0.22
78 %
$0.21
$0.21
15.0%
9.2%
(56.9) %
(9.0) %
16.6%
4.8%
4.8%
83 %
(500) bps
Weighted average number of units – basic (000s)
Weighted average number of units – diluted (000s)
114,408
114,571
107,139
107,300
6.8%
6.8%
The payout ratio of 78% for the three months ended December 31, 2021, improved 500 bps compared to the same period of 2020. The
stability is attributable to a 16.6% increase in AFFO, driven by contributions from acquisitions and developments and same property NOI
growth, offset by the impact of the increase in the weighted average number of units outstanding.
PAGE 74
49
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
PART IX
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
2021
2020
2019
$290,917
$261,690
$242,164
$285,527
$146,040
$283,525
$119,235
$104,678
$93,884
$1.07
$1.00
$0.98
$4,540,877
$3,741,918
$3,320,604
$4,578,507
$3,776,560
$3,380,100
$2,467,038
$2,008,302
$1,777,733
$0.69
$0.68
$0.66
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 property owner to provide adequate maintenance economically.
Real estate is relatively illiquid and therefore can 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, MHCs, and commercial properties.
Killam is exposed to other risks, as outlined below:
Pandemic Risk and Economic Downturn
On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. The transmission of COVID-19, and its
variants, and efforts to contain its spread have resulted in, and may continue to result in, international, national and local border
closings, significant disruptions to business operations, financial markets, regional economies and the world economy and other changes
to services, as well as considerable general concern and uncertainty. Such disruptions could adversely affect the ability of Killam’s
tenants to pay rent and increase Killam's credit risk. In addition, the COVID-19 pandemic and other outbreaks could materially interrupt
Killam's supply chain and service providers, which could have material adverse effects on Killam's ability to maintain and service its
properties. There can be no assurance that a disruption in financial markets, regional economies and the world economy, and the
government measures to contain COVID-19, and its variants, will not negatively affect the financial performance or fair values of Killam's
investment properties in a material manner.
Killam’s response to the COVID-19 pandemic is guided by local public health authorities and governments. Killam continues to closely
monitor business operations and may take further actions that respond to directives of governments and public health authorities or
that are in the best interests of employees, tenants, suppliers or other stakeholders, as necessary. These changes and any additional
changes in operations in response to COVID-19 could materially impact the business, operations and financial results of Killam. The
COVID-19 situation continues to change rapidly and uncertainties remain with respect to the severity and duration of a resurgence in
COVID-19 or its variants, the speed and extent to which normal economic conditions are able to resume, and the effectiveness of
government and central bank responses to the effects of the COVID-19 pandemic. There are no comparable recent events that provide
guidance as to the effect the spread of COVID-19, and its variants, may have, and, as a result, it is not possible to reliably estimate the
duration and severity of these consequences, as well as their impact on the financial position and results of Killam for future periods.
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 to
stagger the maturities of its debt, minimizing Killam's exposure to interest rates in any one year.
As at December 31, 2021, $147.6 million of Killam's debt had variable interest rates, including four construction loans totalling $77.6
million, amounts drawn on credit facilities of $61.7 million and one demand loan totalling $8.3 million. These loans and facilities have
interest rates of prime plus 0.4%–1.25% or 105–245 bps above BAs (December 31, 2020 - prime plus 0.5%–1.25% or 160–250 bps above
BAs), and consequently, Killam is exposed to short-term interest rate risk on these loans.
PAGE 75
50
Killam Apartment REIT | 2021
2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Inflation Risk
Killam does not believe that inflation has had a material effect on its business, financial condition or results of operations to date;
however, if Killam's development, construction, operation or labour costs were to become subject to significant inflationary pressures,
Killam may not be able to fully offset such higher costs through increases in rent to its tenants. Killam's inability or failure to do so could
harm Killam's business, financial condition and results of operations.
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 25 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.
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 0.3% 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.
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.
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, it 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 does not and will not carry insurance with respect to all potential casualties, damages, losses and disruptions. Killam does carry
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. There can be no assurance that the insurance proceeds received by Killam in respect of a claim will
be sufficient in any particular situation to fully compensate Killam for losses and liabilities suffered. Losses and liabilities arising from
uninsured or under insured events could adversely affect Killam's business, financial condition or results of operations.
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.
PAGE 76
51
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
In response to COVID-19, Ontario capped residential rents on existing tenants for 2022 at 1.2% and British Columbia capped residential
rent increases on existing tenants at 1.5% for 2022. Nova Scotia currently has measures in place in response to COVID-19, limiting the
maximum allowable rental increase on renewal to 2.0%. These temporary measures in Nova Scotia are in place until the end 2023.
The lack of availability of affordable housing and related housing policy and regulations is continuing to increase in prominence as a
topic of concern at the various levels of government.
Accordingly, through different approaches, governments may enact policy, or amend legislation in a manner that may have a material
adverse effect on the ability for Killam to grow or maintain the historical level of cash flow from its properties.
In addition, laws and regulations providing for compliance with various housing matters involving tenant evictions, work orders, health
and safety issues or fire and maintenance standards, etc., including in relation to the ongoing COVID-19 pandemic, may become more
stringent in the future. Killam may incur increased operating costs as part of its compliance with any such additional government
legislation and regulations relating to housing matters, which may have an adverse effect on revenues.
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. The impact of such volatility could be increased if such utility costs cannot be hedged. 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.
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 may 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”, it will be required to pay a
tax under Part XII.2 of the Income Tax Act ("Tax Act").
PAGE 77
52
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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” 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 its 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, registered education savings plans, registered disability savings plans or tax-free savings
accounts.
Certain rules in the Tax Act (the “SIFT Rules”) affect the tax treatment of specified investment flow-through trusts (“SIFT trusts”) and
their unitholders. A trust resident in Canada will generally be a SIFT trust for a particular taxation year for purposes of the Tax Act if, at
any time during the taxation year, investments in the trust are listed or traded on a stock exchange or other public market and the trust
holds one or more “non-portfolio properties” as defined in the Tax Act. Non-portfolio properties generally include certain investments in
real properties situated in Canada and certain investments in corporations and trusts resident in Canada and in partnerships with
specified connections to Canada. However, a trust will not be considered to be a SIFT trust for a taxation year if it qualifies as a “real
estate investment trust” (as defined in the Tax Act) for that year (the “REIT Exception”).
Pursuant to the SIFT Rules, distributions of a SIFT trust’s “non-portfolio earnings” are not deductible to the SIFT trust in computing its
income. Non-portfolio earnings are generally defined as income attributable to a business carried on by the SIFT trust in Canada or to
income (other than dividends) from, and taxable capital gains from the disposition of, non-portfolio properties. The SIFT trust is itself
liable to pay income tax on an amount equal to the amount of such non-deductible distributions at a rate that is substantially equivalent
to the combined federal and provincial general tax rate applicable to taxable Canadian corporations. Such non-deductible distributions
paid to a holder of units of the SIFT trust are generally deemed to be taxable dividends received by the holder of such units from a
taxable Canadian corporation. Such deemed dividends will qualify as “eligible dividends” for purposes of the enhanced gross-up and
dividend tax credit rules in the Tax Act 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, capital gains 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.
PAGE 78
53
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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 four properties (seven 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. If any such risks materialize it may have an adverse effect on Killam's
business, financial condition or results of operations
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, 2021, were $0.3 million (December 31, 2020 - $0.3 million).
PAGE 79
54
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
Climate Change and Environmental Laws
Killam is exposed to physical climate change risk, including 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 its 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. Physical and transitional climate-related risks are considered by the Trust as part of its ongoing risk management processes. The
materiality of such risks varies among the business operations of Killam and the jurisdictions in which such operations are conducted.
Despite the potential uncertainties and longer-time horizon associated with any such risks, the Trust considers the impacts of climate
change related risks over the short, medium and long terms. In the long term, Killam plans to move towards operating its portfolio
with net-zero carbon emissions to combat its impact on climate change.
In addition, environmental legislation and policies, which can change rapidly, have become increasingly important and generally more
restrictive in recent years. Under various federal, provincial and local environmental laws, ordinances and regulations, Killam could be
liable for the costs of removal or remediation of certain hazardous or toxic substances released on or in monitoring its properties or
disposed of by or on behalf of Killam at other locations. The failure to remove, monitor or remediate any such substances, if any, may
adversely affect Killam’s ability to sell its real estate, or to borrow using such real estate as collateral, and could potentially also result
in regulatory enforcement proceedings and/or private claims against Killam. Although Killam is not aware of any material
noncompliance with environmental laws at any of its properties nor is it aware of any pending or threatened investigations or actions
by environmental regulatory authorities in connection with any of its properties or any material pending or threatened claims relating
to environmental conditions at its properties, no assurance can be given that environmental laws will not result in significant liability
to Killam in the future or otherwise adversely affect Killam’s business, financial condition or results of operations.
ESG Targets and Commitments
Killam has announced certain targets and ambitions relating to ESG, to achieve these goals and to respond to changing market demand,
Killam may incur additional costs and invest in new technologies. It is possible that the return on these investments may be less than
Killam expects, which may have an adverse effect on its business, financial condition and reputation. Generally speaking, Killam's ability
to meet its targets depends significantly on Killam's ability to execute its current business strategy, related milestones and schedules,
each of which can be impacted by the numerous risks and uncertainties associated with our business and the industries in which it
operates, as outlined in the other risk factors described in this MD&A.
Killam recognizes that investors and stakeholders increasingly compare companies based on ESG-related performance. Failure by Killam
to achieve its ESG targets, or a perception among key stakeholders that our ESG targets are insufficient, could adversely affect, among
other things, Killam's cost of capital, reputation and ability to attract capital.
There is also a risk that some or all of the expected benefits and opportunities of achieving the various ESG targets may fail to
materialize, may cost more to achieve or may not occur within the anticipated time periods. In addition, there are risks that the actions
taken by Killam in implementing targets and ambitions relating to ESG may have a negative impact on its existing business and
operations and increase capital expenditures, which could have a negative impact on Killam's business, financial condition, results of
operations and cash flows.
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.
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). 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.
PAGE 80
55
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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, 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 22.
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, 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, 2023. 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.
PAGE 81
56
Killam Apartment REIT | 2021 2021 Management's Discussion and Analysis
Dollar amounts in thousands of Canadian dollars (except as noted)
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, 2021, 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, 2021, 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 in 2013 and, based on that assessment, determined that the ICFR
were designed and operating effectively as at December 31, 2021. Killam did not make any changes to the design of ICFR in 2021 that
have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.
Related Party Transactions
From January 1, 2021 to May 7, 2021, Killam paid a former Trustee, that did not offer to stand for re-election at Killam's May 2021
Annual General Meeting, $0.1 million (for the year ended December 31, 2020 - $0.3 million) related to the construction of two
apartment buildings and the acquisition of land for future development.
Killam owns a 50% interest in two office properties located at 3700 & 3770 Kempt Road in Halifax, NS, and the other 50% interest is
owned by an executive and Trustee of Killam. These properties are managed by a third party. Killam's head office occupies
approximately 23,000 SF of one of the buildings with base rent of approximately $14.00 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 includes 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
2021
$6,162
2,078
$8,240
2020
$5,138
1,727
$6,865
On January 17, 2022, Killam announced a distribution of $0.05833 per unit, payable on February 15, 2022, to unitholders of record on
January 31, 2022.
On February 4, 2022, Killam closed a public offering of 4,715,000 trust units for gross proceeds of approximately $98.1 million.
PAGE 82
57
Killam Apartment REIT | 2021 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, 2021, 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 16, 2022
Philip Fraser
President and Chief Executive Officer
Dale Noseworthy
Chief Financial Officer
PAGE 83
Killam Apartment REIT | 2021
PAGE 84
Killam Apartment REIT | 2021 PAGE 85
Killam Apartment REIT | 2021 PAGE 86
Killam Apartment REIT | 2021 PAGE 87
Killam Apartment REIT | 2021 Consolidated Statements of Financial Position
In thousands of Canadian dollars,
Note
December 31, 2021
December 31, 2020
[5]
[7]
[8]
[9]
[8]
$4,540,877
$3,741,918
7,931
4,375
8,349
—
$4,553,183
$3,750,267
$435
7,768
17,121
25,324
$2,556
6,561
17,176
26,293
$4,578,507
$3,776,560
[16]
$2,111,327
$1,768,129
142
129
$2,111,469
$1,768,258
$1,678,391
$1,430,344
9,604
94,461
227,004
6,376
20
9,573
70,177
184,611
4,784
188
$2,015,856
$1,699,677
$236,943
$201,345
61,730
77,596
74,913
451,182
$2,467,038
$4,578,507
7,029
41,345
58,906
308,625
$2,008,302
$3,776,560
[10]
[11]
[15]
[22]
[18]
[10]
[12]
[13]
[14]
[27]
[28]
ASSETS
Non-current assets
Investment properties
Property and equipment
Other non-current assets
Current assets
Cash
Rent and other receivables
Other current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Unitholders' equity
Non-controlling interest
Total Equity
Non-current liabilities
Mortgages and loans payable
Lease liabilities
Exchangeable Units
Deferred income tax
Deferred unit-based compensation
Other non-current liabilities
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
PAGE 88
1
Killam Apartment REIT | 2021 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
Income before income taxes
Deferred tax expense
Net income
Comprehensive income
Net income attributable to:
Unitholders
Non-controlling interest
Comprehensive income attributable to:
Unitholders
Non-controlling interest
See accompanying notes to the consolidated financial statements.
Note
[19]
Year ended December 31,
2021
2020
$290,917
$261,690
[20]
[21]
[18]
[15]
[5]
[22]
(47,482)
(24,683)
(35,517)
(107,682)
(42,418)
(23,240)
(32,178)
(97,836)
$183,235
$163,854
1,059
641
(51,521)
(48,919)
(573)
(630)
(15,988)
(13,936)
(1,869)
(26,107)
239,684
327,920
59
7,676
46,885
155,630
(42,393)
(9,590)
$285,527
$285,527
$146,040
$146,040
285,514
146,024
13
16
$285,527
$146,040
285,514
146,024
13
16
$285,527
$146,040
2
PAGE 89
Killam Apartment REIT | 2021
Consolidated Statements of Changes in Equity
In thousands of Canadian dollars,
Year ended December 31, 2021
Trust Units
Contributed
Surplus
Retained
Earnings
Non-controlling
Interest
Total Equity
As at January 1, 2021
$1,097,713
$795
$669,621
$129
$1,768,258
Units issued on exchange of
Exchangeable Units
Distribution reinvestment plan
Deferred Unit-based compensation
Issued for cash
Net income
Distributions declared and paid
Distributions payable
As at December 31, 2021
1,823
25,465
945
104,361
—
—
—
—
—
—
—
—
—
—
—
—
—
—
285,514
(68,406)
(6,504)
—
—
—
—
13
—
—
1,823
25,465
945
104,361
285,527
(68,406)
(6,504)
$1,230,307
$795
$880,225
$142
$2,111,469
Year ended December 31, 2020
Trust Units
Contributed
Surplus
Retained
Earnings
Non-controlling
Interest
Total Equity
As at January 1, 2020
$1,009,166
$795
$592,293
$113
$1,602,367
Units issued on exchange of
Exchangeable Units
Distribution reinvestment plan
Deferred Unit-based compensation
Issued for cash
Net income
Distributions declared and paid
Distributions payable
At December 31, 2020
815
21,372
578
65,782
—
—
—
—
—
—
—
—
—
—
—
—
—
—
146,024
(62,793)
(5,903)
—
—
—
—
16
—
—
815
21,372
578
65,782
146,040
(62,793)
(5,903)
$1,097,713
$795
$669,621
$129
$1,768,258
See accompanying notes to the consolidated financial statements.
PAGE 90
3
Killam Apartment REIT | 2021
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
Amortization of fair value adjustments on assumed mortgages
Loss on disposition
(Gain) 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 redemption of restricted Units
Cash paid on lease liabilities
Mortgage financing
Mortgages repaid
Mortgage principal repayments
Credit facility proceeds
Proceeds from construction loans
Construction loan repayments
Distributions paid to non-controlling interest
Distributions to Unitholders
Cash provided by financing activities
INVESTING ACTIVITIES
Increase in restricted cash
Acquisition of investment properties, net of debt assumed
Advance on loan receivable
Development of investment properties
Capital expenditures
Cash used in investing activities
Net decrease in cash
Cash, beginning of year
Cash, end of year
See accompanying notes to the consolidated financial statements.
Year ended December 31,
Note
2021
2020
$285,527
$146,040
(211,708)
(54,620)
573
3,784
2,078
42,393
65
—
(167)
2,766
(306)
386
630
3,126
1,727
9,563
87
4
483
2,784
(657)
385
[24]
15,469
13,962
$140,860
$123,514
(4,122)
104,361
(1,566)
(318)
(7,647)
65,782
(1,672)
(314)
381,133
433,501
(101,866)
(187,568)
(62,246)
(51,592)
54,701
54,140
7,029
39,613
(17,889)
(23,119)
—
16
(51,455)
(49,633)
$354,873
$224,396
(637)
(255)
(338,068)
(206,274)
(4,375)
(77,962)
(76,812)
—
(81,975)
(69,651)
($497,854)
($358,155)
(2,121)
(10,245)
2,556
$435
12,801
$2,556
4
PAGE 91
Killam Apartment REIT | 2021
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, 2021. 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") applicable to the preparation of consolidated
annual financial statements. These policies have been consistently applied to all years presented, unless stated otherwise.
The consolidated financial statements of the Trust for the year ended December 31, 2021 were authorized for issue in
accordance with a resolution of the Board of Trustees of Killam on February 16, 2022.
(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 liability 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 otherwise noted.
The consolidated financial statements have been prepared considering the impact that the spread of COVID-19 has and continues
to have on local, national and worldwide economies. Measures taken to contain the spread of the virus have triggered significant
disruptions to businesses worldwide, resulting in an economic uncertainty. Canadian and global stock markets have also
experienced great volatility. Governments and central banks have responded with monetary and fiscal interventions to stabilize
economic conditions. Killam has considered the negative economic outlook and cash flow difficulties that may be experienced as a
result of this virus, on its tenants, suppliers and lenders. Killam has used the best information available as at December 31, 2021,
in determining its estimates and the assumptions that affect the carrying amounts of assets and liabilities, and earnings for the
year. Actual results could differ from those estimates. Killam considers the estimates that could be most significantly impacted by
COVID-19 to include those underlying the valuation of investment properties and the estimated credit losses on accounts
receivable.
(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 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.
PAGE 92
5
Killam Apartment REIT | 2021 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
Killam Apartment Subsidiary II Limited Partnership
Killam Investments Inc.
Killam Investments (PEI) Inc.
Killam Properties Apartments Trust
Killam Properties MHC Trust
Blackshire Court Limited
Killam KamRes (Silver Spear) Inc.
Killam KamRes (Grid 5) Inc.
Blackshire Court Limited Partnership
Christie Point Apt. Ltd.
1140459 BC Ltd.
% Interest
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
97%
100%
100%
(ii) Joint arrangements
Killam has interests in and joint control in four properties, two development projects and land for future development. Killam has
assessed the nature of its joint arrangements 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 an integrated set of activities and assets that must include, at a
minimum, an input and a substantive process that, together, significantly contribute to the ability to create output. 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 the substance of the assets and activities 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.
6
PAGE 93
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(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.
The performance obligation for the property management and ancillary services is satisfied over time. The Trust applies the
practical expedient in 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.
(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.
PAGE 94
7
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
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 to fair value at each consolidated statement of financial position date, 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.
(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. Upon designation as held for sale, the investment property continues to be
measured at fair value and is presented separately in the consolidated statement of financial position.
(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.
8
PAGE 95
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(K) Consolidated Statements of Cash Flows
Cash consists of cash on hand and bank account balances excluding cash on hand held for security deposits.
(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.
(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
Credit facility
Exchangeable Units
Deferred unit-based compensation
Derivative liabilities
Financial liabilities
Amortized cost
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.
PAGE 96
9
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
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.
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, as they are considered to be puttable instruments under IAS 32, Financial Instruments: Presentation
(“IAS 32”). Fair value 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 25 for a detailed discussion of valuation methods used for financial instruments quoted in an active
market and instruments valued using observable data.
10
PAGE 97
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
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.
(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) Borrowing Costs and Interest on Mortgages Payable
Financing costs include mortgage interest, which is expensed at the effective interest rate, and transaction costs incurred in
connection with the revolving credit facilities, which are capitalized and presented as other non-current assets and amortized over
the term of the facility to which they relate.
(P) 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.
(Q) Distributions
Distributions represent the monthly cash distributions on outstanding Trust Units and Exchangeable Units.
PAGE 98
11
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
(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.
(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 does not report earnings per Unit calculations.
(U) Leases
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.
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.
12
PAGE 99
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
2. Significant Accounting Policies (continued)
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.
(V) Reportable Operating Segments
Reportable operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker is the person or group that allocates resources to and
assesses the performance of the operating segments of an entity. Killam has determined that its chief operating
decision-maker is comprised of members of executive management.
3. Critical Accounting Judgments, Estimates and Assumptions
Critical Judgments in Applying Accounting Policies
The preparation of consolidated financial statements in accordance with IFRS requires the use of estimates, assumptions and
judgments that in some cases relate to matters that are inherently uncertain, and which affect the amounts reported in the
consolidated financial statements and accompanying notes. Areas of such estimation include, but are not limited to: valuation of
investment properties, remeasurement at fair value of financial instruments, valuation of accounts receivable, capitalization of
costs, accounting accruals, the amortization of certain assets, accounting for deferred income taxes and determining whether an
acquisition is a business combination or an asset acquisition. Changes to estimates and assumptions may affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from
those estimates under different assumptions and conditions.
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.
PAGE 100
13
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
3. Critical Accounting Judgments, Estimates and Assumptions (continued)
(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.
(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, 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 22.
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, 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, 2023. 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.
14
PAGE 101
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
5. Investment Properties
As at December 31, 2021
Balance, January 1, 2021
Fair value adjustment on investment properties
Acquisitions
Transfer from IPUC
Capital expenditures
Transfer from land for development
Interest capitalized on IPUC and land for development
Balance, December 31, 2021
Apartments
$3,218,369
210,829
382,129
17,254
68,773
—
—
$3,897,354
MHCs Commercial
$139,130
2,937
10,495
—
2,744
—
—
$155,306
$212,699
12,844
404
—
5,423
—
—
$231,370
IPUC
$128,100
11,097
—
(17,254)
73,005
4,132
2,239
$201,319
Land for
Development
$43,620
—
13,315
—
1,905
(4,132)
820
$55,528
Total
$3,741,918
237,707
406,343
—
151,850
—
3,059
$4,540,877
As at December 31, 2020
Balance, January 1, 2020
Fair value adjustment on investment properties
Acquisitions
Transfer from IPUC
Capital expenditures
Transfer between apartment and commercial segment
Transfer from land for development
Transfer from held for sale
Impact of change in right-of-use asset
Interest capitalized on IPUC and land for development
Balance, December 31, 2020
Apartments
$2,874,407
53,765
200,017
22,117
57,961
9,475
—
—
627
—
$3,218,369
MHCs Commercial
$157,572
$202,431
1,820
4,044
—
4,392
—
—
—
12
—
$212,699
IPUC
$46,867
10,184
3,968
(22,117)
76,050
—
11,462
—
—
$1,686
$128,100
(14,862)
2,555
—
3,340
(9,475)
—
—
—
—
$139,130
Land for
Development
$39,327
Total
$3,320,604
46,885
211,821
—
145,082
—
0
14,214
639
$2,673
$3,741,918
(4,022)
1,237
—
3,339
—
(11,462)
14,214
—
$987
$43,620
PAGE 102
15
Killam Apartment REIT | 2021
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, 2021, Killam acquired the following properties:
Property
Nolan Hill (2)
Sherwood Crossing Land
1313-1321 Hollis Street (3)
54 Assomption Blvd
Southport (3)
5735 College Street
Charlottetown Mall (4)
38 Pasadena Crescent
KWC Portfolio (5)
131 Queensway Drive (6)
140 Dale Drive
Emma Place
Heritage Valley
160 Dale Drive(3)
Nautical Suites
1350 Hollis Street (3)
155 Kedgwick Drive
Total Acquisitions
Location
Calgary, AB
Charlottetown, PE
Halifax, NS
Moncton, NB
Stratford, PE
Halifax, NS
Charlottetown, PE
St. John's, NL
Kitchener/Waterloo, ON
Moncton, NB
Stratford, PE
Moncton, NB
Edmonton, AB
Stratford, PE
Edmonton, AB
Halifax, NS
Moncton, NB
Acquisition
Date
21-Jan-21
29-Jan-21
29-Jan-21
01-Feb-21
01-Feb-21
07-May-21
01-Jun-21
08-Jun-21
30-Jun-21
15-Sept-21
06-Oct-21
18-Oct-21
28-Oct-21
29-Oct-21
9-Nov-21
1-Dec-21
20-Dec-21
Property Type
Ownership
Interest
100 %
Apartment
100 % Development Land
100 % Development Land
Apartment
100 %
100 % Development Land
100 % Development Land
Units/
SF
233
—
—
23
—
—
95,750
Commercial
25 %
Apartment
100 %
Apartment
100 %
MHC Land
100 %
Apartment
100 %
Apartment
100 %
100 %
Apartment
100 % Development Land
Apartment
100 %
Apartment
100 %
Apartment
100 %
40
785
—
61
118
123
—
180
3
31
Purchase Price (1)
$49,500
3,400
3,000
5,600
3,800
1,300
10,100
4,200
190,500
385
15,300
31,800
28,900
1,500
42,300
1,300
$6,500
$399,385
(1) Purchase price does not include transaction costs.
(2) Killam had a 10% interest in the Nolan Hill development of $4.8 million and acquired the remaining 90% interest in January 2021, based on the
purchase price of $55.0 million for a 100% interest.
(3) Properties with in-place income acquired for future development potential.
(4) Killam acquired an additional 25% interest in the property, with its ownership interest now totalling 75%.
(5) The portfolio of 785 units consists of 297 units located in Kitchener, ON, and 488 units in Waterloo, ON.
(6) Killam acquired a parcel of land adjacent an existing property.
During the year ended December 31, 2020, Killam acquired the following properties:
Property
Christie Point
9 Carrington
Domaine Parlee
1325 Hollis
Crossing at Belmont
3644 & 3670 Kempt Rd
Luma
171 & 181 Leopold
1538 Carlton Street
88 Sunset
Total Acquisitions
Location
Victoria, BC
Halifax, NS
Shediac, NB
Halifax, NS
Langford, BC
Halifax, NS
Ottawa, ON
Moncton, NB
Halifax, NS
Moncton, NB
Acquisition
Date
15-Jan-20
31-Jan-20
23-Mar-20
31-Mar-20
30-Apr-20
15-Jul-20
30-Jul-20
26-Oct-20
30-Oct-20
13-Nov-20
Ownership
Interest
100 %
100 %
100 %
100 %
100 %
100 %
50 %
100 %
100 %
100 %
Property Type
Apartment
Apartment
MHC
Apartment
Apartment
Commercial
Development Land
Apartment
Development Land
Apartment
Purchase Price (1)
$54,000
8,800
3,950
3,700
60,000
2,500
4,300
17,600
1,200
55,000
$211,050
(1) Purchase price does not include transaction costs.
During the year ended December 31, 2021, Killam capitalized salaries of $4.3 million (year ended December 31, 2020 - $3.8 million),
as part of its project improvement, suite renovation and development programs. For the year ended December 31, 2021, 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 2.52% (December 31, 2020 - 2.69%). 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 $4.3 billion as at December 31, 2021 (December 31, 2020 - $3.5 billion), have been
pledged as collateral against Killam's mortgages, construction loan and credit facilities.
16
PAGE 103
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
5. Investment Properties (continued)
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 fair value measurements. See note 25 for further details.
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 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. Killam obtained a total of 21
external property appraisals throughout the year. The internal valuation team also verifies all major inputs used by the external
valuators in preparing the valuation report, compares the fair value against the fair value determined in internal models, and holds
discussions with the external valuators.
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 SNOI, 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 current and 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.
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.
PAGE 104
17
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
5. Investment Properties (continued)
Valuation Basis
Using the direct income capitalization method, the apartment properties were valued using capitalization rates ("cap-rates") in the
range of 3.00% to 7.00%, applied to a stabilized net operating income ("SNOI") of $172.4 million (December 31, 2020 - 3.25% to
7.00% and $150.1 million), resulting in an overall weighted average effective cap-rate of 4.41% (December 31, 2020 - 4.67%). The
stabilized occupancy rates used in the calculation of SNOI were in the range of 94.0% to 99.0% (December 31, 2020 - 92.5% 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 $12.5 million (December 31, 2020 - 5.0% to 6.5% and $11.3 million), resulting in an overall weighted
average effective cap-rate of 5.59% (December 31, 2020 - 5.65%). The stabilized occupancy rate used in the calculation of SNOI was
97.8% (December 31, 2020 - 97.8%). Using a discounted cash flow model, the stabilized commercial properties were valued using
key inputs determined by management based on review of asset performance and comparable assets in relevant markets. Using the
discounted cash flow (DCF) method, fair value is estimated using assumptions regarding benefits and liabilities of ownership over
the asset's life, including a terminal value. This method involves the projection of stabilized cash flows on each individual property,
with market derived discount rates and terminal capitalization rates applied to the stabilized cash flow to establish the present
value of the income stream associated with the asset. The weighted average discount rate applied in the period was 7.48%.
Killam reviewed its valuation of investment properties in light of COVID-19 as at December 31, 2021. It is not possible to forecast with
certainty the duration and full scope of the economic impact of COVID-19 and other consequential changes on Killam's business and
operations, both in the short-term and in the long-term. In the long-term scenario the aspects which could be impacted include rental
rates, occupancy and cap-rates which would impact the underlying valuation of investment properties. Killam has applied judgement in
estimating the valuation given the uncertainties surrounding the economic impact of COVID-19.
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:
December 31, 2021
December 31, 2020
Apartments
Halifax
Moncton
Fredericton
Saint John
St. John's
Charlottetown
Ontario
British Columbia
Alberta
Other Atlantic
MHCs
Ontario
Nova Scotia
New Brunswick
Newfoundland
Effective
Weighted
Average
4.41%
4.37%
4.86%
5.10%
5.25%
5.64%
5.39%
3.59%
3.50%
4.65%
6.39%
5.59%
5.86%
5.27%
5.77%
6.00%
High
7.00%
5.60%
7.00%
5.25%
5.25%
6.00%
5.75%
4.87%
3.50%
5.00%
7.00%
6.50%
6.50%
6.00%
6.50%
6.00%
Low
3.25%
3.75%
4.50%
5.00%
5.50%
5.00%
5.25%
3.25%
4.08%
4.47%
5.50%
5.00%
5.00%
5.00%
5.19%
6.00%
Effective
Weighted
Average
4.67%
4.50%
5.05%
5.53%
5.79%
5.62%
5.50%
3.97%
4.22%
4.64%
6.38%
5.64%
5.95%
5.30%
5.72%
6.00%
High
7.00%
5.60%
7.00%
6.00%
6.00%
6.00%
5.75%
5.00%
4.35%
5.00%
7.00%
6.50%
6.50%
6.00%
6.50%
6.00%
Low
3.00%
3.75%
3.80%
5.00%
5.25%
5.00%
4.42%
3.00%
3.50%
4.47%
5.50%
5.00%
5.00%
5.00%
5.19%
6.00%
Fair Value Sensitivity
The following table summarizes the impact of changes in capitalization rates and stabilized NOI on the fair value of Killam's investment
properties:
Change in Stabilized NOI (1)
Change in
Capitalization Rate
(1.00) %
$485,813
205,917
(42,750)
(265,154)
(465,259)
(1) Includes Killam's apartment and MHC portfolios, which are valued using the direct income capitalization method, and commercial
(2.00) %
$437,724
160,655
(85,500)
(305,658)
(503,742)
— %
$533,902
251,178
—
(224,650)
(426,777)
2.00%
$630,081
341,702
85,500
(143,643)
(349,812)
1.00%
$581,991
296,440
42,750
(184,147)
(388,294)
(0.50) %
(0.25) %
—%
0.25%
0.50%
assets valued using a discounted cash flow approach.
18
PAGE 105
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
[unaudited]
6. Joint Operations and Investments in Joint Venture
Killam has interests in four 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, 2021, the fair value of the investment properties subject to joint control was $371.5
million (December 31, 2020 - $316.0 million).
7. Property and Equipment
As at
Land
Building
Heavy equipment
Vehicles
Furniture, fixtures and office equipment
Leasehold improvements
Less accumulated depreciation
8. Other Current Assets and Non-Current Assets
Other Current Assets
As at
Restricted cash
Deposits
Prepaid expenses
Inventory
December 31, 2021
December 31, 2020
Cost
$270
2,245
498
2,901
6,836
3,971
16,721
(8,790)
$7,931
Accumulated
Depreciation
$—
Cost
$270
564
2,107
203
1,283
5,887
853
415
2,612
6,710
4,456
8,790
16,570
(8,221)
$8,349
Accumulated
Depreciation
$—
524
155
1,095
5,726
721
8,221
December 31, 2021
December 31, 2020
$7,486
1,575
7,848
212
$17,121
$6,849
3,266
7,052
9
$17,176
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.
Other Non-Current Assets
On June 1, 2021, Killam provided a $4.4 million loan to its 25% joint owner of the Royalty Crossing The loan receivable bears interest
at 6.5% to be paid monthly and full repayment of the loan is due within 36 months from the initial advance.
PAGE 106
19
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
9. Rent and Other Receivables
As at
Rent receivable
Other receivables
December 31, 2021
December 31, 2020
$809
6,959
$7,768
$790
5,771
$6,561
Included in other receivables are laundry revenue, insurance receivables and other non-rental income. The majority of rent
receivable is less than 90 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 experience has historically been less than 0.3% of
revenue.
10. Mortgages and Loans Payable
As at
December 31, 2021
December 31, 2020
Weighted
Average Interest
Debt
Balance
Weighted
Average Interest
Debt
Balance
Mortgages and loans payable
Fixed rate
Variable rate
Total
Current
Non-current
2.58 %
2.37 %
$1,907,064
8,270
$1,915,334
236,943
1,678,391
$1,915,334
2.69 %
1.98 %
$1,623,889
7,800
$1,631,689
201,345
1,430,344
$1,631,689
Mortgages are collateralized by a first charge on the properties of Killam.
As at December 31, 2021, unamortized deferred financing costs of $37.0 million (December 31, 2020 - $36.7 million) and mark-
to-market adjustments on mortgages assumed on acquisitions of $0.8 million (December 31, 2020 - $0.08 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
2022
2023
2024
2025
2026
Subsequent to 2026
Unamortized deferred financing costs
Unamortized mark-to-market adjustments
236,943
329,091
337,872
352,522
218,936
477,788
$1,953,152
($37,028)
($790)
$1,915,334
12.1%
16.8%
17.4%
18.0%
11.2%
24.5%
100.0%
20
PAGE 107
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
11. Lease Liabilities
Balance, beginning of year
Net change in lease liabilities
Balance, end of year
2021
$9,573
31
$9,604
2020
$8,919
654
$9,573
As at December 31, 2021, the right-of-use assets and lease liabilities are $9.6 million (December 31, 2020 - $9.6 million). The right-
of-use assets are classified as part of investment properties and the lease liabilities are classified in other liabilities on the
consolidated statement of financial position. The total lease payments for the year ended December 31, 2021, were $0.4 million
(December 31, 2020 - $0.3 million).
12. Credit Facilities
Killam has access to two credit facilities with credit limits of $155.0 million ($175.0 million with the accordion feature) and $15.0
million (December 31, 2020 - $110.0 million and $10.0 million) that can be used for acquisition and general business purposes. The
$15.0 million facility was increased from $10.0 million during Q3-2021 and the $155.0 million facility was increased from $110.0
million during Q4-2021.
The $155.0 million facility bears interest at prime plus 55 bps on prime rate advances or 155 bps over bankers' acceptances (BAs).
The facility includes a $30.0 million demand revolver and a $125.0 million committed revolver, as well as an accordion option to
increase the $155.0 million facility by an additional $20.0 million. The agreement includes certain covenants and undertakings with
which Killam was in compliance as at December 31, 2021. The facility was renewed on December 15, 2021.
The $15.0 million demand 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. The agreement includes certain covenants and undertakings with which Killam was in compliance as
at December 31, 2021.
As at December 31, 2021
$155.0 million facility
$15.0 million facility
Total
As at December 31, 2020
$110.0 million facility
$10.0 million facility
Total
Maximum Loan
Amount(1)
$175,000
15,000
$190,000
Maximum Loan
Amount(1)
$130,000
10,000
$140,000
Amount Drawn
Letters of Credit Amount Available
54,500
7,230
$61,730
—
1,745
$1,745
$120,500
6,025
$126,525
Amount Drawn
Letters of Credit
Amount Available
5,000
2,029
$7,029
—
1,773
$1,773
$125,000
6,198
$131,198
(1) Maximum loan includes a $20.0 million accordion option, for which collateral is pledged.
13. Construction Loans
As at December 31, 2021, Killam had access to five variable rate non-revolving demand construction loans, for the purpose of
financing development projects, totalling $179.1 million. As at December 31, 2021, $77.6 million was drawn on the
construction loans (December 31, 2020 - $41.3 million). Payments are made monthly on an interest-only basis. The weighted-
average contractual interest rate on amounts outstanding at December 31, 2021, was 2.01% (December 31, 2020 - 2.37%).
Once construction is complete and rental targets achieved, construction financing is expected to be replaced with permanent
mortgage financing.
PAGE 108
21
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
14. Accounts Payable and Accrued Liabilities
As at
Accounts payable and other accrued liabilities
Distributions payable
Mortgage interest payable
Security deposits
15. Exchangeable Units
December 31, 2021 December 31, 2020
$53,109
6,737
3,873
11,194
$74,913
$39,950
6,136
3,434
9,386
$58,906
2021
2020
Number of
Exchangeable Units
Value
Number of
Exchangeable Units
Value
Balance, beginning of year
4,101,520
$70,177
4,153,520 $78,668
Exchangeable Units exchanged for Trust Units
(97,250)
(1,823)
(52,000)
(815)
Fair value adjustment
Balance, end of year
—
26,107
—
(7,676)
4,004,270
$94,461
4,101,520 $70,177
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.
16. 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 Declaration of Trust ("DOT"). As
a result, under IFRS, Trust Units are defined as financial liabilities; however, for the purposes of financial statement classification
and presentation, the Trust Units may be presented as equity instruments as they meet the puttable instrument exemption under
IAS 32.
All Trust Units outstanding are fully paid, have no par value and are voting Trust Units. The DOT authorizes the issuance of an
unlimited number of Trust Units. Trust Units represent a unitholder’s proportionate undivided beneficial interest in Killam. No
Trust Unit has any preference or priority over another. No unitholder has or is deemed to have any right of ownership in any of
the assets of Killam. Each Unit confers the right to one vote at any meeting of unitholders and to participate pro rata in any
distributions and, on liquidation to a pro rata share of the residual net assets remaining after preferential claims thereon of
debtholders.
Unitholders have the right to redeem their Units at the lesser of (i) 90% of the market price of the Trust Unit (market price is
defined as the weighted average trading price of the previous 10 trading days) and (ii) the most recent closing market price
(closing market price is defined as the weighted average trading price on the specified date) at the time of the redemption. The
redemption price will be satisfied by cash, up to a limit of $50 thousand for all redemptions in a calendar month, or a note
payable. For the year ended December 31, 2021, no unitholders redeemed Units.
The Units issued and outstanding are as follows:
Balance, December 31, 2020
Distribution Reinvestment Plan
Restricted Trust Units redeemed
Units issued on exchange of Exchangeable Units
Units issued for cash
Balance, December 31, 2021
Number of Trust Units
103,212,327
1,272,661
69,748
97,250
Value
$1,097,713
25,465
945
1,823
5,905,480
104,361
110,557,466
$1,230,307
22
PAGE 109
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
16. Unitholders' Equity (continued)
Units issued for cash
Price per Unit
Gross Proceeds Transaction Costs Net Proceeds
Units Issued
Bought-deal (May 31, 2021)
Over-allotment (May 31, 2021)
$18.50
$18.50
$95,001
14,250
$4,370
$90,631
5,135,200
520
13,730
770,280
Total
$109,251
$4,890
$104,361
5,905,480
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.
17. Distributions
Killam paid distributions to its unitholders during 2021 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, 2021, the distributions declared related to the Trust Units were $74.9 million (year ended
December 31, 2020 - $68.7 million). For the year ended December 31, 2021, distributions declared related to the Exchangeable
Units were $2.8 million (year ended December 31, 2020 - $2.8 million). The distributions on the Exchangeable Units are
recorded in financing costs.
18. 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.
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, 2021, is $6.4 million, which includes $2.6 million related to RTUs subject to
performance conditions (December 31, 2020 - $4.8 million and $2.1 million). For the year ended December 31, 2021,
compensation expense of $2.1 million (year ended December 31, 2020 - $1.7 million) has been recognized in respect of the
RTUs.
PAGE 110
23
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
18. Deferred Unit-based Compensation (continued)
The details of the RTUs issued are shown below:
For the years ended December 31,
Outstanding, beginning of period
Granted
Redeemed
Forfeited
Additional Restricted Trust Unit distributions
Outstanding, end of period
19. Revenue
2021
2020
Number of
RTUs
Weighted
Average Issue
Price
Number of
RTUs
Weighted
Average Issue
Price
351,734
143,054
(148,016)
—
12,400
359,172
$16.93
18.14
13.09
—
19.92
$18.10
364,875
114,920
(133,531)
(7,988)
13,458
351,734
$14.73
19.49
13.09
18.57
17.82
$16.93
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 (1)
Property expense recoveries
Ancillary revenue
(1) Includes base rent, realty taxes and insurance recoveries, which are outside the scope of IFRS 15.
20. Other Income
Management fee revenue
Interest revenue
Home sale revenue
For the years ended December 31,
2021
$206,551
72,729
11,637
2020
$185,799
65,423
10,468
$290,917
$261,690
For the years ended December 31,
2021
701
237
121
$1,059
2020
593
47
1
$641
24
PAGE 111
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
21. Financing Costs
Mortgage, loan and construction loan interest
Interest on credit facilities
Interest on Exchangeable Units
Amortization of deferred financing costs
Amortization of fair value adjustments on assumed debt
Unrealized (gain) loss on derivative liability
Interest on lease liabilities
Capitalized interest
For the years ended December 31,
2021
$46,683
1,063
2,766
3,784
65
(167)
386
(3,059)
$51,521
2020
$44,055
671
2,784
3,126
88
483
385
(2,673)
$48,919
PAGE 112
25
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
22. 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, 2020, Killam qualified for the REIT Exemption and
continues to meet the REIT Exemption as at December 31, 2021, 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, 2021, 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
2020
2021
$191,953
$43,812
$235,765
(15,207)
(2,060)
(17,267)
3,743
4,122
(107)
748
3,636
4,870
$184,611
$42,393
$227,004
Recognized in
consolidated
statement of
income and
comprehensive
income
2019
2020
$180,555
$11,398
$191,953
(12,819)
(2,388)
(15,207)
3,876
3,436
(133)
686
3,743
4,122
$175,048
$9,563
$184,611
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
2021
2020
$327,920
$155,630
28.3%
92,933
(91,409)
(3,636)
(65)
21
44,549
$42,393
28.6%
44,572
(43,196)
(3,742)
(6,013)
(155)
18,097
$9,563
26
PAGE 113
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
23. Segmented Information
For investment properties, discrete financial information is provided on a property-by-property basis to members of executive
management, which collectively comprise the chief operating decision 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 commercial 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
•Commercial segment - includes eight 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. Reportable segment performance is analyzed based on NOI. The operating results, and selected
assets and liabilities, of the reportable segments are as follows:
Year ended December 31, 2021
Apartments
MHCs
Commercial
Total
Property revenue
Property operating expenses
Net operating income
$254,955
$18,578
$17,384
$290,917
(92,899)
(6,824)
(7,959)
(107,682)
$162,056
$11,754
$9,425
$183,235
Year ended December 31, 2020
Apartments
MHCs
Commercial
Total
Property revenue
Property operating expenses
Net operating income
As at December 31, 2021
Total investment properties (1)
Mortgages payable/construction loans
As at December 31, 2020
Total investment properties (1)
Mortgages payable/construction loans
$228,915
$17,393
$15,382
$261,690
(83,575)
(6,541)
(7,720)
(97,836)
$145,340
$10,852
$7,662
$163,854
Apartments
$4,154,201
$1,865,925
Apartments
$3,390,089
$1,562,861
MHCs
Commercial
Total
$231,370
$83,013
$155,306
$4,540,877
$43,992
$1,992,930
MHCs
Commercial
Total
$212,699
$84,150
$139,130
$3,741,918
$26,023
$1,673,034
(1) Total investment properties for the Apartments segment includes IPUC and land held for development.
PAGE 114
27
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
24. 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
For the years ended December 31,
2021
2020
$47,212
1,063
$48,275
($1,207)
669
16,007
$15,469
$44,376
671
$45,047
$2,464
(794)
12,292
$13,962
25. 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, 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. For certain of the Trust's financial instruments the carrying value
represents fair value due to the short term nature including, loan receivable, construction loans and credit facilities, and as such
these items are not included in the table below. 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 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.
28
PAGE 115
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
25. Financial Instruments and Financial Risk Management Objectives and Policies (continued)
The significant financial instruments and their carrying values as at December 31, 2021, and December 31, 2020, are as follows:
As at
Classification
Financial liabilities carried at amortized cost:
Mortgages and loans payable (1)
Financial liabilities carried at FVTPL:
Exchangeable Units
Derivative liability (2)
Deferred unit-based compensation
December 31, 2021
December 31, 2020
Carrying
Value
Fair Value
Carrying
Value
Fair Value
$1,915,334
$1,964,015
$1,631,689
$1,714,740
$94,461
$20
$6,376
$94,461
$20
$6,376
$70,177
$188
$4,784
$70,177
$188
$4,784
(1) Mortgages and loans payable does not include construction loans and credit facilities, the carrying value of these line items represents fair
value.
(2) The $0.02 million derivative liability is included in other non-current liabilities within the consolidated statements of financial position
(December 31, 2020 - $0.2 million derivative liability included in other non-current assets).
The interest rates used to discount the estimated cash flows, when applicable, are based on the five-year government yield
curve as at December 31, 2021, which is in-line with Killam's weighted average years to maturity of 4.0 years, plus an adequate
credit spread, and were as follows:
As at
Mortgages - Apartments
Mortgages - MHCs
Assets and Liabilities Measured at Fair Value
December 31, 2021
December 31, 2020
2.40 %
3.00 %
1.31 %
2.31 %
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
Liabilities
Exchangeable Units
Derivative liability
Deferred unit-based compensation
December 31, 2021
December 31, 2020
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
—
—
—
—
—
$4,540,877
$94,461
$20
—
—
$4,859
$1,517
—
—
—
—
—
$3,741,918
$70,177
188
—
—
$3,601
$1,183
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, 2021.
PAGE 116
29
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
25. 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:
Interest Rate Risk
(i)
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, 2021, $147.6 million of Killam's debt had variable interest rates, including four construction loans totalling
$77.6 million, amounts drawn on credit facilities of $61.7 million and three demand loan totalling $8.3 million. These loans and
facilities have interest rates of prime plus 0.4% - 1.25% or 105-245 bps above BAs (December 31, 2020 - prime plus 0.5% - 1.25%
or 160-250 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 $164.5 million. Assuming these mortgages are
refinanced at similar terms, except at a 100 bps increase in interest rates, financing costs would increase by $1.6 million per year.
Credit Risk
(ii)
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, receivable 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, 2021 or 2020.
Killam has considered the cash flow difficulties that may be experienced by commercial and residential tenants due to the impact
of COVID-19 and the probability of default and has adjusted its exposure in an allowance for doubtful accounts. The amount
adjusted is immaterial.
Liquidity Risk
(iii)
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 and commercial assets do not qualify for CMHC insured debt; however,
these assets 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, 2021, Killam refinanced $124.0 million of maturing apartment mortgages with new
mortgages totaling $172.3 million, generating net proceeds of $48.3 million. In addition, during the year ended December 31,
2021, Killam refinanced $8.0 million of maturing MHC and commercial mortgages with new mortgages totaling $12.2 million,
generating net proceeds of $4.2 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
2022
2023
2024
2025
2026
Thereafter
236,943
329,091
337,872
352,522
218,936
477,788
Construction
loans (1)
77,596
Credit facilities (2)
—
—
—
—
—
—
—
61,730
—
—
—
Total
314,539
329,091
399,602
352,522
218,936
477,788
$1,953,152
$77,596
$61,730
$2,092,478
(1) Construction loans are demand loans, but expected to be repaid once construction is complete and rental targets achieved. Once these targets
are achieved each construction loan will be repaid in full and is expected to be replaced with conventional mortgages.
(2) Killam's $155.0 million credit facility was amended and extended on December 15, 2021.
30
PAGE 117
Killam Apartment REIT | 2021
Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
26. 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 as a percentage of 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
total debt as a percentage of 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
December 31, 2021
December 31, 2020
$1,915,334
$1,631,689
61,730
77,596
$2,054,660
$4,568,903
45.0 %
7,029
41,345
$1,680,063
$3,766,987
44.6 %
(1) Excludes right of use asset of $9.6 million as at December 31, 2021 (December 31, 2020 - $9.6 million).
The above calculation is sensitive to changes in the fair value of investment properties, in particular, cap-rate changes. The
quantitative sensitivity analysis shown below illustrates the value increase or decrease in Killam's debt to asset ratio given the
change in the noted input:
Cap-rate Sensitivity
Increase (Decrease)
(0.50) %
(0.25) %
—%
0.25%
0.50%
Fair Value of
Investment Properties(1)
$5,158,358
$4,882,245
$4,540,877
$4,161,252
$3,964,314
Total Assets
$5,186,384
$4,910,271
$4,568,903
$4,189,278
$3,992,340
Total Debt as % of
Total Assets
39.6%
41.8%
45.0%
49.0%
51.5%
Change (bps)
(540)
(310)
—
410
650
(1) The cap-rate sensitivity calculates the impact on Killam's apartment and MHC portfolios, which are valued using the direct
income capitalization method and Killam's commercial portfolio which is valued using the discounted cash flow method.
27. Commitments and Contingencies
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 purchased a 10% interest of a planned four-phase 829-unit development project in Calgary, Alberta in 2018. Phase 1 was
completed in January 2021 and Killam purchased the remaining 90% interest in the 233 unit property on January 21, 2021.
Construction of Phase II commenced in December 2021 and Killam has a $65.0 million commitment in place to purchase the
remaining 90% interest following completion of construction and the achievement of certain conditions.
Killam entered into a supply contract for natural gas to hedge its own usage, which is summarized below:
Area
Ontario
Alberta
Utility
Gas
Gas
Usage Coverage
Term
Cost
25%
25%
December 1, 2021 - October 31, 2023
$4.70/GJ
December 1, 2021 - November 30, 2023
$3.81/GJ
PAGE 118
31
Killam Apartment REIT | 2021 Notes to the Consolidated Financial Statements
Dollar amounts in thousands of Canadian dollars (except as noted)
28. Financial Guarantees
Killam is the guarantor on a joint and several basis for mortgage debt held through its joint operations. As at December 31, 2021,
the maximum potential obligation resulting from these guarantees is $75.1 million, related to long term mortgage financing
(December 31, 2020 - $83.1 million). 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, 2021,
determined that a provision is not required to be recognized in the consolidated statements of financial position (December 31,
2020 - $nil).
29. Comparative Figures
Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current
period. Killam reclassified on the consolidated statement of income and comprehensive income, salary expenses of $0.8 million
from "administration" to "operating expenses" to reflect the nature of these expenses for the year ended December 31, 2020.
30. Related Party Transactions
From January 1, 2021 to May 7, 2021, Killam paid a former Trustee, that did not offer to stand for re-election at Killam's May 2021
Annual General Meeting, $0.1 million (for the year ended December 31, 2020 - $0.3 million) related to the construction of two
apartment buildings and the acquisition of land for future development.
Killam owns a 50% interest in two office properties located at 3700 & 3770 Kempt Road in Halifax, NS, and the other 50%
interest is owned by an executive and Trustee of Killam. These properties are managed by a third party. Killam's head office
occupies approximately 23,000 SF of one of the buildings with base rent of approximately $14.00 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
31. Subsequent Events
2021
$6,162
2,078
$8,240
2020
$5,138
1,727
$6,865
On January 17, 2022, Killam announced a distribution of $0.05833 per unit, payable on February 15, 2022, to unitholders of
record on January 31, 2022.
On February 4, 2022, Killam closed a public offering of 4,715,000 trust units for gross proceeds of approximately $98.1 million.
32
PAGE 119
Killam Apartment REIT | 2021
FIVE-YEAR SUMMARY
In thousands (except per unit)
Statement of Income Information
2021
2020
2019
2018
2017
Revenue
Operating expenses
Net operating income
Other income
Financing costs
Administration
Depreciation
Fair value adjustments
Loss on disposition
Deferred tax expense
Net income
$290,917
$261,690
$242,164
$215,959
$187,377
($107,682)
($97,836)
($89,828)
($80,247)
($72,157)
$183,235
$163,854
$152,336
$135,712
$115,220
$1,059
$641
$6,059
$965
$847
($51,521)
($48,919)
($47,443)
($42,648)
($34,846)
($15,988)
($13,936)
($14,881)
($14,201)
($12,958)
($573)
($630)
($720)
($859)
($787)
$211,708
$54,620
$230,079
$127,877
$56,202
$-
$-
($1,269)
($197)
($259)
($42,393)
($9,590)
($40,636)
($31,478)
($18,659)
$285,527
$146,040
$283,525
$175,171
$104,760
Net income attributable to unitholders
$285,514
$146,024
$283,536
$175,144
$104,732
Funds From Operations (FFO)
2021
2020
2019
2018
2017
FFO
FFO per unit (diluted)
$119,235
$104,678
$93,884
$81,808
$69,873
$1.07
$1.00
$0.98
$0.94
$0.90
Statement of Financial Position Information
2021
2020
2019
2018
2017
Total assets
Total liabilities
Total equity
$4,578,507 $3,776,560 $3,380,100 $2,824,406
$2,311,210
$2,467,038 $2,008,302
$1,777,733 $1,655,456 $1,343,488
$2,111,469
$1,768,258 $1,602,367
$1,168,950
$967,722
Statement of Cash Flow Information
2021
2020
2019
2018
2017
Cash provided by operating activities
Cash provided by financing activities
$140,860
$354,873
$123,514
$95,208
$89,738
$82,916
$224,396
$149,708
$237,657
$154,460
Cash used in investing activities
($497,854)
($358,155)
($232,904)
($335,606)
($250,028)
Unit Information(1)
Weighted average number of units (diluted)(1)
Units outstanding at December 31(1)
Unit price at December 31
2021
111,626
114,562
$23.59
2020
2019
104,503
107,314
$17.11
95,914
102,017
$18.94
2018
87,185
90,212
$15.89
2017
78,658
84,428
$14.22
Market Capitalization at December 31(1)
$2,702,511
$1,836,143
$1,932,201
$1,433,469 $1,200,566
(1) Includes Trust Units and Exchangeable Units.
PAGE 120
Killam Apartment REIT | 2021 Our Team
Left to Right | Philip Fraser (President & CEO), Michael McLean (SVP, Developments), Jeremy Jackson (VP, Marketing), Carrie Curtis (VP, Ontario & Alberta),
Nancy Alexander (VP, Investor Relations & Sustainability), Dale Noseworthy (CFO), Brian Jessop (VP, Operations), Ruth Buckle (SVP, Property Management),
Colleen McCarville (VP, Human Resources), Robert Richardson (EVP), and Erin Cleveland (SVP, Finance).
ANNUAL MEETING
The Annual Meeting of
Unitholders will be held on
Friday, May 6, 2022
9:00 am Atlantic Time
Courtyard by Marriott
5120 Salter Street, Halifax, NS
Board of Trustees
Trust Information
PHILIP FRASER
President & CEO,
Killam Apartment REIT
Halifax, Nova Scotia
ROBERT KAY
Chairman of the Board,
Killam Apartment REIT
Chairman,
Springwall Group International
and Springwall Sleep Products Inc.
Moncton, New Brunswick
ALDÉA LANDRY(2)(3)
President, Landal Inc.
Moncton, New Brunswick
AUDITORS
Ernst & Young, LLP
Halifax, Nova Scotia
SOLICITORS
Bennett Jones, LLP
Calgary, Alberta
Stewart McKelvey
Halifax, Nova Scotia
REGISTER AND TRANSFER AGENT
Computershare Investor Services Inc.
1500 Robert-Bourassa Blvd.
7th Floor
Montreal, Quebec
H3A 3S8
JAMES LAWLEY
President, Salters Gate Developments
Halifax, Nova Scotia
UNIT LISTING
Toronto Stock Exchange (TSX)
Trading Symbol: KMP.UN
2021 ANNUAL DISTRIBUTION(4)
$0.69 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
ARTHUR LLOYD
President, ADAM Capital
Calgary, Alberta
DOUG MACGREGOR(2)
Trustee
Toronto, Ontario
LAURIE MACKEIGAN, CPA, CA, CPA (IL)(1)(3)
President, Backman Vidcom
Halifax, Nova Scotia
KARINE MACINDOE(1)(3)
Trustee
Toronto, Ontario
ROBERT RICHARDSON, FCPA, FCA
Executive Vice President,
Killam Apartment REIT
Halifax, Nova Scotia
MANFRED WALT, CPA, CA(1)(2)
President & CEO,
Walt & Co. Inc.
Toronto, Ontario
(1) Member of the Audit Committee
(2) Member of the Governance and ESG Committee
(3) Member of the Compensation Committee
(4) Killam’s distribution increased to $0.70 per unit annually effective with the September 2021 distribution
PAGE 121
Killam Apartment REIT | 2021 This Page Intentionally Left Blank
This Page Intentionally Left Blank
PAGE 122
Killam Apartment REIT | 2021 This Page Intentionally Left Blank
This Page Intentionally Left Blank
PAGE 123
Killam Apartment REIT | 2021 Suite 100
3700 Kempt Road
Halifax, Nova Scotia
B3K 4X8
1.866.453.8900
killamreit.com
TSX: KMP.UN
PAGE 124
Killam Apartment REIT | 2021